Earnings Labs

Clearway Energy, Inc. (CWEN)

Q3 2022 Earnings Call· Wed, Nov 2, 2022

$40.55

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Transcript

Operator

Operator

Good day, and thank you for standing by. Welcome to the Clearway Energy Third Quarter 2022 Earnings Call. [Operator Instructions] 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 of Clearway Energy, Inc. Please go ahead.

Christopher Sotos

Analyst

Good morning. We first thank you for taking the time to join Clearway Energy Inc.'s third quarter call. Joining me this morning is Akil Marsh, Director of Investor Relations; 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 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 3. The company generated CAFD of $154 million in the third quarter and $328 million through the first nine months of the year. Clearway increased its dividend by 2% to $0.3672 per share or $1.469 on an annualized basis, keeping us on target to achieve the upper end of our dividend growth objectives for the year. Unfortunately, due to the previously announced operational issues at El Segundo and other items, we'll be revising our 2022 CAFD guidance down from $365 million to $350 million. Clearway continues to advance its growth and strategic initiatives by now having El Segundo's capacity fully contracted through 2026, along with Marsh Landing and Walnut Creek. We have closed the Capistrano Wind acquisition, as well as funded the drop-down of Waiawa Solar with the rest of the previously announced drop-down projects on track for commercial operations in the fourth quarter of '22 or early 2023. We are also updating our pro forma CAFD outlook to…

Operator

Operator

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

Julien Dumoulin-Smith

Analyst

Hi, good morning. Can you guys hear me?

Christopher Sotos

Analyst

Yes.

Julien Dumoulin-Smith

Analyst

Hi, thank you so much for all the comments. You guys ran through a lot there. So if I can just come back to a couple of things, super quick. First off, with respect to the new growth that you're outlining here, can we just talk specifically about the existing announcements and what that backs into in terms of specific targets here through that '24 time period? Again, great job on a timely basis, deploying the proceeds. Now you obviously disclosed the 9.5% CAFD yield. Can you talk a little bit about how this positions you with this as well as incremental targets in this higher rate environment to achieve some of the dividend growth targets in the medium term, not necessarily just in the near term here. Can you talk a little bit about what else needs to be done to achieve it? Because obviously, you've outlined a lot here towards getting there. But I want to make sure against the backdrop of the higher rate environment that where you stand.

Christopher Sotos

Analyst

Sure. Not to minimize the question, Julien, but looking at Page 7, really, we don't need to do anything else other than execute the dropdowns and have them performed as anticipated to produce that $2.15 per share. So that's kind of - looking to Page 7. Obviously, we're using the cash from the Thermal proceeds. So maybe to your point, any moves up in interest rates or stock price movements wouldn't affect this baseline number. It would only be incremental deployments beyond these numbers that would be required to hit the $2.15. So I think that was your question.

Julien Dumoulin-Smith

Analyst

Right. Maybe let me hit it more directly with respect to the rising impact of rates. Obviously, both the portfolios financed on a longer duration basis. Can you talk a little bit about liability management? Maybe that's the other side of this that I wanted to ensure here.

Christopher Sotos

Analyst

Sure. Yes, we don't anticipate raising any corporate debt to fund these acquisitions, if it's kind of that's your question. And all of our debt - 2028 is our earliest maturity, and the other ones are in 2031 and 2032. So we have quite a bit of time before we have any corporate debt that would need to be raised to deal with acquisitions.

Julien Dumoulin-Smith

Analyst

Excellent. And then if I can come back to a couple of the nuances here, just at the highest level. You've got additional energy margin. Can you talk about sort of how that's manifested itself of late here? Obviously, you've been recontracting the assets. As you think about how that proceeds, not just in '23 here where you provided the clear walk, how does that evolve through time through '26? And then how does that get to your thinking here about the relative math on '26 extensions and potential further retracting at higher levels beyond that?

Christopher Sotos

Analyst

Sure. A couple of different questions there, Julien, hopefully, I'll cover them. So part one, the energy margin we have in 2023 is obviously a bit nonlinear because the different assets come off of their current tools at different times. You got El Segundo later in the year in July, you've got Walnut Creek earlier in the year in March. So what we have is kind of given the current commodity environment and what we see, that additional $20 million that we have in 2023 in terms of our guidance for what we're seeing. If we look on a more normalized basis, the energy margin we are assuming to derive the $2.15 per share in the long term is between $1 and $1.50 energy margin. So I think for us, we do that $1 to $1.15 in the long term being very achievable. We expect to outearn that in 2023, even though it's a partial year. But once again, as everyone's well familiar, this is kind of our first year operating on a merchant basis. We want to see how the machines operate, how the revenues come in, and then we'll kind of adjust that over time. But from our perspective, in order to hit the $2.15 in long term, we need between $1 and $1.50 energy margin, which we feel pretty good about, especially given where we sit today, empirically in '23.

Julien Dumoulin-Smith

Analyst

Got it. Lots of conservatism there. All right. I got more. I'll get back in queue. Thank you guys very much. All the best.

Christopher Sotos

Analyst

Appreciate it.

Operator

Operator

Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Your line is now open.

Noah Kaye

Analyst · Oppenheimer. Your line is now open.

Thanks so much for taking the questions. So there's a lot here in terms of being able to allocate your remaining capital, and you've got clear visibility now. But I want to ask, post IRA, given the additional incentives, whether it's stand-alone storage or green hydrogen production, how are you thinking about investment opportunities in the existing fleet, whether it's repowering, adding storage, going downstream. What do you see as the opportunity?

Christopher Sotos

Analyst · Oppenheimer. Your line is now open.

Sure. I think for us, we kind of use those opportunities before in terms of repowering assets like Elbow Creek and Wildorado. I do think, to be fair to the question, one difficult part about our book is we have a lot of relatively young assets. So kind of repowering might not be the most advantageous. It's not as though we've got 2 gigawatts in degree powered in the next two years. So your question is, it's a little bit kind of going through time and you might see years in which we do zero, and then you might see us do 400 for one year and then go back to zero for a couple of years. It's kind of much more episodic then something that's being done consistently where every year we have a repowering. That's just for good or ill, the nature of our fleet because it's relatively young. And to your storage question, I think for us, it's really looking to see what does the existing customer want, right? Obviously, the vast majority of our power is already sold on their contracts, for us to add stores to an existing facility, we obviously need to fill it kind of with power from that system. So it's really dependent on what - if the customer wants that and those negotiations. So once again, in terms of making those modifications on the existing fleet, we'll kind of see what customer demand is and how that works, but I wouldn't expect some paradigm change here in the next 24 months.

Noah Kaye

Analyst · Oppenheimer. Your line is now open.

Okay. That's helpful. And then maybe another sort of post IRA question. The Clearway Energy Group as part of this announced buyers consortium, to purchase over 6 gigawatts of solar modules expand the domestic supply chain. We understand there's a lot of good reasons to do that. How do you think about currently your supply chain needs, your ability to procure that from domestic sources qualifying for bonus content? And how that factors into the development outlook in the pipeline?

Christopher Sotos

Analyst · Oppenheimer. Your line is now open.

Craig, why don't you take that?

Craig Cornelius

Analyst · Oppenheimer. Your line is now open.

Yes. Thanks for the question, Noah. Yes, we're pretty excited about what the implications are going to be for the broader U.S. market as we get into the mid-decade, and also for the objective that policymakers have and wanting to domesticate more of the supply chain that fulfills construction of solar, wind and storage assets. That excitement informed by detailed engagements we've been having with our framework supply chain partners really going back over the last 1.5 years. And what I expect is that the treasury guidance formulation process will be influential here in getting manufacturers ultimately to greenlight investments that start to be publicly announced. But the work that will underpin those announcements is very much happening right now. And we're pleased that as we work across the solar supply chain, the battery supply chain and the wind supply chain that the suppliers we engage with are preparing thoughtful concepts that will minimize risk and maximize value as we look at the fulfillments in the mid-decade, and we have solutions that we're planning for deployment in that time frame around each one of those component technology types.

Noah Kaye

Analyst · Oppenheimer. Your line is now open.

Okay. Very helpful. We look forward to more. Thanks for taking the questions.

Operator

Operator

Thank you. Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.

Mark Jarvi

Analyst · CIBC. Your line is now open.

Thanks. Good morning, everyone. Craig, I just wanted to touch on the CAFD yield on the drop-downs. Previously, last quarter, you guys were going to 8.5%. Now it's 9.5%. Obviously, interest rates are moving. Just update us in terms of how you're thinking about what's guiding the parameters on CAFD yields and hurdle rates right now in terms of you making decisions on the dropdowns.

Christopher Sotos

Analyst · CIBC. Your line is now open.

Sure. I think for us, and in negotiation with our sponsor, I think, obviously, they're well aware of where the capital markets have moved. So between the other two of us, and a lot of people ask about sponsor support sometimes. To be the most linear and empirical way to see that is a strong CAFD yield. So I think for us, our sponsor recognizes the change in capital markets that have occurred since our last earnings call for that matter, and in negotiations with them about where we think the CAFD yield should be, they indicate a higher numbers where they think is fair. Obviously, we'll due diligence and the like through the assets and hope to come up with a binding agreement, but it's obviously very constructive from the sponsor support level to have that different CAFD yield. As I've talked about before as well, though, it's important to highlight that part of CAFD yield is also dependent - not all CAFD yields are the same. Is the asset more solar weighted or win weighted? Is it a shorter duration PPA tenor or longer? And so from our perspective, given that a lot of the book of business is in solar, and also that the contract duration - the majority of it is on a fairly long duration, of about 17 years. We feel very good about the 9.5% CAFD yield that's been offered. But once again, all subject to due diligence and are working through our independent process.

Mark Jarvi

Analyst · CIBC. Your line is now open.

And then just when you think about that, like is it just a spread versus bond yields and like a CAFD approach? Like just kind of maybe digging in a little bit in terms of how you guys are deciding what sort of a fair number as reference rates move around here.

Christopher Sotos

Analyst · CIBC. Your line is now open.

Sure. From our perspective, we actually look at it much more versus equity because that's the - in order for me, I think, to have a conversation with you about why not to buy back equity versus invest in new set of assets. We really compare it versus our equity yields most generally. Obviously, bonds are important as well. I'm not going to pretend that. But to answer your question, it really is spread versus equity. Because to me, whenever we make an investment at Clearway, I would like to be - for you to be able to see that that's a good investment based upon where it trades versus our equity.

Mark Jarvi

Analyst · CIBC. Your line is now open.

That makes sense. And then just turning towards some of the assets you're adding here in Texas. Obviously, with the PTCs been eligible for - or solar been eligible for PTCs, a bit more concerned about negative pricing and basis risk. Just thoughts around those assets, the risk around basis risk and then updated outlook. I guess you guys talked a bit about potentially more basis risk. So your view just around that and the impact of PTCs for solar assets.

Christopher Sotos

Analyst · CIBC. Your line is now open.

Sure, I'll start and then, obviously, Craig can fill in anything from his perspective. I think from my view, we see a little bit of basis, that's one reason for a component of the tenant in the near term. The new contracts should really eliminate a lot of that risk in terms of how they are. They're not financial hedges, for example, they're kind of more traditional tools at settling out a node. So from our perspective, we think in the new portfolio, we shouldn't really see - zero is always a good number, but we really didn't see a lot of basis risk. Yes, we have seen some of that in the portfolio. We think part of that is due to the stressed economic commodity environment. That's why we included it in our $390 million number. But Craig, I don't know, anything to add there?

Craig Cornelius

Analyst · CIBC. Your line is now open.

Yes, sure. First, for the drop-down offers that have been made, every revenue contract has no settlement on the portfolio of assets here. So there's no hub settled contracts in that portfolio of assets. It's not to say that there might be some circumstances in the future where we construct projects with hub-settled PPAs. But clearly, given the kind of transformation the U.S. electric grids going through, as we do that, we want to be doing that in conjunction with also putting in place effective contractual mitigants for potential changes in basis over time. So firstly, for this portfolio of assets, the settlement structure on them eliminates any basis risk by their very nature. And then second, to Chris' point, for a portion of the capacity of the solar assets in ERCOT, they've been designed, both in their location and the fraction of them that's merchant to offset basis risk on the existing wind assets that exhibit the pattern Chris mentioned in the high-commodity environment right now. So once completed, we think that solar project and another that's in the set of drop-down offers we intend to make in the first half next year are going to help balance the book where that basis exists, which is candidly quite minimal in relation to the overall fleet size. And I think going forward, we feel pretty good about the way that we're able to select from the 27 gigawatt pipeline that we're advancing. Based on the markets where we're creating projects, the contracts that we shape and the analysis of the portfolio as a whole that we've built that we can maintain a portfolio of operating assets that exhibit a low-risk profile in relation to things like basis and merchant price formation.

Mark Jarvi

Analyst · CIBC. Your line is now open.

Understood. Thank you both for the answers.

Operator

Operator

Thank you. Our next question comes from the line of Justin Clare with ROTH Capital Partners. Your line is now open.

Justin Clare

Analyst · ROTH Capital Partners. Your line is now open.

Yes. Hi, everyone. Thanks for taking our questions. So just first off here, given the location of your committed assets, it looks like the PTC could potentially be more valuable than the ITC. Just wondering if there's been any changes from the ITC to the PTC for any committed projects, or any changes in the capital structure that might result from this? And then there's also the availability of the higher level of the ITC now. So just wondering if that has impacted anything as well?

Christopher Sotos

Analyst · ROTH Capital Partners. Your line is now open.

Yes. I think I'll let Craig kind of address that. But the one part I think is important is all of those changes are kind of encapsulated in the CAFD yield that is part of the offer. So I think the changes that Craig's development team has kind of had to work through as a result of the IRA and different moves. That's kind of encapsulated in the offer that's being made. So those changes wouldn't necessarily affect the 9.5% that we're targeting. But Craig, I don't know anything to add?

Craig Cornelius

Analyst · ROTH Capital Partners. Your line is now open.

Yes, sure. So for the projects that were committed already before this most recent set of drop-downs, we've not elected to change from an ITC to PTC. Part of that is informed by what helps position us to create the most value for the asset as we drop it down, and also offset cost inflation that's existed elsewhere. So for one asset, for example, it was located in an energy community, and so that provided some ITC uplift, and that helped us offset cost inflation that's been experienced over the course of the last few years. For the most recent set of drop-down offers that were made to those solar projects will elect the PTC, and that's part of what allows us to convey these assets at a higher CAFD yield, and also with more investable cash flow for the YieldCo. And in conjunction with electing the PTC, we've also sought to design revenue contracts so that the same type of contractual features that we've made use of historically in the wind industry on projects that elect the PTC will be there also. And I think being thoughtful about how to do that is something that we're glad we're doing, and we think every soundly operated sponsor will and should do the same. So we're excited about what the PTC election can mean in high solar resource environments when it's put to work in the right way, both in terms of what it can mean for our customers and the value we create for them and also what it can mean for the growth of cash flows in our YieldCo.

Justin Clare

Analyst · ROTH Capital Partners. Your line is now open.

Okay. Great. That's really helpful. And then one more. With the Total transaction closed here, just wondering if you could talk about when you might be offered potential drop-down opportunities from Total? And then - could that happen as soon as next year? And is there a potential for upside to your CAFD for next year if you see attractive opportunities?

Christopher Sotos

Analyst · ROTH Capital Partners. Your line is now open.

I think it will take some time to work through that, the Total book, we closed fairly recently, and kind of working through their book of development assets. I think it'll take some time to get clarity. To Craig's - kind of to your earlier question, Craig's team has done a lot of structuring through the IRA to come up with results that are helpful from a YieldCo perspective. It's Total and their structuring is kind of working through different parameters. So we kind of have to come together and see what we have. But I think, it's too early to say is the simple answer to your question, but I think we'll definitely look to see if there's anything that can work within this Total platform going forward, but too early to say is the simple answer.

Justin Clare

Analyst · ROTH Capital Partners. Your line is now open.

Okay. Great. Thanks, guys.

Operator

Operator

Thank you. Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.

Keith Stanley

Analyst · Wolfe Research. Your line is now open.

Hi. Good morning. First, I just wanted to clarify on the 2023 CAFD guidance, what you're assuming for debt service on El Segundo. I know it had that bullet maturity issue. Just how you're dealing with that for guidance in terms of interest and principal payments for that asset?

Christopher Sotos

Analyst · Wolfe Research. Your line is now open.

Sure. We're looking to pay that down at year-end - this year-end, beg your pardon. Because to the point that was liability we're going to take on balance sheet anyway due to its bullet. And so for us, that's part of our CAFD guidance is the repayment of that at year-end of this year.

Keith Stanley

Analyst · Wolfe Research. Your line is now open.

So you're in - okay. So you're not adding - you are including the paydown of that maturity within the '23 guidance, or that's part of 2022?

Christopher Sotos

Analyst · Wolfe Research. Your line is now open.

Because it's a prepayment, it doesn't come as part of CAFD or making a voluntary decision to do it. So it's not a down arrow, so to speak, in '22. And in 2023, obviously, whatever debt service would have been part of '23, like the whole $130 million wouldn't have been in there even as part of normal guidance, it wasn't in 20 - it's not in '23. Because of the prepayment in '22. I'm sorry.

Keith Stanley

Analyst · Wolfe Research. Your line is now open.

Okay. separate question for Craig. Just any comments on what you're seeing with UFLPA and flow of modules into the country?

Craig Cornelius

Analyst · Wolfe Research. Your line is now open.

Yes. We're doing fine with it. In order to kind of elaborate though a little bit about the broader landscape, compliance with UFLPA is something we feel pretty well positioned around, in particular, just because of the focus we've had on procuring from supply chains in anticipation of the succession of trade actions that have unfolded in the course of the last couple of years. We're pretty deeply engaged in policymaking in the U.S., and we look for that to kind of inform our view of where we need to go with our business broadly, and certainly in terms of procurement. And so far, that served us well. The estimated COD is presented in today's earnings material for future drop-downs all reflect our anticipation that we'll be able to successfully comply with UFLPA because of the supply chains we procured from. So there's the possibility that there would be temporary confirmatory holds of the border for industry participants broadly which are in place today, but we think it's a pretty manageable risk for us just because of the fact that we have modules coming in freely today because of who we bought from and where their supply comes from. And to the extent that any confirmatory hold were to occur, we feel quite comfortable with our ability to tender documentation that would substantiate that the product can come into our country in compliance with the statute. And just to reinforce that, we have no modules being currently to be changed. So with that said, the establishment of a more practicable enforcement regime for UFLPA is very much an issue that needs to be front and center for the U.S. government. The leadership across the applicable government bodies just needs to put our imports in a position where they can be successful because the quantities of equipment that are going to be coming into the country to meet the needs of the power grid and climate goals are dramatic. And the documentation requirements to enable imports just needs to get more clear and more standardized. But there's, I think, quite a lot of conversation going on around just that, and I am optimistic that the industry and the government together will figure out a way for this to function effectively going forward. But for our vantage point as Clearway, we're in good shape. And I think as we have been with other supply chain choices we've made, I think the choices we've made in anticipation of the UFLPAs enactment are serving as well.

Operator

Operator

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

Hi, guys. Hi, Chris. Thanks for taking my question. Just probing a little bit on 2023 guidance. And I'm going to ask for a little bit more detail whether you're going to now or give it in the early part of next year. You gave us CAFD, super helpful. Can you do the walk from EBITDA to CAFD for us, please? What's the EBITDA - or kind of range of EBITDA relative to what you're delivering in 2022? And then what are some of the bigger lumpier items? I'm trying to think about principal debt repayment at the project level, maintenance CapEx, maybe interest? And if there's anything else I'm going even off when we ask.

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Sure. Yes. We'll do once again. Yes, Page 22. Michael, in terms of the deck we have, which has the adjusted EBITDA of the $1,170 million, kind of your question around EBITDA? So I think, and that has principal amortization and maintenance CapEx, I think that has the components you're looking for.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

Got it. Okay. Just can you bridge us though 2022 EBITDA to 2023 EBITDA?

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Yes. I mean, not off the top because the PPA roll off - obviously because you have the high-priced tools in '22. And then you have a combination of different tools rolling off at different times in '23, plus the energy gross margin from the renewable - from the open position coming in. So that's a little tough to bridge '22 to '23.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

Got it. Totally makes sense. And then on the principal debt amortization, can you remind me with that $300-some million. What are the bigger assets where that paydown is occurring? Is it mostly the California gas plans, although your comment back to keep probably eliminates El Segundo, or is it widely spread across the entire fleet?

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Yes. You can look on Page 16 for that. So to your point, the California Natural gas, El Segundo were are a big part of that. And then you've got Agua Caliente, CVSR and some others. So that's all on Page 16.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

Got it. Okay. Finally, can you come back to cost of capital a little bit. And you made the comment about how you think about drop-down or CAFD yields versus share buyback. How do you - can you guide in a little further how you calculate what your own cost of equity is?

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Sure. For us, and I'll draw a distinction between our weighted average cost of capital and a CAFD yield, which is obviously a lot more transparent. You're obviously dealing with betas and the like for way to have cost of capital. But for CAFD yield, it's kind of, frankly, a little bit. I think that the market trades us probably somewhere between our $2.15 CAFD estimate and where we are currently $1.98, $1.93. So in general, that yields - I didn't look at the stock price, though it's not open yet, but as of yesterday, that's probably yielding somewhere in the 6s. So that's kind of how I view where we're trading so that when we talk with our investors and say, I believe that drop-down is a good investment, you can look at the spread of that 9.5% in the example we're using now, versus that somewhere in the 6s depending where you think we trade and that's a good basis for analysis.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

No. And I don't disagree with that, and that's super helpful. I would just be curious if you were to issue new HoldCo debt today. Would you be issuing hundreds and hundreds of basis points below 6. Otherwise, that would imply very little compression or very little spread between your cost of equity and your holding company cost of debt, which is I don't know, given the higher rate environment feels a little unusual for any company.

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Yes. I think our bonds are probably trading a little bit in line with those numbers, depending on which day you asked the quarter, which weak and also environment. We're probably in a high 6s probably the last print I saw on the 32s. So I think the debt and equity markets are pretty close in terms of interest and will we trade on a forward CAFD yield basis from that perspective.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

But what that basically implies is you almost think your cost of debt and your cost of equity are the same.

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Yes. Although to be fair, the $2.15 is a forward number versus the other. So you know as well as I that plays in everyone's thinking, but I don't think they're that differently apart if that's a different way to answer your question.

Michael Lapides

Analyst · Goldman Sachs. Your line is now open.

Got it. Thanks, Chris. Much appreciated.

Christopher Sotos

Analyst · Goldman Sachs. Your line is now open.

Sure.

Operator

Operator

Thank you. Our next question comes from the line of Angie Storozynski with Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

Angie Storozynski

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

I'm sorry. Do you guys have any contribution from the Capistrano when included in your original CAFD guidance?

Christopher Sotos

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

For '22, no, we did have an approximate like - because we know exactly when it would close, and it's only part of the year. For 2023 and going forward, I believe we had 12 assuming that we relevered it, there's a delta of 9 or 10. That's why we have the uplift in '23 because we're waiting until year-end to refinance it.

Angie Storozynski

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

Okay. And then separately for the energy margin, do you guys have any energy hedges or any financial hedges for El Segunda for '23?

Christopher Sotos

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

No. Other than the toll that exists in the RA capacity contract. But no, there's no energy margin hedge currently. It's an open position.

Angie Storozynski

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

And then lastly, there was a lot of discussion about the cost of debt. And you mentioned that you're not issuing any Holdco debt to finance at least the future goals for the next couple of quarters. But what is the cost of project level debt right now? Or at least how much it has risen so that we can calculate the delta between your cost of capital and this new CAFD yield?

Christopher Sotos

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

I do think, to be fair to your question, obviously, the CAFD yields we quote are after all those costs, right? So they take into account the cost of project debt, not before. So not to minimize the question, but when we talk about a CAFD yield, that's after that amortization regrows what those costs are. I think for us, there's probably not been a big delta in the credit spread, it's probably more on the underlying what the swap to fix is under LIBOR or SOFR. But Craig, I don't know if you have any color in terms of what you're seeing there.

Craig Cornelius

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

Yes. I mean I think we've seen, first, for all the drop-downs we planned through '24, we put in place interest rate protections some time ago. And so those are sort of help - those are enabling the type of drop-down economics that you're observing here, both in the set of offers we've just made, the preservation of the returns on the assets that were committed previously and also the offers we expect to make in the first half of next year. And then as we look forward, we've seen some compression in spreads. The sort of benchmark 10-year is a very observable number for you, Angie. And in general, what we've been looking to do as we finalize revenue contracts on assets is to put in place interest rate protection so that any debt financing we plan to put on either for the construction period or the term already anticipates the cost of debt on a long-term fixed basis and supports a CAFD yield that's accretive for the YieldCo. So for us, at the sponsor level, the job now to do is as we market power to customers, we need to anticipate what the forward cost of debt is going to be when we do lock it in contemporaneous with the revenue contract signing. And what we're observing is that we can still provide compelling value to customers even with the cost of debt having risen.

Angie Storozynski

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

Okay. Perfect. I just wanted to go back to this Capistrano Wind portfolio because I would have expected that at least some contribution from that asset - that set of assets would have - well, contributed to your 2022 CAFD. So is there some other offsets, besides it's just the unplanned outage of the gas plant. I mean, I know that you mentioned the weakness in the wind resource. But again, I mean, doesn't seem like there's any addition from that set of wind farms?

Christopher Sotos

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

We own it for a quarter, Angie. So it's single-digit millions. So it's a small rounding number within the whole thing, right? It's - is it contributing? Yes. Is it a very small number we're not reconciling? Yes, because it closed here in the third, fourth quarter.

Angie Storozynski

Analyst · Seaport. Your line is now open. Angie Storozynski with Seaport, your line is now open. Please check your mute button.

Okay. I understand. Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from Antoine Aurimond with Bank of America. Your line is now open.

Antoine Aurimond

Analyst · Bank of America. Your line is now open.

Hi, Chris and Craig, thanks for the update. Just quickly on the credit side. Just curious if you can give us a bit more detail on what's your leverage position right now at a corporate level, and how does that compare to your targets as well as I wanted to reiterate whether there would be no corporate capital needs through 2026, if I understand correctly.

Christopher Sotos

Analyst · Bank of America. Your line is now open.

Sure. So two parts. I think right now, I'm just not deploying the full amount of cash. Our debt - corporate debt to corporate EBITDA is about 4.85 plus minus on a pro forma basis, assuming we deploy some of that, it's about 4.4. So within our 4 to 4.5 we've talked about, obviously, you got a high cash balance currently. To your second question, 2026 is probably a little bit too far, right? For us, it's the drop-downs we talked about are through the end of '24. However, keeping in mind, if we issued any debt, obviously, we'd only intend to do so to drive the $.15 higher, et cetera. So I think that we don't need any capital through '26. That's a little far. What we said is that the capital to effectuate the drop-downs that we've just talked about through 2024, don't require any additional capital.

Antoine Aurimond

Analyst · Bank of America. Your line is now open.

Got it. Okay. That makes sense. And then lastly, sort of looking at Slide 16, there's quite a big step-up in non-recourse amount for solar assets starting in 2024. Just curious how you're going to manage that and any potential impact on CAFD generation?

Christopher Sotos

Analyst · Bank of America. Your line is now open.

Yes. To be fair, that's a step-up in the $14 million to $148 million, that's probably in the middle of the page. We'll intend to refinance some of that $148 million, obviously. There's a bullet there. While we try to have everything amortized obviously, in some cases, we buy books that have kind of a mini perm with your seven years after COD. That's one of those examples. So some portion of that $148 million will look to refinance.

Antoine Aurimond

Analyst · Bank of America. Your line is now open.

Okay. Perfect. Thank you so much.

Christopher Sotos

Analyst · Bank of America. Your line is now open.

Sure.

Operator

Operator

Thank you. And I'm currently showing no further questions [technical difficulty] Chris Sotos for his closing remarks.

Christopher Sotos

Analyst

Thank you. And once again, thank you for everyone's time, and I appreciate your support. So take care.

Operator

Operator

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