This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Ladies and gentlemen, thank you for standing by, and welcome to the Clearway Energy Inc. Q2 2022 earnings call. 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'll need to press star 1-1. I would now like to turn the call over to your host, Chris Sotos, President and CEO. You may begin.
spk11: Good morning. Let me first thank you for taking the time to join today's call. Joining me this morning is Akil Marsh, Director of Special Relations, and Craig Crenelius. President and CEO of Fairway Energy Group. Her will be available for the Q&A portion of her presentation. Before we begin, I'd like to quickly note that today's discussion contains overlooking statements, which are based on assumptions we believe to be reasonable out 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 metrics. information regarding our non-GAAP financial measures and reconciliations through mostly directly comparable GAAP measures, please refer to today's presentation. I would be remiss not recognizing this is the first call where our CFO, Chad Flock, is not participating. I want to thank Chad for all his contributions over the years and for ensuring an orderly transition of his responsibilities prior to his departure. We recently launched a search for his replacement and will take a deliberate and careful approach to ensure our executive leadership team has the appropriate skills and experience to continue to lead clearly forward. Turning to page 3, the first half of 2022 performed within our sensitivity ranges, with Clearway's diversified portfolio producing $176 million of CAFTI in the second quarter of 2022 and $174 million in the first half. Clearway increased its dividend by 2% to $0.3604 per share, or $1.442 on an annual basis, keeping us on target to achieve the upper range of our dividend growth objectives for the year. The program continues to solidify its pro forma CAFI outlook by a strong execution. We have now contracted the remaining 20% of capacity at the marsh landing project that had previously been open after the current tolling agreement ends. This project is now fully contracted on a wage average basis to approximately the end of 2026. We are also currently in the procurement processes regarding the open position at El Segundo and would expect to provide update on this by the third quarter earnings call. In addition, that we should close in the near term on the Capistrano acquisition, which based on our current expectations for new project level financing would result in long-term corporate capital for approximately $110 to $130 million, allowing us to increase our pro forma CAFTI outlook for approximately $400 million, up from $385 million and the resultant CAFTI per share to $1.98 from $1.90. The prior committed growth investments remain on track for their CODs in 2022 and 2023. Longer term, our Clearway Energy Group colleagues continue to work on the development projects that underpin our minimum 300 million capital commitment over the next 12 months, as well as growing their development pipeline to now 24.7 gigawatts with 6.7 gigawatts of waste-based projects. The first financial milestones underpinning our 300 million capital commitment goal are targeted for completion in late Q3 and early Q4 2022, as solar and storage projects planned for completion next year reach financial close and start construction. In total, the capital commitment opportunity for us across the projects Peerway Energy Group is planning to place in service through 2024 exceeds the $300 million goal we set at the beginning of the year. As the commercial profile and capital structure of those projects reach final resolution during the coming months, including potential changes to their tax credit qualifications arising out of the Inflation Reduction Act presently being considered in Congress, we will provide an update outlook on the capital commitments we expect to make to project investment opportunities offered by Peerway Energy Group over the near term. In addition, the sale of 50% of Clearway Energy Group to Total Energy is still on track with closing in the second half of 2022, with the outcome of Clearway Energy Inc. having an even stronger sponsor with leading capabilities as well as robust renewable generation goals. Subject to the provisions of applicable agreements and regulations, the companies have commenced planning for collaboration in several dimensions across the Clearway enterprise we expect will make us an even more productive participant in our country's clean energy markets as they grow and diversify in asset class. In line with this continued progress around executing on our growth plan, we have allocated approximately $420 million of the $750 million of excess sale proceeds from thermal, supporting $2.10 of CAFTE per share, with full allocation of the remaining $330 million of thermal proceeds, providing visibility to over $2.15 of CAFTE per share. Given this solid outlook, I continue to have great confidence in our ability to grow the dividend at the upper range of our 5% to 8% DPS growth target through 2026. In summary, where we continue to reduce risk in its portfolio through the expansion of new contracts on its natural gas portfolio, as well as investing in new assets to create growth in line with its long-term objectives. Turn to slide four to provide a bit more color on the quarter and where we stand overall from a financial perspective. For the first half of the year, Our total portfolio performance was very close to the midpoint of our sensitivity ranges, with adjusted EBITDA of $626 million and CAFTI of $174 million. Contributing to this is today's reporting of second quarter adjusted EBITDA of $366 million and $176 million in CAFTI. During the quarter, the company's renewable segment delivered strong results, led by above-average production at AltaWind portfolio and Clearway's utility-scale solar fleet. The performance of renewables was somewhat offset by weaker unexpected results in the conventional segment, primarily due to the El Segundo facility as we managed through an extended spring outage as well as a forced outage in June that ended in early July related to damaged cooling equipment. This event was managed expeditiously, and the facility is currently running at normal conditions. Overall, with the company's results for the first half of the year in line with our sensitivity ranges, we continue to maintain 2022 CAPTI guidance of $365 million. As a reminder, 2022 CAFTA guidance does include contribution from the thermal segment through April, given the timing of when the transaction closed and continues to assume the achievement of full year P50 renewable performance. Guidance does not, however, factor in the full contribution from existing growth investments and the Capistrano acquisition, which informs the update pro forma CAFTA outlook of $400 million, which I'll speak to on the next slide. From a balance sheet perspective, the company continues to have unprecedented flexibility to exude on its growth while not having to form new corporate capital. We have the $750 million from the thermal sale, of which approximately $330 million remains to be allocated. Our revolver is completely undrawn, and we are insulated from interest rate volatility with 99% of our debt fixed. Simply put, we are in a phenomenal position to move our company forward during a challenging macroeconomic backdrop. Let's turn to the next slide to speak about our latest transaction, Capistrano, and the value appreciation that comes from this allocation of capital. Page 5 provides an overview of the Capistrano acquisition. After assumed project-level debt capital formation, Capistrano should require approximately $110 to $130 million of long-term corporate capital, producing $12 to $14 million of five-year levered average capping for a significant 10.8% cap deal. We expect this transition to close in the second half of 2022. The project sells its energy under plus-par agreements with a rate average tenor of 10 years, and provide CLIN further diversification into Texas, Nebraska, and Wyoming. As part of the acquisition, Clearly Energy Group will fund $10 million toward the purchase price in exchange for an exclusive right to develop any repowering projects within this portfolio. In the event that a project were repowered, CLIN would remain the long-term owner of the asset. Overall, this acquisition provides an excellent stepping stone in our continued execution around accretive growth, utilizing the cash from the thermal sales. Page 6 provides an update as we continue to reinvest thermal sale proceeds to generate $2.15 or greater of CAFTI per share utilizing those funds. With the addition of Capistrano to our pro forma CAFTI outlook, we now see $1.98 of CAFTI per share. As discussed last quarter, the investment in the next drop-down portfolio should generate approximately $26 million of average asset level CAFTI, thereby providing clearly energy investors with visibility to $2.10 of CAFTI per share. with $330 million of proceeds remaining to be allocated. As Clearway continues to reinvest those proceeds and assume CAFTI yield at 8.5%, we should be able to achieve CAFTI per share of $215 or greater, reaffirming our ability to deliver at the upper end of the range of 5% to 8% DPS growth through 2026. In addition, I would like to remind our investors that these numbers merely account for the deployment of the $750 million of thermal proceeds and assume no additional CAFTI deployment between now and 2026. which is not our intent. Turning to page 7, Clearway's goals continue to focus on execution, closing the sale of thermal and achievement of our 2022 guidance with an increase in our dividend per share at the upper range of growth. We have signed a binding agreement to acquire the Capistrano portfolio, which in addition to its cap degeneration at a strong yield, also provides for repowering opportunities at sites that are well known to Clearway Energy Group, given their historical role with the assets. The federal will continue to pursue acquisitions of appropriate assets and appropriate returns. We will be patient and adhere to our underwriting standards. We continue to work with the Federal Energy Group around the latest potential drop-down assets, as well as the prospects for the enactment of the Energy Security and Climate Predictions of the Inflation Reduction Act to reach a conclusion. We will provide additional details in due course on how the terms of these assets and the aggregate capital and opportunity may be impacted. And finally, we are always focused on enhancing the value of our California natural gas portfolios. by signing the remaining 20% open capacity position at Marsh Landing through 2026, and also weighing the outcome of El Sabino's participation in procurement processes. In summary, Fairway Energy, Inc. is in an excellent position to grow its portfolio on accretive matter and strong risk-adjusted returns. Operator, please open the lines for questions.
spk07: Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your touchtone telephone. We'll pause for a moment while we compile our questions later. Our first question comes from Julian Dublin-Swith with Bank of America. Your line is open.
spk00: Hi, guys. This is Anya. I'm stepping in for Julian today. So, actually, the first question, I was just kind of curious. How are you thinking of strategic options for the California natural gas portfolio in light of just the changes made recently? For instance, the GIP, Total agreement and just the potential strategic optionality there. I guess, how are you thinking about them long-term? And at what valuation would you consider potentially selling those assets, monetizing them?
spk11: Sure. A couple different questions there, Anya. Hopefully, I unpack it. So I think the one question, really, Total's involvement doesn't change our view of the underlying value of the assets, our desire to hold them in the light. I think we view the diversification that we have in those assets as valuable. And I think as we've talked over the past several years, the value of those assets has tended to increase versus decrease overall. In terms of valuation and where we'd want to sell those, I wouldn't give out valuation numbers, but in terms of where if somebody wanted to buy any or all of those assets, we're open to that just as we are with any asset at Clearway Energy. But if we think we can sell it for a value above what we'd hold, we'd be interested in monetizing. But it doesn't really go beyond that.
spk00: Okay, great. Thanks. And then I'm curious to on just on the IRA, if I could ask a question on that. How are you guys thinking of your strategy, if that does pass? And then what are your thoughts on expanding further into storage versus your overall portfolio? Where are you seeing opportunities today? And I guess where are returns today as well?
spk11: Sure. I think I'll answer the first part and then hand over to Craig for the second part. But in terms of strategy, I think as we kind of talked a little bit in my prepared remarks, obviously the devils are in the details of exactly how it unfolds. I think long term, obviously it's a pretty big positive for renewables. And for our perspective, it allows us some more flexibility in our approach looking at PTCs and different applications around tax. But Craig, I don't know if you want to answer the other two parts of the question.
spk03: Yeah, sure. Well, For the energy system and the customers that depend on it here, we really just couldn't be more pleased to see the form of the legislation that Senators Manchin and Schumer have ultimately crafted. It's a truly elegant piece of legislation that both should enable transition in terms of carbon reduction, but also enhancement of our system's reliability and resiliency, so we really could not be more pleased by the final form of it. As far as Clearway specifically goes, there's a number of provisions we're excited to put to work in our context. Extension of the wind PTC is going to enable a better value proposition for our customers and should enable a greater velocity of our build program as we look into the mid-decade. That will be true across a significant portion of our country, but we're particularly happy about what it will mean for the development program we've had underway in PGM in West Virginia, in particular where wind resources are in especially high demand, but really all over the country. The qualification of solar projects for the PTC is going to enable us to evolve the capital structure we use for those projects and will mean that a greater fraction of the permanent capitalization of those projects can come from the project sponsor. which both makes for a better model for long-term management for all of the project stakeholders and also in the context of CWEN is going to mean that the quantity of capital deployed for any given project can be meaningfully higher than it would be for a project electing the ITC as a tax credit. The standalone storage ITC is going to be transformative for the way we can make clean, renewable assets dispatchable generally and enhance reliability in the system overall. And we've increased our pipeline for standalone impaired storage assets to approximately 8 gigawatts over the course of the last few years through hard work and in anticipation of battery storage becoming an increasingly economically viable resource in a large part of the country. And that's certainly going to be accelerated in many cases through the availability of the standalone storage ITC. In our case, We've approached the siting of that pipeline with the intent that the location and revenue model for the resources that we're advancing would be complementary to the operating portfolio within CUN. So we're optimistic about what that pipeline will yield. And also, as we look out to the end of the decade, I'd expect that we'll see an opportunity for deployment of paired storage across a substantial share of our operating fleet. Just a couple of other points. The incentives created for domestic manufacturing and domestic content deployment are also incredibly useful for the creation of a more resilient economy. We've announced the formation of a U.S. solar buyers consortium that we spearheaded and also in our sole capacity are pursuing procurement of wind and solar and battery components. And we've been driving plans to evolve the provenance of the component supply chains we employ and the spectrum of incentives contained in the legislation are a pretty critical enabler of those ambitions, as some suppliers have said that's pretty essential for them to site factories here. And then lastly, in terms of green hydrogen and offshore wind, the incentives that are in the legislation really would be enablers of the long-term growth initiatives we've been undertaking in those areas. We've had work underway in those for the last few years for some time. And we focus that on regions where we have proprietary strength out in the western U.S. and in Texas. And we're looking forward to accelerating our work in those areas, both through the economic support of these incentives and also in collaboration with our new partners at Total. So while we'll take some time for those efforts to yield operating assets that would be investable for CWIN, I'm pretty optimistic that through this legislation, assets in those classes will ultimately also be attractive and substantial and compatible with the investment mandate we have in CWIN. So in total, while we've been advancing our business in a way that we weren't dependent on the enactment of new legislation, and that remains true today, the outlook for us generally and for CWIN specifically would be really substantially brightened and accelerated through the legislation's passage. Really hoping to see Congress finish its work over the next few weeks towards its enactment.
spk00: Okay, great. Thank you very much. That was very helpful. I'll jump back.
spk06: One moment for our next question.
spk07: Our next question comes from Keith Stanley with Wolf Research. Your line is open.
spk09: Hi, good morning. First, a bit of a follow-up to the last one, but I think you mentioned the drop-downs from CEG could be more than that planned $300 million now for that bucket of assets you show in the slide. Could it be, I guess, due to the bill, could it be materially more than $300 million because of the solar PTC and other dynamics? And then, relatedly, just, Chris, any comments on overall level of visibility and confidence on fully redeploying the thermal cache over the next six to 12 months or so?
spk11: Sure. I think, not to minimize the question, the answer to the first question is yes. I think, obviously, as we talked about on the prepared remarks, we want to see exactly how this all comes to pass. I want to make sure everything's tied out before kind of, you know, talking about exactly what the number might be, but does it potentially be materially different?
spk09: Yes.
spk11: To your second question around confidence, I think, again, we're being disciplined. I think, obviously, some of that cash would be used depending on exactly the final determination of how much the $300 million moves. But, yeah, we are working hard to make sure we deploy it appropriately. So I think our ability to deploy it is pretty high, but we'll know when we're done.
spk09: Great. And then just in Texas, any comments you can give on how the assets performed with the heat wave last month and some of the power price spikes?
spk11: Sure. In July, once again, books are not closed, so this is kind of indicative. The portfolio seems to have held up well, so we saw some price spikes, but in general, the portfolio performed well from what we could tell.
spk07: Great. Thank you. And one moment for our next question.
spk04: Our next question comes from Colton Bean with PPH Call. Your line is open.
spk10: Good morning. On the conventional portfolio, you now have two of the three natural gas facilities recontracted. Any updates as to how you're approaching dispatch on the new RA agreements? Would that still be at the counterparty's discretion, or do you all have interest in maintaining flexibility there, potentially capitalize around market volatility?
spk11: Sure. We sold the capacity portion for it at the energy margin, so to your question, that would kind of be for our book currently on an open basis. However, if a counterparty were interested in buying the energy piece, we'd be open to that as well. But to your question, currently the energy margin is open on those assets.
spk10: Okay, great. And then just on El Segundo, I know a more fulsome update likely still to come. But with that being a CCGT, and I don't think it was too many years ago that it was running something close to baseload, any differences in how you're approaching recontracting there?
spk11: Not really. I think for ourselves, obviously, the energy margin should be higher on a CCGT than on a peaker. But for us, really not a difference in terms of how we view it. We think it's well-positioned within the market.
spk10: Great.
spk06: I appreciate that. And one moment for our next question. Our next question comes from Michael Lapides with Goldman Sachs. Your line is open.
spk08: Hey, guys, thank you for taking my question. We've got a high-level one here. Can you talk about with more large-cap utility holding companies, more international players, more infrastructure funds, developing utility-scale wind and solar, can you just talk about the landscape? And I don't know whether this is a Steve or a Chris question, but what's it doing to returns? What's it doing to project planners, meaning the length of contracts? What's this doing to the overall dynamic, given there's just a lot more capital flowing into the space right now?
spk11: Sure. Thanks, Michael. I'll kind of answer half it and then pass over to Craig for his view. But I think we're not seeing a dramatic difference than, frankly, what we saw last year. Michael, as you're well familiar, a lot of capital has moved into this industry over the past several years. And so for us, I think what we're seeing in terms of returns and what's available out there, it's a pretty – rich M&A market. I think that's why, you know, you've continually heard me emphasize we're going to be disciplined in how we allocate the capital. So that's what we intend to do. But I think in terms of market opportunities, there's quite a few out there of attractive assets. We'll see how those end up. But I think that also, you know, with the increase in the treasuries, you know, treasuries obviously come back a little bit to about 2.6, depending on where it is this morning, on the 10 years. So some of that has yet to pass through. But I think overall, you know, IRRs and are no real different in terms of downward pressure this year versus last, given that inflow. Cause I think that inflow has been happening for quite a while, but, uh, Craig, from, from your view, any, any difference?
spk03: Yeah, sure. Um, all well put Chris. Yeah. Um, in terms of new asset creation and development, um, you know, honestly, the period of the last 12 months, I think, uh, has been an important and useful one in allowing both suppliers, uh, of, uh, of energy, providers of components, and customers for energy all to get grounded around the importance of project viability and sponsor strength. And as we're engaging with customers today, what we're seeing is that those customers value in, I think, very important ways and more than they might have, say, two years past. the locational viability of individual projects based on where they're located in the transmission system, the timeline that those transmission interconnections will allow resources to come online, the quality of the siting of the project in terms of the effective load carrying capacity that it can support or congestion risk that it might face, the quality of the project sponsor itself and both its financial resources and its operational acumen in terms of the ability to get a project built and brought online and to navigate the supply chain challenges that exist and will persist for some time. And we find that all those things actually play to strengths that companies like ourselves have. So I'm actually quite optimistic about what the next years are going to have in store for businesses like ours. you know, the demand from end-use customers that want a deflationary, lower-cost resource that's renewable or storage-backed is extraordinarily high. And there's still a scarcity of projects and sponsors that can credibly deliver the value proposition and the timeframe that customers want, and that also have a proven ability to navigate the types of disruptions that we've had and that I think we would expect to need to continue to navigate. So I'm quite optimistic that we're going to be able to continue to create projects that exhibit in total a good contracting and revenue portfolio for CWIN and that that are going to produce adequate returns, both for the investments that CWIN makes and for what we do in the creation of the projects. And I think that will really persist into the mid-decade, even with the availabilities of these incentives and all the capital flowing into the space.
spk08: Got it. Thanks, guys. And just real quick, on contract tenors, are you seeing customers, meaning buyers, seek shorter-term deals than what you saw maybe two, three, four years ago?
spk03: You know, it's interesting if actually the trend of late has almost shifted in the opposite direction. The inflationary trends that have been observed over the course of the last six months in particular, I think, have shifted the calculus for a lot of buyers that locking in a resource that has a predictable cost to it is actually a useful part of procurement for an overall energy mix. So that's the first thing that I'd see. say. When we look at the models that work for us, you've probably noticed that there's a substantial expansion we've undertaken in development of resources out in the WEC. And a lot of the natural buyers for those resources are load-serving entities who like 20-, 25-year contracts as they plan their system for the long run. And we've done that with intention because of the way we think those could fit in the CWIN portfolio. And then we're also matching those with some commercial contracting designs that put a floor around price but will allow us to participate in upside when price volatility exists. So we're trying to construct an overall portfolio that may involve both very long tenors and open positions with downside revenue protection. that in total will be a nice complementary match to the existing portfolio that we have within CUN. And to your first question, I think many customers see these resources as an attractive thing to walk in, and tenders have not been walking in further. In fact, in many cases, customers have been looking to contract them for longer lengths.
spk08: Got it. Thank you, Craig. Much appreciated, guys.
spk06: Yep.
spk04: And one moment for our next question. Our next question comes from Mark Jarvie with CIBC, your line is open.
spk05: Thanks, good morning everyone. I wanted to come back to the IRA and talk about the impact on existing assets, particularly the wind. Can you comment whether, maybe just looking at the legislation as written now, impact around adding storage to those sites and repowering, if you've got a feel for storage to be more impactful versus repowering, and how many of the sites maybe could even do both in the current portfolio?
spk11: Yeah, no problem. They'll head over to the back half as usual. I think from our view, it's important to keep in mind that a lot of our assets have the benefit of being relatively new. So as I've talked about on other calls, our repowering opportunity, it's not as though we've got a gigawatt of repowering that can happen. A lot of it kind of happens over time as you move through it because a lot of our assets are relatively new with longer tenured contracts that would need to be renegotiated. So I think overall the opportunity from a site perspective is impactful in terms of, you know, the different rules around PTC and tax stream. And, however, I wouldn't want you to read too much into that given, like I said, the age of our fleet is relatively young and also the PPA tender is relatively long. So it's not as though there's a big opportunity in the next 24 months to do a gigawatt of repowering or something like that. But, Craig, from your view?
spk03: Yeah, Chris makes a very important point, which is that, with the long runway that the legislation creates, we can really pick the optimal point in time to repower our existing wind projects, which in a lot of cases will be, you know, as those PPAs from the original construction of the projects expire. And, you know, the way that we've advanced our repowering development program has anticipated the succession of those Those PPA milestones has taken into account the status of the equipment at those sites and is a systematic program with the benefit of this legislation, which will be staged out over time so that when we replace the equipment at the projects and benefit from the new tax incentives, the new revenue contract that's put in place is something that fairly values the asset, which The shorter timeframes we had to repower projects didn't really allow for in the past all the time. In terms of storage pairing, that's a pretty meaningful opportunity both in terms of wind and solar assets. We've got thousands of megawatt hours worth of paired storage or retrofit programs underway for development across both wind and solar resources in the West. the Midwest corridor of the country. And we expect that, especially with the way the transmission system is evolving, that a number of the load-serving entities that we support through those existing plants will find it useful to evaluate commercial solutions with us that would allow us to deploy that storage hybridization even while the existing contracts are in place. You know, I think more, as Chris says, this will take some time for us to figure out what's really optimal, keeping in mind what the current commercial picture is for those projects. But there's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade. There's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade.
spk05: That's helpful. And just on the storage, would you need to be 100% contracted just as you start to understand that market better and see asset performance as just your comfort level on being a bit open on the storage side?
spk11: Yeah, I think it's a more complex answer, especially depending on what assets it's paired with. Don't get wrong. I think our preference would be in general to have it 100% contracted. I think it's important to say where the storage is, what type of assets paired with, how it works within the overall portfolio. which may lead to different answers than 100%. So, not to cheat your question, it's a little bit really how the storage is used. If it's a one-off, you want a much higher level of contracted nature. If it's part of the overall portfolio, lower levels of contracted could make sense, given how it interfaces with the other assets.
spk05: Got it. And then, Chris, question for you. When you look at the pipeline, Clear Energy Group keeps expanding, lots of opportunity, so it's not a lack of assets that will constrain your growth. So, as you think about that now, What else comes into the picture when you're thinking about which assets you want to negotiate? Is there anything on the diversification asset mix that is changing, just giving you sort of an abundance of assets to look at? What else is going into decision-making in terms of when you sit down to discuss what specific assets?
spk11: From our view, we've never really had precise diversification goals of we want to be 60-40 or 50-50, let's say, on the renewable side. So for us, it's more about making sure that we have the right asset in the right place at the right value. So don't get wrong, as you can see with some of our acquisitions over the past two years, we've tended to diversify outside of California. So on the margin, if there's a dollar, we probably are a little bit more outside of California than within, and that's where you've seen a lot of our third-party M&A take place. So in general, that's kind of how we look to diversify, but it's not as though that we – look to say we want to be X or Y in terms of percentages from that perspective. It really is about kind of good assets, a good value in the right place.
spk05: In terms of the geographic diversification, are you taking specific views on certain power markets also as well in terms of where you think the forward curve is either underappreciated or maybe people are too bullish on it? Does that come into decision-making as well in terms of longer-term tail values?
spk11: For the longer-term tail value, as you're well familiar, most of the initial tenders are very prominently contracted. So that really helps inform maybe a little bit our tail view of, okay, where do we want to be after the contract unwinds and what markets are we a little bit more interested in? But it really doesn't affect a lot of our decision-making over the contract period, obviously. Got it. Okay. Thanks, everyone.
spk04: One moment for our next question. Our next question comes from Justin Claire with Roth.
spk07: Your line is open.
spk01: Hi, everyone. Thanks for taking our questions. So I guess first up here, I just wanted to follow up on the Inflation Reduction Act. You know, it seems like project economics could meaningfully improve here, and you could also see more opportunities with growth in the market. But just wanted to see how you're thinking about the potential economics of drop downs. You know, I know this will be market dependent, but do you see potential opportunity for higher CAFTA yields here? And then I know you touched on this a little already, but could you give us a sense for how the change in the tax equity treatment here could also change your economics?
spk11: Sure. I think a couple different pieces there. In terms of it actually changing cap yields and the like, I think that's much more dependent on the macroeconomic environment, where our stock trades, where treasuries are kind of from a way to have a cost of capital perspective than necessarily what the IRA produces. I think that very much more affects the actual project than necessarily a direct buy-in to how it all affects returns. So your second question in terms of tax equity, especially around the solar PTC is, It allows, I think the point Craig made earlier in the discussion, you can kind of get a lot more cash and CAFTI out of that versus having an ITC profile where we obviously aren't a current taxpayer. Some of those benefits aren't as helpful for us. So for us, I think it changes some of the demographics of returns that we're able to achieve. I think we have to see how it all works out to see if it actually changes CAFTI yields or IRRs and the like.
spk01: okay great thanks and then just on the supply chain here was wondering if you could just give us a sense for how disruptive the uflpa enforcement might be to the solar module availability you know i think you have modules for the hawaiian projects but could you give the status for for maybe daggett solar And then for the commitments that you might be making here in the near term, are you considering, you know, whether projects have panels available? You know, is that factoring into your decision-making here?
spk11: Sure, I'll answer first and then hand over to Craig. And it's more to your last question. For us, we tend to take over our projects at commercial operation dates, so it's not as though that we're really taking a lot of construction risk in terms of panels arriving. So just for what it's worth, you know, when we kind of commit, we're really usually funding at or near COD, depending on tax levels. So, just in terms of context. But, Craig, for the other parts of the question?
spk03: Yeah, sure. I'm very proud of the work that our team does in general when it comes to technology forecasting and procurement, and especially in the solar domain. I think we've generally been a few steps ahead of everybody else in thinking about what our supply chain needs to look like as an early adopter of bifacial, as a major driver of procurement of panels that make use of US-made polysilicon in establishment of Xinjiang-free provisions in our procurement. And I think that foresight is really serving us well today as an enterprise. So through the application of that kind of foresight, and the responsibility we put to work. We are optimistic that in the same way that we were resilient around the Hoshine withhold release order by virtue of the supply chain configuration for the panel supplies that we have employed for Hawaii, our current expectation is that the vendors that we're working with will be able to import all the modules for our near-term pipeline in compliance with the UFLPA. So that compliance expectation around UFLPA is something that's been incorporated into the estimated CODs presented in today's earnings material for future near-term drop-down opportunities. And while it's conceivable that temporary confirmatory holds at the border are possible for industry participants generally, as CBP establishes its enforcement program. We think it's going to be a manageable risk for our enterprise without materially delaying any of our projects' estimated CODs because of the supply chain configuration that we've procured really for all the projects, Daggett, which makes use of the same supply chain that supported Hawaii, the Victory Pass in Erika project, the Texas Solar Nova project, And then successor solar and storage projects that make use of similar supply arrangements. So in the short run, we think we have established a procurement program that anticipated U.S. policy objectives and therefore should prove resilient. And then as we look into the future, I think, again, we're trying to sort of spearhead the way of planning for an increasingly localized supply chain for solar modules or a supply chain that makes use of manufacturing locations consistent with U.S. policy objectives. And certainly the incentives in the legislation have passed are going to make that an even more feasible goal for us as we go into the mid-decade. So I think in total we've been thoughtful and we should be all right because of where we're procuring these panels from. While it's possible that we may see disruptions just because ports are complicated entities and the way that the whole of the CBP implementation regime will function is certainly something that will involve disruptions, but in the long run, we think we should be okay based on what we bought and who we bought it from.
spk01: Okay, great. I appreciate it. Thanks, guys.
spk04: One moment for our next question. Our next question comes from Noah Kay with Oppenheimer.
spk02: Your line is open. Good morning. Thanks for taking the questions. Maybe to start with, I want to back up and ask a high-level one around the total collaboration here. I know you're obviously in the planning stage since it hasn't closed yet, but based off of those discussions, can you sketch out some of the areas where you see the opportunities for collaboration? Maybe we can walk through the development side, the recontracting side, and then even potentially, you know, the financing and M&A side?
spk11: Sure. I'll kind of walk through some of the parts and then hand off to Craig on the development side. So I think financing and M&A, it's not as though, you know, we obviously currently need and we have a pretty strong capital market presence going forward. Yeah.
spk12: CONTRACT . Yeah, sure.
spk03: Yeah, so we're, as I think your question suggests, we're in the early stages of discussions with Total around collaboration. And of course, there's during the time period between signing and closing certain regulatory constraints that we need to be respectful of during that time period. But we see in particular potential for unlocking you know, new capabilities or opportunities in the ability to collaborate around energy management and the interface with power markets, where as Total grows its U.S. presence in electric power markets, its ability to act as a trading counterparty to help us establish Revenue contract positions for projects that are consistent with YieldCo or manage around those positions for value and risk reduction could be a really important tool for us to have in the toolbox in some power markets. So that's one area we look forward to collaborating with them on. In terms of development activities, we'll certainly look to collaborate with them as we do with GIP on global procurement strategies. that help us drive value both for our projects and for the work that they do in the US and elsewhere. So there's opportunity for us to collaborate around procurement and cost and long run service in that regard. In some of the newer asset class categories that we touched on before, I think there's especially some interesting opportunity for collaboration. When we think about the capabilities that a company like Total brings to bear in the green hydrogen market globally, they are truly complementary to what we know how to do. I think one of the leading enterprises when it comes to citing renewable assets and building them and operating them, and we've started to do the work of thinking about where they could be built for purposes of green hydrogen production. moving molecules and marketing them in a value-added way is something that Total is a world-class leader in, and we look forward to collaborating with them in terms of matching those capabilities up with our own. And then certainly as you look across to offshore wind, Total is an emerging global leader in that asset class, and as we've thought about what's possible In the context of the Western US where we're a leader, certainly Clearway has been advancing a vision for what we could do in that asset class. I think together with Total, we would be a formidable force as you look out in the longer run to the Western US and what it can do in offshore wind. These are early days and we have to be respectful of regulatory constraints that exist right now. I could not be more optimistic about what we can do together as we look out into the future.
spk02: That was a really interesting and helpful answer. Thank you. I guess maybe this is more for you, Craig, but as a follow-up, just talk a little bit about the process you went through over the last, call it quarter, of having to kind of go off and then on again anywhere in the portfolio in terms of uncertainty around the tariff and then getting the clarification, you know, obviously you had to remobilize crews. You know, some of the peers have pointed to, you know, specific kind of time delay period. So curious to know, you know, what you've experienced and to what extent or any timeframes you can put around, you know, any pushouts and CODs.
spk03: Yeah. The COD forecast, that are contained in the earnings materials reflect our current outlook for completion of projects. And what you'd observe is, in general, they have not moved that much from what you would have seen, say, six months ago. And part of that reflects the supply chain that we were employing on projects like Hawaiian Daggett, which exhibited different facts than those that were a particular focus of the ADCVD investigation. Some of that also reflects the work that we've done with our panel suppliers to assure that they are allocating the capacity that they have that were at the top of their priority list. And in candor, some of it reflects actions that we took at the sponsor company incurring material incremental costs in order to perfect that supply chain position so that projects would stay on track. And so, you know, I think our goal has been to advance those projects so that our customers can get the resources that they'd planned on as close as possible to the timeframes they'd originally envisioned before some of either the supply chain disruptions or these trade policy driven disruptions and to also get these projects online for CWIN to be able to deploy its capital into them and that has not been a costless proposition for the parent entity but we take those objectives seriously and so we've incurred those costs to keep these projects moving forward and have been glad to be working with our customers who have who have worked with us and are working with us to make the accommodations that those project circumstances require. So it's not been without impacts in terms of our cost or modest impacts on schedule, but I think overall our program has been less disrupted than others because of our readiness to incur those costs and also what we were planning on in terms of the supply chain in the first place.
spk01: Great. Thank you.
spk07: And I'm not showing any further questions at this time. I'd like to turn the call back over to Chris for any closing remarks.
spk11: I just want to say thank you, everyone, for attending, and I look forward to talking to you all in November. Take care.
spk07: Ladies and gentlemen, this has concluded today's presentation. You may now disconnect and have a wonderful day.
spk04: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
Disclaimer