Q3 2024 Clearway Energy Inc Earnings Call
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Speaker Change: Hello and welcome to Clearway Energy Inc, third quarter 2024 earnings call.
Speaker Change: At this time, all participants are not listening only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask the question, do a session, you would need to press start one one on your telephone. You would then hear automated message, advancing your hand is raised. To withdraw your question, please first start one one again. I want to now like to hand the conference over to a kill, mosh, sir, you may begin.
Akil Mosh: Good morning. Thank you for taking the time to join Clearway Energy Inks third quarter call. With me this morning, our Craig Cornelius, the company's president and CEO, and Sarah Rubenstein, the company's CFO.
Akil Mosh: 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 a fifth state.
Akil Mosh: Actual results may deformatarily.
Akil Mosh: Please review the safe harbor in today's presentation as well as the risk factors in our SEC violence.
Akil Mosh: In addition, we will refer to both DAP and non-Gap financial measures. For more information regarding our non-Gap financial measures and reconciliation to the most directly comparable DAP measures, please refer to today's presentation.
Akil Mosh: In particular, please note that we will offer to both offer and committed transactions in today's oral presentation. And also may discuss such transactions during the question and answer portion of today's conference.
Akil Mosh: Please refer to the safe harbor in today's presentation for a description of the categories of potential transactions and related risk contingencies and uncertainties.
Speaker Change: With that, I'll hand it over to Craig.
Speaker Change: Thanks for joining us for the next episode!
Craig Cornelius: Today we're pleased to report that we've completed another solid quarter of execution that we are on track to meet our exceed our key 2024 financial objectives and that we have a strong outlook for clear-waist future.
Craig Cornelius: In addition to reporting on our strong performance this year, in today's call we will provide you with guidance for our key financial expectations for 2025. We'll articulate longer term goals for 2020-26 and 2020-27.
Craig Cornelius: and we'll outline the capital allocation framework we intend to employ as we go forward.
Craig Cornelius: Our financial results for the quarter demonstrated another quarter of strong performance in our diversified fleet.
Craig Cornelius: Bringing us to 385 million of Kathy in the year to date and putting us in a great position to meet or exceed our 2024 guide.
Craig Cornelius: We are especially proud of the great work our team has done to run safely and improve the operations of our fleet over the last three quarters.
Craig Cornelius: Ever vigilant, we are pleased to say that we achieved our best ever safety key performance indicators in the first three quarters of the year, and that we have also driven meaningful improvements in plant availability and conversion efficiency in comparison to the prior year.
Craig Cornelius: In conjunction with this strong quarter of performance, we've also announced a fourth quarter dividend in line with our commitment and for 7% DPS growth in 2020.
Craig Cornelius: Morphe.
Craig Cornelius: Looking ahead, we're pleased to report that we've continued to advance the growth of our fleet, concluding an investment commitment for the Pine Forest Solar and Storage Project, and having received an offer which is now under evaluation to invest in phase one of the Honeycomb Storage Projects.
Craig Cornelius: As we advance these investment prospects and look ahead to further opportunities to come, we've continued to demonstrate our ability to methodically assemble a creative building blocks for our growth over time.
Craig Cornelius: Today we are establishing our financial guidance for 2025.
Craig Cornelius: We're establishing Kathy guidance for 2025 in a midpoint of $420 million, and establishing our dividend target for the year at $1.76 per share, in line with our previously articulated commitment for 2025 DPS.
Craig Cornelius: We are also reaffirming our intention to target dividend per share growth in 2026 at 6.5%. fulfilling our prior commitments.
Craig Cornelius: So our guidance for fiscal year 2026 would be issued at this time next year.
Craig Cornelius: We look forward to delivering that future DPS growth in a proven capital structure.
Craig Cornelius: Supported by the full-year Kathy Contribution from committed growth investments that will be funded over 2025 And the progressive increase in revenues that should be delivered by our fleet.
Craig Cornelius: Finally, we are setting a next set of goals in updating our capital allocation framework for the future.
Craig Cornelius: Looking ahead to 2027, we will be targeting Kathy Percher of $2.40 to $2.60
Craig Cornelius: A range with represents a solid growth trajectory extension of approximately 7.5 to 12%.
Craig Cornelius: compounded annual growth from the midpoint of our 2025 guidance, reflecting the strengthening trajectory of our core asset base and our creative growth investment prospects.
Craig Cornelius: From this position of strength, we will aim to fund more of our growth from retain cash flow.
Craig Cornelius: Targeting a payout ratio in 2027 within 70 to 80%. While also growing our dividend at a competitive pace with a targeted dividend per share growth rate in the bottom half of our historical 5 to 8% range in 2027.
Craig Cornelius: In concert with setting these goals, we're also refreshing our capital allocation framework to one that we believe will provide investors with enhanced visibility into long-term predictable captive for sharecroft.
Craig Cornelius: Beyond our strong cap-to-per-share growth roadmap into 2027, we will aim to achieve a long-term goal of 5-8% plus in cap-to-per-share growth in the long term, and importantly, we'll aim to effectuate that growth with a greater reliance on our own cash flow generation.
Craig Cornelius: Increasing the fraction of our internal cash flow we reinvest in growth over time, deploying capital in a way that is accretive, and raising capital in a way that is prudent and predictable.
Craig Cornelius: I'll discuss this refreshed framework in detail later in the presentation.
Craig Cornelius: In summary, Clearway continues to execute well and we are excited to continue to deliver long-term accretive growth to you, our valued stakeholders.
Craig Cornelius: Turning to slide five.
Craig Cornelius: During the last quarter, we made solid steps forward on value accretive growth, as is evident by the completion of our investment commitment to pine forest on attractive terms and received a formal offer for honeycomb phase one, which is now under review.
Craig Cornelius: As a refresher, the Pine Forest Solar Plus Storage Complex will be a complimentary addition to our fleet in the fast-growing ERCOT power market.
Craig Cornelius: Its solar capacity has been fully contracted for an average of approximately 20 years at strong pricing and settlement terms. The majority contracted with a leading information technology company.
Craig Cornelius: We're also pleased to announce that CWIN received an offer for Phase I of the Honeycomb Battery Hybridization Program.
Craig Cornelius: As you'll recall, Clearway Group is developing and building a family of contracted battery assets adjacent to CWIN's existing fleet of solar projects in Utah.
Craig Cornelius: Subject to CWIN's independent director approval, CWIN has the opportunity to invest approximately $85 million in corporate capital at an approximately 10% cap yield into the projects and to fund this investment in 2026.
Speaker Change: Sarah will discuss the company's liquidity position more in her section, but both Pine Forest and Honeycomb are expected to be funded with existing sources of existing liquidity.
Speaker Change: Turning to slide six.
Speaker Change: Along with the improvements we've made to our fleet this year, growth investments like these have allowed us to build an excellent foundation for achieving the goals we are now setting for 2027.
Speaker Change: Starting from our previously disclosed pro forma CAFD per share of two dollars and fifteen cents, and then taking into account the commitment to Pine Forest and updated levelized assumptions for resource adequacy capacity revenues in our conventional fleet,
Speaker Change: Our existing asset base and committed investments set us up to target at least $2.40 per share in CAFTI in 2027, constituting the bottom end of the range we're targeting for CAFTI per share in the year.
Speaker Change: For more information visit www.fema.gov
Speaker Change: First, by 2027, Pine Forest will add to the other previously committed investments that underpinned our prior pro forma CAFDI per share expectation.
Speaker Change: Beyond that contribution, our fleet improvement program, the results of which are evident in our strengthened results in 2024 year to date, adds further to our 2027 outlook.
Speaker Change: Finally, our outlook for RA capacity revenues has also strengthened as we have executed on our power marketing program this year.
Speaker Change: With the contracted position we've already established for 2027, combined with RA pricing trends we're observing in current customer engagements, we are confident that the RA pricing assumption embedded within our 2027 target range is achievable relative to where we are executing today.
Speaker Change: Indeed, that strength now lets us look to build up from the bottom end of the range at $2.40 per share to higher levels within an accretive capital allocation framework, which we'll outline later in our call.
Speaker Change: With that, I'll turn it over to Sarah to provide a summary of our key financial results for the quarter. Over to you, Sarah.
Sarah Rubenstein: Thanks, Craig.
Sarah Rubenstein: On slide 8, we provide an overview of our financial results.
Sarah Rubenstein: which includes third quarter adjusted EBITDA of $354 million and CAFD of $146 million.
Sarah Rubenstein: The third quarter results reflect renewable production in line with overall fleet estimates, as well as solid conventional availability and expected results from growth investments.
Sarah Rubenstein: Based on our year-to-date results, with Adjusted EBITDA of $918 million and CAFDI of $385 million, we are reaffirming our full year 2024 CAFDI guidance of $395 million.
Sarah Rubenstein: The fourth quarter represents a smaller relative contribution to CAFD based on seasonality of cash flows, and assuming P50 median renewable energy production for the fourth quarter, the company is well positioned to meet or exceed its 2024 CAFD guidance.
Speaker Change: Steven Fleishman
Speaker Change: Turning to slide nine, the company is initiating 2025 CAFD guidance with an expected range of $400 million to $440 million and a midpoint of $420 million. Moving forward from our 2024 CAFD guidance of $395 million, our 2025 CAFD guidance range reflects the recent execution of the Capistrano refinancing, which increases principal and interest payments by approximately $10 million.
Speaker Change: The 2025 CAFDI Guidance Range also reflects the completion of fleet improvement projects that were previously disclosed, impacting our 2024 guidance.
Speaker Change: and also reflects the full impact of CAFDI contributions from previously funded investments that are now contributing fully to CAFDI.
Speaker Change: We elected to establish a range for CAFDI guidance that reflects P50 renewable production expectations at the midpoint, with the upper and lower ends of the range reflecting variability and potential outcomes for resource, availability, and energy margin pricing.
Speaker Change: In addition, the completion of committed growth investments on the currently forecasted schedules are reflected within the guidance range.
Speaker Change: As Craig previously discussed, we expect to fund investments in the Pine Forest and Honeycomb project in the second half of 2025 and 2026, respectively.
Speaker Change: To fund those offers, as well as to fund future growth investments, we will employ our prudent capital allocation framework, which we outline in further detail on slide 10.
Speaker Change: We expect to be able to utilize retained CAFDI as a primary source of capital, targeting retained CAFDI of approximately $220 million, accumulated over 2025 through 2027, based on the low end of our CAFDI per share growth outlook.
Speaker Change: Beyond 2027, we will target maintaining a lower payout ratio of 70 to 80% in order to retain incremental CAFD while also prioritizing our other capital allocation targets.
Speaker Change: We anticipate having excess corporate debt capacity based on our credit metrics calculated using the low end of our target cash per share numbers for 2027 that would potentially allow for excess debt capacity of over $300 million.
Speaker Change: which we could utilize to fund growth, including the approximately $300 million of growth capital required for drop downs or M&A to enable sufficient CAFDI growth to meet our 2027 CAFDI per share target.
Speaker Change: Our revolving credit facility, which is largely undrawn, remains a key interim source of liquidity for the company.
Speaker Change: Agnieszka Storozynski, Sarah Rubenstein, Christopher Sotos
Speaker Change: While we won't require external equity to fund the current identified opportunities to drive growth, our long-term vision anticipates the modest periodic issuance of equity to fund growth when growth investments and the equity issuance required to capitalize them are anticipated to be accretive and create long-term value for CWRM.
Speaker Change: To restate our long-term funding framework, we will look to maximize CAFD per share, net of the cost of financing, while also assuring that an investment meets its long-term metrics aligned with its underwriting criteria.
Speaker Change: Our plan to source corporate growth capital is first from retained capital.
Speaker Change: Second, with excess corporate debt capacity in line with our target BB rating, and third, we may look to issue external equity to fund investments.
Speaker Change: We also recognize that we have $2.1 billion of corporate bonds maturing in 2028, 2031, and 2032 that we will need to refinance within the timeframe for our longer term goals.
Speaker Change: We will maintain a prudent approach to these refinancing activities and will reflect any meaningful impact to our future year-specific CAFDI per share targets as we move into the future.
Speaker Change: Thanks, Sarah.
Speaker Change: Given the robust asset base and capital structure we have prudently built for CWIN over time and the capabilities we have at our disposal within the broader Clearway enterprise.
Speaker Change: Our organization is confident and clear-eyed as we now set and pursue ambitious but meetable goals for the future, starting first with our 2027 target of $2.40 to $2.60 in capita per share.
Speaker Change: Let's talk now about how we'll get there.
Speaker Change: From the 2025 midpoint of guidance, as described previously, our already committed growth investments, fleet improvements, and enhanced capacity revenues put Clearway on a path to achieve the bottom end of our 2027 target range.
Speaker Change: Additionally, Clearway Group's abundant pipeline and leading execution capabilities, matched with the financial flexibility CWIN has to invest based on Sarah's description, provides another leg for further accretive growth for CWIN.
Speaker Change: Putting that to numbers, Clearway Group's vintage of projects targeting COD in 2026 constitute an investment opportunity of approximately $300 million in potential corporate capital.
Speaker Change: A sum which could be potentially funded by CUN over time by incremental corporate debt capacity and retained earnings alone.
Speaker Change: This, combined with further portfolio improvements, could enable us to reach the upper end of our targeted 2027 CAFD per share range.
Speaker Change: So while there is much work ahead for these projects to advance, and as always, the UN will need to evaluate any drop-down projects offered or third-party M&A opportunities considered for alignment with its investment requirements.
Speaker Change: We see how we can get from here to the high end of our 2027 CAFD per share range if we execute on these building blocks and continue to operate our portfolio with excellence in typical resource and market conditions.
Speaker Change: Turning to slide 13.
Speaker Change: To reinforce our confidence, we'll take a moment to highlight the ongoing progress in Clearway Group's late-stage pipeline as CWIN's sponsor advances projects towards potential for future offers and drop-downs.
Speaker Change: First, Clearway Group has made investments that secure qualification for tax credits for projects across multiple COD vintages and technologies through 2028, and is establishing plans for safe harbor investments for the 2029 vintage.
Speaker Change: The overall landscape of Clearway Group's origination progress attests to the locational value of its development assets and the attractiveness of Clearway's track record, and is realizing PPA pricing that's trending up with PPA terms that are trending favorable.
Speaker Change: Honing in more closely on the opportunity set of the 2026 and 2027 COD vintages, these projects could allow CUN to invest at least $475 million of corporate capital beyond what CUN has already committed to or been offered.
Speaker Change: Collectively, these potential corporate capital investments sum up to a total greater than what would be needed to achieve the upper end of the 2027 cap-to-per-share target of $2.60 that we have set today.
Speaker Change: As it has demonstrated over many years, Clearway Group will continue to be thoughtful about the structuring and pace of growth opportunities offered to CWIN from this opportunity set, mindful of pacing and return requirements needed for investments to be feasible and accretive.
Speaker Change: Furthermore, we continue to selectively engage in asset-centered M&A opportunities which are right size and could be complimentary to our fleet and see potential for pursuing targeted value of creative growth through those investments as well.
Speaker Change: And across all these capital allocation opportunities, the CUN board and its independent directors will remain focused on selecting and negotiating investments so that they are accretive and consistent with its underwriting requirements.
Speaker Change: Turning to slide 14.
Speaker Change: When taking into account the CAFDI4Share target we've set for 2027 and what we see in front of us for long-term growth opportunities, we believe we've arrived at a sensible and value-accretive framework that allows us to deliver predictable growth
Speaker Change: improve visibility into that growth and that also pursues a lowered reliance on external equity issuance to achieve our long-term objectives.
Speaker Change: As previously mentioned, the growth we expect from our existing asset base through 2027 puts us in a position of strength to make sound decisions as we grow Clearway Energy, Inc.
Speaker Change: Post-2027, our business model will aim to achieve 5-8% plus growth in capital per share over time.
Speaker Change: Retained CAFI will provide an increasing source of growth capital as we will be targeting a 70 to 80 percent payout ratio with the aim to reach the low end of that range over time.
Speaker Change: As retained CAFDI increases and the platform grows, we will aim to pursue investments that are accretive on a CAFDI per share basis and that meet our underwriting criteria, allowing CUN to deploy retained CAFDI towards further extending and compounding its CAFDI per share growth outlook.
Speaker Change: After retained CAFDI, we will look to excess deck capacity in line with our target BB rating as a second source of funds. And as Sarah noted, our forward-looking leverage metrics position us well with additional excess deck capacity.
Speaker Change: The last piece of our funding framework will be external equity issuance.
Speaker Change: While we don't need external equity to achieve the midpoint of our 2027 cap-to-per-share target, we do plan to eventually fund a portion of long-term routine growth by modest levels of equity issuance.
Speaker Change: but in a way that it is predictable, deliberate, disciplined, and focused on accretion.
Speaker Change: We will always be measured when evaluating the potential issuance of shares, and it will always be for investments that increase the amount of CAPD attributable to our investors' respective ownership on a per-share basis.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Indeed, even to achieve the top end of our base long-term growth objectives, our goals would call only for modest equity issuances that could be executed by an ATM targeting issuance of a small percentage of our public flow, and without any immediate need for such issuance today.
Speaker Change: We like that this allows us to take our time. Be selective with our moments for adding cash to our balance sheet via equity issuance.
Speaker Change: and to be deliberate and communicative with you about when we have reached a point in our growth capital investment program that this will begin to be part of it.
Speaker Change: Lastly, we continue to feel very confident about the commitments we've made and the choices we are making now about dividend goals for the future.
Speaker Change: First, we're affirming that we aim to make good on the commitments that CWIN has already made for growth and dividends through 2026.
Speaker Change: For 2027, we are targeting DPS growth at the bottom half of the range of 5 to 8%, which numerically translates to 5 to 6.5%. With the level we ultimately target being a function of our payout ratio goal of 70 to 80% for 2027.
Speaker Change: Beyond 2027, we'll be aiming to continue to pay in compound dividends per share in a way that is competitive in the marketplace for publicly listed infrastructure capital.
Speaker Change: As we compound our dividend, we'll be planning to do so while prioritizing our financial resilience.
Speaker Change: giving our shareholders the opportunity to participate in that growth by attractive dividends that we grow at a pace that is set by our actual capi per share growth and our payout ratio goals.
Speaker Change: The track record we have demonstrated over time in fulfilling the dividend commitments we make is something we are proud of, and we will aim to continue.
Speaker Change: Given the strength of our asset base, the prudence we've applied to our capital structure, and the growth prospects we have in front of us, we feel good about our ability to do that while growing accretively over time.
Speaker Change: via already committed investments, a demonstrated track record for fleet improvement and RA marketing, and advanced development stage opportunities at Clearway Group and the Project M&A Marketplace.
Speaker Change: And lastly, we have defined a roadmap for growth and capital allocation beyond 2027 in a way that we believe establishes a sustainable and attractive investment proposition for the shareholders of CWIN.
Speaker Change: We will be a company that will be predictable in meeting its core financial goals, that will be enhancing that predictability via financial flexibility over time.
Speaker Change: that will be growing its core earnings in the form of CAFI at an attractive pace and will be providing its shareholders the opportunity to continue to participate in that growth via a secure dividend.
Speaker Change: Together, we believe these pillars will position CWIN to deliver best-in-class, risk-adjusted returns for our investors, and look forward to delivering that result to our investors in the years to come.
Speaker Change: We have much work ahead to be sure, but I could not be more enthused about the work our colleagues at Clearway have done to put us on such strong footing. We look forward to doing that work together and to what it will mean for you, our valued investors.
Speaker Change: Operator, you may open the lines for questions.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. We ask that you limit yourself to one question and one follow-up.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Noah Kay with Oppenheimer and Company. Your line is open.
Speaker Change: So, you've already touched on this a fair bit around the roadmap and the Refreshed Capital Allocation Strategy, but you didn't note in the deck that you had received a fair amount of feedback from financial stakeholders, you know, and investors, and I'd just love to talk a little bit more about that.
Speaker Change: the process that that you went through to set this framework. I mean, clearly, you know, still continuing to grow the dividend, but retaining more capital to provide flexibility. Just talk a little bit about the process by which you reach this decision.
Speaker Change: Yeah, so I think, you know, we started this process first at looking
Speaker Change: at what we expect our fleet to do in its own right.
Speaker Change: And and I think our assessment as we went through and evaluated the pathway we're on both for revenue enhancement and operating.
Speaker Change: Cash Flow Execution built one layer of expectations that we thought we would be able to execute.
Speaker Change: And then in addition to that, we evaluated the growth investment prospects that we had. And those things collectively gave us a sense for the fundamental earnings growth potential of the business.
Speaker Change: And then as we've engaged with our investors.
Speaker Change: We've looked to assess the way that they think about capital allocation and value in the business. And I think what we heard from them collectively is that they would like to see the company grow within its means.
Speaker Change: I think in particular when they think about growing within our means.
Speaker Change: The general thought process has been that people would like to see us
Speaker Change: be able to meet our growth prospects without a substantial reliance on the issuance of that dividend. We think we've built a plan that really should deliver leading-edge returns, both through fundamentally the growth of the earnings.
Speaker Change: of our business itself, but also through our ability to compound that growth using the capital that we allocate from our own food. So I think
Speaker Change: You know, we've tried to incorporate that expectation from our investors in the way that we've allocated capital in the plan.
Speaker Change: When it comes to dividend growth, I think we want to remain competitive amongst investors' selection of options for listed infrastructure, while not over-committing ourselves to the growth of the dividend that we have committed to the
Speaker Change: Thanks for your time.
Speaker Change: And again, I think we've done that as well. So we feel really good about the plan that we built here. We know how to execute it. We think it's actually going to provide pretty compelling growth prospects for our investors, and it will still give them the chance to participate in that growth with the dividend that we know how to pay in a secure way.
Speaker Change: Thank you, thank you, Craig.
Speaker Change: And then talking a little bit about sources of capital, you know, appreciate the commentary around, you know, capital that you might source both from the debt and equity markets.
Speaker Change: Curious to know how you think about potential for
Speaker Change: you know, potential in some sort of a minority investment, you know, type structure or a holding type structure as an alternative to, to, you know, some of the sources that you've detailed, just given we are seeing, you know, some of those structures out there in the market.
Speaker Change: You know,
Speaker Change: We don't require that kind of a structure to be able to execute on our plan. And when we look at the cost of capital for some of those types of structures,
Speaker Change: In relation to the cost of our corporate debt, it's not particularly compelling. And as we noted, we don't have to issue equity to hit the midpoint of our plan. And.
Speaker Change: To be able to actually get to the very top end of the cap fee per share range we've articulated, the amount of equity that we'd have to issue is
Speaker Change: You know, we're sort of talking about something like, you know, a percent of the public float of one of our classes and shares. So it's not a tremendous amount of capital that we'd actually have to issue in the form of equity.
Speaker Change: So rather than load up on additional capital that sits sort of at the bottom of the capital structure and would dilute the fraction of CAFD per share that our current shareholders are entitled to receive, you know, I think we want, as I started out with, to
Speaker Change: to grow within our means, driven in particular by the cash flow that our fleet will be compounding over the next three years. And then, you know, in a prudent way, make use of leverage capacity between four and four and a half times and potentially trending down to the low end of that range.
Speaker Change: And we see how we can achieve our growth goals, really principally with those sources of funding without needing to get into thinking about.
Speaker Change: sources of capital that would be diluted, whether those are public in the form of public issuance or those types of structures either. So,
Speaker Change: Unknown Speaker
Speaker Change: You know, I think.
Speaker Change: As we move forward over time, we'll want to be thoughtful about the full range of growth prospects we have and how we can continue to drive accretion for our investors. But for the moment, we don't see a need to make use of structures like what you're describing and we're quite happy about what that means.
Speaker Change: Very helpful. Thank you. I'll leave it there.
Speaker Change: Thank you.
Speaker Change: As a reminder, ladies and gentlemen, we ask that you limit yourself to one question and one follow-up. Please stand by for our next question.
Speaker Change: Our next question comes from the line of Julian DeMoulin-Smith with Jeffreys, your line is open.
Julian DeMoulin-Smith: Hey, good morning team. Thank you very much. Congratulations, Craig, Sarah, appreciate the time.
Julian DeMoulin-Smith: Just following up here on the update, really nicely done here. Just in terms of the overall RA uplift here in that 240-260 or however you want to frame it at the bottom end of 240.
Julian DeMoulin-Smith: What's reflected there in terms of continued ability to see RA uplift materialize, given how robust of an outlook you provided here on 27, is there still a further step function change that you would expect over time there in the RA levels? I know that this is obviously ahead of plan, if you will.
Speaker Change: just wanted to kind of clarify what's reflected. And also, what else is in the portfolio improvement? I know you mentioned some key factors. Anything else above and beyond, you know, principally the RA and Pine Forest here and, and I suppose, I suppose, early refinancing of the 28 bonds is that you get a run rate 27 uplift, I presume? Unknown Speaker
Speaker Change: Yeah, yeah, thanks. Really appreciate the question on all those fronts. I think we're, we're, we're quite happy with how we're executing on all of them. So, 1st, in terms of what's embedded in the 2027 target range, we set that based on,
Speaker Change: The pricing that we've been securing on forward dated multi-year RA contracts in today's marketplace today.
Speaker Change: And, and in fact, I think for the capacity that some contracted, we've set it at a modest buffered discount to the pricing that we're realizing.
Speaker Change: And relative to what's reflected in the midpoint of our 2025 guidance, that's an uplift of about sort of five to five and a half dollars per kilowatt month versus.
Speaker Change: the contracts under which we're delivering in 2025, which we signed some years ago.
Speaker Change: and with respect to whether, you know, you could see a further step function up from those levels beyond 2027.
Speaker Change: I would sort of hasten not to commit to that or accept that, but we do feel good about these levels being sustainable to give you some further calibration on that. When we, when we look at the prompt here.
Speaker Change: and where contracts for the prompt year or even 2026 are being executed today.
Speaker Change: They're being executed at substantial premium to the level we've embedded in this 2027 goal. And as we manage our R.A. marketing program, and we've described previously, we intend to
Speaker Change: continue a pattern similar to what's evident in our our current reporting today where
Speaker Change: We progressively contract on a multi-year basis our forward RIA capacity while leaving some fraction of it open closer to the prompt year to be able to capture some premium value.
Speaker Change: We think that that produces a good risk-adjusted result for our business model, and based on what we see in the structural reform,
Speaker Change: load forecast for California, the way the regulators are continuing to assign value for modern thermal resources like ours, we feel pretty good about being able to continue to run this pattern at levels sort of roughly in line with what we've embedded within the range of 240 to 260 per share.
Speaker Change: In terms of fleet improvement.
Speaker Change: We have a whole host of things that we've executed this year that we're quite proud of.
Speaker Change: which include some modernization of methods for how we're running our plan.
Speaker Change: We've restructured some O&M service agreements that have provided some improvement to the CAFI generation of our assets, and those are both observable in our results this year and are reflected in that long-term pro forma expectation. And then I think.
Speaker Change: I think that that probably covers all your questions. Oh, on the refinancing. Yeah, I think we've, as far as what's reflected in 2027, that does reflect
Speaker Change: Unassumed Costs for Refinancing our 2028 Maturities.
Speaker Change: with some buffer relative to the current yield to worst and what we would think is that execution cost. So it's not actually interest expense savings versus what we have in 2025, but we think it's actually a reflection of a prudent execution plan for that refinancing that we feel good about executing.
Speaker Change: Excellent. Thank you so much for all those details. Really appreciate it. Just one more strategic one as a follow-up here. With respect to the lower payout ratio here, any thoughts about A, the ability to actually obtain assets from the clear rate group overall? It sounds like they've got an ample pipeline that should be transparent. And then related to the extent to which you start going down the lower payout ratio, how do you think about the kinds of assets you would take on? Again, obviously, the storage assets that we're starting to see manifest themselves have a little bit less contract coverage here. Is that part of the strategic pivot as well?
Speaker Change: having a little less contracted cash flow? Yeah, thanks for the question, yeah.
Speaker Change: So first, in terms of the Clearway Group pipeline, as we've shown, it's progressing nicely. Our organization is continuing to
Speaker Change: expand on its execution track record for pipeline progression and contracting. You probably noted that
Speaker Change: The pipeline that's disclosed reflects an improvement in the advanced stage capacity.
Speaker Change: that's planned right now for 2026 and 2027, as well as 2028 and 2029, which is not a pattern you see unfolding in other parts of the industry.
Speaker Change: and to be able to execute on growth investment.
Speaker Change: that would take us to the top end of the range of 240 to 260 and CAFD per share. Only a fraction of that pipeline would ultimately need to be implemented and dropped down.
Speaker Change: make offers in a measured progression that are compatible with CUN's ability to fund those and commit to them.
Speaker Change: So I think it's the intention that will continue that pattern.
Speaker Change: In terms of the lower payout ratio, it's not a reflection of a different level of risk in the assets. The storage assets that Clearway Group is developing
Speaker Change: are almost entirely in the Western markets where they're contracted typically under tolls or in resource adequacy contracts that
Speaker Change: obtained
Speaker Change: you know, the vast, vast majority of their revenues from fixed pricing in R.A.
Speaker Change: and across the storage pipeline that Clear Lake Group is advancing, it's almost entirely assets like that. We have, as we've noted, added
Speaker Change: Unknown Executive, Agnieszka Storozynski, Sarah Rubenstein, Christopher Sotos
Speaker Change: which we view as complementary to diminishing revenue volatility in our wing fleet. But almost all the storage capacity we're advancing will produce revenues under long-term contracted toll-type agreements that are 15 to 20 years in duration like you see for Habiko.
Speaker Change: So the payout ratio reduction goals that we have to reach the lower end of 70 to 80% are really about how we fund the business over time in response to the kind of question Noah asked about how we metabolize the input we got from our investors.
Speaker Change: who really want to see us fund our growth principally through our cash flow generation and driving that payout ratio over time lets us do that.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Excellent. Thank you guys so much.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from Alana C. Fleshman with Wolf Research. Your line is open.
Speaker Change: For us, that's kind of reset to a level where that could meet hurdles.
Speaker Change: Yeah, thanks for the congrats first Steve. We're really happy with what we've settled on here as a framework on
Speaker Change: The M&A question, you know, we are
Speaker Change: selectively engaged on.
Speaker Change: We are finding that there are assets that we can potentially acquire.
Speaker Change: that could be acquired at cap yields and return requirements and sort of risk profiles that are consistent with the types of assets the Clearway Group sponsor has been offering to CWIN.
Speaker Change: So for the time being, it's really assets like that that we're focused on.
Speaker Change: As we've noted, we don't really need to acquire projects.
Speaker Change: outside of the sponsor pipeline.
Speaker Change: to be able to deliver on the goals we've laid out here already, which we think are quite attractive and should be to our investors.
Speaker Change: So where we're thinking about M&A, we're really doing so in a way that's disciplined and that's centered on assets that we think are complementary to our resource mix, our customer profile, and that would exhibit really attractive
Speaker Change: and accretive returns.
Speaker Change: As we go forward over the course of the next few years, certainly we can see the industry landscape evolve in ways that.
Speaker Change: There's potentially a creative M&A that doesn't fit that profile, but what I described is what we're really focused on today.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Okay great and then just just one follow-up to ask before just could I might have missed this but just the fleet improvements could you be more specific what those are is it
Speaker Change: Just across the board.
Speaker Change: Yeah, you know, I think principally.
Speaker Change: We have been employing, you know, modernized information technology tools for work planning and sort of general execution on plant availability and conversion efficiency in parts of our fleet. So that's
Speaker Change: One thing that is helping us to improve on results year-over-year. Our other improvements are evident in some improvements in our conventional fleets.
Speaker Change: availability and execution versus prior years, which are a result of just some pretty intensive execution around
Speaker Change: Our engagement with those plants. And then lastly, the restructuring of some service agreements and O&M agreements in our wind fleet, which have improved on our CAFDI realization as a business. So those are really the principal buckets of execution of those.
Speaker Change: We aim to make durable, which is why they're reflected in our long-term goals now.
Speaker Change: Got it. Thank you.
Speaker Change: Thanks, Steve.
Speaker Change: Our next question comes from the line of Justin Clare with Roth Capital Partners. Your line is open.
Speaker Change: Hi, good morning. Thanks for taking the question.
Justin Clare: So I wanted to first start out just on the dividend per share growth and was wondering how you're thinking about the growth of dividends per share as we look beyond 2027.
Justin Clare: And, you know, are you committed to continuing to grow the dividend, but at a slower pace than than CAFDI? And then should we be anticipating really kind of a gradual move toward the low end of the payout ratio?
Justin Clare: Or could we see something, you know, more, you know, faster. And then just wondering on, you know, if we do see a faster move to the low end, could that be driven by an equity raise? Is that a possibility?
Speaker Change: Yeah, I understand. Yeah, I mean, I think that as is evident in the progression we've run through 2025, 2026,
Speaker Change: and our articulation of a range of five to six and a half percent in DPS growth for 2027. I think we're trying to manage our progression in corporate capital allocation framework in a stepwise way.
Speaker Change: And we think that that is as prudent as we move over time and together with our investors land on a capital allocation framework and growth model for the company that
Speaker Change: we're all happy with.
Speaker Change: You know, I think we tried to be pretty intentional when articulating our framework after 2027 in describing our intention to set our dividend per share growth goals in 2028 and beyond based on the payout ratio. So, I think our intention is.
Speaker Change: that we will settle on.
Speaker Change: dividend per share levels for those future years based on what can reasonably be accommodated within that payout ratio level while assessing the creativeness of the use of capital when reinvested in assets that could compound our capital per share. So
Speaker Change: You know, hopefully what's evident in that game plan is that
Speaker Change: We both don't need to raise large amounts of equity.
Speaker Change: that would be diluted to our current owners.
Speaker Change: in a way that's sort of surprising or unpredictable and that we would really emphasize over time establishing a
Speaker Change: an increasingly robust balance sheet.
Speaker Change: that allows us to meet our growth goals in any given year, really principally through RV King Cathy, which will be growing from the low hundreds to the very high hundreds or low 200s.
Speaker Change: in millions of dollars of retained capital that's reinvestable in our corporate leverage ratio, which we intend to manage in a way that's prudent. So, you know, I think we try to be pretty clear about the fact that
Speaker Change: We don't intend to issue equity right now. We don't need to.
Speaker Change: And that as we advance on this investment program, we're getting to the point where modest levels of equity issuances in line with the kind of pattern that Sarah and I both discussed would be in order that we'll be communicative about it so that we're not catching anybody by surprise.
Speaker Change: Okay, got it. That's helpful.
Speaker Change: And then another question just wanted to ask on the open capacity that you have for your gas fleet here.
Speaker Change: It looks like the contracting capacity didn't change from last quarter when we look at the 2027 year. It looks like the contracting capacity didn't change from last quarter when we look at the
Speaker Change: Just wondering if, you know, was pricing less favorable in the past quarter, and so you didn't look to contract any of the additional capacity?
Speaker Change: So, and then just wondering, you know, when we might see more of that 2027 capacity contracted. Is it likely to be, you know, next summer, but before we see more of that?
Speaker Change: And then also, you know, how much could you potentially keep open until we get closer to 2027? You know, do you anticipate, you know, prices trending upward and potentially waiting to contract that, that open capacity?
Speaker Change: Yeah, there are annual rhythms to the way that load serving entities procure resource adequacy.
Speaker Change: The contract that we announced in the most recent quarterly call reflected
Speaker Change: are contracting in that ordinary pattern. We do have bilateral engagements that are ongoing today. We've noted that. We've noted that we're marketing the open RA capacity that we have at value with patients.
Speaker Change: And I think it would be our intention to increase the fraction that's capacity contracted for 2027 as we move through the next nine months and try to create a pattern that looks like what you can see today rolled forward each year.
Speaker Change: So we feel really good about that contracting process.
Speaker Change: You know, the need for the assets remains quite evident. We feel very good about being able to execute on the kind of pricing that's embedded within our range, and we'll be patient moving forward over time.
Speaker Change: You know, I think if you look at 2025, you know, we've contracted the capacity that we have that underpins our guidance for next year almost entirely. And I think that's probably what you should expect will look like going into any given prompt year.
Speaker Change: Okay, got it. That's helpful. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Michael Onegin with Evercore ISI. Your line is open.
Michael Onegin: Hi, thanks for taking my question. So, as we think more about some of the assumptions in the 2027 outlook,
Michael Onegin: You know, in terms of some specific details, just wondering, you know, what you're assuming for CAFD yields on investments, and then, you know, the specific refinancing rate on the 2028 bonds.
Speaker Change: Yeah, I mean, I think what we've communicated historically is that for sponsor-offered dropdowns, we're planning around a 10% cap yield as the level on which we're trying to create and capitalize projects for dropdowns.
Speaker Change: and that's the level that the sponsor increased last fall when the cost of capital for CUN
Speaker Change: had increased and was actually higher than it is today.
Speaker Change: We continue to plan for that in the projects that are being prepared and created.
Speaker Change: and that's approximately the basis for the goal setting for incremental growth capital investments today.
Speaker Change: And as far as refinancing assumptions in 2027 are concerned, without getting into specific numbers, I can tell you that what's embedded in this range reflects a conservative estimate
Speaker Change: of the cost of refinancing those bonds relative to their current yield to worst and the advice that we get from the banks who we would engage on that refinancing. So we feel good about being able to execute at the cost of capital that's reflected in this target range based on what we see today.
Speaker Change: Great, thanks. And then secondly for me, I'm just wondering, as you consider the data center demand, you know, you talked about the sponsors, engagement with corporates and load serving entities, the power data centers, I think you highlighted 5 gigawatts of renewables. Just wondering, you know, at the city plan level, you know, would you consider acquiring more gas generation assets, or is your focus entirely on renewables paired with storage?
Speaker Change: There are certainly scenarios for certain types of project configurations that
Speaker Change: that would make use of dispatchable thermal generation. The majority of what's being engaged on would reflect the use of mainstay
Speaker Change: wind, solar, and battery resources and provisioning like the data center customer would require. But it's conceivable as we look out into the future that there could be some.
Speaker Change: other resource types that would complement those. I think
Speaker Change: from the context of Clearway Energy, Inc.
Speaker Change: When projects are created, the focal point would be on creating assets that are highly contracted in their cash flow profile.
Speaker Change: and Long in the tenor of those contracts. And, you know, I think what we'll be focused on when creating projects is creating projects that will be technically reliable and financially predictable and while being responsive to the needs of a data center customer.
Speaker Change: There's a lot of time to go, but I think what we're focused on is leveraging our existing capabilities, which do stand when solar storage and gas fire generation, but with a particular focal point on how to create low carbon solutions that are highly reliable.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Angie Storozynski with Seaport. Your line is open.
Speaker Change: Unknown Speaker
Speaker Change: I have a question about your existing renewable power assets and the type of contracts that underpin them. So, I'm just wondering if you could comment, for example, if you have any...
Speaker Change: any basis exposure at these bus bar contracts you know you know are you seeing for example any issues with
Speaker Change: Well, obviously the transmission congestion here, but also the wake effect impacting potentially your wind acid and you sort of
Speaker Change: You know changes in on the grid or you know, like basically
Speaker Change: trading conditions in power markets that could actually impact the EBITDA generation of these existing assets.
Speaker Change: Yeah, I understand the question. Yeah, so I mean, first of all, we're fortunate to have
Speaker Change: a fleet which earned
Speaker Change: A very, very substantial majority.
Speaker Change: of its revenues in node-settled Unicom.
Speaker Change: That's true.
Speaker Change: A very, very high fraction of our total budgeted EBITDA and CAFD. With just breaking down your questions with respect to the storage assets that we brought online this year. They're performing very well. I'm very proud of the work our team has done as we've commissioned those over.
Speaker Change: the course of this summer, really, they're running in it. They're running very well. And it, you know, that reflects a level of vigilance and know-how and capability with our organization to work with our suppliers to intensively drive performance in those assets, but they're performing
Speaker Change: For more information visit www.fema.gov
Speaker Change: Very well, with respect to wind assets, we, we did have.
Speaker Change: Some challenges and availability that you would have seen in our results last year and the fleet improvement program we've been executing this year with investments and contract structures was intended to help address that. And as you can see in our results here today, I think we've actually driven a lot of those improvements and.
Speaker Change: in terms of availability in different parts of our fleet and overall cash flow generation from it.
Speaker Change: And, you know, I think our prospects for repowering look promising for us as we think about projects that are maturing and in a position to be repowered based on their original place and service dates.
Speaker Change: And in terms of basis exposure, you know, we have it on a on a limited number of contracts. We are managing it, I think.
Speaker Change: quite well now as an organization. And when we think about going forward, one of the really fortunate aspects of the supply-demand balance for new electricity generation is that we're in a position to
Speaker Change: Establish settlement terms for new revenue contracts that that really minimize risk for the project equity owner and
Speaker Change: When you heard me reference the successful work our origination team has had in sort of driving settlement terms that are favorable, that reflects, that's at least part of what we're talking about. We think we've been disciplined about the settlement structures we insisted on.
Speaker Change: In our track record and the scarcity value of our projects allows us to be pretty insistent about those risk mitigated structures.
Speaker Change: Great. And you don't have anyone, any of these, you know, firm renewable power contracts like 24-7 contracts, which a lot of tech companies, you know, wanted to sign. And I'm just wondering why that is. Do you think that the risk-reward is not attractive with these types of contracts?
Speaker Change: You know, I don't, I don't want to speak to choices others are making. I think we understand why those those contract structures are appealing.
Speaker Change: to customers in our context.
Speaker Change: When we thought about our business model and our capabilities in order as an organization and how we want to try to manage to produce.
Speaker Change: Risk-adjusted returns consistent with the business model we've established for Clearway Energy, Inc. That kind of structure just sort of felt like it did not need to be part of how we commercialize the projects that we've built over the last few years.
Speaker Change: And I think as we go forward, we want to be responsive to the decarbonization goals.
Speaker Change: that all of our customers have, including customers from the technology community, while
Speaker Change: while managing a basket of projects that each individually stand on their own. So I think we want to be thoughtful about innovation while being careful about risk and, you know, leverage the capabilities that we as Clearway have. And those together were the reasons why we've structured projects the way we have so far.
Speaker Change: Okay, and then changing topics.
Speaker Change: You guys are adding batteries to a number of projects. How about adding energy storage to your gas peakers in California? Is that even a consideration?
Speaker Change: And the injection capacity at those those points of interconnection is also somewhat limited. So, in the immediate term, the highest and best use of that injection capacity is the delivery of resource adequacy that can meet 24 hour.
Speaker Change: Slice of Day requirements from our thermal resources.
Speaker Change: And the addition of batteries to supplement that would be infeasible in terms of grid injection, and maybe not the highest and best use of that interconnection. But we have adjacent acreage that, you know, that's modest that over time, we'll try to find a way to leverage somehow.
Speaker Change: Thank you. Please stand by for our next question.
Speaker Change: © 2014 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services
Speaker Change: Our next question comes from the line of Mark Javi with CIBC. Your line is open.
Mark Javi: Yeah, good morning, everyone. Thanks for the time and fitting me in here. I was wondering if you could maybe just parse apart, we've had some discussion on the call about
Mark Javi: Capital Deployment Growth versus Organic Drivers on RRA and asset optimizations. If you think out maybe the longer term growth rate of 5 to 8 percent, how would you make that split between what's sort of organic drivers versus capital deployment driven?
Speaker Change: Additional investment.
Speaker Change: You know, I think that there will be ways that we look to leverage the existing fleet of assets that we own within CWIN.
Speaker Change: as part of making that growth investment, say, in particular, through repowerings.
Speaker Change: which could take the same individual assets CAFD contribution relative to, say, the top end of that $260 in CAFD per share.
Speaker Change: and increase it, or if it helps sustain the CAFD generation of a project that, you know, is maturing in its age.
Speaker Change: But in general, I think as we look to grow beyond 260 in cap deeper share into the out years, and we look at that compounding 5 to 8% cap deeper share plus growth goal, most of that growth will be driven by additional capital commitments.
Speaker Change: which again I think we would we would make only to the extent that the investment and the cost of funding that investment would be accretive on a cap-fee-per-chair basis and when we look at our planning horizon beyond 2027 we see very clearly how we'll be able to do that.
Speaker Change: And then, Craig, coming back to a couple of your comments on internal financing capabilities, at what point would you think you would exhaust that $300 million of corporate debt capacity? Is that by 2027? And then, were you saying at one point that you think you could grow without issuing equity close to the low end of the 5 to 8% range?
Craig Cornelius: I think what we said is, is we can execute to the midpoint of the 240 to 260 per share range, call it 250 without issuing equity.
Craig Cornelius: In terms of growing beyond the top end 260 per share,
Craig Cornelius: at 5% to 8% beyond that, that is why we wanted to articulate that at some point growth in the business model will entail routine amounts of equity issuance, but as the fleet-based CAFD level grows over time,
Craig Cornelius: as the cappy of the Art Baseleet itself grows.
Craig Cornelius: and then to that leverage capacity, which we would look to manage in a way that's prudent.
Craig Cornelius: And then, you know, eventually equity issuance through something like an ATM at modest quantities for this kind of routine investment program that would hit the kind of goals that we've articulated.
Craig Cornelius: So,
Craig Cornelius: So, I think that maybe gives you the calibration that you're looking for.
Craig Cornelius: Thank you for watching. Please subscribe to my channel. I'm your host, Sarah Rubenstein.
Speaker Change: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Craig for closing remarks.
Craig Cornelius: Great. Thank you everyone for joining us today and for your ongoing support of Clearway Energy, Inc. We're looking forward to continuing to demonstrate to you our leading market position on solid execution.
Craig Cornelius: and are really optimistic about what the days ahead have in store for our company as we move onward. Operator, you can close the call.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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Speaker Change: Hello, and welcome to Clearway Energy, Inc. 3rd Quarter 2024 Earnings Call.
Speaker Change #100: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to hand the conference over to Akil Mosh. Sir, you may begin.
Akil Mosh: Good morning. Thank you for taking the time to join Clearway Energy Inc's third quarter call. With me this morning are Craig Cornelius, the company's President and CEO, and Sarah Rubenstein, the company's CFO.
Akil Mosh: Before we begin, I'd like to quickly note that today's discussion will contain four looking statements, which are based on assumptions that we believe to be reasonable as of this date.
Akil Mosh: Actual results may differ materially.
Akil Mosh: Please review the safe harbor in today's presentation, as well as the risk factors in our SEC filings.
Akil Mosh: In addition, we will refer to both GAAP and non-GAAP financial measures. For more information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation.
Akil Mosh: In particular, please note that we will refer to both offered and committed transactions in today's oral presentation, and also may discuss such transactions during the question and answer portion of today's conference.
Akil Mosh: Please refer to the Safe Harbor in today's presentation for a description of the categories of potential transactions and related risk, contingencies, and uncertainties.
Speaker Change #101: With that, I'll hand it over to Craig.
Craig Cornelius: Thanks Akil. Turning to slide four.
Craig Cornelius: Today we're pleased to report that we've completed another solid quarter of execution, that we are on track to meet or exceed our key 2024 financial objectives, and that we have a strong outlook for Clearway's future.
Craig Cornelius: In addition to reporting on our strong performance this year, in today's call, we will provide you with guidance for our key financial expectations for 2025. We'll articulate longer term goals for 2026 and 2027.
Craig Cornelius: and will outline the capital allocation framework we intend to employ as we go forward.
Craig Cornelius: Our financial results for the quarter demonstrated another quarter of strong performance in our diversified fleet.
Craig Cornelius: Bringing us to 385 million of CAFDI in the year to date and putting us in a great position to meet or exceed our 2024 guidance.
Craig Cornelius: We are especially proud of the great work our team has done to run safely and improve the operations of our fleet over the last three quarters.
Craig Cornelius: Ever vigilant, we are pleased to say that we achieved our best ever safety key performance indicators in the first three quarters of the year, and that we have also driven meaningful improvements in plant availability and conversion efficiency in comparison to the prior year.
Craig Cornelius: In conjunction with this strong quarter of performance, we've also announced a fourth quarter dividend in line with our commitment for 7% DPS growth in 2024.
Speaker Change #102: For more information, visit www.fema.gov
Speaker Change #102: Looking ahead, we're pleased to report that we've continued to advance the growth of our fleet, concluding an investment commitment for the Pine Forest Solar and Storage Project and having received an offer, which is now under evaluation, to invest in Phase I of the Honeycomb Storage Projects.
Speaker Change #102: As we advance these investment prospects and look ahead to further opportunities to come, we've continued to demonstrate our ability to methodically assemble a creative building blocks for our growth over time.
Speaker Change #102: Today, we are establishing our financial guidance for 2025.
Speaker Change #102: We're establishing CAFDI guidance for 2025 at a midpoint of $420 million, and establishing our dividend target for the year at $1.76 per share, in line with our previously articulated commitment for 2025 DPS.
Speaker Change #102: We are also reaffirming our intention to target dividend per share growth in 2026 at six and a half percent, fulfilling our prior commitments.
Speaker Change #102: So our guidance for fiscal year 2026 would be issued at this time next year. We look forward to delivering that future DPS growth in a prudent capital structure.
Speaker Change #102: Supported by the full-year CAFDI contribution from committed growth investments that will be funded over 2025 and the progressive increase in revenues that should be delivered by our fleet.
Speaker Change #102: Finally, we are setting the next set of goals and updating our capital allocation framework for the future.
Speaker Change #102: Looking ahead to 2027, we will be targeting CAFE per share of $2.40 to $2.60.
Speaker Change #102: a range which represents a solid growth trajectory extension of approximately seven and a half to twelve percent.
Speaker Change #102: compounded annual growth from the midpoint of our 2025 guidance, reflecting the strengthening trajectory of our core asset base and our accretive growth investment prospects.
Speaker Change #102: From this position of strength, we will aim to fund more of our growth from retained cash flow.
Speaker Change #102: Targeting a payout ratio in 2027 within 70 to 80% while also growing our dividend at a competitive pace with a targeted dividend per share growth rate in the bottom half of our historical 5 to 8% range in 2027.
Speaker Change #102: In concert with setting these goals, we're also refreshing our capital allocation framework to one that we believe will provide investors with enhanced visibility into long-term predictable cap-to-per-share growth.
Speaker Change #102: Beyond our strong cap-to-per-share growth roadmap into 2027, we will aim to achieve a long-term goal of 5-8% plus in cap-to-per-share growth in the long term, and importantly, we'll aim to effectuate that growth with a greater reliance on our own cash flow generation.
Speaker Change #102: Increasing the fraction of our internal cash flow we reinvest in growth over time, deploying capital in a way that is accretive, and raising capital in a way that is prudent and predictable.
Speaker Change #102: I'll discuss this refreshed framework in detail later in the presentation.
Speaker Change #102: In summary, Clearway continues to execute well and we are excited to continue to deliver long-term accretive growth to you, our valued stakeholders.
Speaker Change #102: Turning to slide 5.
Speaker Change #102: During the last quarter, we made solid steps forward on value accretive growth, as is evident by the completion of our investment commitment to Pine Forest on attractive terms and received a formal offer for Honeycomb Phase 1, which is now under review.
Speaker Change #102: As a refresher, the Pine Forest Solar Plus Storage Complex will be a complimentary addition to our fleet in the fast-growing ERCOT power market.
Speaker Change #102: Its solar capacity has been fully contracted for an average of approximately 20 years at strong pricing and settlement terms. The majority contracted with a leading information technology company.
Speaker Change #102: Its batteries will complement our existing fleet of assets in ERCOT and together these will be beneficial additions to our fleet. We aim to fund the investment by the end of 2025.
Speaker Change #102: We're also pleased to announce that CWIN received an offer for Phase 1 of the Honeycomb Battery Hybridization Program.
Speaker Change #102: As you'll recall, ClearWay Group is developing and building a family of contracted battery assets adjacent to CWIN's existing fleet of solar projects in Utah.
Speaker Change #102: Subject to CWIN's independent director approval, CWIN has the opportunity to invest approximately $85 million in corporate capital at an approximately 10% cap yield into the projects and to fund this investment in 2026.
Speaker Change #102: Sarah will discuss the company's liquidity position more in her section, but both Pine Forest and Honeycomb are expected to be funded with existing sources of existing liquidity.
Speaker Change #102: Turning to slide six.
Speaker Change #102: Along with the improvements we've made to our fleet this year, growth investments like these have allowed us to build an excellent foundation for achieving the goals we are now setting for 2027.
Speaker Change #102: Starting from our previously disclosed pro forma CAFD per share of two dollars and fifteen cents, and then taking into account the commitment to Pine Forest and updated levelized assumptions for resource adequacy capacity revenues in our conventional fleet,
Speaker Change #102: Our existing asset base and committed investments set us up to target at least $2.40 per share in CAFTI in 2027, constituting the bottom end of the range we're targeting for CAFTI per share in the year.
Speaker Change #102: First, by 2027, Pine Forest will add to the other previously committed investments that underpinned our prior pro forma cap-to-per-share expectation.
Speaker Change #102: Beyond that contribution, our fleet improvement program, the results of which are evident in our strength and results in 2024 year to date, adds further to our 2027 outlook.
Speaker Change #102: Finally, our outlook for RA capacity revenues has also strengthened as we have executed on our power marketing program this year.
Speaker Change #102: With the contracted position we've already established for 2027.
Speaker Change #102: Indeed, that strength now lets us look to build up on the bottom end of the range at $2.40 in cap fee per share to higher levels within an accretive capital allocation framework, which we'll outline later in our call.
Speaker Change #103: With that, I'll turn it over to Sarah to provide a summary of our key financial results for the quarter. Over to you, Sarah.
Sarah Rubenstein: Thanks, Craig.
Sarah Rubenstein: On slide 8, we provide an overview of our financial results.
Sarah Rubenstein: which includes third quarter adjusted EBITDA of $354 million and CAFD of $146 million.
Sarah Rubenstein: The third quarter results reflect renewable production in line with overall fleet estimates, as well as solid conventional availability and expected results from growth investments.
Sarah Rubenstein: Based on our year-to-date results with Adjusted EBITDA of $918 million and CAFDI of $385 million, we are reaffirming our full year 2024 CAFDI guidance of $395 million.
Sarah Rubenstein: The fourth quarter represents a smaller relative contribution to CAFD based on seasonality of cash flows and assuming P50 median renewable energy production for the fourth quarter The company is well positioned to meet or exceed its 2024 CAFD guidance
Sarah Rubenstein: Turning to slide 9, the company is initiating 2025 CAFD guidance with an expected range of $400 to $440 million and a midpoint of $420 million.
Sarah Rubenstein: Moving forward from our 2024 CAFDI guidance of $395 million, our 2025 CAFDI guidance range reflects the recent execution of the Capistrano refinancing, which increases principal and interest payments by approximately $10 million.
Sarah Rubenstein: The 2025 CAFDI Guidance Range also reflects the completion of fleet improvement projects that were previously disclosed, impacting our 2024 guidance.
Sarah Rubenstein: and also reflects the full impact of CAFDI contributions from previously funded investments that are now contributing fully to CAFDI.
Sarah Rubenstein: We elected to establish a range for CAFDI guidance that reflects P50 renewable production expectations at the midpoint, with the upper and lower ends of the range reflecting variability and potential outcomes for resource, availability, and energy margin pricing.
Sarah Rubenstein: In addition, the completion of committed growth investments on the currently forecasted schedules are reflected within the guidance range.
Craig Cornelius: As Craig previously discussed, we expect to fund investments in the Pine Forest and Honeycomb project in the second half of 2025 and 2026, respectively.
Craig Cornelius: To fund those offers as well as to fund future growth investments, we will employ our prudent capital allocation framework, which we outline in further detail on slide 10.
Craig Cornelius: We expect to be able to utilize retained CAFDI as a primary source of capital, targeting retained CAFDI of approximately $220 million, accumulated over 2025 through 2027, based on the low end of our CAFDI per share growth outlook.
Craig Cornelius: Beyond 2027, we will target maintaining a lower payout ratio of 70 to 80% in order to retain incremental CAFD, while also prioritizing our other capital allocation targets.
Craig Cornelius: We anticipate having excess corporate debt capacity based on our credit metrics calculated using the low end of our target cash per share numbers for 2027 that would potentially allow for excess debt capacity of over $300 million.
Craig Cornelius: which we could utilize to fund growth, including the approximately $300 million of growth capital required for drop downs or M&A to enable sufficient CAFDI growth to meet our 2027 CAFDI per share target.
Craig Cornelius: Our revolving credit facility, which is largely undrawn, remains a key interim source of liquidity for the company.
Craig Cornelius: While we won't require external equity to fund the current identified opportunities to drive growth, our long-term vision anticipates the modest periodic issuance of equity to fund growth when growth investments and the equity issuance required to capitalize them are anticipated to be accretive and create long-term value for CRUN.
Craig Cornelius: To restate our long-term funding framework, we will look to maximize CAFG per share, net of the cost of financing, while also assuring that an investment meets its long-term metrics aligned with its underwriting criteria.
Craig Cornelius: Our plan to source corporate growth capital is first from retained capital.
Craig Cornelius: We also recognize that we have $2.1 billion of corporate bonds maturing in 2028, 2031, and 2032 that we will need to refinance within the timeframe for our longer term goals.
Craig Cornelius: We will maintain a prudent approach to these refinancing activities and will reflect any meaningful impact to our future year specific Caspi Per Share targets as we move into the future.
Speaker Change #104: Now I will turn it back to Craig to provide further detail about the company's plans for longer-term growth and capital allocation.
Craig Cornelius: Thanks, Sarah.
Craig Cornelius: Given the robust asset base and capital structure we have prudently built for CWIN over time and the capabilities we have at our disposal within the broader Clearway enterprise.
Craig Cornelius: Our organization is confident and clear-eyed as we now set and pursue ambitious but meetable goals for the future, starting first with our 2027 target of $2.40 to $2.60 in capita per share.
Craig Cornelius: Let's talk now about how we'll get there.
Craig Cornelius: From the 2025 midpoint of guidance, as described previously, are already committed growth investments, fleet improvements, and enhanced capacity revenues put clear way on a path to achieve the bottom end of our 2027 target range.
Craig Cornelius: Additionally, Clearway Group's abundant pipeline and leading execution capabilities, matched with the financial flexibility CWIN has to invest based on Sarah's description, provides another leg for further accretive growth for CWIN.
Craig Cornelius: Putting that to numbers, Clearway Group's vintage of projects targeting COD in 2026 constitute an investment opportunity of approximately $300 million in potential corporate capital.
Craig Cornelius: a sum which could be potentially funded by CUN over time by an incremental corporate debt capacity and retained earnings alone.
Craig Cornelius: This, combined with further portfolio improvements, could enable us to reach the upper end of our targeted 2027 CAFD per share range.
Craig Cornelius: So while there is much work ahead for these projects to advance, and as always, the UN will need to evaluate any drop-down projects offered or third-party M&A opportunities considered for alignment with its investment requirements.
Craig Cornelius: We see how we can get from here to the high end of our 2027 cap-to-per-share range if we execute on these building blocks and continue to operate our portfolio with excellence in typical resource and market conditions.
Craig Cornelius: Turning to slide 13.
Craig Cornelius: To reinforce our confidence, we'll take a moment to highlight the ongoing progress in Clearway Group's late-stage pipeline, as CWIN's sponsor advances projects towards potential for future offers and drop-downs.
Craig Cornelius: First, Clearway Group has made investments that secure qualification for tax credits for projects across multiple COD vintages and technologies through 2028, and is establishing plans for safe harbor investments for the 2029 vintage.
Speaker Change #105: Agnieszka Storozynski, Sarah Rubenstein, Christopher Sotos, Sarah Rubenstein, Christopher Sotos,
Speaker Change #105: Furthermore, Clearway Group has continued to accumulate success in power marketing with a diverse customer set across power pools from the west to east coast.
Speaker Change #105: The overall landscape of Clearway Group's origination progress attests to the locational value of its development assets and the attractiveness of Clearway's track record, and is realizing PPA pricing that's trending up with PPA terms that are trending favorable.
Speaker Change #106: For more information, visit www.fema.gov
Speaker Change #106: Honing in more closely on the opportunity set of the 2026 and 2027 COD vintages, these projects could allow CUN to invest at least $475 million of corporate capital beyond what CUN has already committed to or been offered.
Speaker Change #106: Collectively, these potential corporate capital investments sum up to a total greater than what would be needed to achieve the upper end of the 2027 CAFD per share target of $2.60 that we have set today.
Speaker Change #106: Given the sizable advanced pipeline at Clearway Group, Clearway Energy, Inc. is in the enviable position of having more than enough capital deployment opportunities to meet its growth investment objectives through 2027.
Speaker Change #106: As it has demonstrated over many years, Clearway Group will continue to be thoughtful about the structuring and pace of growth opportunities offered to CWIN from this opportunity set, mindful of pacing and return requirements needed for investments to be feasible and accretive.
Speaker Change #106: Furthermore, we continue to selectively engage in asset-centered M&A opportunities which are right-sized and could be complementary to our fleet, and see potential for pursuing targeted, value-accretive growth through those investments as well.
Speaker Change #106: And across all these capital allocation opportunities, the CUN board and its independent directors will remain focused on selecting and negotiating investments so that they are accretive and consistent with its underwriting requirements.
Speaker Change #106: Turning to slide 14.
Speaker Change #106: When taking into account the CAFDI4Share target we've set for 2027 and what we see in front of us for long-term growth opportunities, we believe we've arrived at a sensible and value-accretive framework that allows us to deliver predictable growth.
Speaker Change #106: improve visibility into that growth and that also pursues a lowered reliance on external equity issuance to achieve our long-term objectives.
Speaker Change #106: As previously mentioned, the growth we expect from our existing asset base through 2027 puts us in a position of strength to make sound decisions as we grow Clearway Energy, Inc.
Speaker Change #106: Post-2027, our business model will aim to achieve 5-8% plus growth in capital per share over time.
Speaker Change #106: Retained CAFI will provide an increasing source of growth capital as we will be targeting a 70 to 80 percent payout ratio with the aim to reach the low end of that range over time.
Speaker Change #106: As retained CAFDI increases and the platform grows, we will aim to pursue investments that are accretive on a CAFDI per share basis and that meet our underwriting criteria, allowing CUN to deploy retained CAFDI towards further extending and compounding its CAFDI per share growth outlook.
Speaker Change #106: After retained CAFD, we will look to excess debt capacity in line with our target BB rating as a second source of funds. And as Sarah noted, our forward-looking leverage metrics position us well with additional excess debt capacity.
Speaker Change #106: The last piece of our funding framework will be external equity issuance.
Speaker Change #106: While we don't need external equity to achieve the midpoint of our 2027 CAFD per share target, we do plan to eventually fund a portion of long-term routine growth by modest levels of equity issuance.
Speaker Change #106: but in a way that it is predictable, deliberate, disciplined, and focused on accretion.
Speaker Change #106: Indeed, even to achieve the top end of our base long-term growth objective, our goals would call only for modest equity issuances that could be executed by an ATM targeting issuance of a small percentage of our public flows, and without any immediate need for such issuance today.
Speaker Change #106: We like that this allows us to take our time, be selective with our moments for adding cash to our balance sheet via equity issuance.
Speaker Change #106: and to be deliberate and communicative with you about when we have reached a point in our growth capital investment program that this will begin to be part of it.
Speaker Change #106: Lastly, we continue to feel very confident about the commitments we've made and the choices we are making now about dividend goals for the future.
Speaker Change #106: First, we're affirming that we aim to make good on the commitments that CWIN has already made for growth and dividends through 2026.
Speaker Change #106: For 2027, we are targeting DPS growth at the bottom half of the range of 5 to 8%, which numerically translates to 5 to 6.5%. With the level we ultimately target being a function of our payout ratio goal of 70 to 80% for 2027.
Speaker Change #106: Beyond 2027, we'll be aiming to continue to pay in compound dividends per share in a way that is competitive in the marketplace for publicly listed infrastructure capital.
Speaker Change #106: As we compound our dividend, we'll be planning to do so while prioritizing our financial resilience.
Speaker Change #106: giving our shareholders the opportunity to participate in that growth by attractive dividends.
Speaker Change #106: that we grow at a pace that is set by our actual CAFI per share growth and our payout ratio goals.
Speaker Change #106: The track record we have demonstrated over time in fulfilling the dividend commitments we make is something we are proud of, and we will aim to continue.
Speaker Change #106: Given the strength of our asset base, the prudence we've applied to our capital structure, and the growth prospects we have in front of us, we feel good about our ability to do that while growing accretively over time.
Speaker Change #106: Turning to slide 15. To recap, Clearway is in an excellent position to meet our 2024 financial objectives and is well positioned to deliver on our previously communicated growth objectives through 2026.
Speaker Change #106: The 2027 CAFDI per share target we've set provides for strong growth with a transparent path to deliver that growth.
Speaker Change #106: via already committed investments, a demonstrated track record for fleet improvement and RA marketing, and advanced development stage opportunities at Clearway Group and the Project M&A Marketplace.
Speaker Change #106: And lastly, we have defined a roadmap for growth and capital allocation beyond 2027 in a way that we believe establishes a sustainable and attractive investment proposition for the shareholders of CWIN.
Speaker Change #106: We will be a company that will be predictable in meeting its core financial goals.
Speaker Change #106: that will be enhancing that predictability via financial flexibility over time.
Speaker Change #106: that will be growing its core earnings in the form of CAFI at an attractive pace and will be providing its shareholders the opportunity to continue to participate in that growth via a secure dividend.
Speaker Change #106: Together, we believe these pillars will position CWEN to deliver best-in-class, risk-adjusted returns for our investors, and look forward to delivering that result to our investors in the years to come.
Speaker Change #106: We have much work ahead to be sure, but I could not be more enthused about the work our colleagues at Clearway have done to put us on such strong footing. We look forward to doing that work together, and to what it will mean for you, our valued investors.
Speaker Change #106: Operator, you may open the lines for questions.
Speaker Change #107: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change #108: To withdraw your question, please press star 11 again. We ask that you limit yourself to one question and one follow-up.
Speaker Change #109: Our first question comes from the line of Noah Kay with Oppenheimer and Company. Your line is open.
Speaker Change #110: So, you've already touched on this a fair bit around the roadmap and the refreshed capital allocation strategy, but you didn't note in the deck that
Speaker Change #111: You had received a fair amount of feedback from financial stakeholders, you know, and investors. And I'd just love to talk a little bit more about
Speaker Change #111: the process that that you went through to set this framework. I mean, clearly, you know, still continuing to grow the dividend, but retaining more capital to provide flexibility. Just talk a little bit about the process by which you reach this decision.
Speaker Change #112: Yeah, so I think, you know, we started this process first at looking
Speaker Change #112: at what we expect our fleet to do in its own right.
Speaker Change #112: And I think our assessment as we went through and evaluated the pathway we're on both for revenue enhancement and operating cash flow execution built one layer of expectations that we thought we would be able to execute.
Speaker Change #112: And then in addition to that, we evaluated the growth investment prospects that we had, and those things collectively gave us a sense for the fundamental earnings growth potential of the business.
Speaker Change #112: And then as we've engaged with our investors.
Speaker Change #112: We've looked to assess the way that they think about capital allocation and value in the business. And I think what we heard from them collectively is that they would like to see the company grow within its means.
Speaker Change #112: I think in particular when they think about growing within our means.
Speaker Change #112: The general thought process has been that people would like to see us be able to meet our growth prospects without a substantial reliance on the issuance of equity. And we think we've built a plan that really should deliver leading-edge returns, both through fundamentally the growth of the earnings
Speaker Change #112: of our business itself, but also through our ability to compound that growth using the capital that we allocate from our own fleet. So I think, you know, we've tried to incorporate that expectation from our investors in the way that we've allocated capital in the plan.
Speaker Change #112: When it comes to dividend growth, I think we want to remain competitive amongst investors' selection of options for a listed infrastructure while not over-committing ourselves to the growth of the dividend that we have committed to the structure.
Speaker Change #113: Thank you for your time. I appreciate it.
Speaker Change #113: And again, I think we've done that as well. So we feel really good about the plan that we built here. We know how to execute it. We think it's actually going to provide pretty compelling growth prospects for our investors, and it will still give them the chance to participate in that growth with the dividend that we know how to pay in a secure way.
Speaker Change #114: Thank you. Thank you, Craig.
Speaker Change #115: And then talking a little bit about sources of capital, you know, appreciate the commentary around, you know, capital that you might source both from the debt and equity markets.
Speaker Change #116: Curious to know how you think about potential for
Speaker Change #117: External capital, third-party capital, potential in some sort of a minority investment type structure or a holding type structure as an alternative to some of the sources that you've detailed, just given we are seeing
Speaker Change #117: Some of those structures out there in the market
Speaker Change #118: You know,
Speaker Change #119: We don't require that kind of a structure to be able to execute on our plan. And when we look at the cost of capital for some of those types of structures,
Speaker Change #119: In relation to the cost of our corporate debt, it's not particularly compelling. And as we noted, we don't have to issue equity to hit the midpoint of our plan. And to be able to execute to the very top end of the cap fee per share range we've articulated, the amount of equity that we'd have to issue is
Speaker Change #119: you know, a very modest amount out in the later years of 2026 and 2027.
Speaker Change #119: you know, we're sort of talking about something like, you know, a percent of the public float of one of our classes and shares. So it's not a tremendous amount of capital that we'd actually have to issue in the form of equity.
Speaker Change #119: So rather than load up on additional capital that sits sort of at the bottom of the capital structure and would dilute the fraction of CAFDI per share that our current shareholders are entitled to receive, you know, I think we want, as I started out with, to
Speaker Change #119: to grow within our means, driven in particular by the cash flow that our fleet will be compounding over the next three years. And then, you know, in a prudent way, make use of leverage capacity between four and four and a half times and potentially trending down to the low end of that range.
Speaker Change #119: And we see how we can achieve our growth goals, really principally with those sources of funding without needing to get into thinking about.
Speaker Change #119: sources of capital that would be diluted, whether those are public in the form of public issuance or those types of structures either.
Speaker Change #119: You know, I think.
Speaker Change #119: As we move forward over time, we'll want to be thoughtful about the full range of growth prospects we have.
Speaker Change #119: how we can continue to drive accretion for our investors. But for the moment, we don't see a need to make use of structures like what you're describing. And we're quite happy about what that means.
Speaker Change #120: Very helpful. Thank you. I'll leave it there.
Speaker Change #121: Thank you.
Speaker Change #122: As a reminder, ladies and gentlemen, we ask that you limit yourself to one question and one follow-up.
Speaker Change #123: Please stand by for our next question.
Speaker Change #124: Our next question comes from the line of Julian DeMoulin-Smith with Jeffries. Your line is open.
Julian DeMoulin-Smith: Hey, good morning, team. Thank you very much. Congratulations, Craig, Sarah. Appreciate the time. Just following up here on the update, really nicely done here. Just in terms of the overall RA uplift here in that 240, 260, or however you want to frame it at the bottom end of 240, what's reflected there in terms of continued ability to see RA uplift materialize? Given how robust of an outlook you've provided here on 27, is there still a further step function change that you would expect over time there in the RA levels? I know that this is obviously ahead of plan, if you will. Just wanted to kind of clarify what's reflected.
Julian DeMoulin-Smith: What else is in the portfolio improvement? I know you mentioned some key factors. Anything else above and beyond principally the RA and Pine Forest here, and I suppose early refinancing of the 28 bonds, such that you get a run rate 27 uplift, I presume?
Speaker Change #125: Yeah, yeah, thanks. Really appreciate the question on all those fronts. I think we're, we're, we're quite happy with how we're executing on all of them. So, 1st, in terms of what's embedded in the 2027.
Speaker Change #125: target range.
Speaker Change #126: Unknown Speaker
Speaker Change #126: We set that based on the pricing that we've been securing on forward-dated, multi-year RA contracts in today's marketplace today.
Speaker Change #126: And, and in fact, I think for the capacity that some contractors, we set it at a modest buffer discount to the pricing that we're realizing and and relative to what's reflected in the midpoint of our 2025 guidance.
Speaker Change #126: That's enough list of about sort of five to five and a half dollars per kilowatt month versus the contracts under which we're delivering in 2025, which we signed some years ago.
Speaker Change #126: and with respect to whether, you know, you could see a further step function up from those levels beyond 2027.
Speaker Change #126: I would, I would sort of hasten not to commit to that or accept that, but we do feel good about these levels being sustainable to give you some further calibration on that. When we, when we look at the prompt here,
Speaker Change #126: and where contracts for the prompt year or even 2026 are being executed today.
Speaker Change #126: They're being executed at substantial premium to the level we've embedded in this 2027 goal.
Speaker Change #126: And as we manage our R.A. marketing program, and we've described previously, we intend to
Speaker Change #126: We progressively contract on a multi-year basis our forward eye capacity while leaving some fraction of it open closer to the prompt ear to be able to capture some premium value.
Speaker Change #126: We think that that produces a good risk-adjusted result for our business model, and based on what we see in the structural reform,
Speaker Change #126: load forecast for California, the way the regulators are continuing to assign value for modern thermal resources like ours, we feel pretty good about being able to continue to run this pattern at levels sort of roughly in line with what we've embedded within the range of 240 to 260 per share.
Speaker Change #126: In terms of fleet improvement.
Speaker Change #126: We have a whole host of things that we've executed this year that we're quite proud of, which include some modernization of methods for how we're running our plants.
Speaker Change #126: We've restructured some O&M service agreements that have provided some improvement to the CAFI generation of our assets, and those are both observable in our results this year and are reflected in that long-term pro forma expectation. And then I think.
Speaker Change #126: I think that that probably covers all your questions. Oh, on the refinance. Yeah, I think we've for as far as what's reflected in 2027, that does reflect
Speaker Change #126: Unassumed cost for refinancing our 2028 maturities.
Speaker Change #126: with some buffer relative to the current yield to worst and what we would think is that execution cost. So it's not actually interest expense savings versus what we have in 2025, but we think it's actually a reflection of a prudent execution plan for that refinancing that we feel good about executing.
Speaker Change #127: Excellent. Thank you so much for all those details. Really appreciate it. Just one more strategic one as a follow-up here. With respect to the lower payout ratio here, any thoughts about, A, the ability to actually obtain assets from the clear rate group overall? It sounds like they've got an ample pipeline that should be transparent. And then related to the extent to which you start going down the lower payout ratio, how do you think about the kinds of assets you would take on? Again, obviously, the storage assets that we're starting to see manifest themselves have a little bit less contract coverage here. Is that part of the strategic pivot as well?
Speaker Change #128: having a little of contracted cash flow? Yeah, thanks for the question, yeah.
Speaker Change #129: So first, in terms of the Clearway Group pipeline, as we've shown, it's progressing nicely. Our organization is continuing to expand on its execution track record for pipeline progression and contracting. You probably noted that
Speaker Change #129: The pipeline that's disclosed reflects an improvement in the advanced stage capacity.
Speaker Change #129: that's planned right now for 2026 and 2027, as well as 2028 and 2029, which is not a pattern you see.
Speaker Change #129: unfolding in other parts of the industry.
Speaker Change #129: and to be able to execute on growth investment.
Speaker Change #129: that would take us to the top end of the range of 240 to 260 in CAFDI per share. Only a fraction of that pipeline would ultimately need to be implemented and dropped down. So we feel good about the way our out-year goals have been sort of over-collateralized, to use a term.
Speaker Change #129: make offers in a measured progression that are compatible with CUN's ability to fund those and commit to them.
Speaker Change #129: So I think it's the intention that will continue that pattern.
Speaker Change #130: In terms of the lower payout ratio, it's not a reflection of a different level of risk in the assets, the storage assets that Clearway Group is developing.
Speaker Change #130: obtained
Speaker Change #130: you know, the vast, vast majority of their revenues from fixed pricing in R.A.
Speaker Change #130: and across the storage pipeline that Clearway Group is advancing, it's almost entirely assets like that. We have, as we've noted, added
Speaker Change #130: Battery Capacity for Pine Forest in Irqqat.
Speaker Change #131: Unknown Speaker .
Speaker Change #131: which we view as complementary to diminishing revenue volatility in our wind fleet. But almost all the storage capacity we're advancing will produce revenues under long-term contracted toll-type agreements that are 15 to 20 years in duration like you see for Abaco.
Speaker Change #131: So the payout ratio reduction goals that we have to reach the lower end of 70 to 80% are really about how we fund the business over time in response to the kind of question Noah asked about how we metabolize the input we got from our investors.
Speaker Change #131: who really want to see us fund our growth principally through our cash flow generation and driving that payout ratio over time. Let's just do that.
Speaker Change #132: Excellent. Thank you guys so much.
Speaker Change #133: Thank you.
Speaker Change #134: Please stand by for our next question.
Speaker Change #134: Transcription by CastingWords
Speaker Change #135: Agnieszka Storozynski, Sarah Rubenstein, Christopher Sotos, Sarah Rubenstein, Christopher Sotos,
Speaker Change #136: For us, that's kind of reset to a level where that could meet hurdles.
Speaker Change #137: Yeah, thanks for the congrats first Steve. We're really happy with what we've settled on here as a framework on
Speaker Change #137: The M&A question, you know, we are
Speaker Change #137: We are finding that there are assets that we can potentially acquire.
Speaker Change #137: that could be acquired at cap yields and return requirements and sort of risk profiles that are consistent with the types of assets the Clearway Group sponsor has been offering to CWIN.
Speaker Change #137: and that in some cases also could make use of our demonstrated capability for repowering.
Speaker Change #137: So the time being, it's really assets like that that we're focused on.
Speaker Change #137: As we've noted, we don't really need to acquire projects.
Speaker Change #137: outside of the sponsor pipeline.
Speaker Change #137: to be able to deliver on the goals we've laid out here already, which we think are quite attractive and should be to our investors.
Speaker Change #137: So where we're thinking about M&A, we're really doing so in a way that's disciplined and that's centered on assets that we think are complementary to our resource mix, our customer profile, and that would exhibit really attractive and accretive returns.
Speaker Change #137: As we go forward over the course of the next few years, surely we can see the industry landscape evolve in ways that.
Speaker Change #137: There's potentially a creative M&A that doesn't fit that profile, but what I described is what we're really focused on today.
Speaker Change #137: just across the board.
Speaker Change #138: Yeah, you know, I think principally.
Speaker Change #138: We have been employing, you know, modernized information technology tools for work planning and sort of general execution on plant availability and conversion efficiency in parts of our fleet. So that's
Speaker Change #138: One thing that is helping us to improve on results year over year. Our other improvements are evident in some improvements in our conventional fleet.
Speaker Change #138: availability and execution versus prior years, which are a result of just some pretty intensive execution around.
Speaker Change #138: Our engagement with those plans. And then lastly, the restructuring of some service agreements and OAM agreements and our wind fleet, which have improved on our CAFDI realization as a business. So those are really the principal buckets of execution of those.
Speaker Change #138: We aim to make durable, which is why they're reflected in our long-term goals now.
Speaker Change #139: Got it. Thank you.
Speaker Change #140: Thanks, Steve.
Speaker Change #141: Please stand by for our next question.
Speaker Change #142: Our next question comes from the line of Justin Clare with Roth Capital Partners. Your line is open.
Justin Clare: Hi, good morning. Thanks for taking the question.
Justin Clare: So I wanted to first start out just on the dividend per share growth and was wondering how you're thinking about the growth of dividends per share as we look beyond 2027.
Justin Clare: And, you know, are you committed to continuing to grow the dividend, but at a slower pace than than CAFDI? And then should we be anticipating really kind of a gradual move toward the low end of the payout ratio?
Justin Clare: Or could we see something, you know, more, you know, faster. And then just wondering on, you know, if we do see a faster move to the low end, could that be driven by an equity raise? Is that a possibility?
Speaker Change #143: Yeah, understand. Yeah, I mean, I think that as is evident in the progression we've run through 2025, 2026,
Speaker Change #144: and our articulation of a range of five to six and a half percent new DPS growth for 2027. I think we're trying to manage our progression in corporate capital allocation framework in a stepwise way.
Speaker Change #144: And we think that that is as prudent as we move over time and together with our investors, land on a capital allocation framework and growth model for the company that
Speaker Change #144: We're all happy with.
Speaker Change #144: You know, I think we tried to be pretty intentional when articulating our framework after 2027 in describing our intention to set our dividend per share growth goals in 2028 and beyond based on a payout ratio. So, I think our intention is.
Speaker Change #144: that we will settle on.
Speaker Change #144: dividend per share levels for those future years based on what can reasonably be accommodated within that payout ratio level while assessing the creativeness of the use of capital when reinvested in assets that could compound our capital per share. So
Speaker Change #144: You know, hopefully what's evident in that game plan is that
Speaker Change #144: We, we, we both don't need to raise large amounts of equity.
Speaker Change #144: that would be diluted to our current owners in a way that's sort of surprising or unpredictable, and that we would really emphasize over time establishing an increasingly robust balance sheet.
Speaker Change #144: that allows us to meet our growth goals in any given year, really principally through RV King Cathy, which will be growing from the low hundreds to the very high hundreds or low 200s.
Speaker Change #144: in millions of dollars of retained capital that's reinvestable in our corporate leverage ratio, which we intend to manage in a way that's prudent. So, you know, I think we try to be pretty clear about the fact that
Speaker Change #144: We don't intend to issue equity right now. We don't need to.
Speaker Change #144: and that as we advance on this investment program, we're getting to the point where modest levels of equity issuances in line with the kind of pattern that Sarah and I both discussed would be in order that we'll be communicative about it so that we're not catching anybody by surprise.
Speaker Change #145: Okay, got it. That's helpful.
Speaker Change #146: And then another question just wanted to ask on the open capacity that you have for your gas fleet here.
Speaker Change #147: It looks like the contracting capacity didn't change from last quarter, when we look at the 2027 year.
Speaker Change #148: Just wondering if, you know, was pricing less favorable in the past quarter, and so you didn't look to contract any of the additional capacity?
Speaker Change #148: So, and then just wondering, you know, when we might see more of that 2027 capacity contracted. Is it likely to be, you know, next summer, but before we see more of that?
Speaker Change #148: And then also, you know, how much could you potentially keep open until we get closer to 2027? You know, do you anticipate, you know, prices trending upward and potentially waiting to contract that that open capacity?
Speaker Change #149: Yeah, there are annual rhythms to the way that load serving entities procure resource adequacy.
Speaker Change #149: The contract that we announced in the most recent quarterly call reflected
Speaker Change #149: are contracting in that ordinary pattern. We do have bilateral engagements that are ongoing today. We've noted that. We've noted that we're marketing the open RA capacity that we have at value with patients.
Speaker Change #149: And I think it would be our intention to increase the fraction that's capacity contracted for 2027 as we move through the next nine months and try to create a pattern that looks like what you can see today rolled forward each year.
Speaker Change #149: So we feel really good about that contracting process.
Speaker Change #149: You know, the need for the assets remains quite evident. We feel very good about being able to execute on the kind of pricing that's embedded within our range, and we'll be patient moving forward over time. And
Speaker Change #149: You know, I think if you look at 2025, you know, we've contracted the capacity that we have that underpins our guidance for next year, almost entirely. And I think that's probably what you should expect will look like going into any given prompt year.
Speaker Change #150: Okay, got it. That's helpful. Thank you. Thank you.
Speaker Change #151: Please stand by for our next question.
Speaker Change #152: Our next question comes from the line of Michael Onegin with Evercore ISI. Your line is open.
Michael Onegin: Hi, thanks for taking my question. Um, so as we think more about some of the assumptions in the 2027 outlook.
Michael Onegin: You know, in terms of some specific details, just wondering, you know, what you're assuming for CAFD yields on investments and then, you know, the specific refinancing rate on the 2028 bond.
Speaker Change #153: Thanks for watching.
Speaker Change #154: Yeah, I mean, I think what we've communicated historically is that for sponsor-offer drop-downs, we're planning around a 10% cap yield as the level on which we're trying to create and capitalize projects for drop-downs.
Speaker Change #155: And that's a level that the sponsor increased last fall when the cost of capital for CUN had increased and was actually higher than it is today. We continue to plan for that in the projects that are being prepared and created.
Speaker Change #155: and that's approximately the basis for the goal setting for incremental growth capital investments today. And as far as refinancing assumptions in 2027 are concerned, without getting into specific numbers, I can tell you that what's embedded in this range reflects a conservative estimate.
Speaker Change #155: of the cost of refinancing those bonds relative to their current yield to worst and the advice that we get from the banks who we would engage on that refinancing. So we feel good about being able to execute at the cost of capital that's reflected in this target range based on what we see today.
Speaker Change #156: For more information visit www.fema.gov
Speaker Change #157: Great, thanks. And then, secondly, for me, I'm just wondering, as you consider the data center demand, you know, you talked about the sponsors, engagement with corporates and load serving entities, the power data centers, I think you highlighted 5 gigawatts of renewables. I'm just wondering, you know, at the super-end level, you know, would you consider acquiring more gas generation assets, or is your focus entirely on renewables paired with storage?
Speaker Change #158: You know, I think that the variety of project configurations that are being evaluated.
Speaker Change #159: There are certainly scenarios for certain types of project configurations that
Speaker Change #160: Wind, solar and battery resources and provisioning like the data center customer would require, but it's conceivable as we look out into the future that there could be some
Speaker Change #160: other resource types that would complement those. I think
Speaker Change #160: from the context of Clearway Energy, Inc.
Speaker Change #160: When projects are created, the focal point would be on creating assets that are highly contracted in their cash flow profile.
Speaker Change #160: and Long in the tenor of those contracts. And, you know, I think what we'll be focused on when creating projects is creating projects that will be technically reliable and financially predictable and while being responsive to the needs of a data center customer.
Speaker Change #160: There's a lot of time to go, but I think what we're focused on is leveraging our existing capabilities, which is fan, wind, solar, storage, and gas fire generation, but with a particular focal point on how to create low-carbon solutions that are highly reliable.
Speaker Change #161: Great, thank you very much.
Speaker Change #162: Thank you.
Speaker Change #163: Please stand by for our next question.
Speaker Change #164: Our next question comes from the line of Agnieszka Storozynski with Seaport. Your line is open.
Speaker Change #165: Thank you. So I have a question about your existing renewable power assets and the type of contracts that underpin them. So I'm just wondering if you could comment, for example, if you have any.
Speaker Change #166: premature aging or capacity degradation on the on the storage assets and any exposure to you know changes in on the grid or you know like basically
Speaker Change #167: conditions in power markets that could actually impact the EBITDA generation of these existing assets? Yeah, I understand the question. Yeah. So, I mean, first of all, we're fortunate to have
Speaker Change #167: a fleet which earned
Speaker Change #167: A very, very substantial majority.
Speaker Change #167: of its revenues in node-several-unit-consumption.
Speaker Change #167: That's true.
Speaker Change #167: a very, very high fraction of our total budgeted EBITDA and CAFD. Just breaking down your questions, with respect to the storage assets that we brought online this year, they're performing very well. I'm very proud of the work our team has done as we've commissioned those over
Speaker Change #167: the course of this summer, really, they're running in it, they're running very well. And it, you know, that reflects a level of vigilance and know how and capability with our organization to work with our suppliers to intensively drive performance in those assets, but they're performing
Speaker Change #168: Licensed under Creative Commons By Attribution 3.0 License © 2020 The Creative Commons, Inc. All Rights Reserved. No part of this recording may be reproduced without Paid Demonstration of Gratitude.
Speaker Change #168: Very well.
Speaker Change #168: With respect to wind assets, we
Speaker Change #168: We did have
Speaker Change #168: And, you know, I think our prospects for repowering look promising for us as we think about projects that are maturing and in a position to be repowered based on their original place and service dates.
Speaker Change #168: And in terms of basis exposure, you know, we have it on a on a limited number of contracts. We are managing it, I think.
Speaker Change #168: Establish settlement terms for new revenue contracts that that really minimize risk for the project equity owner and
Speaker Change #168: When you heard me reference the successful work our origination team has had in sort of driving settlement terms that are favorable, that reflects, that's at least part of what we're talking about. We think we've been disciplined about the settlement structures we insisted on.
Speaker Change #168: In our track record and the scarcity value of our projects allows us to be pretty insistent about those risk-mitigated structures.
Speaker Change #169: Great. And you don't have anyone, any of these, you know, firm renewable power contracts like 24-7 contracts, which a lot of tech companies, you know, wanted to sign. And I'm just wondering why that is. Do you think that the risk-reward is not attractive with these types of contracts?
Speaker Change #170: You know, I don't, I don't want to speak to choices others are making. I think we understand why those those contract structures are appealing.
Speaker Change #170: to customers in our context.
Speaker Change #171: When we thought about our business model and our capabilities in order as an organization and how we want to try to manage to produce.
Speaker Change #171: Risk-adjusted returns consistent with the business model we've established for Clearway Energy, Inc. That kind of structure just sort of felt like it did not need to be part of how we commercialize the projects that we've built over the last few years.
Speaker Change #171: And I think as we go forward, we want to be responsive to the decarbonization goals.
Speaker Change #171: that all of our customers have, including customers from the technology community while managing a basket of projects that each individually stand on their own. So I think we want to be thoughtful about innovation while being careful about risk and leverage the capabilities that we as Clearway have. And those together were the reasons why we've structured projects the way we have so far.
Speaker Change #172: Changing topics, you guys are adding batteries to a number of projects. How about adding energy storage to your gas peakers in California? Is that even a consideration?
Speaker Change #173: We have evaluated it. There is adjacent acreage at a few of our facilities that could allow us to think about doing different kinds of things, but there's not a tremendous amount of acreage.
Speaker Change #173: And the injection capacity at those those points of interconnection is also somewhat limited. So, in the immediate term, the highest and best use of that injection capacity is the delivery of resource adequacy that can meet 24 hour.
Speaker Change #173: Slice of Day requirements from our thermal resources.
Speaker Change #173: and the addition of batteries to supplement that would be feasible in terms of grid injection and maybe not the highest and best use of that interconnection but we have adjacent acreage that you know that's modest that over time we'll try to find a way to leverage somehow.
Speaker Change #174: Thank you. Please stand by for our next question.
Speaker Change #175: Our next question comes from the line of Mark Javi with CIBC. The line is open.
Mark Javi: Yeah, good morning, everyone. Thanks for the time and fitting me in here. I was wondering if you could maybe just parse apart, we've had some discussion on the call about capital deployment growth versus some organic drivers on RA and asset optimizations. If you think out maybe the longer-term growth rate of 5 to 8 percent, how would you make that split between what's sort of organic drivers versus capital deployment driven?
Speaker Change #176: driving above that will be driven in particular or principally by additional investment. You know, I think that there will be ways that we look to leverage the existing fleet of assets that we own within CWIN.
Speaker Change #176: as part of making that growth investment, say, in particular, through repowering.
Speaker Change #176: which could take the same individual assets CAFD contribution relative to say the top end of that 260 and CAFD per share and increase it or it could help sustain the CAFD generation of a project that
Speaker Change #176: But in general, I think as we look to grow beyond 260 and cap deeper share into the out years, and we look at that compounding 5 to 8% cap deeper share plus growth goal, most of that growth will be driven by additional capital commitments.
Speaker Change #176: which again I think we would we would make only to the extent that the investment and the cost of funding that investment would be accretive on a cap-to-per-share basis and when we look at our planning horizon beyond 2027 we see very clearly how we'll be able to do that.
Speaker Change #177: And then Craig, coming back to a couple of your comments on internal financing capabilities, at what point would you think you'd exhaust that $300 million of corporate debt capacity? Is that by 2027? And then were you saying at one point that you think you could grow without issuing equity close to the low end of the 5% to 8% range?
Craig Cornelius: I think what we said is, is we can execute to the midpoint of the 240 to 260 per share range, call it 250 without issuing equity.
Craig Cornelius: In terms of growing beyond the top end 260 per share,
Craig Cornelius: at 5% to 8% beyond that, that is why we wanted to articulate that at some point growth in the business model will entail routine amounts of equity issuance.
Craig Cornelius: but as the fleet-based CAFI level grows over time.
Craig Cornelius: then the company's debt capacity should also grow. So the $300 million, which Sarah had cited, reflects debt capacity that we have for funding investments between now and the end of 2027, conservatively.
Craig Cornelius: as the Cathy of the Art Baseleet itself grows.
Craig Cornelius: And so that's why we would look from a funding perspective to first the amount of retained capital that we have to reinvest.
Craig Cornelius: which could run to sort of the low 200s or high 100s in any given year.
Craig Cornelius: And then to that leverage capacity, which we would look to manage in a way that's prudent. And then, you know, eventually equity issuance through something like an ATM at modest quantities for this kind of routine investment program that would hit the kind of goals that we've articulated. So I think that maybe gives you the calibration that you're looking for.
Speaker Change #178: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Craig for closing remarks.
Speaker Change #179: Agnieszka Storozynski, Sarah Rubenstein, Christopher Sotos, Sarah Rubenstein, Christopher Sotos,
Craig: Great. Thank you, everyone, for joining us today and for your ongoing support of Clearway Energy, Inc. We're looking forward to continuing to demonstrate to you our leading market position on solid execution.
Craig: and are really optimistic about what the days ahead have in store for our company as we move onward. Operator, you can close the call.