Clearway Energy, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. Amounts are in U.S. dollars unless noted.
Business context
Clearway owns and operates contracted energy infrastructure across North America: 8,114 net MW of generation capacity, including more than 5,500 net MW of wind and solar and approximately 2,500 net MW of natural gas generation. Management reported a weighted-average remaining offtake contract duration of about 10 years, measured by CAFD. The company is sponsored by GIP and TotalEnergies through Clearway Energy Group (CEG).
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $406 million | $368 million | $694 million | $582 million |
| Operating income | $149 million | $1,406 million | $191 million | $1,353 million |
| Net income | $84 million | $1,149 million | $44 million | $1,052 million |
| Net income attributable to Clearway | $38 million | $570 million | $38 million | $538 million |
| EPS attributable to Clearway | $0.33 | $4.89 | $0.32 | $4.62 |
Comparability: 2022 results include a $1.291 billion gain from the May 2022 sale of the Thermal Business. Excluding that gain, operating income was $115 million in Q2 2022 and $62 million in the first half of 2022. The reported year-over-year profit decline therefore is not a like-for-like operating comparison.
Reported revenue rose by $38 million in Q2 and $112 million in the first half. A key driver was favorable mark-to-market movements on economic hedges (+$78 million Q2; +$223 million first half), principally associated with lower forward power prices. Offsetting factors included weaker wind generation and, in the first half, lower solar generation due to weather, as well as the Thermal Business sale. Q2 included $21 million of Marsh Landing Black Start sales-type lease revenue, with $8 million pretax profit.
Q2 weighted-average solar and wind capacity factors were 27% and 31%, respectively, for the first half, compared with 30% and 35% in the prior-year period. First-half cash from operating activities was $209 million, down from $279 million. Investing used $116 million, versus $1.331 billion provided in 2022, which included Thermal sale proceeds. Financing used $171 million, compared with $976 million used in 2022.
Debt, liquidity and capital returns
- At June 30, 2023, the debt schedule reported $7.094 billion of total debt, including $330 million current maturities; balance-sheet long-term debt was $6.708 billion. Debt fair value was $6.516 billion versus carrying value of $7.097 billion, including current portion and excluding debt issuance costs.
- Liquidity was approximately $1.430 billion, comprising $547 million cash and cash equivalents, $371 million restricted cash, and $512 million available under the revolving credit facility. Restricted cash is not freely available for general use.
- The revolving facility was refinanced in March 2023: commitments increased to $700 million and maturity extended to March 2028. There were no borrowings and $188 million of letters of credit outstanding at quarter-end. The company reported compliance with required debt covenants.
- Capital expenditures were $109 million for the first half, including $96 million of renewables growth spending and $13 million maintenance spending. Management estimated 2023 maintenance expenditures of $35 million, subject to review.
- Q2 dividends were $0.3818 per Class A and Class C share. On August 7, the company declared $0.3891 per share for payment in September. Management said comparable dividends were expected to continue based on current circumstances, subject to capital availability, market conditions, legal requirements and contractual obligations.
Outlook, developments and risks
- Management believes liquidity, operating cash flows and revolving-facility availability will be adequate for commitments, debt service, capital spending and dividends. The filing provides no specific earnings or CAFD forecast.
- The company acquired its interest in the 300 MW Daggett 3 solar project with matching storage, which was under construction; commercial operations were expected in the second half of 2023. Its PPAs have a 15-year weighted-average contract duration.
- A 147 MW battery storage project at Rosamond Central is planned for completion in stages: mechanical completion expected in the second half of 2023 and substantial completion in the first half of 2024. The related asset purchase price is $360 million, with Clearway expecting to fund $84 million of specified payments; project and investor funding covers the remainder. July financing and funding transactions are subsequent-period events.
- A $107 million Cedar Creek wind project acquisition was agreed to, subject to closing conditions and approvals, with closing expected in the first half of 2024. Clearway also agreed to repower the 160 MW Cedro Hill project, expecting approximately $63 million of net corporate capital investment; the amended PPA would extend through 2045 if repowering reaches commercial operation as planned in the second half of 2024.
- Risks include weather and resource variability, outages and maintenance, commodity and interest-rate exposure, counterparty performance, access to capital and substantial indebtedness, regulatory and environmental changes, and project execution. PG&E, a PPA counterparty, is below investment grade. A 5-cent/MWh power-price change across derivative contract terms was estimated to change net power-derivative value by about $6 million.
- The Buckthorn Solar dispute with the City of Georgetown remained pending, with trial scheduled for October 2023. The company says it has a valid defense; it could not predict the outcome or reasonably estimate potential costs or liabilities.
Important facts for investors to verify
- Separate recurring operating and cash-generation trends from hedge fair-value movements and the prior-year Thermal sale gain; review CAFD and Adjusted EBITDA reconciliations, which are not included in the supplied filing text.
- Track renewable production, availability, and the timing and costs of Daggett 3, Rosamond Central BESS, Cedar Creek and Cedro Hill milestones.
- Assess usable liquidity apart from restricted project cash, debt maturities, variable-rate exposure, project-level financing and covenant headroom.
- Monitor dividend coverage and the conditions attached to management’s expectation of comparable dividends.
- Follow the Buckthorn litigation and counterparty credit exposure, particularly the disclosed PG&E relationship.