Q4 2021 Algonquin Power & Utilities Corp Earnings Call
Good morning, My name is Emma and I will be your conference operator today at this time I would like to welcome everyone to the Algonquin power and utilities Corp. At 2021 fourth quarter earnings webcast and conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one thank you Amelia.
Amelia Tsang VP Investor Relations you May begin your conference.
Good morning, everyone. Thanks for joining us this morning for our fourth quarter and full year 2021 earnings conference call presenting on the call. Today are a roomba is go ahead, our president and Chief Executive Officer, and Arthur Kasprzak, Our Chief Financial Officer.
Also joining us this morning for the Q&A part of the call will be Jeff Norman Our Chief Development Officer, and Johnny Johnston, Our Chief operating officer.
To accompany our earnings call today, we have a supplemental webcast presentation available on our website Algonquin power and utilities Dot com.
Our financial statements management discussion and analysis and annual information form are also available on the website as well as on SEDAR and Edgar.
Before continuing the call we would like to remind you that our discussion during the call will include certain forward looking information, including but not limited to our expectations regarding future earnings capital expenditures and pending acquisition at the end of the call I will read a notice regarding both forward looking information and non-GAAP measures. Please also refer to our most recent.
MD&A filed on SEDAR, and Edgar and available on our website for additional important information on these items.
On our call. This morning, I will provide an overview of our Q4 and annual performance Arthur will follow with the financial results and then we will conclude with an update on our strategic plan for the business.
We will then open the questions the lines for a question I ask that you restrict your questions to two and then re queue. If you have any additional questions to allow others the opportunity to participate and with that I'll turn it over to Evan.
Thank you Amelia and a very good morning to those who have been able to join us on the call and online.
Given that this is our year end earnings call.
Want to provide some highlights and speak to performance, both financial and operational for Q4 and full year 2021.
Firstly on financials.
I am pleased to report steady year over year growth in the following key financial metrics.
2021 adjusted EBITDA of nearly $1 $1 billion increased 24% year over year from 869 5 million.
Largely from new facilities that came online in 2021 on the renewables side, including Maverick Creek wind.
And also as well as contribution of new facilities on the regulated side, including Empire wind.
And a full year of contribution from <unk> and <unk>.
Our 2021 adjusted net earnings per share of <unk> 71.
It was up 11% from the 64 <unk>.
Reported in the prior year.
<unk> came in line with our expectations.
Last year we.
We reported annual dividends per share of <unk> 67.
Representing our 10th consecutive year of dividend increases.
We also exited the year with approximately $16 $8 billion in assets or 27% increase over the $13 2 billion reported in the prior year.
Secondly on execution.
The company undertook a number of successful growth initiatives and continued to execute on strategic priorities in 2021.
Which are positioning us well for the future.
We continue to focus our efforts on Algonquin has three strategic pillars.
Growth.
Operational excellence.
And sustainability.
And I will provide more details on each of these pillars.
Earlier this year.
We closed on the acquisition of New York American water.
<unk> services over a 125000 customer connections across seven counties in southeastern New York.
And we also recently welcomed a new York American water employees into Liberty.
The transition has gone very well as planned.
Staying on the topic of growth I.
I want to provide you an update on our pending $2 8 billion acquisition of Kentucky Power Company.
And AEP can to keep transmission company.
We remain excited and firmly committed to this transaction.
And look forward to bringing the benefits of our local operating model to eastern Kentucky.
As we previously mentioned our expectation of enhancing Kentucky Power's local operating model.
Bringing benefits to customers by exploring opportunities to reduce customer rates through investing in green energy.
And creating increased local employment are all attributes that are expected to help customers and the local communities while.
While driving value for our shareholders.
To that end.
You are likely aware that we jointly filed with AEP and application with the Kentucky Commission.
On January 4th.
For the approval of the acquisition of Kentucky power.
By statute.
The Commission issued an order on the application within 120 days.
We expect to close the transaction in mid 2022 after the receipt of state and first level of approvals.
And satisfaction of all other closing conditions.
To date, we have already received Hart, Scott Rodino and CPUC approvals.
Staying on the regulatory front.
Our rent review at Empire Electric continues to progress well.
On February 4th 2022.
A stipulation was reached among Empire electric.
Office of public counsel.
Staff of the Missouri Public Service Commission.
And other intervenors.
Hearings were held on February seven on rate design.
And a hearing on the stipulation was held on February 10.
With new rates expected to be implemented in may of 2022.
We believe the settlement represents a fair outcome for our customers and the company.
We continue to invest in our network to deliver mission critical services to our communities, while keeping customer affordability top of mind.
Another growth pillar in our regulated business is focused on deploying capital to benefit our customers.
In 2021.
The regulated services group invested over $1 $9 billion includes.
Including the completion of our Midwest Greening.
Initiative.
Where we brought 600 megawatts of wind generation online.
In the coming years, we expect to invest between $800 million and $1 2 billion annually.
Into our rate base.
To improve safety security reliability.
William C and customer experience.
Turning to the good levers on our renewable business.
In this business our ability to originate and execute projects is a critical growth lever.
2021 has been a record year for Algonquin was nearly 12 100 megawatts of new renewable projects, either closing or reaching commercial operations.
In December 2021, we completed our latest project to achieve commercial operations. The 24 megawatt <unk> wind facility in Quebec.
With all of the energy being sold to hydro Quebec.
The 175 megawatt Blue Hill facility in Saskatchewan.
With all of the energy under contract with SaaS power is on track to achieve commercial operations in March 2021.
Our construction program continues with the expected start of construction in Q2 2022.
Of the Deerfield too and.
Sandy reads do wind projects.
Also we continue to progress our partnership with Chevron and expect to start construction on the first two of these solar projects in midyear.
The fact that we continue to successfully execute on construction in the midst of the Covid pandemic.
And supply chain challenges.
Is a testament to the hard work.
Entrepreneurial culture.
And experience base of our employees.
At our Investor day.
We discussed our strong development platform.
Where our ongoing development as a resulted in growing our greenfield pipeline.
Baidu generation projects 230, 800 megawatts by the end of 2021.
This growth is net of projects totaling 640 megawatts, which advanced from a greenfield pipeline into our five year capital plan.
The 640 megawatts that advanced includes the riverbend wind projects.
In Michigan.
The Blue Violet combined wind solar project in Illinois.
And for projects being developed in partnership with Chevron in New Mexico and Texas.
Two other important initiatives in 2021 to establish a strong foundation for future growth.
Include building, a 70 to 100 megawatt hour pipeline of prospect is energy storage projects.
And entry into renewable natural gas with the agreement to acquire sandhill.
A developer of RMG projects.
Sandy will represent an attractive platform, giving us immediate entry via its portfolio of four projects in the state of Wisconsin.
Two of which are currently under construction with first production expected around the end of Q1.
And two projects, which are in <unk> development.
Okay.
According to a U S Environmental Protection Agency report.
Wisconsin represents the state with the second largest <unk> universe of renewable natural gas opportunities.
And we are excited to utilize Daniel as an LNG growth platform.
This acquisition is expected to close in the first half of 2022.
Moving on now to operational excellence.
In a mission critical industry.
Safety and reliability are always key areas of focus.
I am very pleased to share that we have passed the impressive milestone of over 750 days.
That is nearly 11 million work hours without a single lost time injury across our north American business, while keeping our customers and communities safe.
And maintaining our system reliability and resiliency.
I want to thank all of our employees for their ongoing focus on safety and preparedness for weather events.
I want to particularly call out and sandwich electric team in Tahoe.
That area received a record breaking snowfall over the Christmas holidays.
Liberty crews work hard throughout the holiday weekend to restore power to our customers and communities as quickly and safely as possible during harsh weather conditions.
The hard work and dedication of our employees did not go unnoticed by the customers and local communities we serve.
And finally.
We remain firmly committed to sustainability through the inclusion of environmental.
Social and governance values in our broader corporate strategy and day to day operations.
In 2021, we announced our target for net zero for scope, one and two emissions by 2050 with a credible path.
Supported by our strong Decarbonize and track record.
Extensive experience in regulated utility management.
And deep expertise in renewables development.
On the governance side, we successfully embedded sustainability into our management's compensation model.
Turning to enhance our ESG factors are embedded throughout the organization business goals.
And finally in.
In 2021 <unk>.
<unk> ratings continue to improve in the aggregate.
Positioning the company as a sustainability leader.
More recently.
I am pleased to report the company's inclusion in the 2020 to Bloomberg gender equality index for the third year in a row.
Our inclusion into the index is a testament to our continued efforts for continued gender equality improved gender inequality.
And transparency as we target above market gender representation, and our board and executive levels.
With that I'll pass it over to Arthur who will speak to our fourth quarter and full year 2021 financial results.
Sure.
Thank you Arun and good morning, everyone. I am pleased to report that our Goldman has reported steady fourth quarter and full year results, reflecting the benefits of our diversified and resilient business model and proven track record of disciplined growth.
Our fourth quarter 2021, consolidated adjusted EBITDA was $297 6 million, which is up approximately 18% from the $253 1 million, we reported for the same period last year.
The regulated services group delivered $191 4 million in operating profit in the current quarter, which compares to $162 4 million in the same quarter last year, an increase of about 18%.
This improvement reflects contributions from our Midwest wind facilities, which were placed in service in 2021.
As well as contributions from <unk>, our Bermuda electric utility NFL, our Chilean water utility as both acquisitions closed during Q4 of 2020.
Results also benefited from new rates implemented I'll call people in granite state electric systems as well as park water in Apple Valley water systems in California.
This was offset by lower consumption, driven driven by milder weather.
Results were also impacted by higher non pass through fuel costs at Empire electric as well as higher operating costs at granite state and <unk>.
The renewable energy group reported fourth quarter divisional operating profit of $123 9 million, which compares to 97 9 million in the same quarter last year, an increase of about 27%.
The addition of the Sugar Creek, and Maverick Creek wind generation facilities contributed to the year over year increase in operating profit.
Our investment in Atlantica also continued to provide benefits with dividends received increasing by $4 $4 million over the prior year.
Q4 also benefited from the sale of our new market solar facility to a joint venture with a renewable construction partner areas, resulting in a recognized gain reflecting a step up in the value created through the development process.
However, this increase was partially offset by lower overall production on some of our wind and solar generation facilities.
And higher operating cost while performance at our Sanger facility was negatively impacted this quarter by higher capella compliance costs and lower capacity payments.
Our investment in the Texas coastal wind facilities was also negatively impacted by higher than expected basis cost lower than expected production and an acceleration of HBV losses of $9 million related to Q1 hedge settlements caused by winter storm worry that are expected to largely.
<unk> in the future.
Fourth quarter corporate expenses were higher by approximately $10 5 million as compared to last year, driven primarily by higher administrative expenses and higher overall net development expenses as compared to last year.
In total our Q4 adjusted net earnings per share came in at 21, which is in line with last year.
In addition to the drivers discussed our results were negatively impacted by financing costs associated with the capital deployed in 2021 and an increase in the weighted average shares related to the Kentucky power acquisition funding.
Yes.
For the full year adjusted net EPS came in at 71 and compares to 64 reported in the prior year, representing an annual growth in adjusted net EPS of 11%.
Showing solid year over year as year over year growth.
Although we delivered strong results, we did encounter various headwinds throughout the year.
As a result of record load wind resources experienced throughout the early part of the year.
Which was an industry wide phenomenon generation at our wind facilities was down approximately 10% from long term averages.
Also much warmer than normal weather in the Midwest negatively affected customer usage in the early in latter parts of the year.
Compared to normalized weather patterns. This represents an impact of approximately $48 million on our 2021 operating profit or about five five on our adjusted EPS.
Moving on to the balance sheet and financing activities.
First I wanted to spend a few minutes to provide an update on our progress towards the financing of the Kentucky power acquisition.
An announcement of the deal back in October of last year, we executed a Canadian dollars bought deal offering of common shares raising our U S dollar equivalent of approximately $640 million in proceeds.
Early this year, we issued approximately $1 1 billion of hybrid debt and a concurrent public offerings in the U S and Canada.
Recall that hybrid debt received 50% equity credit from S&P, and Fitch and never converts to common shares.
We have issued this financing on an attractive expected 10 year rate of approximately $4 nine.
5% after factoring hedging.
That brings the total rates with the transaction to just over $1 7 billion towards the $2 8 billion purchase price.
On closing, we expect to assume approximately $1 2 billion of Kentucky power company debt of which approximately $500 million is target to be refinanced using liberty utilities established $144 a debt platform, which we would expect would benefit our future Kentucky customers.
We continue to see this acquisition is providing compelling value and look forward to closing later this year.
Moving on to the broader capital and financing plan.
In 2021, our Gulf and deployed $3 7 billion of capital or organic initiatives relating to the safety reliability of our electric water and gas systems as well as delivering new renewable generation from our projects, including Maverick Creek wind also this to solar and our Midwest screening.
For 2022, Algonquin is targeting to spend over $4 3 billion in capital with the majority related to the acquisitions of New York American water, which closed earlier this year and Kentucky power, which is expected to close in the middle of this year.
Our funding plan for the remainder of the year is predicated on maintaining a strong and resilient balance sheet targeting a triple b investment grade credit rating.
I spoke to the funding associated with the Kentucky power acquisition already.
The remaining funding requirements can be solved by a combination of various funding sources available to us including retained cash to more hybrid debt proceeds.
Some more hybrid debt proceeds from securitization of certain regulatory assets and as well as issuance of long term debt.
As we discussed during our Investor day asset recycling or selling down a portion of our nonregulated renewables can also be viewed as another source of potential value accretive capital for us this year.
Considering the various funding sources available we do not expect to raise additional capital, but we have issuance of discrete common equity for the remainder of this year.
Our funding plan is supported by a strong liquidity position at the end of 2021, we had approximately 2 billion of committed capital in reserves available not counting the acquisition facility. Those are arranged in connection with the Kentucky power transaction.
Before turning things over to Rune I'd like to provide a brief update on our 2020 twos adjusted net EPS guidance.
We continue to expect our 2022 adjusted net EPS per share to be within a range of 72 to 77.
Which was communicated previously at our Investor day.
We continue to assume earnings and our earnings guidance normalized weather patterns and REIT decisions in line with expectations as well as resource production and realized pricing on our renewable generating facilities consistent with long term averages.
It also assumes that there are no impacts from COVID-19 on our operations.
We look forward to continuing to deliver solid earnings from our diversified and growth oriented business model, which along with our history of superior dividend growth. We believe we will continue to drive strong shareholder return.
With that I will now hand, the doctor Arun to outline our strategic plans.
Thanks Arthur.
Before we close out our prepared comments this morning.
I want to give an update on our strategic initiatives.
At our December Investor Day, we updated our five year capital investment program, which projects $12 $4 billion from 2022 through the rest of <unk>.
Through the end of 2026.
With a very visible capital plan.
Of that.
We have already closed on New York American water earlier this year.
Executing on approximately $600 million of the capital plan in January .
On the regulated side of the business.
The additions of New York American water and Kentucky power are expected to drive long term adjusted net EPS growth.
While a large portion of the capital plan is being spent on organic investments to improve the safety reliability and resiliency of our network.
On the renewable side, we are excited about the growth potential and believe that we have a once in a generally as an opportunity to accelerated renewables growth and add shareholder value.
In just over a period of one year.
We have made investments and have grown our prospect of Greenfield pipeline from 3400 megawatt to 38 100 megawatts.
While converting 640 megawatts from that Greenfield pipeline into our new five year capital plan.
We also introduced a new prosperity pipeline of storage opportunities of 70 to 100 megawatt hours at our December Investor Day.
We believe this validates the strength of our development platform.
We now have scale across both our development platform as discussed.
And we own and have investments in over 4000 megawatts of renewable generation.
At our Investor day, we spoke of accelerating renewables growth and adding shareholder value as we plan to increase our investments in Greenfield development.
Which we expect will allow us to capture the higher development margins.
And take a number of those projects through construction.
Once in construction.
We see an opportunity to partner with institutional investors.
Seemed to make alternate sustainable investments.
With our ability to develop and deliver on long term contracted sustainable assets.
In particular, we should be able to sell down to these investors, while earning an operating fee.
We could then deploy some or all of the capital gains in further greenfield development, creating a potential new recurring source of earnings for our investors.
With scale, we expect to get incremental benefits <unk>.
Including improved negotiating power lower transaction costs and access to greater opportunities.
We are on our way to completing planning.
We plan to execute this strategy in 2022.
I am excited about the prospects for Algonquin deregulated and renewables businesses.
Which are both well positioned to contribute to and benefit from the Decarbonize and transformation that is currently underway.
And which will only accelerate over the coming years.
In summary.
Our three strategic pillars of operational excellence.
Both.
And sustainability will be a key foundation as we continue to build a business and strive to bring long term value to our shareholders.
We remain well positioned to continue to execute on our growth strategies.
While pursing, forcing our sustainability goals.
With that.
I will turn the call over to the operator for any questions from those on the line.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question today comes from the line of Sean Stewart with TD Securities. Your line is now open.
Thank you good morning, everyone.
Good morning, John a couple good morning couple of questions the new market Solar project sale to the joint venture with Arris.
How should we think about that.
<unk> pipeline going forward for the.
Future sales into that vehicle.
Sure Sean So look we have been talking.
Few times now about the ability for us to.
Provide a recurring shareholder value through the growth of our.
The development and construction pipeline.
And so.
What I talked about towards the end of my presentation was really how that new market solar also fits into our strategy.
Uplift producing recurring shareholder value through such so sell downs. So because of the fact that we believe it's going to be recurring stores.
We thought believe it is prudent.
To not adjust that out of our earnings.
Okay understood.
The pace going forward, though for future projects to be.
Sold into that vehicle any context, you can provide there.
Well, we're about done with our planning process and are starting our execution prices on that Sean So, we'll probably be able to give a lot more detail at the next.
<unk> quarterly call.
Okay.
Thanks for that.
The sand Hill acquisition.
And I guess context on the amount of capital you expect to invest into those projects and.
More broadly speaking.
Larger investment opportunities for whether it's R&D or other energy transition type investments.
Any details you can provide on that front.
Hey, Sean it's Jeff.
Yes, I think the sand Hill acquisition.
The <unk> project.
Our anaerobic digesters until they're relatively small in terms of capex, it's important to us because of the benefits of advancing RG and improving our knowledge in that area more so than an absolute capital play.
That being said, we do see R&D, expanding our R&D includes hydrogen and so.
As we start to build our knowledge start to build how we trade in and expand more we do see that as an important area, but theres still lots of information to unfold.
Okay. Thanks, Jeff.
That's all I have for now thanks, guys.
Thanks, Sean.
Your next question comes from the line of David Quezada with Raymond James Your line is now open.
Thanks, Good morning, everyone.
My first question here, just on New York American water now that Thats key.
Closed I'm curious what kind of.
Potential you see there.
I guess for for spending capex, either organic or otherwise I think at the time of the acquisition. There was some talk about opportunities for consolidation there so any thoughts around that would be appreciated.
Look Avenue.
Are very much in the in our planning process for.
Continued investments in New York American water.
Our next rate case is not due for some time, but as with all of our other utilities, we continue to invest in the safety and reliability and resiliency of that water system as with anything else now given our unique.
Our positioning in terms of renewable energy I mean as you know.
There's quite a bit of energy required to transport water one of the unique things. We do do is look at opportunities to CEA.
How we can substitute.
Yeah.
The current energy profile with a renewable energy generation to serve our water utilities also which I think is a unique capability.
Capability that we have and we have utilized that already so that's something we're taking a close look at as well.
Excellent. Thanks, Aaron maybe just one more for me just on the topic of.
Cost inflation and I'm thinking specifically about your regulated business I'm curious if you've had any discussions with regulators, especially on your active regulatory dockets if inflation is.
Has been raised as a concern there at all and how.
How are those discussions going.
Sure look David I mean interest is.
The current desktop into jewelry right. So obviously, we're seeing more inflation than we've seen in the past.
What they have 10 to 15 years at least I think.
On the regulated side of the business I mean look I mean inflation is largely a pass through.
But at the same time.
We are acutely aware of the potential impacts on customer affordability. So we dragged that extremely closely.
And.
Yes.
That's a continuing source of discussion we have with the regulators on how to balance all of the cost increases this vision.
At the right level of <unk>.
Customer rates.
On the renewable energy side.
It's largely a function in our minds.
In a yield of three significant contracts on the renewable energy side <unk> got viewer.
<unk> contract you got it.
EPC contract you've got your offtake.
Once you sign those agreements all of them are fixed price contracts and so in our mind there.
Our strategy we employ.
He is trying to sign those three three contracts as closely concurrently as possible. So that we are not left holding the inflation.
So.
And that's the way we've been able to protect our.
Bob.
Route on margins.
Excellent I appreciate the color. Thanks, that's all I had.
Thank you David.
Your next question comes from the line of Rob Hope with Scotiabank. Your line is now open.
Hi, good morning, everyone.
First question is just on the it looks like it a little bit of a pivot on the renewable power strategy a bit more of a capital light strategy.
What's driving the investment in capital projects in the renewable energy group of 5% to $30 million.
In 2022, because if I look at slide seven it looks like it should be a.
A relatively busy year so.
Is the assumption that youre going to be kind of bending down more than half of these projects equity account for them in kind of recoup your capital here pretty quick.
So thats basically it already is Arthur.
What youre seeing there is basically the spend that that's really the on balance sheet spend but obviously a lot of activity going on in the year.
A lot of development spend and continuing construction spend but that spend is mostly reflected in our construction JV.
And that activity is only likely to keep on increasing Rob and that is.
Why if you notice we started including a slide that shows you the level of construction activities, which is fairly significant so so we have not slowed down.
<unk>.
Continue to advance.
Yes.
Our Greenfield project through the development process through construction and enduring into operations.
Alright, Thats helpful. And then I guess the question is how should we think about the.
The $3 6 billion of Capex that you put forward at your Investor Day is that then.
More of a 100% number and then net to EQM could be significantly smaller than we will add on more projects as they come.
Yes that is you could think of that is the gross number I mean, obviously as we think about how much is actually retained versus versus monetize and so forth would be.
Determined in the future.
Alright, thank you.
Thanks, Rob.
Your next question comes from the line of Nelson <unk> with RBC capital. Your line is now open.
Great. Thanks, Ed and good morning, everyone, just a quick follow up too.
To that question in terms of the JV. So can you give a bit more.
A bit more color on your relationship with Arris management are they.
A long term.
<unk> of your assets is that part of the plan.
Yes.
And Nelson, it's Jeff I wouldn't characterize it as a long term buyers and we've got a strong relationship with Ericsson and we expect to do more than one transaction with them, but it's not an exclusive relationship and I think there's a very robust market out there and we want to keep our options open.
Okay. So I know in the past you would move assets into a JV have are constructed and then at the end you Ed you would usually going to buy it back at a nominal price.
But this isn't the case right areas will be a long term.
Equity shareholder and in new market and the other assets is that correct.
Yes.
Two elements to think of that the first one is on the development side, where we are.
<unk> projects through when they are participating in the risk on those projects.
And then there's the construction type <unk>.
I think the primary difference.
As Aries.
Yes.
The primary difference between the original construction projects and this would be we may not take them back at the end, but it may not be areas that is the long term bolt related there may be a third party that makes up thereafter as well so thats not absolutely certain at this time.
Okay. Thanks, and then just one last follow up question.
In terms of timing so is that the plan to have things sold down and move to JV.
Ed I guess on financial close or just prior to construction or during construction rather than.
On or after completion.
I presume there is still a bit of extra value to be had if.
After you hit Sidoti.
The plan is that we are in the best position to de risk these projects to development and through construction.
Those are clearly areas of expertise, we have in and take them through a certain period of operation.
Of all the initial bid.
Bidding down issues things of the stored and then.
Hello.
Okay.
Okay. Thanks for that.
Sorry go on.
So I was just going to add in.
So with the construction Jv's all glaucoma stood still look to retain the full obviously upside value throughout the construction cycle.
Okay got it alright, I will get back into queue. Thanks, everyone.
Thanks Nicholas.
Your next question comes from the line of Ryan Greenwald with Bank of America. Your line is now open.
Hey, good morning, everyone.
Maybe starting with any additional color, how you're thinking about the dividend growth going forward. It looks like excluding the gain on the sale here you guys are tracking at approximately 100% payout ratio is there any way to help frame how youre thinking about that ahead of the annual cadence in which you would typically revisit it.
Yes, I would say it's.
Our stance really hasn't changed what we communicated previously look our dividends, but we certainly wanted to be a sustainable dividends and so what we've I think we've communicated in the past and 82% to 90% payout ratio target I mean, it's a long term targets.
But we're targeting between 80% to 90%. So so so there is going to be lumpiness in certain years, but that's from a.
Overall, a long term perspective that that's where we end up seeing in <unk>.
Certainly do see some further dividend growth as well.
Got it that's helpful. And then in terms of the sale to <unk>. Instead of <unk> can you just talk about that and how youre thinking about the <unk> relationship going forward.
Look the AOR relationship remains strong right.
You saw we have dropped down some of the other assets into <unk> as well.
Like as told multiple times I mean, we like the ESG profile of Atlantica the relationship remains strong.
I just wanted to remind folks that in the hole.
Construct around.
Okay.
With a y on the Dropdowns.
Was that it is.
Going to be around non regulated non north American assets.
So.
This does not obviously necessarily fall into that category.
I think as a company as we grow our renewables portfolio.
We find ourselves in a good position that we have multiple options.
Yes, understood and then maybe just one more if I may in terms of your appetite for further M&A in the market environment can you touch on that a bit and then perhaps secondly, given where LDC the been transacting from our private valuation perspective, we're regulated divestment beyond the table or is that any asset recycling.
On the renewable side.
Look Ryan and I will tell you that we're always looking to.
Increase shareholder value and then we.
We will never closing any doors and saying.
So there are no.
Sacred cows, you're right.
Having said that from a strategic perspective.
When we look at all of our <unk>.
Assets in our portfolio and given the external market as well we believe that the first phase is really.
The sell down on the on the renewable side of the business because we see.
Our ability to be able to control more of that development pipeline. The construction pipeline the floor of the number of projects into into operations.
Much more regarding I know, it's a much more.
<unk> PS.
Regarding sure shareholder value rather than one off right now having said that we're not against doing one offs.
And so one of the ways, we look at that is.
Is any particular asset more valuable in our under our ownership versus using somebody else's ownership. So.
That's something we will always looking at.
Great I'll leave it there thanks, so much for the time.
Thanks Ryan.
Your next question comes from the line of Ben Pham with BMO. Your line is now open.
Hi, Thanks, maybe I wanted to start off.
To follow up on maybe some of the.
That question is you had on on Aries in and some of the structures.
Thank you.
I'm wondering when you look at past.
Asset dropdowns or.
Asset sales like how are you.
How do you position where it.
As areas, mainly development construction why operating assets and then you compare that to third party how do you.
A bunch of different structure is going to be.
It'd be interesting to see how you think about.
About where things fit.
So basically when we look at.
Development and construction.
One of the options. We have obviously is to utilize this joint venture with.
Areas right.
So we do not have any other.
But we could develop it totally ourselves as well so we have that flexibility.
Yes doing either or.
We are not normally.
Developing projects or blowing through construction with atlantica.
On the operational side.
By and large we are the operating entity on our asset base and Atlanta Guy who is the operator on their system.
As a set of assets.
We obviously tried to learn from each other but those are two.
In a separate operating platforms.
Okay, and then your <unk>.
2022 guidance or even thinking of one 7% to 9%.
I assume correct me if barometers.
A dropdown.
Element baked into those numbers.
Yes.
We do certainly look at extracting value out of out of our Greenfield development pipeline, we have baked that into the guidance now whether it's.
Pure dropdown or a pure gain or whether it's extracted through different ways, such as management fees and so forth.
B.
We still work through but.
But there is certainly.
One thing we are looking at is obviously some of the value created.
Our current growth playbook.
Okay.
And then.
My last one you mentioned some of the breakfast on funding for Kentucky power I wasn't sure. If I were you, suggesting that your you are now fully funded for Kentucky power, there's still crystal a slice left yes.
We are basically we are basically done in terms of the notional amounts were for Kentucky power with our hybrid debt of $1 1 billion.
Yeah.
We funded.
The cash purchase price.
We thought we've obviously need to kind of put everything into the mix and make sure our credit metrics come out right on the other side of all of this social.
The rest of the funding plan certainly consider that.
Okay got it okay. Thank you.
Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is now open.
Thanks, Good morning.
I guess the first question is really around the ability to monetize certain assets portions over entirely and then use those proceeds to flex.
If we accelerate growth.
All of that can be pretty compelling, but how do you balance.
More complicated structure.
Versus being more simple and how do you think about that whether the financial terms are sort of warmer fuzzy on ceilings.
Andrew.
Great question. Thank you.
Fundamentally if you really look at it.
Trying to do is less.
Leverage.
Yes.
Two.
Specialized skill sets, we have one on the development side and one on the operational side and I think over the years now we have a certain level of scale.
On both sides of the business.
And we believe that we should be able to do.
<unk> accelerated that.
That grows by utilizing and leveraging that.
<unk> skill sets, even more given the external environment and the whole decarbonize in Ccs that's out there right. So that's really the fundamental thesis now obviously.
<unk> grew significantly along that renewable.
Energy portfolio, you, obviously need to access a lot of capital.
And our view is that again looking at the external market with the amount of number of sustainable investors out there. We believe that we should be able to.
Sell down.
Produce a sustainable investors at a point, where we can provide recurring value to our shareholders. So that that's really the thesis of.
That.
Flywheel, if you will.
To expand our renewables.
<unk> pipeline, taking those derisking those two development construction and operations selling down redeploying that capital back and do.
More renewables growth.
Okay. That's helpful. I appreciate that and then maybe just thinking about that flywheel in your businesses.
The transactional marks we've seen in the U S. More recently on the LDC side.
So is there an opportunity to.
Really.
Focus your expertise in both the renewables business and the utilities business more broadly through the Caribbean because you've got the exposure in Bermuda, but theres other assets there that do have good decarbonization stories renewable needs and offer more compelling value from an investment standpoint.
How do you think about just that region more broadly.
Well.
We were attracted to Bermuda from a lot of different factors, including the value, we even looked at things like hurricanes profiles things of the store.
The Bermuda does experience.
Fewer hurricanes and then the other parts of the.
Caribbean, So theres, obviously, a lot of things we look at when we.
Looking at any acquisitions.
Scale is important we believe in terms of the.
Being able to do a lot more with less.
So.
So building scale across any one of our three modalities.
Especially electric and water.
Things that we look at very closely but again.
We ended up looking at a lot more opportunities and then in terms of executing against those just because.
We continue to be extremely disciplined around which assets we.
Yeah.
Under our Fort Lee, we just have a lot of financial metrics risk metrics that we need to.
Active need to fit but.
Okay.
Im answering your question Andrew is a long winded question.
The answer.
Well it wasn't vice question, either so I appreciate the time.
Sure.
Your next question comes from the line of noisy Baidu <unk> with Industrial Alliance. Your line is now open.
Hi, Good morning, just wanted to start off with.
I guess a clarification on the balance of funding for this year, so and the large hybrid debt offering.
In terms of priority for.
Asset recycling.
Can you just clarify.
Youre thinking about existing asset monetization or noncore asset sales or is that is it really just more focus on development sell loans for this year.
Hey, guys.
For this year I mean, as we think about our funding plan look we've got I would say first of all we've got Optionality. There as always we've got a lot of different funding sources that we can look to top I mean asset recycling.
Certainly one of those.
Funding sources and that would.
Potentially come from our existing assets.
And our fleet.
We've got quite a lot of funding sources.
Two potentially satisfy would we need to do this year.
Okay. So this is Noah.
Yes.
Necessity in terms of accelerating some of that here in the short term.
Yes.
Okay. Just the other question I have was about the.
The accelerating renewables growth that you mentioned.
I know they have a lot of projects.
And the pipeline for this year, but maybe just beyond 2022 and 'twenty three can you just give us an update on how.
The new.
Development projects ongoing that could potentially extend that runway overtime.
Okay.
Okay.
Okay.
Jeff.
Referred to our Greenfield pipeline with 3800 megawatts, which we rolled out in Investor day that is what we see feeding our five year capital plan.
We continue to add to that that pipeline as well as.
Advance the project in that pipeline for pull down into the capital plan that we feel like we've got the pump primed or the flywheel, turning here and we're making good progress.
Cross the spectrum from new entrants into that Greenfield pipeline pulling stuff out into the capital plan.
So 'twenty two 'twenty three 'twenty four.
We won't be able to say anything concrete until we have names ready to share with you, but the process is certainly working well.
Okay and on top of that we also we also showed you the 70 to 100 megawatt hours of storage pipeline, which we're pretty bullish about.
Of course.
Again, just to be clear I think.
You said youre looking to add about a.
Gigawatts of new projects in the next five years. So are you do you feel that you are still on track to do at least 200 megawatts. This year of new development.
Yes in terms of new development that would fall under the capital plan that we shared at Investor day, but we would expect at least 200 megawatts.
Yes, Okay got it.
Thank you Sanjay.
Your final question today comes from the line of Rupert <unk> with National Bank. Your line is now open.
Hi, Good morning, everyone and another question on asset recycling and freight.
Can you talk about.
Potential to sell your existing assets or are you only looking to sell their homes on on development assets or could you do sell downs on existing assets as well.
Robert It's Jeff <unk>.
Existing assets are certainly on the table and we will.
They've got.
Good value given the transactions, we're seeing in the market and to the extent that we're looking to monetize anything in the shorter term, that's where the more material amount would be.
And then would you would you look to aim to say control 51% of assets in the future.
We're going to maintain control and then.
Joint venture accounting somewhat like you have with your your Texas assets.
Not necessarily.
Rupert I mean, we have not decided exactly what level of ownership, we're going to take.
I believe what is more important for us is to make sure. We are the operating and asset management entity because again.
Creating and furthering scale on that side of the business also continues to be important for us. So.
That's what we're focused on exactly what percentage.
Mr alone that's still.
In the planning stages.
Okay, Great and then just finally on Texas.
You saw some headwinds.
Say coastal wind assets and I know you gave us some color on that situation back in December just walking I was wondering if you could walk us through what you saw in Q4 and what the outlook is for these assets going forward I mean, I understand youre looking at improved transmission there over time.
What's the outlook look like for the remainder of this year.
Sure.
Rupert So really a combination of factors right now on those.
Those of course, two wind facilities.
First of all.
There was lower wind resource, which again I believe is an industry wide phenomenon that affected quite a number of our north American wind assets in 2021.
On top of that.
And during periods of.
Oversupply the prices were obviously lower than anticipated.
In the market.
And third one of the projects actually.
Got to <unk> later than anticipated.
And finally as.
As you saw the tourism.
Late of the year.
General and a transmission constraint that was announced by by by ERCOT. So it really was a combination of factors.
We believe that.
First.
Three of those should be transitory.
The fourth one we believe is going to.
<unk> with time because.
After announcement of a general transfer is concerned that means that both ERCOT and the commission have already approved.
<unk> and upgrades.
Around the.
The region in that facility. So we believe that overtime, starting 2024 that basis risk is going to be should significantly go away. So of those four factors I talked about three of them are transitory. One we believe will continue until 2024.
Okay very good I'll leave it there thank you.
Yes, Thank you Robert.
There are no further questions at this time Arun I'll turn the call back over to you.
Thank you operator, and thank you everyone for taking the time on our call today.
With that please stay on the line for our disclaimer.
Our discussion during this call contains certain forward looking information, including but not limited to our expectations regarding earnings capital expenditures and the acquisition capital recycling and future growth.
This forward looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR.
And Edgar and available on our website and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward looking information.
Looking information provided during this call speaks only as of the date of this call and is based on the plans beliefs estimates projections expectations opinions and assumptions of management as of today's date, there can be no assurance that forward looking information will prove to be accurate and you should not place undue reliance on forward looking.
Formation, we disclaim any obligation to update any forward looking information or to explain why material difference between subsequent actual events and such forward looking information except as required by applicable law. In addition, during the course of this call. We may have referred to certain non-GAAP measures and ratios.
Including but not limited to adjusted net earnings adjusted net earnings per share or adjusted net EPS adjusted EBITDA adjusted funds from operations and divisional operating profit there is no standardized measure of such non-GAAP measures.
Consequently, <unk> method of calculating these measures may differ from methods used by other companies and therefore, they may not be comparable to similar measures presented by other companies.
More information about both forward looking information and non-GAAP measures, including reconciliation of non-GAAP financial measures to the corresponding GAAP measures. Please refer to our most recent MD&A filed on SEDAR in Canada or anchor in the United States and available on our website and that concludes our call.
Please wait the conference will begin shortly.
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