Good day, and thank you for standing by. Welcome to the Clearway Energy third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. 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.
Good morning. Let me 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'll 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 three.
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 $365 million-$ 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 dropdown of Wyalusing Solar with the rest of the previously announced dropdown projects on track for commercial operations in the fourth quarter of 2022 or early 2023. We are also updating our pro forma CAFD outlook to $390 million from $400 million, which I'll review in a couple slides. Clearway's long-term steady growth outlook is more transparent than ever with the latest offer from Clearway Energy Group for 1.4 GW of assets, utilizing anticipated $410 million of capital at an approximate 9.5% CAFD yield.
As a result of our sponsor's continued development efforts, we also have visibility into additional dropdown offers anticipated in the first half of 2023, leading to the deployment of an approximate additional $220 million of Clearway Energy, Inc.'s corporate capital. Our sponsor's development pipeline also continues to grow, now standing at 26.8 GW, including 6.8 GW of late-stage projects expected to reach commercial operations in the next three years. As a result of these offers, we continue to see the $750 million of thermal proceeds being deployed by the end of 2024, supporting our greater than $2.15 CAFD per share long-term CAFD outlook. At this level of CAFD generation, Clearway is confident in its ability to grow at the upper range of its 5%-8% DPS growth target through 2026.
In summary, Clearway continues to execute on the deployment of thermal proceeds and additional dropdown assets that when combined with the contracted capacity of our California gas assets, create a very stable platform for continued growth in CAFD and dividend per share. Turning to slide four to provide a bit more color on financial results. For the third quarter, Clearway is reporting adjusted EBITDA of $322 million and cash available for distribution or CAFD of $154 million. Year-to-date results came in at $948 million of adjusted EBITDA and $328 million of CAFD. Our third quarter results were negatively impacted by forced outages in the conventional segment. As we previously announced, the El Segundo Energy Center began a forced outage in late August at unit seven and eight, and after initial repairs returned to service on September 14.
Unit two at the Walnut Creek facility experienced a less material forced outage in late September. The rest of the facility is currently running at normal conditions while components for unit two are being repaired. The majority of the 2022 cash impact related to the El Segundo and Walnut Creek forced outages occurred in the third quarter related to lost revenues, but O&M costs will also impact fourth quarter results. In the renewables segment, third quarter results were lower than the P50 expectations due to weaker than normal renewable conditions across the portfolio. This is somewhat offset by the timing of project-level debt service that moved into the fourth quarter. Given the expected full-year impact from the forced outages in the conventional segment, the company is revising its 2022 CAFD guidance from $365 million- $350 million.
Regarding the balance sheet, the company continues to have unprecedented flexibility to execute on its growth without having to form new corporate capital. The excess proceeds from the thermal sale remain available to be allocated to visible future growth from dropdowns, and we continue to expect our pro forma credit metrics to be in line with our target ratings. Furthermore, our revolver is completely undrawn, and we continue to be insulated from interest rate volatility with nearly 99% of our debt being fixed. Turning to slide five to provide an overview of the company's pro forma CAFD outlook, 2023 expectations, and underlying assumptions in our forecasts. In order to explain the various moves in our CAFD expectations, we provide a bridge commencing with our previously announced pro forma CAFD outlook of $400 million.
The company is updating the pro forma CAFD outlook to account for updated forecasts as it relates to a variety of pressures across the portfolio, including inflation, budgetary updates in the renewables segment, including basis differentials and other portfolio and cost items. In aggregate, these various budgetary adjustments equate to approximately $10 million and result in an updated pro forma CAFD outlook of $390 million. Moving to the bridge for 2023 expectations for our updated pro forma CAFD outlook. Because our pro forma CAFD outlook is based on five-year average CAFD profiles for new investments, 2023 expectations reflect $10 million less in CAFD than our pro forma CAFD outlook due to the timing of when projects reach operations and the shape of project cash flows. Consistent with what we have disclosed previously, this $10 million will come back in 2024 and beyond.
The next source of variance is the recently announced Capistrano Wind acquisition. As we announced previously, we intend to refinance the existing non-recourse project debt of the asset. However, due to our significant cash balances currently, Clearway believes there is no need to suffer negative arbitrage given limited currently forecasted cash needs for Clearway between now and the end of 2023, and therefore looks to refinance Capistrano at year-end of 2023, leading to a $10 million CAFD output. As a final bridge to 2023 guidance, 2023 reflects energy gross margins in the conventional segment based on recent market pricing above the long-term projections in our pro forma CAFD outlook. While our natural gas assets, Marsh Landing, El Segundo, and Walnut Creek, are fully contracted through 2026 in terms of revenue from resource adequacy contracts.
Starting in mid-2023, after their initial tolling agreements expire, the three facilities have the ability to generate additional revenue from dispatching into the merchant power market. Based on forward power markets and internal analysis, Clearway currently expects the three facilities to generate energy margin from merchant power markets equating to approximately $20 million of upside in 2023, relative to the long-term merchant energy assumption that underpins our pro forma CAFD outlook. The table to the right outlines the merchant energy assumptions in our pro forma CAFD outlook on a dollar per kW month basis. With these adjustments described in the bridge, Clearway is initiating 2023 CAFD guidance of $410 million.
To close out the guidance and pro forma outlook discussion, it's important to note that the merchant energy margin estimate, the conventional segment on a pro forma basis, represents only approximately 5% of Clearway's asset level CAFD. Our pro forma CAFD outlook continues to be primarily underpinned by long-term contracted cash flows with creditworthy counterparties. The future upside of this outlook from the drop-down of additional contracted renewable assets, which I'll discuss on the next slide. Page six provides an overview of the latest drop-down offers from our sponsor. As you can see on the left side of the page, these assets are predominantly solar, with deployments in Texas and California, and also include a utility-scale wind project in Idaho.
We also see an expansion of our Rosamond investment with a battery storage asset, which benefits from an expected 15-year capacity offtake and is well positioned to capitalize on energy arbitrage opportunities in California related to the late-day ramp in that load. In total, these assets represent a significant investment of $410 million in C corporate capital at a strong estimated CAFD yield of 9.5% on the portfolio, which sells the majority of its output under agreements that have an average duration of 17 years. In addition, this investment will further the customer diversification of our fleet, with the majority of the offtake with corporations, non-utility load-serving entities in California, and an Idaho utility.
In summary, the latest drop-down offers from our sponsor provide transparency into the redeployment of the thermal proceeds into a quality, well-diversified, and strong CAFD-yielding selection of assets. Page seven provides an update to our targeted CAFD per share in excess of the $2.15 that reinforces our long-term view around growing the CWEN dividend at the upper range of our 5%-8% long-term targeted growth rate.
Starting at our $390 million pro forma outlook that we discussed previously, we add in the latest offers from our sponsor, which, assuming binding agreements are achieved, will deploy $410 million of capital at a 9.5% CAFD yield, as well as our current view around additional impending offer from our sponsor in the first half of 2023 for $220 million of capital deployment, also at anticipated 9.5% CAFD yield. With these drop-downs and the previously announced acquisition of Capistrano Wind Partners, Clearway will have deployed all of its thermal sale proceeds by the end of 2024, with an undrawn revolver available to fund any additional capital needs required in the short term.
As we described a year ago when we first announced the thermal sale, and since we received the proceeds in May, Clearway is now able to demonstrate the utilization of the entirety of these proceeds to drive CAFD per share growth with an investment in high-quality assets at attractive CAFD yields. Turning to page eight. Our goals for the year have not changed. We have closed the sale of thermal. We unfortunately must adjust our 2022 CAFD guidance due to the forced outages in our conventional fleet that occurred in the third quarter. Despite this setback, Clearway is still able to increase our dividend per share at the upper range of growth during the year. In terms of growth in the future, we have closed on the acquisition of the Capistrano Wind Partners.
More materially, we now have line of sight with our sponsor to the deployment of all the remaining thermal proceeds to drop-down assets over the course of the back half of 2023 and the end of 2024 at strong CAFD yields and contract tenors. This deployment should provide our investors with increased confidence in Clearway's ability to drive CAFD per share growth to $2.15 a share or higher. This does not imply that Clearway will stand still in terms of investing for growth and simply wait for these drop-downs to close. We continue to see opportunities in the market, but we'll continue to be disciplined and adhere to our earned earning standards. Finally, we are proud to complete the initial stage of our journey on the natural gas portfolio.
We now have 100% of the capacity of our gas fleet contracted through the end of 2026, and look to engage in additional auctions in the future to further extend that runway. In summary, Clearway Energy, Inc. continues its focus on prudent growth and has confidence in its ability to meet its long-term growth objectives due in part to strong sponsor support to ensure Clearway's success. Operator, please open the lines for questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is now open.
Hey, good morning. Can you guys hear me?
Yes.
Hey, thank you so much for all the comments. You guys ran through a lot there. If I can just come back to a couple 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 2024 time period? Again, great job on a timely basis deploying the proceeds. Now, 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? 'Cause obviously you've outlined a lot here towards getting there, but I wanna make sure against the backdrop of the higher rate environment, that where you stand.
Sure. Not to minimize the question, Julien, but looking at page seven, really, we don't need to do anything else other than execute the drop-downs and have them perform as, you know, anticipated to produce that $2.15 per share. That's kind of looking to page seven. Obviously we're using the cash from the thermal proceeds. 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. I think that was your question.
Right. Maybe let me hit it more directly with respect to the rising impact of rates. Obviously, most of the portfolio is 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 make sure here.
Sure. Yeah, we don't anticipate raising any corporate debt to fund these acquisitions. If kind of that's to your question. All of our debt, you know, 2028 is our earliest maturity, and the other ones are in 2031 and 2032. We have quite a bit of time before we have any corporate debt that would need to be raised to deal with acquisitions.
Excellent. Thank you. 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 2023 here, where you provided the clear walk, how does that evolve through time through 2026? Then how does that get to your thinking here about the relative math on 2026 extensions and potential further recontracting at higher levels beyond that time?
Sure. A couple different questions there, Julian. Hopefully, I'll cover them. Part one, the energy margin we have in 2023 is obviously a bit, you know, nonlinear because the different assets come off of their current tolls at different times. You have El Segundo later in the year in July, you've got Walnut Creek earlier in the year and Marsh. What we have is kind of given the current commodity environment and what we see that additional $20 million that we add in 2023 in terms of our guidance for what we're seeing. If we look on a more normalized basis, what the energy margin we're assuming to derive the $2.15 per share in the long term is between $1 and $1.50 energy margin.
I think for us, we view that $1-$1.50 in the long term being very achievable. We expect to outearn that in 2023, even though it's a partial year. Once again, as everyone's well familiar, this is kind of our first year operating on a merchant basis. We wanna see how the machines operate, how the revenues come in, and then we'll kind of adjust that over time. From our perspective, in order to hit the $2.15 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 2023.
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.
Appreciate it.
Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Your line is now open.
Thanks so much for taking the question. There's a lot here in terms of being able to allocate your remaining capital, and you've got clear visibility now. I wanna ask, you know, post IRA, given the additional incentives, whether it's, you know, standalone storage or, you know, green hydrogen production, how are you thinking about investment opportunities in the existing fleet, whether it's, you know, repowering, adding storage, you know, going downstream? What do you see as the opportunities?
Sure. I think for us, we've kind of, you know, used those opportunities before in terms of repowering assets like Elbow Creek and Wildorado. I do think to be fair to the question, you know, the 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, you know, 2 GW that need to be repowered in the next two years. To your question, 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 than something that's being done consistently, where every year we have a repowering.
That's just, you know, for good or ill, the nature of our fleet because it's relatively young. 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 storage to an existing facility, we obviously need to fill it kind of with power from that system. It's really dependent on what if the customer wants that and those negotiations. 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, you know, paradigm change here in the next 24 months.
Okay. That's helpful. Then maybe another sort of post IRA question. You know, the Clearway Energy Group, you know, is part of this announced buyer's consortium to purchase over 6 GW 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 you know, the development outlook in the pipeline?
Craig, why don't you take that?
Yeah. Thanks for the question, Noah. Yeah, we're pretty excited about what the implications are gonna be for the broader U.S. market as we get into the mid-decade, and also for the objectives that policymakers have in wanting to domesticate more of the supply chain that fulfills construction of solar, wind, and storage assets.
Mm-hmm.
That excitement's informed by detailed engagements we've been having with our framework supply chain partners, you know, really going back over the last year and a half. You know, what I expect is that the Treasury guidance formulation process will be influential here in getting manufacturers ultimately to green light investments that start to be publicly announced. The work that will underpin those announcements is very much happening right now. 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.
Mm-hmm.
As we look at the fulfillments in the mid-decade, and we have solutions that we're planning for deployment in that timeframe, around each one of those component technology types.
Okay. Very helpful. We look forward to more. Thanks for taking the questions.
Thank you. Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.
Thanks. Good morning, everyone.
Go on.
Craig, just wanna touch on the CAFD yield on the drop-downs. You know, previously last quarter, you guys were guiding at 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 cap yields and hurdle rates, right now in terms of making decisions on the drop-downs.
Sure. I think for us, you know, and in negotiation with our sponsor, I think obviously they're well aware of where the capital markets have moved. Between, you know, the two of us and a lot of people, you know, ask about sponsor support sometimes, you know, to me, the most linear empirical way to see that is, you know, a strong recap deal. I think for us, you know, our sponsor recognizes the change in capital markets that have occurred since, you know, our last earnings call for that matter. In negotiations with them about where we think the recap deal should be, you know, they indicate a higher number is where they think is fair.
Obviously, we'll do due diligence and the like through the assets and hope to come up with a binding agreement, but it's obviously very constructive from a sponsor support level to have that different cap deal. As I've talked about before as well, though, it's important to highlight that, you know, part of cap deal is also dependent. You know, not all cap deals are the same. Is the asset more solar-weighted or wind-weighted? Is it a shorter duration PPA, tenor or longer? 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, about 17 years, we feel very good about the 9.5% cap deal that's been offered.
Once again, all subject to diligence and working through our independent process.
Then just when you think about that, like is it just a spread versus bond yield? Is it like a CAPM approach? Like, just to 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.
Sure. From our perspective, we actually look at it much more versus equity because that. You know, in order for me, I think, to have a conversation with you about why, you know, not to buy back equity versus invest in these types of assets, we really, you know, compare it versus our equity yields most generally. Obviously, bonds are important as well. I'm not gonna pretend that. To answer your question, it really is a spread versus equity, because to me, whenever we make an investment at Clearway, I would, you know, like to be, you know, for you to be able to see that that's a good investment based upon where it trades versus our equity.
That makes sense. Then just, you know, turning towards some of the assets you're adding here in Texas. Obviously, with the PTCs being eligible for or solar being eligible for PTCs, a bit more concerned about negative pricing and basis risk. Just, you know, thoughts around those assets, the risks around basis risk, and then updated outlook. I guess you guys talked a bit about, you know, potentially some more basis risks. Your view just around that and the impact of PTCs for solar assets.
Sure. I'll start and then obviously Craig can fill in anything from his perspective. I think, you know, from my view, you know, we see a little bit of basis. That's one reason for a component of the 10 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, you know, kind of more traditional tolls at settling on a node. So from our perspective, we think in the new portfolio, we shouldn't really see. You know, zero is always a good number, but we really shouldn't see a lot of basis risk. Yeah, we had seen some of that in the portfolio. We think part of that's due to the stressed economic commodity environment.
That's why we included it in our 3.90 number. Craig, I don't know, anything to add there?
Yeah, sure. First, for the drop-down offers that have been made, every revenue contract has node settlement on the portfolio of assets here. 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. Clearly, given the kind of transformation the U.S. electric grid's going through, as we do that, we wanna be doing that in conjunction with also putting in place effective contractual mitigants for potential changes in basis over time. Firstly, for this portfolio of assets, the settlement structure on them eliminates any basis risk by their very nature. Then second, to Chris's point, for a portion of the capacity, 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. Once completed, we think that solar project and another that's in the set of dropdown 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.
I think going forward, we feel pretty good about the way that we're able to select from the 27 GW 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 exhibits a low risk profile in relation to things like basis and merchant price formation.
Understood. Thank you both for the answers.
Thank you. Our next question comes from the line of Justin Clare with ROTH Capital Partners. Your line is now open.
Yeah. Hi, everyone. Thanks for taking our questions. Just first off here, you know, 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. There's also the availability of the higher level of the ITC now, so just wondering if that has impacted anything, as well.
Yeah, I think I'll let Craig kind of address that. 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. I think, you know, the changes that Craig's development team has kinda 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. You know, those changes wouldn't necessarily affect the 9.5% that we're targeting. Craig, I don't know anything to add.
Yeah, sure. 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 a 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. You know, 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, two of 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. 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. 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.
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.
Okay, great. That's really helpful. And then one more. With the TotalEnergies transaction close here, just wondering if you could talk about, you know, when you might be offered potential drop-down opportunities, you know, from TotalEnergies. And then, you know, could that happen as soon as next year? And is there potential for upside to your CAFD for next year if you see attractive opportunities?
I think it'll take some time to work through that. You know, the Total book, you know, we closed fairly recently and kinda working through their book of development assets. I think it'll take some time to get clarity. Yeah, kind of to your earlier question, you know, Craig's team has done a lot of structuring through the IRA to come up with results that are helpful from a YieldCo perspective. You know, Total and their structuring is kinda working through different parameters, so we kinda have to come together and see what we have. I think, you know, 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 the Total platform going forward. Too early to say is the simple answer.
Okay, great. Thanks, guys.
Thank you. Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.
Hi, good morning. First, 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.
Sure. We're looking to pay that down at year-end, this year-end, beg your pardon. Because to the point that, you know, as a liability, we're gonna take on balance sheet anyway due to its bullet. For us, that's part of our CAFD guidance is the repayment of that at year-end of this year.
You are including the pay down of that maturity within the 2023 guidance or that's part of 2022?
Because it's a prepayment, it doesn't come as part of CAFD or making a voluntary decision to do it. It's not a down arrow, so to speak, in 2022. In 2023, obviously whatever debt service would have been part of 2023, like the whole $130 wouldn't have been in there even as part of normal guidance, you know, is not in 2023 either.
Okay.
Because it's a prepayment in 2022. I'm sorry, go ahead.
Okay. Separate question for Craig. Just any comments on what you're seeing with UFLPA and flow of modules into the country? Thanks.
Yeah. We're doing fine with it. You know, in order to kind of elaborate though a little bit about the broader landscape, you know, 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 years. We're pretty deeply engaged in policy making 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's served us well.
The estimated CODs 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've procured from. You know, there's the possibility that there'd be temporary confirmatory holds at the border for industry participants broadly, which are in place today. 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. To the extent that any confirmatory holds 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. Just to reinforce that, we have no modules being currently detained.
With that said, you know, 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. You know, the leadership across the applicable government bodies just needs to put our ports in a position where they can be successful because the quantities of equipment that are gonna be coming into the country to meet the needs of the power grid and climate goals are dramatic. You know, the documentation requirements to enable imports just needs to get more clear and more standardized. 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.
You know, 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 UFLPA's enactment are serving us well.
Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.
Hey, guys. Hey, Chris. Thanks for taking my question. Just probing a little bit on 2023 guidance. And I'm gonna ask for a little bit more detail, whether you give it 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? 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 leaving off, let me know.
Sure. Give me one second. Yeah, page 22 might work, Michael, in terms of the.
Yeah.
The deck we have.
Yeah.
Which has the adjusted EBITDA of $1,170, kinda for your question.
Yeah.
around EBITDA.
Yep.
I think and that has principal amortization and maintenance CapEx. I think that has the components you're looking for.
Got it. Okay. Just can you bridge us through 2022 EBITDA to 2023 EBITDA?
Yeah. I mean, not off the top because the PPA roll-off, obviously because you have the high price tolls in 2022, and then you have a combination of different tolls rolling off at different times in 2023, plus the energy gross margin from the open position coming in. That's a little tough to bridge 2022 to 2023.
Totally makes sense. On the principal debt amortization, can you remind me with that $300 and some million dollars, what are the bigger assets where that paydown's occurring? Is it mostly the California gas plants, although your comment back to Keith probably eliminates El Segundo, or is it widely spread across the entire fleet?
Yep. You can look on page 16 for that. To your point, the California natural gas, other than El Segundo, are a big part of that. Then you've got, you know, Agua Caliente, CVSR and some others. That's all on page 16.
Got it. Okay. Finally, can you come back to cost of capital a little bit? You know, because you made the comment about how you think about drop down or CAFD yields versus share buyback. Can you dive in a little further how you calculate what your own cost of equity is?
Sure. For us, I'll draw a distinction between a weighted average cost of capital and a CAFD yield, which is obviously a lot more transparent. You know, you're obviously dealing with betas and the like for weighted average cost of capital. But for CAFD yield, you know, 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. In general, that yields, I didn't look at the stock price, it's not open yet, but, you know, as of yesterday, that's probably yielding somewhere in the sixes.
That's kinda how I view, you know, where we're trading so that when we talk with our investors and say, I believe that drop down X or Y 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 sixes, depending where you think we trade, and that's a good, you know, basis for analysis.
No, I don't disagree with that, and thank you for that. 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 six? Otherwise, that would imply very little compression or very little spread between your cost to equity and your holding company cost to debt, which is, I don't know, given the higher rate environment, feels a little unusual for any company.
Yeah. I think our bonds are probably trading a little bit in line with those numbers, depending on which day of the quarter, which week, given the volatile environment.
Sure.
We're probably in a high six is probably the last print I saw on the 32s. I think the debt and equity markets are pretty close in terms of interest and where we trade on a forward CAFD yield basis from that perspective.
What that basically implies is you almost think your cost of debt and your cost to equity are the same.
Yes. Although to be fair, the $2.15 is a forward number versus the other. You know as well as I that plays into everyone's thinking, but I don't think they're that far apart, if that's a different way to answer your question.
Got it. Thanks, Chris. Much appreciated.
Sure.
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.
I'm sorry. Did you guys have any contribution from the Capistrano Wind encoded in your original CAFD guidance?
For 2022, no. We did have an approximate because we know exactly when it would close, and it's only part of the year. You know, for 2023 and going forward, I believe we had 12, assuming that we relevered it. There's a delta of nine or 10. That's why we have the uplift in 2023 because we're waiting till year-end to refinance it.
Okay. Separately for the energy margin, do you guys have any energy hedges or any financial hedges for El Segundo for 2023?
No, other than the toll that exists in the RA capacity contract. No, there's no energy margin hedge currently. It's an open position.
Lastly, there was lots of discussion about the cost of debt. You mentioned that you're not issuing any holdco debts to finance at least the future growth for the next couple of, well, quarters. 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?
I do think to be fair to your question, obviously the CAFD yields we quote are after all those costs, right? They take into account the cost of project debt, not before. Not to minimize the question, but, you know, when we talk about a CAFD yield, that's after that amortization recovery is what those costs are. I think for us, there's probably not been a big delta in the credit spread. It's probably more in the underlying, you know, what the, you know, swap to fixed is under, LIBOR or SOFR. Craig, I don't know if you have any color in terms of what you're seeing, but.
Yeah. I mean, I think we've seen first of all the drop-downs we've planned through 2024, we put in place interest rate protections some time ago. 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. As we look forward, you know, we've seen some compression in spreads. The sort of benchmark 10-year is a very observable number for you, Angie. 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. You know, for us at the sponsor level, the job now to do is as we market power to customers, you know, 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. What we're observing is that we can still provide compelling value to customers even with the cost of debt having risen.
Okay, perfect. I just wanted to go back to this Capistrano Wind Partners, because I would have expected that at least some contribution from that asset or that set of assets would have contributed to your 2022 CAFD. Is there some other offset besides just the unplanned outage of the gas plant? I mean, I know that you mentioned the weakness in the wind resource. Again, I mean, it doesn't seem like there's any addition from that set of wind farms.
We're only gonna own it for a quarter, Angie, so it's $1-$9 million. It's a small rounding number within the whole thing, right? It's yeah. Is it contributing? Yes. Is it a very small number we're not reconciling? Yes, because it closed here in the third, fourth quarter.
Okay. I understand. Thank you.
Thank you. As a reminder, to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.
Hey, Chris Sotos and Craig Cornelius. 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.
Sure. Two parts. I think right now I'm just not deploying the full amount of cash. Our debt, our corporate debt to corporate EBITDA is about 4.85, ± on a pro forma basis, assuming we deploy some of that, is about 4.4. Within our 4-4.5 we've talked about. Obviously we've 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've talked about are through the end of 2024. However, keeping in mind, if we issued any debt, obviously we would only intend to do so to drive the $2.15 higher, et cetera. I think, you know, that we don't need any capital through 2026. 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.
Got it. Okay, that makes sense. Looking at slide 16, there's quite a big step-up in non-recourse amort for solar assets starting in 2024. Just curious how you're gonna manage that and any potential impact on CAFD generation.
Yeah, to be fair, that's a step up in the $14-$148. That's probably in the middle of the page. We'll intend to refinance some of that $148. 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, you know, seven years after COD. That's one of those examples. Some portion of that $148, we'll look to refinance.
Okay, perfect. Thank you so much.
Sure.
Thank you. I'm currently showing no further time. I'd like Chris Sotos's closing remarks.
Once again, thank you for everyone's time and appreciate your support. Take care.
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