Q2 2023 Atlantica Sustainable Infrastructure PLC Earnings Call
Speaker 1: and grows on a comparable basis, excluding the effect of foreign exchange.
Speaker 1: Adjust to the BIDTA with $403.8 million, representing an increase of 1.9% on a comparable basis.
Speaker 1: Regarding cash available for distribution, we generated $124.6 million in the first half of 2023, an increase of 2.6% on a comparable basis, and 6.2 year-over-year growth.
Speaker 1: On the following slide, number five, you can see our performance by geography and business factor.
Speaker 1: In North America, revenue increased by 1% to $202.2 million in the first half of 2023 compared to the same period of last year, mostly due to higher production in our solar assets in the U.S. in spite of lower solar radiation in the period.
Speaker 1: Adjust to the beta, on the other hand, decreased by 4%, mainly due to lower beta at our wind portfolio in the U.S. as production was lower due to lower wind resources across the U.S. in the second quarter. This is where the
Speaker 1: In South America, revenue increased by 17% compared with the first half of 2022, up to $91.5 million and Iveta increased 27% to $74.4 million.
Speaker 1: The increase was mainly due to assets which recently entered into operation.
Speaker 1: inflation indexation mechanism in our contracts, and again corresponding to the sale or part of our equity interest.
Speaker 1: in our development company in Colombia to a partner in the first quarter.
Speaker 1: In the MEA region, on a constant currency basis, revenue in adjusted EBITDA decreased by 3% and 1% respectively.
Speaker 1: This was mostly due to lower revenue of solar assets in Spain, despite higher production during the period, mainly due to lower electricity prices compared with those in the same period left here.
Speaker 1: As you're aware, these assets are regulated and are entitled to receive a predefined rate of return. The fluctuation in market prices do not affect the value of the asset.
Speaker 1: This decrease was partially offset by high revenue at CACHEU thanks to higher production and revenue indexation to inflation.
Looking below at the result by business sector, we can see similar effects.
Next now, please turn to slide number six, where I will review our operational performance.
Electricity produced by our renewable assets reached 2,803 GWh in the first half of 2023, an increase of 6% versus the same period of 2022, mainly due to the increase in production in our solar assets in Spain.
where solar radiation was higher in the period under the contribution from the recently consolidated asset and those that have entered operation recently.
Production also increased in our solar assets in the United States.
Even though solar radiation was lower than the same period of the previous year, our assets have shown better performance.
Looking at our availability-based contracts.
In our efficient natural gas and heat segment, availability decreased, mostly due to scheduled maintenance stops during the period which do not impact revenue. Our water assets and transmission lines continue to achieve very high availability levels in the first half of 2023.
As a result of lower wind across the country, Atlantica benefits from a well-diversified portfolio, in which part of the revenue is based on availability, thus allowing the company to offset this negative impact.
On the next slide, number seven, we would like to review our net debt position.
We closed the quarter with a net corporate debt of $978 million. With this, our net corporate debt took half the pre-corporate debt service ratios to the 3.4 times. In addition, net project debt has June 30, 2023.
was $4,024 million, remaining flat compared to December 2022.
We continue to have ample liquidity to finance a growth with $72.8 million in cash at the corporate level and $393.1 million available under our revolving credit facility, which total 465.9% of corporate liquidity.
I will now turn the call back over to Santiago. Great, thank you Francisco. During the second quarter of 2023, we have continued to make good progress in construction of new assets we have developed. This includes, as you can see on page 8, the new asset.
The coastal battery is one project, 100 megawatt hours co-located with our geothermal assets in California where we continue advancing as suspected and includes a number of photovoltaic plants under construction in South America. Additionally, in South America as well, we are now starting to build...
two expansions of the transmission lines we have down there. These are, we believe, very attractive projects, both in terms of returns profitability and in terms of the risk profile.
Additionally, on page 9, you have an update of our current pipeline of assets under development.
That includes around 2 gigawatts of renewable energy and close to 6 gigawatt hours of storage.
Clearly, the pipeline continues being a significant part of our plan and we do expect that in the coming years a significant part of our investments will be linked to building these assets we are developing.
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Our first question today comes from the line of David Quesda from Raymond James. David, please go ahead. Your line is now open. Thanks. Good morning, everyone.
Our first question today comes from the line of David Kuester from Raymond James. David, please go ahead. Your line is now open. Thanks. Good morning, everyone. Maybe first question just on your...
development activities and the projects that you're advancing. Do you think the efforts in the U.S. to speed up connection to the grid for renewable projects could help accelerate any of the projects that you're working on? And maybe just a general comment around where you see the best opportunities for new development projects going forward? Is it still the U.S.?
other opportunities internationally. Great, thank you for the question, David. We do believe that the efforts that are being taken in the U.S. to
streamline the process. Obviously are in the right direction, and they might be helpful. We don't expect a huge change to tell you the truth, but incrementally, it should be positive.
Regarding where we see opportunities, we believe that the same way are existing portfolio because of the fact that it's more diversified by geography and technology brings a number of advantages and we saw it this quarter. We also believe that the fact that our development pipeline is also diversified.
brings advantages. We do believe that the US market is attractive. We do believe that at this point in time in the market pricing is reasonable or constructive in terms of PPAs and therefore companies like us should be able to build.
projects with reasonable returns. We also believe that there are significant opportunities outside of the U.S. and that's why our intention is to continue developing a portfolio where the U.S. will be a very significant part, no question about that. It will be the core but complemented with profitable returns.
projects in other geographies where we are present.
Okay, excellent. Thank you for that caller Santiago. Then maybe just turning to acquisitions, just curious what you're seeing across your key regions and I think in North America you could see we've seen a handful of transactions.
happen at lower multiples. I'm just curious if your view has shifted all with respect to how attractive an acquisition might be for you today.
No, probably we continue seeing a little bit a similar picture to what we saw last quarter, meaning we do believe that at this point in time.
sellers' unbiased expectations are more difficult to meet.
The fact that interest rates are higher obviously play a role there. At this point in time probably if you ask bankers they would tell you that it takes longer.
to make sure that buyers and sellers can agree on prices and there are situations whereFourth
to make sure that buyers and sellers can agree on prices and there are situations where projects do not close because of that difference.
I think that it's a question of time. There's a certain probably readjustment there. For us, as an investor in projects, this should translate into opportunities. We'll see if that happens in the very short term or it takes a bit longer to readjust, but we do believe that we should be able to find opportunities.
had reasonable returns, which was not that easy in 2022, for example.
Excellent. Appreciate that caller. Thank you. Maybe just one last one for me. DOM has returned.
I'm just wondering if you're able to roughly quantify the impact of that financially. We appreciate that doesn't affect the returns.
I'm curious if you could talk about the EBITDA impact of that in the quarter.
I'll give you a quick answer and Francisco can complement if needed. As we all know, assets are regulated and therefore whatever short-term changes happen have no impact. This year what we have seen is a...
market power prices are lower than last year in Europe and regulation has been adjusted accordingly and increased the payments we received. That's why bottom line
the impact there in the full year should not be material and obviously from a value point of view there should be no impact because at the end of the day regulation compliments whatever revenues you are making in the market plus in our case in the solar assets we have in Spain market revenues are a much smaller part
than the regulated payments we receive. Very different from other technologies like wind where market revenues are more important. In our case, most of our revenues are coming from regulation, so nothing material there. If you want more detail, I'm sure Francisco and investor relations.
Thank you.
Thank you.
The next question today comes from the line of Angie Zorozinski from Seaport. Please go ahead Angie your line is now open.
Good morning. So I might have missed it, but did you guys comment on the where we are at your strategic review process? Has there been any?
change in the direction of this review given changes that are happening at your majority owner and rising interest rates. Thanks.
Thank you, Andy, and good morning. So I don't have, we don't have any update regarding the SOG review. And that continues, the review is ongoing. There's not much I can add there.
I'm just wondering when you look at the current CAFTE or even that of these assets, would you actually expect that level to be sustained following the future resets? Again, I think we all know the formula, but just wondering what your take is currently. So, probably my best answer would be, as you rightly pointed out, more or less half of our revenues will be reviewed in early 2026. The other half would be reviewed in early 2032. So I would say that that review is still...
to empower assets as PPA expires and to decide how to empower, when to empower, try to guess what will be the capex in wind in that specific case. So a number of moving variables there and we will try with our partner to make the best decision. But again, we don't need to be rushed into a decision. So we will be working and we are working as you suggested.
time, but the best timing might not be in the very short term.
Your disclosure is highlight that 15% of your development pipeline would be ready to build in 2023 or 2024. What do you think is a sustainable pace for organic growth in the medium and long term for your company, given the state of your pipeline and the resources that you have available to bring those projects to construction? As you know, our target in terms of investment every year is to invest something like 300 million for us on average and we believe that given the size of our pipeline and the maturity of the pipeline.
Your disclosures highlight that you're working on procuring batteries for the COSO project. How are you seeing the costs and availability of batteries in the market today and do they meet the expectations that you had initially and are your costs going to be in line with your initial forecasts? Without getting into too many details that might not be helpful in our conversation with suppliers. Overall we are finding and we have been finding for the last few quarters.
a market that I would say is normal in the current environment, meaning we do find suppliers who can deliver at the cost we expected, within the timeframe we expected. Obviously, you need to be realistic regarding those two things.
delivery timelines we are seeing are what you would expect in the renewable energy market in the US where the market is growing significantly. So part of our business as usual if you want.
Great, thank you very much. I'll leave it there.
Great, thank you very much. I'll leave it there. Thank you.
Thank you. The next question today comes from the line of Mark Jarvi from CIBC. Please go ahead Mark, your line is now open. Thanks. Hi everyone. Just going back to the strategic review, I think prior comments kind of insinuated that you thought the process could happen or wrap up a little quicker than the last strategic review. Do you still think that's reasonable?
in terms of timelines and is there anything you've now ruled out as part of the strategic review or a direction that you've contemplated that no longer makes any sense? So regarding the review, we have never given any guidance regarding timing. I'm not going to do it either today.
And as I mentioned at the beginning, there's no update I can give you, so I wouldn't be able to answer the second part of the question. Fair enough. Okay. And then just in light of higher bond yields and where the market is and higher risk on...
on, I guess, labor construction and project execution. Have you changed your return hurdles at all across any of your jurisdictions?
The way we work in investment policies is we have a very dynamic methodology to calculate minimum returns and further rates and obviously further rates move with interest rates.
and with our perception regarding the market, so the short answer would be yes, of course we adjust our expectations as our investment committee believes we should be doing for our methodology but in general returns today with interest.
rate where they are, minimum rates should be higher than a couple of years ago, no question.
makes sense to me and I'm just wondering with you changing your hurdle rates do you still feel like you can find projects that meet that I guess ultimately has the industry adjusted and or your competition to the point where everyone's trying to achieve higher rates so that you're not losing out on on prospective projects? I think
Two comments I would make. One, I believe that for a rational company with a balance sheet, there are more opportunities today than two years ago. Two years ago, two guys in a rented car, sorry for the expression, were able to raise money and deploy capital at very low returns. Today, probably those two guys in a rented car cannot do that and that means that the market is becoming more rational from that point of view. So we feel more.
Last question for me, just in terms of what you think equity deployment will be this year, the last disclosure we saw was 165 to 185 million. Is that still roughly where you're tracking or have you raised that number since the last update? Mark, we're tracking towards that number right now.
That's our estimate that we gave at the beginning of the year. So that's the latest estimate that we have, Mark.
Perfect. Thank you. Thanks for your time today.
Thank you, Mark.
Thank you. The next question today comes from the line of Julian DeMoulin-Smith from Bank of America. Please go ahead Julian, your line is now open.
The next question today comes from the line of Julian de Moulton-Smith from Bank of America. Please go ahead Julian, your line is now open.
Hey, good afternoon or good morning team. Thanks for the time. Appreciate it. Look, I wanted to check in real quickly just as you think about pipeline development. You know, you guys provided the slide to get once more hasn't really changed since the start of the year. How do you think about just pursuing organic development? Heard your comments earlier, but in light of the strategic review and given the comments for what's ready to build in 23 and 24.
seems fairly modest as a total contributor to your annual goals here on contribution to organic growth. But would love to hear how that fits into and is any reflection on your intent to pursue strategic alternatives and lieu of organic opportunities.
So forgetting a little bit about the study review, which is ongoing as I mentioned before, our study, as I mentioned, is
to have a very significant part of our investments coming from the pipeline. We believe that with the pipeline that you have in front of you, we are going to be able to do that. Obviously, as you can see there, there's a significant part of the pipeline around the storage.
And when you translate that to dollars you end up with higher numbers. Over the next quarter we expect, as I mentioned, irrespective of the strategic review, we expect to continue growing our pipeline so that it can become a very significant part of our investments every year.
complemented with M&A whenever we find opportunities that create value and that are activities, which as I mentioned before, we believe now it's much more probable than a year or a year and a half ago. And that's why our study would be.
Let's build what we are developing and let's complement that with some M&A whenever the numbers work. Your point is don't read into any kind of pipeline statements about your intent to pivot toward strategic alternatives.
Right, regardless of the fact that the pipeline has expanded a lot. Yeah, agree. Okay, and there's no dedicated timeline for when that when we could see kind of a return to the pipeline to, you know, expansion. Or when we could see kind of resolution on the strategic process.
Right? I know you know that fairly generic. No, as you know, the review is being led by the board and we think that aboard. And you know, should be able to lead that process without putting a deadline somewhere because obviously we want to do things properly. Alright, fair enough. I'll leave it there. Thank you guys.
Sure. Thank you, Julian. Julian. Thank you. The next question today comes from the line, hopefully, in GRIPIN, from UPS. Please go ahead to your line. There's no weapon. Great. Thanks. Good morning. My first question, actually, most of my questions have been answered. So it just.
the storage you have in the pipeline is co-located with your existing projects. I know you have COSO, but just outside of that and then...
what opportunities are you seeing here to kind of leverage your existing asset base to deploy storage versus new opportunities elsewhere given the standalone tax credit? So probably within a storage we have three types of developments. We have situations like coastal one where it is physically co-located.
with another asset, but from a contractual slash client point of view, it has nothing to do. So COSO 1 is physically inside the geothermal plant, it would be operated by the same people, but it would have a totally separate PPA with a totally different client. That would be type 1, we are leveraging
our existing footprint, but commercially it's a separate project. Then a second type of opportunity would be situations where we co-locate and not only we co-locate, but we leverage the commercial agreement. So you include storage in an existing asset and you are going to...
leverage the PPA or sign a new PPA using whatever the PV component and storage. And then the third bucket would be a standalone, totally new development. If I look at our portfolio, we have the three
types of projects. In the US, we have a lot of the first one at this point in time, leveraging our assets from a location point of view and some of the third bucket. And over time, the second one will become more important. So situations where we cannot store it to an existing plant.
In the short term, probably they are more outside the US, like in Chile. We have discussed in the past a situation where we have a PD plant, where we plan to include storage next year.
So it's a little bit of a three, again in the short term, more the first, then the third, and later the second option where you include the storage in an existing plant sharing the client. I hope I confused you enough.
No, I appreciate the color there. That's all for me. Thank you.
No, I appreciate the color there. That's all for me. Thank you. Thank you. Thank you.
The next question today comes from the line over Antoine R. Mont from Bank of America. Because, go ahead Antoine, your line is now in.
So just on the credit side, I think you mentioned that you have corporate debt over CAFTE of 3.4 times. Can you please remind us how you see parent leverage going forward? Thank you.
and related to that, any sort of insight in terms of
potential capital markets activity at the corporate level for the back half of the year next year.
Okay, Antoine, good morning. We do have the 3.4 times have been steady. You know that we have a target at Atlantica of keeping our leverage around the three-ish, three times Trey travelled.
leverage multiples, so right now what you saw in the materials, I said we have good liquidity and going forward as I said, we will look for a combination of what's the best capital structure going forward as a combination of both debt and equity, always maintaining the best capital structure.
that target that we have. It's important to remember that that's a target, that's not a covenant in the financial state, in the financial debt that we have at the holding company. So our target continues to be the three times, and we look, we're always monitoring the market to see what's the most competitive way to be able to finance a company on fund.
Okay, great. Thank you, Mr. Cisco. Have a good one, guys.
Thank you.
There are no additional questions waiting at this time, so I'd like to pass the conference back over to Mr. Seach for any closing remarks. Please go ahead.
Thank you. So thanks everybody for joining us today and like always our investor relations team will be available for further clarifications and questions.
Thank you operator.
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