Q3 2021 Clearway Energy Inc Earnings Call
Good morning Pardon me. This is the operator today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, and thank you for standing by and welcome to the Clearway Energy, Inc. Third quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to turn the call over to your speaker today, Chris Sotos, President and Chief Financial Officer of clear way Energy Inc.
Good morning, My first thank you for taking the time to join today's call.
Joining me. This morning is to kill Marsh Investor Relations, Chad blocking our Chief Financial Officer, and Craig Cornelius President and CEO of Clearway Energy group.
Craig would be available for the Q&A portion of our presentation.
Before we begin I'd like to quickly note that today's discussion will contain forward looking statements, which are based on assumptions that we believe to be reasonable as of this date.
Actual results may differ materially.
Please review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings.
Refer to both GAAP and non-GAAP financial measures for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to today's presentation.
Turning to page four.
For Clearway energy the last quarter has been historic in terms of strategic execution and providing the company with an unprecedented level of financial flexibility to allocate toward growth and Cathy for sure.
I am also very proud of and want to thank our chance will operate safely for the past year and a half on the face of a pandemic. There continue to work on behalf of the company. During this difficult time is up a measurable value.
I'm pleased to report that clearly financial results year to date are in line with our sensitivities and we are maintaining guidance for 2021.
However, it has announced an increase in its dividend by one 6% to 34 per share for the fourth quarter of 2021.
The skewed our goal of growing the dividend at the upper end of our long term target in 2021 established.
Establishing a new baseline of $1 36 dividend per share on an annualized basis.
Travel either results in more detail later in the presentation.
I am pleased to announce that clearly has agreed to sell our subtle business for $1 9 billion with an expectation of $1 3 billion and net proceeds after the assumption of non recourse debt.
State taxes and other transaction costs.
This transaction was represented approximately 20% of our market capitalization prior to announcement compared to 10% of our current Kathy affords <unk>, an extraordinary level of financial flexibility.
To drive long term shareholder value, while increasing our renewable portfolio footprint.
Due to this flexibility we will acquire the remaining 50% interest in Utah on Unlevered basis for 335 million, adding $30 million of Kathy on a five year average basis, thereby replacing approximately 75% of the annual thermal cap the contribution of approximately $40 million, while only utilizing 25%.
Of the $1 3 billion of thermal proceeds and asset that has the benefit of 15 years remaining on the Ppas as stable generation profile.
Clearly also fund its remaining capital commitments, our previous announced dropdown transactions with this capital.
For $680 million of proceeds remaining to be allocated after funding all of these current growth investments.
Let me be clear, we clearly do not take this capital is a license to lower underwriting standards and return targets are to grow simply for the sake of size you will allocate this capital with a core focus on driving sustainable partial Kathy and dividend growth.
And then hand with this flexibility in capital allocation Clearway group continues to expand development pipeline, including over one nine gigawatts of late stage development projects with anticipated funding between now and 2024.
We have been working with our Clearway group colleagues on this next potential dropdown investments and intend to finalize economics when tax policy becomes more transparent.
In addition over the past quarter, we have executed we have further execute on our contracting a significant amount of our financial position at our California natural gas assets beyond the expiration of their existing contracts in 2023.
Specifically.
We now have resource adequacy contracts for approximately 80% of large landings and 100% of Walnut creek's not qualifying capacity at terms that maintain project level Kathy through the end of 2026.
For those of you have been following clearly for some time.
The success on a significant amount of previously opened megawatts at strong prices a significant step in maintaining the stability of cafe for share for years to come.
As a result of this almost unprecedented financial flexibility afforded to clear away by the thermal transaction.
We will announce that we now see the ability to support our cafe per share our corresponding dividend per share growth in the upper range of our 5% to 8% long term growth objective within our payout ratio targets through 2026, I will review in a couple of slides are potential path to target per share capping it.
A $2.15 on the capital from the thermal sales discipline.
Turning to page five which provides an overview of the thermal transaction.
As discussed previously clearly has signed a binding agreement with KKR to sell the thermal business for $1 9 billion of total consideration.
Again, one 3 billion of net expected proceeds.
This results in a very accretive implied cap deal with the transaction expected to close in the first half of 2022.
These net proceeds to eliminate the need for clear way to issue any new equity to fund the remaining $620 million of committed growth investments, resulting from the previously announced transactions with the EG and the acquisition of Utah on Unlevered basis.
After allocating capital to existing commitments. So it has remaining $680 million of excess proceeds of more than $3 30, a share to allocate to maximize shareholder value.
This capital redeployed within adherence to our core underwriting standards.
Clearly well in a variety of market conditions focus on driving sustainable Kathy and dividend per share growth.
As a result of our current NOL position, excluding the impact of any new business activity or deployment of the $680 million, we anticipate our tax runway to come in by approximately three years to approximately $6 five years, some potential stayed up state tax obligations.
It's important to note that while the NOL will move inward because of the strong economics of this transaction, we see the ability to maintain or lengthen that tenor depending our deployment of capital and growth in the future in previous years, we have been able to maintain our NOL runway through investment in additional assets.
Looking at the right side of the page. This transaction allows us to improve the balance of the platform that comes from renewables.
The transaction our investment in committed investments whatnot unallocated capital our pro forma Kathy contribution from renewables will increase from approximately 62% to 75% and our adjusted EBITDA from 59% to 82%.
All of the economic logic of the thermal transaction the ability for clear way to emphasize renewables as a part of this growth story is another key benefit to the portfolio as it focuses the company's future more centered on the highly growth on the higher growth renewable sector.
Page six provides an illustration of clearly allocation of $620 million of the thermal sale proceeds turning to the left side of the page our many commitments from dropdown transactions account for $286 million of capital.
These transactions have been factored into our growth outlook into 2022 and are on track for closing by year end.
These commitments will be funded under our revolver until repaid the final proceeds of the thermal sale.
On the right side of the page, we are now showing our Utah acquisition on Unlevered basis, allowing for $30 million of asset caffeine or a 9% asset level Caf deal.
This replaces 75% of the thermal Kathy contribution while only allocating 25% of the proceeds by redeploying the capital into an operating solar portfolio with 15 years remaining under its ppas and low operational volatility.
<unk> has a high degree of confidence in the Utah assets performance, having owned 50% of it since 2017.
The ability to deploy capital at a strong unlevered cap deal and operational asset. After we have significant operating history and the ability to drive operational synergies creates a strong investment opportunity for the company.
Who will fund this acquisition through a bridge facility that will be repaid upon closing of the thermal transaction.
The allocation of $620 million of thermal sale proceeds that these investments are clearly to eliminate the need to issue any equity to close these transactions, while leaving $680 million of capital remain to be profitably employed.
Page seven provides an update to our pro forma cap the outlook with the allocation of the thermal sale proceeds.
With this allocation from the re contracting of the majority of our California gas assets, we see a path to be in the upper range of our 5% to 8% dividend growth target through 2026.
Starting with our current dollar 85 of <unk> per share pro forma guidance were reduced Kathy a $40 million from the sale of thermal but regained $30 million of that with the acquisition of the 50% of Utah, we don't already own.
This combined with the avoidance of issuing approximately 11 million shares that underpins the investment that produced at $395 million of capped in the first column Bruce of an updated pro forma Kathy outlook of $1 90 $680 million left to be deployed.
If one assumes that clearly allocate $680 million at eight 5% cap deal that drives our Kathy to $440 million in absolute terms and north of $2 15 on a per share basis.
This financial flexibility affords clearway people either maintained its underwriting standards, while not requiring additional capital.
This ability to be efficient with our capital base will be employed as we look to the identified dropdown opportunities that we're working on with our colleagues at Clearway Energy group.
Clearly, there's always emphasized as per share cash to get that drives dividend growth and returns for our investors and our focus on acquiring attractive assets as long as they're being disciplined with capital deployment and our NPV and IRR targets are the driving forces behind quality growth with that I'll turn it over to Chad.
Thank you, Chris and turning to slide nine.
For the third quarter Clearway is reporting adjusted EBITDA of $337 million and cash available for distribution or <unk> of $161 million.
Year to date results continued to be within the company's sensitivity range, having now realized $900 million of adjusted EBITDA and $301 million a copy.
For the third quarter the company benefited from excellent performance at the conventional segment and higher volumetric sales at our thermal segment.
However, this was in part offset by low resource across parts of the renewable portfolio as well as the timing of project level debt service, which occurred in our third quarter versus the fourth quarter.
For the conventional segment availability across the California natural gas assets was above 99% again, demonstrating their value as critical reliability resources in the state.
For thermal business continued to realize higher volumetric sales with an increased through the third quarter of approximately six 5% versus the same period last year due to favorable weather and ongoing recovery from the COVID-19 pandemic.
At the renewable segment challenging wind conditions observed in June extended into July where resource was exceptionally low however, the wind portfolio did produce above average generation combined in August and September, bringing total wind portfolio performance during the quarter to around 91% a median expectations.
For the solar segment, a right answer was also below expectations as performance was at 94% of estimates.
That said on a year to date basis, the strength of the Ulta wind project through most of the year and solid first half solar production have insulated overall financial results.
Lastly results relative to estimates were impacted due to the timing of a debt service payment at a nonrecourse entity. However, this will offset in the fourth quarter. So there is no change relative to full year expectations.
Given these factors overall year to date copy as in the company's sensitivity ranges. So we continue to maintain cap the guidance of $325 million. As a reminder, this guidance does continue to assume <unk> median renewable product renewable production for the full year and is also affected by the approximately $25 million impact in the first quarter due to the February.
Winter event in Texas.
Moving to the balance sheet.
During the third quarter the company successfully refinanced the outstanding 2006 senior notes with a green with a new green bond that matures in 2032 at an interest cost of 375%.
With this refinancing the company has now cost effectively extended the maturity of all its outstanding corporate indentures with the earliest maturity now in 2028.
For capital formation since the company now intends to fund all committed growth using cash proceeds from the thermal sale whereby eliminating the need for new equity issuances, we will utilize existing and new temporary facilities to close transactions during the interim period.
In that regard, we currently have $375 million available under the revolver and we are working through unexpected bridge financing facility to support the funding of the Utah transaction until that thermal sale closes.
Now turning to slide 10 to discuss the update to the company's long term pro forma cap the outlook in 2020 to your expectations.
Today, we are announcing a revised view of our pro forma cap the outlook to $385 million as noted on the slide but this figure captures the full exit from the thermal business. The expected average contribution from all committed growth investments and continued to assume P 50 medium production estimates.
It also assumes the California gas assets operate within current run rate profiles post contract maturity, which is now significantly mitigated given success in re contracting.
This figure does however exclude any further growth that may be realized from the deployment of the $680 million.
Of excess proceeds from the thermal transaction.
While the pro forma Kathy outlook and further growth potential is most critical for the companys ability to meet its long term commitments. Today. We are also establishing twenty-two Kathy guidance.
As noted on the slide we provide a summary explanation from 2021 to 2020 to cap the guidance, including the effective growth realization that Utah transaction net of bridge financing costs and a reversal of the February 'twenty, one winter storm event impacting current year results.
This leads to the establishment of 2020 to cap the guidance of $395 million.
However, please note that due to the timing uncertainty of when the thermal sale will close.
2020 to cap the guidance does factor in expected $40 million on a full year basis from the thermal business.
As is our normal practice with strategic transactions, we will provide an update to current year expectations. Upon the closing of the thermal sale.
But as noted the exit of the thermal business has already been accounted for in the $385 million on a pro forma <unk> basis.
Now turning to the next slide to summarize where we stand from a balance sheet perspective relative to our pro forma cap the outlook.
Balance sheet management, and the maintenance of our long term credit metrics continue to be core strategic principles for the business.
This is critical to grow the company over the long run is adherence to these standards supports the most effective cost of capital for the enterprise.
As we evaluate where we stand today versus where we will be in the future. The trajectory is not only favorable relative to clear way the ability to meet its growth objectives, but also as it relates to maintaining its credit ratios and maximizing balance sheet flexibility and capacity over the long run.
Using our pro forma outlook today, you will note in the left side of the table that relative to our targets. We are in range as corporate debt to corporate EBITDA is around four five times and <unk> to corporate debt does that 18%.
Importantly, this excludes the impact to net debt given the X at $680 million in proceeds from the thermal sale that has yet to be allocated.
As noted on the right side of the table as we begin to allocate that excess capital and put consideration into the potential cap D that can materialize from the deployment of this excess $680 million not only will we be in a better position to expand the dividend growth runway, but our credit metrics were also improve.
This is evidenced by the presentation of a potential reduction on our leverage metric to four <unk> times and an improvement in <unk> corporate debt to 21%.
Given the strength of these potential metrics the company will build even further flexibility to execute on growth and maximize financing capacity, while importantly, adhering to its long term balance sheet targets and with that I'll turn the call back to Chris for closing remarks.
Thank you Chad.
Turning to page 13.
I cannot overstate how critical our accomplishments since you have been toward achieving our goals not only in the short term, but also for years to come.
In 2021, we've been able to maintain our guidance and deliver on our commitment to grow the dividend at the high end of the range for 2021.
During 2021, we will continue to optimize the balance sheet for issuance of the 2031 in 2032 green bonds with <unk>.
And the interest savings and extension of our maturity profile.
There is also a benefit.
<unk> from the successful third party M&A through the acquisitions of Mount Storm, and the remaining 50% of Utah, resulting in $40 million of captive for clear way at attractive returns.
As a result of our successful thermal transaction and the extension of our contracts on our California gas fleet for the first time I've had the privilege of becoming CEO of this company in May of 2016, Clearway has the visibility to constantly see a path towards being able to support per share cap and dividend growth in the upper range of our 5% to 8% long term growth target through 2026, we look for.
Weird to continuing to grow and achieve our goals around shareholder value creation. Thank you operator open the lines for question. Please.
Secondly, and as a reminder to ask a question simply press star one on your telephone to withdraw the question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question is from Colton Bean with Tudor Pickering Holt Your line is open.
Good morning, So just on the RNA agreements at Marsh landing in Walnut Creek can you characterize the interplay of REIT and scenario any ask differently, where the counterparty solely focus on that three to three and a half year timeframe or was there some consideration of longer term agreements, but at a lower rate.
There is a wide range of outcomes. They basically ask you to bid I think the Counterparties, we're focused on that three and a half year timeframe, but provide them a variety of bids with a variety of tenors and that's where we ended up.
Got it and then just on the.
On the dividend guide now extending through 2026 getting to the upper end of the range can you speak to what level of coverage do you think about meeting at that point in time with the re contracting window now aligning in 2026 as well.
Maybe phrased differently, we think that the dividend growth rate, we've talked about at the upper end of the range can be achieved between our 80%, 85% payout ratio or if that was kind of your question.
Okay, yes that makes sense.
Just trying to understand how you think about.
During the dividend $3 26, with natural gas now aligning with the 2026 re contracting window as well.
Yes, I think from our view, it's almost that we now have confidence because of the amount that we have been able to contract through 2026 and B. Obviously, the thermal proceeds from a great transaction that that gives us the confidence in that visibility through 2026. So I think to your point, it's almost that now that we've reduced the risk and significantly and our California portfolio through.
The contracting of those two gas assets, we feel much better about the volatility that's there.
Through 2026.
Got it I appreciate that.
Thank you. Our next question comes from Julien Dumoulin Smith with Bank of America.
Hey, good morning, Thanks for the time and the opportunity here well done on all these updates really kudos so.
Perhaps if I can kick things off first on the remainder of the cash here that you guys are raising from the thermal sale I mean, just.
Any further thoughts on just the direction that you guys want what it is.
I mean, it seems obviously like the pipeline itself is going organically I mean should we expect this just be feathered into the normal course or is there some sort of accelerated pace of either acquisitions from the sponsor or frankly.
Third party that we should be watching here as well as if you can comment now that you've contracted up again kudos on California is there any thought process around further monetization of those assets.
Quick question sure.
A couple of different questions here Julien. So I think part one is we think about the remaining cash it's not as though I think what I tried to emphasize what is the flexibility. It affords us there isn't necessarily and I think importantly is also trying to talk about on the call. It's not we're going to deploy the cash simply to deploy the cash right, where we're going to remain very disciplined in how we think about <unk>.
IRR NPV and cap the accretion.
This isn't an opportunity to say well, let's do things at a six 5% cap deal for example, simply because it's accretive and so from our view, we're going to continue to work with our colleagues at <unk> around the development pipeline to kind of hopefully build allocate some of that capital. So there worked through third party M&A and keep in mind, we talked about that the transaction would close kind of in the second half of 'twenty two just for.
Liquidity. That's what you said is that what's the probability of February that's not really a fair probability it's much more of the second quarter than probably the first half in terms of the more probable outcome. So to me we're going to continue to work on with <unk> any dropdown opportunities that they might have third party M&A and also see where we sit and kind of let's say may of 2022.
We actually closed the transaction as an illustrative example, and see what our opportunities are and I think that that could include return of capital to shareholders. If that makes the most sense as well.
To your other question around California, natural gas monetization I think for us as I've indicated we really look at the portfolio on a holistic level kind of looking at all the pieces together. This obviously provides us with a pretty good runway. We're going to also continue to try to contract those assets just because we've got contracts through 'twenty six doesn't mean.
As you've seen with some of the Ccas are that they are willing to go out further so there's nothing that says we could try to contract in 2027 on a forward basis with some of these entities. So I think Julien our approach on the California gas as well.
We're always open to sale of assets at appropriate value, but b, there's definitely buys us time in terms of thinking about those assets I know your monetization thereof.
Gotcha, and then if I can follow up here real quickly.
How are you thinking about standalone storage within the portfolio. It looks like the pipeline seems to be including some of this as well as just opportunities to complement your existing gas assets with those kinds of resources in California, given just how constrained and limited those those opportunities might be for Greenfield.
Sure to your point, we do look at storage as part of the Dropdowns that we have in the future I think in terms of our existing platform and natural gas keep in mind, we've already installed Blackstone in the process of installing black start capability at on March lending assets.
I have an infinite amount of space at that site, but we constantly evaluate a storage make sense of those natural gas assets, but just for clarity. We do have black start at marsh landing. So some of that space. So to speak has already been allocated.
Chris I could add that.
From a from a turnaround contractual structure perspective, Julian where we're developing standalone storage assets, where doing so generally where.
Sure.
The market design will allow for those projects to be contracted to produce contracted revenue profiles that are compatible with the investment mandate that Clearway energy, Inc has or where they provide some complementary.
Risk reduction for other assets and we also see opportunity for Hybridizing existing operating renewable plants in places like California.
As we're developing both paired in Standalone storage assets, we're trying to think about the fleet as a whole we're selectively developing those storage assets. So that once built they fit together with the whole of our portfolio, which is intended to be.
Low risk and its cash flow generation and balanced in terms of resource and customer diversification.
Sorry, one quick clarification, if I can on credit obviously your peer NDP had some updates with rating. It's delayed is that a further angle with you all sorry, just to throw that out there.
Okay.
You have a launch date yet.
Yes, Julian I think I think I know, what youre, referring I mean, I think look I think as we look at our forward metrics.
We kind of look at the two core metrics between corporate debt to corporate EBITDA, which we define an <unk> to debt.
I think you kind of look at those.
Collectively in the sense of the strength of the credit to the platform.
And I think given where we stand and the trajectory we have we remain in those targets.
But I don't.
I think I recall, what you are referring to I don't have the specifics exactly on what they were doing but I believe our <unk> that number is well within that range.
Okay Im just curious if there was some comparability alright excellent guys. Thank you congrats again.
Look at that kind of is the whole portfolio comes together as we approach twenty-three and kind of see other opportunities to your point, if there's a lot of excellent growth investments maybe it makes sense to raise capital on that book if it doesn't we'll kind of leave them. Obviously, we've tried to.
Engage in new contracts, so that any concerns about clarity dimunition and and Unlevered case versus lumbered today would be mitigated. Obviously, if we then remembered them we would probably have lower Cathy everything else held constant, but I think from our view, we really want to kind of take the optionality in those assets and look to see when we approach 2023, if there's refinancing opportunity to make sure.
Will do it.
Got it thank you.
Our next question comes from Steve Flashman, well service Tech, Yeah 90, something.
Thank you. Thank you.
Wow.
To take care of a lot of things at once congrats.
The just on the California.
What's.
Your sense on the do you think you'd be able to.
[noise] track the last plant.
This year as well.
Extend constantly.
I think it's probably more of 2022.
Steve in terms versus 21, I think that will take a little bit more time, obviously there is the already procurement next summer as well and then we continue to work on it but if you're asking do we think will close that out this year I don't think that's aspect outcome.
Okay.
And then.
The.
I guess my question, maybe for Craig in terms of just.
The.
Market.
Development market overall be curious your thoughts on.
At least for your company and development there the impact that the.
Bite and clean energy credits could have too.
The growth of your business.
Yeah.
It's hard to overstate how transformational.
The family of bills that are working their way through Congress would be for a long term.
Robust renewables growth platform like ours so.
It's very meaningful for us.
When we look at what it allows us to do an accelerating development of projects that could be built that scale through the mid term and allows us to make very substantial investments and projects that are large and that extend into geographies where.
Renewables Hasnt historically been belted scale, and so you see that and what we've disclosed around our pipeline growth which is.
Substantial and accelerating.
Some of the features of the policy also allow us to.
Adapt capital structures that we would employ to make certain types of projects.
Even more compatible with the investment mandate of Clara Energy, Inc, which is something we're excited about for example, being able to make projects qualified for solar.
To be a production tax credit eligible resource allows us to optimize capital structure. So that for a typical solar project C. When will be able to deploy more capital.
And we really like the idea of driving even more solar into this fleet as well.
And of course being able to have storage assets be qualified for investment tax credits, whether they're paired with solar or not allows us to think about deployment of storage.
And Repowering also of existing when wind assets around the fleet. When we think about what we can do with the combination of our operating portfolio and our development platform. During the course of the next five to 10 years.
This legislation once enacted is going to allow us to dramatically increase the size of this business and do so.
In a way, they're really drive shareholder value and we're extraordinarily excited about what the next five years have for us.
Great and I would assume that.
See when particularly now that it's got.
Stronger balance sheet and all this money and.
Few years down the road scale lives.
That it can kind of keep up.
Keep up with the growth.
The development arm.
Such that.
A lot of that most of that Guy gets directed down to see what.
Yes, that's our objective.
I think that the the.
The range of financing structures that we have the potential to employ.
Allow us to also have the the structure of the investments that see when makes into these projects really be optimized to drive shareholder value around the family of metrics that Chris cited as important for capital allocation. In addition to calf DNP and IRR.
So.
That's certainly our goal we think of our development work is really being focused on driving growth in an operating portfolio that underpins the fundamental value of our business.
Great. Thank you.
Thank you and our next question comes Huh.
Hey, with Oppenheimer. Your line is open.
Good morning, and thanks for taking the questions I guess, just a quick clarifying won the revolver and bridge facility you're working on with those cover the full expected proceeds from the thermal Scottsdale or just the scope of the committed investments.
Gretchen.
No we're focused on up to the committed investments.
On those.
Yeah.
That's the current expectations that yeah yeah.
That's super helpful. And then and this may be for Craig as well.
I appreciate all the comments it around the potential policy.
Maybe a little this burger term, though we obviously have seen a lot of cost inflation across the industry.
Great to the labor available et cetera, just curious what you are seeing on irr's for projects under development.
His timing.
Sort of cadence and DIR profile training versus prior expectation.
Yeah.
Fortunately I think the way that we approach our business.
Likely manages risks.
With more care and disciplined and some of our peers and also.
The nature of the relationship that we have with our principal suppliers is such that.
They prioritize favorable outcomes for us given our scale in our industry leadership position in our history of working with them and collaborative ways. So.
At a at a point like this one where capacity is congested.
The partners with whom we're implementing projects are are very engaged and working with us to to mitigate impacts that may be more acute for others than for us.
So.
When we think about inflationary factors really.
I think principally a problem for projects that are planned for commissioning through say 2023 or 2024 beyond that.
We feel very solid about the ability to pass.
Cost inflation through.
To the revenue contract prices that we offer to customers, while still providing a really favorable value proposition for those customers.
We feel that way because in the long run.
The cost inflation, we anticipate is in is in large measure still being offset by.
Technology improvements and also on average PPA prices in our industry have been say, 10% to 20% below the avoided cost for load serving entities or commercial and industrial customers participating in wholesale markets. So we have room to move up price as needed in the long run.
What our industry is working through.
Is really the risk and management of inflation on projects, where revenue contracts are signed already and where projects are expected to be built during the next three years and we feel very solid about how we are managing that interval.
Artley enabled by the advantages that I'd reference Dan our ability to work flexibly, it flexibly around schedules and plant layouts and equipment delivery sequences and.
We expect that we will be producing favorable returns for <unk> on the investments that it makes on projects that are commission through 2024, and also that we will produce.
Returns for our parent company Investor that are consistent with the objectives set for us as a business.
That's very helpful color things and then maybe just the last one you mentioned.
The.
If it's potential benefits.
And the bite and plan and.
An additional benefit could be incentives for clean hydrogen production.
We haven't had before and the ability to develop green hydrogen taking events in tax credits on the power side and then on the production side as well could make for some very compelling anomic. So can you talk a little bit about any.
Collaborations partnerships are developments you may have.
A platform.
With hydrogen production.
Entities.
Yeah.
We liked that we have a lot of.
Incumbent advantages to bring to bear.
In a market where.
Consumption of Green hydrogen.
Is growing during the course of the forthcoming decade, when we think about those advantages we think of of.
A an existing operating fleet in California and in Texas.
Different markets different end use propositions.
But both places where I think we'll see consumption of green hydrogen grow around distinct delivery infrastructures and also distraint distinct end users an incentive regimes.
And so we are thinking about how our projects as they evolved during the course of the forthcoming decade can be.
<unk> effective sources of electric generation for Green hydrogen also our development pipeline in the west.
Has a number of assets that.
Fit nicely with forthcoming consumers of hydrogen and as you could imagine we're engaging both with the equipment suppliers and end users around.
An optimal.
Isn't this model for our delivery of those renewable resources as production sources for green hydrogen and and we also like what hydrogen can do to maximize the value of those renewable resources.
By detaching locational marginal prices at the time that renewables produce from the fundamental value of of green hydrogen commodity. So we're excited about what it could mean for our industry broadly we're excited about what it can mean for D. Carbonization, and we see a lot of complementarity with our existing strengths.
Right right well, thanks, and congratulations to the team on on the meaningful strategic progress this quarter.
Thank you and next question is from William contain with UBS you are there any something.
Thanks. Good morning first question was just on the California gas assets.
Is there anything unique about the remaining capacity there that.
Left a contract that might make you more positive or more cautious on the ability to do that on favorable terms.
It's a combined cycle for also going to affect your questions. Obviously, it's a little bit different than the two peakers. The energy component is more relevant in terms of the overall economic equation. So I think that's really the only difference the machines.
10 minutes, I start and a load pocket et cetera. So those attributes are the same given the other assets. The only difference is a combined cycle.
Got it.
And.
With respect to the the thermal transaction.
You mentioned possible shareholder returns I'm, just curious what your thought processes on willingness to kind of sit on sit on cash.
Waiting to redeploy versus making a decision on on possible shareholder returns.
I think once again not COVID-19 transaction hasn't closed yet so I think that's part alone is really as I've talked about in the call. We're really emphasizing flexibility. If your question is would we sit on $680 million with no visibility and deployment for three years that answers now if it is well we have a visibility to deploy that 680 to be fine.
<unk> approach in the next nine months from when it closes we probably would sit on it. So I think for US we're going to have a combination of looking at third party M&A looking at the Dropdowns that we are working on currently and probably some of the other developments that craig's talked about on the call.
All of that together and kind of when the transaction closes look at it Holistically and then determine if there is capital this residual to be sent from a return to shareholders. We would prefer to put on to growth and kind of new assets commensurate with our NPV IOR and capture requirements, but those opportunities out there we're not going to just sit on cash to have a catchword.
It makes sense. Thank you.
And a semi nine if you have a question press, Taiwan and your telephone to getting the queue.
Alright, I haven't seen any further questions in the queue, Sir I would like to turn that call back to Chris. So it is for any final remarks.
Nothing in particular, thank you everyone for joining and.
Really once again I think there's been a great quarter. So I appreciate everyone's and Muslim the company.
And with that we and our call. Thank you for your thank dissipation and you may now disconnect have a wonderful day.
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