Q2 2022 Clearway Energy Inc Earnings Call
The conference will begin shortly. Raise your hand during Q&A.
Four.
Ladies and gentlemen, thank you for standing by and welcome to the Clearway Energy Inc. Q2 2022 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 the session you'll need to press star 1-1. I would now like to turn the call over to your host, Chris Soto, President and CEO . You may begin. Chris Soto, President and CEO .
Good morning. First, thank you for taking the time to join today's call.
Joining me this morning is the Keele Marsh, Director of Special Relations, and Craig Cruellis, President and CEO of the Way Energy Group. It will be available to the Q&A portion of our presentation.
Before we begin, I'd like to quickly note that today's discussion came overlooking statements, which are face-to-face assumptions through the week at the invisible ever-this-day. The actual results make it different, matured. The actual results make it different, matured.
These are due to Safe Harbor in today's presentation, as well as the risk factors in our SEC problems. In addition, we will refer to both GAAP and non-duper financial metrics.
For information regarding our non-GAAP national measures and reconciliation to the mostly directly comparable GAAP measures, please refer to today's presentation.
I would be remiss not recognizing that this is the first call where our CFO , Chad Block, is not participating.
We want to thank Chad for all his contributions over the years and for ensuring an orderly transition of his responsibilities prior to his departure. We recently launched a search for his replacement and will take it deliberate and careful approach to ensure our executive leadership team has appropriate skills and experience to continue to lead prayer-leaf forward.
Try it on page three.
The first half of 2022 performed within our sensitivity ranges.
with clearly subversive portfolio, producing 176 million dollars of cappy in the second quarter of 2022. And 134 million to the first half. And 134 million to the first half.
Railway increases pivoting by 2% to 0.304 cents per share, for $1.442 cents on annual basis.
keeping us on target to achieve the upper range in order to achieve the zero frequency. All right, let's give one more stacks on target to see again. and low objectives for the year.
So we can change the solidified to perform a cast-by-out loop by a strong execution.
We have now contracted the remaining 20% of capacity at the marsh landing project that had previously been open after the current tolling agreement ends. This project is now fully contracted on a wage average basis to approximately the end of 2026.
We are also currently in the procurement processes regarding the open position at El Segundo and would expect to provide update on this by the third quarter earnings call.
In addition, third, we should close on the near term on the Capacitano acquisition.
which based on our current expectations for new project level financing, would result in long-term corporate capital for approximately $110 million to $130 million.
Allowing us to increase our pro forma cafti ala with approximately $400 million up to $385 million and the resultant cafti for share with $$98 from $$90.
The prior committed growth investments remain on track with their CODs in 2022 and 2023.
longer term, our Clearway Energy Group colleagues continue to work on the development projects that underpin our minimum $300 million capital commitment over the next 12 months.
as well as growing their development pipelines now 24.7 gigawatts of the state's projects.
The first financial milestones underpinning our 300 million capital commitment roll are targeted for completion in late Q3 and early Q4 2022 as solar and storage projects with land for completion next year reach financial close and start construction.
In total, the capital commitment to opportunity for us across the projects, the early energy group is planning to place in service through 2024, exceeds the $300 million dollars of old who set up the beginning of the year. As a commercial profile and capital structure of those projects, these finals of resolution during the coming months, including potential changes to their tax credit qualifications, arising out of the inflation reduction act as ultimately being considered in Congress.
you will provide an update on how the cable commitments expect to make their project investment opportunities also quite clearly energy through over the near term. The cable commitments expect to make their project investment opportunities and also quite energy through over the near term. you
In addition, the sale of 50 percent of Clearway Energy Group to Total Energy is still on track with closing in the second half of 2022, with the outcome of Clearway Energy Inc. having an even stronger sponsor with leading capabilities as well as robust renewable generation goals.
Project to the provisions of capital agreements and regulations. The companies have plans planning for collaboration and several dimensions across the clear enterprise. We expect will make us an even more productive participant in our country's clean energy markets as they grow and diverse of high-enastic glass.
In line with this continued progress around executing on a growth plan, giving allocated approximately $420 million of the 750 million of excess sale proceeds to thermal, supporting $2.10 of cash per share with full allocation of the remaining $330 million of thermal proceeds, providing visibility to over $2.50 of cash per share.
Given this solid outlook, I continue to have great confidence in our ability to grow the dividends at the upper range of our 5-8% DPS growth target through 2026.
And summary, where we continue to reduce distance portfolio through the extension of new contracts on a central gas portfolio, as well as investing in new assets to create growth in line with a long-term project.
Turning slide four to provide a bit more color on the quarter, nor we stand overall from a fan's perspective.
For the first half of the year, our total portfolio performance was very close to the midpoint of our sensitivity ranges with adjusted EBITDA of $626 million and CAFTE of $174 million.
Contributing to this is today's reporting of second quarter adjusted EBITDA 366 billion and 176 million paying cash
During the quarter, the company's renewable segment delivered strong results led by above average production at all the winter portfolio and clearing utility and clearways to the scale. The company's olsion recorded twenties has already been delivered to theasi recommendations. Regarding you
The performance of renewables was somewhat offset by weaker than expected results in the conventional segment, primarily due to the El Segundo facility, as we managed through an extended spring outage as well as a forced outage in June that ended in early July related to damage to floating equipment. This event was managed expeditiously, and the facility is currently running at normal compressions.
Overall, how would the companies results with the first half of the year and line with our sensory ranges, we continue to maintain 2022 capty guides with the 365th point. We will be here in 65th point. We will be here in 65th point.
As a reminder, 2022 CASTY guidance does include contributions from the thermal segment through April , given the timing of when the transaction closed, and continues to assume we achieve a four-year peak to keep an open fire.
Again, it's not however factor in the full contribution for existing to more growth investments and the Capuchana acquisition, which informs the update pro format capacity algorithm of 400 million, which I'll speak to on the next slide.
For a balance sheet perspective, the company continues to have a personal flexibility to execute on its codes while not heading to form due corporate capital.
We have the 750 million from the thermal cell, which approximately 130 million remains to be allocated. We have the 350 million remains to be allocated.
Our law was completely undrawn. We are insulated from industry volatility with 99% of our test checks.
Simply put, we are in a phenomenal position to move our company forward in a challenging, macroeconomic backdrop. We are in a challenging, macroeconomic backdrop.
Let's turn the next slide to speak about our latest that transaction, Capastrano, and the value of a precion that comes from the? exertion. the OOTDL solution sample.
H5 provides an overview of the Capuchin on our position.
After assumed project level debt capital formation, Capa Shauna should require approximately $110 to $130 million of long-term corporate capital, producing $12 to $14 million of five-year levered average capping for a significant 10.8% cap deal.
We expect this transition to close in the second half of 2022.
The project sells its energy on their plus bar agreements with a weight average 10 or 10 years and provides you one further diversification into Texas, Nebraska and Wyoming.
As part of the acquisition, the RANERG Group will fund 10 million toward the purchase price exchange for an exclusive right to develop any of your hiring projects from this portfolio. The RANERG Group will fund 10 million toward the purchase price exchange for an exclusive portfolio. Thank you. Thank you. Thank you. Thank you.
In the event that a project were empowered, you would have been the long-term owner of the asset. In the event that a project was empowered, you
Overall, this acquisition provides an excellent stepping stone and our continued executioner on a creative growth, utilizing the cash and the thermal cell.
A 6 provides an update as we continue to reinvest thermal sale proceeds in $250 to a car beloved mobile phone waiting for its store transfer from 25 miles on realizing those fonts.
With the addition of Capitano to our pro forma Caspi Outlook, we now see $1.98 of Caspi per share. As discussed last worker, the investment in the next drop down portfolio should generate approximately $26 million of average passable caffeine, thereby providing clearly energy investors for physical-region $2.10 of Caspi per share, with 330 million of proceeds for mainity allocated.
As clearly, TNT is the investable proceeds and assume CAST yield at 8.5%, we should be able to achieve CAST the per share of 215 or greater. Reaffirming our ability to deliver the upper end of the range of 5 to 8% DTS growth through 2026.
In addition, our lecture on minor investors that these numbers clearly tell us the deployment of the 750 million of thermal proceeds and assume no additional capital deployment we now in 2026, which is not our intent.
Turning to page seven.
Twitterways goals continue to focus on execution.
closing the sale of thermal and achievement of our 2022 guidance with an increase in our dividend per share at the upper range of growth.
We have signed a binding agreement to acquire the Capistrano portfolio, which in addition to its captive generation and strong yield, also provides for repowering opportunities at sites that are well known to Clearway Energy Group given their historical role with the absence.
We're going to continue to pursue acquisitions of appropriate assets and appropriate returns. We will be patient as here to our unwriting standards.
We continue to work with fair energy group around the latest potential drop down assets as well as the prospects for the enactment of the Energy Security and Climate ProphecyPHYSians of the Emplacional Reduction Act, please your conclusion.
We will provide additional details and key course on how the terms of these assets, credit capital and opportunity may be impacted.
And finally, we are always focused on enhancing the value of our California natural gas portfolio by signing the remaining 20 percent open capacity position at marsh landing through 2026 and also weighing the outcome of also windows participation in procurement processes.
In summary, Fairway Energy Inc. is in an excellent position to grow its portfolio on accretive matter and strong risk-adjusted returns. Operator, please open the lines for questions.
Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your touch tone telephone. We'll pause for a moment while we compile our question and answer.
Our first question comes from Julian Dublin-Swith Bank of America, your line is open.
Hi guys this is Anya stepping in for Julian today. So actually the first question I was just kind of curious how are you thinking of strategic options for the California natural gas portfolio in light of just the changes made recently for instance the GIP total agreement and just the potential strategic optionality there. I guess how are you thinking about them long term and
At what valuation would you consider essentially selling those assets monetizing them?
Sure, a couple of different questions are on you. Hopefully I impact it. So I think the one question, really, so Tull's involvement doesn't change our view of the underlying value of the assets or desire to hold them in the light. You know, I think we view the diversification that we have in those assets is valuable. And I think as we've talked over the past several years, the value of those assets is spending the increase of the resources decreased. The
Overall, in terms of valuation and where we'd want to sell those, I wouldn't give up the valuation numbers, but in terms of where if somebody wanted to buy any or all of those assets, we're open to that just as we are with any asset of clearly energy. But if we think we can sell it for a value above what we'd hope, we'd be interested in monetizing. And that doesn't really go really beyond that.
Okay, great, thanks. And then curious too on just the IRA, if I could ask a question on that. How are you guys thinking of your strategy if that does pass? And then what are your thoughts on expanding further into storage versus your overall portfolio? Where are you seeing opportunities today? And I guess where are returns today as well?
Sure, I think I'll answer the first part in that hand over to Craig for the second part, but in terms of strategy, I think as we've kind of talked a little bit, might prepare remarks. Obviously, the devils are in the details of exactly how it unfolds. I think long term, obviously, it's a pretty big positive for renewables. And for our perspective, it also is a more flexibility in our approach, looking at TTCs and different applications around tax, but Craig, I don't know if you want to answer the other two parts of the question. Yeah, sure.
Well, for the energy system and the customers that depend on it here. That depend on it here.
We really just couldn't be more pleased to see the form of the legislation that Senators Manchin and Schumer have ultimately crafted. It's a truly elegant piece of legislation that both should enable transition terms of carbon reduction but also enhancement of our systems reliability and resiliency. So we really could not be more pleased by the final form of it as far as...
Clearway specifically goes, there's a number of provisions we're excited to put to work in our context.
extension of the wind PTC is going to enable a better value proposition for our customers and
Should enable a greater velocity of our build program as we look into the mid decade.
That will be true across a significant portion of our country, but we're particularly happy about what it will mean for the development program we've had underway in PJM and West Virginia in particular where wind resources are in especially high demand, but really all over the country. That's totally true.
The qualification of solar projects for the PTC is going to enable us to evolve the capital structure we use for those projects and we'll mean
that a greater fraction of the permanent capitalization of those projects can come from the project sponsor, which both makes for a better model for long-term management for all of the project stakeholders, and also in the context of C-Wend is gonna mean that the quantity of capital deployed for any given project can be meaningfully higher than it would be for a project of electing the ITC as a tax credit.
The standalone storage ITC is going to be transformative for the way we can make clean, renewable assets much preferable for a general
and enhance reliability in the system overall.
And we've increased our pipeline for standalone impaired storage assets to approximately 8 gigawatts over the course of the last few years through hard work and in anticipation of battery storage becoming.
an increasingly economically viable resource in a large part of the country. And that's certainly gonna be accelerated in many cases through the availability of this standalone storage ITC. The availability of this standalone storage ITC.
In our case, we've approached the siting of that pipeline with the intent that the location and revenue model for the resources that we're advancing would be complementary to the operating portfolio within CUN. So we're optimistic about what that pipeline will yield. And also as we look out to the end of the decade, I'd expect that.
we'll see an opportunity for deployment of paired storage across a substantial share of our operating fleet.
Just a couple of other points, the incentives created for domestic manufacturing and domestic content deployment are also incredibly useful for the creation of a more resilient economy.
We've announced the formation of a US solar buyer's consortium that we spearheaded and also in our sole capacity our pursuing procurement of wind and solar and battery components.
And we've been driving plans to evolve the provenance of the component supply chains we employ in the spectrum of incentives. Contained in the legislation are a pretty critical enabler of those ambitions as some suppliers have said that's pretty essential for them to site factories here. And then lastly. In terms of green, hydrogen and offshore wind, the incentives that are in the legislation really would be enablers of the long term growth initiatives. We've been undertaking in those areas.
We then work underway in those for the last few years for some time. And we focus that on regions where we have proprietary strength out in the Western US and in Texas. And actually now during that time we are even having put our phones in the mechanical Western US and in Texas.
And we're looking forward to accelerating our work in those areas, both through the economic support of these incentives and also in collaboration with our new partners at Total. So while we'll take some time for those efforts to yield operating assets that would be investable for C-WEN, I'm pretty optimistic that through this legislation, assets in those classes will ultimately also be attractive and substantial and compatible with the investment mandate we have in C-WEN. So, you know, in Total Law, we've been advancing our business in a way that we weren't dependent on the enactment of new legislation, and that remains true.
Our next question comes from Keith Fahley with bullfries search. Your line is open.
Hi, good morning. First, a bit of a follow up to the last one, but I think you mentioned the drop downs from CEG could be more than that planned 300 million now for that bucket of assets you show on the slide. For that bucket of assets you show on the slide.
Could it be, I guess, due to the bill, could it be materially more than 300 million because of the solar PTC and other dynamics? And then relatedly just...
Chris, any comments on overall level of visibility and confidence on fully redeploying the thermal cache over the next six to 12 months or so? So, over the next six to 12 months or so. So, over the next six to 12 months or so.
Sure, I think not to minimize the question, the answer to the first question is yes. I think obviously as we talked about on the prepared remarks, we want to see exactly how this all comes to pass. I want to make sure everything's tied out before kind of, you know, talking about exactly what the number might be, but does it potentially be materially different? Yes. To your second question around confidence, I think again, we're being disciplined. I think obviously some of that cash would be used depending on exactly the final determination of how much the 300 million groups.
but we are working hard to make sure we deploy it appropriately. So I think our ability to play is pretty high but we will know when we are done.
Great, and then just in Texas, any comments you can give on how the assets performed with the heat wave last month and some of the power price spikes. The last month and some of the power price spikes.
Sure, in July , once again, books are not closed, so this is kind of an indicative, you know, the portfolio seems to have held up well. So we saw some price spikes, but, you know, in general, the portfolio performed well from what we get now.
Great, thank you.
And one moment for our next question.
The next question comes from Colton Bean with PPH call. Your line is open.
Good morning.
On the conventional portfolio, you now have two of the three natural gas facilities recontracted. Any updates as to how you're approaching dispatch on the new RA agreements? Would that still be at the counterparty's discretion or do you all have interest in maintaining flexibility there? Potentially capitalize around market volatility.
Sure. We sold the capacity portion for it at the energy margin. So to your question, that would kind of be for our book currently on an open basis. However, if a counterparty were interested in buying the energy piece, we'd be open to that as well. But to your question, currently the energy margin is open on those assets.
Okay, great. And then just on El Segundo, I know more fulsome updates likely still to come, but with that being a CCGT, and I don't think it was too many years ago that it was running something close to base load. Any differences in how you're approaching recontracting there?
Oh, not really. I think for ourselves, obviously, the energy margin should be higher on a component, CCGT, then on a picker. But for us, really not a difference in terms of how we view it, we think it's more oppositional than the market.
I appreciate that.
And one moment for our next question.
Our next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Hey guys, thank you for taking my question. Will.
Kind of high level one here. Can you talk about?
With more large cap utility holding companies, more international players, more infrastructure funds, developing utility scale wind and solar. Can you just talk about the landscape? And I don't know whether if this is a Steve or a Chris question, but what's it doing to return?
What's it doing a project tenors meaning the length of contracts?
What's it doing to the overall dynamic, given there's just a lot more capital flowing into the space right now?
Sure, thank you Michael. I'll kind of answer half it and then pass over to Craig for his view. But I think for, we're not seeing a dramatic difference than frankly what we saw last year, Michael, as you're well familiar, a lot of capital has moved into this industry over the past several years. And so for us, I think what we're seeing in terms of returns and what's available out there, it's a pretty rich M&A market. I think that's why you know, you've, could you only heard me emphasize we're gonna be disciplined in how we allocate the capital. So that's what we intend to do.
But I think in terms of market opportunities, there's quite a few out there of attractive assets. We'll see how those end up. But I think that also, with the increase in the treasuries, treasuries obviously come back a little bit to about 2.6, depending on where it is this morning, on the 10-year. So some of that has yet to pass through. But I think overall, IRRs are no real different in terms of downward pressure this year versus last given that inflow. Because I think that inflow has been happening for quite a while. But Craig, from your view, any difference?
Yeah, sure all well put Chris yeah in terms of new asset creation and development
You know, honestly, the period of the last 12 months, I think has been an important and useful 1 in allowing both suppliers of. Of energy providers of components and customers for energy all to. I get grounded around the importance of project viability and sponsor strength.
And as we're engaging with customers today, what we're seeing is that those customers value in, I think, very important ways, and more than they might have, say, two years past, the locational viability of individual projects based on where they're located in the transmission system, the timeline that those transmission interconnections will allow resources to come online.
the quality of the citing of the project in terms of the effective load carrying capacity that it can support or congestion risk that it might face. The quality of the project sponsor itself and both its financial resources and its operational acumen in terms of the ability to get a project built and brought online and to navigate the supply chain challenges that exist and will persist for some time. The performance of a project, happens a little bit more at the price event than what will happen when it comes to ?SL. This is a period why we say that argument exists or fails for a few minutes that includesaction, distribution, diagnostic services related to cost, work, mental?, health ect??? and bio- Macron's time.
And we find that all those things actually are in place to strengths that companies like ourselves have. And we find that all those things actually are in place to strengths that companies like ourselves have. And we find that all those things actually are in place to strengths that companies like ourselves have. you
So...
So I'm actually quite optimistic about what the next years are going to have in store for businesses like ours, because the demand from end use customers that want a deflationary lower cost resource that's renewable or storage backed. Is extraordinarily high and there's still a scarcity of projects and sponsors that can credibly deliver.
that value proposition and the timeframe other customers want, and that also have a proven ability to navigate the types of disruptions that we've had and that I think we would expect a need to continue to navigate. So I'm quite optimistic that we're gonna be able to continue to create projects that exhibit in total a good contracting and revenue portfolio for CWAN and that um...
that are going to produce adequate returns both for the investments that C-1 makes and for what we do in the creation of the projects. And I think that will really persist into the mid decade, even with the availability of these incentives and all the capital flowing into the space. And all the capital flowing into the space.
Got it. Thanks, guys. And just real quick on contract centers. Are you seeing customers mean buyers?
seek shorter term deals than what you saw maybe two, three, four years ago. You know it's interesting that's actually the trend of late.
has almost shifted in the opposite direction. The inflationary trends that have been observed over the course of the last.
Six months in particular I think have shifted the calculus for a lot of buyers that locking in a resource that has a predictable cost to it is actually a useful part of procurement for an overall energy mix. That's the first thing that I'd say.
You know, when we look at the models that work for us, you've probably noticed that there's a substantial expansion we've undertaken in development of resources out in the WECC.
And, you know, a lot of the natural buyers for those resources are load serving entities who like 20, 25-year contracts as they plan their system for the long run. And we've done that with intention because of the way we think those could fit in the C1 portfolio. And then we're also matching those with some commercial contracting designs that put a floor around price but will allow us to participate in upside when price volatility exists.
So we're trying to construct an overall portfolio that may involve both very long tenors and open positions with downside revenue protection that in total will be a nice complementary match to the existing portfolio that we have within CUN. And to your first question, I think many customers see these resources as an attractive thing to walk in and tenors have not been walking in further. In fact, in many cases, customers have been looking to contract them for longer lengths.
Got it. Thank you Craig. Much appreciate it guys. Yep.
And one moment for our next question.
Our next question comes from Mark Jarvey with CIBC. Your line is open.
Thanks, good morning everyone. I wanted to come back to the IRA and talk about the impact on existing assets, particularly the wins. Can you comment on whether, like, maybe looking at the legislation as written now?
Impact around eyeing storage so site and repowering. If you've got a feel for storage to be more impactful versus repowering, and how many of the sites maybe could even do both in the current portfolio.
E.M. drunk, yeah.iet? Alright.
Yeah, the problem, they'll handle the back half as usual. I think from our view, it's important to keep in mind that a lot of our assets have the benefit of being relatively new. So as I talked about on other calls, our reparing opportunity is not as though we've got a gigawatt of repowering that can happen. A lot of it kind of happens over time as you move through it because a lot of our assets are relatively new with longer, with longer-tener contracts that we need to be renegotiated. So I think overall the opportunity from the site perspective.
is impactful in terms of the different rules around PTC and tax treatment. However, I wouldn't want you to read too much into that, given like I said, the age of our fleet is relatively young and also the PTA-10 is relatively long, so it's not as though there's a big opportunity in the next.
24 months to do a gigawatt of repowering or something like that. So, I'll take that card from your view.
Yeah, Chris makes a very important point, which is that with the long runway that the legislation creates, we can really pick the optimal point in time to repower our existing wind projects, which...
In a lot of cases will be.
You know, as those PPA is from the original construction of the projects expire.
And the way that we've advanced our repowering development program has anticipated the succession of those, those milestones has taken into account the status of the equipment at those sites. And, and is a systematic program with the benefit of this legislation, which will be staged out over time. So that when we replace the equipment at the project and benefit from the new tax incentives.
The new revenue contract that's put in place is something that fairly values the asset, which the shorter timeframes we had to repower projects didn't really allow for in the past all the time in terms of storage pairing. You know, that's a pretty meaningful opportunity, both in terms of wind and solar assets. We've got. Silence.
thousands of megawatt hours worth of paired storage or retrofit programs underway for development across both wind and solar resources in the West. That's why I'm here today to share with other clients around the world, how they tried to
that the Midwest corridor of the country. And we expect that especially with the way the transmission systems evolving, that a number of the load serving entities that we support through those existing plants, we'll find it useful to evaluate commercial solutions with us that would allow us to deploy that storage hybridization even while the existing contracts are in place.
You know, I think more as Chris says, this will take some time for us to figure out what's really optimal keeping in mind what the current. Commercial picture is for those projects, but there's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade. There's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade.
That's helpful. And just on the storage, would you need to be 100% contracted just as you start to understand that market better and see asset performance as just your comfort level on being bit open on the storage side?
Yeah, I think it's a more complex answer, especially depending on what assets it's paired with. Don't get wrong. I think our preference would be in general to have it 100% contracted. But I think it's important to say where the storage is, what type of assets paired with, how it works within the overall portfolio, which may lead to different answers than 100%. So that's a treat your question. It's a little bit really how the storage is used. If it's a one-off, you want much higher level of contracted nature, if it's part of the overall portfolio, low levels of contracted could make sense, given how it interfaces with the other assets.
Got it. And then Chris, question for you, when you look at the pipeline, Clear Energy Group keeps expanding, loss of opportunity, so it's not a lack of assets that will constrain your growth. So as you think about that now, what else comes in the picture when you're thinking about which assets you want to negotiate? Is there anything on a diverse location, asset mix that is changing, just giving you sort of a sort of abundance of assets to look at? What else is going on in the decision making in terms of when you sit down to discuss what specific assets? Thanks, Chris.
Yeah, from our view, we've never really had precise diversification goals of we want to be 64 or 50, 50, let's say on the renewable side. So for us, it's more about making sure that we have the right asset and the right place at the right value. So don't get wrong as you can see with some of our acquisitions over the past two years, we've tended to diversify outside of California. So on the margin, if there's a dollar, we probably are a little bit more outside of California than within. And that's where you've seen a lot of our third party M&A. Perfect place.
So in general, yeah, that's kind of how we look to diversify, but it's not as though that we look to say we want to be X or Y in terms of percentages from that perspective. It really is about kind of good assets, a good value in the right place.
In terms of the geographic diversification, like are you taking specific views on certain power markets also as well in terms of where you think the poor serve is either.
Peace out youcoso.
I'm under appreciated or maybe people are too bullish on it. But is that coming to decision making as well can you think of longer term tail value?
For the longer term tail value, as you're all familiar, most of the initial tenors are very prominently contracted. So that really helps inform maybe a little bit our tail view of, okay, where do we want to be after the contract unwinds and what markets are we a little bit more interested in. But it really doesn't affect a lot of our decision making over the contract period, obviously.
Got it. Okay. Thanks everyone.
One moment for our next question.
Next question comes to just in clear with raw, your line is open.
Everyone, thanks for taking our questions.
So I guess first up here, I just wanted to follow up on the Inflation Reduction Act. It seems like project economics could meaningfully improve here, and you could also see more opportunities with growth in the market. But just wanted to see how you're thinking about the potential economics of drop downs. I know this will be market dependent, but do you see potential opportunity for higher-cafty yields here? And then I know you touched on this a little already, but could you give us a sense for how the change in the is going to be a little more? And then I know you're going to be a little more focused. So this is a little more focused. you
directly direct by and to all it'll affect the return.
So your second question in terms of tax equity, especially on the solar PTC, it allows to, I think the point Craig made earlier in the discussion, you can kind of get a lot more cash and cafty out of that versus having an ITC profile where we obviously aren't a current taxpayer. Some of those benefits aren't as helpful for us. So for us, I think it changes some of the demographics of returns that we're able to achieve. I think we, we have to see what all works out to say if it actually changes, you know, how fast we have to yield their IRS and like.
Okay, great, thanks. And then just on the supply chain here, I was wondering if you could just give us a sense for how disruptive the UFLPA enforcement might be to the solar module availability. I think you have modules for the Hawaiian projects, but could you give us the status for maybe Daggett Solar? And then for the commitments that you might be making here in the near term, are you considering whether projects have...
panels available, is that factoring into your decision making here?
Sure, I'll answer first and then hand over to Craig. And it's more to your last question. So, us, we tend to go over projects at commercial operation date. So, it's not as though that we're really taking a lot of construction risk in terms of panels arriving. So, just for what I thought, you know, when we kind of commit, we're really usually funding at or near COD, depending on tax others. So, just in terms of context, we have Craig for the other parts of the question.
Yeah, sure. I'm very proud of the work that our team does in general when it comes to technology forecasting and procurement, and especially in the solar domain. I think we've generally been a few steps ahead of everybody else in thinking about what our supply chain needs to look like as an early adopter of bifacial, as a major driver.
pro-cermit of panels that make use of US-made polysilic in establishment of Xinjiang free provisions in our pro-cermit. And I think that foresight is really serving us well today as an enterprise. So through the application of that kind of foresight and the responsibility we put to work, we are optimistic that in the same way that we were resilient around the co-shine withhold release.
learnings material for future near-term drop-down opportunities and
While it's conceivable that temporary confirmatory holds at the border are possible for industry participants generally as CBP establishes its enforcement program, we think it's going to be a manageable risk for our enterprise without materially delaying any of our projects estimated CODs because of the supply chain configuration that we've procured really for all the projects, DAGit, which makes use of the same supply chain that supported
Hawaii, the Victory Pass in Erika project, the Texas Solar Nova project, and then successor solar and storage projects that make use of similar supply arrangements. So in the short run we think we have established a procurement program that anticipated U.S. policy objectives and therefore should prove resilient. And then as we look into the future I think again we're trying to sort of…
spearhead the way of planning for an increasingly localized supply chain for solar modules or a supply chain that makes use of manufacturing locations consistent with U.S. policy objectives. And certainly the incentives and the legislation if passed are going to make that an even more feasible goal for us as we go into the mid-decade. So I think in total we've been thoughtful and we should be all right because of where we're procuring these panels from and –
While it's possible that we may see disruptions just because ports are complicated entities and the way that the whole of the CBP implementation regime will function is certainly something that will involve disruptions, but in the long run we think we should be okay based on what we bought and who we bought it from.
Okay, great. I appreciate it. Thanks, guys.
Okay, great. I appreciate it. Thanks guys. One moment before our next question.
Our next question comes from NILK with Oppenheimer. See your line is open.
Good morning, thanks for taking the questions. Maybe to start with, one backup and ask a high level one around the total collaboration here. I know you're obviously in the planning stage and I'm closed yet, but based off of those discussions, just can you sketch out some of the areas where you see the opportunities for collaboration? And maybe we can walk through the development side, the re-contracting side, and then you potentially, you know, the financing in MAA side.
Sure, I'll kind of walk through some of the parts that have to credue on the development side. So I think financing and M&A, it's not as though, you know, obviously currently need and we have a pretty strong couple market presence going forward.
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We've, as I think your question suggests, we're in the early stages of discussions with total around collaboration and of course there's during the time period between signing and closing certain regulatory constraints that we need to be respectful of during that time period, but we see and particular potential for unlocking.
You know, new capabilities are opportunities in the ability to collaborate around energy management. The ability to collaborate around energy management.
And the interface with power markets, where as total growth, it's us presence in electric power markets, its ability to act as a trading counterparty to help us establish revenue contract positions for projects that are consistent with the yield Co or manage around those positions for value and risk reduction. You know, could be a really important tool for us to have in the toolbox and some power markets.
So that's one area we look forward to collaborating with them on. In terms of development activities, it will certainly look to collaborate with them as we do with GIP on global procurement strategies.
that help us drive value both for our projects and for the work that they do in the US and elsewhere. So there's opportunity for us to collaborate around procurement and cost and long run service in that regard. In some of the newer asset class categories that we touched on before, I think there's especially some interesting opportunity for collaboration. When we think about
the capabilities that a company like Total brings to bear in the green hydrogen market globally, they are truly complementary to what we know how to do. I think one of the leading enterprises when it comes to siting renewable assets and building them and operating them.
And we've started to do the work of thinking about where they could be built for purposes of green hydrogen production, but moving molecules and marketing them in a value added way is something that total is a world class leader and we look forward to collaborating with them in terms of matching those capabilities up with our own. And then certainly as you look across to offshore wind.
You know, there's, uh, Jotal is an emerging global leader in that asset class. Uh, and, you know, as we've thought about what's possible, um, in, in the context of the Western US where, where we're a leader, um, certainly clear way has been advancing a vision for what we could do in that asset class. And, you know, I think together, uh, with Jotal, we would be a formidable force as, as you look out, uh, in the longer run to the Western US and what it can do in offshore wind. So,
You know, these are early days and we have to be respectful of regulatory constraints that exist right now, but I could not be more optimistic about what we can do together as we look out into the future.
That was a really interesting and helpful answer. Thank you. I guess maybe there's more for you Craig, but as a follow up, just talk a little bit about the process you went through over the last call-acorder of having to kind of go off and then on again, anywhere in the portfolio in terms of...
uncertainty around the tariff and then getting the clarification. You know, obviously you had to remobilize cruise. You know, some of the peers have pointed to, you know, specific kind of time delay period. So curious to know, you know, what you experienced and to what extent or any timeframes you can put around, you know, any push outs and CODs. Yeah, the COD forecasts that are contained in the earnings materials reflect our current outlook for compliance.
our focus of the ADCVD investigation.
Some of that also reflects the work that we've done with our panel suppliers to assure that they are allocating the capacity that they have that were at the top of their priority list.
And in candor, some of it reflects actions that we took at the sponsor company incurring material incremental cost in order to perfect that supply chain position so that projects would stay on track. And so, I think our goal has been to advance those projects so that our customers can get the resources that they'd planned on as close as possible to the time frames they'd originally envisioned.
before some of either the supply chain disruptions or these trade policy driven disruptions. And to also get these projects online for C1 to be able to deploy its capital into them. And that has not been a costless proposition for the parent entity. But we take those objectives seriously. And so we've incurred those costs to keep these projects moving forward and have been glad to be working with our customers who have.
who have worked with us and are working with us to make the accommodations that those project circumstances require. So it's not been without impacts in terms of our cost or modest impacts on schedule, but I think overall our program has been less disrupted than others because of our readiness to incur those costs and also what we were planning on in terms of the supply chain in the first place.
Great, thank you.
And I'm not showing any further questions at this time. I'm a life turner call back over to Chris Rene closing remarks.
Just wanted to say thank you for everyone for attending and I look forward to talking to you all in November . Take care.
Ladies and gentlemen, that's conclude today's presentation. You may now disconnect and have a wonderful day.
This does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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