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spk01: And during Q&A, you can dial star 1-1.
spk00: Good day, and thank you for standing by. Welcome to the Clearway Energy third quarter 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 will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Sotos, President and CEO of Clearway Energy, Inc. Please go ahead.
spk07: Good morning. Let me first thank you for taking the time to join Clearway Energy Inc.' 's third quarter call. Joining me this morning is Akhil Marsh, Director of Investor Relations, and Craig Cornelius, President and CEO of Clearway Energy Group, our sponsor. 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'll 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 three. The company generated CAFTE of $154 million in the third quarter and $328 million through the first nine months of the year. The survey increased its dividend by 2% to 0.3672 cents per share, or at $1.469 on an annualized basis, keeping us on target to achieve the upper end of our dividend growth objectives for the year. Unfortunately, due to the previously announced operational issues at El Segundo and other items, we'll be revising our 2022 CAFTE guidance down from $365 to $350 million. Clearway continues to advance its growth and strategic initiatives by now having El Segundo's capacity fully contracted through 2026, along with Marsh Landing and Walnut Creek, We have closed the Capistrano wind acquisition, as well as funded the drop-down of Waiala Solar with the rest of the previously announced drop-down projects on track for commercial operations in the fourth quarter of 2022 or early 2023. We are also updating our full-form ACAFTI outlook with $390 million from $400 million, which I'll review in a couple slides. Clearway's long-term, steady-growth outlook is more transparent than ever with the latest offers from Clearway Energy Group for 1.4 gigawatts of assets. utilizing anticipated $410 million of capital at an approximate 9.5% CAF yield. As a result of our sponsors' continued development efforts, we also have visibility into additional drop-down offers, anticipating the first half of 2023, leading to the deployment of an approximate additional $220 million of Clearway Energy Inc.' 's corporate capital. Our sponsors' development pipeline also continues to grow. NOW STANDING AT 26.8 GIGAWATTS, INCLUDING 6.8 GIGAWATTS OF LATE-STAGE PROJECTS EXPECTED TO BEACH FOR COMMERCIAL OPERATIONS IN THE NEXT THREE YEARS. AS A RESULT OF THESE OFFERS, WE SEE THE 750 MILLION OF THERMAL PROCEEDS BEING DEPLOYED BY THE END OF 2024, SUPPORTING OUR GREATER THAN $2.15 CAFTE PER SHARE LONG-TERM CAFTE OUTLOOK. AT THIS LEVEL OF CAFTE GENERATION, CLEARWAY IS CONFIDENT IN ITS ABILITY TO GROW AT THE UPPER RANGE OF ITS 5 TO 8% DPS GROWTH TARGET THROUGH 2026. In summary, Clary continues to execute on the deployment of thermal proceeds into additional drop-down assets that, when combined with the contracted capacity of our California gas assets, create a very stable platform for continued growth in CAFTI and dividend per share. Turning to slide four to provide a bit more color on financial results. For the third quarter, Clary is reporting adjusted EBITDA of $322 million and cash available for distribution for CAFTI of $154 million. Year-to-date results came in at $948 million of adjusted EBITDA and $328 million of CAFI. Our third quarter results were negatively impacted by forced outages in the conventional segment. As we previously announced, the El Segundo Energy Center began a forced outage in late August at Units 7 and 8, and after initial repairs, returned to service on September 14. Additionally, Unit 2 at the Walnut Creek Facility experienced a less material forced outage in late September. The rest of the facility is currently running at normal conditions while components for Unit 2 are being repaired. The majority of the 2022 cash impact related to the El Segundo and Walnut Creek force outages occurred in the third quarter related to loss revenues, but O&M costs will also impact fourth quarter results. In the renewable segment, third quarter results were lower than the P50 expectations due to weaker than normal renewable conditions across the portfolio. This was somewhat offset by the timing of project level debt service that moved into the fourth quarter. given the expected full-year impact from the forced outages in the conventional segment, the company is revising its 2022 CAFTI guidance from $365 million to $350 million. Regarding the balance sheet, the company continues to have unprecedented flexibility to execute on its growth without having to form new corporate capital. The excess proceeds from the thermal sale remain available to be allocated to visible future growth from drop-downs, and we continue to expect our pro forma credit metrics to be in line with our target ratings. Furthermore, Our revolver is completely undrawn, and we continue to be insulated from interest rate volatility with nearly 99% of our debt being fixed. Turning to slide five to provide an overview of the company's pro forma CAFTI outlook, 2023 expectations, and underlying assumptions in our forecast. In order to explain the various moves in our CAFTI expectations, we provide a bridge commencing with our prior previously announced pro forma CAFTI outlook of $400 million. The company is updating the pro forma CAFTI outlook to account for updated forecasts as it results to a variety of pressures across the portfolio, including inflation, budgetary updates in the renewable segment, including basis differentials, and other portfolio and cost items. In aggregate, these various budgetary adjustments equate to approximately $10 million and result in updated pro forma CAFTI outlook of $390 million. Moving to the bridge for 2023 expectations from our updated pro forma CAFTI outlook, Because our pro forma CAFTI outlook is based on five-year average CAFTI profiles for new investments, 2023 expectations reflect $10 million less in CAFTI than our pro forma CAFTI outlook due to the timing of when projects reach operations and the shape of project cash flows, consistent with what we have disclosed previously. This $10 million will come back in 2024 and beyond. The next source of variance is the recently announced Capistrano wind acquisition. As we announced previously, we intend to refinance the existing non-recourse project debt of the assets. However, due to our significant cash balances currently, CRO believes there is no need to suffer negative arbitrage given limited currently forecasted cash needs for Clearway between now and the end of 2023, and therefore looks to refinance Capistrano at year-end of 2023, leading to a $10 million CAFTI output. As a final bridge to 2023 guidance, 2023 reflects energy gross margins in the conventional segment based on recent market pricing above the long-term projections in our pro forma CAFTI outlook. While our natural gas assets Marsh Landing, El Segundo, and Walnut Creek are fully contracted through 2026 in terms of revenue from resource adequacy contracts, starting in mid 2023, after their initial tolling agreements expire, the three facilities have the ability to generate additional revenue from dispatching into the merchant power market. Based on forward power markets and internal analysis, C1 currently expects the three facilities to generate energy margin for merchant power markets equating approximately $20 million of upside in 2023 relative to the long-term merchant energy assumption that underpins our pro forma CAFTI outlook. The table to the right outlines the merchant energy assumptions in our pro forma CAFTI outlook and our dollar per kilowatt month basis. With these adjustments described in the bridge, Clearway is initiating 2023 CAFTI guidance of $410 million. To close out the guidance and pro forma outlook discussion, it's important to note that the merchant energy margin estimate, the conventional segment on a pro forma basis, represents only approximately 5% of Clearway's asset level CAFTI. Our pro forma CAFTI outlook continues to be primarily underpinned by long-term contracted cash flows with creditworthy counterparties. The future upside to this outlook from the drop down of additional contracted renewable assets, which I'll discuss on the next slide. Page 6 provides an overview of the latest drop-down offers from our sponsor. As you can see on the left side of the page, these assets are predominantly solar, with deployments in Texas and California, and also include a utility-scale wind project in Idaho. We also see an expansion of our Rosamond investment with a battery storage asset, which benefits from an expected 15-year capacity offtake, and is well-positioned to capitalize on energy arbitrage opportunities in California related to the late-day ramp in net loads. In total, these assets represent a significant investment of $410 million in C1 corporate capital at a strong estimated CAF yield of 9.5% on the portfolio, which solves the majority of its output under agreements that have an average duration of 17 years. In addition, this investment will further the customer diversification of our fleet with the majority of the offtake with corporations, non-utility load serving entities in California, and an Idaho utility. In summary, OAS drop-down offers from our sponsor provide transparency into the redeployment of the thermal proceeds into a quality, well-diversified, and strong CAFTI-yielding selection of assets. Page 7 provides an update to our targeted CAFTI per share in excess of the 215 that reinforces our long-term view around growing the CUN dividend at the upper range of our 5% to 8% long-term targeted growth rate. Starting at our $390 million pro forma outlook that we discussed previously, we add in the latest offers from our sponsor, which, assuming binding agreements are achieved, will deploy $410 million of capital at a 9.5% cap-to-yield, as well as our current view around an additional impending offer from our sponsor in the first half of 2023 for $220 million of capital deployment, also at an anticipated 9.5% cap-to-yield. With these drop-downs and the previous announced acquisition of Capistrano Wind, Federal Oil has deployed all of its thermal sale proceeds by the end of 2024, with an undrawn revolver available to fund the additional capital needs required in the short term. As we described a year ago when we first announced the thermal sale, and since we received the proceeds in May, Clearway is now able to demonstrate the utilization of the entirety of these proceeds to drive CAFTI per share growth with an investment in high quality assets at attractive CAFTI yields. Turning to page eight, our goals for the year have not changed. We have closed the sale of thermal. We unfortunately must adjust our 2022 CAFTI guidance due to the forced outages in our conventional fleet that occurred in the third quarter. Despite this setback, Clearway is still able to increase our dividend per share at the upper range of growth during the year. In terms of growth in the future, we have closed on the acquisition of the Capistrano wind portfolio. More materially, we now have line of sight with our sponsor to the deployment of all the remaining thermal proceeds to drop-down assets over the course of the back half of 2023 and the end of 2024 at strong CAFTA yields and contract tenors. This deployment should provide our investors with increased confidence in Clearway's ability to drive CAFTI per share growth to $2.15 a share or higher. This does not imply that Clearway will stand still in terms of investing for growth and simply wait for these drop-downs to close. We continue to see opportunities in the market, but we'll continue to be disciplined and adhere to our learning standards. And finally, we are proud to complete the initial stage of our journey on the natural gas portfolio. We now have 100% of the capacity of our gas we've contracted to the end of 26 and look to engage in additional options in the future to further extend that runway. In summary, Clearway Energy Inc. continues its focus on prudent growth, has confidence and ability to meet its long-term growth objectives, do impart the strong sponsor support to ensure Clearway's success. Operator, please open the lines for questions.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julian Dumoulin-Smith with Bank of America. Your line is now open.
spk09: Hey, good morning. Can you guys hear me? Yes. Hey, thank you so much for all the comments. You guys ran through a lot there. So if I can just come back to a couple things super quick. First off, with respect to the new growth that you're outlining here, can we just talk specifically about the existing – and what that backs into in terms of specific targets here through that 24-time period. Again, great job on a timely basis deploying the proceeds. Now I just need to obviously disclose the 9.5% cap deal. Can you talk a little bit about how this positions you with this as well as incremental targets in this higher rate environment to achieve some of the dividend growth targets in the medium term, not necessarily just in the near term here? Can you talk a little bit about what else needs to be done to achieve it? Because obviously you've outlined a lot here towards getting there. But I want to make sure, against the backdrop of the higher rate environment, that's where you stand.
spk07: Sure. Not to minimize the question, Julian, but looking at page seven, really we don't need to do anything else other than execute the dropdowns and have them perform as anticipated to produce that 215 per share. So that's kind of looking at page seven. Obviously, we're using the cash from the thermal proceeds. So maybe to your point, any moves up in interest rates or stock price movements wouldn't affect this baseline number. It would only be incremental deployments beyond these numbers that would require to hit the 215. So I think that was your question.
spk09: Right. Maybe let me hit it more directly with respect to the rising impact of rates. Obviously, most of the portfolio is financed on a longer duration basis. Can you talk a little bit about liability management? Maybe that's the other side of this that I wanted to ensure here.
spk07: Sure. Yeah, we don't anticipate raising any corporate debt to fund these acquisitions, if kind of that's your question. And all of our debt, you know, 2028 is our earliest maturity, and the other ones are in 2031 and 2032. So we have quite a bit of time before we have any corporate debt that would need to be raised to deal with acquisitions.
spk09: Excellent.
spk07: Thank you.
spk09: And then if I can come back to a couple of the nuances here. Just at the highest level, you've got additional energy margin. Can you talk about sort of how that's manifested itself of late here? Obviously, you've been recontracting the assets. As you think about how that proceeds, not just in 23 here where you provided the clear walk, how does that evolve through time through 26? And then how does that get to your thinking here about the relative math on 26 extensions and potential changes? further re-collecting at higher levels beyond that?
spk07: Sure. A couple of different questions there, Julian. Hopefully I'll cover them. So part one, the energy margin we have in 2023 is obviously a bit non-linear because the different assets come off of their current tolls at different times. You have also going to later in the year in July, you've got Walnut Creek earlier in the year and Marsh. So what we have is kind of given the current commodity environment and what we see, that additional $20 million that we have in 2023 in terms of our guidance for what we're seeing. If we look at a more normalized basis, what the energy margin we're assuming to derive the $2.15 per share in the long term is between $1 and $1.50 energy margin. So I think for us, we view that $1 to $1.50 in the long term being very achievable. We expect to out-earn that in 2023, even though it's a partial year. But once again, as everyone's well familiar, this is kind of our first year operating on a merchant basis. We want to see how the machines operate, how the revenues come in, and then we'll kind of adjust that over time. But from our perspective, in order to hit the 215 long term, we need between $1 and $1.50 energy margin, which we feel pretty good about, especially given where we sit today empirically in 23.
spk09: Got it. Lots of conservatism there. All right. I got more. I'll get back in queue. Thank you guys very much. All the best. Appreciate it.
spk00: Thank you. Our next question comes from the line of Noah Kay with Oppenheimer. Your line is now open.
spk12: Thanks so much for taking the question. So there's a lot here in terms of being able to allocate your remaining capital, and you've got clear visibility now. But I want to ask, post-IRA, given the additional incentives, whether it's standalone storage or green hydrogen production, how are you thinking about investment opportunities in the existing fleet, whether it's you know, repowering, adding storage, you know, going downstream. What do you see as the opportunities?
spk07: Sure. I think for us, we've kind of, you know, used those opportunities before in terms of repowering assets like Elbow Creek and Wilderado. I do think, to be fair to the question, you know, one difficult part about our book is we have a lot of relatively young assets. So kind of repowering might not be the most advantageous. It's not as though we've got, you know, two gigawatts to be repowered in the next two years. So your question, it's a little bit kind of going through time, and you might see years in which we do zero, and then you might see us do 400 for one year and then go back to zero for a couple of years. It's kind of much more episodic than something that's being done consistently where every year we have a repowering. That's just, you know, for good or ill, the nature of our fleet because it's relatively young. To your storage question, I think for us, it's really looking to see what does the existing customer want, right? Obviously, the vast majority of our power is already sold on their contracts. for us to add storage to an existing facility, we obviously need to fill it kind of with power from that system. So it's really dependent on what the, if the customer wants that and those negotiations. So once again, in terms of making those modifications on the existing fleet, we'll kind of see what customer demand is and how that works, but I wouldn't expect some, you know, paradigm change here in the next 24 months.
spk12: Okay. That's helpful. And then maybe another sort of post IRA question, you know, the, the, Clearway Energy Group is part of this announced buyer's consortium to purchase over 6 gigawatts of solar modules, expand the domestic supply chain. We understand there's a lot of good reasons to do that. How do you think about currently your supply chain needs, your ability to procure that from domestic sources qualifying for bonus content, and how that factors into the development outlook in the pipeline?
spk07: Craig, why don't you take that?
spk08: Yeah. Thanks for the question, Noah. Yeah, we're pretty excited about what the implications are going to be for the broader U.S. market as we get into the mid-decade, and also for the objectives that policymakers have in wanting to domesticate more of the supply chain that fulfills construction of solar, wind, and storage assets. that excitement's informed by detailed engagements we've been having with our framework supply chain partners, you know, really going back over the last year and a half. And, you know, what I expect is that the Treasury guidance formulation process will be influential here in getting manufacturers ultimately to greenlight investments that start to be publicly announced. But the work that will underpin those announcements is very much happening right now. And we're pleased that as we work across the solar supply chain, the battery supply chain, and the wind supply chain, that the suppliers we engage with are preparing thoughtful concepts that that will minimize risk and maximize value as we look at the fulfillments in the mid-decade and we have solutions that we're planning for deployment in that timeframe around each one of those component technology types.
spk12: Very helpful. We look forward to more. Thanks for taking the questions.
spk00: Thank you. Our next question comes from the line of Mark Jarvie with CIBC. Your line is now open.
spk11: Thanks. Good morning, everyone. I just want to touch on the capped yield on the drop downs. Previously, last quarter, you guys were guiding at 8.5. Now it's 9.5. Obviously, interest rates are moving. Just update us in terms of how you're thinking about what's guiding the parameters on capped yields and hurdle rates right now in terms of making decisions on the drop downs.
spk07: Sure. I think for us, in negotiation with our sponsor, I think obviously they're well aware of where the capital markets have moved. So between the two of us, and a lot of people ask about sponsor support sometimes, to me the most linear and empirical way to see that is a strong cap deal. So I think for us, our sponsor recognizes the change in capital markets that have occurred since our last earnings call, for that matter. And in negotiations with them about where we think the CAF yield should be, they indicate a higher number is where they think is fair. Obviously, we'll do diligence and the like through the assets and hope to come up with a binding agreement. But it's obviously very constructive from a sponsor support level to have that different CAF yield. As I've talked about before as well, though, it's important to highlight that part of CAF yield is also dependent. Not all CAF yields are the same. Is the asset more solar-weighted or wind-weighted? Is it a shorter-duration PPA tenor or longer? And so from our perspective, given that a lot of the book of business is in solar and also that the contract duration, the majority of it is on a fairly long duration, about 17 years, we feel very good about the 9.5% CAF deal that's been offered. But once again, all subject to diligence and working through our independent process.
spk11: And then just when you think about that, is it just a spread versus bond yield? Is it like a cap PM approach? Just kind of maybe digging in a little bit in terms of how you guys are deciding what sort of a fair number as reference rates move around here.
spk07: Sure. From our perspective, we actually look at it much more versus equity because in order for me, I think, to have a conversation with you about why not to buy back equity versus investing in these types of assets, we really compare it versus our equity yields most generally. Obviously, bonds are important as well. I'm not going to pretend that, but To answer your question, it really is a spread versus equity because to me, whenever we make an investment at Clearway, I would like for you to be able to see that that's a good investment based upon where it trades versus our equity.
spk11: That makes sense. And then just turning towards some of the assets you're adding here in Texas, obviously with the PTCs being eligible for solar, being eligible for PTCs, a bit more concerned about negative pricing and basis risk. Just you know, thoughts around those assets, the risk around basis risk, and then updated outlook, I guess. You guys talked a bit about, you know, potentially some more basis risks. So, your view just around that and the impact of PTCs for solar assets.
spk07: Sure. I'll start, and then, obviously, Craig can fill in anything from his perspective. I think, you know, from my view, you know, we see a little bit of basis that's one reason for a component of the 10 in the near term. The new contracts should really eliminate a lot of that risk in terms of how they are. They're not financial hedges, for example. They're kind of more traditional tolls settling on an ode. So from our perspective, we think in the new portfolio, we shouldn't really see, you know, zero is always a good number, but we really shouldn't see a lot of basis risk. Yeah, we had seen some of that in the portfolio. We think part of that's due to the stressed economic commodity environment. That's why we included it in our 390 number. But Craig, I don't know anything to add there.
spk08: Yeah, sure. First, for the drop-down offers that have been made, every revenue contract has node settlement on the portfolio of assets here. So there's no HUB-settled contracts in that portfolio of assets. It's not to say that there might be some circumstances in the future where we construct projects with HUB-settled PPAs. Clearly, given the kind of transformation the U.S. electric grid is going through, as we do that, we want to be doing that in conjunction with also putting in place effective contractual mitigants for potential changes in basis over time. So firstly, for this portfolio of assets, the settlement structure on them eliminates any basis risk by their very nature. And then second, to Chris's point, for a portion of the capacity of the solar assets in ERCOT, They've been designed both in their location and the fraction of them that's merchant to offset basis risk on the existing wind assets that exhibit the pattern Chris mentioned in the high commodity environment right now. So once completed, we think that solar project and another that's in the set of drop-down offers we intend to make in the first half next year are going to help balance the book where that basis exists, which is candidly quite minimal in relation to the overall fleet size. And I think going forward, we feel pretty good about the way that we're able to select from the 27 gigawatt pipeline that we're advancing based on the markets where we're creating projects, the contracts that we shape, and the analysis of the portfolio as a whole that we've built that we can maintain a portfolio of operating assets that exhibits a low risk profile in relation to things like basis and merchant price formation.
spk11: Understood. Thank you both for the answers.
spk00: Thank you. Our next question comes from the line of Justin Clare with Ross Capital Partners. Your line is now open.
spk10: Yeah. Hi, everyone. Thanks for taking our questions. So just first off here, given the location of your committed assets, it looks like the PTC could potentially be more valuable than the ITC. Just wondering if there's been any changes from the ITC to the PTC for any committed projects or any changes in the capital structure that might result from this. And then there's also the availability of the higher level of the ITC now, so just wondering if that has impacted anything as well.
spk07: Yeah, I think I'll let Craig kind of address that. But the one part I think is important is all of those changes are kind of encapsulated in the CAF to yield that is part of the offer. So I think, you know, the changes that Craig's development team has kind of had to work through as a result of the IRA and different moves, that's kind of encapsulated in the offer that's being made. So, you know, those changes wouldn't necessarily affect the nine and a half that we're targeting. But Craig, I don't know anything to add.
spk08: Yeah, sure. I'm So for the projects that were committed already before this most recent set of dropdowns, we've not elected to change from an ITC to a PTC. Part of that is informed by what helps position us to create the most value for the asset as we drop it down and also offset cost inflation that's existed elsewhere. So for one asset, for example, it was located in an energy community, and so that provided some ITC uplift, and that helped us offset cost inflation that's been experienced over the course of the last few years. For the most recent set of drop-down offers that were made, two of those solar projects will elect the PTC, and that's part of what allows us to convey these assets at a at a higher CAFTI yield and also with more investable cash flow for the yield co. And in conjunction with electing the PTC, we've also sought to design revenue contracts so that the same type of contractual features that we've made use of historically in the wind industry on projects that elect the PTC will be there also. And I think being thoughtful about how to do that is something that we're glad we're doing. And we think every soundly operated sponsor will and should do the same. So we're excited about what the PTC election can mean in high solar resource environments when it's put to work in the right way, both in terms of what it can mean for our customers and the value we create for them and also what it can mean for the growth of cash flows in our yield code.
spk10: Okay, great. It's really helpful. And then one more, with the Total transaction closed here, just wondering if you could talk about, you know, when you might be offered potential drop-down opportunities, you know, from Total, and then, you know, could that happen as soon as, you know, next year? And is there potential for upside to your CAFTI for next year if you, you know, see attractive opportunities?
spk07: I think it'll take some time to work through that. You know, the Total book, you know, we closed fairly recently and kind of working through their book of development assets. I think it'll take some time to get clarity to Craig's, kind of to your earlier question. You know, Craig's team has done a lot of structuring through the IRA to come up with results that are helpful from a yield co-perspective. You know, Total and their structuring is kind of working through different parameters. So we kind of have to come together and see what we have. But I think, you know, too early to say is the simple answer to your question. But I think we'll definitely look to see if there's anything that can work within this whole platform going forward. But truly, to say is the simple answer.
spk10: Okay, great. Thanks, guys.
spk00: Thank you. Our next question comes from the line of Keith Stanley with Wolf Research. Your line is now open.
spk06: Hi, good morning. First, just wanted to clarify on the 2023 CAFD guidance. what you're assuming for debt service on El Segundo. I know it had that bullet maturity issue, just how you're dealing with that for guidance in terms of interest and principal payments for that asset.
spk07: Sure. We're looking to pay that down at year end, this year end, beg your pardon, because to the point that, you know, as a liability, we're going to take unbalanced sheet anyway due to its bullet. And so for us, that's part of our CAFTI guidance is the repayment of that at year end of this year. so you're in okay so you're not in you are including the pay down of that maturity within the 23 guidance or that's part of 2022. um because it's a prepayment it doesn't come as part of kathy or making a voluntary decision to do it so it's not a down arrow so to speak in 22 and in 2023 obviously whatever debt service would have been part of 23 like the whole 130 wouldn't have been in there even as part of normal guns uh wasn't in 20 you know it's not in 23 either okay Because it's a prepayment for 22.
spk06: I'm sorry, go ahead. Okay. Separate question for Craig. Just any comments on what you're seeing with UFLPA and flow of modules into the country? Thanks.
spk08: Yeah. We're doing fine with it. You know, in order to kind of elaborate, though, a little bit about the broader landscape, you know, Compliance with UFLPA is something we feel pretty well positioned around in particular just because of the focus we've had on procuring from supply chains in anticipation of the succession of trade actions that have unfolded in the course of the last couple years. We're pretty deeply engaged in policymaking in the U.S., and we look for that to kind of inform our view of where we need to go with our business broadly and certainly in terms of procurement, and so far that's served us well. The estimated CODs presented in today's earnings material for future dropdowns all reflect our anticipation that we'll be able to successfully comply with UFLPA because of the supply chains we've procured from. So, you know, there's the possibility that there'd be temporary confirmatory holds at the border for industry participants broadly, which are in place today, but we think it's a pretty manageable risk for us just because of the fact that we have modules coming in freely today because of who we bought from and where their supply comes from. And to the extent that any confirmatory hold were to occur, we feel quite comfortable with our ability to tender documentation that would substantiate that the product can come into our country in compliance with the statute. And just to reinforce that, we have no modules being currently detained. So with that said, you know, the establishment of a more practicable enforcement regime for USLPA is very much an issue that needs to be front and center for the US government. You know, the leadership across the applicable government bodies just needs to put our ports in a position where they can be successful because the quantities of equipment that going to be coming into the country to meet the needs of the power grid and climate goals are dramatic and you know the documentation requirements to enable imports just needs to get more more clear and more standardized that there's i think quite a lot of conversation going on around just that and i am uh optimistic that the industry and and the government together will figure out a way for this to function effectively going forward but you know for our vantage point is clearway we're We're in good shape, and I think as we have been with other supply chain choices we've made, I think the choices we've made in anticipation of the USLPA's enactment are serving us well.
spk03: Thank you.
spk00: Our next question comes from the line of Michael Lapias with Goldman Sachs. Your line is now open.
spk05: Hey, guys. Hey, Chris. Thanks for taking my question. Just probing a little bit on 2023 guidance. And I'm going to ask for a little bit more detail whether you give it now or give it in the early part of next year. You gave us CAPTI. Super helpful. Can you do the walk from EBITDA to CAPTI for us, please? What's the EBITDA or kind of range of EBITDA relative to what you're delivering in 2022? And then what are some of the bigger, lumpier items? I'm trying to think about principal debt repayment at the project level, maintenance capex, maybe interest, and if there's anything else I'm leaving off, let me know.
spk07: Sure, give me one second. Yeah, page 22 might work, Michael, in terms of the deck we have. which has the adjusted EBITDA of the 1170, kind of for your question around EBITDA. Yep. So I think, and that has principal amortization and maintenance gap X, so I think that has the components you're looking for. Got it.
spk05: Okay. Chris, can you bridge us, though, 2022 EBITDA to 2023 EBITDA?
spk07: Yeah, I mean, not off the top because the PPA roll-off, obviously, because you have the high price tolls in 2022. And then you have a combination of different tolls rolling off at different times in 23, plus the energy gross margin from the open position coming in. So that's a little tough to bridge 22 to 23.
spk05: Gosh, it totally makes sense. And then on the principal debt amortization, can you remind me with that $300 and some million dollars? What are the bigger assets where that pay down is occurring? Is it mostly the California gas plants, although your comment back says it probably eliminates El Segundo, or is it widely spread across the entire fleet?
spk07: Yep. You can look on page 16 for that. So to your point, the California natural gas, other than El Segundo, are a big part of that. And then you've got, you know, Agua Caliente, CVSR, and some others. So that's all on page 16.
spk05: Got it. Okay. Finally, can you come back to cost of capital a little bit? You made the comment about how you think about drop-down or capped yields versus share buyback. Can you dive in a little further how you calculate what your own cost of equity is?
spk07: Sure. For us, and I'll draw a distinction between a weight average cost of capital and a capped yield, which is obviously a lot more transparent. You're obviously dealing with betas and the like for weight average cost of capital. But for CAFTI yield, it's kind of frankly a little bit, I think that the market trades us probably somewhere between our $2.15 CAFTI estimate and where we are currently, $1.98, $1.93. So in general, that yields, I didn't look at the stock price, it's not open yet, but as of yesterday, that's probably yielding somewhere in the sixes. So that's kind of how I view where we're trading so that when we talk with our investors and say, I believe that drop down X or Y is a good investment, You can look at the spread of that nine and a half in the example we're using now versus that somewhere in the sixes, depending where you think we trade. And that's a good basis for analysis.
spk05: No, and I don't disagree with that. And thank you for that. That's super helpful. I would just be curious if you were to issue new hold code debt today, would you be issuing hundreds and hundreds of basis points below six? Otherwise, that would imply very little compression or very little spread between your cost to equity and your holding company cost to debt, which is, I don't know, given the higher rate environment, feels a little unusual for any company.
spk07: Yeah, I think our bonds are probably trading a little bit in line with those numbers, depending on which day you ask the quarter, which week, given the volatile environment. We're probably in a high six is probably the last print I saw on the 32s. So I think the debt and equity markets are pretty close in terms of interest and where we trade on a forward capped yield basis from that perspective.
spk05: But what that basically implies is you almost think your cost of debt and your cost of equity are the same.
spk07: Yes, although to be fair, the 215 is a forward number versus the other. So you know as well as I that plays in everyone's thinking. But I don't think they're that differently apart if that's a different way to answer your question. Got it.
spk05: Thanks, Chris. Much appreciated. Sure.
spk00: Thank you. Our next question comes from the line of Angie Storozinski with Seaport. Your line is now open. Angie Storozinski with Seaport. Your line is now open. Please check your mute button.
spk01: I'm sorry. Did you guys have any contribution from the Capistrano Wind included in your original CAPSEA guidance?
spk07: For 2022, no. We did have an approximate, because we know exactly when it would close and it's only part of the year. For 2023 and going forward, I believe we had 12, assuming that we re-levered it. There's a delta of 9 or 10. That's why we have the uplift in 2023 because we're waiting until year-end to refinance it.
spk01: Okay. And then separately for the energy margin, do you guys have any energy hedges or any financial hedges for El Segundo for 23?
spk07: No. Other than the toll that exists in the RA capacity contract, but no, there's no energy margin edge currently. It's an open position.
spk01: And then lastly, there's lots of discussion about the cost of debt. And you mentioned that you're not issuing any HODCA debts to finance at least the future growth for the next couple of, well, quarters. But what is the cost of project-level debt right now, or at least how much it has risen so that we can calculate the delta between your cost of capital and this new CAFTA yield?
spk07: I do think, to be fair to your question, obviously the CAFTA yields we quote are after all those costs, right? So they take into account the cost of project debt, not before. So not to minimize the question, but when we talk about a CAFTA yield, that's after that amortization regardless of what those costs are. I think for us, there's probably not been a big delta in the credit spread. It's probably more in the underlying, you know, what the swap to fixed is under LIBOR or SOFR.
spk08: But, Craig, I don't know if you have any color in terms of what you're seeing, but... Yeah, I mean, I think we've seen, first, for all the drop-downs we've planned through 24, we put in place interest rate protections some time ago, and... So those are enabling the type of drop-down economics that you're observing here, both in the set of offers we've just made, the preservation of the returns on the assets that were committed previously, and also the offers we expect to make in the first half of next year. And then as we look forward, you know, We've seen some compression in spreads. The sort of benchmark 10 year is a very observable number for you, Angie. And in general, what we've been looking to do as we finalize revenue contracts on assets is to put in place interest rate protection so that any debt financing we plan to put on, either for the construction period or the term, already anticipates the cost of debt on a long-term fixed basis and supports a CAFTO yield that's accretive for the yield code. So, you know, for us at the sponsor level, the job now to do is as we market power to customers, you know, we need to anticipate what the forward cost of debt is going to be when we do lock it in contemporaneous with the revenue contract signing. What we're observing is that we can still provide compelling value to customers even with the cost of debt having risen.
spk01: Okay, perfect. I just wanted to go back to this Capistrano and Portolio because I would have expected that at least some contribution from that asset or that set of assets would have, well, contributed to your 2022 CAFDs. So is there some other offset besides just the unplanned outage of the gas plant? I mean, I know that you mentioned the weakness in the wind resource, but again, I mean, it doesn't seem like there's any addition from that set of wind farms.
spk07: We're only going to own it for a quarter, Angie, so it's single-digit millions, so it's a small rounding number within the whole thing, right? It's, yeah. Is it... Contributing, yes. Is it a very small number we're not reconciling? Yes, because it closed here in the third, fourth quarter.
spk01: Okay, I understand. Thank you.
spk00: Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone. Our next question comes from Antoine Armand with Bank of America. Your line is now open.
spk02: Hey, Chris and Craig, thanks for the update. um just quickly on the on the credit side uh just curious uh if you can uh give us a bit more detail on uh what's your leverage position right now at a corporate level and how does that compare to your targets uh as well as i wanted to reiterate uh whether there would be no corporate capital needs through 2026 if i understand correctly uh sure so two parts i think right now i'm just not deploying the full amount of cash our debt our corporate debt to corporate ebitda is about
spk07: 4.85 plus minus on a pro forma basis. Assuming we deploy some of that, it's about 4.4. So within our four to four and a half we've talked about, obviously we've got a high cash balance currently. To your second question, 2026 is probably a little bit too far, right? For us, the dropdowns we've talked about are through the end of 24. However, keeping in mind, if we issued any debt, obviously we'd only intend to do so to drive the 215 higher, et cetera. So I think that we don't need any capital through 26. That's a little far. What we said is that the capital to effectuate the drop-downs that we've just talked about through 2024 don't require an additional capital.
spk02: Got it. Okay, that makes sense. And then lastly, so looking at slide 16, there's quite a big step up in non-recourse M or for solo assets starting in 2024. Just curious how you're going to manage that and any potential impact on cap degeneration.
spk07: Yeah, to be fair, that's a step up in the 14 to the 148. That's probably in the middle of the page. We'll intend to refinance some of that 148. Obviously, there's a bullet there. While we try to have everything amortized, obviously, in some cases, we buy books that have kind of a mini perm with your seven years after COD. That's one of those examples. So some portion of that 148, we'll look to refinance. Okay, perfect. Thank you so much.
spk00: Sure. Thank you. And I'm currently shown no further time. I'd like Chris Sotos, closing remarks.
spk07: Thank you. And once again, thank you for everyone's time and appreciate your support. So take care.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1-1.
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