Clearway Energy - Q3 2023
November 2, 2023
Transcript
Operator (participant)
Thank you for standing by, and welcome to Clearway Energy, Inc.'s third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the question queue, you may press star one one again. I would now like to hand the call over to President and CEO of Clearway Energy, Inc., Chris Sotos. Please go ahead.
Chris Sotos (President and CEO)
Good morning. Let me first thank you for taking the time to join Clearway Energy, Inc.'s third 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, our sponsor. Craig will be available for the Q&A portion of our presentation. Before we begin, I'd like to quickly take note that today's discussion will contain forward-looking statements, which are based on the 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'll refer to both GAAP and non-GAAP financial measures. 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.
Given recent market volatility, we wanted to change our customer and investor call format, take a step back to reinforce the strength of our platform, what sets us apart from competitors, and the opportunities ahead of us. As such, first and foremost, critical to the YieldCo model is the difference of the YieldCo's cost of capital compared to that of a development company. This difference has oscillated over time, and despite the current market volatility, our sponsor's historic return targets and recently disclosed development IRR targets by other market participants demonstrate that CWEN's cost of capital remains well below the target returns of a pure developer, preserving this relationship and benefits for both parties. In addition, the sponsors hold approximately $1.8 billion of CWEN shares, ensuring alignment of sponsor interests, the long-term interest of CWEN.
The second ingredient for a successful YieldCo is a strong supply of assets with long-term contracts. While the current volatile capital markets have created some dislocation in the near term, the fundamental strength of renewable assets in terms of transitioning the U.S. away from fossil fuels to green, lower-cost energy has not changed. The demand to transition our grid away from fossil fuels is not diminished. Climate change, a continual challenge for the globe, geared by companies, government's goals of reducing their carbon footprint, while the benefits of the IRA are also still intact. Most importantly, competitively priced renewable generation when compared to the current grid cost of energy, all drive a compelling long-term growth story for CWEN.
As part of these ingredients, we at Clearway work to optimize these larger macro elements in combination with a very straightforward corporate financing model that has underpinned no complex convertible or contingent equity financings in CWEN's capital structure and no need for external capital to meet our DPS objectives through 2026. Pulling many of these elements together, CWEN, and working with the sponsors, has negotiated an increased CAFD yield to 10% on drop-down assets of approximately $230 million of corporate capital deployment that we will discuss later. Importantly, we reaffirm our continued line of sight for $2.15 of CAFD per share, with no need for external corporate capital, and our consistent message over the past several years of visibility to achieve the high range of our 5%-8% long-term target.
Looking beyond 2026, in addition to the strong long-term global development demand we described earlier, CWEN also benefits from having strategic natural gas assets in California that are critical to assisting that state in transitioning away from fossil fuels. As evidence of this value, we have recently been awarded an additional approximate 1.5 years of contracted RA value at strong pricing on a portion of our fleet. This pricing provides a strong foundation for CWEN to continue its growth trajectory in 2027 and beyond, in line with its long-term targets. In summary, despite challenging market conditions, the key elements that underpin a strong YieldCo still exist. Significant cost of capital differences between the YieldCo and the sponsor, strong development spend and demand for renewable assets, long-term contracts, combined with a straightforward capital structure that translates into transparent growth. Turning to slide five.
Critical, critical to the success of the YieldCo model is a strong sponsorship relationship. One key element of this is a cost of capital difference between the YieldCo and development company. Given the return requirements of GIP and TotalEnergies, as well as other recent examples of publicly disclosed development returns, that relationship continues to hold between Clearway Group and CWEN, even in the increased cost of capital environment they're operating in. Clearway Group, which owns 85 million total shares of CWEN, representing approximately $1.8 billion of value, also receives approximately $130 million of dividends per year. It helps fund the entity's development activities to ensure a strong supply of drop-down assets in the future. Importantly, Clearway Group and our sponsors do not have any IDR or other special arrangements to derive value from their relationship with CWEN.
There's the increase in CWEN stock price, dividends paid, and margin on development assets that aligns value optimization for all entities. As evidence of this relationship, Clearway Group has agreed to move the targeted yields on over $230 million of CWEN investments from approximately 9%-9.5% CAFD yield to 10%, providing additional accretion on our redeployed thermal capital and reaffirming our line of sight growth through 2026. Clearway Group continues to invest heavily in development, in line with the line of sight drop-down growth through 2026, as well as flexibility for timing of drop-downs thereafter.... Slide six provides an overview of CEG's 29 GW development pipeline, which has grown substantially in previous years.
This pipeline, which is an important source of growth for CWEN, continues to receive strong sponsor capital deployment to advance development projects that are well diversified among technology types and compatible with CWEN's growth and diversification objectives. The significant sponsor support has been demonstrated in allowing the platform to grow by over 2 GW in the last twelve months and to nearly double in the last two years. The continued importance of scale in this industry is critical to managing through volatile periods, being able to leverage a large development and operational platform to weather these storms. To this point, Clearway Group has been able to procure cost-effective supply agreements, which should enable domestic content qualification and/or reduce interconnection timeline risk for the 2025-2027 pipeline.
In conclusion, the Clearway Group development platform has the benefit of leading scale in its class to leading sponsors to ensure a supply of drop-down assets for CWEN in the future. Turning to page seven. During this period of market dislocation, there have been a number of questions around long-term challenges in development of renewable assets with contracts. While the rapid increase in interest rates since May has created some headwinds in the near term, and as all stakeholders have had to adjust to the capital cost conditions, we do not see this as a long-term impediment to the growth of renewables in the U.S. As a backdrop, renewable industry benefits from a variety of supportive federal and state policies, as well as corporate ESG goals, that drive long-term demand for renewable assets that are not as sensitive to price increases.
In addition, renewable PPAs are still competitively priced versus non-renewable power options. It is not as though an increased cost of capital only impacts renewable assets. It impacts all electricity-generating assets. Importantly, regardless of ESG or RPS standards, renewable assets produce electricity at prices that are competitive with other forms of generation, so are an attractive source of energy in economic terms as well. That being said, all of us within the Clearway enterprise are cognizant of the increased capital costs that impacts all stakeholders during this period of readjustment in PPA pricing. Long-term asset owners like CWEN, tax equity, non-recourse debt providers, OEM suppliers, developers, and PPA offtakers alike.
While we cannot forecast precisely how long it may take PPA prices to increase, we can say the scale becomes ever more important during this period, as it is critical to be able to develop quality, cost-effective projects, and we at CWEN take significant comfort in having Clearway Energy Group as one of the largest developers in the U.S., backed by GIP and TotalEnergies, two of the largest companies in their respective industries, to manage through this period. Simply stated, all of us within the Clearway enterprise recognize that we are in a period that require adjustments by all stakeholders, but we are in a more competitively advantaged position than most to manage through. Turning to slide eight. An additional ingredient for success in the long term is a straightforward capital allocation and financing strategy. As we've discussed through the years, we have a simple capital structure.
With no complex financings require a CWEN common equity conversion or contingent issuance, no need for external capital either to meet our DPS growth through 2026. We are also insulated from current interest rate volatility, with 99% of our consolidated debt fixed through the utilization of interest rate swaps and no corporate maturities through 2028. CWEN also naturally amortizes over $350 billion of non-recourse debt per year, as our debt amortization schedule is designed to limit risk around PPA renewal in different energy market environments, as was recently demonstrated with our three natural gas assets that became merchant in 2023. All of this leads to an overall conservative capital structure that correlates to a BBB/Baa2 rating, has been maintained since 2016 through a variety of challenges and market headwinds.
CWEN's disciplined financial management has provided a strong foundation for sustainable growth through a variety of market conditions. To provide further disclosure around our sponsor support on our latest drop-down offers, please turn to page nine. We are excited to announce that we have a commitment to purchase Texas Solar Nova for approximately $40 million of capital and a 10% CAFD. These projects consist of over 450 MW of solar located in Kent County, Texas, and are underpinned by power contracts that are 18 years in duration with creditworthy counterparties.
In addition, discussions with Clearway Energy Group have been able to come to agreement to modify Dan's Mountain's CAFD yield to approximately 10% from approximately 9%, benefit from a new drop-down 25 offer of three solar assets and an approximate CAFD yield of 10%, compared to the 9.5% that was targeted previously. These high-quality assets are significantly weighted towards solar and storage generation, with fully contracted node-settled unit contingent contracts to reduce volatility from the CWEN fleet. These drop-downs complete the allocation of the excess proceeds from the thermal sale close in May of 2022, and most recently, an increased CAFD yields, demonstrating a long-term alignment of interest between CWEN and sponsors to continue to drive value for shareholders. Turning to page 10. This is a graph that should be familiar to you.
It's a walk of our growth visibility through 2026. Starting on the left side of the page is our prior $420 million CAFD outlook that CWEN will achieve when the majority of the drop-down 24 assets are operational on a full year basis. The second column is a reduction in CAFD of $10 million, we're updating to reflect a variety of factors. Revisions to our P50, given weak wind resources in 2023, increased insurance costs, inflation, as well as other factors. The third column represents a $5 million CAFD increase for our investments in TSN, as well as the incremental contribution of the Cedro Hill repowering prior to 2026, summing up to our updated pro forma CAFD outlook of $450 million.
This, when added to the approximate $20 million of CAFD, drop-down 25, discussed previously, ends at our updated line of sight CAFD of approximately $435 million. Importantly, we are maintaining the $2.15 CAFD per share guidance through 2026 that we've discussed previously. We believe the ability to maintain our long-term CAFD line of sight and our growth trajectory speaks to the strengths of the Clearway platform. Turning to slide 11. Slide 11 provides a summary of Clearway's contracted and open positions in the resource adequacy market through the next four years. We currently have the benefit of approximately 100% of our capacity contracted through 2025, 87% contracted through 2026, and now with 42% contracted in 2027.
As discussed throughout the year, CWEN participated in several RFP auctions and bilateral discussions, and as a result, was able to secure two contracts for approximately an additional year and a half at strong pricing compared to previous contracts. While we cannot disclose the pricing of these contracts due to confidentiality provisions, we can say that the pricing achieved in these contracts were extrapolated with current uncontracted megawatts in 2027 and beyond, that would drive growth in 2027 for the low end of our five to eight long-term CAFD per share growth target, without requiring any other dropdowns for external capital.
This is an important source of potential CAFD growth in the future, and while we view the extension of our RA contracts as strong pricing as an excellent signal of this growth in the future, we feel it is too early to declare victory and incorporate this higher pricing into our 2027 and beyond view. Now I'll turn it over to Sarah. Sarah?
Sarah Rubenstein (EVP and CFO)
Thanks, Chris. On slide 13, we provide an overview of our financial update, which includes CAFD of $156 million for the third quarter of 2023. Based on results incurred to date, as well as forecasted activity through the balance of 2023, we are reiterating our 2023 full-year CAFD guidance range of $330 million-$360 million. We are also introducing guidance for 2024 of $395 million of full-year CAFD, reflecting certain one-time maintenance costs, along with timing of growth investments whose run rate CAFD contributions are achieved after 2024. We will provide further detail in a moment. Our dividend per share growth outlook for 2024 remains aligned with our long-term growth objectives.
For the fourth quarter, we are announcing a dividend increase of 2%, $0.3964 per share, which increases to $1.5856 dividend per share on an annualized basis. For 2023, this reflects full-year dividend growth as compared to 2022 of 8%, which is consistent with our long-term growth targets. In addition, we are announcing a dividend per share growth target for 2024 of 7%, in line with our growth target in the upper part of the 5%-8% range in 2026. Turning to slide 14, we highlight CAFD of $156 million and Adjusted EBITDA of $323 million for the third quarter of 2023. Compared to our expectations, conventional energy gross margin was approximately $11 million lower due to milder September temperatures in California.
Despite lower energy margins, the conventional facilities had strong availability and provided resource adequacy as expected. Solar generation was also in line with internal expectations for the third quarter, while wind generation for the overall Sealand wind fleet was lower than anticipated in August and September. Third quarter CAFD was also to a lesser degree affected by increased seasonal expenses for facilities. Year-to-date, CAFD of $289 million third quarter of 2023 continues to reflect the previously reported historically low wind production and lower-than-expected merchant energy margins with conventional facilities through the second quarter of 2023. The company continues to maintain its full-year CAFD guidance range of $330 million-$360 million. However, we anticipate that 2023 full-year results will fall within the lower end of the guidance range.
The full-year CAFD guidance range reflects potential wind and solar variability for the second half of 2023, and sensitivity for conventional gross margins, the majority of which was reflected in the third quarter results, since the fourth quarter represents a smaller portion of projected results as noted in our seasonality forecast by 2023. Despite the challenges impacting 2023 CAFD, the company remains well positioned for growth, with a strong balance sheet and pro forma credit metrics in line with target ratings. 99% of the consolidated long-term debt has a fixed interest cost, either through fixed-rate debt or through fixed-rate swaps. Due to the proceeds from the sale of thermal, there continues to be no external capital need to fund the line of sight growth or dividend per share growth objectives through 2026.
Moving to slide 15, we are establishing our 2024 CAFD guidance at $395 million. As we walk our 2024 CAFD guidance to our updated pro forma CAFD outlook, we note that we have deferred the timing of the Capistrano debt refinancing until after 2024. Given our sizable cash balance and liquidity position, we have the flexibility to be prudent on the timing of this refinancing, and the incremental principal and interest payments are not in our 2024 CAFD guidance. However, they are reflected in the updated pro forma CAFD outlook. In addition, the $395 million of CAFD anticipated for 2024 reflects one-time maintenance costs and related outage time for required maintenance upgrades at specific legacy wind sites.
These maintenance upgrades are required to return certain facilities to normal availability levels and are expected to have a one-time impact to 2024 CAFD of $15 million. In addition, our pro forma CAFD outlook of $416 million reflects full-year CAFD for all submitted growth investments, including Cedar Creek, Victory Pass, Arica, Rosamond, and Texas Solar Nova. The full year contribution of these growth investments is expected to be approximately $15 million of incremental CAFD as compared to the portion of CAFD realized by these investments in 2024. This is based on the anticipated timing of investment or project COD, the majority of which are anticipated in late 2024.
Also reflected is the $395 million of 2024 full year CAFD guidance, along with the updated pro forma CAFD outlook, our updated P50 renewable production estimates, as well as certain cost increases primarily driven by inflation. These amounts are individually immaterial, and therefore we have not quantified them in detail. In addition, gross energy margins for the conventional facilities are assumed to be materially in line with long-term assumptions previously provided, and no material change has been noted either in the full year CAFD guidance for 2024 or in the updated pro forma CAFD outlook. We continue to estimate long-term gross energy margin is $1-$1.50 per kW month reach limited sensitivity at $20 billion of CAFD per $1 per kW month increase or decrease.
Based on these estimates, we arrive at our 2024 full year CAFD guidance of $395 million and our updated pro forma CAFD outlook of $416 million, which, along with anticipated growth investments using the remaining thermal sale proceeds, supports our long-term CAFD and dividends per share growth target. Now I will turn it back to Chris for closing remarks.
Chris Sotos (President and CEO)
Thank you, Sarah. Turning to page 17. Well, this year has been challenging from a CAFD generation perspective for maintaining our revised CAFD range for 2023 guidance range for 2023. More importantly, during this difficult period, the strength of our platform allows us to reaffirm and continue with our consistently held near and long-term objectives. We achieved DPS growth of 8% in 2023. We are reaffirming our DPS growth objectives at the upper end of our long-term growth target through 2026. We continue to receive support from our sponsors in enhanced CAFD yields over the next contemplated drop-downs and the additional contract length in our natural gas fleet. Our strong prices for getting traction around visibility beyond 2026 to achieve growth in line with our long-term CAFD targets.
While I had intended to be able to provide you with a more precise CAFD per share growth outlook for 2027 and beyond on this call, there are certain variables we think want more clarity on. While the resource adequacy contracting pricing environment is very constructive, we'd like to see how contracting plays out for the open positions in 2027 and beyond. Additionally, as stated before, we and our sponsor have flexibility in timing of drop-downs for growth beyond 2026. Be prudent on timing and structuring drop-downs to effectuate growth beyond 2026 and can wait for the capital market environment to stabilize. Operator, open the lines for questions, please.
Operator (participant)
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julien Dumoulin-Smith of Bank of America.
Julien Dumoulin-Smith (Senior Research Analyst)
Hey, good morning, team. Thank you guys very much. Appreciate the time. Can you guys hear me?
Chris Sotos (President and CEO)
Yes. Morning.
Julien Dumoulin-Smith (Senior Research Analyst)
Hey, excellent. Good morning. Thank you. Look, guys, nicely done on California here. Wanted to just get a little bit of a sense here. Just what are you looking for to provide an update here? I mean, just to pick up where you just left off here. I mean, what specific parameters? Is it California specifically, or is it other drop-downs? And then I have a few specific follow-ups, if you can. And maybe you can give us a little bit clearer sense of what you're seeing in California as well.
Chris Sotos (President and CEO)
Sure. I think in California, and once again, unfortunately, we can't disclose the price due to confidentiality, but, you know, the contract that we had signed previously to kind of be able to give guidance through 2026, you know, we're seeing prices stronger than that when we did those contracts back in the past. And so for us, we feel very good about the ability to extend those contracts by about a year and a half on those two assets into 2027. But as you can see from our charts and the like, we're only about 42% of that capacity hedged in 2027, which makes it difficult to say, here's exactly how CAFD works and here's what we're going to target.
So I think what we tried to talk about on the call was that, you know, if you keep kind of the other variables held constant, if you were to move that 2027 contract that we were able to secure and said we were able to contract the corresponding 58% open position at those rates, we could see being able to hit the low end of our long-term CAFD guidance through 2027. With regard to drop-downs, Julien, which I think was kind of your second question, there, obviously, that's three years in the future. We're at a market that is very, you know, that, you know, now is very volatile currently.
So for us, we've kind of looked at the strong sponsor support we've received in our most recent drop-down discussions, and then we'll kind of see where the market goes over time to move those CAFD deals to what makes sense in the future.
But I think right now, we're kind of very confident and happy with our ability to reaffirm $2.15, continue our, you know, guidance in terms of being able to hit the upper end of the range through 2026, and we're starting to see some good green shoots for 2027 and beyond, just not as tight as we would have liked it when we talked this time last year.
Julien Dumoulin-Smith (Senior Research Analyst)
Got it. All right, fair enough. Excellent. Now, with that said, let me just nitpick a little bit here. Instead of using a greater than, now you're using a tilde on 20 on the 2.15. Can you explain a little bit of what you're seeing? It sounds like a slight reduction in confidence, and that seems despite the higher yield on the drop-down at 10%. So in theory, I would have thought that estimate revisions would have been higher. And then maybe related to that, you tell me if it is or not, it looks like updated pro forma CAFD here goes to 205 from 208, so down $0.03 there.
So, again, I don't mean to nitpick too much here, but I'm curious on the signaling and what's driving a little bit of a reduction, if you will, despite the higher drop-down yield environment.
Chris Sotos (President and CEO)
No, no concern, Julien. There's a reason we try to map it out all for you. The question-- Yeah, welcome to the question. I think to your-- You know, it's not as though we have less confidence in the $2.15. It's just before, like, we are giving you a point estimate three years out, so we might be a cent high or low in terms of rounding and the like. The real driver behind the reduction from what you saw before, from kind of a $4.40 to $4.35, is really around the $10 million that we took as a result of, you know, the P50 results we saw in 2023. You know, insurance is a little bit higher and other costs. So that's the main source of that deviation that you're mentioning from what maybe you saw previously disclosed.
Obviously, kind of we're not happy with that, but as we talked about during this year, we incorporate actual performance into our estimates. We try not to just be theoretical. We actually take into account what's going on. 2023, stating the obvious, has not been a good year from wind resource or solar resource perspective. So we've taken into account going forward to make sure we can kind of tighten down our math.
Julien Dumoulin-Smith (Senior Research Analyst)
Okay, fair enough. It doesn't sound like there's anything too specific there, from what I can tell. And then maybe just-
Chris Sotos (President and CEO)
Sure.
Julien Dumoulin-Smith (Senior Research Analyst)
It seems like -- and then the drop-down here, the wind drop-down, do you mind talking about it? It seems like there's a higher yield, but a higher valuation. Or sorry, I think I said that right.
Chris Sotos (President and CEO)
Yeah. There's more capital just because of how it's structured at the end. For us, we're looking to really target the overall deployment. You know, for us, Julian, a lot of people kind of count megawatts. We're much more concerned about how much capital are we deploying at good quality projects with good accretive CAFD yields. So for us, to your point, the way it was finally structured resulted in a little bit higher capital deployment. But because it's also at a higher capital yield, a CAFD yield, I'll take it.
Julien Dumoulin-Smith (Senior Research Analyst)
Okay. All right, fair enough. Excellent, guys. Well, I appreciate your patience this morning, and good luck, and hopefully next year or next quarter, we'll get an update at last, as you nail things down.
Chris Sotos (President and CEO)
Well, I think once again, Julian, you know, those RA contracts, they take time to basically, right, we'll participate. You know, well, we're always engaged in bilateral discussions. The RFPs, as you know, kind of happen in June or a little bit before, during the year. We get our awards in November. So I don't think there'll necessarily be that many major updates between now and, let's say, the February call. But I think for us, as we continue to see if this market environment settles down and we can have more clarity around what drop-downs may look like, in addition to more RA megawatts being contracted, that's what will kind of give more clarity around 2027.
Julien Dumoulin-Smith (Senior Research Analyst)
Excellent. Okay, thank you, guys. Cheers. Speak soon.
Chris Sotos (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Angie Storozynski of Seaport. Please go ahead, Angie.
Angie Storozynski (Senior Equity Research Analyst)
Thank you. I just wanted to say, you know, well played. This is how you do it, basically. You pace yourself with the dividend growth. You just lived within your means, and I'm hopeful that the stock will reflect this reality versus what we're seeing at other Yieldco's. So, now, as far as the growth is concerned, so obviously you have a sponsor that is supportive and willing to adjust the CAFD yield for the current interest rate environment. But how about, you know, maybe organic growth, any sort of repowering or expansions of existing sites, something that you could do on your own?
Chris Sotos (President and CEO)
Sure. We look at that all the time, Angie, and I think what we've talked about is, you know, Cedro Hill is a repowering, so we have some of that built already. I think for us, and a little bit further discussion about the volatile and capital market environment that you referenced, we kind of really need to see where we need to source new capital. As part of my prepared comments, we've kind of worked through all of the excess capital that we received as part of our thermal disposition. And so for us, in looking at repowerings and kind of Craig's team and looking at what PPA can you renegotiate, what are turbine prices and the like, there is some of that organic growth, but as I've commented previously, it's not like we have 2 GW that can be repowered in the next two years.
Our main source of organic growth is really in that RA pricing. I think for us, given the hedges that we did before, in order to contract through the middle of 2026, that's probably where you have your main, you know, organic CAFD generator, is depending on where those RA prices go in 2027 and beyond.
Angie Storozynski (Senior Equity Research Analyst)
Okay, and then changing topics, obviously, the 2023 has been a challenging year for actually a number of assets, but, you know, the results for the thermal assets were weaker than expected. Now, how much of that weakness or lessons learned have you incorporated in your 2024 guidance for CAFD?
Chris Sotos (President and CEO)
I think, you know, we intend hopefully a lot. You know, from our perspective, we're much more in line in our 2024 guidance with that, you know, the upper end of that $1-$1.50 we talked about, long-term energy gross margin. Obviously, given when we gave guidance in November of 2022 for 2023, yeah, as you're well familiar, the markets were much stronger for what were expected spikes that, you know, didn't show up in several of the months that we were looking for. So for us, you know, we're materially kind of on the upper end of the range of that lower dollar, dollar fifty, excuse me, upper of the dollar, dollar fifty that we have for long-term EGM guidance. So to your point, we're being more conservative for full year 2024 than we were for partial year 2023.
Angie Storozynski (Senior Equity Research Analyst)
Awesome. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Mark Jarvi of CIBC.
Mark Jarvi (Equity Research Analyst)
Yeah, good morning, everyone. So-
Chris Sotos (President and CEO)
Morning.
Mark Jarvi (Equity Research Analyst)
Tell me as you think about, you know, expanding the time horizon for growth, you've got the thermal proceeds fully deployed now. Obviously, balance sheet funding clarity is really important in today's markets. How do you think about, as you extend that runway and you think about future drops, communicating the funding plan in terms of how much clarity you can give and I guess how prescriptive you can be in terms of how you match funding with asset growth?
Chris Sotos (President and CEO)
Sure. I, I think we've always been pretty prescriptive in how we viewed it. You know, we have an undrawn revolver currently with significant liquidity underneath it, so if we had to fund something, we could on a temporary basis. But I think, you know, how we'd fund it is in line with our long-term view, at about 4x to 4.5x would be a corporate debt number of the corporate capital, the remaining being equity, obviously using any excess cash we have in the system first. So I don't really think we'd look to deviate from that long-term funding model that, you know, has been successful in a wide variety. We may need to warehouse some facilities depending on where the volatility is for a period of time.
I think for us, we wouldn't deviate from our long-term funding model that, you know, has worked over a number of years.
Mark Jarvi (Equity Research Analyst)
So I guess you'd be okay with, you know, if you saw, say, a $200 funding gap for equity to hit your targets and say it's sort of a bit TBD in terms of the sources, you'd be fine with sort of laying that out there? And I guess if you saw the need for internal equity, would you, you know, be open to things like an ATM or something like that, as you march forward?
Chris Sotos (President and CEO)
Yeah, I mean, we've used ATMs before, which we think are a very effective equity funding mechanic. We've done smaller, you know, kind of issuances as well. So I think we do things very consistently with how we have in the past. I wouldn't anticipate any deviations. I just think that maybe kind of to where your question is going, given how volatile things are currently, we may seek to kind of use our revolver more, depending on size, to hold facilities, until kind of markets settle down and take a much more measured approach to getting that long-term capital deployment, given current volatility.
Mark Jarvi (Equity Research Analyst)
Okay, that makes sense. Thanks, Chris. And then just on the conventional units, as you continue to operate them, as you see these RA processes and the contracting processes play out, sort of any updated thoughts in terms of ways to optimize them from a commercial strategy? And just curious in terms of the amount of capacity you secured into 2027, what could you have gotten more or was it just a trade-off with price? Just kind of understanding the depth of the market and opportunities you're seeing right now in terms of contracting.
Chris Sotos (President and CEO)
Got it. Yeah, it is very focused on price. You kind of... Yeah, and apologies if you already know all this, but you kind of bid in on an auction basis and kind of see what you get awarded. We typically give kind of, you know, one- and 1.5-year bids and three-year bids, a combination of different price points to kind of see what the customer wants. The customer at the end chooses what price they're looking for and tender. So to your point, it's not as though we could really optimize that conversation because it is a well-attended auction, but we provide a number of price points as part of our submission, and at the end of the day, the customer picks the price point that they thought made the most sense.
Mark Jarvi (Equity Research Analyst)
If you could do sort of a retrospective look at how you've bid most recently, do you think there was an opportunity to clear more capacity as you think forward in the next processes?
Chris Sotos (President and CEO)
I don't think there's the ability to clear more, just because what, and not to cheat your question, what, what cleared was what's accepted. You kind of don't really-
Mark Jarvi (Equity Research Analyst)
Yeah
Chris Sotos (President and CEO)
Know exactly what demand there is on the other side. So not to cheat your question, that's a little bit opaque for me to say directly what the number is.
Mark Jarvi (Equity Research Analyst)
Okay. And just last question for me, and maybe for Craig. Your view in terms of how tax equity transferability is playing out, how that sort of impacts where you think actually returns could be for projects, and ultimately, I guess, where, and maybe that comes back to Chris in terms of drop-down CAFD yields potential under sort of a transferability scheme on funding.
Chris Sotos (President and CEO)
I'll kind of answer the last part, and then, Craig, we'll let you answer kind of the first part of the question. So in terms of what it means for a CAFD deal, I think that's really an all-in CAFD deal that we'd get. I think, Mark, if your question is, if we're doing new things at a 10% CAFD deal now, would that lead to a 14% CAFD deal? I don't think that's the right interpretation. I think basically all of the components will need to be required because it passes through. As we talked a little bit on the call, the PPA price is affected by the transferability of PTCs, right? They kind of all have to work together in a chain.
So it's not as though that PTC transferability will lead to an economic rent or a significantly above cap market CAFD yield simply due to that. But Craig, I'll, I'll let you answer the first part of the question.
Craig Cornelius (President and CEO)
Yeah, sure. Well, first, the market is really still taking shape and becoming organized, as you may very well know. Both the banks that traditionally provided fully integrated tax equity solutions that would both monetize tax credits and depreciation, are playing roles to provide sponsors like us, solutions to monetize depreciation, while also looking to serve as clearinghouses for the disposition and monetization of tax credits that projects produce. They're certainly an important part of organizing this market. There are numerous...
Other channels that are looking to establish themselves as more direct conduits to buyers of tax credits. And the market structures for how everything from indemnities to timing of payments take place are still forming and stabilizing. And in that environment, as a sponsor that has a strong balance sheet, which we do, we want to make sure that we make smart choices about how and when we fix the structures that we'll employ. Other sponsors may not be in a position to wait. But in the six months since guidance was first issued about how that transferability market would take shape, we've seen the structures and the depth of the market really improve in favor of projects, and we expect that will continue.
So when I look out to the future, my hope is that this market will really do many of the things that were hoped for when transferability was incorporated into the text of the statute, by deepening the range of options that projects have to monetize tax credits. And what we eventually, as an enterprise, will want to do, is to try to come up with structures that we find most efficient for dispositioning the depreciation benefits that the projects we create produce.
Mark Jarvi (Equity Research Analyst)
Okay. Thanks for the time today, and thanks for pulling some other additional materials here in the presentation for us today. Thank you.
Chris Sotos (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Noah Kaye of Oppenheimer and Company.
Noah Kaye (Managing Director and Senior Analyst)
All right. Good morning. Thanks for taking the questions, and appreciate all the incremental, details and disclosures, and, and frankly, the reframing, of the platform here. Points well taken. You called out the Capistrano refinancing timing. I just wanted to ask about the project-level debt, in the portfolio. It does appear like there's a, a fair amount of debt, coming due, over the next few years for some of these projects at the project level. Just how are you thinking about any potential additional refinancing, or are all these basically gonna be paid off at term?
Chris Sotos (President and CEO)
Sure. It depends on the market, to be fair to your question, but I do think that we should be in good shape from a refinancing perspective. So the next two large project refinancing are what's referred to as Nim Solar in 2024, I believe Buckthorn in 25 or 26. So I think Buckthorn is backed by, you know, so it's probably about a 20-year PPA, still underneath it, so we have quite a bit of length there to be able to refinance. The Nim Solar assets, once again, that's kind of, you know, September of 2024. So from our view, that should be able to be refinanced. So we don't... Yeah, not to minimize the question, we, we don't have a lot of concern about near-term, non-recourse, assets needing to be refinanced.
Noah Kaye (Managing Director and Senior Analyst)
That doesn't impact the pro forma CAFD outlook?
Chris Sotos (President and CEO)
If the interest rates are drastically different, it may move it around. But keep in mind, Nim Solar is about $148 million, if I recall correctly.
Noah Kaye (Managing Director and Senior Analyst)
Mm-hmm.
Chris Sotos (President and CEO)
You know, 100-200 basis points move overall is, you know, $30 million. Not to minimize $3 million, but it's not a major driver.
Noah Kaye (Managing Director and Senior Analyst)
Yeah. Just the key point here, right, is that your refi risk both at the corporate level and at the project level is very minimal for the next several years.
Chris Sotos (President and CEO)
Correct. I'm not saying it's zero, but yeah... It's not 10. It's maybe three, depending on where you go.
Noah Kaye (Managing Director and Senior Analyst)
Okay, great. Appreciate adjusting the P50 expectations. Does that generally apply to how you look at, you know, future drop-downs or acquisitions as well? I mean, I'm, I'm sure there is some degree of, of regional resource specificity here with the adjustments. But just talk to us a little bit about how you model in expectations for P50 going forward, and whether that's changed at all.
Chris Sotos (President and CEO)
Sure. Step one, just by way of background, we always ask for an additional return on wind assets versus solar to take into account that volatility. So part one, Noah, to your question, is we, we view wind as a riskier asset in general because of that P50 volatility, and we typically look for a higher IRR or cap yield or both, when we negotiate those, just by way of backdrop. The other part is, we haven't seen anything that we need to change how we model our P50. Those are based upon long-term rates, but I think as we've talked about in previous calls, once you're kind of getting through five years, we try to take a much more what's actual approach on asset than kind of what a statistical model may say.
We're trying to be much more empirical and kind of use the most relevant near-term dataset as we adjust and blend the two. So for us, to your point, while you're looking at future drop-downs or looking at other acquisitions, we try to take into account those deviations between what might be a 30-year, let's say, fiscal model and what we're seeing in the past five years, try to add on a premium for wind in certain regions that are showing more volatility. But once again, we're trying to get that as tight as we can. We take recent events into account. That's one reason you see the revision, but it really is trying to be comprehensive between, you know, not overestimating what's happened in the past two years either, to make decisions either.
Noah Kaye (Managing Director and Senior Analyst)
Yep. All right. Thanks very much.
Chris Sotos (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Justin Clare of Roth MKM.
Justin Clare (Managing Director and Senior Research Analyst)
Yeah, thanks for taking our questions here. So first off, I just want to ask about the 2024 guide. It looks like about a $15 million impact to the guide as a result of change in the expectation from growth investments. Was wondering if you could just provide a little bit more detail on the project timing and what led to that reduction for 2024?
Chris Sotos (President and CEO)
Sure, I'll let Sarah address it, but I think, you know, for us, we took a look at our 2023 results, and obviously we're not happy with them. And part of that, as we talked about during the year, is due to P50 generation. Some of it's due to availability. So for us, we kind of took a comprehensive look at our overall portfolio, and, yeah, I'll let Sarah kind of reflect anything she wants to, but that, that's really the basis of it.
Sarah Rubenstein (EVP and CFO)
Yeah, and Justin, just to clarify, were you asking about the $15 million of timing for growth investment?
Justin Clare (Managing Director and Senior Research Analyst)
Yeah, exactly. Just, just what led to that? Because it looks like it's impacting 2024, and then it's gonna be a contributor in probably 2025. So just wanted to understand a bit more there.
Sarah Rubenstein (EVP and CFO)
Yeah, it, it's not a change in 2024. It's just a bridge between 2024 and our pro forma outlook, which is supposed to reflect sort of, you know, the full amount of CAFD once the, you know, the drop-downs are sort of up and running and at their full, you know, CAFD amount. So, it's really just a bridge item because we'll only be picking up a smaller portion of those in the 2024 guidance because of the timing of the drop-down or the project COD. So we'll have sort of like a fraction of that CAFD amount, just in 2024. But by the time we get to the pro forma outlook, you know, we'll have the full amount, and that difference is the 15.
Justin Clare (Managing Director and Senior Research Analyst)
Got it. Okay. Okay, thanks for that clarification. And then, just was wondering for, for the projects that you have, committed investments for and then for those that are identified as potential drop-down opportunities in 2024, 2025 here, can you talk about, you know, where you are in the process of securing the permits and the interconnection for these projects? Wondering if there's still risk there that, you know, those factors could cause delays, and just where you are, in that process.
Chris Sotos (President and CEO)
Craig, if you wouldn't mind addressing that?
Craig Cornelius (President and CEO)
Yeah, sure. All of the projects that are listed on the set of committed or potential future drop-down opportunities have existing signed Large Generator Interconnection Agreements and have obtained all of the major permits that would influence their construction, feasibility, or schedule. So, so I think that you could consider the dates that are reflected here high confidence dates. They've also secured all of the revenue contracts that would be necessary for financial closing. We've procured all the equipment for the projects, and we are mature in the course of advancing financial structuring of the projects as well.
Some of those projects now reflect dates that are later than the dates we would have hoped for one year ago, and those reflect observed experience from interconnecting utilities around the country and their ability to execute scope of Large Generator Interconnection Agreements, and also timetables that have been observed as being elongated for the delivery of high-voltage equipment. And we've taken further actions to de-risk timelines for these projects in particular, but also other projects in our pipeline, to address what's being observed in terms of interconnection timelines as well. So we think these are pretty de-risked in terms of the execution timetable that's reflected on the page.
Justin Clare (Managing Director and Senior Research Analyst)
Okay, got it. Thanks very much.
Operator (participant)
Thank you. Our next question comes from the line of William Grippin of UBS.
William Grippin (Director and Equity Research)
Craig, good morning, everybody. Thanks very much for the time. I guess, just, my first one here, just with the excess thermal proceeds now fully allocated, could you speak to how you foresee sort of the future pacing of investment announcements? And maybe should we expect a quieter, you know, next few quarters, with respect to announcements?
Chris Sotos (President and CEO)
Yeah, I think, I think that question, if it's, you know, should we expect some large drop-down announcement in the next six months? I doubt it. You know, I think it's heavily conditioned upon how the capital markets settle down or not. But I think to your question, because we kind of talked you know, in essence, you know, CEG is incredibly busy by getting the gigawatts we talked about basically online in 2024 and 2025. Obviously, they're still developing while doing that, but I think, you know, at the end of the day, if your question is, should we expect a large drop-down announcement here in the near term? It might be a little quiet for a while for the reasons we talked about.
William Grippin (Director and Equity Research)
Makes sense. And so in that light, I mean, do you, do you continue to view the, the conventional assets as core to the, the Clearway strategy? And maybe how you... How are you thinking about potential opportunities to recycle those assets as you continue to contract the, the open capacity?
Chris Sotos (President and CEO)
Sure. I think for us, obviously, we're willing to sell assets at what we think is a strong price. So if somebody offered us, you know, a good price for those assets, we'd look at that. However, it's always been part of our core strategy because it does provide diversification versus kind of simply wind and solar, you know, resource availability. So for us, we think it's a very beneficial, and we're, you know, obviously pretty bullish on what things will look like for, let's call it, through the end of the decade in those assets. So we view them as core. That being said, if someone offered us a price that we thought made sense, we've shown we've been willing to transact on that in the past. And for us, we're pretty bullish through at least 2030.
William Grippin (Director and Equity Research)
Great. And, and just one last one for me. Could you elaborate a little bit on the, the one-time maintenance items in the wind portfolio, and is that in any way related to the, the Siemens turbines in the fleet?
Chris Sotos (President and CEO)
Not specifically, like, that's a variety of assets, as I incorrectly answered the last question that somebody asked. Basically, that's a result of kind of, you know, us looking at our fleet and recognizing some of the weaknesses that affected our 2023 results and saying, "Okay, how can we try to shore that up with what's a one-time maintenance push here?" Some portion of that's the Siemens assets, but some of them aren't. So it's really just looking at the overall fleet and some of the challenges we faced in 2023.
William Grippin (Director and Equity Research)
I guess, are you getting any sort of warranty reimbursements or any cost reimbursement of any kind for these efforts?
Chris Sotos (President and CEO)
That's some of it. Like, overall, these things are in negotiation, but that's the amount that we think we'll have to kind of net, net, play out during the year.
William Grippin (Director and Equity Research)
Fair enough. All right, nice job. Thanks very much.
Chris Sotos (President and CEO)
Thank you.
Operator (participant)
Thank you. I would now like to turn the conference back to Chris Sotos for closing remarks.
Chris Sotos (President and CEO)
Just wanted to thank everybody for attending the call. I know this was a little bit longer than our typical calls, but really given kind of the volatility that we've seen, wanted to provide you, as analysts or investors, with kind of a much more comprehensive view of where we see we are and where we think we're going. And I think while obviously there's a number of challenges in the capital markets, you know, we're able to reiterate where we are for 2024, our growth rate to 2026, and that we're seeing kind of positive things even in this volatile environment in 2027 and beyond. But more to come as we walk through 2024. Appreciate everyone's support.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.
