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spk04: Good morning and welcome to the Altus Power third quarter 2022 conference call. As a reminder, today's call is being recorded and participants are in a listen-only mode. A question and answer session will follow the formal presentation. At this time, for opening remarks and introductions, I would like to turn the call over to Chris Shelton, the Head of Investor Relations. Thank you.
spk05: Good morning and welcome to all our investors and analysts.
spk06: Speaking on today's call are Greg Felton, Co-Chief Executive Officer, and Dustin Weber, Chief Financial Officer. In addition, Co-Chief Executive Officer Lars Norell will be joining us for the Q&A. This morning we issued a press release and a presentation related to matters being discussed on today's call. You can access both the press release and the presentation on our website, www.altuspower.com, in the investor section. This information will also be available on the SEC's website. As a reminder, our comments on this call may contain forward-looking statements. These forward-looking statements refer to future events, including Altus Power's future operations and financial performance. When used on this call, the words aim, believe, expect, intend, may, could, will, should, plan, project, forecast, seek, anticipate, goal, objective, target, future, outlook, strategy, vision, and similar expressions as they relate to Altus Power as such identified forward-looking statements. These statements are subject to various risks and uncertainties and are based on certain assumptions and thus could cause actual results to differ materially from those predicted in our forward-looking statements. Altus Power assumes no obligation to update these statements in the future or if circumstances change. For more information, we encourage you to review the risks, uncertainties, and other factors discussed in our SEC filings that could impact these forward-looking statements, specifically in our Form 10-K filed with the SEC on March 24th and our 10Q filed with the SEC today. During this call, we will also refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. Our management team uses these non-GAAP financial measures to plan, monitor, and evaluate our financial performance, and we believe the information may be useful to our investors. These non-GAAP financial measures exclude certain items that should not be considered as a substitute for comparable GAAP financial measures. Altus Power's methods of computing these non-GAAP financial measures may differ from similar non-GAAP financial measures used by other companies. More detailed information about these measures and a reconciliation from GAAP to these non-GAAP financial measures is contained in both the press release and the presentation that we issued today. Finally, our speakers today will reference our third quarter slide deck during their prepared remarks. We are providing this information to assist you in understanding certain of the financial information that we will be discussing today. And with that, I'm pleased to turn the call over to Greg Felton, Co-Chief Executive Officer of Altus Power.
spk02: Thanks, Chris, and welcome to our investors and analysts. With just six weeks until the end of 2022, We are incredibly excited to be reporting the most profitable quarter in the history of Altus Power, and also to report that in spite of the challenges that our industry and the broader markets are experiencing, we are finishing the year exactly where we envisioned in terms of our annualized recurring revenue and cash flow. Our industry is experiencing secular tailwinds that we believe will support uniquely attractive long-term growth and Altus Power is incredibly well designed to thrive, notwithstanding the supply chain headwinds and more recent tightening of capital availability. With this backdrop, let me address our updated expectations for 2022 adjusted EBITDA. As described in our release, we currently expect our adjusted EBITDA will come in at or near the low end of our guidance. This reflects administrative delays that led to a later than anticipated closing of our 88 megawatt acquisition from D.E. Shaw Renewable Investments, which was initially announced in September and closed this past Friday. We were compensated for the delay in the form of a reduced purchase price in lieu of additional recorded EBITDA. We're glad to report that these assets are now closed and have started contributing to our long-term recurring revenue and cash flow. Our underlying business has been executing well, which is why we are reiterating our expectation for full year adjusted EBITDA margins in the mid 50% range. Lars and I are proud of the culture we are building at Altus Power, and we would like to applaud our dedicated employees, each of whom is a key ingredient to our performance. During 2022, Our industry, as with many others, has faced numerous headwinds, including COVID-related slowdowns, supply chain delays, and more recently, tightening financial conditions. As seasoned professionals, we deliberately built Altus Power in a way which we expect will drive success, notwithstanding any external pressures of the cycle. Please turn to slide three as I talk through what differentiates Altus Power. First, we chose the commercial scale segment of the market because our sector has more attractive unit economics than other market segments, and we benefit from long-term contracted revenues. Many of our customers currently representing a majority of our contracts prefer variable rate contracts, which aren't common outside of our sector. These contracts are providing a tailwind driven by upward pressure on utility rates. Notably, our customers are generally entities with investment-grade profiles, which contract to buy solar electricity from our commercial-sized solar arrays. Altus Power is the largest independent and vertically integrated company operating in the commercial scale segment of the solar market and the only public company focused specifically on this space. Our customers include commercial, municipal, utility, and community members, who are increasingly focused on decarbonizing the grid and are attracted to Altus Power's ability to deliver clean electricity at a discount to their utility provider. Second, in this desirable segment of the market, we've built a profitable business with annual recurring revenue and strong adjusted EBITDA margins and a model for profitable growth. We've accomplished this by controlling our customer acquisition costs and limiting our corporate overhead. And we've assembled strategic partners who we believe offer us an unparalleled pipeline of potential customers. We're now planning for next year, and by virtue of our asset growth, we anticipate a significant increase in our recurring cash flow, which will support our platform growth while allowing us to maintain our attractive profit margins. Third, I want to update you on our flexible access to capital, which has been enhanced by our position as a public company. Our CNI segment consists predominantly of private developers with relatively higher cost of capital. Please turn to slide four as I elaborate on this competitive advantage. Our strategic partner with Blackstone allows us to efficiently access the securitization market to support our growth. In addition to the Blackstone Loan Facility, we have access to the syndicated bank loan markets, which provide us with both competitively priced construction and term financing solutions. In spite of the tighter financing environment, we are pleased to be further enhancing our liquidity by obtaining commitments on our first revolving credit facility, which we expect to be sized at up to $200 million with a term of five years. If and when completed, this syndicated facility would provide financial support for many of the largest U.S. banks and add to our financial flexibility and competitive advantage. The revolving credit facility will be yet another tool in our arsenal available for general corporate purposes, including to finance our working capital needs or support other short-term financing requirements. In summary, we believe we are well positioned to fund our growth through a combination of the cash on our balance sheet and our diverse sources of debt financing. In addition, a huge differentiator for Altus is our cash flow generation, which serves as a valuable additional source of growth capital. Our profitable business model is particularly powerful in the current environment as we believe it offers us the flexibility to weather periods of financial market volatility without the need to access additional equity capital. These three characteristics represent fundamental pillars of our business, and we believe combine to provide Altus Power with a competitive moat that positions the company well to capitalize on the incredible growth we're expecting over the coming years. Now let me dive into some updates on our business since our last call. These include details on our significant portfolio additions, an update on our portfolio as of the end of the third quarter, and the quarterly refresh of our pipeline. Lastly, we'll hear financial highlights from our CFO, Dustin Weber, before taking your questions. Join me on slide five as we review our recent developments. During the quarter, we announced a definitive agreement to acquire approximately 97 megawatts of solar assets And the announced additions included a portfolio of approximately 9 megawatts located in New Jersey in a bilateral transaction with a local developer, which has closed and is now part of our operating portfolio. The larger portfolio of approximately 88 megawatts was a commercial-scale portfolio from D.E. Shaw Renewable Investments, or DESRI for short, This was another bilateral negotiation which started with Desry deciding to narrow its focus to utility-scale solar. Desry viewed Altus Power as a natural counterparty, given our leading market position, ability to transact efficiently, and reputation for excellent customer service. Both portfolios come with long-term contracts in place, and will make Altus Power the clean energy provider for these new customer relationships, with the potential to offer additional services like battery storage and electric vehicle charging. Critically, these additions as a whole meet our expectation of profitability for adjusted EBITDA margins in the mid-50s range. We're very excited to welcome these new customers to the Altus Power platform. Turning now to slide six, Our updated portfolio as of today, including this recent acquisition, totals approximately 469 megawatts. To match our financial disclosures, our various portfolio statistics on this slide only include our assets as of September 30th. Our updated portfolio now includes approximately 73% of our contracts, which are structured to escalate over time. We are happy to provide our customers with various forms of contracts so long as our portfolio provides the appropriate level of risk-adjusted profitability, which is reflected in our cash flow margins. We look forward to updating our disclosures for these and other additions on our year-end call. Let's now turn to our pipeline update on slide seven. Starting with operating acquisitions, we've made substantial progress on a few of our targeted portfolios as reflected by the more than doubling of our in-closing bucket. For clarity, this bucket now excludes the 97 megawatts of previously announced acquisitions and we are working to close these additional transactions in the coming months at prices which we believe to be attractive, particularly in light of the backdrop of rising interest rates and tightening financial conditions. Let's now review the progress on our development pipeline. We continue to have success with client engagement and are originating new large portfolio customers through introductions by our strategic partners. We're pleased to report that some of our initial CBRE client introductions have resulted in engagements that are now making their way through our pipeline, including a few new commercial customers with 25 to 50 megawatt programs of projects each. While these relationships take longer to come to fruition as compared to assets sourced from our channel partners, they are precisely the scale of customers that fit our vision to scale our business profitably. Turning to our projects under construction, we're encouraged to see more equipment being placed on commercial rooftops, more modules being secured, and inverters being installed at some of our sites. While construction timelines remain extended compared to our experience from previous years, we're looking forward to completion of many of these assets and adding them to our portfolio during 2023. We are further adapting in a number of ways, including inventorying equipment and filing for permits and interconnections earlier with the support of CBRE project management. As a further update, we have now secured equipment for development projects well into 2023 at this point and remain comfortable with our access to equipment and labor. Before turning the call to Dustin, let me reinforce one of the decisive drivers widening our competitive moat. our unique origination strategy, which leverages our partnerships with CBRE, Blackstone, and various channel partners. Together, our strategic partners own, manage, or have close relationships with our targeted customers, including both landlords and commercial or industrial tenants. Slide eight describes the ocean of opportunities which our partners represent specific to CNI. All of these are available to us in a streamlined fashion and with limited sales and marketing expense. We believe there's no coincidence that both Blackstone and CBRE chose to become significant investors in our company and share our excitement to decarbonize the CNI sector. With that, let me now hand the call over to our CFO, Dustin Weber, for additional financial highlights. Dustin?
spk08: Thanks, Greg, and thanks to all of you for tuning into the call. Please join me on slide nine to cover our financial highlights. To summarize, third quarter of 2022 was the most profitable in our company's history with respect to operating revenues and adjusted EBITDA. We recorded record revenues of 30.4 million, an increase of 51% over the third quarter of 2021, reflecting the growth of our portfolio over the last 12 months. This revenue increase drove record adjusted EBITDA of $19.4 million, an increase of 57% over 2021, which results in an adjusted EBITDA margin of 64%. Seasonality drives more of our revenues into the third quarter, and 2022 is no exception. But we also benefited from rising power prices beginning to filter through our variable rate contracts. Turning to our performance for the first nine months, we earned revenues of $74.4 million compared to $50.2 million for the same period in 2021, a 48% increase. Adjusted EBITDA amounted to $42.1 million compared to $28.1 million from the first nine months of 2021, a 49% year-over-year increase. As with quarterly results, our growth in both revenue and adjusted EBITDA were primarily driven by growth of our asset portfolio. With our expanded adjusted EBITDA margins in the third quarter, we improved our year-to-date margin to 57%, which is in line with our expectations for the year and gives us confidence we can achieve our adjusted EBITDA margin goals for the remainder of the year. I'd like to also comment on our gap net income. For the third quarter, we recorded a loss of $97 million, which was primarily the result of a non-cash loss of $102 million due to the mark-to-market of our redeemable warrants and alignment shares. For the first nine months, gap net income summed to a loss of $14.9 million, which largely netted out gains on the same securities over the first half. Third quarter was similarly the most impactful in terms of carbon avoided as compared to carbon intensive utility power with almost 100,000 metric tons of carbon avoided. For the last 12 months, solar generation from our projects have saved over 300,000 metric tons of carbon dioxide or the equivalent of carbon consumed from using over 30 million gallons of gasoline. We're proud that our business provides our customers with affordable power as compared to their utility rates, while also replacing their consumption of carbon intensive utility power. On the right side of slide nine, you can see we're building a track record of top line growth as well as adjusted EBITDA growth. We expect this progression to yield recurring cash flows, which we plan to reinvest into our business. As we plan for the future, we're putting a funding strategy in place, which we expect will minimize our cost of capital as well as shareholder dilution. Our current growth plan calls for debt, tax equity, cash on our balance sheet, and also cash generated from operations, which can be reinvested into our business, as Greg mentioned. Moving to our balance sheet, we ended the quarter with total debt of $545 million, as well as $291 million of cash. These balances do not yet reflect the Desiree transaction, but we expect to provide you with pro forma financials in the coming weeks. We remain highly focused on creating long-term shareholder value and minimizing dilution. To that end, during third quarter, we took the first opportunity to redeem our public and private warrants at levels designed to minimize shareholder dilution. In addition, we also chose to not issue primary shares in conjunction with Blackstone's secondary sale of approximately 8 million shares of Altus Power stock in September. As Greg mentioned, our cash generation offers us flexibility on timing when accessing equity markets, and our growth plan currently does not require any equity capital over the next 12 months. Regarding the Blackstone secondary, While we're sensitive to any of our shareholders reducing their stakes, we believe resulting increase in our public float will ultimately result in better liquidity in our shares, which has been a consistent consideration of both new and existing investors. Blackstone was among the earliest investors and remains a significant shareholder and long-term strategic partner. In conclusion, we continue to execute our plan, notwithstanding the market backdrop We're excited to be well positioned to grow our platform in 2023. Given our asset growth and associated increase in annual recurring revenue, we are looking forward to growing our team across all parts of our organization while at the same time maintaining our adjusted EBITDA margins and targeted profitability. I'll now turn the call back to Greg for closing remarks.
spk02: Thanks, Dustin. As we approach the first anniversary as a public company next month, we appreciate all of the time our investors and analysts have invested to understand what we believe is a truly unique investment proposition we're creating here at Altus Power. We continue to work daily to achieve the vision we've shared with you over the past year. With that, we now welcome your questions.
spk04: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment please while we poll for questions.
spk09: first question comes from Justin clear from rough capital markets please proceed with your question Justin yeah hi guys thanks for taking our questions absolutely so I guess first off here was wondering if you just talk more about the progress that's being made on the assets there in that pre-construction and construction phase of the pipeline and You mentioned you expect completion of many of these assets in 2023, but just wondering if you could give us a little bit more on the timing. Could some assets be brought online this year? And then if you could just talk through the cadence in 2023, should we expect things to be kind of balanced throughout the year or weighted earlier or later? And then finally, just, you know, give us a sense for the hurdles that remain for these assets. Are there, you know, equipment needs for these assets, or is it interconnection? Does anything stand out as a bottleneck?
spk00: Sure. Thanks a lot, Justin, for that question. This is Lars. And let me begin to answer. As we stated in the prepared remarks, we're turning on assets that are coming out of the construction pipeline. And some of those clients have begun to be served with solar electricity from Altus that provides them with decarbonization benefits and savings. As we work to gradually overcome and find ways around the challenges that we've talked about previously on permitting, interconnections, and in some cases, component availability, we're pleased with the progress in getting more assets into and further along in the construction bucket. The assets in the construction bucket find themselves on the timeline, but as some of them come online during the last couple of weeks of this year, some others in early 2023, and still others further out next year. Importantly, when we look at the combined buckets of in-construction and in-contract negotiation in our development pipeline, We can begin to see how Altus is working towards its goal of having the most efficient version of the current platform have output of new construction assets of around 200 to 250 megawatts per year. We're working diligently to reduce obstacles on the way there, like you mentioned, be they extended timelines for permits, the lead time for switchgear deliveries, as well as ensuring that we have the resources to get to this level of throughput both in the office in Stanford and on-site where construction is actually taking place.
spk09: Okay, great. I appreciate the color there. And then it looks like you have about 200 megawatts of acquisitions in closing here or maybe a little bit more than that. I was wondering if you could just give us a little bit of a better sense for timing there. Could some of those acquisitions close this year or is it likely to be more next year and You know, are there many different transactions within that category, you know, that could close over time here? Or is this, you know, one or two large acquisitions? And then if you could just speak more broadly about the environment you're seeing for acquisitions. There's a lot of things going on with, you know, rising interest rates, but then also the IRA legislation. You know, how are you seeing the opportunity set here for acquisitions?
spk02: Thanks, Justin, for the question. This is Greg. I'll take that one. So, of course, each transaction has its own characteristics and complexity, but the transactions that are reflected in that closing bucket are expected to close within a matter of months. In general, we would say we continue to be a buyer of choice because of our, frankly, ability to embrace the complexity that some of these transactions require and our efficiency to transact. And obviously, we're very proud of the DES reacquisition that we executed. And what you see in that pipeline of 42%, as you called out, are a combination of transactions, but certainly some larger ones. They are far along in their process. And I think from our perspective, as it relates to the horizon, the backdrop that you asked about, to some extent, that's an opportunity for us, right? We are set up incredibly well as it relates to our position in the market, our reputation, our access to financing. And as you might expect, we're mindful of the cost of capital going up. And that is reflected in our required returns, whether it be on an operating acquisition or on a development asset. So certainly, cost of capital is flowing through and influencing our return requirements, but that's true of everyone in the market. And we continue to think we have a very strong position, and that should lead to continued flow of opportunity over time.
spk09: Okay, great. And then just one more, you know, you mentioned financing here. I was wondering if you could just speak more about the accessibility of financing, you know, both for new assets, but then also for acquisitions and whether you might look to refinance assets that you acquire or if you're likely to look at assets that already have financing in place. And then just, you know, you have this new credit facility here How should we think about your strategy in terms of financing assets in construction and then taking them through to longer-term project financing?
spk02: Sure. So we're in a very desirable position in terms of having a diversity of different funding sources. So we've talked about the Blackstone facility that we have in place, which is available for upsizing continued borrowing. Obviously, the strategic relationship that we have with Blackstone really provides us with a unique opportunity to continue to, in a streamlined fashion, access the securitization market. So that's certainly a first point. Secondly, I would say that we have a broader opportunity in the context of the bank loan market, and the Desry acquisition is an example of that, where we will be accessing the bank loan market for the first time in a term funding format, syndicated term loan, that is. And we have excellent access in that market. And then finally, the revolver, which, as we mentioned, comes from a diversity of leading financial institutions, is another source of funding. So all of these, we think, taken together should demonstrate to you that Altus has the flexibility, frankly, that is industry-leading in terms of having this opportunity to pick our spots and make a determination on a case-by-case basis what is the best source of funding. And so that's, I think, how you ought to be thinking about it. I would finally note that every asset that we acquire or operationalize when it's a development asset has fixed-rate funding associated with it. So we're locking in long-term fixed rates on every asset that we own. And, of course, we're making those decisions and optimizing the financing on a case-by-case basis.
spk05: Okay, great. Thanks very much. Thank you.
spk04: Thank you. The next question comes from Chris Sutter from B Reilly. Please proceed with your question, Chris.
spk01: Hey, thanks for taking my question here. Maybe just we could talk a little bit more about the variable rate portion of the portfolio. Can you talk about what the year-over-year rate among that group looked like for the third quarter? It looked like overall revenue per megawatt hour generated was up about 25%. So I just wanted to get a sense of what was driving that piece there.
spk08: Hey, Chris. This is Dustin. I'll take that one. So I don't have an exact number for you as to the impact in Q3 from power price increases, but I will say that we did experience increases, and along with seasonality, they were definitely the two main drivers for our Q3 margins. You know, we have a diverse portfolio. We're now in 22 states, and the majority of those contracts sell power at a floating rate. We have a preference for floating rate PPAs because not only do we make more money when rates go up, but our customers also save more. We think this structure is unique in our industry and creates powerful alignment with our customers.
spk01: Got it. Okay. That's helpful. So maybe some of the kind of newer assets also had kind of higher pricing. Is that kind of a good way to think about just how some of that played out?
spk08: Yeah, I think that that's, as I said, like power prices generally, we all know they're going up and we, with our diverse portfolio, they, you know, when an individual asset or contract will escalate varies, some are real time, some escalate annually on a leg. So I think it's broad based and, you know, the timing of which, you know, will definitely vary by asset.
spk00: And, Chris, this is Lars. As a general matter, when we sign up corporate customers or enterprises or communities, because our preferred contract structure is to sell clean electricity at a discount, call it 15%, give or take, against some avoidable cost or power tariff that those customers buy power from their grid at, we tend to generally and gradually escalate during the time that we're constructing that asset because we are sort of to some extent floating with that power price. And the customers are happy because the savings go up given that they have a fixed percentage of savings against that power price. And of course, we feel very good because as power prices in the market gradually come up, so does our revenue from each of those contracts.
spk01: Got it. Okay. That makes sense. And maybe just on the DE Shaw relationship, I'm curious, you mentioned they were looking to kind of exit that commercial space. Are there additional assets with them that, you know, were not included in kind of this initial transaction? And then maybe just, you know, higher level, you know, talk about some of the IRRs that you're looking at across the, you know, different opportunities, how those are shaken out versus, you you know, the higher cost of capital and the like would be kind of the other place to focus.
spk02: Yeah, I'd say as it relates to D. Shaw, we had an excellent experience. I think that fueling is mutual, and so I think there's a very strong relationship that Altus fuels with the Eshaw and vice versa, and as a consequence of that, we hope that if there's future opportunity to work together, that we'll be able to find some opportunities to create mutual value. The reality is that they are focused on the utility scale segment of the market, and we are focused on the commercial scale segment of the market, and as we've talked about before in the commercial scale segment of the market, particularly with all of the policy initiatives, there's a variety of ways to create incremental value on commercial scale assets. broadening relationships with those customers, adding additional solar or adding storage or adding electric vehicle charging. And we view this as a long-term opportunity where we will look to expand our relationships with customers, whether doing more at a site or engaging in more locations. All of those, I think, play to our opportunity. And frankly, this was a small disposition for D.E. Shaw, but a very attractive one for Altus Power. And we'd say the returns and cash flow margins were consistent with our objectives.
spk01: Okay. Generally, the market is kind of waking up to the higher cost of capital as far as the acquisition pipeline and kind of the new asset development. I wanted to get a sense of if there was any lag in kind of the market kind of understanding those changes or if that's pretty baked in.
spk02: No, it's a good question. I'd say there's a number of different factors that ultimately influence how the market might behave. We often find a bit of a lag effect in terms of seller expectation relative to buyer recognition of what you're describing in terms of higher cost of capital. And that dynamic causes us to just be selective, right? We are seeing, for example, and you've heard us talk about the bilateral nature. of our opportunity set. The DE Shaw transaction was bilateral. What you see in the enclosing bucket of our pipeline is bilateral. We think the competitive processes are still plagued with that sort of historical view, meaning a lack of a reset. And as a consequence, we've not been really present in many of those, if any of those competitive processes, but the bilateral ones where sellers and buyers come together in a sophisticated fashion and recognize the environment we're operating in are reflective of what we're focused on.
spk01: No, it's very helpful. I'll hop in the queue. Thanks, guys.
spk05: Thanks, Chris. Thank you.
spk04: Thank you. The next question comes from Mark Strauss from J.P. Morgan. Please proceed with your question, Mark.
spk03: Yes, good morning. Excuse me. Thank you very much for taking our questions. So good to see progress in your projects moving through different stages towards closing. Just curious, though, as the industry kind of awaits specific guidelines from Treasury regarding the IRA, just any color on how that's impacting your pipeline? Are you seeing projects kind of waiting for that, or is that somehow being baked into your contract language?
spk00: Hey, Mark. This is Lars. Thanks for your question. I'll try to answer that. We're seeing clients lean in currently in our engagement process. And as I think we've talked about before, we are very focused on spending most of our time in origination on programmatic clients that have large portfolios where we can sort of come up with standard form documents and procedures. and then see a greater velocity of asset construction with them as we sort of put those documents to good use. We're noticing some of those clients leaning in, but we think it's predominantly because of higher power prices. and a sense that energy security has focused big operations and enterprises on both resiliency, but also to increase the pace of their shift towards clean electricity, while obviously remaining connected to the grid, continuing to use natural gas, et cetera. And so we think the effect that we are noticing in our origination discussions and client engagements is coming more from the price increases in energy security than they are, for the moment at least, from the IRA.
spk03: Okay, yeah, that makes sense. Thank you. And then just one slightly related question, just with a few more months under our belt now since the last call. As we look to 2023, I know you're still waiting on some granularity from Treasury, but as you look to 2023, just how we should think about from a high level kind of what the weighted average is. tax credit might be with all of the different potential adders and kind of what your pipeline looks like next year?
spk02: Sure. I'll take that, Mark. This is Greg. So I think from our perspective, there are a variety of different adders, as you know, that are going to be available in 2023. The one that we've highlighted that is most important Most interesting relative to our pipeline is the community solar adder associated with low and moderate income offtake. And so we have a diversity of projects that are in our pipeline that have been a focus for Altus Power historically that happen to have the profile that the government is encouraging, which is the notion of having low and moderate income offtake. That exists in our pipeline of New Jersey assets and Maryland assets and in other locations as well. And those adders are up to 20% of additional tax credits. And so we think that's interesting. There's an adder as well associated with Brownfield building. Frankly, that adder needs a little bit more guidance, but we are in the business of historically of building on brownfields it's a pretty desirable place to develop a new solar array so we're kind of in a sweet spot we think in terms of taking advantage of some of these additional sources of incentive that the government's providing but we haven't yet tried to quantify that on a portfolio basis other than to say that we're in the right spot and the final one of course would be the storage opportunity where uh there's a 30 percent uh standalone tax credit now available for storage, which should mean that more assets should find the opportunity to have storage attachment as well.
spk05: Yep.
spk02: Okay.
spk05: Very helpful. Thank you. Thank you. Thanks, Mark.
spk04: Thank you. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star and then one. The next question comes from James West from Evercore ISI. Please go ahead with your question, James.
spk07: Hey, good morning, guys.
spk05: Morning. Hey, there he is.
spk07: So curious, we're now a few, I guess, more than a few months into the enhanced CBRE relationship where you're going to use their construction teams on projects. I was hoping to get an update on how that's progressing, what you're seeing there. I think it's a huge competitive differentiator. or for you to be able to use them as necessary and kind of just curious, you know, how that situation is evolving.
spk00: Thanks, James. This is Lars. We completely agree with you. And we don't think of this relationship and partnership as sort of a sleeper issue. Right. We think of it as front and center issue, which comes about because One of the key differentiators is going to be Alsace's ability to bring its intellectual property in designing and constructing solar and storage and fleet charging in basically every single market where CBRE already exists. And CBRE's PDM group, or the product management group, basically exists everywhere. They are in the Inland Empire in Los Angeles, they are in Baltimore, Maryland, and they're in Paris, France. And so in all these locations, They represent, to some extent, latent horsepower for us. And what we're working on right now is to make sure that we develop an efficient process for tapping that horsepower. And that is things like coming up with standardized documents, coming up with different groups that interface with altas. And we then take a project or a solar asset, whether it's solar storage or charging, And we involve the CBRE groups early on in the design process. And they sit with us and next to us at the interconnection process. And we then start the process of handing off to them at the permitting process and then into construction. And the first assets that have begun construction together with the CBRE team are now being slowly put together. The first one will be in Maryland, and following closely after that will be assets in California and then Hawaii. So we are in complete agreement with you. There's a lot of work left to be done, but during the next year, we will see scale beginning to come out of that particular relationship, and it's going to take us to a level that we think is going to be very difficult for any of our peers set to replicate.
spk07: Right. Okay, great. I like that idea of latent horsepower. I will steal that term from you in our work. Maybe secondarily from me, and more so with current projects, how much is storage, given the IRA, and how much is storage starting to be a significant part of your current or building portfolio today? given that there's this supply chain, et cetera. But storage seems to me to be one that was a big winner for IRA and should be, taxing rates should be going up significantly. So just kind of curious to hear your thoughts on that.
spk00: Yeah, absolutely. And this is Lars again. So storage has become over the last two years, let's say, an integral part of everything we do at the outset of a solar construction project. It is instrumental because storage to some extent borrows the connectivity to the building or the grid through the interconnection that the solar needs as well. If you think of an interconnection as a pipe to access both the building and the grid, storage uses the same pipe to get into the building or into the grid. So we to some extent already have this pipe for free with the solar system. And it would be malfeasance to not consider storage in every single location when we install solar. What's been a determinant factor, and which is getting slightly easier with the IRA, is whether or not that particular location has a rate structure or utility programs that immediately let the storage pencil. Because one thing that we don't want to do is to add storage if it's going to reduce the yield of the asset to Altus or somehow reduce the benefit to the client unless they ask us for it. And the reason they might ask us for a higher cost is resiliency. If the client says, look, I'm prepared to pay more for solar electricity from Altus as long as I can run my operation for 18 hours based on storage if the grid goes down, then in that situation, of course, we'll add storage even if it's likely reduces the savings to the client. But to give you some granularity, every solar system we're building in California right now, we fully expect that storage will be part immediately of those solar systems. So we're moving forward with those interconnections because California has a good rate structure and a good rebate. Hawaii, the same thing. Maryland, not yet. The Maryland utility regulator is thinking of a storage program. New Jersey, beginning to be the case. The New Jersey program for storage is about to be launched, we think, in early next year. It's coming together during the last couple of weeks of this year. And so it's really a market-by-market evaluation. And the second storage pencil can make sense. It's getting added by us. And we have the skill to both design the storage, to source the equipment, And it's not impossible to source third-party controlling systems. In many cases, they actually sit on the solar inverter that allows us then to harvest the energy from the storage or shift it around in the way that's most beneficial to the client.
spk07: Okay. Got it. Thanks, Lars.
spk04: Thank you. There are no further questions at this time, and this does conclude today's teleconference. You may now disconnect your lines at this time, and thank you very much for your participation.
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