Clearway Energy - Q2 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Clearway Energy, Inc. Second Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one,one on your telephone and wait for your name to be announced. To withdraw your question, please press star one,one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Sotos, President and CEO.

Christopher Sotos (CEO)

Good morning. Let me first thank you for taking the time to join Clearway Energy, Inc.'s second quarter call. Joining me this morning are Akil Marsh, Director of Investor Relations, Sarah Rubenstein, CFO, and Craig Cornelius, President and CEO of Clearway Energy Group, our sponsor. Craig will be available for the Q&A portion of our presentation. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the Safe Harbor in today's presentation, as well as the risk factors in our SEC filings. In addition, we 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 four.

Clearway had a soft first half of the year as weather and renewable resource conditions deviated substantially from historical averages across most geographies. For the second quarter, Clearway generated $137 million of CAFD with the lowest quarterly wind production in the company's history. As we look ahead to the balance of the year, we are updating and reducing our full-year guidance to a range of $330 million-$360 million, which accounts for our first half results and reflects a range of potential outcomes in renewable resources and weather impacts on load. While results have stabilized in July and are materially on plan for the month, we are cautious given the weak renewable resource and relatively mild weather in California through June.

Nonetheless, enabled by our prudent financial management, Clearway is announcing an increase in its dividend of 2% to $0.3891 per share in the third quarter of 2023, or $1.5564 on an annualized basis, keeping on target to achieve the upper range of our dividend growth objectives for 2023. Despite our challenges, Clearway continues its focus on growth in long-term CAFD and our asset base. In terms of drop-downs from Clearway Energy Group, we recently committed to acquire Cedar Creek Wind for $107 million at a greater than a 9% CAFD yield, as well as Rosamond Central Storage for $32 million and approximate 11% CAFD yield. As such, we are raising our pro forma CAFD outlook from $410 million-$420 million.

In terms of our continued growth trajectory, our sponsor's pipeline has grown to over 30 gigawatts, including 6.9 gigawatts of late-stage projects expected to reach COD in the next four years. We continue to work toward binding commitments on the remainder of Drop-Down 24 with Texas Solar Nova, which will have an estimated capital commitment of $40 million. Working with Clearway Group on Drop-Down 25, that begins our deployment of $220 million of capital commitments. We have received our first offer on these assets in the form of Dan's Mountain, a wind farm with a target completion at year-end 2024 and a greater than 9% CAFD yield. Offers of subsequent Drop-Down 25 assets are anticipated from our sponsor over the balance of the year, with the contribution of those assets targeted to provide a CAFD contribution consistent with our goals.

Here at Clearway, we are keenly aware of the capital market volatility of recent months. I want to reiterate a key point on capital, which is we have enough cash to fund our line-of-sight drop-downs that underpin our 2.15 per share long-term target. Clearway also benefits from an undrawn revolver, excess cash flow generation, and unused leverage capacity to fund additional growth through this volatile period. In summary, Clearway continues to execute its growth plan with a very strong internal liquidity profile, so it's well-positioned to grow beyond the 2.15 CAFD per share, combined with a DPS growth rate in the upper range through 2026. Turning to Slide five to provide an overview of our recent capital commitments. On the left side of the page, review Cedar Creek Wind, a 160-megawatt Idaho project underpinned by a 25-year busbar PPA for investment-grade utility.

This project should produce $10 million of CAFD annually for an approximate 9.3% CAFD yield once these commercial operations targeted for the first half of 2024. On the right side of the page, our Rosamond Central Battery Storage Project is co-located with the Rosamond Central Solar facility. This project is expected to require $32 million of capital with an approximate 11% CAFD yield once these commercial operation in the first half of 2024. This represents our continued diversification into a new asset class beyond wind and solar, with CWEN owning or committing to invest in over 550 gross megawatts of storage today. In summary, we continue to advance our growth objectives with these two high-quality capital commitments. Slide six provides an update about our path to invest the thermal excess proceeds and achieve our growth targets.

With our announced investments in Rosamond and Cedar Creek, our pro forma CAFD outlook now increases to $420 million, with our remaining capital targeted for investment in Texas Solar Nova and the anticipated $220 million of commitments in Drop-Down 25, offered from Clearway Group, of which the recently offered Dan's Mountain represents approximately 35% of this future commitment. Despite our current challenges due to poor renewable resources in the first half of the year and ongoing capital market volatility, Clearway remains on track regarding continued executions towards this $2.15 CAFD per share goal and beyond. Now I'll turn it over to Sarah. Sarah?

Sarah Rubenstein (CFO)

Thanks, Chris. On page 8, we provide an overview of Q2 results, including Adjusted EBITDA for the second quarter of 2023 of $316 million and Cash Available for Distribution of $137 million. These results reflect the previously disclosed historically low wind production that resulted in an approximately $30 million reduction to second quarter revenue, including a decrease as compared to expectations of approximately $16 million for the Alta projects. Results at the conventional segment were also below internal expectations. The Marsh Landing and Walnut Creek facilities, whose initial tolling agreements ended in May and June, respectively, generated lower than expected merchant energy margin in the quarter because of milder than normal temperatures.

Despite the first half challenges impacting CAFD, the company remains well-positioned for growth, with its long-term CAFD per share outlook intact, a strong balance sheet, large revolver capacity, and pro forma credit metrics in line with target ratings. There continues to be no external equity needs for line of sight growth to meet the $2.15 of CAFD per share and resultant dividends per share objectives. Moving to page 9, we provide a walk from our previous 2023 full-year CAFD guidance of $410 million to our revised guidance range. Starting from the left, the first quarter of 2023 reflected lower solar irradiance due to above average rainfall in California, which resulted in lower than normal solar revenues.

First quarter 2023 results also reflected extended outages at the conventional facilities that reduced capacity revenue and increased maintenance costs compared to expectations. As previously noted, second quarter reflected historical low wind production, yielding a decrease in revenue compared to expectations of approximately $30 million, with a material shortfall at the Alta facilities, along with generation underperformance across all wind facilities in the portfolio. In addition, the conventional facilities generated lower than expected merchant energy margin due to milder than normal temperatures. The impact of the first half of 2023 results led to a revision to full-year 2023 CAFD guidance, down to a range of $330 million-$360 million.

We have observed more normal wind production trends for the month of July, while we have not altered our long-term view of P50 median production estimates, the revised guidance range reflects the possibility that renewable resource may trend lower than normal for the balance of 2023, given the more volatile renewable resource experienced in 2023 thus far. The guidance range also reflects a sensitivity for merchant energy margin at the conventional facilities for the remaining summer months. While temperatures increased during the month of July, the company cannot predict how weather, as well as other factors, such as gas prices and the availability of other generation sources, may impact energy margin at the conventional facilities. Finally, the revised guidance range reflects the expected timing of committed growth investments, including estimated project CODs. With that, I'll turn it back to Chris for closing remarks.

Christopher Sotos (CEO)

Thank you, Sarah. Turning to page 11. Due to the challenging first half of the year and potential volatility in the back half of the year, we will be unable to achieve our original CAFD guidance of $410 million. While we do not control the weather, all of us within the Clearway enterprise take this very seriously and are continuing focus on improving results and forecasting in both the short and long term. Despite these challenges, we remain on track to support the upper range of our 5%-8% long-term dividend objective. As discussed in previous years, the rationale for our long-term payout ratio of 80%-85% is precisely to manage through years like 2023, so that Clearway can continue to grow its dividend based on long-term cash flows without undue financial stress, despite periods of short-term negative weather volatility.

In addition, Clearway continues to work through commitments for the remaining drop-down offers from October of 2022, with our investments in Cedar Creek Wind and Rosamond Central Battery Storage, and our first offer on the next batch of drop-downs with Dan's Mountain. We expect to have commitments completed for all drop-downs that underpin our $2.15 CAFD per share line of sight by the first half of 2024. Beyond the $2.15 of CAFD per share, we continue to add projects such as the Cedar Hill Repowering that was discussed last quarter, the extension of resource adequacy contracts on our California fleet, and continued improvement in our operational performance. In conclusion, 2023 thus far has been a difficult year for Clearway, given the weakness in renewable resources and volatility in the capital markets.

While these headwinds impact us currently, Clearway Energy has always been about the long game, about compounding our dividend over time that leads to stock price appreciation. The foundations of this long-term growth are still intact. Strong sponsorship in a key growth sector of America's infrastructure, significant development capital spent to provide growth opportunities for Clearway Energy Inc, and a disciplined capital and investment approach. As Clearway celebrates its 10th year of existence, our ability to withstand and grow through these challenges and has been demonstrated in the long term. Operator, open the lines for questions, please.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. One moment for questions. Our first question comes from Julien Dumoulin-Smith with Bank of America. You may proceed.

Julien Dumoulin-Smith (Senior Research Analys)

Hey, good morning, team. Thanks so much for the time. I appreciate it. Hey, Chris, obviously, you're, you know, you're talking a lot about the, the challenges, past tense here through the first half of the year. Can you talk a little bit more about, sort of today, mark to market, if you will, through part of the third quarter? How are trends continuing, across the portfolio in terms of renewable generation?

Christopher Sotos (CEO)

Sure. I think as I mentioned in my comments, you know, July was on track for plan, so we didn't see a significant deviation on a CAFD basis for the portfolio as a whole. I think, you know, August, it's early days, you wanna get a full month in there, but July was on track. We're hoping that the weakness we saw in the first half of the year has abated.

Julien Dumoulin-Smith (Senior Research Analys)

Got it. Oh, yeah, I see stabilized here. Yep, then, more to the point, in terms of the capital market backdrop, you alluded to the challenges at the same time. You know, clearly, transaction multiples in the market have come in. How do you see that as transforming and impacting the plan that you described or reaffirming here today in terms of acquisitions and acquisition multiples? I mean, obviously, there's puts and takes in terms of your financing plan, but can you speak to a little bit what the transfer multiples or acquisition multiples you were contemplating past tense from the plan versus today, if you will?

Christopher Sotos (CEO)

I don't think they've shifted that much, given, I think, kind of what you're saying, Julien, maybe phrased differently, is a lot of the volatility in the 10-year Treasury has really shown up past two weeks, depending on how you look at it. From my perspective, a lot of the multiples we were looking at in terms of the acquisition, which are very similar to what we have for drop-downs, really hasn't changed that much. I think for us, yeah, I don't know if what we're seeing in terms of about a 4.10%, I think, 10-year Treasury environment currently, versus call it a 3.7%, 3.8%, maybe 3, 4 weeks ago, if that's transferred through, we'll sell or, you know, price expectations to date.

Long way to way of saying, I don't think it's impacted us that much in the current period, but we'll have to see how sticky this treasury environment is and if it translates to M&A multiples.

Julien Dumoulin-Smith (Senior Research Analys)

Right. Your point is, despite seeing so-some transactions in the quarter here at perhaps lower headline multiples, you wouldn't necessarily read into those as being indicative of the wider trends, right? They're more discrete to specific portfolios and the issues that might otherwise be embedded in them, if I hear you right.

Christopher Sotos (CEO)

Correct. I don't think you can extrapolate based upon the past 3 weeks of treasury volatility, there's capitulation in the M&A market in terms of new levels.

Julien Dumoulin-Smith (Senior Research Analys)

Right. More import- more specifically, transactions, actioned through the, the balance of second quarter here, if I hear you right.

Christopher Sotos (CEO)

Correct.

Julien Dumoulin-Smith (Senior Research Analys)

But, um-

Christopher Sotos (CEO)

Correct.

Julien Dumoulin-Smith (Senior Research Analys)

Then, it's just lastly here, if you don't mind, super quick, on, just the backdrop in California, I mean, data points continue to accrue, across the forward curve at very robust prices, if not higher, on higher quarter-over-quarter. Again, would love to come back to how you're thinking about your commercial strategy here, and then ultimately, extending out your, your outlook, too.

Christopher Sotos (CEO)

Sure. A couple different questions there, Julien. I'll try to unpack it. I think to your point, you know, some of the forwards are still very strong in California. However, I think as we're, you know, all familiar, you know, with peaking assets, when it occurs, runtimes, and exactly what the peak price achieved are critical assumptions in determining profitability. Right now, you have a relatively cool environment in California. That's supposed to heat up kind of back end of next week or middle of next week. I think in terms of runtimes and seeing really where we're at, it's probably much more a next week event than in current. For us, you know, while, especially the comments I gave, you know, July was kind of on plan, you know, it was tough for some days, then came in really well other days.

This is the nature of peaking assets. I think for the remainder of the year, we feel pretty good about where we're at. Once again, it's highly not telling you anything you don't know. It's highly dependent on the weather, highly dependent on duration and severity of that weather. In terms of the longer term, you know, RA pricing, as we've talked about over the year, we bid in as part of the RFP conducted by the utilities, you know, in the second quarter. We anticipate getting any results, and announce those on the November call.

Julien Dumoulin-Smith (Senior Research Analys)

Understood. Assets running okay in California here?

Christopher Sotos (CEO)

Yes.

Julien Dumoulin-Smith (Senior Research Analys)

Excellent. Wonderful. Thank you, guys. Good luck.

Operator (participant)

Thank you. One moment for questions. Our next question comes from Mark Jarvi with CIBC. You may proceed.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Thanks. Morning, everyone. Just, just coming back to the last commentary on the California assets, just when you think about your guidance, is there any changes at all went into the guidance here now around expectations for energy margins in the back half of 2023?

Christopher Sotos (CEO)

Not in terms of the baseline number. However, it does help inform the range if kind of some of the, you know, cooler weather that I talked about, were to appear. May answer your question, it doesn't really change our pinpoint estimate, but in terms of helping inform the range, yes, it does.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Then when you think of the, the range, specifically those assets, what, what do you think, obviously, there's the renewable assets, which brings more variability, particularly wind, but what's the sort of, I guess, the range you think is conventional in terms of swings, in terms of CAFD expectations for the balance of the year? Is it?

Christopher Sotos (CEO)

I don't know.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Is it-

Christopher Sotos (CEO)

Yeah, I don't think

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Is it, is it narrower than the broader range you've given, or is it about the same in terms of that sort of $30 million range?

Christopher Sotos (CEO)

I would say it would be within the range given. It's not as though that the wind would or, you know, renewable assets would kind of offset, a deviation in the gas fleet, if that's where you're going. It's not as though the deviation is wider than that. The deviation on the conventional would tend to be within that range.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Got it. Then just in terms of the offer here on Dan's Mountain, 9% CAFD yield, you know, what informs that? A bit lower than where I think the 9.5% range, you know, stocks trading at 8.5%. How do you think about that transaction relative to your own, you know, currency in terms of your share price, what you'd be buying back stock at? If there's anything around the funding plan, you could optimize to bring up that CAFD yield over time with Dan's Mountain.

Christopher Sotos (CEO)

Sure. A couple different questions there. I'll try to unpack that. I think part one, you know, for Dan's, we've put approximately in these for a reason, you know, sometimes ends up 9.2. The big point is, when we first talked about Drop-Down 24 and Drop-Down 25, we talked about those on a weighted average basis being about 9.5 for the entire fleet. Some of those are gonna be below the 9.5. Some of those, like Rosamond BESS, are, you know, at 11. I think the key point is, you know, when we say 9.5, it doesn't mean every asset is gonna be 9.5 or greater. That's the portfolio as a whole. Some being a little bit lower, some being higher.

I'd say it's consistent with how we viewed things overall. Second, basically, I mean, the asset is pretty attractive with a 12-year contracted basis. Once again, you know, longer is better, but 12 is pretty strong in today's market. Overall, we think that that's, you know, once again, subject to diligence and, you know, going in front of the GCN and the like, you know, that, that number doesn't surprise me, nor do I view it negatively. To your point around stock buybacks and the like, that's something we look at.

I tend to think that as long as we can continue to find accretive acquisitions or drop-downs from our sponsor, those tend to still be a better form of investment because it helps diversify the portfolio, broaden it out, and then also keep adding to our PPA tenor and the like. If we were to, you know, let's say, stop doing, you know, drop-downs and focus solely on stock buybacks, you know, through time, that PPA duration would kind of walk in on you a bit. I think with, you know, the acquisitions that we just talked about, actually, the drop-downs we just talked about with Cedar Creek and Rosamond, as well as hopefully Dan's Mountain, you continue to see kind of that PPA duration being, being done on an accretive basis for drop-downs versus dilution.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Okay, that makes sense, Chris. Just coming to the, the dividend increases, obviously, you've talked about not needing equity to, you know, hit the 2.15 and drive 8% dividend growth. Given where the, the, the stock's gonna trade now and market conditions, if you're not being rewarded for the increases, do you start to moderate down to the lower end, or do you just take the long-long-term view and stick with the plan, you're at 8% for the foreseeable future?

Christopher Sotos (CEO)

Sure. I think, you know, subject to moving conditions, I would inform your answer by a couple of things. One, as I talked about in response to earlier questions, I think we all need to see where the treasury market kind of settles out at. This, this kind of four handle has been a pretty recent phenomenon, which I think has driven some of the weakness in the stock. Part one is, you know, where do treasuries kind of stabilize? Part two, to me, the difference in growing, let's say, at 6 versus 8, to come up with, you know, a, a number that's lower than eight for purposes of the conversation, isn't a significant deviation in terms of, you know, significant cash that's left on the balance sheet, right?

$410 million of CAFD, every 1% is $4 million of CAFD, so a 2% difference in growth is about $8 million. It's not a paradigm shift in saying, "Well, we have a lot more cash on the balance sheet with which to basically, you know, invest in assets or like." I don't see the dividend growth rate and changes in that really driving a significant deviation in retained cash that can be available for investment. To your question around, you know, how do we think about moderating that in the future? That I think will be based upon. You know, if, if, if we're never valued for it, right? I think that's, that's, that's pushing the envelope.

If, for example, you know, the market just doesn't value dividends anymore, which, to be clear, I do not think is the case currently, then we take, kind of take a look at it again. I think right now, we're comfortable with the long-term growth rate. We're comfortable with the high end of the range, and everybody uses 8, but just to be clear, it's kind of 6.5-8, is the high end of our range. Third, you know, I still see value in the dividend in terms of our equity holders. I think we just need this tenure to settle down a bit, and then we'll kind of see where we're at.

Mark Jarvi (Managing Director and Senior Equity Research Analyst)

Okay. All right, I'll leave it there. Thanks for the time today.

Operator (participant)

Thank you. One moment for questions. Our next question comes from Angie Storozynski with Seaport Research Partners. You may proceed.

Angie Storozynski (Managing Director and Senior Equity Research Analyst)

Good morning. One question on, on the gas plans. Could you comment on the dispatch of the assets and how it differs versus, you know, what we saw for the outputs from, from these assets under the tolls?

Christopher Sotos (CEO)

I can't really say there's a difference that can really be identified, Angie. Obviously, the tolling entities probably ran them differently based upon what they're seeing in their portfolios, versus us just taking market signals. Yeah, I will say... It's also a little bit difficult because obviously we've only got, you know, really two months of, you know, full data, maybe three, and also not around the full fleet. I, I don't know if there's a really good basis for that comparison, Angie, to be fair to your question.

Angie Storozynski (Managing Director and Senior Equity Research Analyst)

Okay, I understand. Then, changing topics on, on the CAFD per share expectations. I'm looking at your holdco debts and maturities and, and, and where these bonds currently trade. I know that some of them are 2028 and, and, and further out, but, I mean, is there a plan how to absorb the incremental interest expense from that refinancing and that, you know, CAFD per share projection?

Christopher Sotos (CEO)

Sure. I think to your question, if I'm answering correctly, the corporate bonds are in 2028, 2031 and 2032. I think while, again, you know, that gives us some time to continue to grow the portfolio, you know, if in the end, Angie, if those things are, you know, yielding 9, it may make sense to buy those back at that period of time, because you obviously have a pretty strong, capped yield at that point. I think for me, you know, A, we've got a bit of time between now and then. Two, one way to manage those is continue to grow the portfolio. Third is, you know, obviously the other two are very long dated with 2031 and 2032. Hopefully that answers your question.

Angie Storozynski (Managing Director and Senior Equity Research Analyst)

Yep. Thank you.

Operator (participant)

Thank you. Our next question comes from Noah Kaye with Oppenheimer. You may proceed.

Noah Kaye (Managing Director and Senior Equity Research Analyst)

Hey, thanks. Second questions. Maybe just a little bit of cleanup math here, following prior questions. I mean, the, the midpoint of your revised guide, you, you've got the 1Q 2023 plus 2Q 2023 numbers in that deck very clear, and then there's basically another $5 million, slightly lower CAFD at the midpoint, in the back half. Is that, is that the right way to think about, you know, the potential-

Christopher Sotos (CEO)

That's correct.

Noah Kaye (Managing Director and Senior Equity Research Analyst)

For, you know, lower energy and. Okay. you know, the way-

Christopher Sotos (CEO)

Yeah, the way I would put it, Noah, is-

Noah Kaye (Managing Director and Senior Equity Research Analyst)

Yeah.

Christopher Sotos (CEO)

The way I would put it, Noah, is given the first half results, we kind of skewed the range a bit to the downside, just taking into account the first half of the year. Once again, I think to some of the other questions, fortunately, we haven't seen the weather patterns that persisted in the first half of the year in July. We're hoping the trend in July continues, but yeah, long way to go.

Noah Kaye (Managing Director and Senior Equity Research Analyst)

Just a little bit of conservatism, basically.

Christopher Sotos (CEO)

Yep

Noah Kaye (Managing Director and Senior Equity Research Analyst)

off the first half. Then just not, not changing your view, or actually, I mean, you increased your, pro forma CAFD view because of those portfolio additions, but not changing your view of, you know, the existing portfolios, you know, pro forma, long-term, EBITDA, CAFD. I, I guess what, what underpins that at this point? You know, you talked about this being historically low quarter for wind production. Obviously, some mean reversion would, would be implied, but, you know, as a company that is generally investing on the right side of, you know, climate change, you know, you, you certainly have to look at some of these weather patterns and wonder, is, is there anything to be concerned about? Talk to us about your assessment of the portfolio and how hard you're kind of testing those long-term assumptions.

Christopher Sotos (CEO)

Sure. Part one is typically any long-term assumptions, we'll update in November. Just to be clear, it's not as though we don't see any adjustments at all occurring, just simply we don't do that kind of every quarter. We do that comprehensively in November, which takes into account, you know, any revisions to P50s, which we've done in, in previous years, cost increases, merchant curves, any extension of RA contracts and the like. Part one is that the long-term view is typically done in November, where we comprehensively bring everything else down. Part two is, I think to your question, you know, for us on long-term data, you know, also if you look back at our historical, production indices, with the exception of this year, they really do oscillate around 100.

You kind of have, you know, 93 and on, and excuse me, 103, beg your pardon, and 97 showing up. You do see kind of that oscillation around 100. Pick your year, some better, some worse. I think for us, it's really about continuing to get longer-term data and refining that. In terms of, like, are our models necessarily wrong? Not when we get enough data in them, no, and that's kind of what we would use Alta to demonstrate that. I do think just this year is so. You know, I, I, I think, not to minimize the question, there's a reason that we kind of don't maximize leverage. There's a reason we don't maximize payout ratio, right? There was questions about dividend growth.

Easiest way for me to generate dividend growth is move the payout ratio to 90, right? Doesn't require anything. I think from my perspective, these years are going to happen, and we try to basically run things in terms of being able to manage that. To me, you know, I would actually, you know, I'm not gonna argue it's a positive, obviously, but, you know, given the weakness of this year, to view that we were able to, you know, amortize all project debt, pay off all corporate interest, and still generate at the midpoint, you know, $345 million of cash, despite, you know, a P90 or P85 year in multiple parts of the fleet and some weakness in conventional. Don't get me wrong, you know, wish it was higher.

Not making that point, but I think it actually shows the robustness of the system to deal with these weaknesses that we are gonna see over a 10-year period once in a while in terms of the book.

Noah Kaye (Managing Director and Senior Equity Research Analyst)

Appreciate that. One last question, if I could. You know, you know, just with Rosamond, you have the 15-year, you know, RA agreement in place with the, obviously, high-quality IOU. What kind of attributes do you need to see to invest in, you know, additional standalone storage projects? Assume you need some elements of long-term revenue visibility, you know, hopefully in a, a desirable market. Just, just walk us through how you think about, you know, the investability of standalone storage.

Christopher Sotos (CEO)

Sure. I, I think if you're saying to invest in standalone storage purely on a merchant basis, where capacity and energy are open, that's probably tough for us, unless it, like, fits in with other parts of our book where we're trying to mitigate positions or scarcity pricing. I think kind of step one from our view is that if you were to say, "Hey, what's the likelihood of Seawind investing in 100% merchant storage that's, you know, not integrated with the rest of its portfolio?" That, that's not a probable place we're gonna invest. Secondly, I think that because storage is a little bit, you know, nascent from an asset perspective, the significant, I think we use the term, like, you know, significant majority of the economics are from the capacity side of things.

We don't wanna bet a lot on, let's say, merchant energy. Not that we don't need any. That would be a little bit too positive, but we're really trying to mitigate that through contracting as long as we can on the capacity side of things. From our view, you do need kind of that merchant dispatch, but it's not we're not gonna take a 75% bet in terms of economics on the merchant portion of it either. Is that, if that's kind of your question?

Noah Kaye (Managing Director and Senior Equity Research Analyst)

Yep, that's very helpful. Thank you.

Operator (participant)

Thank you. I'd now like to turn the call back over to Christopher Sotos for any closing remarks.

Christopher Sotos (CEO)

Thank you. Once again, appreciate everyone's patience during this difficult year. I think we're working it through, and like I said, you know, July looks to have reversed some of the trends we saw in the first half. We hope it continues. Thank you all for your support. Take care.

Operator (participant)

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