Clearway Energy, Inc. Q4 FY2025 earnings call

• 2025 was a strong execution year with full year CAFD at top end of guidance range and 1.3 gigawatts of value-enhancing projects added. • Reaffirmed 2026 CAFD guidance and 2027 CAFD per share target. • Fleet enhancement program on track with repowerings and contract extensions. • Hyperscaler demand drove new PPA signings. • Sponsor-enabled growth projects under construction and progressing. • Progress on commercialization of development pipeline with projects having safe harbor tax credit qualification, signed PPAs, etc. • Sizable pipeline for 2028 and 2029 vintages to support 2030 goals. • Potential for increased corporate capital deployment for growth.

For the fourth quarter, Clearway delivered adjusted EBITDA of $237 million and cash available for distribution (CAFD) of $35 million. In the Renewables and Storage segment, wind resource was below median expectations across the fleet including California, while solar was impacted by the timing of debt service related to growth investments. For full year 2025, results were above the midpoint of the original guidance range with full year CAFD generation of $430 million. Reiterated 2026 CAFD guidance range of $470 million to $510 million and 2027 CAFD per share target of $2.70 or better. Progress on fleet enhancement program with repowerings and contract extensions. Hyperscaler demand was a major driver with significant new PPA signings. Sponsor-enabled growth projects under construction and progressing on track.

• Reiterated 2026 CAFD guidance range of $470 million to $510 million. • 2027 CAFD per share target of $2.70 or better. • On track to meet 2030 CAFD per share target of $2.90 to $3.10 per share. • Encouraged by potential for increased corporate capital deployment over 2028 to 2030 with optionality to scale higher. • Plan to provide formal long-term guidance update later in the year but increasingly optimistic on CAFD per share growth beyond 2030.

Q: Lots of good disclosure. I'm just curious on the M&A outlook, done some deals over the last couple of quarters. Just curious how that environment looks now. Clearly, you're seeing an attractive cost of capital both on the equity debt markets. Is that changing your approach and position around M&A right now?

A: Yes. We're really proud of the work that the organization is doing to chart that course. And I think with respect to M&A, the environment of today looks quite similar to what the environment looked like last year. as you note, that sets up well for us as an organization that's in a position to help sustain operating assets that are in the market already or to engage on combinations of operating and development assets, which an organization like ours is uniquely positioned to advance. And at the same time, the strength that we are demonstrating in our own organic growth outlook puts us in a position to be every bit as disciplined as we were last year when evaluating opportunities because we're in the luxurious position of evaluating M&A as something that would need to be demonstrably accretive to the outlook that we have already and something that presents a really compelling proposition for our shareholders to fund.

Q: Just on Page 6, the PPAs and ERCOT. Can you just comment in terms of when those would kick in and maybe quantify, is that enough to move CAFD by a percentage or contribute to the growth outlook for the company?

A: In each instance where we're working on those, they would be effective this year. And the way we think about those instances is that there are huge quality of earnings enhancements because the settlement structures on each of those revenue contracts are favorable to those that the projects have today and the new unit contingent long-term contract duration for the projects would extend well into the next decade as a result of the recontracting. And for any one project, the magnitude of its contribution in CAFD per share varies from one instance to another. And also, as you look over time into the late 2030s is a function of your point of view on merchant pricing and ERCOT. So when we think about the goals that we set for 2030 and beyond, our successfully completing those recontracting is part of what helps us build confidence that we're really aiming at $3.10 at the top end of our target range or better in those out years and helps us build confidence in our long-term CAFD per share growth goals because of the certainty that we can assign to revenues from those facilities into the future.

Q: This is Hannah Velasquez on for Julien. Congrats on the quarter and thank you for the update. So I had a similar question, but a bit more about the PPA pricing environment. Can you give us a sense of what you're seeing out in the market? It sounds like ERCOT has been favorable to you. But are there any other markets to identify or call out where you're seeing similar favorable pricing? What's driving that? And then similarly, are you seeing just in the sense of elevated demand, an acceleration in some of your conversations with your offtakers that they're trying to renegotiate or recontract ahead of plan?

A: Yes. Yes, and thanks for the acknowledgment. We're really happy with the work that our team did over the last quarter. Yes, I think we're seeing a supportive pricing environment really across all geographies. For development assets that provide additionality in power markets, whether they're deregulated or regulated, really anything that we can interconnect and construct over the course of the next three years exhibits very significant differentiated value, whether it's through a regulated utility, who's the natural customer in a regulated market or to technology enterprise or another source of growing industrial load in deregulated markets where we can sell directly to those customers. Rough rule of thumb is that pricing on PPAs that we signed this year in comparison to pricing on PPAs in those same comparable markets signed three years ago is about double. We're not seeing pricing necessarily escalate higher observably today than where it was, say, three to four months ago, but it is very much solid and sustained. And we think that's healthy. The attributes of the power plants that we're constructing today are valuable. And all of us across the sector need to be focused on delivering an affordable energy equation for customers. So what we'd say about pricing is it is robust. It is staying strong, and we feel quite good about the return proposition we produce for our investors and the value proposition that we give our customers at these levels. In terms of its influence on operating asset, long-term revenue contracting, we similarly see that, that picture is pretty consistent across geographies. there isn't much motivation either from us as a seller or from customers to be talking about contract extensions on projects that see their PPAs expire later than 2030, say. But where we do have open length that can serve demand in the near term, it certainly creates an opportunity to sell that length well into the 2030s and at a price that is solid and allows us to sustain earnings well into the future. And then in terms of pull forward for demand, we are most definitely seeing that there's a growing focus on how much can be built and how soon it can be built extending out for resources that could COD at least through 2029 today. And I think part of what makes us as confident as we are around the upside in capital deployment opportunity for Clearway Energy, Inc. in excess of the $2.5 billion worth of corporate capital investments that we pointed to just last quarter is the strength of that demand and essentially, as I noted before, the readiness of customers to buy power from pretty much anything that we can interconnect and permit and construct between now and the end of 2029 at this point.

Q: Just wanted to start on the co-located data center complexes, just how should we think about the return profile of those relative to traditional drop-downs of wind, solar or storage assets and relative to the 10.5% CAFD yields that you've talked about? And then also just curious on the ownership structure we should be thinking about for CWEN for one of these complexes that includes renewables and gas and storage. Would you anticipate CWEN owning the entirety of all of those assets? Or could the gas component be owned by a utility? How should we be thinking about that?

A: Yes. The way these projects are being developed, you ultimately have a collection of individual power plants that are all located in the same place, each of which have their own respective revenue contract, severable electrical infrastructure and in every instance, some phasing of how one unit or another comes online based on the staging of demand from the data center and the ability of an interconnecting utility to serve load enabled by the co-located generation resources that we build. So at least as far as Clearway Energy, Inc. is concerned, our intention is to create a succession of project investment opportunities that look like the other project investment opportunities we routinely create with contract tenors like those you see from us recently measured in multiple decades. and settlement and risk structures that are really the same as well. As we plan these resources today, we expect to deliver an investment return proposition for Clearway Energy, Inc. consistent with what it sees on other comparable long-term contracted assets. And so if you're trying to imagine what these could present an opportunity for Clearway Energy, Inc., you could think of they're presenting similar CAFD yield investment opportunities with similar sort of 20-year type tenor contracts. And as we noted, that investment opportunity is all additional to what our core grid-connected opportunities are targeting today. In terms of ownership of gas resources, this is something that will be a case-by-case consideration based on the unique circumstances and interest of the interconnecting utility at that location. And we think of the gas resources at each one of these locations as being an essential part of the puzzle of assuring that firm capacity can be delivered. And what corporate entity is the best owner of that will vary from instance to instance. But where Clearway Energy, Inc. makes any investment, it would do so into some structure that's a long-term toll like the one that we have in Carlsbad Energy Center. And those are great investments for CWEN. That's actually one of our highest reliability sources of cash flow within the fleet. So we look forward to illustrating what these different opportunities could translate into for Clearway Energy, Inc. in the future and are especially mindful of the importance of fitting them into its own capital allocation environment. And you could think of these as additional ways for us to accelerate CWEN's investment tempo, but into the same type of assets that it owns already today.

Q: So, I have a question about the drop-downs from your sponsor because I'm just wondering, given the strong performance of your stock and the reduction and implied reduction in the cost of funding, is it fair to assume that those future drop-downs still happen at this, say, 10.5% plus CAFD yield? Or is it that we should think about it more as a spread over your cost of financing, i.e., the stock performance would be sort of potentially weighing on the future CAFD yield from the drop-downs?

A: Yes. I think what we've said in our last few long-term planning calls is that we are planning our business around an average of 10.5% CAFD yields on new capital allocation, and we might see some projects capitalized and completed below or above that level. And as you can see from the disclosure we've most recently provided and also drop-down commitments that were reached last year, we've had some instances where we've been able to deliver at levels above that kind of 10.5% level. And every time we're able to do that, we're pleased about what that means for the shareholders of Clearway Energy, Inc. I think we see that giving Clearway Energy, Inc. the opportunity to participate in the rising return environment is core to assuring that the flywheel of success in our business continues. And as we plan our projects, as we price new revenue contracts at Clearway Group, as we capitalize them and prepare them for offerings for CWEN, we are looking to deliver a consistent growth algorithm, and we've communicated that, that growth algorithm anticipates deploying CWEN's capital between 10% and 11% in CAFD yields, and that's what we're continuing to plan for.

Q: I just have two follow-ups. With respect to the $650 million to $800 million in investment upside kind of incrementals of the $2.5 billion, I know you had mentioned potentially issuing equity if it's accretive to fund that. But should we be expecting that the funding strategy or the percent kind of funding breakout that you had highlighted last quarter with the 5% to 15% equity, 20% retained cash flow and the remaining corporate debt, is that kind of the strategy you would use to fund even the incremental investment? Or would this incremental investment require a different kind of corporate capital funding strategy?

A: I think that same approximate strategy is how we imagine running the business into the future. When we think about the particular constraints and factors that we are trying to optimize for in building a long-term plan for Clearway Energy, Inc. The things we think about are our intention of running the business to the same 4x to 4.5x leverage ratio that we have historically run it at. Our goal to drive our payout ratio down to 70% or lower in the long run so that we can create a strong base of recurring cash flow that can be reinvested in growth at a growing absolute level over time, sustaining a payout -- dividend per share growth rate that is compelling in its alignment with that of other premium utilities. And once we have accounted for each one of those constraints, then optimizing the balance of corporate debt issuance and equity issuance based on what maximizes CAFD per share for our owners. So I think you could think of that as kind of that approximate percentage of sources as being sustained in the funding plan we're building for ourselves and that we would increase as additional investment opportunities present themselves. But again, really, when we plan the business, we're thinking about those constraints and those goals of maintaining a prudent leverage ratio, driving to a payout ratio of 70% or lower and assuring that we're going to be able to compound our dividend per share growth rate at some level that's similar to what you'd see from other premium valued fast-growing utilities. And then the particular mix of equity and debt issuance in any given year would be something we optimize based on the long-term CAFD per share impact that we would expect to see.

Q: Just want to make sure我'm understanding. So are these PPAs that were set to expire this year or rather PPAs that customers are kind of proactively recontracting years before expiration? And if that's the case, is there any further upside to this kind of 617-megawatt number as power demand continues to kind of increase and demand for kind of long-term agreements increase as well?

A: Yes. Actually, what we're executing in the instance of these projects is a little bit more like what we've done with the Mount Storm repowering in PJM, where the level of interest from hyperscaler customers and other corporate customers in ERCOT for the shape of generation that's available from wind projects in the market allows us to terminate existing bank hedges that are on those projects, replace them with a new long-term unit contingent power purchase agreement and what was previously a combination of hedged and merchant capacity at the projects now becomes fully contracted. And where we do have some existing commercial and industrial customers for those projects as their existing power purchase agreements roll off, the new customers' contracted quantity increases over time. So what we end up with is a fully contracted project with a very favorable risk profile on our settlement structure that allows us to now look at this as a contracted asset well into the next decade.

Q: So first question is, can you just talk about whether there's excess interconnection capacity at your existing portfolio and whether we should expect like a broader trend in terms of co-locating battery storage at a number of sites. Because I know, Craig, you mentioned earlier on the call that you're potentially hybridizing the entire fleet, and我'm not sure whether this is what你were referring to.

A: Yes. Thanks. I think that reference was the entire fleet of solar projects that we had in Utah. And it's a great test case for what you're asking about where for those projects, the ability to provide a firming capacity resource, making use of existing interconnection and the faster path towards interconnecting batteries versus filing interconnection queues for new batteries that would be built elsewhere, created a really compelling value proposition for the utility in the state that needs to serve growing demand. There is most definitely the opportunity to do something like that in other projects in our fleet, and we continue to examine what the optimal timing, location and instance of that would be. It tends to be most valuable at solar projects and the bulk of our solar fleet is either in California or is interconnected to deliver energy and capacity attributes into California. And something we like about that opportunity is that we've got the ability to take our time with it. Much of that solar fleet is contracted well into the next decade. And the ability to install hybridizing battery resources that qualify for tax credits based on the provisions of the Big Beautiful Bill extends well into the next decade. So在the Honeycomb program through which we've installed batteries or aim to install on the remainder of the fleet batteries in its entirety, we've got a good proof point for what it looks like when a market creates an opportunity for that kind of hybridization, and we think we'll be in a position to be able to do things like that well into the next decade.

Q: Just regarding the pending Deriva acquisition, do you have an updated time frame of when你expect the transaction to close? I think your previous guidance was like the first half of this year. And obviously, we're near the end of February.

A: Yes. We are on a very solid track towards concluding that acquisition imminently. And we expect to be able to close well in advance of the end of the first half of this year. And you could see in some of our disclosures that the first phase of the financing that -- the nonrecourse financing that will be employed to fund the acquisition actually already was put in place by Clearway Energy, Inc. So the closing of the transaction is imminent.