Clearway Energy, Inc.

Good morning, ladies and gentlemen, and welcome to the Clearway Energy, Inc. fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call may be recorded. I will now like to turn the conference over to your host, Mr. Chris Sotos, President and CEO of Clearway Energy.

Thank you. Good morning. Let me first thank you for taking the time to join today's call. Joining me this morning is Chad Plotkin, our Chief Financial Officer, Akhil Marsh, our Investor Relations Manager, and Craig Cornelius, President and CEO of Clearway Energy Group. Craig will be available for the Q&A portion of our presentation. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation, as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. Turning to page four. First, before I begin, I want to say thank you to all our colleagues across the Clearway Enterprise and to our partners for navigating through 2020 and making the past year a success for the company. Whether it was managing through the PG&E bankruptcy or the impacts of the global pandemic, the company executed across the platform and further positioned Clearway for long-term growth. Financially, Clearway achieved full-year CAFTI of $295 million, which includes the effect of COVID. We invested or committed to invest approximately $880 million in growth projects and executed on $1.4 billion in capital formation. Clearway also has resumed the growth in its dividend, with now a 1.9% increase to $0.324 per share in the first quarter of 2021, on track for the upper end of our 5% to 8% growth target for the full year. While our long-term outlook is as strong as ever, certain of our projects did face an early challenge in 2021 due to the unprecedented weather events in the ERCOT market, This event is expected to have an impact of between $20 or $30 million, depending on final settlements, discussions with contractual counterparties, and any potential state-sponsored actions. While significant, the company has proven to be resilient and the impact is very manageable to overall liquidity, and the shortfall does not affect the company's target DPS growth expectations, which we are reaffirming today. In response to these events, Clearway is already working to enhance fleet resiliency and risk management through a combination of initiatives with our CEG colleagues. Before I move on from discussing the financial impact of the Texas weather event, I would be remiss if I did not highlight the incredible efforts of our operations team. While there are many advantages of having a large footprint in this sector, the ability to deploy nearly 100 operators from other states to our Texas sites to troubleshoot damage and restart our facilities was critical. I am so grateful to our team for volunteering to travel to climb towers in sub-zero temperatures to help put the lights back on in Texas. Longer term, and through the execution of new growth commitments since the third quarter of 2020 earnings call, Clearway has improved its pro forma CAFTI per share outlook with an increase to $1.80 per share from the $1.71 that we announced just in November of last year. This increase is driven by the execution of third-party acquisitions, namely Mount Storm, which is anticipated to close in the first half of 2021, and the previously announced acquisition of the remaining interest in AgroCaliente. Growth was also driven by the co-investment in the 1.6 gigawatt diversified portfolio of assets announced in December. Each of these asset additions results in strong CAFTI per share accretion while supporting the long-term weight average contract life of the company's portfolio. In addition, these assets add to Clearway's portfolio scale and diversification, which are important factors in creating value and stable CAFTI. Looking forward to 2021, we have a wealth of opportunities to work on as we and our colleagues at Clearway Group construct the next stage of renewable portfolio co-investments. Clearway Group has increased its pipeline to 10.1 gigawatts, of which 5.4 gigawatts are late stage, even after accounting for projects completed last year. It's tailored to development pipeline for projects that are optimized for additional or fleet based on the resource profile, customers, technology, and expected contract type. And it's staging its development and capital structuring to align with the capital investment profile we need to sustain our 5% to 8% dividend per share growth roadmap into the coming years. With those components, We are now working with Clearway Group toward the next co-investment commitment that could comprise between 1.1 and 1.7 gigawatts of projects. These projects will span a diverse set of geographies, including California, the Pacific Northwest, and the Southwest, including a mix of solar, wind, and battery storage technology. With planned closings for these constituent projects spanning 2021 to 2023, we see the opportunity to construct a well-optimized supplement to the Clearway platform, adding to our growth going forward. Turning to page five, I want to highlight the two third-party acquisitions we announced since our third quarter call. First, Clearway acquired NRGs remaining 35% of Agua Caliente, providing a 51% ownership in the asset, underpinned by a 19-year remaining PPA life and a 9.9% CAFTE yield. We are very excited about being able to add a well-understood and long-tenured PPA asset at such attractive economics. In addition, Clearway looks to leverage its operational footprint with the purchase of the 264-megawatt non-storm wind project, which is located near the 110-megawatt BlackRock and the 35-megawatt Pinnacle wind projects. This particular acquisition benefits from the leveraging of our diversified operational scale to optimize costs in the region. This transaction will be underpinned with a 10-year energy hedge and generates a CAFTA yield of 10.3%. While continued success in closing third-party acquisitions can never be assured, we look forward to continuing to look at opportunities to expand our portfolio efficiently. Turning to page 6. This provides an overview of our investment activity since the start of 2020. As you can see, we have committed to deploy nearly $1 billion of capital, generating approximately $100 million in asset-level CAFTI. These quality investments are expected to generate a CAFTI yield of 10.3%, backed by a weighted average contract life of approximately 14 years. These investments, particularly those announced since the third quarter of 2020, allow us to increase our pro forma CAFTI outlook to $1.80 per share versus the $1.71 that we announced previously. Through a combination of these investments, leveraging our operational expertise and reach, we are on track for our 2021 goals for DPS growth, but also importantly, can now show a visible path forward in terms of growing our dividend per share by 5% to 8% through the end of 2022 at our targeted 80% to 85% payout ratio. With that, I'll turn the discussion over to Chad.

Chad? Thank you, Chris. Turning to slide 8, where I'll provide an overview of the company's 2020 results and an update to our 2021 outlook. starting with 2020. Today, Clearway is reporting fourth quarter adjusted EBITDA of $229 million and $30 million of cash available for distribution, or CAPTI. These results bring full year 2020 adjusted EBITDA to approximately $1.08 billion and CAPTI to $295 million. During the fourth quarter, the company realized higher distributions from several of its equity method investments, as well as improved operating efficiencies and lower costs across the portfolio. However, moderate weakness, primarily within the wind portfolio, which persisted for most of 2020, and an outage at the El Segundo gas project during December, did weigh down results. Overall, while full-year results were below the company's original $310 million guidance, the variance is within expected sensitivity ranges for the portfolio. During 2020, the company continued to progress on its long-term objectives through efficient capital formation and its disciplined capital allocation program. During the year, the company formed approximately $1.4 billion in capital through project-level debt optimization, utilization of the ATM program, additional green bond issuances, and through the disposition of non-strategic assets. Additionally, the company was able to gain access to $168 million in cash through that had been trapped due to the PG&E bankruptcy. Through these efforts, Clearway has maintained its commitment to its balance sheet targets and was able to allocate the excess capital to its growth investments in a manner leading to cap fee per share accretion. This provided support in our ability to reset the dividend upon the resolution of the PG&E bankruptcy and has the company on a trajectory to reach to achieve the upper end of our 5% to 8% dividend growth target through the end of this year. Now, with the pending $96 million Mount Storm acquisition, the company has committed to $975 million in growth investments since the beginning of 2020, placing Clearway on a path to meet our growth objectives beyond 2021 as well. Moving to our CAPD expectations for 2021. Per my comments from the last quarterly call, the timing of when the company's growth investments get realized into results is dependent upon when projects achieve commercial operations. So as previously mentioned, our forecast for 2021 does not factor in the full upside relative to our committed growth investments. This includes the pending Mount Storm acquisition that is not expected to lead to a meaningful contribution in 2021 and is further discussed on the next slide when showing the company's update to its pro forma CAPD outlook. With the closing of the Agua Caliente transaction in February, the company was expecting to increase its full year 2021 CAPD guidance. While we note that renewable resource performance above our full-year median expectations across the company's diversified portfolio, such as what we have observed on the West Coast during February, can insulate results from operational or resource matters at certain projects, we view the estimated financial exposure from the February conditions in ERCOT as an event outside the scope of the company's normal annual sensitivity ranges. Given this dynamic, we are now factoring in the estimated impact related to the ERCOT event into full-year financial expectations. So today, we are maintaining our 2021 CAPD guidance at $325 million, an amount still sufficient to allow the company to meet its expected dividend growth. Let's now turn to slide 9 to discuss the update to our pro forma CAPD. In our last quarterly call, we indicated that the company's pro forma CAPD outlook was $345 million, This amount was based on growth commitments as of that time and captured the timing of when those projects would reach COD. Furthermore, this amount also adjusted for what we believe are temporary variances in 2021, such as COVID-19-related matters at the thermal segment and now the exposure we see in 2021 relative to the February weather event in Texas. With new growth execution and commitments, we are pleased to say the company's outlook has continued to improve. Since the November 3rd quarterly earnings call, the company has announced the Agra Caliente transaction, the co-investment in the 1.6 gigawatt renewable portfolio, and now the Mount Storm acquisition. These investments alone are expected to deliver an incremental $50 million in five-year average annual asset level CAPT to the company upon all projects achieving COD. As noted in the chart, because permanent capital will need to be formed to fund these transactions, we make an assumption for the cost of the debt portion of this financing, which, based on our target leverage ratios, would yield approximately $9 million in additional interest expense, assuming a range of 3.5% to 4.5% of new corporate debt. So when combined with the asset-level CAPD from the new committed growth investments, we now see an increase of over 11% in total CAPD potential with an updated pro forma CAPD outlook of $385 million, an amount that continues to support our long-term dividend growth goals. With that, I'll turn the call back to Chris for closing remarks.