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. [Operator Instructions] I would now like to hand the call over to President and CEO of Clearway Energy, Inc., Chris Sotos. Please go ahead.

Good morning. We 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 today. Actual results may differ materially. Please review the safe harbor in today's presentation as well as the risk factors in our SEC filings. In addition, we refer to both GAAP and non-GAAP financial measures. 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. Given recent market volatility, we're willing to change our customer investor call format, take a step back to reinforce the strength of our platform that 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 development, preserving this relationship and benefits for both parties. In addition, sponsors hold approximately $1.8 billion of CWEN shares, ensuring alignment of sponsor interest or the long-term interest of CWEN. The second ingredient for a successful YieldCo, the strong supply of assets with long-term contracts. While the current volatile capital markets have created…

Thanks, Chris. On Slide 13, we provide an overview of our financial update that included CAFD of $156 million for the third quarter of 2023. Based on results occurred 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 to $350 million. We are also introducing guidance for 2024 of $395 million of full year CAFD, reflecting certain onetime maintenance costs along with timing of gross investment since 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 to our long-term objectives. For the fourth quarter, we are announcing a dividend increase 2% or $0.3964 per share. The decreased to $1.5856 dividend per share on an annualized basis. For 2023, this reflects full year dividend growth of as the 2022 of 8% which is distinct with our long-term growth market. In addition, we are announcing a dividend per share gross target for 2024 of 7% in line with our gross target in the upper part of the 5% to 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, the conventional energy gross margin was approximately $11 million lower due to milder temperatures in California. Despite lower energy margins, the conventional facility has strong availability and provided recourse advocacy our perspective. Solar generation is also implied to expectations for the third quarter, while regeneration with the overall CWEN is lower than anticipated in August and September. Third quarter Q3, CAFD was also to a lesser degree affected by its previous expenses. Year-to-date, CAFD of 289 million third quarter of…

Thank you, Sarah. Turning to Page 17. While this has been challenging from a CAFD generation perspective, we are maintaining our revised CAFD range for 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, which is EPS grew 8% in 2023. We are reaffirming our EPS growth objectives at the upper end of our long-term growth target for 2026. We continue to proceed support from our sponsors and enhanced CAFD yields or the next contemplated drop-downs and the additional contract length in our natural gas strong prices. We're getting traction around visibility beyond 2026, achieved both 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 conditions in 2027 and beyond. Additionally, as stated before, we and our sponsor have flexibility and timing of drop-downs for growth beyond 2026, be prudent on timing and structuring drop-downs or tax rate growth beyond 2026 and compete for the capital market environment to stay upon on us. Operator, open the lines for questions, please.

[Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith of Bank of America.

Look, guys, nicely done in California here. I 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?

Sure. I think in California, and once again, unfortunately we can't disclose the price due to confidentiality. But the contracts that we had signed previously to kind of be able to give guidance through '26, we're seeing prices stronger than that weighted those contracts back in the past. And so for us, we feel very good about the ability to extend those contracts by about 1.5 years on those 2 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 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 the long-term CAFD guidance through '27. With regard to drop-downs, Julien, which I think was kind of your second question. There, obviously, that's 3 years in the future. We're at a market that is very, now it is very volatile currently. So for us, we 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 guidance in terms of being able to hit the upper end of the range through '26. And we're starting to see some good green shoots for '27 and beyond, just not as tight as we would have liked it when we talked at this time last year.

All right. Fair enough. Now with that said, let me just nitpick a little bit here. Instead of using a greater than, now you're using at tilde on the $2015. 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 dropdown 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 2.05 from 2.08, so down $0.03 there. So I don't, 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.

No, no concern, Julien. There's a reason we try to map it out all for you. So the question, yes, welcome the question. I think you, 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 3 years out. So we might be $0.01 high or low in terms of routing and the like. The real driver behind the reduction from what you saw before from kind of a $440 million to $435 million is really around the $10 million that we took as a result of the P50 results we saw in 2023. Insurance is a little bit higher and other costs, just 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.

Okay. Fair enough. It doesn't sound like there's anything too specific there from what I can tell. 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.

Yes. 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. For us, Julien, 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 CAFD yield, I'll take it.

Okay. Fair enough. Excellent, guys. Appreciate your patience this morning and good luck. Hopefully, next year or next quarter, we'll get an update at last, as you nail things down?

Well, I think, once again, Julien, those RA contracts. They take time to basically write we'll participate or we're always engaged in bilateral discussions. The RFPs, as you know, kind of happened in June or a little bit before during the year. We get our awards in November. So I don't think there will necessarily be that many major updates between now and let's say, the February call. 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 we'll kind of give more clarity around 2027.

Our next question comes from the line of Angie Storozynski of Seaport.

I just wanted to say, well played. This is how we do with, basically. You pace yourself with the dividend growth, you just live within your means. And I'm hopeful that the stock will reflect this reality versus what we're seeing at other YieldCo. So, now as far as the growth is concerned, obviously, you have a sponsor that is supportive and willing to adjust the capital yield for the current interest rate environment. But how about maybe organic growth? Any sort of repowers or expansions of existing sites, something that you could do on your own?

Sure. We look at that all the time, Angie. And I think what we've talked about is Seadrill 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 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 repowers and kind of Craig's team and looking at what PPA can you renegotiate, what are turbine prices and the there is some of that organic growth. But as I commented previously, it's not like we have 2 gigawatts that can be repowered in the next 2 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 organic CAFD generator is depending on where those RA prices go in 2027 and beyond.

And then changing topics. Obviously, '23 has been a challenging year for actually a number of assets. But the results for the Thermal assets were weaker than expected. Now how much of that weakness or lessons learned have you incorporated in your '24 guidance on CAFD?

From our perspective, we're much more in line in our 2024 guidance with that the upper end of that $1 to $1.50 we talked about, long-term energy gross margin. Obviously, given when we gave guidance in November of '22 for 2023. Yes, as you're well familiar, the markets were much stronger for what were expected sparks that didn't show up in several of the months that we were looking for. So for us, we're materially kind of in the upper end of the range at lower $1, $1.50, I mean, upper of the $1, $1.50 that we have for long-term EGM guidance. So to your point, we're being more conservative for full year '24 than we were for partial year '23.

Our next question comes from the line of Mark Jarvi of CIBC.

As you think about expanding the time horizon for growth, Thermal proceeds fully deployed now, obviously balance sheet funding clarity is really important in today's market. So how do you think about as you extend that runway when you think about future drops, communicating the funding plan in terms of how much clarity you can give? And I guess, how prescriptive it could be in terms of how you match funding with asset growth?

Sure. I think we've always been pretty prescriptive in how we viewed it. We have an undrawn revolver currently with significant liquidity underneath it. So we had to fund something we could on a temporary basis. But I think 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 certainly, I think we'd look to deviate from that long-term funding model that 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, it wouldn't deviate from our long-term funding model that has worked over a number of years.

So I guess you'd be okay with, if you saw, say, a couple of million dollar 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 sort of laying that out there. And I guess you saw the need for external equity, would you be open to things like an ATM or something like that as you march forward?

I mean, we used ATMs before, which we think are a very effective equity funding mechanic. We've done smaller kind of issuances as well. So I think we do things very consistently with how we have in the past. I wouldn't just spend 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.

Okay. That makes sense. And then just on the conventional units, as you continue to operate them, as you see these RA processes, the contracting process play out, sort of any updated thoughts in terms of ways to optimize them from a commercial strategy? I'm just curious in terms of the amount of capacity you secured into 2027. Could you have gotten more? 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?

Yes. It is very focused on price. 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 1 and 1.5-year bids and 3-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 tenor. 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 fixed the price point that they thought made the most sense.

If you could do sort of a retrospective look at how you did most recently, do you think there was an opportunity to clear more capacity as you think forward in the next processes?

I don't think there's the ability to clear more just because what, to see your question, what cleared, what's accepted. You kind of don't really know exactly what demand there is on the other side. So not to chip your question, it's a little bit opaque for me to say directly what the number is.

And just last question for me, and maybe for Craig, your view in terms of tax equity transferability is playing out, how that sort of impacts where you think actually returns could be for projects? And ultimately, I guess, we're, maybe it comes back to Chris, in terms of drop-down CAFD yields potential under sort of a transfer ability scheme on funding?

I'll kind of answer the last part and then, Craig, will 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 in our all-in CAFD deal that we'd get. I think, Mark, if your question is we're doing things at a 10% CAFD yield, now would that lead to a 14% CAFD yield? 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? It kind of all has to work together in a chain. So it's not as though that PTC transferability will lead to an economic rent or significantly above market CAFD yield simply due to that. But Craig, I'll let you answer the first part of the question.

Yes. Sure. 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 clearing houses for the disposition and monetization of tax credits that projects produced there. 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 to 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 6 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.

Our next question comes from the line of Noah Kaye of Oppenheimer & Company.

I appreciate all the incremental details and disclosures and, frankly, the reframing of the platform here points well taken. 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 fair amount of debt coming due over the next few years for some of these projects at the project level. How are you thinking about any potential additional refinancings? Or are all these basically going to be paid off the term?

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 2 large project refinancings, what's referred to as NIM solar in 2024, I believe Buckthorn in '25 or '26. So I think is Buckthorn is backed by, still is 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 September of 2024. So from our view, that should be able to be refinanced. So we don't, yes, not to minimize the question. We don't have a lot of concern about near-term nonrecourse assets needing to be refinanced.

That doesn't impact the pro forma CAFD outlook?

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. So 100 to 200 basis points move overall is $3 million, not to minimize $3 million, but it's not a major driver.

Yes. And 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.

Correct. I'm not saying it's zero, but yes, there is not 10, it's maybe 3 depending on where you go.

I appreciate adjusting the P50 expectations. Does that generally apply to how you look at future drop-downs or acquisitions as well? I mean, I'm sure there's some degree of regional resource specificity here to 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.

Sure. Step one, just for way of background, we always ask for an additional return on wind assets versus solar to take into account that volatility. So part one note to your question is we view wind as a riskier asset in general because of P50 volatility and we typically look for a higher IRR or CAFD yield or both when we negotiate those, just for 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 5 years, we try to take a much more what's actual approach on assets 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 data set 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 5 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 when we easily see the revision. But it really is trying to be comprehensive between, yes, not overestimating what's happened in the past 2 years either to make decisions either.

Our next question comes from the line of Justin Clare of Roth MKM

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. I was wondering if you could just provide a little bit more detail on the project timing and what led to that reduction for 2024.

Sure. I'll let Sarah address it. But I think, 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 take a comprehensive look at our overall portfolio. And yes, I'll let Sarah kind of reflect anything she wants to, but that's really the basis of it.

Yes. And Justin, just to clarify, were you asking about the $50 million of timing for growth investments?

Yes, exactly. Just what led to that? Because it looks like it's impacting 2024 and then it's going to be contributor in probably 2025. So I just wanted to understand a bit more there.

Yes. 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 the full amount of CAFD once the drop-downs are sort of up and running and at their full 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, we'll have the full amount, and that difference is the $50 million.

And then just I was wondering for the projects you have committed investments for and then for those that are identified as potential drop-down opportunities in 2024 or 2025 here, can you talk about where you are in the process of securing the permit the interconnection for these projects? I'm wondering if there's still risk there that those factors could cause delays, and just where you are in that process?

Craig, if you wouldn't mind addressing that.

Yes, 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 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 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 time tables that have been observed as being elongated for the delivery of high-voltage equipment. And we've taken further actions to derisk time lines for these projects in particular but also other projects in our pipeline to address what's being observed in terms of interconnection time lines as well. So we think these are pretty derisked in terms of the execution timetable that's reflected on the page.

Our next question comes from the line of William Grippin of UBS.

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 next few quarters with respect to announcements?

Yes, I think that question is, should we expect some large drop on announcement in the next 6 months? I doubt it. I think it's heavily conditioned upon how the capital markets settle down or not. But I think, to your question, because we don't talk, in essence, CEG is incredibly busy by getting the gigawatts we talked about basically online in '24 and '25. Obviously, this will develop in while doing that. But I think 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.

And so in that light, I mean, do you continue to view the conventional assets as core to the Clearway strategy? And maybe how are you thinking about potential opportunities to recycle those assets as you continue to contract the open capacity?

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 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 resource availability. So for us, we think it's very beneficial, and we're obviously pretty bullish on what things will look like for, let's call it, through end of the decade in those assets. So we give them is core. That being said, if someone offered us a price that we thought made sense, we'll show them we've been willing to transact on that in the past. And for us, we're pretty bullish through at least 2030.

Great. And just one last one for me. Could you elaborate a little bit on the onetime maintenance items in the wind portfolio? And is that in any way related to the Siemens turbines in the fleet?

Not specifically. That's a variety of assets, as I incorrectly answered the last question that somebody asked. Basically, that's a result of kind of us looking at our fleet and recognizing some of the weaknesses that affected our 2023 results. And saying, okay, how can we try to show that's up with a onetime 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 '23.

I guess are you getting any sort of warranty reimbursements or any cost reimbursement and any kind for these efforts?

That's some of it. Like overall, these things are negotiation, but that's the amount that we think we'll have to kind of net-net bring out during the year.

Thank you. I would now like to turn the conference back to Chris Sotos for closing remarks.

I just wanted to thank everybody for attention on 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. We want 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. We're able to reiterate where we are for '24, our growth rate to '26 and that we're seeing kind of positive things even in this volatile environment in '27 and beyond. But more to come as we walk through '24. I appreciate everyone's support.

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