Q4 2022 Clearway Energy Inc Earnings Call
The conference will begin shortly to raise and lower Johan 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, Inc. Fourth quarter 2022 earnings Conference 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.
So ask a question during the session you will need to press star one one on your telephone.
You will then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today, Chris Sotos, President and CEO of Clearway Energy Inc. Please go ahead.
Thank you and good morning, My first thank you for taking the time to join Clearway Energy, Inc. 's fourth quarter fall.
Joining me. This morning are acute marsh director of Investor Relations, and Craig Cornelius President and CEO , clearly 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 on our SEC filings.
In addition, we 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 full year, Kathy of $326 million short of its full year guidance of $350 million.
Not only due to weak fourth quarter wind resource and decembers winter storms.
Generation in 2022 was below expectations, clearly executed well to increase long term pro forma Kathy through the closing of the thermal transaction.
Moment of nearly $350 million in new investments.
In addition, with the contracting of Elsa going those capacity through 2026, we have reduced the volatility in the natural gas fleet and clearly is currently ahead of schedule in terms of repairs to the facility.
Last week, clearly announced that increased the dividend by 2% to $3 75 per share.
$1 498 on annualized basis, keeping us on target to achieve the upper range of our dividend growth objectives for 2023.
We're also reaffirming our 2020 to recap the guidance of $410 million.
Who are we sponsor continues its strong growth in its development pipeline, which now stands at nearly 28 gigawatts over seven gigawatts of projects in late stages of development nearly five gigawatts of revenue contracts contracted awarded or in late stages of negotiation as of the end of 2022.
Furthermore, clearly sponsored accelerating work to enable us to repower and augment our fleet.
Aided by incentives passed last year that will enable accretive investments, but also extend the life of our assets with over one gigawatt of potential repowering over the next four years.
Part of the previously announced kept Schreiner acquisition and a first step in that Repowering campaign. We are pleased to disclose that the Cedar Hill project has recently amended its PPA amtrust it would allow for Repowering in 2024.
As far as continued growth trajectory right now has committed to invest in victory pass and Erika projects with a commitment of $228 million over half of the capital targeted for deployment and are currently offered dropdown from Clearway Energy group.
As a result, we are increasing our pro forma Kathy outlook from 390 million to $410 million.
Your line of sight for the remaining thermal proceeds deployment to achieve $2 15 per share. This.
This deployment and accretive assets provide strong visibility to achieve the upper end of our range of 5% to 8% EPS growth rate through 2026.
In summary, clearly continues to execute its growth plan. So that's well positioned to fully deploy the thermal proceeds during 2024 and continue to grow beyond the $2.15 of <unk> per share.
Turning to slide four to provide more details on financial results.
For the full year <unk> reporting adjusted EBITDA of one $1 6 million and cash available for distribution or Kathy a $326 million.
<unk> results came in at $212 million of adjusted EBITDA and negative $2 million of casting.
In the quarter. The most notable headwind it wasn't approximately $16 million negative impact from lower renewable performance. This was primarily due to winter weak wind resource, which was the trend observed throughout the industry in the quarter as well as weaker.
Resource at certain solar assets.
The wind production and extra clear, which fleet, which represents a measure of actual production relative to your internal P 50 expectations was 84% in the quarter.
For the wind portfolio with all regions reporting weak wind resource, including Ultra wind complex, our largest asset was wind production index measurement came in at 89% for the quarter.
A second related but less significant driver of removed financial performance in the quarter was the impact that winter storm Elliott had in ERCOT and PJM during which we experienced modest adverse financial impacts from financial settlements on a select set of our wind assets.
<unk> prices were elevated and generation was low at those facilities.
Lastly in the conventional segment.
Made the decision in the fourth quarter proactively accelerated the previously disclosed replacement of two bundles that also going down.
It was impacted reported results in the quarter accelerating the replacement during a period of relatively low coal pricing is but clearly ahead of scheduled to replace the two bundles at the facility. This will allow also going to be well positioned to provide critical grid reliability services as well as generate additional revenue from dispatching to the merchant power market in the second half of 2023.
Turning to balance sheet activity in the quarter, we repaid the outstanding project level debt for also been to in December for approximately $130 million as we've previously indicated on our last call.
In connection with the repayment of $35 million of restricted cash held at the project level subsidiary reserve for debt service payments was attributed to clearway, thereby reducing the near term corporate liquidity impact.
Turning to slide five we wanted to provide an overview of our latest dropdown commitment victory passenger Erika solar these.
These investments represent a capital commitment of $228 million.
With a five year average asset cap of $20 million, yielding a 9% unlevered cash yield on asset, which should reach COPD in the second half of 2023.
This investment expands our storage project base.
Which in this case is backed by a diverse set of $4 15 year contracts with leading load serving entities in California.
To our growing portfolio of battery resources that will be operating and queso, providing critical and complementary resources and a system, where they are greatly value.
Overall, the project is exhibit a very desirable commercial profile for us.
We have a diversified set of Hollywood high quality customers with contracts on a weighted average basis have a contract duration of approximately 14 years and there will be operating in our home market, we have great operational strength.
The investments that victory passenger Erica are an important first step toward deploying roughly a third of the $630 million in excess capital from the thermal sale as we discussed on our last call beyond Capistrano.
We expect to continue to working with Clearway group provide further concrete visibility regarding this capital deployment in the coming months.
Please turn to page six.
Page six provides an update of progress on the previously discussed dropdowns from our sponsor.
As you can see on the left side of the page with the commitment on victory patent Erica.
We can now increased pro forma cap the outlook to $2.03 a share as VP Erika achieved commercial operation in the second half of 2023.
The remaining Dropdowns that we are currently working on with Clearway group represented additional anticipated commitment of $180 million will then be followed by the next dropdown offer of approximately $220 million importantly, and as noted here. Our sponsor is also offering. These next set of dropdown opportunities and increased yields. So we can continue to generate accrued.
Total returns for our shareholders in today's market backdrop.
When fully operational these acquisitions will provide clear way with a clear line of sight to $2 15 per share.
In summary, we continue to make progress in providing investors with visibility into the redeployment of the total excess proceeds less than 12 months after the divestiture close.
Turning to page seven.
2022 was an excellent year in terms of execution for clearway.
<unk> year over year Dps growth at the high end of our target added capacity contract length, El Segundo and have visibility into deploying 100% of the thermal excess capital and to dropdown assets and acquisitions to provide greater certainty around our $2 15 and line of sight capture per share goal.
And looking forward to 2023, we continue to focus on our projects performance and continued execution around growth.
Despite some of the volatility in 2022, the platform is well positioned to achieve EPS growth at the upper range of our 5% to 8% long term objective in 2023, given the accretive growth capital deployed in 2022 and operational improvements Mendelson Glendale, yes.
Addition, by yearend to demonstrate additional growth beyond that currently embedded in our $2 15 of line of sight captive for sure.
The accretive deployment of the thermal proceeds provide our investors with the longest visibility regarding growth platforms history. Our intent is not to sit on our hands for the next four years.
We will continue to source growth opportunities beyond the deployment of the proceeds that meet our core underwriting standards.
In summary, Clearway Energy, Inc. Continues its focus on prudent growth as confidence ability to meet its long term objectives.
Due in part to strong sponsor support to ensure clarity success operator, please open the lines for questions.
Thank you.
As a reminder to ask a question. Please press star one one or your telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Noah Kaye with Oppenheimer <unk> Company. Your line is now open.
Hey, good morning, Thanks for taking the questions first victory pass and artist, but can you just detail for us how much merchant contribution from the storage projects contributes to the cap the expectations and can you also detailed the length of tolling or other.
Resource adequacy contracts on those projects.
Sure the contracts basically last for 15 years some of them start a year. After cod's. That's what you say like the weighted average is around 2014.
In terms of how much is contracted about 95%, 94% is contracted in terms of overall capacity in terms of cash that's a little bit tougher because cash is fungible, but for us. The vast majority of the asset is contracted kind of over that timeframe.
And Thats very good to hear thank you and then maybe can we talk a little bit about some of the factors that are driving the changes in expected timing at GE for 2020 for 2025.
A few factors mentioned in the deck, but would love to get your view of the development environment in some of those timing considerations.
Sure I'll kind of start and then Craig pitching and obviously as he is working through all of that I think from our.
The one part we recently closed <unk>, III, which basically had been out for a while that was one of the projects that was delayed. So I think we're definitely seeing progress and kind of closing out some of those delays that we saw before when there was.
Several changes in kind of governmental policy around that but Craig on the development pipeline, yes sure. Thanks for the question Noah.
First great assets that we have in construction stage, we're quite happy with the performance that our organization and our suppliers are driving today.
As we noted in the materials.
All of those assets that are that are committed or have been offered to <unk>.
R.
On track.
Today for construction completion this year equipment is flowing freely construction.
Activity at all of those assets is actually outperforming baseline expectations. So we're quite happy with how we're doing there and in assets states for construction and completion in 2023 in early 2024 as.
As we look out to 2024.
We again feel good about the supply chain for that correlates stage assets that underpin the.
The dropdown offers we pointed to making in the first half of 2023 that will support fundings for CN as we exit 2024.
We have the wind turbine supplies battery suppliers panel suppliers that are required for those and with suppliers, who have demonstrated the ability to perform for us in today's environment.
As we look out to.
At the later stages of 'twenty 'twenty four 'twenty five 'twenty six what we're balancing that I think you're alluding to is how best to align our demand from load serving entities.
Who have an interest in procuring resources under contractual structures that are especially desirable.
For the Yieldco investment mandate that we want to support the availability of equipment ideally equipment that could qualify projects for domestic content tax credit supplements Clare.
Clarification on Treasury guidance that may underpin financing structures and tax credit elections, and then ultimately whats the optimal in terms of construction seasonality in Saskatchewan. So those are the things that we balance.
Also want to try to sort projections of vintages, so that in any given year. The project inventory that we have.
It doesn't accelerate beyond the ability of us to prudently capitalize those assets into our Yieldco, which is the.
The repository for the assets that we want to create predominantly so those are the things that we balance.
We're happy with what we have in terms of our outlook for being able to support two five gigawatts or more worth of annualized construction volume out into the mid decade that would support growth beyond the $2 15 per share.
It's conceivable that based on how the next few months worth of Treasury guidance. So our cap that we may be able to bring a bit more volume back into 2024 versus what you see represented in the pipeline side.
That's a great summary, Craig Thanks, and I'm sure others will have follow up questions, but for now ill jump back in queue. Thank you.
Thank you. Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, guys. It's Julian here, Thanks, Matt Thanks for the time and the opportunity.
A quick just can we talk a little bit about the outage expectation of just where we are on running gas and then also altogether any thoughts about spark spread outlook et cetera.
Given the events of late with gas procurement I assume to a large extent youre mitigated from some of the volatility you've seen out west, but I just wanted to clarify that.
The nature of the offtake that you've put in place here and then subsequently if I can I'll just throw in the other question just rolling forward to 2027, how do you think about.
Doing that and ultimately pivoting to that.
More quarterly to the higher end.
Got it so three questions or hopefully I break them apart correctly, I think I'll kind of maybe address your second question first in terms of the spark spread I think the volatility that we're seeing in natural gas is obviously, a little bit different at California City Gates, where obviously that's the most important.
Area, where gas is delivered in there we're still seeing good pricing on gas kind of would be in the fives. So I think once again as.
As Youre aware Julien the different assets roll off of their totals at different times during the year.
Very heavily weighted towards a merchant curve and kind of.
July through ended the year timeframe. So that's really what's most critical but I think for us the fundamental characteristics that we saw that underpinned our estimates were a <unk>.
Natural gas price, which has been maintained at the city gate B.
Our assets are still needed for the duck curve, which we definitely don't see going away here in the near term in terms of what we'd be fast and load pockets and see overall still a very robust kind of overall load growth in terms of California, as well with electrification of vehicles and the like so we think the fundamental underpinnings that have our estimates in 2002.
Three and also longer term.
Dollar to $1 50 of energy margin long term, we still feel pretty good.
To your first question around outages I think as we talked a little bit about in my prepared remarks.
Want to make sure that what happened with also didn't know when the third quarter does not happen again, but we had five years without kind of a significant incident. So whenever we have the chance our replacing the two bundles, which where the issue that created the outage the unplanned outage as quick as we can.
We're ahead of schedule and expect the vast majority of them to be completed by kind of ended the second quarter and hopefully once again can't promise anything, but yes, we should have the machine in good shape by then but we continue to replace them as quickly as possible and took the opportunity in December when the coal prices are a little bit lower.
Obviously summer time to do that.
To your third question around looking at 2027, I think there as discussed on previous calls over the years will participate in the capacity auctions in California, all re procurement in summer.
We'll see where that ends up we made when we may get awarded we may not we will see where that goes but I think that combined with further dropdowns and maybe some repowering is what could give us growth in 2027, but Julian until I have that math tied out that kind of won't show that until I am very confident of where the math sets, but I think we're well positioned here in February .
The show that by November .
Got it and then related to that when you think about your upper upper range.
Words.
508% when do you start to get a little bit more crystallized about just changing rather range too narrow range or specific number etc through.
Certain period or what have you yet again, given what you have in hand already in terms of acquisitions, and then maybe related to that.
Got a lot in hand already that you've lined up.
Further opportunities maybe away from Clearway group overall.
Sure so as usual Julien a couple questions there to unpack I think part one is kind of looking what we prefer to do is kind of grow into 2027% to your point, we've talked about the upper range through kind of 26 and our goal is to build the show some demonstrable growth in 2027, right. We started five and kind of be able to grow it from there.
As we've talked about over the years, I, typically and I think and investors as well value more an extension in duration of the dividend visibility versus an absolute number. So if you told me hey, what I'd, rather be able to show you, 5% growth in 27, 3% growth in 2008 versus 8% and 27 to be simplistic.
I think thats, a better profile for us overall as I can continue to show growth in that visibility for longer longer tenors.
To your second question around kind of other opportunities. We are engaged in the M&A market. We looked at a variety of assets, we're pretty active I do think that as I've talked about on previous calls a lot of these auctions right or wrong, we have a different view on pricing of those assets and so where we've had a lot of successes on the bilateral side the tough.
Part is that the bilateral it takes a lot of shoe leather for lack of a better term of really reaching out to a variety of counterparties trying to shake assets, Luke loose and requires quite a bit of additional work. So we're pursuing those auctions, but yes, we've tended to be a little bit short in terms of where we view appropriate pricing and bilateral is something we're going to push here in 2023 years to see if we can continue.
And our success of M&A as we've demonstrated with cappuccino Mount storm and the other Hasnt, Utah.
Got it awesome alright, well good luck guys. Thank you so much I appreciate it.
Thank you thank.
Thank you as a reminder to ask a question at this time. Please press star one one or you touched on telephone.
Our next question comes from the line of Andrew <unk> with Seaport Research Partners. Your line is now open.
Good morning so.
Maybe I missed that.
I was just wondering you mentioned some operational issues.
And the performance of assets during December .
<unk>.
Any of these issues related to your wind farms in Texas.
Yes, we said there was a modest issue in terms of overall Kathy the vast majority you can kind of see in I believe its page 12 of the deck that has kind of wind resource just we ended up with an exceptionally poor wind resource during the quarter. So it is an operational issue I know, it's more just unfortunate wind resource, especially in October and December .
Okay, and then secondly, so I appreciate it.
The regional differences in natural gas prices and the strength.
At.
P. J E City gate, but are you I mean did you hedge any of the exposure, especially on the CCP side Nathan.
It's kind of hard to to hedge spark spreads for the peaking assets.
You basically fully merchant.
Profitability sort of swings with those changes in spot spark spreads.
To your question.
Simple answer is we are open on merchant energy once the toll rolls off to your point, we've tended not to hedge them because they are <unk> and also just as you probably already know, but it has the capability to run as a pizza so does that quite a bit as well.
To your question, we Didnt hedge out the energy I think the capacity is fully hedged. However in 2023 through 2026 fourth quarter 26. So we are open on energy, but we still feel very good about our estimate given it was for a partial year.
So.
Okay and then lastly, you mentioned you are looking at various M&A opportunities.
Pierre.
The strategic review.
Don't even know if you can comment but.
I mean would you for example, consider owning assets outside of the United States So outside of the Americas.
Yes outside of the United States or outside of the Americas.
Simply no.
Someone said hey, there was a portfolio that was 95% in the U S and 5% in Canada or something like that maybe you'd look at that I wouldn't want to say yes.
Ryanair outcome, but if your question is do we have any goals two substantive Lee change our portfolio mix to outside of the United States that answer is no.
Okay. Thank you.
Thank you.
Our next question comes from the line of William Griffin with UBS. Your line is now open.
Great. Thanks, very much just one one quick one for me.
I guess now that you've got line of sight to.
Allocating the $750 million in excess thermal sale proceeds maybe just could you speak to how youre thinking about.
Sort of funding mix or any other acquisitions kind of post that $72 million.
Sure. The first part always comes from retained cash so once again, our payout ratio is call. It 80%, 85% in terms of our guidance. So on $410 million of guidance you have about $80 million of cash rounding. That's obviously the first utilization than second we probably are under levered within the $4 to $4 five currently or maybe a little bit, but we would use any.
Leverage capacity that we have second and then lastly would be equity I think again, we have some pockets of <unk>.
Assets that don't have nonrecourse debt on them.
2007, 2008 were to show up in the equity markets were to kind of fall out of bed, we'd probably use some of those non recourse financing capabilities. We have on some unlevered assets, but really in the normal course of business. The first move is our excess cash second as leverage within about a four to four five times kind of corporate debt to corporate EBITDA Elk, and then lastly equity issuance.
Got it thanks very much.
Thank you and I'm currently showing no further questions at this time I would like to hand, the call back over to Chris Sotos for closing remarks.
Thank you once again, thanks, everyone for joining the call I know, it's a busy day for everyone. So really appreciate the support and look forward to continue discussing our growth in 'twenty one I'm sorry. Thank you for your time.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
Two reasons lower Johan during Q&A, you can dial one one.
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Good day, and thank you for standing by and welcome to the Clearway Energy, Inc. Fourth quarter 2022 earnings Conference 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. So.
So ask a question during the session you will need to press star one one on your telephone.
You will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today, Chris Sotos, President and CEO of Clearway Energy Inc. Please go ahead.
Thank you and good morning, My first thank you for taking the time to join Clearway Energy, Inc. 's fourth quarter fall.
Joining me. This morning are acute marsh director of Investor Relations, and Craig Cornelius President and CEO of clearly RG 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 on our SEC filings.
In addition, we 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 full year capping of $326 million short of its full year guidance of $350 million.
Not only due to weak fourth quarter wind resource and decembers winter storms or.
Cash generation in 2022 was below expectations.
We executed well to increase long term pro forma Kathy through the closing of the thermal transaction and the commitment of nearly $350 million in new investments.
In addition, with the contracting of Elsa can those capacity through 2026, we have reduced the volatility in the natural gas fleet and clearly is currently ahead of schedule in terms of repairs to the facility.
Last week, we announced that increased the dividend by 2% to $3 75 per share.
$1 498 on annualized basis, keeping us on target to achieve the upper range of our dividend growth objectives for 2023.
We're also reaffirming our 2020 to recap the guidance of $410 million.
Who are we sponsor continues its strong growth in its development pipeline, which now stands at nearly 20 gigawatts with over seven gigawatts of projects in late stages of development nearly five gigawatts of revenue contracts contracted awarded or in late stages of negotiation as of the end of 2022.
Furthermore, clearly sponsored accelerating work to enable us to repower and augment our fleet.
Aided by incentives passed last year that will enable accretive investments, but also extend the life of our assets with over one gigawatt of potential repowering over the next four years.
As part of the previously announced <unk> acquisition and a first step in that Repowering campaign.
<unk> disclosed that the Cedar Hill project has recently amended PPA on terms that would allow for repowering in 2024.
As far as its continued growth trajectory.
Now has committed to invest in victory pass and Eric a project with a commitment of $228 million over half of the capital targeted for deployment in the currently offer dropdown from Clearway Energy group.
As a result, we are increasing our pro forma Kathy outlook from 390 million to $410 million with continued line of sight for the remaining thermal proceeds deployment to achieve $2 15 per share.
Deployment and accretive assets provide strong visibility to achieve the upper end of our range of 5% to 8% EPS growth rate through 2026 and.
In summary, clearly continues to execute its growth plan, so thats well positioned to fully deployed the thermal proceeds during 2024 and continue to grow beyond the two hours 50 incentive captive for sure.
Turning to slide four to provide more details on financial results.
For the full year, there is reporting adjusted EBITDA of one $160 million and cash available for distribution or Kathy a $326 million.
Fourth quarter results came in at $212 million of adjusted EBITDA and negative $2 million of casting.
In the quarter. The most notable headwind it wasn't approximately $16 million negative impact from lower renewable performance.
This was primarily due to winter.
Wind resource, which was the trend observed throughout the interest rate in the quarter as well as weaker.
Resource at certain solar assets.
The wind production and extra clear, which fleet, which represents a measure of actual production relative to your internal P 50 expectations was 84% in the quarter.
For the wind portfolio with all regions reporting weak wind resource, including Ultra wind complex, our largest asset was wind production index measurement came in at 89% for the quarter.
A second related but less significant driver of removal financial performance in the quarter was the impact that winter storm Elliott had in ERCOT and PJM during which we experienced modest adverse financial impacts from financial settlements on a select set of our wind assets when prices were elevated and generation was low at those facilities.
Lastly in the conventional segment, we made the decision in the fourth quarter proactively accelerated the previously disclosed replacement of two bundles, but also Glendale was impacted reported results in the quarter accelerating the replacement during a period of relatively low coal pricing is but clearly ahead of scheduled to replace the two bundles at the facility.
Will allow also going to be well positioned to provide critical grid reliability services as well as generate additional revenue from dispatching into the merchant power market in the second half of 2023.
Turning to balance sheet activity in the quarter, we repaid the outstanding project level debt for also been to in December for approximately $130 million as we've previously indicated on our last call.
In connection with the repayment of $35 million of restricted cash held at the project level subsidiary reserve for debt service payments was attributed to clearly, thereby reducing the near term corporate liquidity impact.
Turning to slide five we wanted to provide an overview of our latest dropdown commitment victory passant Erika solar these.
These investments represent a capital commitment of $228 million.
With a five year average asset cap of $20 million, yielding a 9% unlevered cash yield on asset which had reached in the second half of 2023.
This investment expands our storage project base.
I want you in this case is backed by a diverse set of $4 15 year contracts with leading load serving entities in California and will add to our growing portfolio of battery resources that will be operating and queso, providing critical and complementary resources and a system, where theyre greatly value.
Overall, the projects exhibit a very desirable commercial profile for us it will serve a diversified set of high quality customers with contracts on a weighted average basis have a contract duration of approximately 14 years and they will be operating in our home market, we have great operational strength.
The investments that victory patent Erica are an important first step toward deploying roughly a third of the $630 million in excess capital from the thermal sale as we discussed on our last call beyond cappuccino.
We expect to continue to working with Clearway group provide further concrete visibility regarding this capital deployment in the coming months.
Please turn to page six.
Page six provides an update of progress on the previously discussed dropdowns from our sponsor.
As you can see on the left side of the page with the commitment on victory patent Erica where we cannot increased pro forma cap the outlook to $2.03 a share as VP Erika achieve commercial operation in the second half of 2023.
The remaining Dropdowns that we are currently working on with Clearway group represented additional anticipated commitment of $180 million will then be followed by the next dropdown offer of approximately $220 million.
And as noted here. Our sponsor is also offering. These next set of dropdown opportunities and increased yields. So we can continue to generate accretive total returns for our shareholders in today's market backdrop.
When fully operational these acquisitions will provide clear way with a clear line of sight to $2 15 of <unk> per share.
In summary, we continue to make progress in providing investors with visibility into the redeployment of the total excess proceeds less than 12 months after the divestiture closed.
Turning to page seven.
2022 was an excellent year in terms of execution for clearway, we achieved year over year Dps growth at the high end of our target added capacity contract lengths at El Segundo and have visibility into deploying 100% of the thermal excess capital and to dropdown assets and acquisitions to provide greater certainty around our $2 15 and line of sight.
Per share goal.
And looking forward to 2023, we continue to focus on our projects performance and continued execution around growth.
Despite some of the volatility in 2022, the platform is well positioned to achieve EPS growth at the upper range of our 5% to 8% long term objective in 2023, given the accretive growth capital deployed in 2022 and operational improvements Mendelson Glendale.
In addition by year end well have to demonstrate additional growth beyond that currently embedded in our $2 15 of line of sight captive for sure.
While the accretive deployment of the thermal proceeds provide our investors with the longest visibility regarding growth and our platform's history. Our intent is not to sit on our hands for the next four years, where we will continue to source growth opportunities beyond the deployment of the proceeds that meet our core underwriting standards.
In summary, Clearway Energy, Inc. Continues its focus on prudent growth as confidence ability to meet its long term objectives.
Due in part to strong sponsor support to ensure clarity success operator, please open the lines for questions.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Noah Kaye with Oppenheimer <unk> Company. Your line is now open.
Hey, good morning, Thanks for taking the questions first on victory pass and artists can you just detail for us how much merchant contribution from the storage projects contributes to the cap the expectations and can you also detailed the length of tolling or other.
Resource adequacy contracts on those projects.
Sure the contracts basically last for 15 years some of them start a year. After <unk>. So that's what we say like the weighted average is around 2014.
In terms of how much is contracted about 95%, 94% is contracted in terms of overall capacity in terms of cash that's a little bit tougher because cash is fungible, but for us. The vast majority of the asset is contracted kind of over that timeframe.
And Thats very good to hear thank you and then maybe can we talk a little bit about some of the factors that are driving the changes in expected <unk>.
<unk> at to EG for 2020 for 2025.
There are a few factors mentioned in the deck, but would love to get your view of the development environment in some of those timing considerations.
Sure I'll kind of start and then Craig pitching obviously as he is working through all of that I think from our view. The one part we recently closed <unk> III, which basically had been out for a while that was one of the projects that was delayed. So I think we're definitely seeing progress and kind of closing out some of those delays that we saw before when there was.
Several changes in kind of governmental policy around that but Craig on the development pipeline, yes sure. Thanks for the question Noah.
First great assets that we have in construction stage, we're quite happy with the performance that our organization and our suppliers are driving today.
As we've noted in the materials.
All of those assets that are that are committed or have been offered to <unk> or.
On track.
Today for construction completion this year equipment is flowing freely construction.
Activity at all of those assets is actually outperforming baseline expectations. So we're quite happy with how we're doing there in assets states for construction and completion in 2023 in early 2024 as.
As we look out to 2024.
We again feel good about the supply chain for the core late stage assets that underpin. The dropdown offers we pointed to making in the first half of 2023 that will support fundings for CN as we exit 2024.
We have the wind turbine and supplies battery suppliers panel suppliers that are required for those and with suppliers, who have demonstrated the ability to perform for us in today's environment as.
As we look out to.
At the later stages of $2024 $25 26, what we're balancing that I think you're alluding to is how best to align our demand from load serving entities.
Who have an interest in procuring resources under contractual structures that are especially desirable.
For the Yieldco investment mandate that we want to support the availability of equipment ideally equipment that could qualify projects for our domestic content tax credit supplements Clare.
Clarification on Treasury guidance that may underpin financing structures and tax credit elections, and then ultimately whats the optimal in terms of construction and seasonality and schedule and so those are the things that we balance.
Also want to try to sort projections vintages, so that in any given year. The project inventory that we have.
Does it accelerate beyond the ability of us to prudently capitalize those assets into our Yieldco, which is the.
The repository for the assets that we want to create predominantly so those are the things that we balance.
We're happy with what we have in terms of our outlook for being able to support two five gigawatts or more worth of annualized construction volume out into the mid decade that would support growth beyond the $2 15 per share.
It's conceivable that based on how the next few months worth of Treasury guidance. So our cap that we may be able to bring a bit more volume back into 2024 versus what you see represented in the pipeline side.
That's a great summary, Craig Thanks, and I'm sure others will have follow up questions, but for now I'll jump back in queue. Thank you.
Thank you. Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, guys. It's Julian here, Thanks, Matt Thanks for the time and the opportunity.
Quick just can we talk a little bit about the outage expectation of just where we are on running gas assets and then also altogether any thoughts about spark spread outlook et cetera.
Given the events of late with gas procurement I assume to a large extent youre mitigated from some of the volatility you've seen out west, but I just wanted to clarify that.
Given the nature of the offtake that you've put in place here and then subsequently if I can I'll just throw in the other question.
Rolling forward to 2027, how do you think about.
Doing that and ultimately pivoting to that.
More formally to the higher end.
Got it so three questions or hopefully I break them apart correctly, I think I'll kind of maybe address your second question first in terms of the spark spread I think the volatility that we're seeing in natural gas is obviously, a little bit different at California City Gates, where obviously that's the most important.
Area, where gas is delivered in there we're still seeing good pricing on gas kind of would be in the fives. So I think once again, yes as.
As Youre aware Julien the different assets roll off of their totals at different times during the year.
Very heavily weighted towards a merchant curve and kind of the.
July through ended the year timeframe. So that's really what's most critical but I think for us the fundamental characteristics that we saw that underpinned our estimates were a good.
Good natural gas price, which has been maintained at the city gate B, our assets are still needed for the duck curve, which we definitely don't see going away here in the near term in terms of their ability to be fast and load pockets.
And see overall still a very robust kind of overall load growth.
In terms of California, as well with electrification of vehicles and the like so we think the fundamental underpinnings that have our estimates in 2023 and also longer term.
The dollar to $1 50 of energy margin long term, we still feel pretty good.
To your first question around outages I think as we talked a little bit about in my prepared remarks.
Want to make sure that what happened with also didn't know when the third quarter does not happen again, but we had five years without kind of a significant incident. So whenever we have the chance our replacing the two bundles, which were the issue that created the outage the unplanned outage as quick as we can.
So we're ahead of schedule and expect the vast majority of them to be completed by kind of ended the second quarter and hopefully once again can't promise anything, but yes, we should have the machine in good shape by then but we continue to replace them as quickly as possible and took the opportunity in December when the coal prices are a little bit lower.
Then obviously summertime ought to do that.
To your third question around looking at 2027, I think there as discussed on previous calls over the years, we will participate in the capacity auctions in California.
Procurement and suffer.
We will see where that ends up we made when we may get awarded we may not we will see where that goes but I think that combined with further dropdowns and maybe some repowering is what could give us growth in 2027, but Julian until I have that math tied out kind of won't show that until I am very confident of where the math sets, but I think we're well positioned here in February to be able to show that.
By November .
Got it and then related to that when you think about your upper upper range to use your words five.
<unk> hundred 8% when do you start to get a little bit more crystallized about just changing rather range too narrow range or specific number etc through.
Certain period or what have you again, given what you have in hand already in terms of acquisitions, and then maybe related to that.
You've got a lot in hand already that you've lined up.
What about further opportunities maybe away from Clearway group.
Overall.
Sure so as usual Julien a couple questions there to unpack I think part one is.
Kind of looking what we prefer to do is kind of grow into 2027 <unk> to your point, we've talked about the upper range through kind of 26 and our goal is to build the show some demonstrable growth in 2027, we started five and kind of be able to grow it from there as we've talked about over the years, I, typically and I think and investors as well value more than <unk>.
Pension and duration of the dividend visibility versus an absolute number. So if you told me hey, what I'd, rather be able to show you a 5% growth in 27, 3% growth in 2008 versus 8% and 27 to be simplistic I think thats a better profile for us overall as I can continue to show growth in that visibility for longer.
Longer tenors.
Your second question around kind of other opportunities we are engaged with the M&A market. We look at a variety of assets, we're pretty active I do think that as I've talked about on previous calls.
Lot of these auctions right or wrong, we have a different view on pricing of those assets and so where we've had a lot of successes on the bilateral side. The tough part is that the bilateral it takes a lot of shoe leather for lack of a better term I've really reaching out to a variety of counterparties trying to shake assets, Luke loose and requires quite a bit of additional work. So we're present in those auctions, but yes, we have.
<unk> tend to be a little bit short in terms of where we view appropriate pricing.
And bilateral is something we're going to push here in 2023 to see if we can continue our success of M&A as we've demonstrated with cappuccino Mount storm and the other Hasnt, Utah.
Got it awesome alright, well good luck guys. Thank you so much I appreciate it.
Thank you.
Thank you as a reminder to ask a question at this time. Please press star one one you touched on the telephone.
Our next question comes from the line of Andrew <unk> with Seaport Research Partners. Your line is now open.
Good morning so.
Maybe I missed that good morning, I was just wondering you mentioned some operational issues.
And the performance of assets during December .
Any of these issues related to your wind farms in Texas.
Yes, we said there was a modest issue in terms of overall Kathy the vast majority you can kind of see in I believe its page 12 of the deck that has kind of wind resource just we ended up with an exceptionally poor wind resource during the quarter.
On an operational issue I know, it's more just unfortunate wind resource, especially in October and December .
Okay.
And then secondly, I appreciate it.
The regional differences in natural gas prices and the strength.
At.
P. J E City gate, but are you I mean did you hedge any of the exposure, especially on the CCP side Nathan.
It's kind of hard to to hedge spark spreads for the peaking assets.
Basically fully merchant Enzo.
Any sort of swings with those changes in spark spreads.
To your question.
Simple answer is we are open on merchant energy once the toll rolls off to your point, we've tended not to hedge them because they are <unk> and also just as you probably already know, but it has the capability to run as a peak or so does that quite a bit as well to.
To your question, we Didnt hedge out the energy I think the capacity is fully hedged. However in 2023 through 2026 fourth quarter 26. So we are open on energy, but we still feel very good about our estimate given it was for a partial year.
So.
Okay and then lastly, you mentioned you are looking at various M&A opportunities.
Pierre.
The strategic review I.
I don't even know if you can comment but I.
I mean would you for example, consider owning assets outside of the United States.
Part of the Americas.
Yes outside of the United States or outside of the Americas. That's simply know if someone said hey, there was a portfolio that was 95% in the U S and 5% in Canada or something like that maybe you'd look at that I wouldn't want to say, it's a binary outcome, but if your question is do we have any goals two substantive Lee.
Change our portfolio mix to outside of the United States that answer is no.
Okay. Thank you.
Thank you.
Our next question comes from the line of Liam Griffin with UBS. Your line is now open.
Okay.
Great. Thanks, very much just one one quick one for me.
I guess now that you've got line of sight.
<unk> the $750 million in excess thermal sale proceeds maybe just could you speak to how youre thinking about.
Sort of funding mix or any other acquisitions kind of post that.
$2 million.
Sure.
First part always comes from retained cash so once again, our payout ratio is call. It 80%, 85% in terms of our guidance. So on $410 million of guidance you have about $80 million of cash routing Thats. Obviously, the first utilization than second we probably are under levered within the $4 to $4. Five currently one might be a little bit, but we would use any leverage capacity that we have.
Second and then lastly would be equity I think again, we have some pockets of assets that don't have non recourse debt on them.
2007, 2008 were to show up in the equity markets were to kind of fall out of bed, we'd probably use some of those non recourse financing capabilities. We have on some unlevered assets, but really in the normal course of business. The first move is there excess cash second as leverage within about a four to four five times kind of corporate debt to corporate EBITDA Elk, and then lastly equity issuance.
Got it thanks very much.
Thank you and I'm currently showing no further questions at this time I would like to hand, the call back over to Chris Sotos for closing remarks.
Thank you once again, thanks, everyone for joining the call I know, it's a busy day for everyone. So really appreciate the support and look forward to continue discussing our growth in 'twenty one I'm sorry. Thank you for your time.
This concludes today's conference call. Thank you for participating you may now disconnect.