Ladies and gentlemen, thank you for standing by, and welcome to the Vistra Virtual Investor Event. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Molly Sorg, Vice President, Investor Relations. Thank you.
Please go ahead.
Thank you, and good morning, everyone. Welcome to Vistra's virtual investor event, which is being broadcast live from the Investor Relations section of our website at www.vistracorp.com, where you'll also be able to find a copy of today's investor presentation and the related news release. Joining me for today's call are Curt Morgan, President and Chief Executive Officer David Campbell, Executive Vice President and Chief Financial Officer and Jim Burke, Executive Vice President and Chief Operating Officer. We have a few additional senior executives on the call to address questions in the second part of today's webcast as necessary. Before we begin our presentation, I encourage all listeners to review the Safe Harbor statements included on Slides two and three in the investor presentation on our website that explain the risks of forward looking statements, the limitations of certain industry and market data included in the presentation and the use of non GAAP financial measures.
Today's discussion will contain forward looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward looking statements. Further, our news release, investor presentation, and discussions on this call will include certain GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are provided in the news release and in the appendix to the investor presentation.
I will now turn the call over to Curt Morgan to kick off our discussion.
Thank you, Molly, and good morning to everyone on the call. We're excited to be talking with you today about Vistra's transformation, including our 2021 and 2022 capital allocation plan, portfolio management and investments in zero carbon generation projects, all of which highlight our promising and sustainable future. In addition, we will update 2020 guidance, provide guidance for 2021, both of which support Vistra's continued strong financial performance, levels of performance well above those embedded in our inexplicably low stock price. While we had originally hoped we would be able to deliver this message in person, an in person event was not in the cards in 2020. So thank you for carving time out of your busy schedules to attend our virtual event.
As always, we appreciate your interest in Vistra and hope all of you are safe and healthy. I'm turning now to Slide six, where I would like to begin today's conversation outlining the five key messages we are hoping to deliver today. First, as I will discuss in more detail momentarily, our integrated model is delivering. We are on track this year to exceed our guidance midpoint for the fifth year in a row. And this is in face of an unprecedented pandemic tail event.
Every year since Vistra has been a public company, we have delivered on our financial commitments and we believe we are well positioned to continue to deliver consistently strong long term earnings into the future. Second, our relative earnings stability and robust free cash flow support our diverse capital allocation plan. We believe we will be able to return approximately $1,500,000,000 annually to our financial stakeholders, while also investing prudent amounts of capital to grow and transition our business into the clean energy future. I'm very excited about announcements we are making today as they are just the beginning of what we believe will be a significant transformation of our business over the next decade. Vistra is planning to invest over $1,000,000,000 in just the next two years in solar and storage projects in Texas and California with returns expected to be above our internal investment threshold.
Jim Burke will provide additional details about these projects and he will also introduce our new carbon free generation brand, Vistra Zero, which following today's announcement consists of nearly 4,000 megawatts of zero carbon generating projects and operating assets. As we plan to discuss throughout the call today, our third takeaway is that we are well positioned to participate in the renewable and battery storage transformation. In fact, by 02/1930, we projected more than 45% of our ongoing operations adjusted EBITDA will be derived from renewables, storage and retail. And when you add the expected financial contribution from our nuclear facility, Comanche Peak, more than half of Vistra's adjusted EBITDA is projected to come from zero carbon sources by 02/1930. Takeaway number four, the balance of Vistra's 2,030 adjusted EBITDA is expected to be derived primarily from our existing natural gas fleet.
Importantly, as the lowest emitting, most efficient and flexible fossil fuel generation resource, we expect natural gas will remain a critical fuel to support the reliability of the electric grid. Although that role may change over time from a baseload resource to a backstop for intermittency of renewables. Gas will also be fundamental to maintaining the affordability of electricity to households and businesses, as well as meeting the expected growing demand for electricity over the next couple of decades as we electrify the economy. As recent events in California have demonstrated, when electric grids are heavily weighted toward intermittent renewables, dispatchable resources are necessary to satisfy demand during peak periods. In ERCOT PJM, ISO New England and New York ISO, where Vistra competes, less than five effective capacity is from renewables and batteries.
Our analysis as well as others suggest that generally over the next ten years, the likely investment in renewables and batteries will take their contribution to effective capacity up approximately 10% at a cost of nearly $250,000,000,000 based on economics in ERCOT and renewable portfolio standards in the other markets. These investments will also likely hasten retirements and increased volatility, thereby enhancing the need for reliable, efficient and flexible dispatchable resources. In fact, we estimate that nearly 40 gigawatts of assets will be retired in these markets by 2030 as we add renewables and batteries from a pool of over 100 gigawatts of at risk coal, oil and inefficient gas units. Importantly, given their relative efficiency, lower emissions and flexibility, combined cycle gas turbine or CCGT, natural gas field generation will be important to transitioning to a zero based carbon economy under any decarbonization plan. Even in ERCOT, where we project a greater build out of renewables and batteries by 02/1930, reaching in the range of 35% of effective megawatts.
We expect approximately 10,000 megawatts of retirements of coal, oil and less efficient gas from an inventory of over 30,000 megawatts to come before CCGTs. In addition, our modeling shows continued compensatory pricing in ERCOT over the ten year period due to increased scarcity events and the operating reserve demand curve, albeit with increased volatility due to renewable intermittency. We believe Vistra is well positioned to manage this volatility and create a relatively stable earnings and cash flow stream year after year. In the end, multiple studies show CCGT gas plants remain a key component in the supply stack up to 2040 and beyond, and Vistra will continue to invest in our transformation beyond 02/1930, delivering a company that is projected to be over 70% carbon free by 02/1940. Even under a scenario where federal and state policies accelerate the renewable and battery build out beyond the current renewable portfolio standards, CCGTs remain important to the reliability and affordability of the bulk power system and Vistra can participate in that build out.
As many of you know, the core of Vistra's EBITDA from thermal generation comes from CCGT gas plants. Accordingly, the last of the announcements we are making today support the acceleration of our greenhouse gas emissions reduction targets. We are now targeting a 60 reduction in our CO2 equivalent emissions by 2030 as compared to a 2010 baseline, up from our prior target of 50%, and we now have a firm target to achieve net zero emissions by 02/1950. We believe we have a clear path to achieving our 2030 target with the incremental coal plant retirements we will be announcing today. And while the path to achieving net zero carbon emissions in the economy by 2050 is not as certain, we believe that over the next several years, technological innovation and supportive public policy will continue to advance to the point that the road will become clear.
And we have everything it takes to invest and earn superior returns as part of that transformation of our generation base. And we are doing our part to support these advances, investing in a venture fund that focuses on technological innovation and sustainability to help accelerate the viability of carbon free and carbon reducing technologies and promoting a market based economy wide carbon fee and dividend plan with a border carbon adjustment to advance nationwide emissions reductions goals. As we highlight in our first ever climate report published on our website this morning, electricity is an essential product, one we expect the country will demand more, not less of as the economy electrifies. While the method with which we serve our customers might evolve over time, our role in the process to generate reliable, affordable and sustainable power for our customers all while lowering emissions will not. We believe Vistra is well positioned to not only display resiliency during this important transition, but to lead and grow as we set forth on the next two slides.
Turning now to Slide seven. Along with a strong balance sheet, Vistra's integrated model is the foundation on which our sustainable transformation will be built. Through financial execution, capital discipline, commercial prowess and operational excellence, we believe we will be able to create meaningful value for our stakeholders, building on the strong execution of our team over the last four years. Specifically, we are currently tracking to exceed the midpoint of our annual financial guidance for the fifth year in a row, and we are also on track to potentially even exceed the top end of our original 2020 guidance range. We convert an average of approximately 65% of our adjusted EBITDA to ongoing operations adjusted free cash flow before growth.
This free cash flow generation is due in part to our team's disciplined cost management. In just four years, our team has captured nearly $1,500,000,000 in annual cost savings through internal restructuring and synergy and operational performance improvement initiatives. We displayed the same discipline when allocating capital investing in transformational growth opportunities only when returns are projected to exceed our internal investment threshold. As a result, we have significant excess cash to return to our financial stakeholders on an annual basis. In four years, we have already returned more than $6,000,000,000 to our financial stakeholders.
We expect we will be able to return approximately $1,500,000,000 each year going forward, all while maintaining a strong balance sheet at a time when investors are looking for yield. How many companies offer the deep value opportunity that Vistra does? The substantial return of capital year in and year out and the ability to deploy modest levels of capital and grow earnings while fundamentally transforming itself, all with a relatively low risk business model, including our targeted 2.5 times net debt to EBITDA and a trajectory toward investment grade credit ratings. We believe Vistra offers a very unique investment opportunity. On the operational side, our retail business has generated stable and consistent EBITDA for the last decade, while our generation team has produced safe and reliable electricity from a diverse fleet of primarily highly efficient low to no carbon emitting resources.
Our commercial team is the linchpin of our integrated model focusing on capturing value from our assets that offer significant option value, managing risk from commodity price exposure and minimizing earnings volatility. In fact, it is the combination of Vistra's development, commercial, technical and operational capabilities combined with our attractive sites and strong customer relationships that make Vistra a natural owner of renewable assets. Vistra is built for the long run and we are not going anywhere. We do not have a terminal value issue. As we outlined on Slide eight, Vistra has an impressive pipeline of renewable and storage development opportunities totaling nearly 3,500 megawatts in Texas, California and Illinois.
And these are only the near term opportunities for which we have a clear line of sight to proceed with development. We expect that our renewable and storage portfolio will be 6,000 megawatts or greater by 02/1930. And we can achieve this level of transformational growth investing only $500,000,000 of equity per year on average over the next decade. We expect these transformational growth investments will generate at least $900,000,000 to $1,000,000,000 in incremental EBITDA by 02/1930, contributing to an impressive projected total annual return per share to are a we and return
share to
dividend We exceed our guidance midpoint and we've all to during a tail event pandemic. Our updated guidance ranges reflect new ongoing operations adjusted EBITDA and ongoing operations adjusted free cash flow before growth guidance prediction to raise our adjusted EBITDA guidance midpoint by $150,000,000 with an opportunity to beat even this higher target. We are similarly raising and narrowing our ongoing operations adjusted free cash flow before growth guidance range with our new midpoint $165,000,000 higher than our prior guidance. Our strong business performance and higher adjusted EBITDA estimate are driving this expected outperformance. With these updates, Vistra is now we are also initiating our 2021 financial guidance today.
As you know, we ordinarily would not provide guidance for the upcoming year until our third quarter earnings call in early November, hedged much more of the ERCOT summer by the time we would initiate guidance. Our typical timeline allows us to provide a relatively tight guidance band with a high degree of confidence on execution as our financial head Because we are initiating guidance approximately six weeks earlier than usual, our 2021 guidance today reflects a range of plus or minus $200,000,000 or approximately 6% on either COVID-nineteen continues to create economic uncertainty potentially into at least the 2021. As you know, many companies have pulled their guidance for 2020 and are not providing guidance in 2021 due to the COVID uncertainty. We believe it is important to provide 2021 guidance and our ranges are $3,750,000,000 to $3,475,000,000 for ongoing operations adjusted EBITDA with a midpoint of $3,275,000,000 and $1,765,000,000 to $2,165,000,000 for ongoing operations adjusted free cash flow before growth with a midpoint of $1,965,000,000 in one the of midpoint is consistent with our more recent comments of expecting adjusted EBITDA to be slightly lower to flat with our original 2020 guidance midpoint. It similarly reflects Vistra's currently larger summer open position, which is a direct result of the fact that we have yet to see the summer twenty twenty one forward curve trade at a price point that is more consistent with our fundamental analysis in point of view.
While Texas demand in 2020 is back to pre COVID-nineteen levels, we expect some renewable development will be delayed as a result. Though in our view, the full impacts of COVID-nineteen are still being digested by the market. As we approach summer twenty twenty one and the market, we expect to see increased summer twenty twenty one forward curves, which should provide incremental attractive hedging opportunities and make the upper end of our guidance range achievable. In addition, we always have the opportunity our It is also important to note that our assets and business positions offer several levers to pull to extract the embedded option value from our portfolio, leading to higher EBITDA and cash flow. Average of our 2020 and 2021 ongoing operations adjusted EBITDA guidance midpoints is $3,430,000,000 which is right in line with our original 2020 guidance.
In a commodity exposed business such as ours, average results are most representative of Vistra's long term sustainable earnings power. The key is to have the ability to capture the value from the commercial and commercial teams excel at doing. In fact, looking ahead to 2022, our current expectations for the earnings power of our business are consistent with this average 2020 to 2021 view. Importantly, we believe we can manage our year to year earnings volatility to within less than 10% and the variance between our original 2020 guidance midpoint. This ability to tightly manage our expected earnings and cash flow on an ongoing basis is completely disconnected from the apparent assumption of long term expectations embedded in our current stock price.
Through our ability to generate relatively stable EBITDA and convert on average approximately 65% of our ongoing operations adjusted EBITDA to ongoing operations adjusted to return approximately $1,500,000,000 of cash to our financial stakeholders each year, while at the same time reinvest in the business to continue to transform our generation portfolio and grow our retail business and our EBITDA and also maintain a strong balance sheet with access to nearly $4,000,000,000 of liquidity. Specifically, over the next two years, we expect we will be cash to be returned to our financial stakeholders and approximately 30% expected to be invested in solar and storage projects in Texas and California at attractive returns and includes debt reduction and enhanced dividend payment, a multi year share repurchase program and an allocation of capital to transformational growth opportunities. As we've put together this capital allocation plan, the feedback we've received from many of you greatly influenced what we ultimately determined would be the best use of capital for the business. Specifically, investor feedback came through loud at times precipitated by a global pandemic, a strong balance sheet with a conservative approach to leverage was a key priority. As a result, we plan to allocate approximately five fifty million dollars to debt reduction over the next two years.
While we believe this amount of debt repayment will maintain Vistra's strong balance sheet, we will continue to evaluate our debt levels and will not hesitate to repay additional debt if we believe it is appropriate. Not only do we think it is the right decision in the current macro environment, we also believe it is important to continue to reinforce our commitment to our long term leverage target of 2.5 times net debt to EBITDA. Leverage in this range would allow us to operate the company through volatile commodity and market cycles without putting our business at risk. In fact, we believe our lower business risk profile and strong credit metrics warrant investment grade ratings and we believe we are tracking well for that outcome. Just a couple of weeks ago, we received an upgrade to BB plus by Fitch Ratings, who also maintained its positive outlook.
This upgrade positions Vistra to one notch below investment grade with expect both Moody's and Fitch will evaluate upgrading Vistra to investment grade before the 2021. We remain BB positive outlook rated at S and P and remain cautiously optimistic for a potential upgrade in the near future. Balance sheet strength has always been a core priority for Vistra and we believe our long term capital allocation plan exemplifies that commitment. Another core priority of Vistra is to grow our business through various investments or acquisitions that have attractive return profiles and that support our continued retail or expansion into zero carbon resources. In talking with all of you, we continue to receive support for this corporate priority, especially given our demonstrated discipline and achievement of superior return from previous investments.
As I mentioned at the start of the call and as Jim will discuss in more detail momentarily, I am excited to say that we have identified a portfolio of attractive projects we expect will not only grow our EBITDA, but will grow our zero carbon portfolio to nearly 4,000 megawatts. In total, we expect we will allocate approximately $1,150,000,000 of capital to transformational growth investments over the next two years, which includes capital for our previously announced Moss Landing and Oakland battery storage projects as well as capital for our Texas Phase one renewable and storage development projects that we just announced today. All of these projects represent very attractive investment opportunities, exceeding our investment threshold of 500 to 600 basis points above our cost of equity. Rounding out our capital allocation plan, we intend to allocate the balance of our capital approximately 2,125,000,000 to our shareholders in the form of dividends and share repurchases. First, as it relates to the dividend, it is our intention to grow the dividend over a multiyear period, taking a conservative approach in 2021 in recognition of the uncertainty that remains with COVID-nineteen.
While we believe we can comfortably support and sustain a dividend of a higher level given the significant free cash flow we expect to generate on an annual basis, we recognize that today's market is placing a premium on flexibility. As a result, it is our intention subject to Board approval at the applicable times to increase our dividend by approximately 8% in 2021 at the high end of our expected 6% to 8% annual growth rate, followed by a step change increase in the annual dividend to $0.76 per share in 2022. At our recent stock price levels, this would result in a dividend yield in 2022 in the range of 4%. In total, we expect to allocate approximately $625,000,000 to regular dividend payments over the next two years and we'll continue to assess our dividend on an annual basis thereafter. Last, in September, our Board approved a $1,500,000,000 share repurchase program authorized to begin on January 1.
The program, which replaces any repurchase authority that remains outstanding at the 2020 under our existing programs does not have an expiration date. We will be opportunistic in the execution of share repurchases over the next couple of years and we could utilize all of the authorization by year end 2022. It is important to emphasize that we view share repurchases as competitively sensitive and we expect buybacks to be uneven based on opportunity. We will not be telegraphing the execution of our program. This balanced capital allocation plan is aligned with our core tenets of maintaining a strong balance sheet, investing in transformational growth opportunities that exceed our internal return thresholds and returning most of the cash available for allocation to our shareholders in the form of dividends and share repurchases.
Extrapolating this plan out to 2030 valuation and we would have returned more capital to our shareholders than our current market cap. This is in addition to transforming the generation side of our business and growing our EBITDA through investments in zero carbon resources and retail. As I've said before, I remain perplexed by our stock price performance and I must admit now more than ever, given our continued high performance in the current macro environment. However, we remain committed to our strategy and our capital allocation plan as we truly believe the public equity market will ultimately value us properly, especially as we buy back our shares and the remaining shares are in the hands of those who are committed to and understand the long term value of the company. I will now turn the call over to David Campbell to provide additional details around our planned portfolio transformation.
David?
Thank you, Kurt, and good morning, everyone. We are grateful for the opportunity to connect with you virtually today. As we turn to the details of our portfolio transformation, it is helpful to highlight that this strategic pivot is designed around two key elements. First, retiring existing coal plants and thereby meaningfully decreasing the greenhouse gas emissions produced by our operations. And second, increasing our ownership of renewable and energy storage resources by taking advantage of our unique capabilities and position in the market to develop projects with attractive returns.
This morning, I'll be covering our plans for incremental coal plant retirements, and then Jim Burke will provide additional details regarding our renewable development pipeline. Slide 13 lays out the timeline by which we plan to retire seven additional coal plants between 2022 and 2027. We have previously announced the retirement of our Edwards coal plant in Downstate Illinois by year end 2022. Today's announcement sets outside retirement dates for the remaining six coal plants operating in Downstate Illinois and Ohio, formalizing the retirement of our entire Midwest coal fleet. We expect the two plants, Baldwin and Joppa, will retire no later than year end 2025 and potentially as early as 2022 as economic conditions dictate.
As many of you know, we have been advocating in Illinois for the passage of a legislative plan called the Coal to Solar and Energy Storage Act. This legislation is enacted in its current form, which includes transition payments for uneconomic coal plants through 2025 to support local communities and give the state time to transition to renewable power and energy storage. The support provided by the act would enable Joppa and Baldwin to remain online through year end 2025. Without such support, economic conditions at these sites couldn't necessitate an earlier retirement. The remaining four Illinois and Ohio coal sites, Kincaid, Miami Ford, Newton, and Zimmer are expected to retire no later than year end 2027 and potentially sooner if economic conditions dictate.
In total, these seven coal plants have a combined capacity of more than 6,800 megawatts, bringing the total of coal and gas retirements announced or implemented since 2010 to approximately 19,000 megawatts, with majority of these retirements, 16,000 megawatts, announced or implemented in just the last four years. Today's retirement announcements were prompted in part by recently finalized environmental rules that were discussed during our second quarter earnings call in August. At a very high level, the Environmental Protection Agency's coal combustion residuals rule requires coal plants to dispose of coal ash and surface impoundments to either make necessary capital investments and operating changes to bring coal ash disposal sites into compliance with the federal rule or to permanently retire by 2020 or 2028, depending on the size of the service impoundment. Decisions on compliance must be made by the November. The EPA's recently finalized rule regarding effluent limitation guidelines will also drive incremental compliance costs.
In the case of our Midwest coal fleet, the challenging economics do not support the incremental capital that would be necessary to comply with the environmental rules. Moreover, Vistra is committed to leading in the effort to combat climate change by meaningfully reducing our greenhouse gas emissions, and the accelerated retirement of these coal plants supports this goal. As a result, we have made the decision to retire the assets rather than prolong their life, which is the right decision for our financial stakeholders and the environment. We do recognize, however, that retiring existing assets will introduce challenges for impacting employees and local communities. It is our hope that the significant advance notice provided by today's announcements will help to ease the transition for all of those impacted.
The advance notice allows us to take a just transition approach, providing job skills training and services to our employees and working with local communities on property tax plans as well as supporting legislation to redevelop the shuttered coal sites into new technologies. Following these retirements and after factoring in anticipated growth in renewable and storage resources, we expect coal will be less than 10% of our portfolio by 2030. And as we set forth on slide 26 in the appendix, we further project that our generation of load match will be 81% pro form a for these retirements. We expect we could see this ratio of load to generation grow even further in the future given the potential for opportunistic retail acquisitions. In tandem with significantly reducing our coal exposure by 2030, we expect that renewables and storage will represent nearly 20% of our capacity and nearly 20% of our EBITDA, far exceeding any lost EBITDA from the coal plant retirements.
The balanced capital allocation approach that Kurt described should enable us to achieve this portfolio transformation while continuing to return the significant majority of our available free cash flow to our shareholders. As we set forth on slide 14, with this significant reduction of our coal capacity, we are accelerating our 2030 and 2050 greenhouse gas emissions reduction target with updated goals to achieve a 60% reduction in c o two equivalent emissions by 2030 as compared to a 2010 baseline, up from our prior target 50% and net zero carbon emissions by 02/1950. Coincident with our c o two equivalent emission reductions, we're also forecasting meaningful reductions in other emissions, including a greater than 75% reduction in NOx emissions and an approximately 85% reduction in s o two emissions by twenty thirty, each as compared to a 2010 baseline. Additional details regarding our climate related governance and strategy can be found in our climate report, also published this morning in accordance with the task force on climate related financial disclosures framework. The climate report is available in the sustainability section of our website, and there is also a link on this slide.
Turning now to Slide 15, in conjunction with today's coal plant retirement announcements, we are updating our reporting segments in order to provide enhanced financial visibility into the segments of our business that will drive our long term value. Specifically, beginning with our third quarter twenty twenty financial results, we will be introducing a new Sunset segment, which will include the financial results of our MISO and PJM coal generation assets, as well as a few peaking gas plants in Southern Illinois that also have known future retirement dates. Upon retirement of any of these plants, financial results will move from sunset to asset closure, consistent with our current practice. Next, we have combined PJM, New York and New England to one segment, the East segment, comprising all of our generation plants in the Eastern Interconnection transmission grid. And now that California is a meaningful and growing segment and a strategic part of our long term portfolio, we have created a new segment for California called West.
Retail and ERCOT remain unchanged, but we did update the name of the ERCOT segment to Texas. As we move into the future, we expect our four core segments of retail, Texas, East and West will be the drivers of our EBITDA growth as we exit coal operations. We expect we'll be able to grow our retail EBITDA in the future through both organic growth as well as opportunistic M and A transactions. In Texas, we expect incremental growth will be driven by our current and future investments in solar and battery energy storage. Similarly, in the East, we have the opportunity to grow our EBITDA if the Illinois legislature passes some form of the coal to solar and energy storage act, supporting our investment in renewable resources at shuttered coal sites.
We expect to see promising opportunities to expand further in battery energy storage in California at our existing sites. We hope this new segment breakdown and enhanced visibility into the limited financial contribution of our retiring coal assets will help you in your evaluation of the long term earnings power of our business. Approximately 95% of our ongoing operations adjusted EBITDA is derived from our four core operating segments, retail, Texas, East, and West, where we believe we have meaningful and attractive transformational growth opportunities into the future. Continuing to own and manage the MISO and PJM coal generation assets through their remaining useful life will also provide incremental free cash flow that can support our asset closure obligation. In fact, if you turn to slide 16, you will see that we expect our asset closure segment will require approximately a 155 to a $165,000,000 of cash utilization in 2020.
The cash flow that we expect to generate from our Sunset segment, approximately $190,000,000 in 2020, will more than offset this cash use. The same is true for 2021, where we again anticipate cash generated from the Sunset segment to largely offset asset closure statement costs. As Curt has already covered our 2020 guidance update, I will spend minimal time on Slide 16. I would like to reiterate that even with the revised midpoint at the top end of our guidance range, we still believe there's a meaningful opportunity we could finish the year at the high end of our new guidance range. Our integrated model executed well during the critical summer months, giving us confidence around the strength of our full year results.
Slide 17 provides a more detailed breakdown of our 2021 financial guidance. As Kurt also noted, we do believe the top end of our 2021 guidance range is achievable given the overall supply and demand fundamentals in the Texas market. We have maintained more summer length in our ERCOT portfolio and is customary at this time of year, so we can be ready to execute when and if opportunities materialize to hedge at attractive prices. I would also like to address our projected free cash flow conversion ratio of approximately 60% for 2021, which is lower than our average of approximately 65% to 70%. In 2021, we have a few uses of cash that are higher and more onetime in nature, with the first being a greater number of major planned outages during the year and the second being higher scheduled payments under the long term maintenance contracts in place for our gas generation fleet.
In 2022 and beyond, our forward plan projects a return to a free cash flow conversion ratio in the 65 to 70% range. With that, I will now turn the call over to Jim Burke to discuss the second key element of our portfolio transformation, the expansion of our renewable and energy storage portfolio.
Thank you, David. I'm excited to be talking with all of you today as we announced the first phase of our Texas renewable and energy storage development plans. We've been foreshadowing this announcement for some time through our commentary on our significant pipeline of zero carbon resources, primarily in Texas and California. Our California battery development portfolio has already been the subject of much discussion. We are excited today to provide specifics about our Texas pipeline.
But before I jump into the details, let's turn first to Slide 19, where we have laid out Vistra's history of identifying and executing attractive growth investments and acquisitions. From the moment we became a public company in the 2016, we have taken the same disciplined and opportunistic approach to capital allocation, growing our business through both acquisition and investment at an after tax equity return in the range of 15% to 30%. We acquired Odessa, a West Texas gas plant in 2017 when power prices Texas were at trough levels, giving us the opportunity to acquire the asset at a very attractive valuation. The valuation has only improved given very low gas prices in West Texas. The transaction we closed in 2018, the acquisition of Dynegy, continues to exceed expectations and offer outsized returns.
From the time of the acquisition announcement to today, we have more than doubled our EBITDA synergy and operational performance improvement targets from $350,000,000 to $715,000,000 We have also increased our after tax free cash flow target by nearly five times and preserve the utilization of Dynegy's net operating losses resulting in a net present value tax benefit of approximately $900,000,000 Applying an 8x multiple to the EBITDA synergies and an 8% free cash flow yield to the free cash flow synergies would imply that we created more than $8,000,000,000 of value from the Dynegy merger alone. And that describes no intrinsic value to the company at the acquisition price, which we know is not the case. Then in 2019, we acquired both Crius and Ambit at approximately four times enterprise value to EBITDA or less, expanding our retail presence in the Midwest, Northeast and Texas, increasing our generation to load match and adding an estimated $250,000,000 of EBITDA on a full run rate basis with projected synergies. These acquisitions made Vistra the largest competitive residential electricity provider in the country, serving nearly 5,000,000 customers, up from the approximately 1,700,000 customers we served at the time we became a public company in October 2016.
Our retail business now has 12 brands and more than 200 product offerings and operates in 19 states in the District Of Columbia. On the investment side, we expanded our operations to include renewable resources in 2017 with the development of our Upton II solar and energy storage facility in West Texas, which was the state's largest operating solar facility when it came online in 2018. Also in 2018, we announced our first battery energy storage contract in California at our Moss Landing site followed by a contract at our Oakland site. Both of these projects have since been expanded and we now have nearly four fifty megawatts of battery energy storage developments under contract in California. All these growth investments were executed in what we forecast to be very attractive after tax returns exceeding our investment threshold of 500 to 600 basis points above our cost of equity.
They've also been transformational in nature, growing our business from a Texas only operation to one with operations in 20 states and the District Of Columbia, expanding the reach and marketing channels of our retail business and marking our entrance into renewable and energy storage development, a business we plan to continue to grow over the next decade. In fact, now that we have nearly 4,000 megawatts of zero carbon renewable storage and nuclear resources operating or in development, we have created a new brand, Vistra Zero to collectively identify this group of assets. You can see this depicted on the next slide. Vistra Zero generates zero carbon electricity powering America and our company towards a clean energy future. As we think about the development of zero carbon resources, we wanted to spend some time today talking about Vistra's competitive advantage in the space.
We have all heard that in general, renewable developments are being bid to very low returns such that at first glance, this might not seem like an attractive investment category for our business. However, Vistra has the capabilities, capital and customer relationships to support the continued expansion of our zero carbon portfolio. And our unique market position enables us to capture higher returns on these investments as compared to a standalone developer. Let's talk through each of these points in a bit more detail. The first three are rather obvious.
We have a market leading commercial team, development project management skills, operational and maintenance capabilities and attractive sites, making Vistra a natural owner of these assets. Importantly, we know how to manage the volatility and risk associated with renewables, a skill many standalone developers do not have. We also own a portfolio of highly efficient, low emitting natural gas assets that can provide reliable, dispatchable power and complement the intermittent nature of renewable resources, enabling Vistra to structure renewable products that can ensure reliability at an affordable price. And we serve nearly 5,000,000 retail customers who are increasingly seeking to procure their electricity needs from renewable sources with multiple channels to sell to our customers and margin up. As a result, we can invest in renewable and energy storage resources using only a fraction of our free cash flow, generating attractive returns and creating products our retail customers demand.
As it relates to project economics, Vistra also has competitive advantages that improve our project returns as compared to standalone developers. First, Vistra has the ability to finance development projects on balance sheet, which minimizes fees and enables us to capture the tax benefits. In addition, we can also realize cost savings by developing a portfolio of projects at once, taking advantage of scale to garner more attractive pricing on panel procurement and construction costs. Similarly, we have been able to optimize the value of our existing sites and land as well as acquire certain projects at attractive valuations at various stages of development. Perhaps most important, however, is the fact that through our merchant development, we capture project economics through the entire value chain all the way to the end use customer.
This is in contrast to developers that typically rely on long dated power purchase agreements to secure financing to enable their projects to move forward. The off taker or the party that signs the power purchase agreement will do so if they receive an attractive price, which in turn challenges the economics for the developer. While our merchant approach has a broader range of outcomes, it also provides the opportunity to earn outsized returns. As I just discussed, we have an experienced commercial team skilled at managing this risk and the end use customers who are interested in procuring electricity from renewable resources. It is these competitive advantages that allow Vistra to earn returns that are 500 to 600 basis points above our cost of equity on renewable and energy storage development.
The projects that we are announcing today meet this return hurdle as we are expecting we will realize approximately 18% levered returns based on Vistra's overall leverage ratio from our Texas Phase one development. So let's turn now to Slide 21 and talk a little bit more about these projects. We've begun the development of nearly nine fifty megawatts of solar and energy storage as part of our Texas Phase one development. These seven projects offer geographic diversity with about 5% of the capacity located in the South Zone in Texas, approximately 23% in the West Zone and 72% in the North Zone near the DFW area. We expect one of these projects will be online by next summer with three additional projects online by the 2022 and all seven projects online by year end 2022.
In addition to our solar development, our energy storage project is a pairing of battery technology with our natural gas peakers, which will help create an even faster response generation asset, which we believe will be in greater demand as more intermittent resources come onto the grid. With an investment of approximately $850,000,000 of transformational growth capital, we expect these projects will generate approximately 90,000,000 to $100,000,000 of EBITDA, resulting in leverage returns based on Vistra's overall leverage estimated at an average of approximately 18%. Collectively, these projects represent a unique opportunity for Vistra to meaningfully expand our renewable and energy storage portfolio at very attractive returns. And we believe these projects are only the start of Vistra's expansion into zero carbon generating assets. We have more than 1,000 megawatts of incremental solar and storage opportunities in our Texas Phase two pipeline.
In addition to more than 1,000 megawatts of incremental storage opportunity California and four fifty megawatts of solar and storage potential in Illinois, assuming the passage of the Coal to Solar and Energy Storage Act, a significant near term pipeline that we expect we will be able to continue to grow in the years ahead. I would like to turn the call back over to Curt Morgan to provide our closing remarks.
Thanks, Jim. As I hope you can tell from this morning's virtual event, we are passionate about and have a strong conviction in Vistra's future. We do not have a terminal value issue and expect we will grow EBITDA and free cash flow in the future. In fact, approximately 95% of our ongoing operations adjusted EBITDA is derived from our four core segments Retail, Texas, East and West with meaningful growth potential. We are well positioned to transform our generation base and expand our retail business.
While we have not focused on retail in this presentation, we see several opportunities to grow retail through organic means and acquisitions with the opportunity to further margin up our generation through multiple retail channels. As we execute on our capital allocation and portfolio transformation plans announced today, the bistro of 2030 and beyond will look very different, but what we do and do well will not. We project we will own approximately 6,000 megawatts of renewable and storage resources by 02/1930, which when combined with our low cost nuclear facility will result in over 8,000 megawatts of zero carbon resources under our Vistra Zero brand. Similarly, we expect coal will be less than 10% of our portfolio by 02/1930. We can grow our EBITDA even while retiring the majority of our existing coal portfolio by investing only a modest fraction of our free cash flow back into the business.
As I mentioned earlier, we expect to continue our strong execution and transform our company while generating total annual returns per share of 15% or greater through 2030 when combined with our anticipated repurchases over the same timeframe. And at our recent stock price, we could buy back the market cap of the company in less than nine years allocating only $1,000,000,000 per year to share repurchases, all while maintaining balance sheet strength. In short, we are a company that can manage its leverage, reinvest in the business to grow EBITDA even while retiring coal assets and return a significant amount of capital to our shareholders. With our current market discount, this makes Vistra both a deep value and a growth opportunity. I suspect not many businesses can say the same.
The playing field is changing. ESG, in particular, environmental stewardship is an increasingly important component for portfolio managers' investment decisions and Vistra is committed to lead in the transformation. Beginning with the strategic direction we announced today, which builds on Vistra's legacy of consistent execution and capital discipline, we expect we will be able to create a sustainable company that can produce enduring value for our financial stakeholders in both the near and long term, reaching its fair and full value. Before I turn the call over for Q and A, I would be remiss not to mention Vistra's commitment to our broader stakeholder base, including our communities, customers, suppliers and employees. It is our strongly held view that developing and maintaining long term relationships with all of our stakeholders is consistent with achieving long term shareholder value.
To that end, Vistra will continue to invest in these relationships, including playing a leadership role in social equity and justice. We cannot delegate this to others. We must and we will be a leader. With that operator, we are now ready to open the lines for questions.
Thank you. Your first question comes from Shar Pourreza with Guggenheim Partners. Your line is open.
Hey, good morning, guys. Good morning, Shar.
Just a couple of quick questions here. First, on the retail side, certainly thanks for providing some pro form a slides excluding the Sunset segment. Does the lower generation lessen sort of your desire to allocate growth CapEx to additional retail opportunities in the East? And are you still interested in adding customers in ERCOT, especially as one of your peers is at least sidelined for now with the direct M and A deal?
Yes. So I'll just generally speak, Shar, I I'll try to get direct to your question. We still are interested in growing across all our markets where we have generation and where we have length. I think I've mentioned this before, outside of ERCOT, I think we'd be comfortable, frankly, going up to even a matched balance because given the liquidity in the markets, but also the lower volatility, at least today, we would be willing to do that. Now the real question is, are there quality are there quality opportunities out there to grow your business?
And can we grow organically to get there? Organic growth, it just takes a lot more time. But I think you'll see that we'll continue to put our effort into organic growth. And then if there are opportunities that we see that are attractive, small tuck in acquisitions, we will do that. In ERCOT, we definitely are interested in continuing to add customers.
We were still about 65% across the average in terms of match. But when you get into the peak, we're about 75%. I think we still would like to stay somewhat long in ERCOT. Although again, we believe we could manage a balanced wholesale retail position. But we're more interested in quality of retail and that is becoming more difficult.
And then size in retail is becoming more difficult because you guys know that most of the quality retail businesses have been purchased or they're under purchase consideration, I'll put it that way. But we definitely are interested in growing our retail business. And we think there are opportunities by the way. And your point is well taken about one of our competitors being tied up. There are other opportunities out there.
And we were the two kind of always looking at pretty much the same things. I think that probably opens up opportunities for us.
Got it. And then just on the Eastern side, is storage and you kind of touched this a little bit, but is storage in MISO a possibility without Illinois legislation? If not, like is the impediment the revenue model, why does it work in Texas and California, but not the East, I. E. Is merchant storage isn't just competitive there?
Is it the state RFPs? Like I'm just kind of curious on the dynamics.
Yes. So I think outside of California where California is willing to put essentially ratepayer money behind storage. Frankly, without you know this, but without the RA payments, it would be very difficult in California. Even with the duck curve, I'm not sure in fact, I know it would economic for us to do storage and make money just off of the periods of time where there's peak. Even in ERCOT, the reason we did the 10 megawatt storage around Upton 2 is because we had excess power on the site that we were clipping.
So that helped our economics. The project we're looking at, at De Cardova, that is essentially a longer term play on co optimization and also ancillary services in the ERCOT market, which we believe will be quite lucrative and is going to be necessary. And so we see that as being an opportunity combined with that peaking plant. And so there's some unique opportunities. Outside of that, when you look across almost every market, it's hard to look at storage on a stand alone basis.
There's not enough volatility. I mean, it's a peaking plant and it has a similar cost that a gas peaking plant does. And neither of those are economic on a standalone basis and certainly not in the MISO market. The capacity market is very difficult and there's just not enough volatility, at least in ERCOT. There is an opportunity given the fact that you do have significant and growing volatility because of the increase in intermittent resources.
That's what might make storage at some point attractive in ERCOT and we think that is coming. But when you get outside of ERCOT, you don't see that same volatility. Now if we continue to see intermittent resources come into markets, in MISO market, PJM in more and more quantities, By the way, that's going to take a long time. But when we do see that, what we are beginning to see in these markets, when you get upwards of somewhere around 20% effective capacity coming from intermittent resources, you start to see an expansion of scarcity value. And PJM, they're still waiting on their ORDC, their operating reserve demand curve, which I think is implemented in 2022.
And so you will start to see some higher fly ups in pricing. But right now, it's not compensatory to build those assets outside of California with the RA payments and a few very unique circumstances in the ERCOT market.
Got it. And just one last one for me is just on the capital allocation front, looking beyond 2022 and sort of that first tranche of Texas investment,
if
you don't see sort of these attractive growth opportunities, can we just get a sense on how you're thinking about prioritizing returning excess capital? Because you'll theoretically be hopefully investment grade by then, your delevering initiatives are sort of behind you. How do we sort of think about the interplay between buybacks and further dividends?
Well, that's a good question. I mean, you know that the math on the buyback is simply what do you think you're worth, your value of your stock is relative to where you're trading. And so I think we always do our math and we always try to compare investment in our company to that alternative because that's always an alternative. And clearly right now, a buyback for us is a very good program. The other side of the equation, though, reality is if we want to be a long term sustaining company, we do have to invest in new technologies and transform our company.
So what you think I think you saw today is our version of trying to do both of those things. And we think we can do that and still return meaningful value back to our shareholders on an annual basis. Share repurchases right now, until I see something or we see something else change, are going to be the priority because our stock is so cheap. But we also know that there are investors who like dividends, who are interested in staying in our company for the long run, but also would like some return of capital and are interested in dividends. And we think having something in the 4% yield range eventually is probably the right idea for the company.
If we get to the point where we don't think it's advisable to put money back into the business and we have excess cash from what we talked about today, I think it will be really a decision between where our stock is trading. Of course, capital gains tax and things like that, we'll have to take into account as well, tax effects of these things. So there'll be a number of different items we'll have to take into account. But from what I see today, we would probably do further share repurchases. Could that change or could it be more balanced than that?
Yes, it could.
Terrific. Congrats guys. Great messaging.
Thank you, Shar.
Your next question comes from Julien Dumoulin DUMOULIN Smith SMITH:] with Bank of America. Your line is open.
Hey, good morning and congratulations guys. I wanted follow-up on the EBITDA expectations for 2021. Specifically, how are you thinking about COVID impacts and some of the tailwinds from work at home going into next year? I mean, obviously, is ill defined thus far, but I'm curious what you're specifically reflecting as far as that goes?
Yes. David, do you want to take that one?
Sure. So Julien, you'll see in our guidance, our expectations for retail for 2021. We've got we think that our performance in the business will continue to be strong. So we've had a really great year in retail and done a nice job integrating our acquisitions. So you see that we're getting very close to that $1,000,000,000 range in 2021.
We've thought about COVID in a couple of different ways. It's hard to predict how long the work from home dynamics is going to play out this year that has led to certainly an uptick in residential demand that's a relatively more profitable segment that's been a bonus. In 2021, we do think that over time, the economy will normalize, but we think that across our portfolio of retail businesses, we'll be able to take advantage of whatever scenario plays out. Frankly, if we continue to work from home, that will help our residential business. If the economy kickstarts and restarts, that will help the smallmedium business and industrial segment.
So we think with the strength of our retail business and its breadth, we feel real confident where that will come We also think about COVID, Julien, in terms of how we think about demand and overall demand, and that has the highest impacts in ERCOT. And as
Kurt described, we think that at the end
of the day, COVID is knocked back in years' worth of demand growth in ERCOT. So we think that the Texas economy will rebound and be back on its growth trajectory overall in 2021, but it is going be off of a baseline that reflects a
year of demand destruction. But overall,
we feel particularly on the retail side, great a deal, really responded well to the crisis and we think that strong performance will continue.
Yes. And I'll add just a little bit, Julian, just real quick. Dallas Fed just came out and showed that industrial production is up significantly in the third quarter in Texas. It's a pretty resilient economy. I think you have a good point though is when do we return back to a more normalized working situation?
Look, we don't have a crystal ball on this, but you certainly can see a little more of a prolonged work from home environment, but also I think a more sustainable work from home environment beyond COVID because what most companies have figured out is that their people can be very productive working from home. I know our company for one will likely go back to something that's more of a hybrid where some people will work during the week and then they may have a couple of days where they can work from home to allow people to have flexibility. Hear I'm on the business roundtable. I hear people talk about that. So where that's going to settle out longer term will be interesting, obviously, because of the margins are greater on residential side.
I think we're in a very good position either way. What may be a bit of a tailwind going forward drilling will be where does the oil and gas sector sort of settle out and the West Texas production is down. However, you're starting see, as you saw in the forwards, gas prices are beginning to rise. It will really be a function of oil prices out in West Texas and to see where that settles out and whether that picks back up again. From the bad debt side of things, I think we think that normalizes.
We're seeing a significantly lower bad debt incremental bad debt due to COVID in 2020 than what we originally anticipated back in March. And we think that will continue that our bad debt will get back to something more normal when we get into 2021. And the real wildcard will be vaccine. And I know that we surveyed our company, our employees. We've done this a couple of times and we're seeing these similar results across the country that even with the vaccine, there are certain people that are still nervous about coming back into work until they see that the vaccine has been proven effective.
And so I think what that says for 'twenty one is we're probably going to see a little more of a prolonged work from home and transition than maybe than we've even estimated in some of our numbers. But I think that what most people have estimated based on what I'm seeing in terms of the attitudes of people.
Thank you guys for the detail on that one. If I can pivot back to the growth opportunity here, you've talked about it a little bit, frankly extensively in your remarks, but you only gave us 'twenty one and 'twenty two. How do you think about the longer term repowering opportunity of your legacy assets? You provided a runway of retirements of these thoughtful assets. How do think about leveraging those sites for batteries and solar?
And frankly, independent of any legislative support, for instance, Illinois, right? How should you think about the litany sites you have with those sort of legacy or intact interconnection injection rights?
Yes. So look, I think across the markets that really you hit the right markets. I mean, I think Texas is there are incremental opportunities for us at some of our existing coal sites in the long run that may open up opportunity for us, for example, around Martin Lake potentially on a longer term basis, depending on how the market shapes out and how long that asset stays in the market. For right now, the market is doing quite well. In fact, it's doing very well, but it's also a very good site and there may be some opportunities around that.
And so we'll just have to see how all that plays out. Oak Grove is going to be around a while. I mean, we're just now beginning to invest in opening up another mine that has really low cost lignite. So we maybe one of the last coal plants standing in The United States just given a relative low cost. But we do still have other sites.
And as Jim mentioned, we've got another 1,000 megawatts in Phase two that we think will start to come on or start to be constructed somewhere in the 2022, 2023 timeframe. So that's going to keep us busy, going out for at least another four to five years. In Illinois, there's not the legislation is one way to get at a potential opportunity. The other one is if they were to change some of the rules around brownfield development, that's another possibility that could help stimulate investment in some of our sites. I don't I hate to predict any of this, but I would say that the idea of using the same sites, using the same transmission and bringing property tax value to towns, most of these are small towns where we were the number one property taxpayer trying to help those towns out and using private money to invest in it seems to make a lot of sense.
And we're hoping that the Coal to Solar and Battery Act will in some form or fashion will get passed along either standalone or with some other legislation. We think it makes a lot of sense. I would say though, Julien, outside of something happening on brownfield development, some incentive around that or the Coal to Solar Act, I think it would be difficult to see, especially in MISO, the opportunity just on a standalone basis for economics to work with solar and batteries.
Maybe to clarify that, 22,000, 23,000 megawatts sort of Phase two, where is that specifically just as you think about it right now?
Well, we haven't said it's a little bit and I don't this isn't I generally like to disclose things, but we've generally kept these things somewhat competitively sensitive because we don't want to telegraph where we're putting our projects. But I can only tell you this that we have real projects that on real sites that we have available. I think we're staging them in based on our own cash availability, but also just we just think it's the right kind of thing to do for the market. So I'm not prepared to tell you exactly where those are right right now, but I would say in the not too distant future, we'll be announcing Phase two.
Okay. Thank you all very much.
Thank you.
Your next question comes from Jonathan Arnold with Vertical Research. Your line is open.
Good morning, guys. Thank you. Good morning, Jonathan. To tell you obviously going to have the 8% dividend growth in 'twenty one and then the step change in 'twenty two. Should we as we think about your view of how dividend fits into capital allocation in the long run, is that 6% to 8% sort of where your head is post 2022?
Or is it too early to say on that?
I think there's two things on that, Jonathan, to be very honest with you about that. I think six to 8%, if we're going to have annual go to an annual growth sort of situation, I think six to 8%, we think is the right level of annual growth. I do think that we will likely have a conversation with the Board at the 2022 about whether we want to stay at the $0.76 or whether we want to do potentially even another step function. The reason I mentioned that is, at that point in time, we feel pretty comfortable with where our leverage is. And the question is, what's the best way?
We just I just answered this on another question, but what's the best split of the additional capital? Would you buy back shares or increase the dividend? I think that will be a function of feedback we get from investors and others like you guys, where our stock price is trading and the types of investors that are interested in coming into the stock at that point in time. So I think but I do think we will have a discussion about whether we want to do another step function change or whether we want to go to just something that's more of a routine 6% to 8% growth rate. And I think that will be a real discussion point when we get probably more into the mid-twenty twenty two timeframe.
Great. Then just on Moss Landing, and obviously, with some of the developments in California this summer, I think right now you've got the Phase one and Phase two contracted. What can you talk at all about prospects for adding another phase in the near term?
Sure. Jim, do you want to Jim Burke, do you want to take that?
Yes, I'd be happy to. So we do have the MOS 300 and the MOS 100 under development. We've also got the interconnect approval. So that was 400 megawatts for those two. We have the interconnect approval up to seven fifty.
So we're in discussions about a possibility of another three fifty. There's physical capacity to do another seven fifty on top of that, that's down the road. So I'd say the additional three fifty is more near term.
Near term Go meaning ahead. Sorry, Jim.
I'm sorry, you wanted to clarify?
Well, you say near term, is that something that you're actively discussing now or more sort of out over the next couple of years?
It is a discussion. As you know, it's also a process because as you go through the discussions, then you need to seek CPUC approval. And then obviously, you have the construction time associated with it. So we're bringing these on in phases. That's the goal.
And clearly, California has seen the need for additional storage. Our other sites, Oakland, we believe can go larger than the 36.25. We think it can go up to 80. And then Morro Bay is another site that we have further south that we think has possibilities as well, potentially up to 600. So we're developing the possibilities to work with all the major utilities there in California.
It's still a multiyear process, Jonathan, I think, to put something like three fifty in the queue. But having a site is valuable, having access to transmission is valuable. We've also got the environmental permit to take the Moss Landing Battery site all the way up to 1,500 megawatts,
and that's a big hurdle, and we've already got that cleared.
So it is a process, and I think we'll move and doubt it, but it still takes a little bit of time.
Great. If I was just, Kevin, could you provide a little more sort of flavor perhaps on how conversations with stakeholders are going in Illinois? And what your current feeling is whether something could get passed in the call session or just anything you add there?
Yes. So there's active discussions. There's two kind of parallel path processes going on. The Senate led by Mike Hastings there in the Senate is running sort of its own. He's the head of the Energy Committee.
He's running his own process. We are participating in that. And then the Governor's office is also running their own process. And we have a seat at the table on all that. I think it's what I would call right now, Jonathan, sort of information gathering, trying to sort of see what the ask is by everybody and what the need is.
And I think they're trying to assess what they really want to do from a policy standpoint. My own gut on this one is that I sort of handicap it less than 50% if something gets done on a more comprehensive basis in the veto session this year. And I would say over 50% if something gets done next year in 2020 I think they're doing the right things and they got the right people involved. And this is a situation this year where I think it's not being done sort of in close quarters with only a few people. I think it's everybody that has a stake in this is getting an opportunity.
I know that we feel very comfortable with the opportunity that we've had to participate in this. The governor came out with, I think, was a nine point plan that came out. I thought that was a well thought out plan. I think what we're trying to do with our coal to solar fits right within that. And I think the good news is, is from our standpoint, our what we put together, I think is viewed as very credible.
Whether it'll be enacted in its exact form, I would guess it's going to have to change a little bit. But I think we have a really good shot at being part of whatever legislation comes out. And again, I would handicap it a little bit more next year than in the veto session. But I've also seen how these things work and things can coalesce rather quickly. The key really in all this is you got to have a seat at the table and you got to be in the room when it happens.
And I feel like we've worked our way to that point and we have the credibility to be able to do that. Great. Thank you very much. Thank you.
Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.
Hi, guys. Thanks for taking my Hey, Hey.
With
growing experience in solar and storage development, I mean, could you extend this to a national strategy to build contracted projects for the utilities similar to some of the ways that some of the utilities have been doing that?
That is a very good question. I will answer that. But Jim, if you want to jump into, but I think the short answer to that is yes, that it is we can replicate it, it can be extended. We have the kind of capability to do that. There are platforms out there that might be something we would consider taking on.
I'll talk about development platforms that have already early stage development in other markets like Georgia and South Carolina places like that. And I think we do have that kind of capability and we're certainly interested in that. Now the real question will be is, what do we do once we develop things? But I think we certainly have the capability to develop these projects. And I think it's a nice problem to have to figure out then how do you monetize those at the right point in time.
Jim, anything you want to
Kurt, I think you covered it. It is a different model than the one we're pursuing right now. May take a different financing strategy ultimately, but the relationships that we're developing on the construction side, on the battery manufacturer side, on the panel manufacturing side, I think those are very scalable. I think we've got a lot of good opportunities ahead of us that we just talked about here in this pipeline. But I suspect what will happen even post the discussion today is we'll continue to get inbounds and then we'll be evaluating those against the other opportunities that we can pursue.
But this is absolutely something that I think is in the ten year horizon is for us to continue to expand this footprint. And as asked on an earlier question, our sites could still potentially be used under a contracted basis in some cases. That's not our current model that we're looking for Phase one in Texas, but I do think even our sites could come into play in the future for some of those opportunities.
Right.
Yes. And if I can, Michael, Jim made a really good point on the financing side. I mean, we would definitely look at that a little bit differently. And we have a number of friends out there that are would be interested in partnering with us and you could see us doing something working with another player or so that we're not using all of obviously our equity capital to do that. So I think there's a lot of ways to do this, but we have a very good capability and we ought to look at what's the best way to create value from it.
Right. In a similar vein, with solar and storage not being competitive without help in Illinois currently, I mean, do you mean that that's true under current pricing or even forward pricing? Or do you see maybe this maybe you wouldn't even need coal to solar legislation in a few years if the cost of batteries continue to decline at 20% a year or so and solar keeps coming down. And there could be even a federal extension of tax credits. Could any of these things eventually make it so that you don't even need legislation in Illinois to develop projects?
Yes. I mean, what I
was speaking to earlier is, right now at this point in time, look at the forward curves, very difficult to do coal I mean, do solar or batteries right now and especially in
the micro market. So I think it
would be difficult. However, everything that you just mentioned would have an impact. So depending on where cost where the cost curve goes on that technology could impact it. Obviously market rules can change to be more favorable. As I said, you can they can do something with the brownfield rules, which would allow a greater incentive for developing on brownfield sites.
Certainly the federal tax incentives and, you know, we haven't even gotten into the fact of, you know, what might happen for example, under a Biden presidency, would there be more money available that could be a game changer. So that's why I think it's really important for us to have this capability and be in the game because things can change on a dime and we need to continue to work and get these sites ready for development. And when the economic incentive is there, we can then strike.
Got you.
And Curt, could you just briefly talk about scarcity events in Texas? I know that in the past, I know on this presentation, you talked about the second half of the year, you expect the forward curve to firm up as people start to hedge more. But how did the how has the scarcity event situation played out over the last few summers? And where do you think things might go next summer?
Yes. So 2019 was I think a it was not an overly hot summer, but we saw good scarcity. And that was a combination of sort of normal power plant outages that you expect to see in the summers. And then we had some days where wind was very low. And but we on those days where we saw higher scarcity was not the highest temperature days.
So there's a number of variables that can factor into scarcity, but we saw several scarcity events during 2019. We saw less scarcity events in 2020. That was also somewhat temperature driven. It was also the fact that we had on average, I think somewhere around 1,500 to 2,000 megawatts of lower plant outages during the summer on average than what we would normally see. So the ERCOT fleet of assets actually performed better.
And those two things, it is I'll just tell you, Michael, it is amazing that the scarcity event and the pricing on the operating reserve demand curve can move substantially by 300 or 400 megawatt differences in wind output or outages. And we were that close this summer in a number of instances, but it is that volatile in terms of whether you see pricing in the thousands or you see pricing frankly at $35 or $40 And we just didn't get there this year. And it was again, and performance of the fleet. And so but we do see that with the development that's coming on, but also the load growth coming into next summer that we are still right in that spot where we're going to see the very same thing. And it will really depend on temperature, renewables and mainly wind output and ERCOT fleet performance.
And it doesn't take much at all to move that and you can see $1,000 plus hour prints out there or you can see $40 or something like that. And that's the volatility. And we think that volatility when we model it is only going to grow as you continue to add more and more intermittent resources. And I should mention too that on solar, this is something as simple as cloud cover can swing the solar output. And when you have a class of assets that's affected by the same thing, whether it's lack of wind or cloud cover, it creates a situation where you see significant reductions in output from intermittent resources.
And that's when you start to see that you get on the operating reserve demand curve and you see very significant increases in pricing. So we're still there. We're right there. It just depends on whether it will all those events will line up as they did in 2019 and they did less. We still had scarcity events by the way in 2020.
And we saw mainly in the weekends, which also is another interesting phenomenon because demand was low. But what happened is, is those factors I mentioned all came into line. They mainly came into line on weekends and not on weekdays. Had we seen those happen on the weekdays, we would have seen some really serious pricing. So the market is still where we want it to be.
But it is subject to mother nature to some extent, but also the performance of the ERCOT generating fleet. All right. I would expect that the coal retirements you announced today could possibly make the problem
of scarcity events, I guess, worse for the market, maybe better for you going forward.
Given those are mainly in MISO though, so it's still that's a much more overbuilt market. Probably That's
true. Yes. Right.
Okay. Thank you very much. All right. Thanks.
And your next question comes from Steve Fleishman with Wolfe Research. Your line is open.
Hey, good morning. Thanks. Hey, Kurt. So
just on
the new solar in Texas. So from a financing standpoint, you're going to do this yourself on balance sheet, it sounds like, and you're able to capture the ITC credit yourself? Or do you need to monetize that?
Yes. Yes and yes. Steve, I think we're always going to keep an eye how we sort of finance things. But right now, our view is to do that 100% on balance sheet with our cash. And then we also looked at the trade off between tax equity investors and keeping it because we're not going to be a taxpayer the earliest is '20 and is in 2025.
But when you look at when you do the sort of the economics on it and you look at the NPV of owning those credits relative to what it costs you to bring in tax equity, it made a lot more sense for us to hold on to those tax attributes, especially given that we are going to be a taxpayer probably, I would guess more likely in the 2026 timeframe.
Okay. So you'll hold them and then extend your window of not paying tax then, I guess?
That's right. That's right.
Okay.
And then maybe just a little bit of a thought process here. So it sounds like you're pursuing these new projects without PPAs. And so you do have the retail business, I assume that's kind of in a way the hedge for it to use. But just if there's a lot of solar being built in Texas and then you build and then more people build, I think generally, the solar all generally runs at around the same time. So how are you thinking about protecting price risk of big expansion of solar when everyone's doing that?
Yes. That's a good question. I mean, look, I think I'll try to be brief on it, but it's a fairly nuanced discussion. And you know that we rely a lot on very detailed modeling. So I think the way we see it though is there's two things.
Number one, these are very good projects and we expect that I think in our ten year view, we expected about 50,000 megawatts of renewables and batteries, mainly renewables, about half and half between wind and solar. That may end up being more solar, but that's kind of what we did. These projects definitely should be part of that in that build out that's going to happen. When you think about the effectiveness, meaning what are those effective megawatts of that 50 roughly 45,000 megawatts, it's somewhere in the neighborhood of 25,000 megawatts. And that's why we expect something in the 10,000 megawatt range to retire.
So we are assuming that there'll be some retirements. When you look at that, Steve, that net amount that is covered by load growth. So we don't see the supply demand changing materially even with 50,000 megawatts, which is a significant build out. I mean, it's more than half of what the current total capacity is in ERCOT right now because we see some retirements, but then also it's load growth. And we're assuming that we'll see about 15,000 megawatts of load growth over that ten year period.
And the other thing is that the intermittency situation also is part of it and it will contribute our investment will contribute to that. The rest of our fleet will benefit from that. But when we run the modeling, we see compensatory returns in that kind of 15% to 18% on our using our leverage for these investments. And so when we look at that and this is with all the new build, this is with everything else being built, we see that opportunity and it's mainly because of the load growth. And then I think longer term it will be because some of the higher heat rate coal, oil and gas will be pushed out of the marketplace.
Okay. And just the is your intention to you know, try to lock more of this up by the time you actually get them up and running and the like, or or is your intention to keep the portfolio uncontracted?
I think so you mentioned it earlier. So some of this will go to our retail business, which we have a significant one. And so we'll do that. Some we'll look at we have a whole group that looks at providing PPA or slice of system type deals to retail customers. So we'll be out marketing that.
And then some of it, Steve, we will manage as wholesale link by our commercial group. The one thing I think that we may have been a little subtle in all of this to for many is that what's happening right now is you have developers who are getting paid a development fee on the front end and that's their sole purpose. And if they can if they're lucky enough to get equity in the project, which has slowed down quite a bit by the way, and nobody has really done the merchant model here, but when the PPA depth of that market starts to shrink, you're going to have to do something on a merchant basis. And I guess you could argue that's what we're doing. But the point being is the PPAs are extraordinarily low returns for the developer and the equity that the developer brings in.
That doesn't mean that value is lost. That's just accruing downstream. It's either the end user or maybe a large player like a Google or Amazon that's getting that value or if you warehouse that length, you can take it to the market and you can still get that value because the pricing in the markets are still as we model going to be in that sort of $30 on average $35 megawatt hours. Now there's more risk to that, but we have the capability to warehouse that. So I think it really depends on where you are going to end up settling.
And do you want to take risk off the table and sell it to somebody at a lower price? Or do you want to warehouse that risk and sell it into the market? The big question, Steve, and this is a fair question, is what are market prices going to settle at long term? What are they going to settle at? I'm not talking market.
I'm talking about where day to day, where is the supply demand and the fundamentals going to settle. And I continue to argue that in order to keep plants like our combined cycle plants around or other reliability type assets that are dispatchable, especially as you bring on more and more intermittent resources in an all energy market, the construct of that energy market is going to have to result in enough revenues to keep those in the marketplace. We saw this happen in California, but they're solving it differently. They're solving it through resource adequacy payments, not through the energy market, although the energy market did pop significantly even in California. But in ERCOT, I think what you're going to see is higher priced periods because of the significant intermittency.
And when you see that, we'll see the same we'll get that pricing on our assets just like anybody else will. I hope that makes some sense, but that I think there has to be a market that a construct that will keep the marginal resource needed for reliability market, and that will set price. Now whether that's ancillary services or whether that's energy in ERCOT, I think we're all going to have to wait and see what that looks like ten years from now. But there's going to have to be enough revenues to keep in a competitive market to keep those assets in the market.
Okay. And then one last just question on this build, Decordera or Decordosa, is that just to clarify, is that going to be battery storage or is that some type of peaker and battery? Or what what is decordel exactly? So it's a gas peaker with a battery?
Yeah. Yeah. So what happens in that, Steve, is that you get because it takes time to start that plant up, you get instantaneous start. And so there is a market developing in ERCOT. This is why I say the ancillary service market is developing because of all these renewables.
They're needing certain types of products. This is being built to meet the product of an instantaneous start, but then you can have a long run asset. So it converts from a battery into a peaking plant that can run as long as you need it to run. And that's a product that we believe and we know that is likely to get good pricing in the market. So that's what that's about.
Great. Okay. I'll let other people ask questions. Thanks. Thanks, Kurt.
All right. Thank you.
Your next question comes from Angie Storozynski with Seaport Global. Your line is open.
Thank you. So I have a bigger picture question. From how you guys calculate free cash flow before growth because so this growth CapEx that you have seems to be maintaining your EBITDA, largely maintaining your EBITDA. So is it really growth CapEx as opposed to maintenance CapEx when you're in a sense replenishing the EBITDA from the wholesale business that keeps falling along with the backwardation in forward power curves?
Hey Angie. So look, I'll say something, but David, you should really take this. But I just want to be clear that the maintenance CapEx is taken out to get to the free cash flow before growth. So the two items that are most notable when you go from EBITDA to free cash flow before growth are maintenance CapEx as well as I'm trying to remember interest expense. And so those are the two big items.
So the maintenance CapEx is already taken out of But go ahead, David.
Yes. So, Angie, I think you're saying is that when we define our CapEx is what takes to replenish loss EBITDA. The way we think about it, way we define it, I hope it clears. We define the maintenance CapEx as literally that is what does it take to maintain and keep to self shape our existing fleet of assets. So we define the maintenance CapEx that's required to maintain the existing fleet.
We define the growth CapEx where we're making new investments, expanding capacity or making new investments. And we try to be pretty explicit around here's the EBITDA at risk from our plants that are retiring. There are commodity fluctuations year to year. But when we think about our growth CapEx, we think about what are we investing in, new storage, new facilities, new solar, new things that Jim and Kurt have described. And as an example, the Sunset segment that we've described by 2022 and the numbers that Curt referenced in the script, he talked about where we think we'll be in 2022.
By that time, what the EBITDA on the Sunset segment will already be lower than the impact of our battery investments in California and the Phase one ERCOT program that Jim described today. So we think it's a logical framing. Again, we've just laid out here's the maintenance CapEx that's required for our base fleet and then the growth CapEx is where we're investing in these facilities or otherwise. And we do believe that over time, the growth investments will more than offset what we're seeing from the impact of retirements. And so that's how we try to lay it out and be explicit around what it takes to gain a fleet versus where we're investing in.
So I understand obviously the retirements asset retirements being offset by the replenishment by the investments in renewables that growth CapEx finances. There's also this backwardation and forward curves, which diminishes the earnings power of the remaining wholesale power portfolio. As such, I would think that growth CapEx would symbolize the what it takes to grow the EBITDA. And I would argue that the vast majority of this growth CapEx is used to maintain the EBITDA even if we strip out the coal plants that are slated for retirement. Mean, I'm I'm debating this issue myself, but I'm just wondering if that is one of the reasons why you guys trade at this seemingly 20 plus free cash flow yield because some of this free cash flow was not really free cash
flow. Well, the facts I hate to confuse the situation with the facts, but the facts have been that the curve has not been that backward dated. And the facts are that it's only liquid about a year out. And the facts are that if you buy if you think the value of our company is based on an illiquid forward curve, you're going to come up with that answer. But from my standpoint, that's an opportunity for us because when you model and you look when you do the real modeling, I'm not talking about the simple modeling, you do the real modeling, what you are going to find out is that the curves are not actually backwardated from a supply demand standpoint, but they're showing backwardation because they are thinly traded and they're mainly making made up by the PPAs that are being done, which are such a small fraction of the market.
Every year since I've been here, the curves have been backwardated. And by the time we got to the actual prompt year, the curves were actually much higher than that. And we have been telling the market that every single year and that has actually played out. So I agree that we have a segment of our investor pool that's been trained that the only way to think about value of our company is looking at the curves. But it makes no sense to us at all to look at the curves when they are not representative of supply demand and where it will settle, when they are thinly traded illiquid set of curves.
And I know that's not fun for people because they want to be able to believe in something, but it takes a little more work than that to figure out what the real supply demand picture is and what real pricing is. And so we don't see it that way. And we see our maintenance capital to actually do exactly what you said, which is to maintain our to have our assets ready to maintain the EBITDA. And we've been able to do that. Just take a look at our performance.
We've been able to do that year in and year out against if you went back in those years, you would see that those curves were significantly backwardated, but that backwardation never played out when we got to the real fundamental supply demand picture. And that's what we keep trying to tell people. Now you may be right, Jampi, that that is why we trade that way because there are still a bunch of people who are conditioned to use the backwardated curves blindly and not think about what the real supply demand picture is. I think there's no way that you can make this call by looking at thinly traded backwardation curves. And that's why we continue to talk about what our point of view is based on fundamental analysis.
Now whether the market will ever believe us, I don't know. But that's the way that we do it and we've been able to successfully manage our company accordingly.
Okay, great. And then my second question is, so how do you calculate the levered returns on your renewables? Because granted that you're choosing a merchant model, I mean, we're seeing a lot of variety in how people assign terminal value to these assets over what period of time they actually calculate free cash flows. I mean, you give us a little bit more sense what are the assumptions behind this? Forgot, I think you said 18% leverage return or more than 15% at least?
Yes. So the leverage itself, Angie, and also David can jump in here too. But the leverage itself is based on our long term overall company leverage. So it's not a highly leveraged model. It is a it's based on our overall leverage, which I think is I can't remember, it's like 35% or something.
It's relatively low leverage
And relative to what developers would
so that's part of it. In terms of terminal value, I mean, we're not under any illusions. We're not we're using pretty much multiples that are where we are today. We're not kidding ourselves and putting like a 10 multiple on the back end of it. We also, I should say, we look at a number of different cases.
So we're not what we try to give to you guys is boil down to what our kind of average base case is, what our expected case is. But we tend to look at it on a downside scenario and would that acceptable returns, what could be an upside, but we tend to look at more downside versus a base case. But David, do you want to add anything to that? But that's how we kind of look at it. Yes.
That's exactly right. All I'll add is that we factor in with solar products in particular and storage, if it's paired with solar, we look at the tax benefits. So we factor in and that's based on when we will be able to realize the benefits related to a question received earlier. So when we will be able to take advantage of the ITC benefits, further push out the time of our taxpayer, how we take advantage of any bonus depreciation. So we just do it.
We do project level modeling along the lines that Kurt suggested, including the timing of when we actually get the tax benefits with a modest leverage level, about 35% debt overall. If we look at different kinds of projects, as Jim described, maybe we look at something different, but the products we described today are all with that corporate leverage ratio and we model the products out with along the assumptions that Kurt described. So we try to do a detailed project level view with pretty conservative leverage assumptions.
And one other
thing, Angie, is that we look at both market curves, even though I just went into a long dialogue about why I don't think market curves are right. But we do look at it using market curves and then we look at it using our point of view curves. And we present all this to our Board. I mean, they see all of this as obviously the management team does. But so we don't ignore it completely because we know it's we know that it's to some people that's reality.
But that's so we'd look at it in a lot of different ways when we make a decision, recognizing that we know that our base case is unlikely to be what actually happens. So we want to understand kind of what could go wrong or what's the downside and is that acceptable or not in order to make a decision of whether we go forward or not.
Great. Thank you. Thank you both.
Thank you, Angie.
Your next question comes from Amit Thakkar with BMO Capital Markets. Your line is open.
Hi. Good morning.
Most of
my questions have But been asked and just real quick, Kurt, you were very kind of very clear that you guys think that the current forward curves don't really kind of reflect true demand supply. It looked like, particularly earlier in the summer, that the Cal 'twenty one kind of gas curve was very strong and ERCOT forward power prices kind of respond to that too a bit, but not nearly to the same extent and heat rates are compressed. Is that another way to kind of, I guess, kind of highlight to ourselves that the power market just suffers from this kind of lack of liquidity compared to like another commodity like natural gas and the fact that it's kind of lagging behind that?
Yes. I mean that's part of it. I mean, and
you probably know because you
follow this too, but the power markets, the heat rate in Texas, well, first of all, power trades and mainly as a heat rate and a gas trade in ERCOT, it can trade also as outright power. But there is sometimes a lag effect that occurs, so that be a component to it. But what I have been referring to is mainly around heat rate that I still we still believe that the market is right now is underestimating the risk coming into next summer. And it's really by the way, it's really a summer ERCOT thing. For our company, the range around our earnings is really around what happens in the summer of ERCOT.
We're generally hedged to the point when we go into the summer that it's really about what happens with our relatively small open position and whether we see scarcity or not. And so when I talk about this, I'm really talking about summer ERCOT. The rest of the markets were very well hedged. The variability is very little. And we've been able to manage this thing, as I said before, really between sort of five plus or minus five to 10% of variability.
And this really comes down to what happens in the summer of ERCOT. And gas is what it is, and we've hedged a fair amount of gas in 2021. It's the heat rate where we still see we see that the heat rate, it will come in, we believe on average higher than where the current market hasn't baked in. And that's our call. We'll see whether it happens, but you also know that it's weather driven.
It's as I said before, it's performance of the ERCOT fleet. There's a it's wind driven. So there's a number of different variables that will end up determining where that settles. And what we try to do is we try to as the market wrestles with that and sometimes it's more bullish and less bullish, we try to hedge as much of that going into the summer, but we like to carry some length into the summer as a play on that variability.
Okay, great. And then you kind of discussed that we came pretty close to seeing, I guess, a greater frequency of scarcity events in 'twenty. But obviously, that matched what we saw in 2019. One of the factors you ascribe that to was kind of the wind generation. Is it fair to say that the wind resource available was higher in 2020 versus 2019 rather than that it reflects a greater number of megawatts of wind capacity installed?
Know what, don't know that it was either one. I think it was more the timing of when wind was lower and what temperatures were at the time, but also how the ERCOT fleet was performing. Because as I said before, when we did see some for example, we saw this in later in August and into September, we saw some higher outages on a weekend where we had decent, but not great temperatures. And then we and then that was combined with lower wind and we saw scarcity pricing in the hundreds and even up to $1,000 So I think it was more of a confluence of things. So I think that's how it played out.
And that gives us a lot of it went because load obviously was much lower over the weekends. And that kind of opened our eyes and gave us some confidence in our fundamental modeling that this market is still fundamentally tight, but it comes down to more in my view, it's more timing of when wind was lower and that combination with what was typically a normal outage amount of outages in ERCOT.
Great. Thank you for the time today.
Yes. Thank you.
This will conclude the Q and A session I will now turn the call back over to Curt Morgan for closing remarks.
Well, I know it's been a long call and we appreciate your time and patience. As always, thank you for your interest in our company. And I hope everybody stays healthy and safe. And we look forward to meeting up at a conference or wherever we can, obviously, more over a Zoom call. But anyway, we look forward to our ongoing dialogue.
As I said before, we're passionate about the future of our company, and we think we're doing the right things. But as always, we look forward to your feedback. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.