Q3 2022 Clearway Energy Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Okay.
Good day, and thank you for standing by welcome to the Clearway Energy third quarter 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 this session you will need to press star one one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Chris Sotos, President and CEO of Clearway Energy Inc. Please go ahead.
Yeah.
Good morning, Thank you for taking the time to join Clearway Energy, Inc. Third quarter call.
Joining me. This morning is a geo Marsh director of Investor Relations.
As president and CEO of Clearway Energy group our sponsor.
It will be available for the Q&A portion of our presentation.
Before we begin I'd like to quickly note that today's discussion will contain forward looking statements, which are based on assumptions that we believe to be reasonable as of this date.
Actual results may differ materially.
Please review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings.
Edition will refer to both GAAP and non-GAAP financial measures.
Information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to today's presentation.
Turning to page three.
The company generated cash do you have a 154 million in the third quarter and $328 million through the first nine months of the year.
<unk> increased its dividend by 2%.
$3 $6 72 per share or dollar for six to nine on annualized basis, keeping us on target to achieve the upper end of our dividend growth objectives for the year. Unfortunately due to the previously announced operational issues that <unk>.
And other items.
<unk>, our 2022, Kathy guidance down from $365 million.
So it really continues to advance its drove strategic initiatives right now having also can those capacity fully contracted through 2026, along with Marsh landing in Walnut Creek.
Close the capital trying to wind acquisition as well as funded the dropdown of while solar with the rest of the previously announced shutdown projects on track for commercial operations in the fourth quarter of 'twenty two early 'twenty two phase III.
We are also updating our pro forma Kathy outlook with $390 million from $401 million, which I'll review in a couple of slides.
Clearly as long term steady growth outlook is more transparent than ever with the latest offer from Clearway energy group for one four gigawatts of assets utilizing anticipate $410 million of capital at an approximate nine 5% cash yield as a result of our sponsors continued development efforts. We also have visibility.
<unk> into additional dropdown offers and just bringing the first half of 2023, leading to the deployment of an approximate additional $220 million of Clearway Energy, Inc. Corporate capital.
Our sponsors development pipeline also continues to grow now standing at 26, eight gigawatts, including six eight gigawatts of late stage projects expected to reach commercial operations and Thats three years.
As a result of these offers if you see the $750 million of thermal proceeds being deployed by the end of 2020 for supporting our greater than $2 15 cap your per share long term capital outlook.
At this level of capital generation Clearway is confident in its ability to grow at the upper range of its 5% to 8% EPS growth target through 2026.
In summary.
<unk> continues to execute on the deployment of thermal proceeds in additional dropdown assets.
When combined with the contracted capacity of our California gas assets at a very stable platform for continued growth and Kathy and dividend per share.
Turning to slide four to provide a bit more color on financial results.
For the third quarter, there is reporting adjusted EBITDA of $322 million and cash available for distribution or Kathy of $154 million year.
Year to date results came in at $948 million of adjusted EBITDA and $328 million of Kathy.
Our third quarter results were negatively impacted by forced outages in the conventional segment as we previously announced that also even though energy center began a forced outage in late August and you had 7% eight after initial repairs returned to service on September 14th.
Additionally to the Walnut Creek facility experienced a less material forced outage in late September .
The rest of the facility is currently running at normal conditions, while components for unit two are being repaired.
The majority of the 2022 cash impact related to the El Segundo and Walnut Creek forced outages occurred in the third quarter related to the loss revenues, but O&M costs will also impact fourth quarter results.
In the renewable segment third quarter results were lower than the PCP expectations due to a weaker than normal renewable conditions across the portfolio. This was somewhat offset by the timing of project level debt service that moved into the fourth quarter.
Given the expected full year impact from the forced outages in the conventional segment. The company is revising its 2022, Kathy guidance with $365 million $350 million.
Regarding the balance sheet. The company continues to have unprecedented flexibility to execute on its growth, but I'm, having to form new corporate capital.
The excess proceeds from the thermal sale remain available to be allocated the visible future growth from Dropdowns and we continue to expect our pro forma credit metrics to be in line with our target ratings.
Furthermore, our revolver is completely undrawn and I continue to be insulated from interest rate volatility with nearly 99% of our debt being fixed.
Turning to slide five to provide an overview of the company's pro forma Kathy outlook.
'twenty three expectations and underlying assumptions in our forecast.
In order to explain the various moves in our Kathy expectations, we provide a bridge commencing with our prior previously announced pro forma Kathy outlook of $400 million.
The company is updating the pro forma capital outlook to account for updated forecast as it results in a variety of pressures across the portfolio, including inflation question, sorry updates in our renewable segment, including basis differentials and other portfolio and cost items in aggregate. These various budgetary adjustments to equate to approximately $10 million and result, and updated pro forma cap.
The outlook of $390 million.
Moving to the bridge for 2023 expectations for our updated pro forma Kathy outlook because.
It shows our pro forma cash outlook is based on five year average Kathy profiles for new investments 2023 expectations reflect 10 million lessen Kathy that our pro forma Kathy outlook due to the timing of when projects reach operations and the shape of project cash flows consistent with what we have disclosed previously is $10 million will come back in 2024 and beyond.
The next source of variances, the recently announced Cappuccino wind acquisition as we announced previously we intend to refinance the existing non recourse project debt of the asset however, due to our significant cash balances. Currently clearly believes there is no need to suffered negative arbitrage given limited currently forecasted cash needs for their way between now and the end of 2023.
And therefore, it looks to be fast cappuccino at year end of 2023, leading to a $10 million caveat.
As a final bridge to 2023 guidance franchise reflects energy gross margins in the conventional segment.
Recent market pricing above the long term projections and our pro forma <unk> outlook.
While our natural gas assets Marsh landing also been known and Walnut Creek, a fully contracted through 2026 in terms of revenue from resource adequacy contracts.
Starting in mid 2023 after their initial tolling agreements expire the three facilities have the ability to generate additional revenue from dispatch and into the merchant power market.
Based on forward power markets and internal analysis.
<unk> currently expects the three facilities to generate energy margin for merchant power markets declining approximately $20 million of upside.
'twenty three relative to the long term merchant energy assumption that underpins our pro forma cap the outlook.
The table to the right outlet to merchant energy assumptions in our pro forma <unk> outlook.
Per kilowatt month basis.
With these adjustments described in the bridge.
Ladies and initiating 2023, Kathy guidance of $410 million.
To close out the guidance and pro forma outlook discussion. It is important to note that the merchant energy margin estimate the conventional segment on a pro forma basis represents only approximately 5% of clearly is asset level Kathy our pro forma Kathy outlook continues to be primarily underpinned by long term contracted cash flows with private.
Worthy counterparties with future upside to this outlook from the dropdown of additional contracted renewable assets, which I'll discuss on the next slide.
Page six provides an overview of the latest dropdown offers from our sponsor.
As you can see on the left side of the page. These assets are predominantly solar with deployments in Texas, and California and also include utility scale wind projects in Idaho.
<unk> also seen an expansion of our Rosemont investment with a battery storage asset, which benefits from an expected 15 year capacity offtake as well positioned to capitalize on energy arbitrage opportunities in California related to the late day ramp in network.
In total these assets represent a significant investment of $410 million and see one corporate capital at a strong estimate chassis yield of nine 5% on the portfolio, which sells the majority of its output under agreements that have an average duration of 17 years.
In addition, this investment will further will further our customer diversification of our fleet with the majority of the offtake with corporations non utility load serving entities in California, and Idaho utility.
In summary, the last dropdown offers from our sponsor to provide transparency into the redeployment of the terminal proceeds into our quality, while diversified and strong cap yielding selection of assets.
Page seven provides an update to our targeted <unk> per share in excess of the $2 15 that reinforces our long term view are ongoing the <unk> dividend at the upper range of our 5% to 8% long term targeted growth rate.
At our $390 million pro forma outlook, we discussed previously we add in the latest office from our sponsor, which assuming binding agreements Archie will deploy $410 million of capital at a nine 5% cap deal as well as our current view around additional impending off from our sponsor and the first half of 2023 or 220.
Capital deployment also anticipate nine 5% cap deal with these dropdowns in the previously announced acquisition of Kappa shuttle win.
We have deployed all of its thermal sale proceeds by the end of 2024 with an undrawn revolver available to fund the additional capital needs required in the short term.
As we described a year ago, when we first announced the thermal sale and since we received the proceeds in May.
Clearly is now able to demonstrate the utilization of the entirety of these proceeds to drive Kathy per share growth with an investment in high quality assets at attractive yields.
Turning to page eight our goals for the year have not changed we have closed the sale of thermal Unfortunately must adjust our 2022 casualty guidance due to the forced outages in our conventional fleet that occurred in the third quarter. Despite the setback through we are still able to increase our dividend per share at the upper range of growth during the year.
In terms of growth in the future. We have closed on the acquisition of the Capex amount of wind portfolio more materially. We now have line of sight with our sponsor to deployment of all the remaining thermal proceeds to dropdown assets over the course of the back half of 2023 and the end of 2024, a strong cap the yields and contract tenders.
This deployment should provide our investors with increased confidence.
<unk> ability to drive <unk> per share growth to 2015 cents a share higher.
This does not imply that clarity will stand still in terms of investing for growth and simply wait for these dropdowns to close we continue to see opportunities in the market, but we'll continue to be disciplined and adhere to our underwriting standards.
And finally, we are proud to complete the initial stage of our journey on the natural gas portfolio. We now have 100% of the capacity of our gasoline contracted through the end of 'twenty six and look to engage in additional auctions in the future to further extend that runway and.
In summary, Clearway Energy, Inc. Continues its focus on prudent growth as confidence ability to meet its long term growth objectives. Due in part to strong sponsor support to include insurance clearly success operator, please open the lines for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, Good morning can you guys hear me.
Yes.
Hey, Thank you so much for all the comments you guys ran through a lot there.
If I can just come back to a couple of things Super quick.
First off with respect to the new growth that you're outlining here can we just talk specifically about the existing.
And what that backs into in terms of specific.
Targets here through the 'twenty four time period again, great job on a timely basis deploying the proceeds now.
Obviously disclose the 95% cap deal can you talk a little bit about how this positions you with this.
As well as incremental targets in this higher rate environment to achieve some of the dividend growth targets and then in the medium term not necessarily just in the near term here can you talk a little bit about what else needs to be done to achieve it because obviously you've outlined a lot here towards getting there, but I want to make sure against the backdrop of the higher rate environment.
Where you stand.
Sure.
To minimize the question Julien, but looking at page seven.
Really we don't need to do anything else other than execute the dropdowns and have them perform as.
Anticipated to produce that $2 15 per share so that's kind of.
Looking to page seven obviously, we're using the cash from the thermal proceeds so maybe to your point any moves up in interest rates or stock price movements wouldn't affect this baseline number it would only be incremental deployments beyond these numbers that would required to hit the $2 15. So I think that was your question.
Maybe let me hit it more directly with respect to the rising impact of rates. Obviously, both of the portfolio is financed on a longer duration basis can you talk a little bit about liability management, maybe thats. The other side of this but I wanted to make sure here.
Sure Yeah, we don't anticipate raising any corporate debt to fund. These acquisitions. If that's your question and all of our debt 2028 is our earliest maturity and the other ones are in 2031% and 2030 twos, we have quite a bit of time before we have any corporate debt that would that would need to be raised to deal with acquisitions.
Excellent. Thank you and then if I can come back to a couple of the nuances here.
At the highest level you've got additional energy margin can you talk about sort of how that's manifesting itself.
Here, obviously, you've been re contracting yet.
As you think about how that proceeds not just in 'twenty three here, where you provided nuclear work how does that evolve through time through 'twenty six and then how does that get to your thinking here about.
The relative math on 2000 <unk>.
Extensions and perhaps a little further cutting at higher level beyond that.
Sure a couple of different questions there Julian hopefully algorithm. So part one the energy margin. We have in 2023 is obviously a bit.
Non linear because the different assets come off of their current holds at different times. You are also going to later in the year in July you've got Walnut Creek earlier in the year and March. So what we have is kind of given the current commodity environment and what we see that additional $20 million that we have in 2023 in terms of our guidance.
Seeing if we look on a more normalized basis, what the energy margin, we're assuming to derive the $2 15 per share in the long term is between $1 and $1 50 energy margin. So I think for US we view that dollar $1 15 in the long term being very achievable, we expect to out earn that in 2023, even though it's a parse.
Full year, but once again as everyone's well familiar this is kind of our first year operating on a merchant basis, we want to see how the machines operate how the revenues come in and then we'll kind of adjust that over time, but from our perspective in order to hit the 250 and long term, we need between $1 and $1 50 energy margin, which we feel pretty good about especially given where we sit today.
Empirically in 'twenty three.
Got it lots of conservatism there alright, I got more I'll get back in queue. Thank you guys very much all of that.
Sure.
Thank you.
Our next question comes from the line of Noah Kaye with Oppenheimer. Your line is now open.
Thanks, so much for taking the question. So there's a lot here in terms of being able to allocate your remaining capital and you've got clear visibility now, but I wanted to ask post higher rate given the additional incentives, whether it's standalone storage or.
Green.
I'd region production, how are you thinking about investment opportunities in the existing fleet, whether it's repowering, adding storage.
Going downstream, what do you see as the opportunity.
Sure I think for US we kind of use those opportunities before in terms of Repowering assets like elbow Creek, and ROE will Dorado I do think to be fair to the question.
One difficult part about our book as we have a lot of relatively young assets, so kind of repowering might not be the most advantageous it's not as though we've got two gigawatts need to be retired in the next two years. So to your question, it's a little bit kind of going through time, and you might see years in which we do zero and then you might see US do 400 for one year and then go back to zero for a couple of years, it's kind of much more.
Episodic than something that's being done consistently where every year, we have a repowering, let's just for good or ill the nature of our fleet because its relatively young.
It's your storage question I think for US, it's really looking to see what does the existing customer want right. Obviously, the vast majority of our power has already sold under contracts for us to add stores to an existing facility. We obviously need to fill what kind of lift power from that system. So it's really dependent on what the customer wants that in those negotiations. So once again in <unk>.
Of making those modifications on the existing fleet.
See what customer demand is and how that works, but I wouldn't expect some paradigm change here in the next 24 months.
Okay. That's helpful. And then maybe another sort of post hire a question.
Clearway Energy group.
As part of this announced buyers consortium.
<unk> over six Gigawatts of.
Solar module is expand the domestic supply chain, we understand there is a lot of good reasons to do that.
How do you think about currently.
Or your supply chain needs your ability to procure that from domestic sources qualifying for bonus content and how that factors into the.
The development outlook and the pipeline.
Craig wanted to take that.
Thanks for the question Yeah.
We're pretty excited about what the implications are going to be for the broader.
U S market as we get into the mid decade.
And also for the objectives that policymakers have in and wanting to domesticate more of the supply chain that fulfills construction of solar wind and storage assets.
Got it.
That excitement is informed by detailed engagements we've been having with our framework supply chain partners really going back over the last year and a half.
And what I expect is that the treasury guidance formulation process will be influential here.
In getting manufacturers ultimately to green light investments.
<unk> start to be publicly announced but the work that will underpin the announcements as very much happening right now and we're pleased that on.
As we work across the solar supply chain the battery supply chain in the wind supply chain that the suppliers, we engage with are preparing thoughtful.
Concepts that on that will minimize risk and maximize value as we look at the fulfillment and the mid decade, and we have solutions that.
That we're planning for deployment in that timeframe.
Around each one of those component technology types.
Okay very helpful and we look forward to more thanks for taking the questions.
Thank you.
Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.
Thanks, Good morning, everyone.
Just wanted to touch on.
The cap the yield on the Dropdowns previously last quarter, you guys are going to eight and a half now is neither have obviously interest rates are moving just update us in terms of how youre thinking of what's guiding our parameters on cap yields and hurdle rates right.
Right now and can they make a decision on the dropdown.
Sure I think for us and in negotiation with our sponsor I think obviously, they're well aware of where the capital markets have moved so between the two of us and a lot of people ask about sponsor support sometimes it can be the most linear and empirical way to see that as a strong cap deals. So I think for us our sponsor recognizes the changing capital marks there.
Have occurred since our last earnings call for that matter.
And in negotiations with them about where we think the cash yield should be.
They indicated a higher numbers, where they think is fair.
Obviously, we'll due diligence and the like through the assets and hope to come up with a binding agreement, but it's obviously very constructive from a sponsor support level to have that different cap deals as I've talked about before as well, though it is important to highlight that part of Caf deal is also dependent novel cap yields are the same.
The asset more solar weighted or wind weighted is it a shorter duration PPA.
<unk> or longer and so from our perspective, given that a lot of the book of business is in solar and also that the contract duration. The majority of it is on a fairly long duration about 17 years, we feel very good about the nine 5% cash yield has been offered but once again, all subject to diligence and working through our independent process.
And then just when you think about that like is it just a spread versus bond yields in like a cat PM approach like that to kind of maybe thinking a little bit in terms of how you guys are deciding what sort of a fair number I referenced rates move around here.
From our perspective, we actually look at it much more versus equity because that in order for me I think we have a conversation with you about why not to buyback equity versus invest in these types of assets, we really compare it versus our equity yields. Most generally obviously bonds are important as well is not going to pretend that but to answer your question. It really is the spread versus equity because.
To me whenever we make an investment at clear way I would like to be out there for you to be able to see that that's a good investment based upon where it trades versus our equity.
That makes sense and then just turning towards some of the assets youre, adding here.
Texas, obviously with the PTC as being eligible for solar being eligible for a.
A bit more concerned about negative pricing and basis risk.
Thoughts around those assets the restaurant basis risks and an updated outlook I guess, you guys talked a bit about potentially some of our basis risk or your view just around that impact that PTC has a personal assets.
Sure I'll start and then obviously correct can fill in anything from his perspective.
From my view.
See a little bit of basis Thats, one reason for our component of the churn in the near term.
The new contracts it should really eliminate a lot of that risk in terms of how they are theyre not financial hedges for example, they're kind of more traditional told it settling out a node. So from our perspective, we think in the new portfolio. We Shouldnt really see zero is always a good number but we really shouldn't see a lot of basis risk. Yes, we had seen some of that in the portfolio.
Part of that is due to the stressed economic and.
Commodity environment.
It's why we included it in our $3 90 number, but Craig I know anything to add there yes sure.
For the dropdown offers that have been made.
<unk> revenue contract has known settlement on the portfolio of assets here.
So theres no hub settled contracts in that portfolio of assets.
It's not to say that there might be some circumstances in the future where.
We construct projects with hub settled ppas.
But clearly given the kind of transformation in the U S electric grids going through.
As we do that we want to be doing that in conjunction with also putting in place effective contractual net again.
For potential changes in basis over time, so firstly for this portfolio of assets the settlement structure on them eliminates any basis risks by their very nature.
And then second to Chris's point for a portion of the capacity of the solar assets in ERCOT.
They've been designed both in their location in the fraction of them, that's merchant to offset basis risk on the existing.
Wind assets that exhibit the pattern, Chris mentioned in the high commodity environment right now so once completed we think that solar project in another.
That's in the set of dropdown offers we intend to make in the first half next year are going to help balance the book where that basis exists, which is candidly quite minimal in relation to their overall fleet size.
And I think going forward, we feel pretty good about.
The way that we're able to select from the 2007 gigawatt pipeline that we're advancing.
Based on the markets, where we're creating projects the contracts that we shape.
And the analysis of the portfolio as a whole that we felt that we can.
Maintain a portfolio of operating assets that exhibit to low risk profile in relation to things like basis and merchant price formation.
Understood. Thank you both answers.
Thank you.
Our next question comes from the line of Justin Clare with Roth Capital Partners. Your line is now open.
Yes, hi, everyone. Thanks for taking our questions.
Just first off here given the location of your committed assets it looks like the PTC could potentially be more valuable than the ITC.
Just wondering if theres been any changes from the ITC to the PTC for any committed projects.
Or any changes in the capital structure that might result from this.
And then there's also the availability of the higher level of the ITC now. So just wondering if that has impacted anything as well.
Yes, I think I'll, let Craig kind of address that but the one part I think is important is all of those changes are kind of encapsulated in the CAFTA yield that is part of the offer.
The changes that Craig's development team has kind of had to work through it as a result of the IRA and different moves that's kind of encapsulated in the offer that's being made so those changes wouldn't necessarily affect the nine five that were targeting but Greg on the only thing to add.
Sure so.
So for the projects that were committed already before this most recent set of Dropdowns.
Not elected to change from an ITC to PTC.
Part of that.
Is informed.
By what helps.
Position us to create the most value for.
For the asset as we drop it down.
And also.
Offset cost inflation thats existed elsewhere.
So for.
For one asset for example, it was located in an energy community into that provided some ITC uplift and that helped us offset cost inflation that's been experienced over the course of the last few years for.
For the most recent set of dropdown offers that were made.
Two of those solar projects will elect the PTC.
And that's part of what allows us to convey these assets it up at a higher cap to yield and also with more investable cash flow for the Yieldco.
And in conjunction with with electing the PTC. We've also sought to design revenue contracts. So that the same type of contractual features that we have made use of historically in the wind industry on projects that are like the PTC will be there also and I think.
Being thoughtful about how to do that is something that we're glad we're doing and we think every soundly.
<unk> operated sponsor.
Will and should do the same so.
We're excited about what the PTC election can mean and high solar resource environments. When it's when it's put to work in the right way.
In terms of what it can mean for our customers and the value we create for them and also what it can mean for the growth of cash flows and our yieldco.
Okay, Great. That's really helpful and then one more.
The total transaction closed here just wondering if you could talk about.
When you might be offered potential dropdown opportunities from hotel and then could that happen as soon as <unk>.
Next year and is there potential for upside to your cash.
<unk> for next year if you.
The attractive opportunities.
I think it will take some time to work through that the total book, we closed fairly recently and kind of working through their book of development assets I think I'll take some time to get clarity to Craig's kind of to your earlier question. Craig's team has done a lot of structuring through the IRR <unk> come up with results that are helpful from a yieldco perspective.
And the restructuring is kind of working through different parameters. So we kind of have to come together and see what we have but I think too early to say is the simple answer to your question, but I think we will definitely look to see if theres anything that can work with them. This was all platform going forward, but too early to say is the simple answer.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from the line of Keith Stanley.
With Wolfe Research your line is now open.
Hi, good morning.
First just wanted to clarify on the 2023 cap the guidance, what you're assuming for debt service on El Segundo I know it had that bullet maturity issue, just how youre dealing with that for guidance in terms of interest and principal payments for that asset.
Sure, we're looking to pay that down at year end this year and beg your pardon.
To the point that.
Bob.
Liability, we're going to take on balance sheet any way due to its bullet and so for US that's part of our <unk> guidance is the repayment of that at year end of this year.
So you're in.
Okay. So you are not you are including the pay down of that maturity within the 23 guidance or that's part of 2022.
Because it's a prepayment it doesn't come as part of Kathy or making a voluntary decision to do it. So it's not a down arrow so to speak in 'twenty two and in 2023, obviously whatever debt service would have been part of 'twenty three like the whole $1 31 to bed in there even as part of normal guidance I wasn't in 'twenty is not in 'twenty three.
Okay.
Because of the prepayment for 'twenty, two I'm, sorry got it.
Okay.
Separate question for Craig just any comments on what youre seeing with <unk> and flow of modules into the country.
Yeah.
Doing fine with that.
Okay.
In order to kind of elaborate though a little bit about the broader landscape.
Compliance with <unk>, something we feel pretty well positioned around in particular, just because of the focus we've had on procuring from supply chains in anticipation of the succession of trade actions.
That have unfolded in.
In the course of the last couple of years.
We're pretty deeply engaged in policymaking in the U S and we look for that to kind of inform our view of where we need to go with our business broadly and certainly in terms of procurement and so far that's served us well.
The estimated CRD as presented in today's earnings material for future Dropdowns, all reflect our anticipation that we'll be able to successfully comply with <unk>.
Because of the supply chains, we procured from.
So there is the possibility that there would be Tim temporary confirmatory holds at the border.
Our industry participants broadly.
Which which are in place today, but we think it's a pretty manageable risk for us just because of the fact that we have module is coming and freely today because of.
Who we buy prime and where their supply comes from.
And to the extent that any confirmatory hold were to occur we feel quite comfortable with our ability to tender documentation that would substantiate that the product can come into our country in compliance with the statute.
And just to reinforce that we have no module is being currently detained.
Sure.
So.
With that said the establishment of a more practicable enforcement regime for you <unk> is very much an issue that needs to be front and center for the U S government.
Yes, the leadership across the applicable government bodies, just needs to put our parts in a position where they can be successful because the quantities of equipment.
We're going to be coming into the country to meet the needs of the power grid and climate goals are dramatic.
The documentation requirements to enable imports just needs to get more more clear and more standardized that there is I think quite a lot of conversation going on around just that and I am optimistic that the industry and the government together, we will figure out a way for this to function effectively going forward, but from our vantage point is clear.
They were.
We're in good shape and I think as we have been.
And with other supply chain choices, we've made.
I think the choices, we've made in anticipation of the <unk>.
<unk> enactment are serving as well.
Thank you.
Our next question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.
Hey, guys, Hey, Chris Thanks for taking my question.
Just probing a little bit on 2023 guidance and I'm going to ask for a little bit more detail, whether you're going to give it in the early part of next year.
You gave us Kathy.
Super helpful. Can you do the walk from EBITDA to Catharine for US please what the EBIT value or kind.
Range of EBITDA relative to what Youre delivering in 2022.
And then what are some of the bigger lumpier items I'm trying to think about principal debt repayment at the project level maintenance Capex.
May be interested in if there's anything else I am leaving off let me know.
Yes.
Sure.
Okay.
Yes page 22.
But Michael in terms of the SEC, we have which as the adjusted EBITDA of 107 zero kind of for your question around EBITDA, yes.
Thank God that has principal amortization and maintenance Capex I think that has the components.
Looking for.
Got it okay great.
Great.
2022, EBITDA at 2023 EBITDA.
Yes, I mean not off the top because of the PPA roll off obviously, because you have the high priced tolls in 'twenty. Two and then you have a combination of different tools rolling off at different times in 2003, plus the energy gross margin from the renewable from the open position coming in so that's a little tough to bring.
I just wanted to just 23.
Got it totally makes sense.
And then on the principal debt amortization can you remind me when that 300 and some million dollars what are the bigger assets, where that paydowns occurring is that mostly the California gas plants, although your comment Baxter.
We've probably eliminate delta going down or is that widely spread across the entire fleet.
Yes, you can look on page 16 for that so to your point, the California natural gas other and also good though are a big part of that and then you've got agriculture that day.
Cvs arent some others. So that's all on page 16.
Got it Okay. Finally can you come back.
Cost of capital a little bit.
You made the comment about how you think about dropdown or cap the yields versus share buyback.
How do you can you dive in a little further how you calculate what your own cost of equity.
Sure for us and I'll draw a distinction between our weighted average cost of capital on a cash deal, which is obviously a lot more transparent you're obviously dealing with beta isn't always the weighted average cost of capital but for cost yield.
Frankly, a little bit I think that the market trades us probably somewhere between our $2 15.
The estimate and where we are currently $1 $98 93, so in general that yields I didn't look at the stock price does.
Not open yet, but as of yesterday, thats, probably yielding somewhere in the <unk>. So thats kind of how I view, where we're trading so that when we talk with our investors and say I believe that dropdown X or Y is a good investment you can look at the spread of that $9. Five in the example, we're using now versus that somewhere in the sixes, depending where you think we are.
Trade and that's a good basis.
<unk> for analysis.
No and I don't disagree with that and thank you for that that's Super helpful. I would just be curious if you were to issue new holdco debt today.
Would you be issuing hundreds and hundreds of basis points below six otherwise that would imply very little compression very little spread between your cost of equity in your holding company cost of debt, which is I.
I don't know if given the higher rate environment feels a little unusual for any company.
Yes, I think our bonds are probably are trading a little bit in line with those numbers, depending on which day you asked the quarter, which we given the volatile environment.
In a high a high six is probably the last prints I saw on the 30 twos. So I think the debt and equity markets are pretty close in terms of interest and where we trade.
Forward Caf deal basis from that perspective.
What that basically implies.
Most think your cost of debt and our cost of equity of the bank.
Yes, although to be fair that to proceed as a forward number versus the others.
As well as I that plays in everyone's thinking, but I don't think that differently apart if thats a different way to answer your question.
Got it thanks much appreciate it.
Sure.
Thank you.
Our next question comes from the line of Andrew <unk> with Seaport. Your line is now open.
<unk> <unk> with Seaport. Your line is now open please check your mute button.
I'm sorry did you have any contribution from the <unk> included in your <unk>.
General Kathy guidance.
For 'twenty two no we did have an approximate like because we know exactly when it would close and it's only part of the year.
For 2023 and going forward I believe we had 12, assuming that we re levered. It there is a delta of nine or 10, that's why we have the uplift in 'twenty three because we are waiting till year end to refinance it.
Okay, and then separately.
For the energy margin.
Guys have any energy hedges or the financial hedges for our second FY 'twenty three.
No other than the toll that exists in the raw capacity contract, but no. There is no energy margin edge currently it's an open position.
And then lastly, there's lots of discussion about the cost of debt.
You mentioned that.
You are not issuing any holdco debt.
At least our future growth for the next couple of.
Quarters, but.
What is the cost of project level debt right now at least.
How much it has risen so that we can.
Calculate the delta between your cost of capital in this new SaaS deal.
But I do think to be fair to your question. Obviously the cash yields we quote are after all of those costs right. So they take into account the cost of project debt not before so not to minimize the question, but when we talk about our caf deal Thats after that amortization, regardless of what those costs are.
I think for us, there's probably not been a big delta in the credit spread it's probably more on the underlying what the swap to fixed is under LIBOR or sofa, but Craig on if you have any color in terms of what youre seeing but.
Yes.
Thank you.
We've seen.
For all of the Dropdowns, we plan through 'twenty four.
We put in place interest rate protections.
Some time ago and so those are.
Sort of help so those are enabling the type of dropdown economics that youre observing here.
Both incentive offers we've just made.
Preservation of the returns on the assets that were committed previously and also the offers we expect to make in the first half of next year.
And then as we look forward.
<unk>.
We've seen some compression in spreads.
The sort of benchmark 10 year is very observable number for you Angie and in general what we've been looking to do as we finalize revenue contracts on assets is to put in place.
Interest rate protection, so that any debt financing, we plan to put on either for the construction period or the term.
<unk>.
Already anticipate that cost of debt.
On a long term fixed basis.
And supports a cap yield that's accretive for yoga.
No.
For us at the sponsor level the job now to do is as we market power to customers.
Need to anticipate what the forward cost of debt is going to be when we do market and contemporaneous with the revenue contract signing in.
What we're observing is that we can still provide compelling value to customers, even with the cost of debt having written.
Okay perfect I just wanted to go back to the <unk> portfolio.
Because I would've expected that at least some.
Contribution from that asset that set of assets would have.
Well contributed to your 2022 KFC. So is there some other offset besides just the unplanned outage of the Gaslamp.
I know that you mentioned the weakness in the wind resource.
But again I mean, it doesn't seem like there's any addition from from that set of wind farms.
We are always going to own it for a quarter as you saw it's single digit millions. So it's a small rounding number within the whole segment.
Yes.
Contributing.
Bidding, yes is it a very small number we're not reconciling yes, because it closed here in the third and fourth quarter.
Okay I understand.
<unk>.
Thank you as a reminder to ask a question at this time. Please press star one one on a touchtone telephone.
Our next question comes from Antoine Armand with Bank of America. Your line is now open.
Chris It's Craig Thanks for thanks for the update.
Just quickly on the on the credit side, just curious if you can give us a bit more detail on whats your leverage position right now at a corporate level and then how does that compare to your targets.
Well as I wanted to reiterate.
Wherever it would be no.
Capital needs through 2026, if I understand correctly.
Sure. So two parts I think right now I'm, just not deploying the full amount of cash our debt to our corporate debt to corporate EBITDA is about $4 85, plus or minus on a pro forma basis, assuming we deploy some of that is about $4 four so within our four to four and a half we've talked about obviously you got a high cash balance currently to your.
Question, 2026 was probably a little bit too far for us since the Dropdowns. We've talked about are through the end of 'twenty. Four however, keeping in mind, if we issued any debt. Obviously, we would only intend to do so to drive that $2 15, higher et cetera. So I think that we don't need any capital through 26, that's a little far out what we said is that the capital to essentially.
The Dropdowns that we've just talked about through 2024 don't require any additional capital.
Got it okay that makes sense and then lastly.
Looking at slide 16.
There's quite a big step up in non recourse debt.
Solar assets starting in 2024.
How are you going to manage that and then the potential impact on capital generation.
Yeah to be fair, that's a step up in the 14 to 148, that's probably in the middle of the page, we'll intend to refinance some of that 148, obviously there is a bullet there while we try to have everything amortized obviously in some cases, we buy books that have kind of a mini perm with your seven years. After CRD. That's one of those examples. So some portion of that 148, I will look to refinance.
Okay perfect. Thank you so much.
Sure.
Thank you and I'm currently showing no further time.
Chris Sotos for closing remarks.
Thank you and once again, thank you for everyone's time and appreciate your support so take care.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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