Clearway Energy, Inc.

Hello, and welcome to the Clearway Energy, Inc. second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Akhil Marsh.

Good morning. Thank you for taking time to join Clearway Energy, Inc.' 's second quarter call. With me this morning are Craig Cornelius, the company's president and CEO, and Sarah Rubenstein, the company's CFO. 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. With that, I'll hand it over to Craig.

Thanks, Akhil. Turning to page four. We're pleased to report to you today the solid second quarter results that we delivered for Clearway Energy, Inc. during this year's second quarter and to also provide further definition to the building blocks we intend to use as we prudently grow the company in future years. Our financial results for the quarter demonstrate a strong year-over-year improvement in operational performance due to high equipment availability in our conventional segment and a return to more normalized generation in our renewable segment. The strong start to the first half of this year reflects the focused execution and financial discipline of our organization and has allowed us to reaffirm our 2024 guidance of $395 million. Meanwhile, our actions establishing future building blocks for the future growth of Clearway Energy, Inc. reflect the harvesting of development investments that have been sowed over many years with the intention of providing future investment opportunities that will be complementary to our existing fleet and delivered in a way that allows our growth to be planned with deliberate financial prudence over time. On the back of these successful results and consistent with the previously established target for dividend growth of 7% for 2024, Clearway increased its dividend by 1.7% for the quarter. bringing our quarterly dividend to $41.71 per share or $1.66.84 per share on an annualized basis. With the upsized growth investment commitment to the Luna Valley and Daggett One projects, we have now committed to deploying all of the access proceeds raised from the sale of our district thermal business at Accretive Economics, and establish the path to achieving our previously communicated financial objectives through 2026. Incorporating this commitment, we are increasing our pro forma CAFTI outlook to approximately $435 million, or $2.15 of CAFTI per share. These financial expectations also enable us to reaffirm our ability to achieve the upper range of our 5% to 8% DPS growth target through 2026 without a need to raise external capital to meet those goals. We have also executed on a series of actions that enhance visibility into prospects for growth above $2.15 of CAFTI per share in 2027 and beyond. Clearway Group's development company delivered on the milestones required to translate the Honeycomb Battery Hybridization Program into potential investment commitments for Clearway Energy Inc. by year end. signing 20-year tolling agreements with an investment-grade utility for the entire 320-megawatt Phase I previously identified, while executing all the equipment and construction agreements required to complete the projects in 2026. Clearway Group also enhanced the Pine Forest Solar Plus Storage Complex. and provided an offer to Clearway Energy Inc. to invest $155 million at a 10.5% CAFTI yield with an investment structure that both provides desirable market participation and extended tax runway benefits. Both investments are subject to approval by CWIN's independent directors and are expected to be funded with existing sources of liquidity, such as retained CAFTI generated over the next few years, and excess debt capacity, which Sarah will discuss in more detail in the financial summary section. Meanwhile, we continue to make progress on securing a balanced and profitable approach to managing our delivery of resources into California's resource adequacy or RA market. With today's announcement of another RA contract at Marsh Landing at strong pricing, we have contracted 63% of our available capacity for 2027 while enhancing visibility into organic CAFTI for share growth in 2027 and beyond. With this visibility now in place, we intend to be deliberate as we work with the state's load serving entities to meet their needs, while also ensuring that we receive appropriate value for the capacity we have available to deliver RA in 2027 and beyond. Modern, clean, and efficient gas plants like ours that can deliver capacity 24 hours per day have been rightly recognized in the state's newly revised regulatory structure, and we expect them to play this role through the balance of this decade and into the next one. Finally, Clearway Group's development company continues to advance progress in its pipeline with the approximately 8 gigawatts of late-stage projects targeting CODs over the next five years that are being designed in a manner that is compatible with CWIN's capital allocation framework and pacing of growth needs. In a reflection of our enterprise's scale and forward thinking, Clearway Group has already made investments in 7.8 gigawatts of equipment that secures qualification for tax credits for projects across multiple COD vintages and technologies through 2028, making use of longstanding Safe Harbor guidance. And as a reflection of the differentiated positioning of its projects and track record and execution, Clearway Group completed the quarter with its largest-ever totals in power marketing at mid-year, with 3.5 gigawatts contracted and awarded year-to-date. In summary, Clearway is executing well across each of the dimensions of its business, and we are pleased to say that we are well-positioned to fulfill the objectives we had set for this year and beyond. Turning to slide five. With a commitment to Luna Valley and Daggett One, along with the offer for an investment into an enhanced pine forest project complex and financing structure, we continue to complete actions on our checklist towards providing further visibility into growth beyond the previously established target of $2.15 of CAPTI per share. To go into more details, I'll first highlight the investment we've committed to make into the Luna Valley Solar and Daggett One storage project. enabled by strong sponsor support and alignment, the commitment will provide Clearway Energy Inc. ownership of 100% of the cash equity interest in the project versus prior expectations of 50%, resulting in an approximately $143 million corporate capital commitment at a 10% cap to yield. Highly compatible with C1's investment mandate, The project's generation and capacity is underpinned by diversified node-settled contracts with investment-grade load-serving entities with terms of over 16 years. We expect to fund those commitments by the second half of 2025. Following completion of the investment commitment in Luna Valley Solar and Daggett One Storage, Clearway Energy Inc. received an offer to invest in the Pine Forest Solar Plus Storage Complex. Located near the Dallas metro area in Texas, the project's 300 megawatts of solar generation has been fully contracted for an average of approximately 20 years at strong pricing and settlement terms. The majority contracted with a leading information technology company. Meanwhile, its 200 megawatts of battery capacity has been configured to complement the project's contracted solar revenues and provide a resource to balance our overall renewable market position in ERCOT. Finally, the project's financial structure has been designed to allocate substantially all of the depreciation benefits to Clearway Energy Inc. to extend its federal tax runway. Improvements in the overall revenue and cost profile of the project, along with the structure enabling CWIN to invest as the project's tax equity investor, have enhanced the overall investment opportunity for CWIN since the time of its initial disclosure increasing the total potential CAFTE contributed by the project and raising the total potential corporate capital investment to $155 million at an approximate 10.5% CAFTE yield. Subject to the evaluation and approval of our GCN committee, we would aim to make an investment commitment in the second half of 2024 and to fund the investment by the end of 2025. Turning to slide six. Having now allocated the remaining excess thermal proceeds to fund the committed Luna Valley and Vagabond investments, we have completed the establishment of a path to $435 million in run rate CAFTI and $2.15 in CAFTI per share for our shareholders. With that path now set, we turn now to look ahead to our building blocks for growth beyond $2.15 in CAFTI per share. and the framework we will employ to assure that investments we make are accretive to shareholders based on the plans we make to fund them. The next building blocks created by Clearway Group and identified for potential investment commitment by year end collectively represent approximately $240 million of corporate capital that can be funded with existing liquidity to grow CAFTI per share above $2.15. Together, these potential investments have been valued at CAFTI yields that would make investments accretive at our present cost of capital and have also been staged for potential funding dates well into the future that provide us the latitude to make use of a spectrum of potential funding sources. Increased revenues from our gas fleet, most notably from new resource adequacy contracts priced at levels above our 2024 to 2026 contract pricing, will provide another driver of growth in CAFTI per share. Assuming that the average pricing on recent contract extensions announced in the last year were applied to our remaining uncontracted capacity, this alone could enable CWIN CAPTI for share growth at the low end of 5% to 8% in 2027. With the newly announced marshlanding contract, CWIN has contracted 63% of its RA capacity for 2027. and is contracting the balance of the open position for value with numerous indicators of market strength. Lastly, our business development teams continue to diligently evaluate the landscape for potential third-party M&A opportunities with a particular eye for asset investments that would provide complementary additions to our fleet with the ability for us to apply proprietary value additions. We remain focused on this potential avenue for growth and are optimistic that the present market environment may allow us to consummate targeted acquisitions that meet our requirements for accretion and portfolio enhancement while making use of some of our organizational capabilities. Turning to slide seven. In addition to the progress we've made in the aforementioned areas of growth by investment, we have also continued to make progress on adding to the contracted position of our California gas fleet in 2027 and beyond. As mentioned earlier, we are today announcing another RA contract at Marsh Landing for approximately 195 megawatts. Awarded through the central procurement process that fulfills load serving entity needs in Northern California, This contract brings Marsh Landing's RA capacity up to being fully contracted through 2027. And in combination with the approximately 190 megawatts of contracts announced last quarter, this brings the gas fleet's overall contracted position to 63% for 2027. As we mentioned last quarter, tight capacity conditions in the western U.S., coupled with thoughtful system planning from regulators, have put a particular focus on the need for load-serving entities to procure clean, dispatchable capacity from plants like ours. Furthermore, regulatory reforms, in particular the 24-hour slice-of-day construct in California, have solidified the value of our gas assets for load-serving entities to achieve compliance with that reform. Having established the contracted position we have now into 2027, we will be disciplined about pacing our remaining contracting of RA capacity for 2027 to 2030, being focused on aligning with the state's load-serving entities around the full value that the plant's RA capacity is likely to convey in this new regulatory construct. You can anticipate that we will keep you apprised of our progress in that contracting effort in future quarters, as we also assure that the goals we set for CAFTI for share contributions from the facilities are goals we can meet. Turning to slide eight. Looking further ahead into our avenues for growth beyond the investment opportunities already announced, we are pleased to report that Clearway Group continues to advance a pipeline of projects that will offer further opportunities for CWIN growth investments across a diverse range of geographies and at a pace that is appropriate for the goals we set for CWIN. Within the 30-gigawatt overall pipeline that Clearway Group is advancing, approximately 8 gigawatts of late-stage projects are targeting CODs over the next five years. Furthermore, more than 60% of the gross development pipeline is comprised of projects that are in or will deliver to states that will exhibit particularly resilient demand for new renewable and battery projects across a spectrum of potential federal policy scenarios. a geographic composition that both reflects regions of historical strength for Clearway and an intentional strategy to mitigate policy risk. We are pleased to say that the size, advancement, and composition of this overall pipeline provides abundant options to match the needs for growth at Clearway Energy, Inc. as we move further into the decade. As we have advanced the commercialization of some of these projects towards construction and financing readiness, we are pleased to note that the last six months have been a notably successful period for us in power marketing. In the year to date, Clearway Group's origination of new power contracts has totaled 3.5 gigawatts in awarded and contracted capacity, with an additional 1.8 gigawatts of shortlisted opportunities also in progress. The success Clearway is achieving in power marketing is a direct reflection of the locational value of the assets it is developing, along with the increasing value offtakers assigned to partnering with the Clearway Enterprise given our track record for project delivery. Over the next 12 to 18 months, as we continue to advance late-stage projects within the 2026 and 2027 vintages, you can expect for us to provide more details on the next round of future offers that will underpin CWIN's long-term growth. These offers will make use of the abundant pipeline of projects that we've described here while being paced and priced to be both accretive and manageable for CWIN in the context of the prudent and value-oriented capital allocation framework we established. And now I'll turn it over to Sarah for the financial update. Sarah?

Thanks, Craig. On slide 10, we provide an overview of our financial results, which include second quarter adjusted EBITDA of $353 million and CAFD of $187 million. The second quarter results reflect renewable production in line with overall fleet estimates, as well as solid conventional availability and the management of energy gross margin through favorable contractual hedging arrangements. Based on our year-to-date results with adjusted EBITDA of $564 million and CAFTE of $239 million, we are reaffirming our full-year 2024 CAFTE guidance of $395 million. We are pleased with the results that we have delivered so far in 2024, and as the third quarter is a key seasonal contributor to CAFTE, we will provide an outlook on full-year CAFTE results following its conclusion. 2024 CAFTI guidance continues to reflect P50 median renewable energy production for the full year, as well as contributions from committed growth investments based on expected COD timing. As previously noted, the company has now fully committed the proceeds from the sale of the thermal business, which has provided a path to the pro forma CAFTI of $435 million, or $2.15 per share, needed to meet our dividend per share growth objectives through 2026. Based on pro forma CAFTI, our pro forma credit metrics remain in line with target ratings. As Craig discussed, we have identified attractive growth opportunities, such as pine forest and honeycomb, that, subject to approval by CWIN's independent directors, we expect to commit to in 2024 and would be funded in the second half of 2025 and in 2026. To fund these offers, we expect to be able to utilize retained CAFTI as well as excess corporate debt capacity. A revolving credit facility remains a key source of liquidity for the company, and we have further expanded that liquidity through the completion of a letter of credit facility for the California gas plants to support various collateral requirements up to $200 million. In the near term, this will increase corporate liquidity at C1 by approximately $100 million of currently issued LC's. In addition, the company completed the refinancing of the NIM project-level credit facility with no impact to budgeted CAFD, extending the maturity of the non-recourse financing to 2023 that will amortize over the remains in PPA terms of the underlying assets. Turning to the next slide, we provide an illustration of our pro forma debt capacity calculated by adding corporate interest expense to our pro forma CAFTE and dividing that into our outstanding corporate debt balance of $2.1 billion. Based on the calculated pro forma corporate debt to EBITDA ratio of approximately four times, We could potentially issue an additional 120 million of corporate debt and stay at a target ratio of four and a quarter times corporate debt to EBITDA in line with target pro forma credit metrics. We continue to forecast sufficient retained CAFTE generated to be a key funding source for the potential commitments to Pine Forest and Honeycomb, investments identified to provide growth beyond our pro forma CAFTE target. The revolving credit facility also provides liquidity to fund growth on a temporary basis within the bounds of our pro forma CAFTE. Corporate leverage ratio, while we secure more permanent financing over time when optimal capital markets support a corporate debt issuance. We expect our strong balance sheet and sufficient liquidity to allow us to accretively fund investment opportunities as we continue to grow CASB beyond our pro forma CASB target. While we won't require external equity to fund the current identified opportunities to drive growth above $2.15 of CASTI per share, our long-term vision anticipates the issuance of equity to fund growth when growth investments and the equity issuance required to capitalize them are anticipated to be accretive and create long-term value for the company. To restate our long-term funding framework, we will look to maximize CAFTI per share net of the cost of financing, while also assuring that an investment meets its long-term metrics aligned with its underwriting criteria. Our plan to source corporate growth capital is first from retained CAFD, second, with excess corporate debt capacity in line with our target BB rating, and third, we may look to issue external equity to fund investments to the extent such investment would be sufficiently accretive to shareholders. Now, I will turn it back to Craig for closing remarks.

Thank you, Sarah. Turning to slide 13, I'll recap where we stand in terms of making progress towards meeting the key goals that we'd set for Clearway Energy Inc. this year. Thanks to our solid first half results, CWIN remains on track to meet its 2024 CAFTI guidance and its 2024 DPS growth goal of 7%. Beyond 2024, our path to $2.15 of CAFTI per share is now even clearer, with the upsized commitment CWIN has now made for Luna Valley and Daggett One. We are well positioned to deliver on the DPS growth promises we've made to achieve the upper range of 5% to 8% DPS growth through 2026 without external capital. Finally, we have begun to define the roadmap for growth beyond 2026 and see when shareholder value accretion in the years ahead. Since being named the CEO of Clearway Energy Inc., I've had the good fortune to have dialogue with many of you in the investment community. We've appreciated your interest in the Clearway story and the feedback you've provided to maximize shareholder value. We plan to take this into account as we work through our annual budgetary and long-term planning process. An output of that process in terms of updated financial guidance will be communicated later this year and will take into account the counsel we've received from you alongside the vision we have for value creation. While advancing on the recently identified honeycomb and pine forest investment opportunities, our organization will be diligently working on the next wave of growth investment opportunities to make available to CWIN from Clearway Group's Greenfield Development Pipeline and will continue to selectively pursue third-party acquisition opportunities as well. In all cases, mindful of assuring that all investments will be structured and committed only to the extent that they can be funded accretively. Meanwhile, We'll continue to build upon recent contracting success for the Gas Fleets Open RA position in 2027, and we'll be judicious in ensuring we get appropriate value for any incremental contracts. Looking across all these areas of potential growth, we believe that CWEN will be in a strong position to plan to deliver robust CAFTI per share growth in 2027 and beyond when we conclude our long-term planning process this fall. and establish our next set of forward-looking goals after the third quarter of this year. As we advance those plans and prepare that framework, we will look to set a deliberate pace for DPS growth beyond 2026 relative to CAPTI per share growth, aiming to maximize shareholder value by providing long-term sustainable CAPTI per share growth within a prudent capital allocation framework. As we conclude the year, Our goal will be to have extended the very solid track record of execution we have demonstrated during the first half of this year into a strong finish for 2024, while establishing a very sound vision for the future that continues to earn the confidence and support of our valued shareholders. Operator, you may open the lines for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

withdraw your question please press star 11 again our first question comes from the line of mark jarvie with cibc yeah good morning everyone um craig just in terms of the comments around third-party m a um can you define what you would view as being complementary is it geographic is it asset type what goes in that consideration when you think about their hurdle rates for M&A, given the fact you can get 10, 10.5% on CAPTI yields from drop-downs. Does it have to be about 10.5% CAPTI? Or is there other strategic benefits you're thinking about from a diversification that would keep you in that CAPTI yield range?

Yeah, thanks for the question, Mark. It's insightful. You touched on a few of the factors that we consider when we evaluate third-party acquisition opportunities, geography and technology are certainly amongst the factors that we aim to diversify over time. Customer and contractual structure is another factor. In terms of investment returns, it would be reasonable to think that we would need to achieve a risk-weighted cash yield and internal rate of return on an investment into a third-party asset that is consistent with the types of risk-weighted investment returns that Clearway Energy Inc. is able to earn on drop-down offers as well. And that's why you hear us say that it's our intent to be selective and to the extent that we're going to be making investments in projects we acquire from third parties. We want them to fit well into the fleet. We want them to produce good returns. And we want them to have a good long life as part of our fleet in the future. And so I think we are being selective in that way, but are also pleased to see that the market today is producing opportunities that could potentially satisfy those criteria. So I think you can expect us to continue to be disciplined around where we do engage in third party acquisitions and that their contribution to the company's resource base and its cap deep per share expectations would be accretive.

And then how big a size of transaction would you look at it? Is this something that would exhaust your current corporate liquidity? Is this, you know, small one, two asset transactions could be bigger? And when you think about it, would you want something that has some follow-on investment opportunities, whether it's repowering or expansion opportunities around those assets?

I think as you can probably see from the rest of what we've communicated today, we are working to be very disciplined about taking one step at a time as an enterprise and assuring that our growth is accretive and progressive. And so for us at this juncture, I think we are not especially desirous of large transactions that bring with them substantial contingent commitments and exhibit a substantial need for financing. We're focused on assembling building blocks that are supportive of a clear path towards CAFTI for share growth that's a free gift to investors.

Understood. And then just building off the additional RA contracts secured, Can you talk a little bit about pricing, the dynamics you're seeing out there? Would the pricing on the most recent tranche be higher than what you would have secured last quarter? And is there an opportunity to get the contract profile to say 90% contracted over the next couple of years by year end?

I don't think we want to set a specific percentage of capacity contracted that we feel we need to reach for 2027 at the end of 2024. And we don't want to do that because we feel confident in the robustness of the market and want to assure that we earn for our shareholders from these unique assets what the market will bear from them over that period of time. What we see right now in the state is a very clear recognition from its regulators and also from the entities that serve load in the state that modern thermal resources that can dispatch over 24 hours in a day are scarce and valuable. And what I think we all together are doing is making a plan for how the state's capacity needs can be fulfilled as we look forward over the next three years. And I think what we're pleased to see is that the regulators in the state are designing a market construct that is – that recognizes the necessity for resources like these. And as load serving entities are digesting some of these regulations, the most recent of which were turned into guidance for what they need to procure for 2025 just at the end of July, that they are prepared to engage with us around contracting pricing that is constructive and is constructive relative to where those same resources were being contracted last year and to the point that you asked is constructive relative to where contracts were being executed earlier this year. So I think we feel very good about where we stand in being able to market these capacity resources. And we also feel quite confident that when we get to the very end of 2026 and 2027, we will have contracted the entirety of their resource adequacy capacity and that we will have done so at values that are constructive to the cap deeper share contribution that these assets are providing today.

So if I hear you correctly, you're saying that given the market conditions, there's no need to rush to contract. Do you think pricing will hold, if not tilt higher in the coming quarters?

Yeah, I think that's a fair distillation of what I said. I agree.

Okay. And then just finally, you know, trying to look ahead to the update later this year, you made your remarks about extending the growth horizon and you did say DPS growth. Maybe at times you probably aren't being rewarded in the market for dividend growth. The funding side of the equation and ability to fund growth and cap D growth might be more top of mind for some investors. Is there a view that you might de-emphasize the DPS as the lead growth sort of target and make it more of a cap D per share growth?

You know, we are pleased to say that we have a really abundant set of building blocks within the enterprise to be able to expand both the CAFTI per share that we earn and also the dividends that we pay per share. And we really valued the opportunity we've had over recent months to confer with our investor base and with people like you about the business model we employ and how we best drive shareholder value within it. And as we've noted in our prepared remarks, I think it's our intent to try to be deliberate about analyzing that full set of building blocks, analyzing capital market conditions, and engaging with our board of directors around what we think is a sensible capital allocation framework that is both prudent and value creative. And we want to give that process time to fully assess what is likely to be most value creative for our shareholders. And as we noted before, I think it's our intent to provide you that forward-looking capital allocation framework after the third quarter. And you can trust that what we lay out will be thoughtful, it will be prudent, and it will be informed by what we think is most likely to create value for shareholders.

So when you say the update will come after the third quarter, that comes with the results? of the Q3 results or could maybe come sometime in 2025, early 2025?

Our historical pattern has been to issue guidance for the forthcoming fiscal year and then to provide outlook for cap deeper share growth and DPS growth at least sort of one year beyond the year that we've already communicated it during our third quarter call. And we see lots of virtue in continuing to extend on the patterns of engagement with you in the analyst community and our investor community. So I think you could anticipate that we're working towards being able to repeat that pattern of communication at our third quarter call.

Okay. I'll leave it there. Thanks for your time today. Thanks, Mark.

Thank you. And due to time constraints, we ask that you please limit yourself to one question and one follow-up question. Our next question comes from the line of Julian Dumoulin-Smith with Jefferies.

Pardon me, Julian, please check your mute button. Pardon me, Julian, please check your mute button. Okay, one moment, please.

And our next question comes from the line of Noah Kay with Oppenheimer and Company.

All right, good morning. Thanks, team. Just was hoping to get a characterization of the mix of off-takers for Pine Forest. It's listed as diverse investment gray, but just wondering about the mix of corporates and And in particular, given the demand we're seeing on the grid from the data center world, any direct data center exposure either in that or being contemplated by the company?

There are two customers for the PV generation on the project. They're both corporate customers that have excellent investment grade ratings. And one of the customers that is procuring the bulk of the output is an information technology company. And what load exactly they serve with that contract would be for their own energy planning to opine on. And as is our typical practice, I would expect that once the project is complete, you'll get to see us announce the valued customers that are being served with the project. In terms of data center load, generally, we're pleased to see the influence that it's having on power markets around the country. That project serves the Dallas metro area electrically, and there is a growing demand for data centers there, as you're probably familiar, Noah. And what we're seeing across the range of other development assets that we're planning for completion over the timeframe that you've seen us identify late-stage pipeline, there is a multiplication of demand from both hyperscalers and developers of data centers that would aim to have their load served in locationally matched areas with renewable resources. And as we noted three months ago, I think we're really pleased to see the way that market has evolved to enable tenors, contracting terms, and prices that are very constructive for being able to create profitable projects. So we've been pretty pleased to be able to engage with the whole spectrum of companies that are enabling load for data centers and are finding that it is useful and constructive for the development work we're actually doing from coast to coast right now.

Yep, very helpful. And then just on Honeycomb, so the formal offer is pending today. But the $85 million commitment, just to make sure we have it, I know you talked about this last quarter, but just wanted to make sure we got it right. Would that be for the entire 320 megawatts phase one? Is that for a portion of it? Just a little more clarity on how much of the asset C1 would actually have.

Yeah, that would be for the entire 320 megawatts. And as I think we've noted before, Previously, there is potential for subsequent phases in the program, but what we have planned for commitment this year is the completion of an investment commitment that matches the cash equity for that portfolio of projects, which would be completed in 26 and funded in 26.

Okay, perfect. I'll pass it on. Thanks, Noah.

Thank you. One moment, please, for our next question. Our next question comes from the line of Justin Clare with Roth Capital Partners.

Hi, good morning. Good morning. Good morning. So I wanted to first just ask about, you know, how we should think about your targeted payout ratio as we, you know, in 2024 and 2025, and then, you know, how much retained CAFTI you might have available for funding the pine forests acquisition and then further CODs into 2026. So I think the historical ratio has been 80% to 85%. So I'm kind of thinking in the near term, could there be any change in that? Because it obviously affects how much capital we might have available for acquisitions.

Yeah, understood. I'll provide a brief philosophical response there and then we'll turn to Sarah to be able to provide to you some further detail around the sufficiency of our own internal sources to fund the commitments that would attach to the identified projects we've disclosed today. So first I think establishing our forward-looking capital allocation framework for The combination of CAPTI for share growth, dividend for share growth, payout ratio is something as we communicate as part of our update to forward-looking guidance following our third quarter. But philosophically, it's our intention to continue to maintain a capital allocation framework that is prudent and is context-aware for the current capital markets environment. So I think you can expect that we'll continue to be prudent in that regard. With respect to the projects that have been identified to date, as we noted, the organic CAFTI creation from our own portfolio is expected to be able to enable the funding of those investments. And I think we are aiming to be very thoughtful about the way that we match new drop-down offers to the sources of corporate capital that will enable those offers to be funded accretively as we go forward into 26 and 27. Sarah, I'll turn it to you if you'd like to try to enumerate additional detail that would be responsive here.

Sure. I don't have too much to add other than just to note that, you know, we do expect to be able to fund the offers that we have and our incremental expected commitments with retained CAFI as well as excess corporate debt capacity. But given the timing of those in the future, we'll be evaluating at the time what source of corporate capital makes the most sense to use. because our, you know, retained CAFTE sort of has a shape, right? So depending on the timing of the year that we're funding. But in terms of, you know, what we are planning to commit to, you know, we have identified sources of capital and retained CAFTE is a significant portion of that.

Okay, got it. Thanks. And then just one more You know, CAFTI yield for the pine forest that is offered is 10.5%, so it's a little bit higher than other recent commitments. I was wondering if the potential tax equity investment is contemplated in that yield and the capital commitment that you had provided here. And then wondering, you know, could you look at participating in additional tax equity investments from CWIN's perspective? Maybe you just talk through the possible opportunity there.

Yeah, I'm glad, again, to respond philosophically, and Sarah, glad for you to compliment. So, firstly, the reportable CAFTI that you see reflected in the investment reflects only the CAFTI that would be received by CUN from the cash equity investment that it makes in the project. So we separately account for the tax equity part of the structure based on the value of its usefulness and continuing to manage our tax runway forward. And we were in the fortunate position to be able to structure this project in a fashion that would provide CAFTE yield in excess of that planning 10 percent average and wanted to make sure that that would be made available to Clearway Energy Inc. And then in terms of forward-looking tax equity structures, over the more than 10 years since NYLD was originally IPO'd, we have as an organization been very effective in continuously structuring investments to be able to defer our federal cash tax liability. And what's quite nice about the new market structures that we're able to employ with the transferability market is that we're able to segment the capital structure of projects in a way that is actually efficient in bringing tax benefits into Clearway Energy, Inc., while dispositioning tax credits to other investors who are well-positioned to value them. With that, Sarah, I'm glad for you to sort of fill out where you think it might be helpful.

Yeah, I think, you know, I don't have too much to add other than to note that this, you know, the structure that we expect to employ for pine forest is one that we would look to use again if the cat field on the investment makes sense. We do have a large number of projects that we have the opportunity to consider various structures and to continue to explore using CUN as a tax equity investor in order to continue to extend our tax runway. So, it is something that we'll continue to try to optimize as we move forward.

Okay. Thanks very much. Appreciate it.

Thank you. One moment, please, for our next question. Our next question comes from the line of Alex Kenia with Marathon Capital.

Hi there, good morning. I was wondering if you could just talk a little bit about how you're, this is a loaded question, but just how you're thinking about the variability in the policy environment. Craig, I think you mentioned at the top that you've kind of moved forward, I guess, probably in securing, you know, nearly eight gigawatts of of, you know, I guess capacity to be under kind of safe harbor. I just want to confirm that would be, you know, capacity that would be, you know, where you could utilize the existing PTC and ITC framework. But I just want to make sure that I'm thinking about that right, as well as just any thoughts that you have about Clearway and the sponsor's ability to kind of navigate through any policy uncertainty.

Yeah. Yeah, you've interpreted that disclosure correctly in terms of the ability of those investments made and equipment to be able to save harbor projects under the existing ITC and PTC. And, you know, I think that strategy is something we look forward to putting to work across a range of project completion vintages from 26 through 28. So we feel good about what that does to enable a succession of growth investment opportunities for CWIN over a range of potential scenarios. The things we'd add would be that I think in general, the policy environment is likely to be manageable for renewable and battery growth in the United States. I think load growth is an enormously helpful thing for the policy environment as a whole. We and other companies that are responsible for driving the bulk of new clean power capacity additions are companies that recognize the importance of all of the above resource solutions for each of the markets in the United States. We invest in locations that benefit people who vote for candidates of both parties. And over the two decades where I've had the good fortune to be involved in energy policy dialogues, in Washington, D.C., I think what I've generally found is that most decision makers who are ultimately responsible for making decisions within agencies or elected officials recognize that what we do is beneficial to local economies, and especially as load growth is expanding, that it's necessary to fulfill the needs of a country that is fortunately consuming more electricity than than it was expected to in preceding years. So I think we feel good about the ultimate decision making construct that will apply to energy policy across a range of electoral scenarios. What I would add, and we mentioned something about this, is that we've pretty intentionally focused a lot of our development investments in the Western United States, where we have a strong historical track record, which are also markets which are committed to evolution of fuel mix in the states across a range of federal policy scenarios, and they've demonstrated that over the last two decades. And so one thing that makes us especially feel good is that those projects, which are well-cited in places where we know how to permit and construct resources, will have customers and will have customers at whatever price we think will ultimately be necessary for the projects to be creatively constructible and financeable. So we think for us especially, but for the industry in general, the range of policy scenarios that could be foreseen after this year will remain manageable. Great. Thanks so much.

Thank you.

I'll now hand the call back over to President and CEO Craig Cornelius for any closing remarks.

Thank you, everyone, for joining us today and for your ongoing support of Clearway Energy, Inc. We look forward to continuing to demonstrate to you our leading market position and solid execution and are optimistic about what the days ahead have in store for our company as we move onward. Operator, you can close the call.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.