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.
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.
Craig Cornelius President and CEO of Clearway Energy group.
Craig will 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 historically in terms of strategic execution and providing the company with an unprecedented level of financial flexibility to allocate towards growth and <unk> per share.
I'm also very proud of and want to thank our chance well operated safely for the past year and a house on the face of a pandemic. Their continued work on behalf of the company. During this difficult time, it was 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 2020 one.
Nobody has announced an increase in its dividend by one 6% to 34 cents 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, 70 per share on an annualized basis.
Traveled 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 C. One extraordinary level of financial flexibility.
To drive long term shareholder value, while increasing renewable portfolio footprint.
Due to this flexibility we acquired 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 I suppose the benefit of 15 years remaining on the Ppas are stable generation profile.
Clearly also fund its remaining capital commitments, our previous announced dropdown transactions with this capital.
$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 per share Kathy and dividend growth.
And then headed 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 onto the next potential dropdown investments and tend 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 March landings, and 100% of Walnut creek's not qualifying capacity at <unk>.
That maintain project level Kathy through the end of 2026.
For those of you have been following delivery 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 per share for years to come.
As a result of this unprecedented financial flexibility afforded to clear away by the thermal transaction I am pleased to 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.
A potential path to target per share Kathy in excess of $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 <unk> has signed a binding agreement with KKR to sell the thermal business for $1 9 billion of total consideration, resulting in $1 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 because 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 that clearly well in a variety of market conditions and 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 six five years, some potential stayed up state tax obligations.
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.
As a result of the transaction our investment in committed investments, but not on allocated 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 companys future more centered on the highly growth on 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.
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 with 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 efficacy or 9% asset level Caf deal.
This replaces 75% of the thermal cap the contribution 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 unlimber caf deal and operational asset as 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 $1 85 of cash 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 a $395 million of capped in the first column versus an updated pro forma Kathy outlook of $1 90 with $680 million left to be deployed.
If one assumes that clearly allocate $681 million at eight 5% Caf deal.
Guys are Kathy to $440 million in absolute terms and north of $2 15 on a per share basis.
The special flexibility affords clearway do you believe to maintain underwriting standards, while not requiring additional capital.
This ability to be efficient with our capital base will be employed as we look to de identified dropdown opportunities that we're working on with our colleagues at Clearway Energy group.
Clearly, there's always emphasized as per share casting 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 will 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 cap 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 of caffeine.
For the third quarter the company benefited from excellent performance at the conventional segment and higher volumetric sales at our thermal segment How's.
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 the third quarter versus the fourth quarter.
The conventional segment availability across the California natural gas assets was about 99% again, demonstrating their value as critical reliability resources in the state.
For thermal the 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% of median expectations.
For the solar segment, a right answer was also below expectations as performance where that 94% of estimates.
That said on a year to date basis, the strength of the Alta wind project or most of the year and solid first half solar production had 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 approximate $25 million impact in the first quarter due to the February <unk>.
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 of 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 the 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 the 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 median 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, the 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 2022, Kathy guidance of $395 million.
However, please note that due to the timing uncertainty of when the thermal sale will close.
In 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 cap 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 that 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 of corporate debt to corporate EBITDA is around four five times and <unk> out of corporate debt because that 18%.
Importantly, this excludes the impact to net debt given the <unk> $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 extend our 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 towards 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 delivering 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 result in interest savings and extension of our maturity profile.
There was also benefit benefited from the successful third party M&A through the acquisitions of Mount Storm and the remaining 50% of Utah.
<unk> and $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 over 5% to 8% long term growth target through 2026.
Look forward to continuing to grow and achieve our goals around shareholder value creation.
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 your 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.
Just on the RNA agreements at Marsh landing in Walnut Creek can you characterize the interplay of rate and scenario, if any or asked differently.
The counterparty solely focus on that 3% to three and a half year timeframe or is there some consideration of longer term agreements, but at a lower rate.
There's 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 got it 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, Yeah that makes sense and really just trying to understand how you think about <unk>.
The dividend through 'twenty six.
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 a 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 in the can frequently in our California portfolio through.
The contracting of those two gas assets I would feel much better about the volatility or lack thereof through 2026.
Got it I appreciate the time.
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 of 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 global sale.
Any further thoughts on just the direction that you guys want to talk to I mean, it seems obviously like the pipeline itself is growing 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 our 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.
Open questions sure so.
A couple of different questions there Julien.
Part one is we think about the remaining cash it's not as though I think what I tried to emphasize was the flexibility it affords us there isn't necessarily and I think importantly is also try 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 IRR NPV and cap the accretion.
This isn't an opportunity to say well, let's do things at a six 5% cap yield for example, simply because it's accretive.
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 to allocate some of that capital to their work 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 clarity that's it.
You said does that what's the probability of February.
Not really a fair probability that its 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, when we actually close 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.
The other question around California, natural gas and monetization I think for us as I've indicated we really look at the portfolio on a.
Olympic 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 it 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 can 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.
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 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 Marsh landing asset so yes. It does.
We have an infinite amount of space at that site, but we constantly evaluate a storage makes sense that 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.
Tenor and 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. The Clearway Energy Inc has.
Or were 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 are 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 <unk> had some updates with rating of late is that a further angle with you all sorry, just to throw that out there.
Okay.
You had launched it yet.
Yes, Julian I think I think I know what you are 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 a sense of the strength of the credit of the platform.
And I think given where we stand in a 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> to debt number is well within that range.
Okay. I was just curious if there was some comparability alright excellent guys. Thank you congrats again.
I think we'll look at that kind of the whole portfolio comes together as we approached 23 and kind of see either opportunities to your point. If there is 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 an unlevered case versus levered today would be mitigated. Obviously, if we then re lever them, we would probably have lower capture 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 theres refinancing opportunities.
Makes sense, we'll do it.
Got it thank you.
Our next question comes from Steve Fleishman with Wolfe Research Your line is open.
Yes.
Thank you. Thank you.
Wow.
Take care of a lot of things and once congrats.
Just on the California.
Yes.
What's.
Your sense on the do you think you'd be able to.
Contract the last plant.
This year as well.
Extend customers.
I think it's probably more 2022.
Steve in terms of <unk> versus 'twenty, one I think that'll take a little bit more time, obviously there is the army procurement next summer as well I mean, we continue to work on it but if you're asking do we think we'll close that out this year I don't think thats an expected outcome.
Okay.
And then.
The.
I guess a question maybe for Craig in terms of just the.
The.
Market.
Development market overall be curious your thoughts on.
At least for your company in development there the impact that the.
Biden 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. It allows us to make very substantial investments and projects that are large and that extend into geographies where.
Renewables Hasnt historically been built at scale and so you see that in 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 Clearway 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 see when we'll 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 wind wind assets around the fleet. So 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 that really drive shareholder value and we're extraordinarily excited about what the next five years half for us.
Great and I would assume that.
<unk>, particularly now that it's got this.
Stronger balance sheet and all this money in.
A few years down the road scale wise.
That it can kind of keep up.
Keep up with the growth.
The development arm.
Such that a lot of that or most of that gets directed down to <unk>.
Yes, that's our objective.
I think that the.
The range of financing structures that we have the potential to employ.
Allow us to also have.
The structure of the investments that <unk> makes into these projects really be optimized to drive shareholder value around the family of metrics that Chris site. It is important for capital allocation. In addition to cap the NPV and IRR.
So yes, that's certainly our goal we think of our development work is really being focused on driving growth and operating portfolio that underpins the fundamental value of our business.
Yeah.
Great. Thank you.
Thank you. Our next question comes from Noah Kaye with Oppenheimer. Your line is open.
Hi, good morning, and thanks for taking the questions I guess first just a quick clarifying one the revolver and bridge facility Youre working on what does cover the full expected proceeds from the thermal sale or just the scope of the committed investments.
Yes, no. It's we're focused on up to the committed investments.
On those.
Yeah.
That's the current expectation is that yes, yes.
That's super helpful. And then just maybe for Craig as well.
I appreciate all the comments you just made around the potential policy impact.
Maybe a little bit shorter term, though.
We've seen a lot of cost inflation across the industry.
Steel prices labor availability et cetera, just curious what youre seeing on IRR is for projects under development.
It was timing.
How is the cadence.
The IRR profile trending versus prior expectation.
Yeah.
Fortunately I think the way that we approach our business.
Likely manages risk.
With more care and discipline in 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 in collaborative ways. So.
At a point like this one where.
<unk> 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 Dara 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 on.
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.
Sure.
The cost inflation. We anticipate is is in large measure still being offset by <unk>.
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, partly enabled by the advantages that I referenced and our ability to work flexibly it flexibly.
Around schedules and plant layouts and equipment delivery sequences.
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.
Okay.
That's very helpful color. Thanks, and then maybe just the last one you mentioned.
All the benefits potential benefits.
In the buy and plan.
An additional benefit could be incentives for clean hydrogen production.
We haven't had before and.
The ability to develop green hydrogen even some tax credits on the power side and then on the production side as well could make for some very compelling economics. So can you talk a little bit about any.
Collaborations partnerships or developments you may have.
As a platform with hydrogen production.
Entities.
Yeah.
We like 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 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 strength distinct end users and incentive regimes.
And so we are thinking about how our projects as they evolve 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.
<unk> 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.
And optimum.
<unk> model for our delivery of those renewable resources as production sources for Green hydrogen 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 our green hydrogen commodities. So we're excited about what it could mean for our industry broadly we're excited about what it can mean for de carbonization, and we see a lot of complementarity with our existing strengths.
Alright, alright, well, thanks, and congratulations to the team on the meaningful strategic progress this quarter.
Thank you. Our next question is from William Goodman with UBS. Your line is open.
Thanks. Good morning first question was just on the California gas assets.
Is there anything unique about the remaining capacity there that that you have.
Left to contract that might make you more positive or more cautious on the ability to do that on favorable terms.
So it's a combined cycle for <unk>. If that's your question. So obviously, it's a little bit different than the <unk>. The energy component is more relevant in terms of the overall economic equation. So I'd say, that's really the only difference the machines.
First art 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.
Okay.
With respect to the thermal transaction.
You mentioned possible shareholder returns I'm, just curious what your thought processes on your willingness to kind of sit on sit on cash.
Waiting to redeploy versus making a decision on.
Possible shareholder returns.
I think once again, not COVID-19 transaction Hasnt closed yet so I think thats part one is really as I talked about on the call. We're really emphasizing flexibility. If your question is would we sit on $680 million with no visibility in deployment for three years that answers now if it is well we have a visibility to deploy that 680 to be binary.
And 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 were working on currently and probably some of the other developments that Craig talked about on the call take all of that together and kind of when the transaction closes look at it Holistically and then determined if there is capital thats residual to be center.
From a return to shareholders, we would prefer to put all into growth and kind of new assets commensurate with our NPV IRR and capture requirements, but those opportunities out there we're not going to just sit on cash that to have a cash hoard.
That makes sense. Thank you.
And as a reminder, if you have a question press star one on your telephone to get in the queue.
Alright, I don't see any further questions in the queue, Sir I would like to turn the call back to Chris Sotos for any final remarks.
Nothing in particular, thank you everyone for joining in.
Once again I think there has been a great quarter. So appreciate everyones investing in the company.
And with that we end our call. Thank you for your participation and you may now disconnect have a wonderful day.
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