Good day and thank you for standing by. Welcome to the Clearway Energy Inc. Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Chris Sotos, President and CEO, Clearway Energy Incorporated. Please go ahead..

Thank you. Good morning, everyone. Let me first thank you for taking the time to join today’s call. Apologies for being a little bit late. There were some technical difficulties. Joining me this morning is Akil Marsh, Investor Relations; Chad Plotkin, our Chief Financial Officer; and Craig Cornelius, President and CEO of Clearway Energy Group.

Craig will be available for the Q&A portion of our presentation. Before we begin, I would 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 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 4, financially, Clearway is reporting second quarter CAFD of $155 million and $140 million through the first half of 2021. Due to the strong performance of our diversified portfolio, we maintained our full year CAFD guidance of $325 million, including the impact from the Texas winter weather event.

Clearway has announced an increase in its dividend by approximately 1.7% to $0.3345 per share for the third quarter of 2021. This is on track for GPS growth at the upper end of our 5% to 8% long-term target for 2021 targeting an annualized rate of $1.36 dividend per share going into 2022.

As we have discussed in our previous calls, growth in CAFD per share is visible for the next few years. So, our focus in partnership with Clearway Energy Group has been on the extension of this trajectory over the long-term and we are pleased with our progress.

Our newest partnership with Clearway Energy Group is becoming more concrete that would comprise approximately 1.1 gigawatts of co-investment and diversified portfolio of renewable assets.

Today, we are also announcing potential new drop-down opportunities comprising 452 megawatts of solar projects in Texas and 133 megawatts portfolio of distributed solar projects. These investments would require funding between the second half of 2022 and 2024 providing Clearway additional visibility into its growth plan.

And looking at growth beyond these discrete opportunities, we are very excited by the progress we are making on renewable development in our integrated Clearway enterprise.

As the investments Clearway Group has been making in capabilities and projects have exploded each year and are meeting growing demand from customers, expanding support from policymakers. In this regard, our integrated clean power enterprise as among the industry leaders, as renewable growth expands in the U.S.

With over 75% of new electricity generating capacity last year having come from renewable resources, we expect to see a substantial growth in this asset class as the progress in the Clearway development pipeline to sustain dividend per share growth for years to come.

Putting numbers to that progress, Clearway Group increased its development pipeline to over 16 gigawatts during the first half of 2021 through a full spectrum of development activities that involve securing control of late stage projects planned for completion in the next 3 years, expansion of Greenfield development assets to greater nameplate capacity, substantial additions to the pipeline of paired and standalone storage assets and initiation of additional early stage development projects that will sustain growth in the longer term.

Further, the pipeline Clearway is developing is being tailored to further reinforce the type of resource diversification than it was to provide inline financial results during the first half of this year.

It reflects a balance for us wind development regions, including sites that exhibit favorable correlation to our existing fleet, our substantial volume of solar and storage projects, thanks to that load generation variability and potential for market contracting positions complimentary to existing ones.

Having doubled its annual development throughput to over 1 gigawatt last year, Clearway Group aims to double its development throughput to over 2 gigawatts per year of the 2024 Project Vintage at 6.9 gigawatt pipeline of late stage projects provides a strong foundation for meeting that objective.

This pipeline supports a range of upcoming dropdown opportunities, including that I will discuss on the next slide. But as importantly, an even further set of dropdown opportunities for investment by the company as the pipeline of projects planned through 2025 mature towards financing commitments.

Next, we continue to make progress on 2023 position regarding our California Gas assets. We are in active discussions around our open position and expect further progress towards contracting the assets during the third quarter.

In addition, I want to address the topic that we have received a number of incoming questions about, namely the potential sale of the thermal platform. District energy is a highly attractive infrastructure asset class and our thermal platform represents one of the three large district energy platforms in the U.S.

Due to significant interest from prospective buyers, we have decided to explore our potential sale of the thermal platform. Let me be clear, we do not need to sell thermal for capital formation purposes and the asset class is a strong and well performing one for Clearway.

Therefore, any decision on the sale of the thermal platform is going to be very disciplined on price. And to the extent we move forward, we believe proceeds from such a potential transaction will exceed our current capital commitments and near-term visible growth opportunities.

Finally and as I indicated on our last call, Clearway sees its pro forma CAFD per share outlook at a $1.85 per share, which supports our DPS growth objectives through 2023. This pro forma CAFD outlook does not factor in any uncommitted growth or results of capital deployment from asset sales.

Turning to Page 5, we view our current pro forma CAFD outlook as well as our perspective opportunities from the Clearway development efforts.

As can be seen on the slide, compared to the CAFD guidance of $325 million we entered 2021 with, we now see our pro forma CAFD outlook at $395 million when all of our current capital commitments are funded in line with our balance sheet objectives and are fully operational.

Focusing not on the absolute CAFD number, but more importantly, CAFD per share, which takes into account capital formation, we are maintaining our $1.85 outlook versus $1.61 coming into this year. This represents an increase of approximately 15% on a per share basis versus what Clearway entered 2021 driving further dividend growth.

In providing more detail on growth that is not included in these numbers, I return to the right side of the page. The first component of the overall investment opportunity encompasses 133 megawatts of distributed solar assets that has either recently come online or have near-term CODs.

These assets comprised more than 50 projects and 133 gross megawatts. We had revenue contracts of 20 years on average and as with our other distributed solar assets provide higher CAFD relative to their generating capacity.

The second component is approximately 450 megawatts of solar projects, currently with 254 megawatts of these under no subtle PPAs with a duration of 18 years at a complimentary location in our Texas portfolio.

Last year, the 1.1 gigawatts of diversified partnership assets that are taking shape, including 2 solar plus storage projects for 463 megawatts in western states along with a basket of other wind and solar projects with diversified off-takers.

Before turning over to Chad, I want to reiterate that while we have significantly improved the portfolio in the past 12 months to continue our growth trajectory, the Clearway enterprise continues to relentlessly focus on continuing accretive growth through dropdowns of new projects, third-party acquisitions, and capital recycling.

With that, I will hand the presentation over to Chad.

Chad?.

Thank you, Chris. And turning to Slide 7, today, we are pleased to report that Clearway has benefited from its mix of generations in regionally diversified renewable portfolio. A second quarter adjusted EBITDA of $365 million in cash available for distribution or CAFD of $155 million were in line with seasonal expectations.

With these results, the company is also reporting first half 2021 adjusted EBITDA of $563 million and CAFD of $140 million.

During the quarter and as noted in the appendix section of today’s presentation, Clearway’s renewable portfolio was able to withstand weakness in generation conditions at the non-California based wind assets where production was below median expectations.

This was most prevalent in California, where the company’s Alta wind project generated strong results in April and May, helping to support first half 2021 production at Alta, that was 12% above our median production forecast.

Further and in the second quarter, the company’s utility scale solar portfolio performed well with production modestly above expectations, providing further mitigation to the lower than average wind generation outside of California.

In addition and primarily due to favorable weather conditions as well as the initial phases of demand recovery from the COVID-19 pandemic, the company’s thermal segment had a solid quarter as thermal equivalent megawatt hours sold were up 16% versus the second quarter of last year.

Overall and with the company’s results through the first half of the year in line with our sensitivity ranges, we continue to maintain 2021 CAFD guidance of $325 million.

As a reminder, this guidance does continue to assume P15 median renewable expectations for the full year and is also affected by the approximate $25 million impact to CAFD in the first quarter due to the financial exposure from the February winter weather event in Texas.

As Chris discussed, Clearway continues to both execute on and position the company for new opportunities to drive CAFD and dividend per share growth.

With existing capital commitments on track to close within timeframe supporting our pro forma CAFD outlook, we are also focused on effectuating the financing of these transactions efficiently while maintaining our balance sheet objectives. With this in mind, we continue to focus on strategic flexibility in our approach to corporate capital formation.

This flexibility is available to us with $420 million of capacity currently under our revolver to temporarily finance transactions and $126 million utilized in the existing ATM program, providing an efficient means of placing equity as required.

While these means are effective vehicles to support our efforts, we also mindful that success in asset dispositions can also provide even more flexibility as net proceeds on any transaction can lead to accretive recycling of capital.

And this would be the case for thermal where potential net proceeds in a potential transaction would be expected to receive both our existing capital commitments and new opportunities that may arise. With that I will turn the call back to Chris for closing remarks..

Thank you, Chad. Turning to Page 9 we are focused on our goals for 2021. Clearway continues to work to meet its 2021 financial commitments.

As described earlier, our scalable and diversified portfolio, particularly our West Coast renewable portfolio and thermal segment has performed well this year mitigating the first quarter Texas winter weather impact allowing us to maintain our 2021 CAFD guidance of $325 million.

In addition, we remain on track to achieve the upper end of our DPS growth rate of 5% to 8% through 2021, with a target annualized dividend of $1.36 by year end.

Clearway has and continues to increase its pro forma CAFD outlook per share providing visibility to dividend per share growth of 5% to 8% through 2023 within our target payout ratios through the acquisition of accretive assets and through the optimization of capital formation.

As we move through the remainder of 2021, Clearway looked to increase the outlook through executing on the investment opportunity discussed earlier in this presentation as was potential capital cycling through possible monetization of our thermal platform. Finally, we are working to enhance the value of our California natural gas portfolio.

We closed on our first 100 megawatt contract more than 2 years out from the current contract expiry at an attractive tenor and price point.

In addition, we are in active negotiation with counterparties to secure additional contracts on the balance of the capacity we have available for offer, anticipate obtaining our investors on our November call in those results. Thank you. Operator, please open the lines for questions..

[Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is now open..

Hey, good morning team. Thanks for the time and the opportunity..

Good morning..

Good morning.

If you don’t mind, at the outset here, can you talk a little bit more on the use of proceeds potentially from whether it’s thermal or frankly any strategic shifts in California around your gas assets? Just the timeline on redeploying any proceeds, I mean, obviously, you talked about an expanded set of broadly described dropdowns, would you just a bit holding on to liquidity or can you elaborate how you think about use of proceeds of that quantum?.

Sure. Obviously, kind of early stages here, so in terms of exact timing of when this might close difficult to say at this point in time, I think first half of 2022 for content timeframe, so it’s not going to be that much sooner. I think, yes, once again, that’s – yes, potential.

And slightly from that question, we obviously use it for the existing equity that kind of we haven’t issued to-date from our dropdown that happened in December as well as the Mount Storm acquisition.

Also, we probably hold on to – yes, I don’t know about maybe a year, let’s say, depending on what’s visible from the perspective of other dropdowns or third-party M&A that we see in front of us.

So I think that depending on exactly when it closed, we obviously see the proceeds to funding the equity that we haven’t issue to-date on Mount Storm, drop down 23 that was done in December, the Lighthouse transaction.

But I think yes, it really is a question of once again seeing what opportunities we have after that’s done and then figure out how to redeploy capital, but Chad, anything to add?.

No. I mean, I think at the end of the day, Julien, like anything when we think about both capital formation and the reallocation of add capital we always take the lens of looking at our balance sheet and ensuring we are meeting our objective and we will obviously deploy capital in a manner that drives the most value and accretion to our investors..

Yes, indeed.

And if I can pivot here back to some of the commentary on the California gas portfolio, obviously, we have been talking about this for a bit, can you perhaps at least indicatively provide an update on where the aggregate, but consolidated global cash flows across this business segment is trending? You think about it not specific to a contract price, but you intend to be in any kind of drop in cash flow at all or sort of on a net basis met a financing that is, could you actually see a flat or even increasing profile to cash flow coming out of the California gas portfolio given so we say where you stand today on that contract in progress?.

I think we could see it being flattish, but I think, Julien, I don’t want to add or shut before kind of everything is done. So I think for us, we want to kind of see where the contracts come in, see what open position we have and the like.

I think as we indicated on our last call, the contract level, we were able to get on Marsh Landing would be – once again, it will be pro forma for the entire asset, be flat on an un-levered basis versus a levered platform today, but I think yes, we have a little bit of a chat before I can say that definitively for what we are setting..

Yes, I will keep checking in.

And then if we can pivot just quickly, you talk about more taxes here, can you talk about hedging practices, any further expansion, anything about risk mitigation broadly defined on any subsequent expansion in the state?.

Sure. I think as mentioned the current asset being contemplated is note settled, so little bit different and less risky hedging structure. But I think for us, we like or caught as an overall market. And I think we really want to try to build our portfolio there of a variety of positions to help mitigate risk overall.

Yes, what that means taking some megawatts on a small basis merchant to help offset others for scarcity pricing, we will kind of see as the portfolio comes together. But I think to your direct question, Julien, the latest asset is note settled at least for where it sits currently for what it has hedged.

I want to look at creating an overall kind of macro position in or caught with a variety of assets to help mitigate risk in the region overall..

Got it. Excellent.

And just to clarify the earlier question around the use of liquidity here, effectively this would go to normal corresponding of dropdowns, right, very linear and straightforward use of capital here no pivot in your strategy whatsoever in turn?.

Correct. If there were dropdowns available kind of the first use of this is to fund those dropdowns in the event anything happen..

Awesome. Alright, I will leave it there. Thank you and best of luck..

Our next question comes from the line of Colton Bean from Tudor, Pickering, Holt. Your line is now open..

Good morning.

So just to follow-up there on the thermal comments, I understand you are probably limited in what you can disclose, but any general parameters on what you would need to see to transact on a potential divestiture?.

No, I think it’s too early to tell. Like I said we are kind of in the stages of exploring itself – yes, not to minimize the question, but now it’s too early to say what a minimum oil prices have been..

Fair enough. And then maybe a question for Craig, I think in the development backlog, there was a reference to acquisitions of projects to secure site control and improved internet or interconnected queue positioning.

So just one – how important is the interconnect element and what options do you have to improve positioning and mitigate delays there?.

Well, we have made those acquisitions. We did so not to mitigate risk in our preexisting control pipeline, but to add assets that were in locations where we wanted to build projects or have offerings for load serving entities. So, that’s what that reference means.

More broadly, we have been satisfied by the way that we have been able to actively manage the progress of our late stage pipeline through sort of the next 3-year vintage, management of two positions and the work of interconnecting utilities have certainly one dimension to that as is maintenance of a supply chain and development progress in an environment that certainly is challenging for some.

And in that regard, as is true for some bigger enterprises like our own, we have been satisfied by what we’ve been able to do to keep projects on track. So, I guess that’s what I would say on that front. In terms of other acquisitions that we have undertaken, they have really been to support a full a spectrum of objectives.

In some cases, to populate projects that would support dividend per share growth out in the 2025 and beyond timeframe in some cases, to provide complimentary drop down opportunities between now and 2024. And I think now where we said is, we have been able to construct the pipeline that has over a gigawatt worth of projects in development.

And with five ISOs, and RTOs around the country that adds to the strength that we have in California. And those acquisitions are intended to enable us to continue to add projects into the overall C1 fleet, so that the diversification that supported us well. And the second quarter is something we would be able to continue to add on over time..

Got it.

And then, just one final question that is 2025 commentary is a good lead in there, the backlog now extending into late decade, does that present an opportunity to extend the guidance timeline, following resolution of conventionals re-contracting?.

It could, I think, once again, obviously, those are assets and developments, I think you would kind of want to make sure that we have agreement and a binding commitment between CEG and C1 before formally extending that. But I think to your point, hopefully, as we kind of get traction around 2023 and a volatility around the gas fleet is reduced.

And we kind of know where we sit. I think trying to extend guidance is something we definitely shoot for. But once again, binding agreements before we feel comfortable doing so..

Okay, appreciate that..

Our next question comes from line of Steve Fleishman of Wolfe Research. Your line is now open..

Yes. Hi, good morning. Thanks. So, just sorry to ask on a potential thermal cell, so again, and the like, but just I think you said that proceeds would be beyond any near-term and long-term growth needs.

So, that extra income and beyond that, would you be considering share buybacks for that or what would you be returning that capital?.

Yes. I think, Steve, to be fair, so that we have current visibility into. So, if there is any growth opportunities beyond, yes, that’s what obviously views for that. I think, Steve, as always, you have worked with us for a long time we focus on making sure the balance sheet, our ratings are kind of working, and also focus on accretion.

So, yes, we would look at any options with the growth opportunities, but way too early to kind of speculate on that..

Okay. And you have mentioned a couple times on this, focusing on accretion.

Could you just clarify, when you are looking at kind of value accretion? What is the main metric or metrics that you are looking at in making your decisions?.

We look obviously for CAFD per share, from a public perspective. But I think as always, we look at IRRs and NPVs and the like as well, but I think the one that’s most visible to the investor base is obviously CAFD per share..

Okay. So, that could be more CAFD and less shares, I guess. Great, okay. And then just on the California commentary, is it fair to say that the continued volatility in pricing and kind of almost emergency conditions out there in terms of power needs or helping in terms of your contracting, positioning..

I would say that’s true. I think the current situation, yes, helps to position the value of the assets as I have been talking about for several years in terms of them being in load boxes and the like.

So I think, to your point, Steve, the current situation in California, yes, definitely shows the importance of those assets to the safety and reliability of the grid..

Okay, great. Thanks..

Our next question comes from the line of Durgesh Chopra of Evercore ISI. Your line is now open..

Hey, good morning.

Just a quick clarification on the use of proceeds from the thermal – potential thermal portfolio assets, so are we going to anticipate on any debt or any tax consequences that we should also factor in or this is basically going towards either growth projects or share buybacks?.

Chris Sotos:.

Chad 2451:.

Yes. Sure Durgesh. I think, again, there is a little hypothetical based on a potential transaction. But in any transaction, we would execute any disposition across anything. We would always look at the effect that that would have on our credit ratios.

And to the extent it would begin to change that we would have to put consideration into how we would advertise the platform or the company. So obviously, if that entailed paying down debt, or candidly just thinking about using more equity in subsequent transactions, that just sort of goes in the overall sort of as how we allocate capital.

So, nothing is positive, but it is clearly at the lens.

As far as tax consequences go, similarly, any transaction independent of whether or not it would be a potential deal on thermal or any other asset disposition, obviously, we have to take a look at that, mindful that if you look at our public disclosures, you will note that our NOL balance as of the end of 2020 was well over $1 billion on a gross basis.

I think as we mentioned before, there are some state things that you have to look at as well, mindful that if you recall, last year, for instance, in California, the State had suspended or for a company that had NOLs in California, there was a suspension in the use of NOLs. So, those are type of things that we look at.

So, long story short, I think all these things that you are asking all go into any calculus that we look at, as we would seek to evaluate any type of disposition in the business..

And then can you just clarify, I think Chris you said first half of 2022, is that sort of where you would expect to announce something potentially a close, can you just clarify the first half 2022 comment?.

Yes. I think that’s probably more of a closing once again. Yes, it’s early days. So I could definitely be out there, but obviously a lot of the questions on the call when we might get proceeds that’s not a 2021 proceed type of situation for sure..

Understood. Thank you, guys..

Our next question comes from the line of Colin Rusch of Oppenheimer. Your line is now open..

Thanks so much, guys. Could you speak to the potential for raising the floor on your growth targets, grow scale as opportunity is so substantial and your capability within that, that serve as renewables development seems sufficient? You could potentially raise that pretty significantly.

What do you need to see there to do?.

I think from our perspective, Colin as we have talked about over the years is I am probably a little bit more interested in extending other one or versus saying, listen from five date we are going to move to six to eight or something like that. So to me, I think that as kind of Craig’s team continues to work through development.

And yes, we talked a little bit on this call, that development pipeline becomes a little bit more concrete and we can provide that visibility toward an extension of the runway.

I think, overall, I am proud that we are more interesting in saying this, so we can now show dividend per share growth at our 5 date out through, yes, insert a date longer than 2023. That’s probably the way we would go..

Okay, that’s helpful. And then given what’s going on with the energy storage market and the tightness in lithium-ion cells and work at higher value for transportation applications versus similar power applications.

Can you speak to the evaluation process for some of the emerging energy storage technologies like flow batteries, and how that might impact some of your development activities?.

Craig, do you want to comment?.

Yes, sure.

I think, if we are looking at deployment vintages, through 2024, for the type of scale projects, we are advancing, lithium-ion battery technologies will be the technology that makes up what’s built, because of the finance ability and constructability and our ability to be able to predict their operations and the essential nature of that technology when you are looking at a resource adequacy contract, in terms of the importance of its ability to perform.

As you look to the 2025 and beyond vintage, there is certainly out in California, a market that’s taking shape for something in that six hour to eight hour duration, where potentially alternatives to lithium-ion technology could be preferable from a cost and performance perspectives.

You are certainly right Colin that automotive demand and the price points that automotive applications can pay will push price up for lithium-ion comparatively.

I do tend to think from our own experience over these last couple of decades and the way that we saw solar module technologies evolve that we will continue to see that lithium-ion technology supply chain be pretty competitive and presenting offerings, both in terms of the volume it can deliver, but also the embedded costs and total cost of ownership that we have baked into an offering of a six hour to eight hour product offering for load serving entities.

We are evaluating some of the same things that I think you are asking about. I certainly see promise in some of them.

And what I think companies like us and others will need to do is to support those technology providers in demonstrating their manufacturability and their deployment and their operations at some modest pilot scale, so that then we can have sufficient confidence to be able to take that technology into offerings and scale and financing and construction.

So, I still expect that you will see companies like us that are doing gigawatts worth of storage, deployment and development for load serving entities that need to be able to call on the resource to have lithium-ion be the main states for the mid part of this decade.

But, we are going to continue to evaluate whether some of these other technologies can be built at scale and can be financed and it would be great to see some complimentary offerings out there..

That’s super helpful. Thanks so much, guys..

[Operator Instructions] There are no further questions at this time, presenters please continue..

Thank you, everyone for your time and look forward to talking next quarter. Appreciate it. And once again, apologies for technical difficulties. Take care..

This concludes today’s conference call. Thank you for participating. You may now disconnect..