Q3 2023 Atlantica Sustainable Infrastructure PLC Earnings Call
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Okay.
Okay.
Investment grade utility in California.
These are tolling agreements with fixed payments on 15 years in duration.
We already covered coastal about there is one in the past.
So about this too is a similar storage projects.
Project with 80 megawatt hours capacity offering four hours of storage it is social located.
Within our <unk> geothermal plant.
We expect.
To reach by 2025.
Around the storage, we continue seeing a significant opportunity in a number of our markets, including California, and Thats why if we move to page nine.
We can take a look at our development pipeline, we see there that significant percentage of our pipeline is actually.
In our storage projects.
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Worth mentioning as well when we look at our pipeline and we are focusing on in North America, and almost a quarter of the pipeline corresponds to repowering and expansions of existing assets.
Many of you know investments that generally have higher returns.
We want to continue Francisco.
Okay, Let's turn to slide number 10 please.
As we mentioned in the introduction given the recent volatility in the sector. We believe it is worth spending a couple of minutes reviewing our financing model.
This has been an integral part of our strategy and we have always followed the same principles.
Our financing strategy is underpinned by one key principle.
We already have our financing is non recourse self amortizing project debt and ring fence subsidiary.
Our assets repay their projected progressively as you can see on the graph on the left hand side of this slide the project debt of the existing portfolio will be reduced by $1 $9 billion over the next five years.
This graph also shows that repayment calendar. This is not an objective.
All our contracts are structured.
The project or the current portfolio, which is $4 4 billion as of today is expected to decrease to $2 5 billion at the end of 2020.
If you look at the table below you can see that our project debt service.
In the last two years.
This gives you an idea of the cash available for distribution before project debt service.
Close to $860 million in 2022.
The model is simple and transparent we do not have any complex financings or partnerships, where our partners have preferred distribution rights.
When it comes to corporate we are committed to maintaining a balanced and sustainable capital structure.
Our net corporate debt represents today, approximately 20% of our net consolidated debt.
Our net corporate debt to cap the available for distribution ratio is currently at three four times.
Our current leverage is lower than that of our peers and this is reflected in our current amount of credit ratings of double B plus by both standard <unk> Poor's and Fitch.
Speaker 1: Looking at the interest rate risks, we have ensured that 93% of the consolidated debt has either fixed interest rate or its head.
Looking at the interest rate risk, we have ensured that 93% of consolidated debt as either a fixed interest rate hedge.
Speaker 1: For the long-term project, that agreements the interest rate is fixed, or we have hedge of them placed for the entire life of the Finals in agreement.
On a long term project debt agreements the interest rate effects, we have hedges in place for the entire life of the financing agreements.
Speaker 1: Additionally, our first sensible corporate that maturity is mid-year 2025 in an amount to $113 million. So we don't have to worry about step ups in our financing costs due to refinancing in the short term.
Additionally, our first sizable corporate debt maturity is mid year, 2025, and that amounts to $113 million. So we don't have to worry about a step ups in our financing costs due to refinancings in the short term.
Speaker 1: We believe that this prudent financing model is key to reduce refinancing and interest rate risk and to provide stability to the business.
We believe that this prudent financing model is key.
Reduce refinancing and interest rate risk.
Brian and to provide stability to the business.
Speaker 1: With this, we conclude today's presentation. Thank you very much for joining us. We will now open the line for questions. Up.
With this we'll conclude today's presentation. Thank you very much for joining us.
We will now open the line for questions.
Operator, we're ready for Q&A.
Thank you. Please press star followed by the number one if you'd like to ask a question and Im sure that your device is omni to likely furniture will tend to spike.
Speaker 2: If you can't your mind or your question has already been answered, you can withdraw by pressing star followed by the number.
Have you changed your mind on your question has already been answered.
Mitchell by pressing star followed by the number today.
Speaker 2: Our first question today comes from Julian Demuland Smith of Bank of America. Your line is open.
Our first question today comes from Julien Dumoulin Smith of Bank of America. Your line is open.
Speaker 3: hey good morning something of the same pleasure chat here just wanted to follow up on uh...
Hey, good morning. Thank you you haven't seen a pleasure to chat here just wanted to follow up on.
Speaker 3: your comments at the outset here, you're clearly sort of emphasizing your relative advantages versus your peers, if you will, on development activities.
Your comments at the outset here clearly sort of emphasizing your relative advantages versus your peers. If you will on on development activities. I. Just wanted to understand is that a relative ramp that you're talking to here that we should expect I mean, obviously kozo well done.
Speaker 3: one understand you know instead of relative ramp that you're talking to here that we should expect to mean obviously koto well done uh... sort of obvious opportunity here in terms of being in common but should we expect more in that same vein here are you thinking that kind of the same level of consistent
Sort of obvious opportunity here in terms of being an incumbent but should we expect more in that same vein here are you thinking that kind of the same level of consistent.
Speaker 3: consistent overall or perhaps a capital oriented towards acquisitions and development is going to be sustained or is this more of a pivot towards internal you know expansions of brownfield sites that you think are more more a tax full if you will
Consistent overall.
Perhaps capital oriented towards acquisitions and development is going to be sustained or is this more of a pivot towards internal expansions brownfield sites that you think are more more tactful if you will.
Speaker 4: Thank you for the question, Julian, and good morning. So our plan, as you know, over the...
Thank you for the question Julian and.
Good morning, and so our plan as you know.
Over the last years.
Speaker 4: What we have been sharing with you, it our intention in terms of investments, is to deploy capital wherever we see the best opportunities and that should include a combination of expansion, the slush, repowering of existing assets together with development of new projects in some cases.
We have been sharing with you at our intention in terms of investments is to deploy capital wherever we see the best opportunities and that should include a combination of expansion is lost repowering.
Of existing assets together with <unk>.
Development of new projects in some cases.
Speaker 4: Capturing synergies with existing projects like the two we strive today So as you know these projects are collocated within the geothermal plant There are synergies in terms of land in terms of connection in terms of O&M But these are two totally separate projects with two totally separate PPAs
Capturing synergies with existing projects like the two we described today. So as you know these projects are co located within the geothermal plan. There are synergies in terms of land in terms of connection in terms of O&M, but these are two totally separate projects with two totally separate the PPA.
Speaker 4: And additionally, we plan to invest in other that take green field development projects within our pipeline. And whenever we find the right opportunities, acquisition of projects in operation. So all of the above, and ensuring that we allocate capital where we see the best opportunities.
And Additionally, we plan to invest another greenfield development projects within our pipeline and whenever we find the right opportunities acquisition for projects in operation. So all of the above.
Ensuring that we allocate capital where we see the best opportunities.
Speaker 3: Great, excellent, but this isn't a change in incremental allocation as far as you're concerned. And more importantly, as you think about the strategic review, I mean, is this a sign on your side that you're wanting to be, you know, even more involved as an independent developer here, versus perhaps the ongoing and separate strategic process here? I just want to make sure I'm understanding the signaling, right, as far as your relative emphasis on the call today.
Great excellent, but this isn't a change in incremental allocation.
As far as you're concerned and more importantly, as you think about the strategic review I mean is this a sign on your side that youre wanting to be even.
Even more involved as an independent developer you here versus perhaps the ongoing and separate strategic.
Process here I, just want to make sure I'm understanding the signaling right.
As far as your relative emphasis on the call today.
So.
Speaker 4: Regarding the review, we are not signaling anything Julian. And regarding the growth.
Regarding the strategic review, we are not signaling anything Julien.
Regarding the Grove is throughout the this is what we have been following for a number of years, which is a combination of investments in acquisitions and in projects we develop.
Speaker 4: strategy. This is what we have been following for a number of years, which is a combination of investments in acquisitions and in projects we develop a greenfield or expansion of existing assets. So from that point of view, no change in our strategy. We are perhaps reminding people that we do see opportunities in front of us, but we are not signaling any change.
Greenfield or expansion of existing assets, so from that point of view.
No change.
No change in our strategy we are perhaps.
Reminding people that we do see opportunities in front of us, but we are not signaling any change.
Mary Julien.
Speaker 3: Alright, excellent. And just to reiterate that last point finally, as you think about the strategic review and the process underway here, any thoughts about, you know, buyback here at all? I mean, just given way the shares of moves of late, I just wanted to ask you that directly here, ever that was on the table. I mean, obviously, the review itself might...
Alright excellent.
Just to reiterate.
That last point finally, as you think about the strategic review and the process underway here.
Any thoughts about.
Buyback here at all I mean, just given where the shares of moves of late I. Just wanted to just ask you that directly here if ever that was on the table I mean, obviously.
<unk> itself.
Speaker 3: I might inhibit that, but I'm just curious if you have any thoughts about that. So she'd give in your comments on organic.
Might inhibit that but I'm just curious if you have any thoughts about that especially given your comments on organic.
Speaker 4: Yeah, the review does inhibit that. So while going from the review, that's not an option in terms of investment.
Yes, the reviewed tasking EBIT that so while going to honestly, we view that's not an option in terms of investment.
Alright fair enough guys. Thank you very much.
Thank you Julien.
Speaker 2: And next question comes from Mark Jarvy of CIPC Capital Market. Please go ahead.
Our next question comes from Mark Jarvi CIBC capital market. Please go ahead.
Speaker 5: Yeah, good morning, everyone. Just in terms of the planned investments, as you look out into 2024, how much of that would be, I guess, commercially secured, full line of sight versus stuff that you still need to, I guess, find commercial agreements, PPAs, what have you to advance next year?
Yes, good morning, everyone.
Just in terms of the planned investments as you look out into 2024, how much of that would be I guess commercially secured full line of sight versus stuff that you still need to I guess.
Find commercial agreements Ppas, what have you to to advance next year.
Speaker 4: Good morning, Mark. Most of that
Good morning, Mark most of that.
Speaker 4: As the commercial agreements required for the investment to happen, when we allocate capital or we commit an investment, it's because we have been able to put the different pieces together. So all or most of that is there.
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As the commercial agreements required for the investment to happen when when we allocate capital or we commit on investment is because we have been able to put the different pieces together, so all or most of that is there.
Speaker 5: okay and how would you say returns are trending out on maybe it's a levered ira you know if you look back at what you're doing in sort of organic greenfield investments a year ago what you're doing
Okay, and how would you say returns are trending I don't know maybe its a levered IRR.
You look back at what Youre doing in sort of organic greenfield investments a year ago, what youre doing.
Speaker 4: this year and then as you look into those 2024 projects and any indications of where you've been able to remove your return object doesn't hurtles to. Yes, I'll be able to speak here.
This year and then as you're looking at those 224 projects and any indications of where you've been able to move your return objectives and hurdles too.
Yes, our philosophy here.
But the way, we calculate our other rates probably would be.
Speaker 4: probably would be following a very similar methodology to what you would be doing if you were in issues. And therefore, when interest rates go up, our further rates move up automatically. And as I mentioned at the beginning of a call, what we are seeing is that the market is responding to that. So at this point in time, we are working with returns that clearly meet our further rates and further rates by today.
Let's say following a very similar methodology to what you would be doing if you were in our shoes and therefore when interest rates go up or further rates move up automatically.
And as I mentioned at the beginning of the call. What we are seeing these that the market is responding to that so at this point in time, we are working with returns, but clearly meet our hurdle rates.
Are the rates by today without trying to be too specific on obviously different by geographies situation technology, etcetera, etcetera, but we're clearly in the double digit.
Speaker 4: without trying to be too specific and obviously different by geography situation, technology, et cetera, et cetera, but we are clearly in the double digit return territory.
Return.
Rytary.
Speaker 5: And when you say you're moving them up, I assume you're kind of in reference to the risk-free rate, but are you able to, I guess, exceed your hurdle rates? At opportunities, just given the breadth of the demand for clean energy and just maybe just sometimes leveraging a site or specific nuance of a project.
Tim when you say youre moving them up I assume youre kind of in reference to the risk free rate, but are you able to I guess exceed your hurdle rates.
Opportunities just given the breadth of the demand for clean energy and just maybe sometime deleveraging.
Site or.
Specific nuance of a project.
We are okay.
Speaker 5: and then maybe just comment on the on the Spanish market when you're looking there from brown field or green field opportunities how to return their compared to what you're seeing in North America and just maybe overall the context of of capital flows in Spain in terms of you know like if you ever considered a minority interest selldowns how is the activity level in terms of M&A on either minority sales or outright asset or perforal sales
Okay.
And then maybe you can just comment on the on the Spanish market. When you are looking there from brownfield or greenfield opportunities, how do returns there compared to what Youre seeing in North America, and just maybe overall the context of capital flows in Spain in terms of.
Like have you ever considered a minority interest sell downs, how is the activity level in terms of M&A on either minority sales or outright asset or portfolio sales.
Speaker 4: So what we're seeing and probably this comment applies in general, but what we are seeing is that the changes that we have seen in the North American market are coming to Europe a bit later. And therefore, as of today, we are...
So what we're seeing.
And probably this comment applies generally what we are seeing is that.
The changes that we.
We have seen in the North American market are coming to Europe.
It later and therefore as of today.
We are.
Speaker 4: feeling more comfortable finding the right returns in North America probably than in Europe . We think that it's coming, probably competitors in Europe , it's taking them a bit longer to realize that cost of capital is higher. So as of today, we think that that has happened in North America and is happening as we speak in Europe . But it's a bit behind.
Feeling more comfortable finding the right returns in North America, probably then in Europe, We think that is coming probably competitors in Europe, it's taken them a bit longer to.
<unk>.
Realize that the cost of capital is higher so as of today, we think that that has happened in North America and is happening as we speak in Europe, but it is a bit behind.
Speaker 5: Does that not create an opportunity then in terms of a value arbitrage where your assets might be more valued in the hands of some in Europe versus what you could deploy capital in North America? Or is it too late to try to act on that now?
Does that not create an opportunity then in terms of value arbitrage, where your assets might be more.
<unk> in the hands of some in Europe versus what you could deploy capital in North America or is it too late to try to act on that now.
Speaker 4: Well, we always look for that kind of opportunities. And if we found an opportunity, and if we could look at situations like when you describe something we would act on, in fact, today we have discussed, it's not in Europe , but we have discussed a potential stake we would be selling because we found a situation where we read that someone is ready to pay more than what we believe.
Well, we always look for that kind of opportunities.
Yeah.
We found that opportunity.
We will look at situations like the one used scribed if something we would act on in fact today, we have discussed it's not in Europe, but we have discussed that potential.
Stake, we would be selling because we found a situation where we believe that someone is ready to pay more than what we believe.
<unk>.
Speaker 6: would be reasonable for us. Okay, all right.
It would be reasonable for us.
Okay, Alright ill leave it there thanks for the time.
Thank you.
Speaker 2: As a reminder, if you'd like to ask a question today, please press the call, followed by the number one on your telephone keypad.
As a reminder, if you'd like to ask a question today. Please press star followed by the number one on your telephone keypad now.
Speaker 2: And next question comes from William Gryppin of UBS. Your line is
Our next question comes from William Goodman of UBS. Your line is open.
Speaker 7: Great, thanks. Good morning. Just want to start here with a kind of a basic question. But on the earmarked investment amounts that you provide, does that reflect only the corporate capital piece or is that the total investment, including any project level debt that you expect?
Great. Thanks, Good morning, just want to start here with a kind of a basic question, but on the earmarked investment amounts that you provide does that reflect only the corporate capital piece or is that the total investment, including any project level debt that you expect.
Speaker 4: that is our investment. So it would be if you want our equity in the investment without any project debt or any tax equity or any third party finance.
That is our investment so it would be if you want our equity in the investment without any project that or any tax equity or any third party financing.
Speaker 7: Got it, right? And so on that front, I mean, good to see some capital recycling here with the Monterey project, but could you elaborate on maybe other sources of capital to fund your planned investment in 2024 beyond the revolver?
Got it right and so on that front good to see some capital recycling here with the Monterrey project, but.
Could you elaborate on maybe other sources of capital to fund your planned investments in 2024 beyond the revolver.
Speaker 4: Yes, sure. So, I mean, when you look at our balance sheet and Francisco Conn elaborate later, if needed, at this point in time, from a ratio, leverage ratio point of view, we would have some room.
Yes sure so.
I mean, when you look at our balance sheet and Francisco can elaborate later if needed.
At this point in time.
We from a ratio leverage ratio point of view, we have some room.
Speaker 4: and including, as you said, the RCF, other sources of corporate debt is required.
Including as you said the Rcs.
Other sources of.
Corporate debt if required.
Speaker 4: From an asset recycling point of view, we are talking today about one
From an asset recycling point of view, we are talking today about one.
In.
Speaker 4: potential transaction and we will be active on that front. And if we find as Mark's question before was suggesting, if we find opportunities that we believe create value, and that would be another potential source.
Potential transaction.
We will be active on that front.
If we find us.
Mark's question before was suggesting if we find the opportunities that we believe create value and that would be another potential edge.
Speaker 4: and additionally, at this point in time, as we mentioned before.
Source.
Additionally.
At this point in time.
We mentioned before as well when we start up <unk>.
Speaker 4: when we start a project and we do it when we have put together
<unk>.
We do it when we have put together all the elements, including contracts that allow us to be able.
Speaker 4: all the elements including contracts and that allows to be able to obtain non-recourse financing in many situations.
To obtain non recourse financing in many situations.
Got it and just the provision with the last one here.
Sorry.
Speaker 4: I was going to mention that obviously another source is the fact that we generate more cash than what we pay out to shareholders. That's another obvious source of capital.
That's right.
And that obviously another sources, the fact that we generate more cash than what we pay out to shareholders. That's another source of capital.
Speaker 7: Right. And just last one here, are you...
Alright and just.
Last one here.
Are you.
Speaker 7: Could you just provide, I guess, an update on what you're seeing here as far as anticipated CAFD yields on your corporate capital investments for your development projects versus what you're seeing in the market for third-party acquisitions?
Could you just provide an update on what youre seeing here as far as anticipated caf the yields on your corporate capital investments for your development projects versus what Youre seeing in the market for third party acquisitions.
Speaker 4: So that that's a very good question.
So that's a very good question.
Question.
Jim.
Speaker 4: Typically, what we have seen and we continue seeing today is that by developing and building our own projects, we can achieve a higher return, both in terms of IRR and shorter-term yield as well. Nevertheless, in the current market, we believe that there are going to be opportunities on the acquisition side, and there are going to be players that will need to invest.
<unk>, what we have seen and we continue we're seeing today is that by developing and building our own projects. We can achieve a higher return and both in terms of IRR on the shorter term.
Yield as well Nevertheless in the current market, we believe that there are going to be opportunities.
On the acquisition side.
And there are going to be players that.
Speaker 4: to divest either assets in operation or even assets under development and therefore we are open to checking whether my answer continues being true all the time or whether there are opportunities where allocating capital to acquisitions can achieve similar returns at a lower risk.
We'll need to divest either assets in operation or even assets.
On the development and therefore, we are open to and.
Checking whether my onshore continues been true all the time or whether there are opportunities, where you're allocating capital to acquisitions can achieve similar returns.
At a lower risk.
Got it appreciate the time today. Thank you.
Thank you.
Speaker 2: We have no further questions in the queue, so I'll turn the call back over to Mr Santiego Siege for any closing rumours.
We have no further questions in the queue. So I'll turn the call back over to Mr. Santiago.
Any closing remarks.
Speaker 4: Thank you very much for attending our call. We will be with us.
Thank you very much for attending.
Call.
We.
Our finished operator.
Speaker 2: This concludes today's call. Thank you for joining. You may now disconnect your life.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker 8: thir four four four four 4, four four
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