Hello, and welcome to the Clearway Energy, Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Akil Marsh.

Good morning. Thank you for taking time to join Clearway Energy, Inc.'s second quarter call. With me this morning are Craig Cornelius, the company's President and CEO; and Sarah Rubenstein, the company's CFO. 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. With that, I'll hand it over to Craig.

Thanks, Akil. Turning to Page four. We're pleased to report to you today the solid second quarter results that we delivered for Clearway Energy, Inc. during this year's second quarter and to also provide further definition to the building blocks we intend to use as we prudently grow the company in future years. Our financial results for the quarter demonstrated a strong year-over-year improvement in operational performance due to high equipment availability in our conventional segment and a return to more normalized generation in our Renewable segment. The strong start to the first half of this year reflects the focused execution and financial discipline of our organization and has allowed us to reaffirm our 2024 guidance of $395 million. Meanwhile, our action is establishing future building blocks for the future growth of Clearway Energy, Inc. reflect the harvesting of development investments that have been sold over many years with the intention of providing future investment opportunities that will be complementary to our existing fleet and delivered in a way that allows our growth to be planned with deliberate financial prudence over time. On the back of these successful results and consistent with the previously established target for dividend growth of 7% for 2024 Clearway increased its dividend by 1.7% for the quarter, bringing our quarterly dividend to $0.4171 per share or $1.6684 per share on an annualized basis. With the upsized growth investment commitment to the Luna Valley and Daggett I projects, we have now committed to deploying all of the excess proceeds raised from the sale of our District Thermal business at accretive economics and established the path to achieving our previously communicated financial objectives through 2026. Incorporating this commitment, we are increasing our pro forma CAFD outlook to approximately $435 million or $2.15 of CAFD per share. These…

Thanks, Craig. On Slide 10, we provide an overview of our financial results, which include second quarter adjusted EBITDA of $353 million and CAFD of $187 million. The second quarter results reflect renewable production in line with overall fleet estimates as well as solid conventional availability and the management of energy gross margin through favorable contractual hedging arrangements. Based on our year-to-date results with adjusted EBITDA of $564 million and CAFD of $239 million, we are reaffirming our full year 2024 CAFD guidance of $395 million. We are pleased with the results that we have delivered so far in 2024 and as the third quarter is a key seasonal contributor to CAFD, we will provide an outlook on full year CAFD results following its conclusion. 2024 CAFD guidance continues to reflect P50 median renewable energy production for the full year as well as contributions from committed growth investments based on expected COD timing. As previously noted, the company has now fully committed the proceeds from the sale of the thermal business, which has provided a path to the pro forma CAFD of $435 million or $2.15 per share needed to meet our dividend per share growth objectives through 2026. Based on pro forma CAFD, our pro forma credit metrics remain in line with target ratings. As Craig discussed, we have identified attractive growth opportunities such as Pine Forest and Honeycomb, that subject to approval by CWEN's independent directors, we expect to commit to in 2024 and would be funded in the second half of 2025 and in 2026. To fund these offers, we expect to be able to utilize retained CAFD as well as excess corporate debt capacity. Our revolving credit facility remains a key source of liquidity for the company and we have further expanded that liquidity through the…

Thank you, Sarah. Turning to Slide 13. I'll recap where we stand in terms of making progress towards meeting the key goals that we've set for Clearway Energy, Inc. this year. Thanks to our solid first half results, CWEN remains on track to meet its 2024 CAFD guidance and its 2024 DPS growth goal of 7%. Beyond 2024, our path to $2.15 of CAFD per share is now even clearer with the upsized commitments CWEN has now made for Luna Valley and Daggett 1. We are well positioned to deliver on the DPS growth promises we've made to achieve the upper range of 5% to 8% DPS growth through 2026 without external capital. Finally, we have begun to define the road map for growth beyond 2026 and CWEN shareholder value accretion in the years ahead. Since being named the CEO of Clearway Energy, Inc., I've had the good fortune to have dialogue with many of you in the investment community. We've appreciated your interest in the Clearway story and the feedback you've provided to maximize shareholder value. We plan to take this into account as we work through our annual budgetary and long-term planning process. An output of that process in terms of updated financial guidance will be communicated later this year and will take into account the counsel we've received from you alongside the vision we have for value creation. While advancing on the recently identified Honeycomb and Pine Forest investment opportunities, our organization will be diligently working on the next wave of growth investment opportunities to make available to CWEN from Clearway Group's greenfield development pipeline, and we'll continue to selectively pursue third-party acquisition opportunities as well. In all cases, mindful of assuring that all investments will be structured and committed only to the extent that they can…

Thank you. [Operator Instructions] Your first question comes from the line of Mark Jarvi with CIBC.

Yes. Good morning, everyone. Craig, just in terms of the comments around third-party M&A. Can you define what you would view as being complementary? Is it geographic? Is it asset type? What goes in that consideration? When you think about the hurdle rates for M&A given the fact you can get 10%, 10.5% on CAFD yields from drop-downs. Does it have to be above 1.5% CAFD? Or is there other strategic benefits you're thinking about from diversification that would keep you in that CAFD yield range?

Yes. Thanks for the question, Mark. It's insightful. You touched on a few of the factors that we consider when we evaluate third-party acquisition opportunities, geography and technology are certainly amongst the factors that we aim to diversify over time. Customer and contractual structure is another factor. In terms of investment returns, it would be reasonable to think that we would need to achieve a risk-weighted CAFD yield an internal rate of return on an investment into a third-party asset that is consistent with the types of risk-weighted investment returns that Clearway Energy, Inc. is able to earn on drop-down offers as well. And that's why you hear us say that it's our intent to be selective. And to the extent that we're going to be making investments in projects we acquire from third parties, we want them to fit well into the fleet, we want them to produce good returns, and we want them to have a good long life as part of our fleet in the future. And so, I think we are being selective in that way, but are also pleased to see that the market today is producing opportunities that could potentially satisfy those criteria. So, I think you can expect us to continue to be disciplined around where we do engage in third-party acquisitions and that their contribution to the company's resource base and its CAFD per share expectations would be accretive.

And then how big a size of the transaction would you look at it? Is this something that would get Zoster curve corporate liquidity? Is it small one, two asset transactions could be bigger. And when you think about it, would you want something that had some follow-on investment opportunities, whether it's repowering or expansion opportunities around those assets?

I think we're -- I think as you can probably see from the rest of what we've communicated today, we are working to be very disciplined about taking one step at a time as an enterprise and ensuring that our growth is accretive and progressive. And so, for us, at this juncture, I think we are not especially desirous of large transactions that bring with them substantial contingent commitments and exhibit a substantial need for financing. We're focused on assembling building blocks that are supportive of a clear path for its CAFD per share growth. That's what we get to investors.

Understood and then just building off the additional RA contracts secured. Can you talk a little bit about pricing and the dynamics you're seeing out there? With the pricing on the most recent tranche to be higher than what you would have secured last quarter? And is there an opportunity to get the contract profile to say, 90% contracted over the next couple of years by year-end?

I don't think we want to set a specific percentage of capacity contracted that we feel we need to reach for 2027 at the end of 2024. And we don't want to do that because we feel confident in the robustness of the market and want to assure that we earn for our shareholders from these unique assets what the market will bear from them over that period of time. What we see right now in the state is a very clear recognition from its regulators and also from the entities that serve load in the state that modern thermal resources that can dispatch over 24 hours in a day are scarce and valuable, and what I think we all together are doing is making a plan for how the state's capacity needs can be fulfilled as we look forward over the next three year's. And I think what we're pleased to see is that the regulators in the state are designing a market construct that recognizes the necessity for resources like these, and as load serving entities are digesting some of these regulations, the most recent of which were turned into guidance for what they need to procure for 2025 just at the end of July that they are prepared to engage with us around contracting pricing that is constructive and is constructive relative to where those same resources were being contracted last year. And to the point that you asked, it's constructive relative to where contracts were being executed earlier this year. So, I think we feel very good about where we stand in being able to market these capacity resources. And we also feel quite confident that when we get to the very end of 2026 and 2027, we will have contracted the entirety of their resource adequacy capacity and that we will have done so at values that are constructive to the CAFD per share contribution that these assets are providing today.

So if I hear you correctly, you're saying that given the market conditions, you don't need to rush to contract, you think pricing will hold if not tilt higher in the coming quarters?

Yes, I think that's a fair distillation of what I said. I agree.

Okay. And then just finally, trying to look ahead to the update later this year. You made your remarks about extending the growth horizon. You did see DPS growth, maybe at times you probably aren't being rewarded in the market for dividend growth, the funding side of the equation and build the fund growth and CAFD growth might be more top of mind for some investors. Is there a view that you might deemphasize the DPS as the lead growth sort of target to make it more of a CAFD per share growth?

We are pleased to say that we have a really abundant set of building blocks within the enterprise to be able to expand both the CAFD per share that we earn and also the dividends that we pay per share. And we really valued the opportunity we've had over recent months to confer with our investor base and with people like you about the business model we employ and how we best drive shareholder value within it. And as we've noted in our prepared remarks, I think it's our intent to try to be deliberate about analyzing that full set of building blocks analyzing capital market conditions and engaging with our Board of Directors around what we think is a sensible capital allocation framework that is both prudent and value accretive. And we want to give that process time to fully assess what is likely to be most value creative for our shareholders. And as we've noted before, I think it's our intent to provide you that forward-looking capital allocation framework after the third quarter. And you can trust that what we lay out will be thoughtful, it will be prudent and it will be informed by what we think is most likely to create value for shareholders.

So when you say the update will come half in third quarter, that comes with the results of the Q3 results or could maybe come sometime in 2025.

Our historical pattern has been to issue guidance for the forthcoming fiscal year and then to provide outlook for CAFD per share growth and DPS growth at least sort of one year beyond the year that we've already communicated it during our third quarter call. And we see lots of virtue in continuing to extend on the patterns of engagement with you and the analyst community and our investor community. So, I think you could anticipate that we're working towards being able to repeat that pattern of communication at our third quarter call.

Okay, I'll leave it there. Thanks for the time today.

Thank you. [Operator Instructions] Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Pardon me, Julian, please check your mute button. Our next question comes from the line of Noah Kaye with Oppenheimer & Company.

All right. Good morning. Thanks, team. Just was hoping to get a characterization of the mix of offtakers for Pine Forest. It's listed as diverse investment grade. But just wondering about the mix of corporates. And in particular, given the demand we're seeing on the grid from the data center world any direct data center exposure either in that or being contemplated by the company?

There are two customers for the PV generation on the project. They're both corporate customers that have excellent investment-grade ratings. And one of the customers that is procuring the bulk of the output is an information technology company. And what load exactly they serve with that contract would be for their own energy planning to opine on. And as is our typical practice, I would expect that once the project is complete, you'll get to see us announce the valued customers that are being served with the project. In terms of data center load generally, we're pleased to see the influence that it's having on power markets around the country. That project serves the Dallas metro area electrically, and there is a growing demand for data centers there as you're probably familiar, Noah. And what we're seeing across the range of other development assets that we're planning for completion over the time frame that you've seen us identify late-stage pipeline, there is a multiplication of demand from both hyperscalers and developers of data centers that would aim to have their loads served in locationally matched areas with renewable resources. And as we noted three months ago, I think we're really pleased to see the way that market has evolved to enable tenors, contracting terms and prices that are very constructive for being able to create profitable projects. So, we've been pretty pleased to be able to engage with the whole spectrum of companies that are enabling load for data centers and are finding that it is useful and constructive for the development work we're actually doing from coast to coast right now.

Yes. Very helpful. And then just on Honeycomb. So, the formal offer is pending, but the $85 million commitment, just to make sure we have -- I know you talked about this last quarter, but I just wanted to make sure we got it right. Would that be for the entire 320-megawatts Phase one, is that for a portion of it? Just a little more clarity on how much of the asset actually have.

Yes, that would be for the entire 320-megawatts, and as I think we've noted before deviously, there is potential for subsequent phases in the program, but what we have planned for commitment this year is the completion of an investment commitment that matches the cash equity for that portfolio of projects, which would be completed in '26 and funded in '26.

Okay, perfect. I'll pass it on.

Thank you. One moment, please, for our next question. Our next question comes from the line of Justin Clare with Roth Capital Partners.

Hi, good morning. So, I wanted to first just ask about how we should think about your targeted payout ratio as we -- in 2024 and 2025, and then how much retained CAFD you might have available for funding the Pine Forest acquisition, and then further COEs into 2026. So, I think the historical ratio has been 80% to 85%. So I'm kind of thinking in the near term, could there be any change in that because it obviously affects how much capital you might have available for acquisitions?

Yes, understood. I'll provide a brief philosophical response there, and then we'll turn to Sarah to be able to provide to you some further detail around the sufficiency of our own internal sources to fund the commitments that would attach to the identified projects we've disclosed today. So first, I think establishing our forward-looking capital allocation framework for the combination of CAFD per share growth, dividend per share growth, payout ratio is something as we communicate as part of our update forward-looking guidance following our third quarter. But philosophically, it's our intention to continue to maintain a capital allocation framework that is prudent and is context aware for the current capital markets environment. So I think you can expect that we'll continue to be prudent in that regard. With respect to the projects that have been identified to date, as we've noted, the organic CAFD creation from our own portfolio is expected to be able to enable the funding of those investments. And I think we are aiming to be very thoughtful about the way that we match new drop-down offers to the sources of corporate capital that will enable those offers to be funded accretive as we go forward into '26 and '27. Sarah, I'll turn it to you if you'd like to try to enumerate additional detail that would be responsive here.

Sure. I don't want to have too much to add other than just to note that we do expect to be able to fund the offers that we have and our incremental expected commitments with retained CAFD as well as excess corporate debt capacity. But given the timing of those in the future, we'll be evaluating at the time what source of corporate capital makes the most sense to use because our retained CAFD sort of has a shape, right? So, depending on the timing of the year that we're funding. But in terms of what we are planning to commit to, we have identified sources of capital and retained CAFD is a significant portion of that.

Okay. Got it. Thanks. And then just one more CAFD yield for the Pine Forest that is offered was 10.5%. So, it's a little bit higher than in other recent commitments. I was wondering if the potential tax equity investment is contemplated in that yield and the capital commitment that you had provided here? And then wondering, could you look at participating in additional tax equity in investments from CWEN perspective? Maybe you could just talk through the possible opportunity there.

Yes. I'm glad, again, to respond philosophically and Sarah glad for you to complement, so firstly, the reportable CAFD that you see reflected in the investment reflects only the CAFD that would be received by CWEN from the cash equity investment that it makes in the project. So, we separately account for the tax equity part of the structure based on the value of its usefulness and continuing to manage our tax runway forward. And we were in the fortunate position to be able to structure this project in a fashion that would provide CAFD yield in excess of that planning 10% average, and wanted to make sure that, that would be made available to Clearway Energy, Inc, and then in terms of forward-looking tax equity structures, over the more than 10 years since NYLD was originally IPO-ed, we have, as an organization, been very effective and continuously structuring investments to be able to defer our federal cash tax liability. And what's quite nice about the new market structures that we're able to employ with the transferability market is that we're able to segment the capital structure of projects in a way that tally efficient, in bringing tax benefits into Clearway Energy, Inc., while dispositioning tax credits to other investors who are well positioned to value them. With that, Sarah, I'm glad for you to sort of fill out where you think it might be helpful.

Yes. I think I don't have too much to add other than to note that this, the structure that we expect to employ for Pine Forest is one that we would look to use again if the CAFD yield on the investment makes sense. We do have a large number of projects that we have the opportunity to consider various structures and to continue to explore using CWEN as a tax equity investor in order to continue to extend our tax runway. So, it is something that we'll continue to try to optimize as we move forward.

Okay. Thanks very much. Appreciate it.

Thank you. One moment, please, for our next question. Our next question comes from the line of Alex Kania with Marathon Capital.

Hi there. Good morning. I was wondering if you could just talk a little bit about how you're -- this is a loaded question, but just how you're thinking about the variability in the policy environment. Craig, I think you mentioned at the top that you've kind of moved forward, I guess, probably on securing nearly 8-gigawatts of, if I guess, capacity to be under kind of safe harbor. I just want to confirm that would be capacity that would be you could utilize the existing PTC and ITC framework. But I just want to make sure that I'm thinking about that right as well as just any thoughts that you have about Clearway and the sponsor's ability to kind of navigate through any policy uncertainty.

Yes. Yes, you've interpreted that disclosure correctly in terms of the ability of those investments made in equipment to be able to safe harbor projects under the existing ITC and PTC, and I think that strategy is something we look forward to putting to work across a range of project completion vintages from '26 through '28. So, we feel good about what that does to enable a succession of growth investment opportunities for CWEN over a range of potential scenarios. The things we'd add would be that I think in general, the policy environment is likely to be manageable for renewable and battery growth in the United States. I think load growth is an enormously helpful thing for the policy environment as a whole, we and other companies that are responsible for driving the bulk of new clean power capacity additions are companies that recognize the importance of all of the above resource solutions for each of the markets in the United States. We invest in locations that benefit people who vote for candidates of both parties. And over the two decades where I've had the good fortune to be involved in energy policy dialogues, in Washington, D.C. I think what I've generally found is that most decision-makers who are ultimately responsible for making decisions within agencies or elected officials recognize that what we do is beneficial to local economies and especially as growth -- as load growth is expanding that it's necessary to fulfill the needs of a country that is fortunately consuming more electricity than it was expected to in preceding years. So I think we feel good about the ultimate decision-making construct that will apply to energy policy across a range of electoral scenarios. What I would add, and we mentioned something about this is that we pretty intentionally focused a lot of our development investments in the Western United States where we have a strong historical track record, which are also markets which are committed to evolution of fuel mix in the states across a range of federal policy scenarios, and they've demonstrated that over the last two decades. And so, one thing that makes us especially feel good is that those projects, which are well cited in places where we know how to permit and construct resources, we'll have customers and we'll have customers at whatever price we think will ultimately be necessary for the projects to be accretively constructible and financeable. So we think, for us, especially, but for the industry, in general, the range of policy scenarios that could be foreseen after this year will remain manageable.

Great. Thanks so much.

Thank you. I'll now hand the call back over to President and CEO, Craig Cornelius, for any closing remarks.

Thank you, everyone, for joining us today and for your ongoing support of Clearway Energy, Inc. We look forward to continuing to demonstrate to you our leading market position and solid execution, and are optimistic about what the days ahead to have in store for our company as we move onward. Operator, you can close the call.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.