Clearway executives discuss impacts of Inflation Reduction Act on renewable development and ownership

Clearway Energy Group executives outlined the benefits the Inflation Reduction Act of 2022 (IRA2022) would have on different aspects of its business on its 2Q22 earnings call held on August 2.

In terms of solar, the PTC optionality “is going to enable us to evolve the capital structure we use for those projects and will mean capitalization can come from the project sponsor, making for a better model for long term management. It will also mean that the quantity of capital deployed for any given project can be meaningfully higher.”

The IRA2022 both extends the PTC tax credit for onshore wind, but also introduces a separate PTC-for a Clean Electricity Production Credit whose main requirement is that its greenhouse gas emissions rate (GGER) is zero and applies to new facilities and expansions to current facilities placed in service after December 31, 2024, according to an analysis from Allen & Overy.

The wind PTC extension will translate to a better value proposition for customers and will help accelerate the company’s build program into mid-decade. Clearway is particularly optimistic about its wind development program in PJM and West Virginia, where the resource is in especially high demand.

On the storage front, Clearway has increased its standalone and paired pipeline to approximately 8 GW “in anticipation of battery storage becoming an increasingly economically viable resource in a large part of the country. And that is certainly going to be accelerated in many cases through the availability of the standalone storage ITC.”

When it comes to green hydrogen and offshore wind, “we focus on regions where we have proprietary strength - out in the western US and in Texas. We are looking forward to accelerating our work in those areas, both through the economic support of these incentives and in collaboration with our new partners at TotalEnergies.”

TotalEnergies bid successfully for Wet Energy Area (WEA) in the New York Bight and in the Carolinas earlier this year to develop offshore wind projects and is actively pitching floating offshore wind projects off the coast of Oregon.

The executives also lauded the bill’s domestic manufacturing incentives.

In other company news, details emerged on Clearway’s recently announced intent to acquire the 413 MW Capistrano wind portfolio for a cash consideration of USD 255m, plus the assumption of approximately USD 160m in nonrecourse debt.

The projects include the 150 MW Cedro Hill facility in Texas, the 61 MW Mountain Wind I and 80 MW Mountain Wind II facilities in Wyoming, and the 36 MW Crofton Bluffs and 80 MW Broken Bow facilities in Nebraska. The projects reached commercial operations between 2008 and 2012 and have an average of 10 years remaining on their PPAs.

Clearway is expecting a levered asset cash available for distribution (CAFD) yield on the portfolio of approximately 10.8%. Clearway Energy Group, the development sister company to Clearway, agreed to fund USD 10m of the acquisition in return for exclusive rights to repower the projects.

But, when asked if the Inflation Reduction Act will lead to Clearway investing in more repowers over the next two years, executives cited relatively young equipment and long offtake contracts as reasons why it might not happen that quickly. “With the long runway that that the legislation creates, we can really pick the optimal point in time to repower our existing wind projects, which in a lot of cases will be as the PPAs from the original construction of the projects expire.”

Inclusive of its agreement to acquire the Capistrano wind portfolio, Clearway “has committed to, or has line of sight on, the future deployment of over 55% of the USD 750m of excess proceeds from the thermal sale.” Clearway sold its thermal generation business to KKR in May, resulting in a net gain of approximately USD 1.29bn. USD 335m of the proceeds were used to pay of bridge financing associated with a Utah solar portfolio acquisition, and USD 305m used to pay off a revolving credit facility.

At least USD 300m will be allocated to dropdown opportunities, or projects Clearway Energy Group expects to reach final NTP over the next twelve months. Executives suggested the remaining balance would be deployed towards acquisitions.

Dropdown opportunities include the 252 MW Texas Solar Nova 1, the 200 MW Texas Solar Nova 2 and the combined 463 MW Victory and Arica Solar plus Storage projects in California. The Texas pair have signed 18-year PPAs with Verizon, and Arica and Victory signed 12-to-15-year PPAs with community choice aggregators.

Lastly, Clearway currently has three projects under construction. The 39 MW Mililani I and 36 MW Waiawa facilities, both of which have signed 20-year PPAs with Hawaiian Electric, are expected online this year, and the 482 MW Daggett Solar plus Storage project in California is expected online in 2023.

*This story was originally published exclusively for NPM subscribers earlier this month.

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