Good day, ladies and gentlemen. Thank you for standing by and welcome to the Clearway Energy Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your speaker host, Mr. Chris Sotos, President and CEO of Clearway Energy. Please go ahead, sir.

Thank you. Good morning and my first thank you for taking the time to join today’s call. Joining me this morning are Akil Marsh, Senior Manager of 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’d like to quickly note that today’s discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the Safe Harbor in today’s presentation as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today’s presentation. Turning to Page 4, 2021 was a historic year for Clearway Energy. From an operational performance and CAFD generation standpoint, we exceeded our objectives for the year. We also deployed approximately $820 million into accretive growth projects, while our sponsor made significant strides in expanding its development portfolio, which will help drive our future growth. We materially reduced the risk in our natural gas portfolio with new contracts. Finally, Clearway Energy announced the sale of our thermal business at a very attractive multiple. As a result of all these efforts, Clearway enters 2022 with unprecedented flexibility. This flexibility provides Clearway with the longest visible runway for dividend per share growth in its history with $750 million of net proceeds remaining for capital deployment after the thermal sale. In summary, we are very well-positioned for 2022 and beyond. For 2021, our CAFD generation performed well with full year CAFD of $336 million, ahead of our guidance. Clearway also announced…

Thank you, Chris. And turning to Slide 8, Clearway had an excellent 2021 both operationally and strategically. The company finished the year strong with fourth quarter cash available for distribution or CAFD of $35 million and adjusted EBITDA of $250 million. This brought full year 2021 results to $336 million in CAFD or above our guidance of $325 million and adjusted EBITDA to $1.15 billion overall. As a reminder, full year CAFD results were impacted by approximately $25 million from ice storm Yuri almost 1 year ago. Excluding that impact, CAFD would have been approximately $360 million for 2021. During the fourth quarter, the company’s portfolio was balanced. In the non-renewable part of our business, both the conventional and thermal segments performed materially in line with expectations, leading to a strong year overall. For renewables, production across the wind portfolio during the fourth quarter was modestly above expectations, providing an offset to lower solar volumes. As a reminder from the third quarter call, strategic efforts did impact fourth quarter results relative to original expectations due to a change in the timing of project level interest payments such that payments were made in the third quarter versus the fourth quarter. On the strategic financing front, the company continued to manage the corporate balance sheet in 2021 through effective liability management, capital formation in line with our leverage targets and by implementing temporary solutions to execute on growth in advance of receiving the net proceeds from the thermal transaction. During the year, we raised $1.3 billion in new corporate level green bonds, which in part the company utilized to refinance the $950 million in the then outstanding 2025 and 2026 senior notes. Through these efforts and on a weighted average basis for the new financings, we reduced interest costs from approximately 5.5%…

Thank you, Chad. Turning to Page 10, as I discussed at the beginning of the call, 2021 was an exceptionally strong year for Clearway Energy, in which we delivered on our financial commitments, invest and raise capital in an efficiently accretive manner, extend the hedge profile of our natural gas assets, sign the sale of our thermal portfolio at a strong multiple, and as a result of all these efforts, reduced our risk and created a high degree of financial flexibility that supports our view of growing CAFD per share at the upper range of our long-term 5% to 8% dividend per share growth rate to 2026. In establishing our 2022 goals, we are focused as always on the near-term and also the long-term achievement of our 2022 guidance within sensitivities, growing our DPS at the upper end of the range and closing the sale of our thermal business. In parallel with the sale of our thermal business, we are working with Clearway Energy Group to create a strong succession of drop-down opportunities that can be completed from their existing late-stage pipeline under current law, even as we look to potential upside in capital deployment and CAFD contribution if the climate and clean energy tax provisions moving through Congress are passed. While we made significant progress in reducing the near-term risk profile of our natural gas assets in 2021, we still have work to do, and this will be a continuing area of focus in 2022. Finally, I would like to thank the employees of Clearway through the entire enterprise for all their hard work during another difficult year of the pandemic to work through the Texas weather end, operate projects at high levels of reliability and safety, engage and support third-party M&A, drop-down and capital raising activity as well as deliver on the construction of new assets in this challenging environment is an achievement we can all be proud of. Thank you. Operator, please open the lines for questions.

Thank you. [Operator Instructions] Our first question coming from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Hi, good morning. Can you hear me?

Yes, we can.

Excellent. Thank for the time and the opportunity. So first off, let’s just start at a high level here. I’d just be curious, how would you compare the backdrop available for renewable assets quarter-over-quarter here as we’ve seen inflationary impacts and especially just the impact of higher rates filter itself out? I mean, how much has that changed pricing – and then perhaps more specifically here, if you don’t mind, we saw one of your peers Hannon Armstrong here announced something of late in Texas with Clearway Group. Can you comment on what that means for your business, especially as you think about the palatability and desirability of large-scale solar, for instance, perhaps there might be something to that as well? Thank you.

Sure. I’ll probably go to your second question first and then back. So for Hannon Armstrong, Han’s a good partner that we have in Lighthouse currently. And I think we do have a letter agreement with CEG to work on that asset. So I think both of us are kind of interested in that. And I think the view of long-term solar and ERCOT is a positive one, especially given our portfolio. So I think nothing in particular there, other than that’s one of the assets that underpins kind of our view of growth going forward. To your first question around comparing the backdrop Q-on-Q, I’ll ask Craig a little bit for his view, obviously, kind of working at more day-to-day is. From our perspective, I don’t necessarily think in terms of PPA pricing, which I think is the basis of your question, Julien. There probably has been a big change in the near-term. Longer term, there might be, but I think your question is probably underpinning PPA question. I don’t think you’ve probably seen that work through in today’s environment. But Craig, I don’t know if there is any additional color.

Yes, sure. I mean I think, Julien, in terms of the overall demand picture, it remains as robust as we’ve really ever seen it in the 2 decades that we’ve been building this industry here in the U.S. So wholesale demands continued to accelerate, and it’s being driven by decarbonization goals, integrated resource plans amongst utilities, planned coal retirements. In total, the demand that we’re tracking here in the U.S. to over 240 gigawatts of demand just from IRPs that we plan to be able to serve as a company and we project 80 gigawatts worth of coal retirements that will open up serviceable demand in the wholesale markets as well and across different corporate sustainability goals that will require additional clean energy PPAs for virtual power purchase agreements. There are tens of gigawatts more that will need to be signed and built over the current – the coming 3 to 5 years. And when we look across that whole picture, the ability to serve that demand at prices that reflect today’s cost structure is certainly there, while providing a desirable customer value proposition. So we worked with customers on new projects that we’re building to be able to set price that makes business objectives that they have meetable while also allowing for our projects to be economically accretive. And the outlook that I have for our industry to be able to serve that demand even in an inflationary environment is very strong.

Got it. Excellent. Thank you. Chris, if I – if you don’t mind me going back to this question, just to clarify this. Just how do you imagine this going forward on that project in Texas here? You said that you’ve got a letter agreement with CEG to work on that asset. Is this something that you can imagine the split? Is this a competitive bid at some point? Started to take on it, I am more curious on what it means more holistically, but also as it pertains to the specific arrangement as you alluded to?

Yes, sure. Maybe you’re reading too much into it, Julien. I think it’s very similar to what you saw in Lighthouse where we probably would have a partnership with Haz on that asset. It’s not as – if your question is, are we both bidding on it to own 100%? That’s not what we’re doing. I think it’s much more of a partnership mode that you saw in Lighthouse in the end of 2020 that we deployed capital to in this year.

Got it. Okay. So more of a split situation?

Sorry, go for it, Chad.

Yes. Sorry, Julien, this is Craig. Yes, just to add to it. I mean, I think we think of the portfolio that we’re building for Clearway Energy, Inc. with Hannon as a partner as a portfolio that over time can incorporate additional assets that are complementary to the range of resource profiles and customer profiles that are in that existing portfolio. And what I think you see referenced there is just the net and a succession of complementary solar and storage opportunities that we hope both enterprises will ultimately see from us.

Great. Excellent. I mean – and maybe the underlying point here is you see a wealth of opportunities. It doesn’t really faze you that you would be potentially splitting something here with CEG?

No.

Excellent. I will leave it there. Thank you, guys. Thanks, Craig.

The next question coming from the line of Colton Bean with Tudor, Pickering, Holt. Your line is open.

Good morning. Just on the potential $250 million drop. Looking at the timing of the CEG backlog, is that weighted to projects with commercial in service of 2023? And a related question there, any upside thoughts on third-party M&A and if that could play a role in the remaining $500 million of proceeds?

Sure. Yes. It’s definitely back weighted to kind of ‘23 through probably the first quarter of ‘25. So yes, your question is, is it going to come online in 2022? Then answer in general is no. It’s much more kind of ‘23 and beyond. To your second question, definitely third-party M&A is something we’re looking at. It was part of our capital deployment in 2021 with that storm in Utah. So we look at third-party M&A all the time. And when we have a binding agreement on something, we would announce it.

Maybe a related question there, I know it’s still early days, but with interest rates moving higher, have you seen any shift in valuation discussions, whether that be third-party processes or potential CEG drops?

I would say no to both. It’s a little bit too early. And I think while obviously, the interest rate moved from around 70 basis points in the 10-year to depending where the quote maybe this morning at 1.9 is significant in multiple terms it’s at the end of day about a 100 basis point move, which maybe I’ve just been in the industry too long, but 100 basis points move do happen. So I think from my view, I don’t think to date that has moved pricing around that much either in a drop-down context or in a third-party today.

Great. And just a final one on El Segundo, I know recontracting was expected sometime in 2022. Any updates to where we sit in that process and just differences in expectations versus what you were able to get done on the peaker plants?

Frankly, no. That process kind of continues. Once again, as we occurred in the peaking facilities, the RFPs by the investor-owned utilities basically happen in kind of the second quarter. And we also work to hedge them with other parties as well outside of that process. So I’d say no new items or development remains on track for the normal timing.

Got it. Appreciate time.

[Operator Instructions] Our next question coming from the line of Noah Kaye with Oppenheimer. Your line is open.

Thanks. Just one around the development environment just start, maybe two actually. The first part of it is just around project timing. It looks like really no change overall for the amount of projects expected to hit COD in 2022. Just comparing quarter-over-quarter, it looks like a bit of shift out of 2023 to 2024. So the first part is really just around what you’re having to go through operationally in terms of the timing of some of these projects dropping down. Overall looks like you’re managing things well, but just any color you can give us on supply chain, labor availability, all of them.

Yes. Craig, if you don’t mind, you’re closer to that?

Yes, of course. Yes. Thanks for noticing. We’ve – I think we’re pretty satisfied with how we’ve managed this environment generally and as compared to peers. And we think that the shareholders of Clearway Energy Inc. should be satisfied as well. We’ve been able to manage equipment availability and schedule risk really to keep our entire construction program that we’ve had planned for the next 2 years on track. That’s really, first and foremost, been driven by our ability to leverage our priority customer status and the large volumes that we’re procuring. It also reflects what I think has been insightful selection of equipment vendors that were more resilient to some of the factors that have driven both cost inflation and availability of equipment as a function of U.S. policy. It’s meant that we’ve been managing shipping costs directly with logistics and freight providers in ways that other peers might not be able to accelerating payments to lock in supply and hedge costs on long lead components, secure freight conduit. Not all that has been cost less to us. It’s a sponsor entity, but it’s certainly been more manageable for us than peers and also really reflects the strong commitment that we’ve then looking to maintain for the planned pace of growth or operating cash flows and dividends at Clearway Energy, Inc.

Okay. Very helpful. And then the second part of that development question is just, I mean the overall pipeline going from 17 gigawatts to 19.1 gigawatts sequentially and obviously, more of this some earlier stage. But does it really just come back to what you are talking about earlier around the appetite from corporates and others extend the opportunity sets? Is there something in the development pension that is maybe experiencing a little bit of a step function in terms of ability to drive project in?

Yes. I mean I think it really starts with the demand picture, which isn’t strictly limited to commercial and industrial customers. Utilities and load-serving entities across the country have made a transition in the fuel mix, the real central part of their plan for this decade. And that’s allowed for us to make investments really that span the continent targeting the plans for fuel mix transition that each of those different customer classes have. And what excites us about the development pipeline that we are building is the way that as it has evolved over time, it will really build out a portfolio of owned assets within Clearway Energy, Inc, which is certainly sizable, but also increasingly diverse and will allow for us to really enhance the type of balance that Chad touched on earlier. So first, it just reflects our confidence in the demand picture over time. Second, certainly, each quarter and each year, we get better and bigger as a company. So, the types of capabilities that we can deploy behind development allow us to plan projects that are larger that allow us to plan projects that have multiple components to them, integrating storage, for example, in places where you not historically would have anticipated it. And then lastly, I think we are constructive that ultimately, the policy environment here in the U.S. government is really going to help make projects in some places that might not have been economically viable quite as soon economically viable for construction. So, as we look ahead to the mid-decade, I am very optimistic about how the family of these development activities are going to turn into construction cadence and in terms of operating cash flows within the fleet.

Super helpful. Let me sneak in one on the thermal. There is really a two-parter here, I guess again, you mentioned, Chris, I think expectations for the second quarter closing that’s real no change. But can you just sort of give us some indication if possible at all or you have a bias towards early or late in the quarter? Any kind of color on the remaining steps to be taken? Then I think you mentioned in the prepared remarks that just due to the tax treatment here that the cash proceeds are going to be potentially greater. So, just remind us once the acquisition – or rather what the divestiture has done, where do you expect to shake out from a leverage perspective?

Sure. I will kind of take the first part and then turn it over to Chad for tax. But to your first question, really not to cheat it would almost be in the middle kind of May, if we had to pick the flat part of the curve, so to speak. Once again, we are driving to move it sooner, but we obviously would like to get the cash in. But once again, no kind of steer either way of size. So for us also, part of it is not only the regulatory process, but also kind of working with other counterparties as well to make sure the transition occurs appropriately. So, in terms of expectations, second quarter, we feel very strongly about. Once again, we will take the mid as kind of the expected outcome kind of May timeframe, but it could be earlier, it could be later. But Chad, on the tax side?

Sure. Yes. So, let me – a couple of points. I think first on the cash proceeds or at least the estimated net proceeds. I think as Chris indicated, we spoke about $1.35 billion as our current estimate now. Before, that was $1.3 billion. The driver of that $50 million estimated change at this point was driven by California and acting Senate Bill 113 in the early part of February. This happened pretty rapidly. And what that did was it reversed a law that was put in place in 2020 at the start of the COVID pandemic, where they have suspended company’s abilities to use state NOLs for the period of – for the tax periods from 2020 to 2022. So for 2022, we are permitted to use state NOLs. And as a result of that, given how we looked at our current estimate in ‘22 business activity in the apportionment that would go to California, that reduced that number – or excuse me, the potential immediate tax impact. I would remind that these are estimates for taxes. Naturally, business activity through the course of 2022 is going to affect that. But obviously, we realized because of the gain that will ultimately be generated by the thermal sale, there will be some leakage. On the leverage side, simply put, once we close the thermal deal, all the temporary borrowings that we have currently on the balance sheet will effectively be paid off. So, that will reduce borrowings inclusive of the bridge facility we put in place for Utah by over $500 million. And at that point, as we look at our pro forma targets, we will be back in our range of 4x to 4.5x and a little bit more on the 4.5x, but we are in range of where we would expect to be.

Perfect. Thanks so much.

And our next question is coming from the line of Michael Lapides with Goldman Sachs. Your line is open.

Hi, guys. Thank you for taking my question and congrats on a good 2021. Just real quick, given the move in valuations across pretty much everything clean energy related, how are you thinking about – how are you and the Board and the sponsor thinking about broader corporate M&A to whether the market volatility in clean energy since, call it, the end of 2020 has increased the attractiveness of corporate M&A.? Corporate M&A is the use of proceeds or use of cash flow and balance sheet relative to the returns you would generate from drop-downs from your sponsor?

Sure. I don’t think the backdrop has changed that much in terms of – I think we have always looked at value in terms of what we think is the best value for risk in terms of the company. So, I think Michael to your question, we will always look at drop-downs because obviously, that’s the most transparent kind of dependable growth from our sponsor. But to your question about corporate M&A, we look at project level M&A, for example, third-party, as we talked about Mt. Storm in 2021. And we look at broader corporate M&A as well. So, I think all of those are available to us. I think as well, the big part is where can you generate the best risk-adjusted return. And so that’s the focus. So, I am not sure if it’s really changed that much in the past year from our perspective on the corporate side.

Got it. Meaning the valuation move lower of a lot of your peers among the publicly-traded renewable companies, that move lower hasn’t made corporate M&A more attractive?

Well, it really depends. There is not a list of 100 different candidates out there, if that’s your question, Michael, go get. So, it really is relative amongst a couple of them. I don’t think there is that many paradigm changes in that math over the past 12 months.

Got it. And then, Chad, one for you. I am just looking at Slides 23 and 24 in the appendices. Can you remind me the CAFD and the adjusted EBITDA numbers and especially the EBITDA numbers are pretty different between those two slides. Can you remind me the difference, what’s in ‘23 versus ‘24?

Yes. Sorry, I am just looking at the slides right now. Yes, I think that if you are probably focused is if I would guess, Michael, it’s the drop in projected adjusted EBITDA. Is that what you are focused on?

Well, like one of them has EBITDA – like if I look at Slide 23, it’s got adjusted EBITDA of a Bill 27 Slide 24, Bill 05. Just what’s…?

I think the main driver there I would remind you of is when we go out to our pro forma outlook, we have indicated that, that is post a period of time in which the existing three California natural gas assets. So, I would say that the – obviously, when we do our estimates like that on a pro forma basis, there is a number of moving variables, but the material point of that would be the drop in expected EBITDA that we would have and being mindful that that’s something we have been consistent about because as those projects become unlevered, we don’t need the amount of revenue in order to sustain CAFD on an unlevered project basis principally because you are not having to generate revenue to support the debt service.

Got it. Okay. That makes sense. And then I guess one last one speaking on those California assets. Can you remind me in the post ‘23 timeframe, how much of those have you signed up under – what percent of those assets have you signed up under RA agreements for ‘24 and beyond?

Sure. It’s 100% of Walnut Creek. There is 80% hedged through, I will call it, 1127 Marsh Landing with 100-megawatt tail out longer than that, and then zero percent of El Segundo.

Got it. Thank you, guys. Much appreciate it.

Our next question is coming from the line of William Grippin with UBS. Your line is open.

Great. Thank you and good morning everybody. Just one quick one for me, in the press release talking about the investment in Daggett 3, you noted that the investment is subject to some certain milestones and that that project is still in development. I am just curious, are you investing in that project before it’s actually brought online? And then I guess more broadly, how do you think about investing in projects after COD versus possibly doing earlier-stage investments to capture higher returns? Thanks.

Sure. To your first question, no, that’s not as though we are investing well before COD. You might do a little bit for COD in terms of months just for tax equity credit and the like. But significantly no is the simple answer to your first question. To your second question, basically for re-powerings where we have a much better view of what the asset looks like because obviously, we have owned it for a period of time, we might start to lock a little bit more during construction, but pure development in general, we wouldn’t. So, I think if I kind of define your question in terms of development, that’s a no. In terms of maybe moving up a little bit closer to proceed or when there is financing in place on a repowering project, we may look at that in the future, just because we already obviously own the asset, have a much better view of what it is, so on and so forth. But for drop-downs in general, I don’t think we are trying to move earlier in the construction cycle as generalization.

Got it. Thanks very much.

I am showing no further questions at this time. I would now like to turn the call back over to Mr. Sotos for any closing remarks.

Once again, thank you all for joining the call and look forward to talking to you next quarter. Take care.

Ladies and gentlemen, that concludes your conference for today. Thank you for your participation. You may now disconnect.