Clearway Energy, Inc.

Good day and thank you for standing by. Welcome to the Clearway Energy, Inc. first quarter 2023 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 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Chris Sotos, President and CEO. Please go ahead.

Good morning. Let me first thank you for taking the time to join Clearway Energy, Inc.' 's first quarter call. Joining me this morning are Akhil Marsh, Director of Investor Relations, Sarah Rubenstein, CFO, 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 will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. Turning to page three. The company had a soft quarter, driven primarily by weak renewable resource due to the heavy rainfall in California and the West Coast. CAFTI was negative $4 million for the first quarter. Clearway is announcing an increase in its dividend of 2% to .3818 per share in the second quarter of 2023, or 1.5272 on an annualized basis, keeping us on target to achieve the upper range of our dividend growth objectives for 2023. We are also reaffirming our 2023 CAFTI guidance of $410 million. Clearway continues its focus on growth at all levels of the enterprise. Our sponsor's pipeline has grown to 29.3 gigawatts, including 6.9 gigawatts of late state projects expected to reach COD in the next four years. We're excited to announce our commitment to the Cedro Hill Repowering Project. We will go over the project in more detail in a couple slides, but this repowering will deploy approximately $63 million in capital, while extending the PPA duration to 2045, significantly de-risking the value of the asset. Focusing on the five-year CAF yield starting in the 2027 period of over 9%, CEDR will create accretion beyond the assumptions embedded in the $2.15 of CAPTI per share when fully repowered. Clearway Energy Inc. continues to work on commitments from the October 2022 drop-down offers and expects to have them completed by the end of the second quarter. In addition, Clearway Group now has visibility into nearly 600 megawatts of additional projects that will also continue growth in the future beyond the $2.15 of CAFTI per share. While it is too early to update anticipated capital deployment and CAFTI creation for these new asset additions, Clearway considers the projects far enough along to start adding them to our growth profile. Given the capital market volatility of recent months, I wanted to take a moment to remind our investors that we have enough capital to fund our line-of-sight drop-downs that underpin our 215 CAFTI per share long-term target. In addition, at our 2023 guidance, we generate approximately $100 million of excess cash that can be deployed toward investments in the business as well. As an additional source of liquidity, we recently increased our revolver size from $495 million to $700 million, creating internal liquidity for drop-downs, third-party acquisitions, or LC issuances to support the business, particularly as we seek to add RA capacity contracts on certain of our California natural gas assets. This significant internal liquidity is further strengthened by the fact that our long-term corporate leverage will be at the low end of our targeted range, with some capacity for additional corporate debt before there'd be a need to issue any additional equity. In summary, Clearway feels we are well positioned to manage this period of capital market volatility and continue our growth trajectory without needing to access the capital markets. In summary, Clearway continues to execute its growth plan with a very strong internal liquidity profile, so it's well positioned to grow beyond the 215 of CAFTI per share combined with the DPS growth rate at the upper range through 2026. Turning to slide four. Here are more details on the financial results of the first quarter. Clearway is reporting adjusted EBITDA of $218 million and cash available for distribution, or CAFTI, of negative $4 million. In the quarter, results were below expectations, primarily due to weaker results in the renewable segment. Our California solar assets were impacted by above-average rainfall, which led to lower solar irradiance, and thus production coming in below expectations. Additionally, our wind portfolio experienced lower than expected production for the quarter, which impacted CAFI generation. A less significant driver to the quarterly results was from the conventional fleet's extended spring outages and preventive maintenance ahead of the summer merchant energy period. We continue to believe the conventional fleet is well-positioned to provide critical grid reliability services as well as generate additional revenue from dispatching to the merchant power market in the second half of 2023. As discussed earlier, our liquidity and balance sheet are well-positioned to execute on growth with no equity or debt issuance needed to achieve our 2026 DPS growth objectives, significant undrawn revolver capacity, and strong credit metrics. While the first quarter results came in below our expected seasonality for the quarter, we want to remind investors that achievement of full year results is highly weighted on both the second and third quarters, where the revenue contribution from renewable resources and the conventional fleet is typically highest. Given the seasonality of the portfolio, the conventional fleet starting merchant dispatch in the second half of the year and only one-fourth of the year complete, we are reaffirming our 2023 guidance of $410 million. Turning to page five, I want to highlight our Cedro Hill repowering project. Overall, this repowering is a great success for extending the asset's useful life, improving its risk profile, and driving our CAFTI per share growth profile. As part of the repowering, Cedro Hill will be upgraded with new GE technology, increasing its main capacity by 10 megawatts, and has projected annual production by approximately 14%. We are pleased to have the opportunity to work with our customer to amend and extend the existing PPA by 15 years, providing the asset with 22 years of remaining price certainty. Given the locational value of this resource, this outcome will be a win for both our customer and for Clearway. We'll also let us deploy a turbine repowering technology that has been proven very technically efficient elsewhere in our fleet. Importantly, the CEDR repowering is projected to have a healthy average CAFTA yield of approximately 9% beginning in 2027. which will create accretion beyond the assumptions embedded in the $2.15 of CAFTI per share. CJRS will reach its repowering commercial operation date in the second half of 2024 and is anticipated to be funded by excess cash generation. This repowering continues our strong track record of accretively upgrading our wind fleet, having successfully repowered over 650 megawatts of assets to date. Page 6 provides an update of progress of the previously discussed dropdowns from our sponsor. The left side of the page represents our pro forma CAFTI outlook, inclusive of Victory Pass, Erica. We are currently not including Cedar Hill repowering as the move in CAFTI is relatively small. We will modify our pro forma CAFTI outlook and line of sight CAFTI more comprehensively later in the year when we have more assets committed. The remaining drop down that we are currently working on with Clearway Group represent anticipated additional $180 million of capital deployment, which are expected to turn into binding commitments by the end of the second quarter. This would then be followed by the next drop-down offer of approximately $220 million. Importantly, these assets have a strong CAFTI yield on a portfolio basis, so that Clearway can continue to generate accretive total returns for our shareholders. Our $440 million of potential line-of-sight CAFTI does not include any contribution from the roughly 600 megawatts of newly identified drop-down assets. When the capital deployment and CAFTI generation of these assets is more well-defined, we will update our $2.15 CAFTI per share number to account for this additional growth. Page 7 provides some details around additional advancement in Clearway's long-term growth. And while these projects are not far enough along to provide updates to capital deployment in CAFTI, development has progressed far enough that Clearway Group feels confident enough to add them to the list of assets that will eventually be offered. These assets represent nearly 600 megawatts of additional opportunities that will have funding dates in the first half of 2025 and support growth in CAFTI per share beyond the $2.15 target we have discussed previously. The projects highlighted are not the full extent of growth that is being developed at Clearway Group, but are anchor tenants in a one-gigawatt portfolio of diversified assets that will provide additional growth. As we work through all the opportunities of the IRA, we will continue to analyze ways to optimize our fleet through repowerings and opportunities to add storage to existing facilities. As I have discussed on previous calls, a key component of achieving value for this optimization option is customer interest. We are now seeing evidence of this in multiple markets across our fleet. The TIL provides some sense of scale of these opportunities with approximately 2.3 gigawatts between 2025 and 2028. As always, we'll be cognizant of exercising these options in a way that manages capital formation and value optimization for Clearway shareholders. Turning to page 8, our goals for 2023 have not changed to deliver on our CAFTI guidance, grow our dividend at the upper range of our objectives, and continue to execute on our growth plan. Clearway continues to work through commitments for the remaining drop-down offers from October of 2022 by the end of the second quarter of 2023, and received the next offer on further commitments to continue our growth path as well. Clearway is focused on demonstrating the visibility to CAFTI share growth through 2027 and beyond in its $2.15 of CAFTI per share long-term objective. We are working to achieve this by investing in additional growth projects beyond the drop-downs already discussed, with repowering such as Cedro Hill, as well as third-party M&A, and also continuing to work at originating and or extending the RA contracts on our California natural gas assets. In summary, Clearway Energy, Inc. continues its focus on prudent growth and its confidence and stability 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.

As a reminder, if you'd like to ask a question at this time, that is star 1-1. Our first question comes from Noah Kay with Oppenheimer.