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Clearway Energy Reports Strong Growth Prospects and Strategic Developments

Clearway Energy has solidified long-term partnerships with investment-grade clients, with expectations of investment offers slated for 2025. As always, any commitment will depend on approvals from CWEN’s governance committees.

Improving Wind Fleet Performance

Throughout the last quarter, Clearway Energy extended its history of repowering projects in its wind fleet. With assets situated in prime locations, the company’s strategy highlights how well-executed renewable energy initiatives can serve as a sustainable asset base through disciplined investments. So far, Clearway has either repowered or committed to repower 712 megawatts of its wind portfolio. Notably, the Cedro Hill project successfully completed its repowering on time and within budget in late 2024, showcasing Clearway’s effective management.

The announcement of the Mt. Storm repowering exemplifies ongoing fleet optimization efforts. This project is anticipated to enhance the asset’s lifespan, improve its risk profile, and contribute to increased Cash Available for Distribution (CAFD) growth. Additionally, the repowering will raise the facility’s capacity to 335 megawatts, significantly boosting its annual production.

To commercialize this project, Clearway is partnering with a major technology company under a 20-year Power Purchase Agreement (PPA), details of which will be announced soon. This partnership extends beyond Mt. Storm, with ongoing discussions for future renewable energy opportunities to power data centers across various markets.

Progressing Towards Future Cash Flow Growth

In the previous quarter, Clearway made notable advances in securing future cash flow growth, particularly through contracts for its operating fleet. 2024 marked a successful year for contracting in the California gas fleet, now rebranded as flexible generation. This change reflects the value the gas fleet provides in maintaining grid reliability, especially in the context of tight capacity conditions in the Western U.S.

Recently, two new Resource Adequacy contracts have been established at El Segundo, totaling approximately 272 megawatts. With these agreements, Clearway’s California flexible generation fleet is now fully contracted through 2026 and 78% contracted through 2027, achieving favorable pricing aligned with the company’s CAFD per share target.

Beyond gas, Clearway’s renewable segment also made strides in revenue contracting. The Wildorado wind farm, which was repowered in 2020, had a PPA set to expire in 2027. A recent amendment extends the contract to 2030, supporting Clearway’s goal of reaching the upper half of its 2027 CAFD per share target range. Over the next several years, opportunities for recontracting or repowering will emerge for more than 800 megawatts of capacity as existing contracts come to an end.

Strategic Avenues for Growth

Clearway is diligently assessing the potential for capital-light PPA extensions or new contracts to enhance shareholder value. The company believes its wind fleet’s clean energy production profile positions it well for future success, especially in a market where demand for wind generation is high and construction of new supplies remains limited. Recent announcements indicate increased confidence in achieving the upper half of the 2027 CAFD per share target range.

These developments, coupled with other potential drop-down opportunities within Clearway Group’s pipeline, present additional avenues for capital deployment. The current market conditions have also opened doors for potential acquisition opportunities, including both single assets and portfolios, all within the framework of Clearway’s capital allocation strategy.

As Clearway continues to refine its revenue contracting strategy, recent successes at El Segundo and Wildorado provide more pathways to enhance CAFD levels while maintaining minimal capital expenditure. The outlook for meeting financial objectives in 2027 is encouraging, with thorough consideration of the cost of capital and refinancing strategies factored into projections.

With these strategies in place, Clearway is poised for growth and remains optimistic about achieving its goals, progressing one quarter at a time. Now, let’s turn to Chief Financial Officer Sarah Rubenstein for a summary of our financial performance.

Sarah Rubenstein — Chief Financial Officer

Thank you, Craig. On Slide 10, we present our financial results, highlighting full-year adjusted EBITDA of $1.146 billion and CAFD of $425 million. For the fourth quarter, adjusted EBITDA was $228 million, with CAFD recorded at $40 million. These results reflect strong wind resources at Alta, though somewhat offset by reduced wind resources in other areas and the timing of insurance payments received. In addition, our fourth quarter outcomes in the flexible generation segment showed solid availability and benefits from effective energy management activities.

We are pleased with our performance, recording a total CAFD result of $425 million, which aligns well with our previous guidance.

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Clearway Energy Reports Strong Financial Outlook with Promising Growth Potential

Financial Performance and Guidance

Clearway Energy has projected a cash available for distribution (CAFD) of $395 million, showcasing the dedication of our operational teams in managing assets and securing payments from equipment suppliers. The flexible generation segment has significantly contributed to grid reliability, helping us surpass expectations for this segment in 2024. We are maintaining our 2025 CAFD guidance range of $400 million to $440 million, aiming for the higher end through timely growth investments, the Tuolumne acquisition, and effective management of energy margins. The guidance incorporates P50 renewable production expectations at the midpoint, while the range’s upper and lower limits indicate potential variability in resource availability.

Strong Financial Position and Future Plans

With a solid balance sheet, Clearway Energy is well-positioned for growth. Our credit metrics align with target ratings, and 98% of our long-term debt features fixed interest rates. To support long-term goals, we plan to use retained CAFD, aiming to accumulate over $220 million from 2025 through 2027 based on anticipated CAFD per share growth. Additionally, we expect to have about $300 million to $400 million of excess corporate debt capacity, calculated through the lower end of our 2027 CAFD per share targets. Our largely undrawn revolving credit facility remains a vital source of liquidity.

Long-Term Strategy and Shareholder Payouts

Looking beyond 2027, we aim to maintain a long-term payout ratio near the bottom of our 70% to 80% target to retain incremental CAFD while considering other capital allocation priorities. Clearway Energy continues to anticipate periodic equity issuance for growth investments, specifically when deemed accretive. Our strategy focuses on achieving the upper end of our 2027 CAFD per share target range without needing external equity for the midpoint of our objectives.

Growth Pipeline and Market Opportunities

Craig Cornelius, President and CEO, emphasized that Clearway Group’s late-stage pipeline is well-equipped for future growth. This pipeline encompasses various technologies and geographical regions. The company has secured tax credits for projects that span multiple commercial operation dates (COD) and established agreements with key equipment suppliers for a stable supply chain. Clearway Group’s pipeline holds over $750 million in potential corporate investments through 2029, with at least $250 million directed towards projects in 2026 and 2027, contributing to our 2027 CAFD per share targets.

Capitalizing on Growing Demand for Energy

Clearway Group is enhancing its role as a leading energy provider amidst increasing demand driven by digital infrastructure and reindustrialization in the U.S. With electricity consumption projected to rise, Clearway’s comprehensive pipeline—now featuring active developments on five gigawatts of projects—positions the company to address this demand effectively. These projects span markets, including PJM, MISO, ERCOT, and WEC, focusing on data center requirements both at the grid level and through behind-the-meter solutions. The Elbow Creek Wind facility will serve as a testbed for these behind-the-meter renewable energy projects.

Commitment to Sustainable Investment and Customer Value

As Clearway Group explores gigawatt-scale clean energy solutions across five states, our approach remains methodical and aligns with our capital allocation framework. With an anticipated increase in electricity demand, customers are recognizing the value of our ready-to-build projects backed by strong franchises. Clearway is engaged with commercial and industrial clients to ensure favorable deal terms that support project advancement amid uncertain policy landscapes.

Key Takeaways on Financial Goals and Future Outlook

In conclusion, Clearway Energy has successfully exceeded our 2024 financial targets, positioning ourselves favorably for the future. As we strive to meet or exceed the midpoint of our 2025 CAFD guidance range, we remain focused on various pathways for growth, including asset drop-downs, repowering opportunities, and selective mergers and acquisitions. The long-term outlook for Clearway remains bright, driven by ongoing investments and strategic market engagement.

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Clearway Energy Reports Strong Performance and Future Growth Aspirations

Maintaining Financial Flexibility Amidst Rising Energy Demand

Clearway Energy anticipates sustained corporate and utility energy demand. Addressing this, they plan to allocate capital efficiently while pursuing their long-term goal of 5% to 8% growth in Cash Available for Distribution (CAFD) per share. Clearway’s approach centers around multiple growth avenues and a disciplined focus on high-return investments. The total target payout ratio is expected to trend towards 70%. As 2024 wraps up, Clearway expresses pride in its developments and gratitude for its dedicated team, ensuring continued shareholder value in the competitive energy sector.

Question and Answer Session with Analysts

Operator

[Operator instructions] Our first question comes from Michael Lonegan with Evercore. Your line is open.

Michael Lonegan — Analyst

Thanks for the update and congratulations on a solid quarter. You mentioned your excess debt capacity of $300 million to $400 million, an increase from the previous figure of over $300 million. Could you explain what factors led to this new estimate?

Craig Cornelius — President and Chief Executive Officer

Thank you for your question. This updated range reflects our outlook for CAFD contributions from our fleet, which includes recent operational updates. We plan to maintain our excess debt capacity estimates based on prior investment commitments and the operational performance of our fleet.

Sarah Rubenstein — Chief Financial Officer

I agree with Craig. Our existing fleet’s efficiency and the recontracting strategies lead us to comfortably project up to $400 million in excess debt capacity without requiring additional capital commitments.

Michael Lonegan — Analyst

Thanks for the clarification. With the changes in administration and tariffs affecting steel and aluminum, is Clearway facing supply chain risks? Can you shift to new suppliers quickly, and do you anticipate delays in power purchase agreements (PPAs) due to these increased costs?

Craig Cornelius — President and Chief Executive Officer

Excellent question. Clearway has established strong risk management practices, which have proven effective in navigating tariff changes. We have existing relationships with suppliers and revenue contracts in place to ensure our project schedules remain intact, even with rising duties. We’ve structured our projects to absorb some cost increases while maintaining value for our customers.

Michael Lonegan — Analyst

Thank you. I appreciate it.

Operator

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

Hannah Velasquez — Jefferies — Analyst

Hi, good afternoon. This is Hannah Velasquez for Julien. Congratulations on the quarter. I’m curious about potential mergers and acquisitions (M&A) opportunities. What types of assets are you considering? Are you more interested in wind, solar, or gas technologies? Also, while you’ve indicated that you shouldn’t need equity raises through 2027, would you consider a significant equity raise for a compelling acquisition?

Craig Cornelius — President and Chief Executive Officer

For acquisitions, we focus on assets that align with our current technology and customer base and where we can realize operational synergies. Our interest spans various resource technologies, including wind, solar, battery, and gas.

We aim for deals that integrate seamlessly into our growth model without affecting our established capital allocation strategy. Our current priorities are reasonable-sized acquisitions that support our vision without disrupting our financial stability.

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Clearway Energy’s Strategic Focus on Data Centers and M&A Opportunities

Clearway Energy is keenly aware of the growing demand for renewable power solutions as it navigates its mergers and acquisitions (M&A) strategy. The company aims to identify opportunities that align with its long-term goals. Their current priority is to pursue acquisitions that fit within the framework established to achieve their commitment to reach the top tier of their 2027 cash available for distribution (CAFD) per-share range.

Hannah Velasquez — Jefferies — Analyst

Thank you for the insight! I have a follow-up question regarding the recent RA contract signed for El Segundo. Last quarter, you mentioned the potential for additional capacity aligned with pricing projections throughout 2024. Can you clarify if there was any advantage in the pricing for El Segundo compared to your initial expectations? I’m interested in understanding if this could push you closer to hitting your 2027 guidance midpoint or better.

Craig Cornelius — President and Chief Executive Officer

We priced the recent contracts for El Segundo based on the estimated rates we would expect from resource adequacy sales, aligning with our set goals. The capacity cleared at levels that should enable us to reach, or potentially exceed, the midpoint of our 2027 CAFD per-share range. The outcome of the remaining open position will reveal how close we get to the upper half of that range.

Hannah Velasquez — Jefferies — Analyst

Thank you for the clarification.

Operator

Thank you. Please hold for our next question. Our next question comes from Noah Kaye with Oppenheimer and Company. Your line is open.

Noah Kaye — Analyst

Thanks for the opportunity to ask questions. I’d like to discuss your data center capabilities. Did I get it right that you have five gigawatts of projects under development across five states? I’m looking to clarify that point.

Craig Cornelius — President and Chief Executive Officer

Yes, that is correct. We are developing projects at both the meter and gigawatt scale in those states.

Noah Kaye — Analyst

Great, that’s helpful. To better understand your advantages with data centers, could you elaborate on how your land positions and interconnection align with the needs of hyperscale and colocation (colo) customers? How do you see your speed to market as an advantage?

Craig Cornelius — President and Chief Executive Officer

Our five gigawatts of front-of-the-meter projects are strategically located in areas where we have established relationships with utilities or operate in deregulated markets. These renewable and battery projects can meet the energy demands of hyperscalers over the next few years. Notably, we’ve observed a growing requirement for front-of-the-meter power, especially in areas experiencing significant load growth.

This demand for energy solutions will only increase over the next three to four years as hyperscalers seek reliable supply contracts. Many of our projects are already mature and positioned to meet those demands while being sponsored by a company with proven delivery capabilities. Additionally, our repowering initiatives illustrate the usefulness of wind and solar resources in supporting data center load growth.

Furthermore, we possess significant land across the country that can accommodate various combinations of data center locations, renewable energy generation, and battery storage. Since July, we’ve been collaborating with colocation developers to identify the most suitable solutions for their needs. Our comprehensive expertise in these technologies enhances our credibility as a reliable partner in this space.

As the need for industrialization and improved digital infrastructure grows, we remain optimistic about securing further investment opportunities. We will share more on this front when we have clearer commitments regarding our asset development and financial prospects.

Noah Kaye — Analyst

That sounds promising. I appreciate your insights, and I’ll take the rest of my questions offline. Congratulations on the strong results!

Craig Cornelius — President and Chief Executive Officer

Thank you, Noah.

Operator

Please stand by for our next question. Our next question comes from Justin Clare with ROTH Capital Partners. Your line is open.

Justin Clare — Analyst

Hello, and thanks for taking my question. I’d like to dive deeper into the data center opportunities you mentioned. Given your capabilities in solar, wind, and energy storage, what specific solutions are you looking at for data center customers? Additionally, how are you structuring contracts? Are you considering offering round-the-clock renewable power? Lastly, do you see opportunities to build behind-the-meter projects more quickly by bypassing interconnection queues?

Craig Cornelius — President and Chief Executive Officer

Our discussions around energy solutions typically begin by evaluating technical feasibility in various locations, followed by the assessment of applicable interconnection and cost allocation regulations. As you may know, these rules can vary significantly between regions. However, we primarily engage with customers around technology-focused infrastructures where revenue contracts can be tailored. These contracts often acknowledge the individuality of each technology rather than attempting to consolidate them into a single package.

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Clearway Energy Group Progresses Despite Regulatory Changes

In recent discussions, Clearway Energy Group has highlighted its strategies for navigating the evolving energy landscape, particularly concerning unique revenue contracting instruments for various generation sources.

According to Justin Clare, an analyst, questions arose about how family infrastructures might impact revenue structures. He noted that finding a compatible contracting structure, in line with regulations and new technologies, remains a priority for the company.

Craig Cornelius, President and Chief Executive Officer, responded, stating, “It’s a changing landscape. Over the past 45 days, Clearway Group has made strides in its development pipeline.” The administration’s energy agenda seeks to enable projects capable of being built within the next three to four years. Currently, of the nine-gigawatt pipeline mentioned in company materials, only 391 megawatts depend on federal right-of-way approvals, which are influenced by the recent executive order on permitting.

Most of Clearway Group’s projects are situated on private lands, with many already receiving hazard determinations that exempt them from the executive order’s stipulations. Craig expressed optimism, stating, “We’re seeing progress for projects crucial to our goals.” He highlighted the importance of advancing technologies that can be deployed quickly to achieve effective operational outputs.

Further discussion involved the topic of repowering existing projects. Craig noted, “Some of these projects can be advanced more reliably now,” which enhances their value proposition. The reduced risk attached to repowering initiatives contributes positively to the overall strategy for Clearway Energy Inc.’s reinvestments.

Justin Clare followed up, clarifying that the focus was also on the upcoming 2027 targets. He asked about the impact of the Mt. Storm project coming online after 2027, which Craig confirmed would primarily contribute to cash available for distribution (CAFD) growth in 2028 and beyond, due to its construction timeline starting later this year.

Mark Jarvi, another analyst, probed deeper into the 2027 projections, showing interest in Clearway’s assets and capital commitments. Craig affirmed the importance of achieving higher ranges within projected earnings per share. He revealed that their capital commitments would include projects feasible for funding and completion within 2026 and 2027, as well as future initiatives yet to be specified.

Mark also inquired about the recent CAFD yield increase from 11% to 13%. Craig explained these enhancements stemmed from effectively optimizing project operations and financing. Clearway aims to prioritize acquisitions with strong risk-adjusted returns, maintaining the focus on securing assets that align with their long-term growth strategy within an acceptable risk profile.

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Clearway Energy’s Financial Strategy: Navigating Challenges and Opportunities

Key Insights from Analyst Questions and Company Responses

During a recent conference call, Clearway Energy’s leadership provided valuable insights on the company’s financial strategies and outlook. Analysts highlighted pivotal issues and asked significant questions regarding growth and acquisitions.

Mark Jarvi — Analyst

Thank you for your time today.

Operator

Next, we have Angie Storozynski from Seaport. Your line is open.

Angie Storozynski — Analyst

Thank you. I noticed that you’re integrating your higher cost of capital into the returns on your assets. Are you still on track with your growth targets despite this? Also, will you adjust your approach based on market signals? Thank you.

Craig Cornelius — President and Chief Executive Officer

We take great pride in Clearway Energy’s performance since going public. Our commitment to financial responsibility is evident in our goal to achieve 5% to 8% annual growth in CAFD per share, which aligns with leading mid-cap utilities in the U.S. We believe that as we continue to execute our disciplined plan, the market will recognize our business model’s strengths, resulting in an improved cost of capital and share price.

Angie Storozynski — Analyst

That makes sense. Could you elaborate on your recent efforts in third-party mergers and acquisitions (M&A)? What factors have influenced your strategy lately?

Craig Cornelius — President and Chief Executive Officer

Certainly. Our recent acquisition of Tuolumne highlights our focus on synergistic asset purchases where we can leverage existing relationships. Compared to a few years ago, there are fewer competitors in the market. As financial sponsors have decreased, we are now viewed as a preferred buyer, which could present stronger opportunities for asset enhancements in the coming months.

Angie Storozynski — Analyst

One last question. With recent M&A activity in renewable power, could collaboration with larger financial sponsors like GIP be in your future plans?

Craig Cornelius — President and Chief Executive Officer

Absolutely. We view our partnerships with GIP, BlackRock, and Total as significant advantages. If opportunities arise needing more capital, we can work alongside these partners to invest in innovative projects. This kind of collaboration positions Clearway Energy favorably in the competitive landscape.

Angie Storozynski — Analyst

Thank you very much.

Craig Cornelius — President and Chief Executive Officer

Thanks for your engagement, Angie.

Operator

We see no further questions. I now turn the call over to Craig Cornelius for closing remarks.

Craig Cornelius — President and Chief Executive Officer

Thank you all for joining us today and for your continued support of Clearway Energy. We are optimistic about our position in the market and are committed to showcasing our operational excellence and strategic discipline in the upcoming quarters. Operator, you may now close the call.

Operator

This concludes today’s conference call. [Operator signoff]

Duration: 0 minutes

Call Participants:

Akil Marsh — Director of Investor Relations

Craig Cornelius — President and Chief Executive Officer

Sarah Rubenstein — Chief Financial Officer

Michael Lonegan — Analyst

Hannah Velasquez — Jefferies — Analyst

Noah Kaye — Analyst

Justin Clare — Analyst

Mark Jarvi — Analyst

Angie Storozynski — Analyst

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