The sun is still shining on Clearway Energy (CWEN), a contract renewable energy developer, notes Roger Conrad, editor of Conrad's Utility Investor.
Even before the Commerce Department launched its probe of imports from Southeast Asia, the cost of solar panel costs was as much as 50 percent higher in the US than Europe and Australia. And Solar Energy Industries Association members have cut 2022-23 installation forecasts by 46 percent, on the prospect of new retroactive tariffs as high as 250 percent.
For Clearway Energy, however, it’s still business as usual. This month, the company raised its dividend 2 percent, affirming growth will exceed the “upper end” of its 5 to 8 percent target range.
Management also stuck to its 2022 target $4.70 per share pro forma cash available for distribution. And it confirmed a worst case Commerce decision on tariffs wouldn’t affect 2022-23 solar projects, as component supplies are already secured.
Last year, Clearway met the upper end of cash flow and dividend growth guidance despite a sizable Q1 loss related to Winter Storm Uri. This year’s 31.1 percent EBITDA increase — including a 49.5 percent gain from renewable energy facilities — testifies to its ability to weather inflation, supply chain pressures and tariff threats.
The key is the backing of parent Global Infrastructure Partners through its Clearway Group arm. Over the next five years, the parent plans to drop down up to 22 giga-watts of wind, solar and energy storage projects in various stages of development. That would more than triple the current operating portfolio of 5 GW, currently supplemented by 2.5 GW of natural gas facilities.
Contrary to some analysts’ expectations, renewable energy power developers enjoy pricing power on new contracts, pushing through higher component and labor costs. And Clearway Group’s scale is a further advantage controlling costs.
The main inflation challenge to Clearway Energy’s growth is financing acquisitions with interest rates rising. But Q1 results demonstrate it’s doing the job well by selling low cost green bonds and targeting asset sales.
The company recently garnered $1.9 billion closing the sale of its thermal energy unit. And last year it took on Hannon Armstrong Sustainable Infrastructure Capital (HASI) as a financial partner at certain wind and solar assets. Management says its current debt stack has “virtually no interest rate exposure” as well. Aggressive income investors can buy Clearway below $35.
