CWEN - NYSE

Hello, and welcome to the Clearway Energy, Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Akil 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, Akil. 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 demonstrated 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 action is establishing future building blocks for the future growth of Clearway Energy, Inc. reflect the harvesting of development investments that have been sold 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 $0.4171 per share or $1.6684 per share on an annualized basis. With the upsized growth investment commitment to the Luna Valley and Daggett I projects, we have now committed to deploying all of the excess proceeds raised from the sale of our District Thermal business at accretive economics and established the path to achieving our previously communicated financial objectives through 2026. Incorporating this commitment, we are increasing our pro forma CAFD outlook to approximately $435 million or $2.15 of CAFD 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 '26 without a need to raise external capital to meet those goals. We have also executed on a series of actions that enhanced visibility into prospects for growth above $2.15 of CAFD 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. The 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% CAFD yield with an investment structure that both provides desirable market participation and extended tax runway benefits. Both investments are subject to approval by CWEN's independent directors and are expected to be funded with existing sources of liquidity, such as retained CAFD 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 CAFD per 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 CWEN capital allocation framework and pacing of growth needs. In a reflection of our enterprises 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 long-standing 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 midyear 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 the commitment to Luna Valley and Daggett I 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 CAFD 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 I storage projects, enabled by strong sponsor support and alignment, the commitment will provide Clearway Energy, Inc. ownership of 100% of the cash equity interest in the projects versus prior expectations of 50% resulting in an approximately $143 million corporate capital commitment at a 10% CAFD yield. Highly compatible with CWEN 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 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 to invest as the project's tax equity investor, have CWEN enhanced the overall investment opportunity for CWEN since the time of its initial disclosure increasing the total potential CAFD contributed by the project and raising the total potential corporate capital investment to $155 million at an approximate 10.5% CAFD 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 Daggett 1 investments, we have completed the establishment of a path to $435 million in run rate CAFD and $2.15 in CAFD 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 CAFD 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 it. 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 CAFD per share above $2.15. Together, these potential investments have been valued at CAFD 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 CAFD 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 CWEN CAFD per share growth at the low end of 5% to 8% in 2027. With the newly announced Marsh Landing contract, CWEN 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 in Marsh Landing for approximately 195-megawatts, awarded through the central procurement process, the fulfills load-serving entity needs in Northern California this contract brings Marsh Landing 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 planned ore capacity is likely to convey in this new regulatory constructs. You can anticipate that we will keep you appraised of our progress in that contracting effort in future quarters as we also assure that the goals we set for CAFD per 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 the pipeline of projects that will offer further opportunities for CWEN growth investments across a diverse range of geographies and at a pace that is appropriate for the goals we set for CWEN. 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 CWEN 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 seen 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 CAFD of $239 million, we are reaffirming our full year 2024 CAFD 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 CAFD, we will provide an outlook on full year CAFD results following its conclusion. 2024 CAFD 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 CAFD of $435 million or $2.15 per share needed to meet our dividend per share growth objectives through 2026. Based on pro forma CAFD, 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 CWEN'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 CAFD as well as excess corporate debt capacity. Our 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 CWEN by approximately $100 million of currently issued LCs. 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 nonrecourse financing to 2023, that will amortize over the remain some 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 CAFD 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 4x we could potentially issue an additional $120 million of corporate debt and stay at a target ratio of 4.25x corporate debt to EBITDA, in line with target pro forma credit metrics. We continue to forecast sufficient retained CAFD generated to be a key funding source for the potential commitments to Pine Forest and Honeycomb identified to provide growth beyond our pro forma CAFD target. The revolving credit facility also provides liquidity to fund growth on a temporary basis within the bounds of our pro forma 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 CAFD beyond our pro forma CAFD target. While we won't require external equity to fund the current identified opportunities to drive growth above $2.15 of CAFD 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 CAFD per share net of the cost of financing, while also ensuring that an investment meets its long-term metrics aligned with its underwriting criteria. Our plan to source corporate growth capital is first from routine 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've set for Clearway Energy, Inc. this year. Thanks to our solid first half results, CWEN remains on track to meet its 2024 CAFD guidance and its 2024 DPS growth goal of 7%. Beyond 2024, our path to $2.15 of CAFD per share is now even clearer with the upsized commitments CWEN has now made for Luna Valley and Daggett 1. 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 road map for growth beyond 2026 and CWEN 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 CWEN from Clearway Group's greenfield development pipeline, and we'll 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 fleet open RA position in 2027 and will 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 CAFD 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 CAFD per share growth, aiming to maximize shareholder value by providing long-term sustainable CAFD 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. [Operator Instructions] Your first question comes from the line of Mark Jarvi with CIBC.

Yes. Good morning, everyone. Craig, just in terms of the comments around third-party M&A. 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 the hurdle rates for M&A given the fact you can get 10%, 10.5% on CAFD yields from drop-downs. Does it have to be above 1.5% CAFD? Or is there other strategic benefits you're thinking about from diversification that would keep you in that CAFD yield range?

Yes. 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 CAFD yield an 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 CAFD per share expectations would be accretive.

And then how big a size of the transaction would you look at it? Is this something that would get

I think we're -- 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 ensuring 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 for its CAFD per share growth. That's what we get to investors.

Understood and then just building off the additional RA contracts secured. Can you talk a little bit about pricing and the dynamics you're seeing out there? With the pricing on the most recent tranche to 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 year's. And I think what we're pleased to see is that the regulators in the state are designing a market construct 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, it's 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 CAFD per share contribution that these assets are providing today.

So if I hear you correctly, you're saying that given the market conditions, you don't need to rush to contract, you think pricing will hold if not tilt higher in the coming quarters?

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

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

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 CAFD 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 accretive. 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've 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 half in third quarter, that comes with the results of the Q3 results or could maybe come sometime in 2025.

Our historical pattern has been to issue guidance for the forthcoming fiscal year and then to provide outlook for CAFD per 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 and 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 the time today.

Thank you. [Operator Instructions] Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Pardon me, Julian, please check your mute button. Our next question comes from the line of Noah Kaye with Oppenheimer & Company.

All right. Good morning. Thanks, team. Just was hoping to get a characterization of the mix of offtakers for Pine Forest. It's listed as diverse investment grade. But just wondering about the mix of corporates. 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 time frame 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 loads 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.

Yes. Very helpful. And then just on Honeycomb. So, the formal offer is pending, but the $85 million commitment, just to make sure we have -- I know you talked about this last quarter, but I 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 actually have.

Yes, that would be for the entire 320-megawatts, and as I think we've noted before deviously, 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.

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. So, I wanted to first just ask about how we should think about your targeted payout ratio as we -- in 2024 and 2025, and then how much retained CAFD you might have available for funding the Pine Forest acquisition, and then further COEs 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 you might have available for acquisitions?

Yes, 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 CAFD per share growth, dividend per share growth, payout ratio is something as we communicate as part of our update 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've noted, the organic CAFD 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 accretive 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 want to have too much to add other than just to note that we do expect to be able to fund the offers that we have and our incremental expected commitments with retained CAFD 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 retained CAFD sort of has a shape, right? So, depending on the timing of the year that we're funding. But in terms of what we are planning to commit to, we have identified sources of capital and retained CAFD is a significant portion of that.

Okay. Got it. Thanks. And then just one more CAFD yield for the Pine Forest that is offered was 10.5%. So, it's a little bit higher than in 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, could you look at participating in additional tax equity in investments from CWEN perspective? Maybe you could just talk through the possible opportunity there.

Yes. I'm glad, again, to respond philosophically and Sarah glad for you to complement, so firstly, the reportable CAFD that you see reflected in the investment reflects only the CAFD that would be received by CWEN 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 CAFD yield in excess of that planning 10% 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-ed, we have, as an organization, been very effective and 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 tally 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.

Yes. I think I don't have too much to add other than to note that this, the structure that we expect to employ for Pine Forest is one that we would look to use again if the CAFD yield 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 CWEN 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 Kania 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 on securing nearly 8-gigawatts of, if I guess, capacity to be under kind of safe harbor. I just want to confirm that would be capacity that would be 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.

Yes. Yes, you've interpreted that disclosure correctly in terms of the ability of those investments made in equipment to be able to safe harbor projects under the existing ITC and PTC, and 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 CWEN 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 growth -- as load growth is expanding that it's necessary to fulfill the needs of a country that is fortunately consuming more electricity 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 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, we'll have customers and we'll have customers at whatever price we think will ultimately be necessary for the projects to be accretively 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 to have in store for our company as we move onward. Operator, you can close the call.