Good day, and thank you for standing by. Welcome to the Clearway Energy, Inc. First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over, to your host today, Chris Sotos, President, and CEO. Please go ahead.

Good morning. Let me first thank you for taking the time to join Clearway Energy Inc.'s first quarter call. Joining me this morning is Akil Marsh, Director of Investor Relations; and Sarah Rubenstein, CFO; and Craig Cornelius, President and CEO of Clearway Energy Group, our sponsor. Craig will be available for the Q&A portion of our presentation. Before we begin, I 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 had a soft quarter driven primarily by weak renewable resource due to the heavy rainfall in California and the West Coast. CAFD was negative $4 million for the first quarter. Clearway is announcing an increase in its dividend of 2%, 2.3818 per share in the second quarter 2023 or 1.5272 on annualized basis, keeping us on target to achieve the upper range of our dividend growth objectives for 2023. We are also reaffirming our 2023 CAFD guidance of $410 million. Clearway continues its focus on growth at all levels of the enterprise. Our sponsor’s pipeline has grown to 29.3 GW, including 6.9 GW of late-state projects expected to reach COD in the next four years. We're excited to announce our commitment to the Cedro Hill repowering project. We'll go over the project in more detail in a couple slides, but this repowering will deploy approximately $63 million in capital while extending…

[Operator Instructions]. Our first question comes from Noah Kaye with Oppenheimer.

Thanks so much. Good morning. Maybe just to start with a health check on the operating environment. Can you comment on what you are seeing in terms of flow of panels and batteries? Are we starting to see some easing bottlenecks here? And just how that plays into expectations for some of the timing of these drop-downs? Thanks.

Sure. That phenomenon has kind of been taken into account with the timings of the drop-downs, we have in our appendix. But Craig, you are obviously closer to that. I'll let you speak to that.

Yes, thanks for the question, Noah. We're really pleased with our execution and environment, which I think the right to note has been challenging for some. So, in our case for the projects that underpin current committed growth expectations for Clearway Energy Inc. we are ahead of schedule on module deliveries, that's true for both Daggett and for Victory Pass/Erica. And that reflects the success we have had for those projects over really the time since we have been in execution and some of the cluttered policy issues that you are referencing have impacted module deliveries for others. So, we are really quite pleased with the decisions we have made, the support we have gotten from our suppliers, and how the procurement strategy we have had to underpin growth for CWEN is playing out.

Okay, great. And then it's great, and then, expect to see some of the repowering opportunities start to materialize. I think Chris you had mentioned over a couple of GW of potential opportunities interest across the fleet. When you kind of bucket that into opportunities, where it seems like the cap yields might pencil out similarly to this one. I mean, is that broadly true for all the opportunities you identified? Have you sharpened your pencils on that yet? Is there a subset that you have high conviction in? What can you share with us?

I think it's frankly too early to say the pencil and the CAFD yield that we anticipate. Don't get wrong, I don't think they're going to be 4% or something like that. But I do think it's too early to the point I tried to raise on the 600 MW and the like, obviously these are pretty early stage. We've gone through the one that we think we're in late stage on. So, I don't want to kind of like level set that all of them will be at this range. Obviously, as I've talked about on other calls, it's kind of three different types of repowering, right? One like Cedro Hill where you have an asset that's performing really well and kind of like the CAFD, the improvement in CAFD generation, while strong may not be that high because the asset's performing well today. There's a second type where you basically have an asset that's performing well, but maybe has significant maintenance cashback coming up in the future or additional volatility and degradation or O&M that's needed. In that sense, you may not really see the uplift because it's kind of at a further stage. The third and the easiest one to demonstrate value on is, are assets that are performing poorly. Fortunately, we don't have a lot of that third category, so I think in terms of CAFD uplift, don't want to -- the reason I don't want to kind of get out ahead is that it's really dependent on the individual circumstances of the asset we're dealing with.

Yes. Maybe just seeking one more, I think double clicking on the point that you don't need equity incrementally to fund the growth through ‘26. Can you just walk us through a little bit more in your thoughts around additional leverage capacity at the project level, and then just what's a comfort level for you in terms of an upper bound for consolidated leverage?

Sure. So, a couple different questions there. In terms of non-recourse debt, we kind of have certain pockets. For example, we didn't lever on a non-recourse basis. The other half of our Utah purchase, we basically got thermal proceeds. So, there's kind of elements like that within the book. I do think the bigger lever though, that we might use before that depending on exactly the nature of the asset is that corporate debt. And I think just to give you kind of a range finder, your corporate debt overall is obviously about $2.125 billion in terms of the bonds that we have at our $410 million CAFD guidance, you've got between $90 million and $95 million of corporate interest. So that ratio gets you to kind of low 4% -- 4 times plus minus. And the upper range is about 4.5 times at least from the rating agencies. Obviously, it's focused on one metric, they look at things like FFO to debt, interest rate environment matters, but just to give you a quick calc, that's the rough calc.

Great. Helpful, thanks.

Our next question comes from Angie Storozynski with Seaport.

Good morning. First, just one more question about project level debt and its availability and cost. So, I mean, you show the allocation of thermal proceeds for to finance growth, but I'm assuming that there is obviously an assumption of project level debt that is being added to these assets. So, could you comment on any increase in the cost of that debt and how that impacts your expected cash flow generation from these assets?

Sure. It doesn't, I'll maybe answer your second question before the first. It doesn't affect the expected cash flow generation that significantly, because obviously the corporate capital we're putting in is after those costs, and that's pretty well defined. I think to your point; the credit spreads aren't really showing that much volatility. I think, it's more a SOFR swap to fix type of phenomenon that may increase the cost there, but I don't think we've seen a significant increase in the credit spread on non-recourse debt.

And Chris, if I could add to that, Angie. What we do as a business practice, Angie, is at the same time that we execute major revenue contracts for projects that will become part of the growth profile for see when we also put in place long-term interest rate hedges of some kind and secure major equipment for the project. And we do that so that we can largely fix the stream of expected cash flows for a project when it is commercialized. That might not have been industry practice some years ago, but given what we've all observed around a more complex supply chain environment and also a more complex interest rate environment, we find it useful to try to fix all those things simultaneously. So, we do that and that allows us to be confident in the CAPI for share contribution from any given asset even before a commitment is made by the yield code, but certainly as of the date that the commitment's made.

Okay. And then probably, even more importantly, so, we are increasingly scrutinizing the quality of CAFD of different yield costs and how it's financed. Have a pretty substantial debt amortization on an annual basis, especially associated to the California assets? I mean, is there, as you think about the future, is there a certain mix between [indiscernible] non-amortizing debt and project-level debt that you're comfortable with? And also, is there any deferred financing? Like any, anything I clearly don't see it about anything that could catch up with you in the next couple of years. Some sort of a deferred benefit of low short-term rates that we had over the last couple of years.

So, a couple different questions there. I think part one, in terms of the corporate bonds there's nothing like that. The earliest corporate bond maturity is 2028, and then the next is 2031 and 2032. If we look to our non-recourse project financing, we don't really have any large requirements for refinancing until the third quarter of 2024, and once again, not to minimize that, but that's about a $100 million, $150 million in terms of principle. And once again, to the point the credit spreads aren't moving much, we'll see what happens on swap basis. So, I think, nothing in 2023, really 2024 there is that one refinancing and old corporate debt is locked down until 2028. We're also about 99% fixed, in terms of having our non-recourse debt swapped. So overall, AGI [ph] not a lot other than that repricing that may occur in -- this the third quarter of 2024 when we redo that non-recourse financing.

And when you say that you are within your credit targets, is it -- just remind me again, is it four times hold call debt to parent level CAFD, or again, what is the metric that I'm trying to fill for sure.

Yes, it's basically between 4 and 4.5 and that's kind of the CAFD, I went through a little bit on the last quarter. So, the way we look at that is you take your total corporate debt, the $2.125 billion of bonds, you divide that by corporate-level CAFD plus corporate-level interest. And so, you take our 410 of guidance, you add between, I think it's, between $90 million and $95 million of overall corporate interest. That gives you obviously about 500, 510, that's the ratio that gets you, like I said, to a low end of the four range. So, we should be at the lower end of that range. Looking at that one -- that's the key metric we try to solve for.

Thank you, very much.

Our next question comes from Mark Jarvi with CIBC.

Thanks, Good morning. Just in terms of the commitment, do you expect to finalize this quarter, is that occasionally all done together? And I guess is there any one of those projects that are a bit trickier to say, I guess, get across the finish line and figure out that might be pushed out into subsequent quarters?

I don't think that the projects -- I mean, the timeline we have is the timeline we think is appropriate in terms of those assets, if that's kind of what you are asking. And I think in terms of will all of them necessarily be signed at the exact same time, that's not probable. We kind of go through the assets as they come in different diligence speeds on them, obviously, out of that first drop-down, what we refer to as drop-down 24, which is Victory Pass/Arica plus the remaining $182 million of capital associated with that. We obviously did Victory Pass/Erica first, because that was the furthest along. So, to answer your question, don't expect them all to be done at one time. There will probably be a variety of announcements coming out along the lines of the different assets. And two, the timing that we have in our appendix is what we think currently.

Okay. Excellent. And just coming back to the 2.3 GW of storage and power projects. What would you frame as a good success rate if you thought about that? Like, do you see it as potentially achieving 50% of that in terms of get contained over the last couple of years or is it just too hard to give any numbers at this point, given all the negotiations that have to come through?

Craig, would you like to take that one?

Sure. Yes, I think giving you a particular probability right now is probably premature. What we can say is this, for all of the volume you see represented there, we have active engagement with, and in most cases with the existing customer for those facilities. And that is a very meaningful change over the picture just one year ago. And I think reflects a recognition from load serving entities across the country that the clean energy assets that were deployed first in our grid, tend to be located in places where their resource and their place in the transmission position is especially useful. And between that locational value of our existing fleet and the substantial flexibility and economic benefit that the structure of incentives in the Inflation Reduction Act provide, there is a real strong catalyst for engagement with load serving entities and other customers to contract for resources at these locations for a very long-term at economics that are attractive to us. And also, to try to expand or supplement them where either the renewable resource can be increased in size or where we can augment it with batteries. And so, what we see now is the ability to extend contracts for I think materially longer periods than repowerings generally supported before. You see that in the extended duration of the agreement we reached for Cedro Hill. And importantly incentive structure for storage that allows us to deploy storage at those locations without some of the structuring complexities that one had to go through before the IRA's passage. So, I feel pretty constructive that, overtime we are going to be able to repower, expand or hybridize a pretty substantial fraction of our fleet, and it's really just a question of when we get to do that. And what you see on that page just represents the ones where we're in active conversations today.

Understood. And then just in terms of the conversations around co-located storage and the comments before I've been, and that you have to get someone to be willing to pay for that upside and get that a little encounter party. Is there any other opportunities you're seeing or structure you could see around trying to get storage built with 50 the existing utility partner for that know the wind or solar asset doesn't want to partner on storage side?

Meaning if they want to own the storage as a transmission asset or something they dispatch

Or like if there's some way, like if you're going to be kind of just doing arbitrage on time of day and it's kind of quasi merchant, is there some sort of financial structure or swap you could do in terms of that?

Yes. I mean I think, we're kind of at the dawn of a real renaissance for how these assets can be structured commercially. How they can be financed, and also how power markets, and will be regulated and will make market designs that generate revenues or procurement obligations on behalf of utilities, where storage is a useful resource. And I think we can look at California kind of as being instructive, where eventually storage was viewed as a pretty essential resource. And there was a combination of IRPs that were generated that expected storage as a central resource, procurement direction that was either proposed by utilities or mandated by their regulatory commission. And that structure is producing assets that are very compatible with the yield codes investment mandate with long-term revenue profiles. And we're starting to sort of see that move east where some of the resources you see referenced there are outside California. Actually, the majority of the hybridization opportunity set we're engaged on -- now is outside California. Where you can, if you look under the surface of IRPs from utilities, they're starting to identify storage as a resource they really need to procure in the system, as renewables grows. And what we're finding is those utilities are prepared to think about contracting for those resources over a long-term basis. That's compatible with Yield Co. The last thing I'd add is that I think as you move eastward, we do expect that over the next 2 years, 3 years, 4 years, ISOs and RTOs will start to recognize the need for storage in their system. And as they do that will likely lead to changes in how those markets are designed that may ultimately make attributes of batteries that today you would expect we have to monetize on a merchant basis, attributes that we can monetize on a contracted one.

That's really helpful. And Chris, just last question for you, bit of catch up here if you want to hit your guidance. Was there buffering regional guidance that gives you some hope that you'll be there through the balance of year or some of the levers you can pull to make up catch up here on the lost after you in the quarter?

I think it's more just the waiting. I think for those of you who follow us for a long period of time, first quarter is always the weakest. It's low from a renewable resource perspective. And so, for us it's just obviously, second quarter and third quarter are critical to getting that, especially with the merchant. So, it's not as though we necessarily quote unquote need to have a herculean effort to catch up. I just think that, we'll know a lot more kind of when we sit in our second and third quarter as we get through those, as the main CAFD generation period.

Our next question comes from Julien Dumoulin-Smith with Bank of America.

Hey, good morning. so, I wanted to follow-up on the 600 MW of additional potential drops. Just talk about the 215 and DPS. Listen, you all have a pretty good line of sight on, on that number already prior to this incremental 600 MW, the 600 MW is being contemplated I think in the 2025 timeframe, as best I understood your commentary. How do you think about this adding latitude to the 215, if not upside? Or do you think that the drop timing here, et cetera, just extends that growth rate and gives you the latitude to continue combating it here? I just want to make sure how we should think about that, especially in conjunction with the additional cash flow coming from the monastery repowering as well.

Sure. Hopefully, I understood your question correctly. I would say it's much more an extension of the 215. I think to kind of the point that would kind of come online in 2025, first year would be the first year of operation 2026, excuse me, would be first year of operation. So maybe not kind of run rate CAFD number. So, I view it much more toward adding to the 2027 and beyond timeframe than really a big impact necessarily in ‘25 and ‘26, depending. But Julian, to be fair, there's a reason I said it's a little bit too early to tell. We have everything tied down. We'll go through it, but just to give you a directional, I think about it that way.

And how do you think about this fitting with the idea of -- no external equity needs here to fund that? You can make some CAFD assumptions here on what that 600 MW could do, et cetera. How do you think about this creating some, some equity need out there? I mean, obviously we're going to come back into at some point.

Yep. I mean, it depends on size. I think to the point in 2023, once again at our guidance, et cetera, we generate about a $100 million of excess cash. And I think for us, Julian, it's really about flexibility. As I talked a little bit on the call and over the past quarters, we did upsize, our revolvers, we have a lot of flexibility to determine if and when we need to issue equity. But yeah, once again, there's a reason I didn't bring up the actual capital is because it's a little bit too early, so I don't want to speculate. But the point I would like to make is we have a lot of capital flexibility with A, internal cash flow generation; B, just high cash balances from the thermal sale; C, an undrawn revolver except for LC postings.

And then just remind us, especially since regarding that ‘27 - ‘28 timeframe here. I mean your California portfolio, I mean RA prices continue to move sharply higher here in recent months. I mean, when does that reopen up again here in his open exposure? I just want to think about the pan ratio latitude and the continued organic improvement in the portfolio as well as we talk about ‘27 and ‘28 here with a new drive.

So, they're basically on a capacity basis, all three of the assets are open in 2027. There's different bidding rules that allow what you can bid in or not. So, we may not, yeah, once again not going to go into our bidding strategy on a public call but yeah, we may bid in some bid in others. But to answer your question, the RA capacity for all three is open in ‘27.

And you would agree this would be assessment that there is further latitude relative to where your head today, I imagine, wherever you head say a few months ago. It's just not where the current forward marks are.

Yeah, I would say, forward marks are higher than we hedge that as a generalization. However, I also don't want to get too far out ahead. You are talking about a period that's -- if we've been on a three-year basis, for example, a three-year trip between ‘27 and ’30, so kind of today's -- or 2024 is RA price may be a little bit strong from how you look at it for a longer date basis. But to your question, Julian RA prices in general are higher than where we had hedged previously.

Excellent. Thank you very much. I appreciate it. Good luck guys.

Our next question comes from William Grippin with UBS.

Great. Thank you very much. Can you hear me okay?

Yes. All good, Will.

Awesome. Yes, just maybe getting at Julien's question a little bit differently here. You talked about being at the high end of the 5% to 8% growth range without the need to issue new equity. How are you thinking about possibly growing faster, or upping that range, just given your ability to leverage a more traditional funding mix for incremental deals from here?

Right. For us, we typically don't look to increase the range. I would always much rather grow the period of time, with which we can kind of give the investors visibility into that growth. So, if the question is, would we move the 5% to 8% to say 9% as an example? That answer in general is a no. What I'd much rather do is let's say in November be able to demonstrate to investors growth through 2027 or beyond. So, we are always much more focused on extending the runway at that growth rate than increasing the growth rate in one or two years just to get a little bit ahead.

All right. Appreciate it. That's all for me.

That concludes today's question-and-answer session. I'd like to turn the call back to Chris Sotos for closing remarks.

Thank you, everyone, for attending today. As I understand, it's a very busy day in terms of reports coming out. So, appreciate everyone's time and look forward to talking to you in August. Thank you.

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