Clearway Energy, Inc. Q3 FY2024 Earnings Call

Hello and welcome to Clearway Energy, Inc. Third Quarter 2024 Earnings Call. 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 Akil Marsh. Sir, you may begin.

Good morning. Thanks for taking the time to join Clearway Energy, Inc.'s third quarter call. With me this morning are Craig Cornelius, the Company's President and CEO, and Sarah Rubenstein, the Company's CFO. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the Safe Harbor in today's presentation as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For more information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. In particular, please note that we will refer to both offer and committed transactions in today's oral presentation and also may discuss such transactions during the question and answer portion of today's conference. Please refer to the Safe Harbor in today's presentation for a description of the categories of potential transactions and related risks, contingencies, and uncertainties. With that, I'll hand it over to Craig.

Thanks, Akil. Turning to Slide 4. Today, we're pleased to report that we've completed another solid quarter of execution and that we are on track to meet or exceed our key 2024 financial objectives and that we have a strong outlook for Clearway's future. In addition to reporting on our strong performance this year, in today's call, we will provide you with guidance for our key financial expectations for 2025, we'll articulate longer-term goals for 2026 and 2027, and we'll outline the capital allocation framework we intend to employ as we go forward. Our financial results for the quarter demonstrated another strong performance in our diversified fleet, bringing us to $385 million of CAFD year-to-date and putting us in a great position to meet or exceed our 2024 guidance. We are especially proud of the great work our team has done to run safely and improve the operations of our fleet over the last three quarters. Ever vigilant, we are pleased to say that we achieved our best-ever safety key performance indicators in the first three quarters of the year and that we have also driven meaningful improvement in plant availability and conversion efficiency compared to the prior year. In conjunction with this strong quarter of performance, we've also announced a fourth quarter dividend in line with our commitment for 7% EPS growth in 2024. Looking ahead, we're pleased to report that we've continued to advance the growth of our fleet, concluding an investment commitment for the Pine Forest solar and storage project, and having received an offer which is now under evaluation to invest in Phase 1 of the Honeycomb storage projects. As we advance these investment prospects and look ahead to further opportunities to come, we have continued to demonstrate our ability to methodically assemble accretive building blocks for our growth over time. Today, we are establishing our financial guidance for 2025. We're establishing CAFD guidance for 2025 with a midpoint of $420 million and establishing our dividend target for the year at $1.76 per share, in line with our previously articulated commitment for 2025 EPS. We are also reaffirming our intention to target dividend per share growth in 2026 at 6.5%, fulfilling our prior commitments. Our guidance for fiscal year 2026 will be issued at this time next year. We look forward to delivering that future EPS growth in a prudent capital structure, supported by a full year CAFD contribution from committed growth investments funded over 2025 and the progressive increase in revenues that should be delivered by our fleet. Finally, we are setting the next set of goals and updating our capital allocation framework for the future. Looking ahead to 2027, we will be targeting CAFD per share of $2.40 to $2.60, a range which represents a solid growth trajectory extension of approximately 7.5% to 12% compounded annual growth from the midpoint of our 2025 guidance, reflecting the strengthening trajectory of our core asset base and our accretive growth investment prospects. From this position of strength, we will aim to fund more of our growth from retained cash flow, targeting a payout ratio in 2027 within 70% to 80% while also growing our dividend at a competitive pace, with a targeted dividend per share growth rate in the bottom half of our historical 5% to 8% range in 2027. In concert with setting these goals, we're refreshing our capital allocation framework to one that we believe will provide investors with enhanced visibility into long-term predictable CAFD per share growth. Beyond our strong CAFD per share growth roadmap into 2027, we will aim to achieve a long-term goal of 5% to 8% plus in CAFD per share growth and, importantly, be willing to effectuate that growth with greater reliance on our own cash flow generation. Increasing the fraction of our internal cash flow allows us to reinvest in growth over time, deploying capital in a way that is accretive and raising capital in a way that is prudent and predictable. I'll discuss this refresh framework in detail later in the presentation. In summary, Clearway continues to execute well, and we are excited to continue to deliver long-term accretive growth to you, our valued stakeholders. Turning to Slide 5. During the last quarter, we made solid steps forward on value accretive growth, as is evident by the completion of our investment commitment to Pine Forest on attractive terms and receiving a formal offer for Honeycomb Phase 1, which is now under review. As a refresher, the Pine Forest Solar Plus-storage complex will be a complementary addition to our fleet in the fast-growing ERCOT power market. Its solar capacity has been fully contracted for an average of approximately 20 years at strong pricing and settlement terms, with the majority contracted with a leading information technology company. Its batteries will complement our existing fleet of assets in ERCOT, and together these will be beneficial additions to our fleet. We aim to fund the investment by the end of 2025. We're also pleased to announce that CWEN received an offer for Phase 1 of the Honeycomb battery hybridization program. As you'll recall, Clearway Group is developing and building a family of contracted battery assets adjacent to CWEN's existing fleet of solar projects in Utah. Subject to CWEN's independent director approval, CWEN has the opportunity to invest approximately $85 million in corporate capital, at an approximately 10% capped yield into the projects and to fund this investment in 2026. Sarah will discuss the Company's liquidity position more in her section, but both Pine Forest and Honeycomb are expected to be funded with existing sources of liquidity. Turning to Slide 6, along with the improvements we've made to our fleet this year, growth investments like these have allowed us to build an excellent foundation for achieving the goals we are now setting for 2027. Starting from our previously disclosed pro forma CAFD per share of $2.15, and then taking into account the commitment to Pine Forest and updated levelized assumptions for resource adequacy capacity revenues in our conventional fleet, our existing asset base and committed investments set us up to target at least $2.40 per share in CAFD in 2027, constituting the bottom end of the range we're targeting for CAFD per share in the year. First, by 2027, Pine Forest will add to the other previously committed investments that underpinned our prior pro forma CAFD per share expectation. Beyond that contribution, our fleet improvement program, the results of which are evident in our strengthened results in 2024 year-to-date, adds further to our 2027 outlook. Finally, our outlook for RA capacity revenues has also strengthened as we have executed on our power marketing program this year. With the contracted position we've already established for 2027, combined with RA pricing trends we're observing in current customer engagements, we are confident that the RA pricing assumption embedded within our 2027 target range is achievable relative to where we are executing today. Indeed, that strength now lets us look to build up on the bottom end of the range of $2.40 in CAFD per share to higher levels within an accretive capital allocation framework, which will outline later in our call. With that, I'll turn it over to Sarah to provide a summary of our key financial results for the quarter. Over to you, Sarah.

Thanks, Craig. On Slide 8, we provide an overview of our financial results, which include third quarter adjusted EBITDA of $354 million and CAFD at $146 million. The third quarter results reflect renewable production in line with overall fleet estimates, as well as solid conventional availability and expected results from some growth investments. Based on our year-to-date results with adjusted EBITDA of $918 million and CAFD at $385 million, we are reaffirming our full year 2024 CAFD guidance at $395 million. The fourth quarter represents a smaller relative contribution to CAFD based on the seasonality of cash basis and assuming P50 median renewable energy production for the fourth quarter, the company is well positioned to meet or exceed its 2024 CAFD guidance. Turning to Slide 9. The company is initiating 2025 CAFD guidance with an expected range of $400 million to $440 million and a midpoint at $420 million. Moving forward from our 2024 CAFD guidance at $395 million, our 2025 CAFD guidance range reflects the recent execution at the Capistrano refinancing, which increases principal and interest payments by approximately $10 million. The 2025 CAFD guidance range also reflects the completion of fleet improvement projects that were previously disclosed, impacting our 2024 guidance, and also reflects the full impact of CAFD contributions from previously funded investments that are now contributing fully to CAFD. We elected to establish a range for CAFD guidance that reflects P50 renewable production expectations at the midpoint with the upper and lower ends of the range reflecting variability and potential outcomes for resource availability and energy margin pricing. In addition, the completion of committed growth investment on the currently forecasted schedules is reflected within the guidance range. As Craig previously discussed, we expect to fund investments in the Pine Forest and Honeycomb projects in the second half of 2025 and 2026 respectively. To fund those offers as well as to fund future growth investments, we will employ our prudent capital allocation framework, which we outlined in further detail on Slide 10. We expect to be able to utilize retained CAFD as a primary source of capital, targeting retained CAFD at approximately $220 million accumulated over 2025 to 2027 based on the low end of our CAFD per share growth outlook. Beyond 2027, we will target maintaining a lower payout ratio of 70% to 80% in order to retain incremental CAFD while also prioritizing our other capital allocation targets. We anticipate having excess corporate debt capacity based on our credit metrics, calculated using the low end of our target CAFD per share numbers for 2027, that would potentially allow for excess debt capacity of over $300 million, which we could utilize to fund growth including the approximately $300 million of gross capital required for drop-downs or M&A to enable sufficient CAFD growth to meet our 2027 CAFD per share target. Our revolving credit facility, which is largely undrawn, remains a key interim source of liquidity for the company. While we won't require external equity to fund the current identified opportunities to drive growth, our long-term vision anticipates the modest periodic issuance of equity to fund growth when growth investments and the equity issuance required to capitalize them are anticipated to be accretive and create long-term value for CWEN. To restate our long-term funding framework, we will look to maximize CAFD per share net of the cost of financing while also ensuring that investment needs align with long-term metrics that are consistent with our underwriting criteria. Our plan to source corporate growth capital is first from retained CAFD, second with access to corporate debt capacity in line with our target BB rating, and third, we may lead to issue external equity to fund investments to the extent such investment would be sufficiently accretive to shareholders. We also recognize that we have $2.1 billion of corporate bonds maturing in 2028, 2031, and 2032 that we will need to refinance within the timeframe for our longer-term goals. We will maintain a prudent approach to these refinancing activities and will reflect any meaningful impact on our future year-specific CAFD per share targets as we move into the future. Now, I will turn it back to Craig to provide further detail about the company's plans for longer-term growth and capital allocation.

Thanks, Sarah. Given the robust asset base and capital structure we have prudently built and the capabilities we have at our disposal within the broader Clearway enterprise, our organization is confident and clear-eyed as we now set and pursue ambitious but meetable goals for the future. Starting first with our 2027 target of $2.40 to $2.60 in CAFD per share. Let's talk now about how we'll get there. From the 2025 midpoint of guidance, as described previously, are already committed growth investments, fleet improvements, and enhanced capacity revenues put Clearway on a path to achieve the bottom end of our 2027 target range. Additionally, Clearway Group's abundant pipeline and leading execution capabilities matched with the financial flexibility CWEN has to invest based on Sara's description, provide another leg for further accretive growth for CWEN. Putting that to numbers, Clearway Group's vintage of projects targeting COD in 2026 constitute an investment opportunity of approximately $300 million in potential corporate capital, some of which could potentially be funded by CWEN over time by incremental corporate debt capacity and retained earnings alone. This combined with further portfolio improvements could enable us to reach the upper end of our targeted 2027 CAFD per share range. So while there is much work ahead for these projects to advance, and as always CWEN will need to evaluate any drop-down projects offered or third-party M&A opportunities considered for alignment with its investment requirements, we see how we can get from here to the high end of our 2027 CAFD per share range if we execute on these building blocks and continue to operate our portfolio with excellence in typical resource and market conditions. Turning to Slide 13. To reinforce our confidence, we'll take a moment to highlight the ongoing progress in Clearway Group's late-stage pipeline as CWEN’s sponsor advances projects towards potential for future offers and drop-downs. First, Clearway Group has made investments that seek care qualification for tax credits for projects across multiple COD vintages and technologies through 2028 and is establishing plans for Safe Harbor investments for the 2029 vintage. Furthermore, Clearway Group has continued to accumulate success in power marketing with a diverse customer set across power poles from the West to East Coast, notably including engagement on 5 gigawatts of front-of-the-meter and co-located data center opportunities across multiple markets. The overall landscape of Clearway Group origination progress attests to the locational value of its development assets and the attractiveness of Clearway's track record, realizing PPA pricing that's trending up with a PPA terms that are trending favorably. Honing in more closely on the opportunity set of the 2026 and 2027 COD vintages, these projects could allow CWEN to invest at least $475 million of corporate capital beyond what's CWEN has already committed to or been offered. Collectively, these potential corporate capital investments sum up to a total greater than what would be needed to achieve the upper end of the 2027 CAFD per share target of $2.60 that we have set today. Given the sizable advanced pipeline that Clearway Group has, Clearway Energy Inc. is in the enviable position of having more than enough capital deployment opportunities to meet its growth investment objectives through 2027. As it has demonstrated over many years, Clearway Group will continue to be thoughtful about the structuring and pace of growth opportunities offered to CWEN from this opportunity set, mindful of the pacing and return requirements needed for investments to be feasible and accretive. Furthermore, we continue to selectively engage in asset-centered M&A opportunities which are right-sized and could be complementary to our fleet and see potential for pursuing targeted value-accretive growth through those investments as well. Across all of these capital allocation opportunities, the CWEN Board and its independent directors will remain focused on selecting and negotiating investments so that they are accretive and consistent with its underwriting requirements. Turning to Slide 14, when taking into account the CAFD per share target we've set for 2027, and what we see in front of us for long-term growth opportunities, we believe we've arrived at a sensible and value-accretive framework that allows us to deliver predictable growth and improved visibility into that growth, and then also pursues a lowered reliance on external equity issuance to achieve our long-term objectives. As previously mentioned, the growth we expect from our existing asset base through 2027 puts us in a position of strength to make sound decisions as we grow Clearway Energy Inc. Post-2027, our business model will aim to achieve 5% to 8% plus growth in CAFD per share over time. Retained CAFD will provide an increasing source of growth capital, as we will be targeting a 70% to 80% payout ratio with the aim to reach the low end of that range over time. As retained CAFD increases and the platform grows, we will aim to pursue investments that are accretive on a CAFD per share basis and that meet our underwriting criteria, allowing CWEN to deploy retained CAFD towards further extending and compounding its CAFD per share growth outlook. After retained CAFD, we will look to excess debt capacity in line with our target BB rating as a second source of funds, and as Sarah noted, our forward-looking leverage metrics position us well with additional excess debt capacity. The last piece of our funding framework will be external equity issuance. While we don't need external equity to achieve the midpoint of our 2027 CAFD per share target, we do plan to eventually fund a portion of long-term retained growth by modest levels of equity issuance, but in a way that is predictable, deliberate, disciplined, and focused on accretion. We will always be measured when evaluating the potential issuance of shares and it will always be for investments that increase the amount of CAFD attributable to our investors' respective ownership on a per-share basis. Indeed, even to achieve the top end of our base long-term growth objectives, our goals would call only for modest equity issuances that can be executed by an ATM, targeting issuance of a small percentage of our public float, and without any immediate need for such issuance today. We like that this allows us to take our time, be selective with our moments for adding cash to our balance sheet through equity issuance, and to be deliberate and communicative with you about when we have reached a point in our growth capital investment program that this will begin to be part of it. Lastly, we continue to feel very confident about the commitments we've made and the choices we're making now about dividend goals for the future. First, we're affirming that we aim to make good on the commitments that CWEN has already made for growth in dividends through 2026. For 2027, we are targeting EPS growth at the bottom half of the range of 5% to 8%, which numerically translates to 5% to 6.5% with the level we ultimately target being a function of our payout ratio goal of 70% to 80% for 2027. Beyond 2027, we will aim to continue to grow dividends per share in a way that is competitive in the marketplace for publicly listed infrastructure capital. As we compound our dividend, we'll be planning to do so while prioritizing our financial resilience, giving our shareholders the opportunity to participate in that growth through attractive dividends that we grow at a pace that is set by our actual CAFD per share growth and our payout ratio goals. The track record we have demonstrated over time in fulfilling the dividend commitments we make is something we are proud of, and we will aim to continue. Given the strength of our asset base, the prudence we've applied in our capital structure, and the growth prospects we have in front of us, we feel good about our ability to do that while growing accretively over time. Turning to Slide 15. To recap, Clearway is in an excellent position to meet our 2024 financial objectives and is well positioned to deliver on our previously communicated growth objectives through 2026. The 2027 CAFD per share target we've set provides for strong growth with a transparent path to deliver that growth through already committed investments, a demonstrated track record for fleet improvement, and RA marketing and advanced development stage opportunities that Clearway Group and the project M&A marketplace provide. Lastly, we have defined a roadmap for growth and capital allocation beyond 2027 in a way that we believe establishes a sustainable and attractive investment proposition for the shareholders of CWEN. We will be a company that will be predictable in meeting its core financial goals that will be enhancing that predictability and stability via financial flexibility over time, that will be growing its core earnings in the form of CAFD at an attractive pace, and will be providing shareholders the opportunity to continue to participate in that growth through a secure dividend. Together, we believe these pillars will position CWEN to deliver best-in-class risk-adjusted returns for our investors and look forward to delivering that result to our investors in the years to come. We have much work ahead to be sure, but I could not be more enthused about the work our colleagues at Clearway have done to put us on such strong footing. We look forward to doing that work together and to what it will mean for you, our valued investors. Operator, you may open the lines for questions.

Thank you. Our first question comes from Noah Kaye with Oppenheimer & Co. Your line is open.

So you've already touched on this a fair bit around the roadmap and the refreshed capital allocation strategy. But you did note in the deck that you had received a fair amount of feedback from financial stakeholders and investors, and I would just love to talk a little bit more about the process that you went through to set this framework. I mean clearly, you know, still continuing to grow the dividend but retaining more capital to provide flexibility. Just talk a little bit about the process by which you reached this decision.

Yeah, so I think we started this process first by looking at what we expect our fleet to do in its own right. I think our assessment as we went through and evaluated the pathway run both for revenue enhancement and operating cash flow execution built one layer expectations that we thought we would be able to execute. And then in addition to that, we evaluated the growth investment prospects that we had, and those things collectively gave us a sense of the fundamental earnings growth potential of the business. Then as we've engaged with our investors, we have assessed the way that they think about capital allocation and value in the business. What we heard from them collectively is that they would like to see the company grow within its means. In particular, when you think about growing within our means, the general thought process has been that people would like to see it be able to meet our growth prospects without a substantial reliance on the issuance of equity. What we think we've built is a plan that really should deliver leading-edge returns, both through the fundamental growth of the earnings of our business itself, but also through our ability to compound that growth using the capital that we allocate from our own fleet. I think we've tried to incorporate that expectation from our investors in the way that we've allocated our capital deployment. When it comes to dividend growth, I think we want to remain competitive among investors a selection of options for listed infrastructure while not over-committing ourselves to the growth of the dividend that we have submitted to the street. Again, I think we've done that as well. So we feel really good about the plan that we've built. We're not executed yet, but we think it's actually going to provide pretty compelling growth prospects for our investors and it will still give them the chance to participate in that growth with the dividend that we know how to pay in a secure way.

Thank you, Craig. And then talking a little bit about sources of capital. Appreciate the commentary around your capital that you might source of both from the debt and equity markets. Curious to know how you think about the potential for external capital, third-party capital potential in some sort of a minority investment type structure or holding type structure as an alternative to some of the sources that you've detailed, just given we’re seeing some of the structures out there in the market.

No, we don't require that kind of structure to be able to execute on our plan, and when we look at the cost of capital on for some of those types of structures in relation to the cost of our corporate debt, it's not particularly compelling. As we noted, we don't have to issue equity to hit the midpoint of our plan and to be able to access into the very top end of the CAFD per share range we've articulated, the amount of equity that we would issue is a very modest amount out in the later years of 2026 and 2027. So now we're sort of talking about something like a percent of the public float of one of our Class A shares. So it's not a tremendous amount of capital that we'd actually have to issue in the form of equity. Rather than load up on additional capital that sits sort of at the bottom of the capital structure and would dilute the fraction of CAFD per share that our current shareholders are entitled to receive, I think we want, as I started out with, to grow within our means, driven in particular by the cash flow that our fleet will be compounding over the next three years, and then prudently make use of leverage capacity trending down to the low end of that range. We see how we can achieve our growth goals, really principally with those sources of funding without needing to think about sources of capital that would be dilutive, whether those are public in the form of public issuance or other types of structures. Yes, I think as we move forward over time, I want to be thoughtful about the full range of growth prospects we have and how we can continue to drive accretion for our investors. But for the moment, we don't seem to make use of structures like what you're describing, and we're quite happy about what that means.

Very helpful. Thank you. I’ll leave it there.

Thank you. Our next question comes from Julien Dumoulin-Smith with Jefferies. Your line is open.

Hey, good morning, team. Thank you very much. Congratulations, Craig, Sarah. Appreciate the time. It just a follow-up here on the update really nicely done here. Just in terms of the overall RA uplift you’re in that $2.40 to $2.60 or however, you want to frame it at the bottom end of $2.40. What's reflected here in terms of continued ability to see RA uplift materialized, given how robust of an outlook you provided here on 2027? Is there still a further step function change that you would expect over time there in the RA levels? I know that this is obviously ahead of plan, if you will. Just wanted to kind of clarify what's reflected and also, what else is in the portfolio improvement? I know you mentioned some key factors as anything else above and beyond your principally the RA implied for us here and I suppose early refinancing of the 28 bonds that you get a run rate 27 uplift I presume.

Yes, thanks. Really appreciate the question on all those fronts. I think we're quite happy with how we're executing on all of them. So first, in terms of what's embedded in the 2027 target range, we said that based on the pricing that we've been securing on forward-dated multi-year RA contracts in today's marketplace, and in fact, I think for the capacity that's uncontracted, we've set it at a modest buffer discount to the pricing that we're realizing. Relative to what's reflected in the midpoint of our 2025 guidance, that's an uplift of about $5 to $5.5 per kilowatt month versus the contracts under which we're delivering in 2025, which we signed some years ago. With respect to whether you could see a further step function up from those levels beyond 2027, I would sort of hasten not to commit to that or expect that, but we do feel good about these levels being sustainable. To give you some further calibration on that, when we look at the Frontier and where the contracts for Frontier are, even 20.6 or getting executed today, they're being executed at substantial premiums to the level we've embedded in this 2027 goal. As we manage our marketing program and we've described previously, we intend to continue a pattern similar to what's evident in our current reporting today, where we progressively contract on a multiyear basis for our RA capacity while leaving some fraction of it open closer to the past year to be able to capture some premium value. We think that produces good risk-adjusted results for our business model, and based on what we see in the structural reforms, load forecast for California, and the way the regulators are continuing to assign a value for modern thermal resources like ours, we feel pretty good about being able to continue to run this pattern at levels sort of roughly in line with what we've embedded within the range of $2.40 to $2.60 per share. In terms of fleet improvements, we have a whole host of things that we've executed this year that we're quite proud of, which include some modernization of methods for how we're running our plants. We've restructured some O&M service agreements that have provided some improvement to the CAFD generation of our assets, and they are both observable in our results this year and reflected in that long-term performance expectation. And then I think that probably covers all your questions. Oh, on the refinancing, yes. I think we have for as far as what's reflected in 2027 that does reflect on assumed cost for refinancing our 2020 maturities with some buffer relative to the current yield to worst and what we would think is that execution costs. So it's not actually interest expense savings versus what we have in 2025, but we think it's actually a reflection of a prudent execution plan for that refinancing that we feel good about executing.

Excellent. Thank you so much for all the details. Really appreciate it. Just one more strategic one as a follow-up here with respect to the lower payout ratio here, any thoughts about A, the ability to actually obtain assets from the Clearway Group overall? It sounds like we've got ample pipeline that should be transparent. And the related to the extent to which you start going at a low payout ratio, how do you think about the kinds of assets you would take on? Again, obviously, the storage assets that are starting to see manifest themselves have a little bit less contract coverage here. Is that part of the strategic pivot as well? So having a little of contracted cash flow?

Yeah. Thanks for the question. Yeah. So first, in terms of the Clearway Group pipeline, as we've shown, it's progressing nicely. Our organization is continuing to expand on its execution track record for pipeline progression and contracting. You probably noted that the pipeline that's disclosed reflects an improvement in the advanced stage capacity that's planned right now for 2026, as well as 2027, 2028, and 2029, which is not a pattern you see unfolding in the other parts of the industry. To be able to execute on growth investments that would take us to the top end of the range of $2.40 to $2.60 in CAFD per share, only a fraction of that pipeline will also basically need to be implemented and dropped down on. So we feel good about the ways out your goals that are sort of over-collateralized, to use the term, with respect to growth investments, and the sponsor has demonstrated its readiness to continue to perform, make offers in a measured progression that are compatible with CWEN's ability to fund those and commit to them. In terms of the lower payout ratio, it's not a reflection of a different level of risk in the assets. The storage assets the Clearway Group is developing are almost entirely in the Western markets, where they're contracted, typically under tolling or in resource adequacy contracts that obtain the vast majority of their revenues from fixed pricing in RA. Across the storage pipeline that Clearway Group is advancing, it's almost entirely assets like that. We have as we've noted, a pattern of battery capacity for Pine Forest in ERCOT, which we view as complementary to diminishing revenue volatility in our weekly. But almost all the storage capacity that we're advancing will produce revenues under long-term contracted coal-type agreements that are 15 to 20 years in duration for Africa. The payout ratio reduction goals that we have to reach the lower end of 70% to 80% are really about how we fund the business over time. In response to the kind of question you asked about how we metabolize until we got from our investors who really want to see us fund our growth principally through our cash flow duration and driving that payout ratio over time lets us do that.

Excellent. Thank you so much.

Thank you. Please stand by for our next question. Our next question comes from the line of Steve Fleishman with Wolfe Research. Your line is open.

Yes, hi, thank you. Congratulations on the update; it's quite clear. Regarding the potential for mergers and acquisitions, I know it has been challenging, but with the improved flexibility, could you share any insights, Craig, on the opportunities available and whether asset pricing has adjusted to a level that could meet our requirements?

Yes, thank you for the congratulations, Steve. We're pleased with the framework we've established. Regarding mergers and acquisitions, we are selectively evaluating specific individual assets that align with our capital allocation framework and growth objectives. In areas where we are engaging, we are finding potential acquisition targets that could meet our CAFD yield and return requirements, which align with the types of assets suitable for Clearway Group. In some instances, we may also leverage our established capabilities through Southern Power. Currently, we are concentrating on such assets. As previously mentioned, we do not require products outside our sponsor pipeline to achieve our growth objectives, which we believe are compelling for our investors. Thus, our approach to M&A is disciplined, focusing on assets that complement our resource mix and customer portfolio, ensuring effective and accretive returns in the coming years. While we recognize that the industry landscape may evolve offering potentially accretive M&A opportunities outside this profile, our primary focus remains as described.

Okay. Great. And then just one follow-up to ask before. Just could I might have missed this, but just to fleet improvements, could you be more specific what those are? Is it certain technologies or just across the board?

Yes. I think principally we have been employing modernized information technology tools for work planning and sort of general execution on plant availability and conversion efficiency in parts of our fleets. So that’s one thing that is helping us to improve our results year over year. Other improvements are evident in some improvements in our conventional fleet's availability and execution versus prior years, which are a result of just some pretty intensive execution and engagement with those plants. Lastly, the restructuring of some service agreements in O&M agreements that our wind fleet are has improved our CAFD realizations as a business. So those are really the principal buckets of execution of those. We aim to make the whole which is reflected in our long-term goals now.

Got it. Thank you.

Thanks, Steve.

Please stand by for our next question. Our next question comes from the line of Justin Clare with ROTH Capital Partners.

Good morning. Thank you for the question. I wanted to begin by discussing the growth of dividends per share and how you anticipate it evolving beyond 2027. Are you planning to continue increasing the dividend, albeit at a slower rate compared to CAFD? Should we expect a gradual shift toward the lower end of the payout ratio, or is a quicker transition possible? If a faster move to the lower end occurs, could that be related to an equity raise? Is that an option?

Yeah, I understand. Yeah. I mean, I think that as is evident in the progression we've run through 2025, 2026, where we've reaffirmed the commitments that had already been made for gradually declining dividend per share growth rates over those years and our articulation of a range of 5% to 6.5% in EPS growth for 2027, I think we’re trying to manage our progression in corporate capital allocation framework in a stepwise way. And we think that, that is prudent as we move over time and together with our investors, land on a capital allocation framework and growth model for the company that we're all happy with. I think we tried to be pretty intentional when articulating our framework out for 2027 in describing our intention to set our dividend per share growth goals in 2028 and beyond based on the payout ratio. So I think our intention is that we will settle on dividend per share levels for those future years based on what can reasonably be accommodated within that payout ratio level while assessing the accretiveness of the use of capital when reinvested in assets that could compound our CAFD per share. Hopefully, what's evident in that game plan is that we both don't need to raise large amounts of equity that would be dilutive to our current owners in a way that's sort of surprising or unpredictable and that we would really emphasize over time, establishing an increasingly robust balance sheet that allows us to meet our growth goals in any given year, really principally through our retained CAFD, which will be growing from the low hundreds to the very high hundreds or low 200s in millions of dollars of retained CAFD that’s reinvestable and our corporate leverage ratio, which we intend to manage in a way that's prudent. So I think we tried to be pretty clear about the fact that we don't intend to issue equity right now. We don't need to. And that as we advance on this investment program, and we're getting to the point where modest levels of equity issuances in line with the kind of pattern that Sarah and I both discussed would be in order, that we'll be communicative about it so that we're not catching anybody by surprise.

I understand. That's helpful. I have another question regarding the open capacity for your gas fleet. It appears that the contracted capacity has remained the same since last quarter for the year 2027. I'm curious if pricing was less favorable in the previous quarter, which may have influenced your decision not to contract additional capacity. Additionally, when can we expect to see more capacity contracted for 2027? Is it likely that we'll see progress by next summer? Also, how much capacity might you keep open until we get closer to 2027? Do you expect prices to rise and are you considering waiting to contract that open capacity?

Yeah. There are annual rhythms to the way that load-serving entities prefer resource adequacy in California and Texas. The contracts that we announced in the most recent quarterly calls reflected our contracting in that ordinary pattern. We do have bilateral investments that are ongoing today, and we noted that we opened our capacity that we have a value with patients, and I think it would be our intention to increase the fraction that's contracted for 2027 as we move through the next nine months and trying to create a pattern that looks like what you can see today will cover each. So we feel really good about that contracting process, the needs of the assets remain quite evident. We feel very good about being able to execute on the kind of pricing that's embedded within our range and we'll be patient moving forward over time. I think if you look at 2025, we contracted the capacity that we have that underpins our guidance for next year almost entirely, and I think that's probably what you should expect will look like going into any given product here.

Okay, got it. That's helpful. Thank you.

Thank you.

Please stand by for our next question. Our next question comes from the line of Michael Lonegan with Evercore ISI. Your line is open.

Hi, thanks for taking my questions. So as we think more about some of the assumptions in the 2027 outlook, and so some more specific details, just wondering what you're assuming for CAFD's yields on investments and the specific refinancing rate on the 2028 bonds?

Yeah. I mean, I think what we've communicated historically is that for Drop-downs, we're planning around a 10% CAFD yield on the level on which we're trying to create new capitalized projects for drop downs, and that's a level that the sponsor increase last fall when the cost of capital for CWEN was increasing, which was actually higher than it is today. We continue to plan for that in the projects that are being prepared and created, and that's approximately the basis for the goals set for incremental growth capital investments today. As far as refinancing assumptions in 2027, the concerns without getting into specific numbers, I can tell you that what's embedded in this range reflects a conservative estimate of the cost of refinancing those bonds relative to their current yield to worst and the advice that we get some from the banks before we would engage on that refinancing. So we feel good about being able to execute at the cost of capital that's reflected in this target range based on what we see today.

Great. Thanks. And then secondly for me, I'm just wondering as you consider the data center demand you talked about the sponsors' engagement with corporates and load-serving entities, the power data centers you highlighted five gigawatts of renewables. Just wanted to just the fund level, would you consider acquiring more gas generation assets? Or is your focus entirely on renewables paired with storage?

I believe there is a significant range of product configurations being assessed by Clearway Group regarding data centers. Certain project configurations may require dispatchable thermal generation. Most of the current discussions involve using established wind, solar, and battery resources. Data center customers may have specific requirements, but it’s possible that in the future, additional resource types could enhance those offerings. From Clearway Energy, Inc.'s perspective, the emphasis when developing projects will be on establishing assets with strongly contracted cash flow profiles and long-term contracts. Our project development efforts will prioritize creating solutions that are technically reliable and financially predictable while addressing the needs of data center customers. There is ample time to develop these projects, and our goal is to leverage our existing capabilities, which include wind, solar, storage, and gas-fired generation, while emphasizing the creation of low-carbon solutions.

Great. Thank you very much.

Thank you. Please stand by for our next question. Our next question comes from the line of Angie Storozynski with Seaport. Your line is open.

Thank you. I have a question regarding your current renewable power assets and the types of contracts that support them. Could you provide some insight into whether you have any basis exposure related to busbar contracts? Additionally, are you experiencing any issues such as transmission congestion, the wake effect potentially impacting your wind assets, any signs of premature aging or capacity degradation in your storage assets, and any exposure to key market changes? How are the trading conditions across the markets influencing the EBITDA generation of these existing assets?

Yes, I understand your question. We're fortunate that our fleet generates the majority of its revenue from node settled unit contingent contracts, which constitutes a significant portion of our total budgeted EBITDA and CAFD. Regarding the storage assets we brought online this year, they are performing excellently, and I'm proud of our team's work in commissioning them this summer. Their performance reflects our organization's diligence and ability to collaborate with suppliers to enhance these assets. As for our wind assets, we've faced some challenges with availability evident in last year's results. The fleet improvement program we've implemented this year, through investments and contract structures, aimed to address these issues. Year-to-date results show that we've made considerable improvements in availability and cash flow generation from these assets. Our prospects for repowering are looking promising as we consider projects that are ready for repowering based on their original service dates. We have limited basis exposure on a few contracts, and we are managing it effectively. Looking ahead, the supply-demand balance for new electricity generation allows us to set terms for new revenue contracts that reduce risk for project equity owners. The successful efforts of our origination team in securing favorable settlement terms demonstrate this. We believe we have been disciplined in the settlement structures we've pursued, and the scarcity value of our projects enables us to consistently manage these risks with mitigated structures.

Great, and you don't have any firm renewable power contracts like 24x7 contracts, which are a lot of tech companies and I’m just wondering why that is. Do you think that the risk-reward is not attractive with these types of contracts?

I don't want to comment on the choices made by others. I believe we understand why those contract structures might be appealing to customers. In our case, when we considered our business model and our strengths as a North organization, as well as how we want to achieve risk-adjusted returns that align with the business model we've established for Clearway Energy Inc., that type of structure didn't seem necessary for how we are commercializing the projects we've developed over the past few years. Moving forward, we aim to address the decarbonization goals of all our customers, including those in the technology sector, while ensuring that each project we manage stands independently. We want to be mindful of innovation while also being cautious about risk and utilizing the capabilities we possess at Clearway, which guided the way we have structured our products thus far.

Okay. And then changing topics, you guys are adding batteries to a number of projects. How about adding energy storage to gas peakers in California? Is that even a consideration?

We have evaluated it. There is adjacent acreage at a few of our facilities that could allow us to think about doing different kinds of things, but there's not a tremendous amount of acreage, and the injection capacity at those points of interconnection is also somewhat limited. So, in the immediate term, the highest and best use of that injection capacity is the delivery of resource adequacy that can meet 24-hour slice of day requirements from our thermal resources, and the addition of batteries to supplement that would be infeasible in terms of grid injection and maybe not the highest and best use of that interconnection. But we have adjacent acreage that, you know, is modest that over time will tell you to find a way to leverage somehow.

Thank you.

Our next question comes from the line of Mark Jarvi with CIBC. Your line is open.

Yes, good morning everyone. Thanks for your time and fitting me in here. I was wondering could you maybe just parse apart what we had some discussion on the call about the capital deployment growth versus margin drivers on our cash optimizations. If you think out longer-term growth rate of 5% to 8%, how would you make that split between what's sort of organic drivers versus capital deployment-driven?

Yes, I think once we get beyond the goal of $2.60 per share that we said at the top end of the range, driving above that will be driven especially by additional investment. I think there will be ways that we look to leverage the existing fleet of assets that we own with CWEN as part of making that growth investment, in particular through repowerings, which could take the same individual assets CAFD contributions and increase it or could help sustain the CAFD generation of a project that is maturing in its age. But in general, I think as we look to grow beyond $2.60 in CAFD per share into the out years, most of that growth will be driven by additional capital commitments, which, again, I think we would make only to the extent that the investment and the cost of funding that investment would be accretive on a CAFD per share basis. And when we look at our planning horizon beyond 2027, we see very clearly how we'll be able to do that.

And then, Craig, coming back to a couple of your comments on internal financing capabilities. At what point would you think you'd exhaust that $300 million of corporate debt capacity? Is that by 2027? And then were you saying at one point that you think you could grow without issuing equity close to the low end of the 5% to 8% range?

I think what we said is we can execute to the midpoint of the $2.40 to $2.60 per share range, call it $2.50 without issuing equity. In terms of growing beyond the top end of $2.60 per share at 5% to 8% beyond that, at some point, growth in the business model will entail routine amounts of equity issuance. But as the fleet base's CAFD level grows over time, the company's debt capacity should also grow. The $300 million, which Sarah had cited reflects the debt capacity that we have for funding investments between now and the end of 2027 conservatively. The amount of incremental debt capacity we'd have out of 2027, while still also driving towards that lower end of the 4 to 4.5 leverage ratio would be meaningful as the CAFD of our base fleet itself grows. That’s why we would look from a funding perspective to first utilize the amount of retained CAFD that we have to reinvest, which as I noted, could run to the low 200s or high 100s in any given year. Then we look to that leverage capacity, which we would manage in a prudent way and then eventually equity issuance through something like an ATM at modest quantities for this kind of routine investment program that would hit the kind of goals we've articulated. So I think that maybe gives you the calibration that you're looking for.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Craig for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.