Clearway Energy, Inc. (CWEN) is a leading player in the clean energy transition, owning and operating a diverse portfolio of renewable and conventional power generation assets across North America. The company's mission is to provide its investors with stable and growing dividends while actively contributing to the decarbonization of the power grid.
Business Overview and History Clearway Energy was created in 2015 when NRG Energy spun off its renewable energy assets to form a new publicly-traded company. The company was established as an independent power producer focused on acquiring and operating natural gas, solar, and wind generation facilities across North America. In its early years, Clearway Energy grew rapidly through a series of acquisitions, expanding its portfolio to over 5,000 MW of installed capacity by 2019. This included the purchase of several solar and wind facilities from its parent company NRG Energy as well as third-party transactions.
However, the company faced some challenges during this period, including integration issues with certain acquired assets and a downturn in the renewable energy market. In 2020, Clearway Energy encountered further headwinds when the COVID-19 pandemic disrupted energy demand and put pressure on power prices. The company responded by optimizing its operations, streamlining its cost structure, and renegotiating some of its customer contracts. Despite these challenges, Clearway Energy maintained its position as one of the largest renewable energy owners in the United States.
In 2022, Clearway Energy underwent a significant transformation when global infrastructure firm Global Infrastructure Partners (GIP) and energy major TotalEnergies acquired a controlling stake in the company through their jointly-owned portfolio company, Clearway Energy Group. This new ownership structure provided Clearway Energy with additional financial resources and development capabilities to continue expanding its clean energy platform.
Since its inception, the company has grown its portfolio to approximately 9.0 GW of installed capacity, making it one of the largest clean energy companies in the United States. The company's asset base consists of approximately 6.5 GW of renewable energy generation, including wind, solar, and battery energy storage systems (BESS), as well as 2.5 GW of highly efficient natural gas-fired generation facilities. This diversified fleet provides stable and predictable cash flows, underpinned by long-term power purchase agreements (PPAs) with a weighted average remaining duration of 10 years as of September 30, 2024.
Clearway Energy's growth strategy has centered around strategic partnerships with its sponsor, Clearway Energy Group (CEG), which is equally owned by Global Infrastructure Partners (GIP) and TotalEnergies. This relationship has allowed the company to access a robust pipeline of development projects, facilitating accretive growth through drop-down acquisitions. Over the years, Clearway Energy has successfully integrated several large-scale renewable energy projects into its portfolio, including the 530 MW Utah Solar Portfolio, the 160 MW Cedar Creek wind facility, and the 200 MW Texas Solar Nova 1 and 2 projects.
Financial Performance and Metrics Clearway Energy has demonstrated strong financial performance, with consistent growth in key metrics. For the nine months ended September 30, 2024, the company reported Adjusted EBITDA of $918 million and Cash Available for Distribution (CAFD) of $385 million, putting it on track to meet or exceed its full-year 2024 CAFD guidance of $395 million.
For the most recent fiscal year (2023), Clearway Energy reported revenue of $1.31 billion, net income of -$14 million, operating cash flow of $702 million, and free cash flow of $408 million. In the most recent quarter (Q3 2024), the company reported revenue of $486 million, representing a 31% increase year-over-year, driven by acquisitions of new solar and storage facilities as well as higher energy and capacity revenues. Net income for Q3 2024 was $36 million, showing a significant increase compared to the prior year quarter due to higher operating income. Operating cash flow for the quarter was $301 million, with free cash flow of $266 million.
Clearway Energy operates in two main business segments: Conventional Generation and Renewables. The Conventional Generation segment includes natural gas-fired facilities with a total net capacity of 2.49 GW. During Q3 2024, this segment generated $102 million in operating revenues, experiencing a 22% decrease in energy revenue primarily due to lower prices from merchant operations at the Walnut Creek and Marsh Landing facilities, partially offset by lower fuel costs. Capacity revenue also decreased by 9% due to PPA expiration and commencement of resource adequacy capacity revenue at the El Segundo facility.
The Renewables segment, which includes utility-scale solar, distributed solar, wind, and BESS facilities, has a total net capacity of 6.55 GW. This segment generated $384 million in operating revenues during Q3 2024, a 51% increase compared to the prior year period. The growth was driven by acquisitions of new facilities and a 4% increase in revenues from the acquisition of the Cedar Creek wind facility in April 2024.
Liquidity The company's financial position remains robust, with a healthy balance sheet and ample liquidity. As of September 30, 2024, Clearway Energy had $1.27 billion in total liquidity, comprising $674 million in cash, restricted cash, and availability under its revolving credit facility. The company's debt-to-equity ratio stood at 3.35, with $592 million available under its revolving credit facility. Clearway Energy's current ratio was 1.59, and its quick ratio was 1.49, indicating strong short-term liquidity.
Clearway Energy's capital allocation strategy is focused on prudent financial management and delivering value to shareholders. The company recently announced a fourth-quarter 2024 dividend of $0.4240 per share, in line with its commitment to 7% earnings-per-share (EPS) growth in 2024. Looking ahead, the company has established a 2025 CAFD guidance range of $400 million to $440 million, with a midpoint of $420 million, and a 2025 dividend target of $1.76 per share.
Growth Initiatives and Strategic Partnerships Clearway Energy's growth strategy is anchored in its strong relationship with CEG, which provides the company with a steady pipeline of accretive investment opportunities. In the third quarter of 2024, the company announced it had signed an agreement to invest in the 500 MW Pine Forest solar and storage project, as well as received an offer to invest in the 320 MW Honeycomb battery hybridization program, both of which are expected to be funded with existing sources of liquidity.
Beyond these near-term growth initiatives, Clearway Energy has outlined a comprehensive capital allocation framework to support its long-term objectives. The company is targeting CAFD per share of $2.40 to $2.60 by 2027, representing a compounded annual growth rate of 7.5% to 12% from the midpoint of its 2025 guidance. To achieve this goal, the company plans to fund a greater portion of its growth through retained cash flow, targeting a payout ratio of 70% to 80% by 2027, while also growing its dividend at a competitive pace.
For 2026 and beyond, Clearway Energy is targeting 6.5% annual dividend per share growth. Beyond 2027, the company is aiming for 5-8%+ CAFD per share growth long-term. Clearway Energy expects to fund investments and growth primarily through retained CAFD, with excess debt capacity and modest equity issuances as supplementary sources when needed to maintain a prudent capital structure.
Clearway Energy's focus on operational excellence has also been a key driver of its success. The company has implemented various fleet improvement initiatives, including modernizing its information technology systems, restructuring O&M service agreements, and enhancing the availability and efficiency of its conventional generation assets. These efforts have contributed to the company's strong operational performance, as evidenced by its best-ever safety key performance indicators and improved plant availability in the first three quarters of 2024.
Industry Trends Clearway Energy is well-positioned to capitalize on the growing global clean energy market, which is projected to grow at a compound annual growth rate (CAGR) of 8.8% from 2024 to 2028, reaching $1.55 trillion in 2028. This growth is driven by increasing environmental concerns, regulations, and rising global power demand, all of which align with Clearway Energy's core business and strategic focus.
Risks and Challenges While Clearway Energy's outlook remains positive, the company faces several risks and challenges that investors should consider. These include exposure to commodity price volatility, regulatory changes, and the ability to successfully integrate and operate new acquisitions. Additionally, the company's heavy reliance on its relationship with CEG for growth opportunities could pose risks if the sponsor's development pipeline or contracting abilities were to falter.
Conclusion Clearway Energy is well-positioned to capitalize on the growing demand for clean energy and to deliver value to its shareholders. The company's diversified asset portfolio, strategic partnerships, and focus on operational excellence have enabled it to consistently grow its financial metrics and return of capital to investors. With a comprehensive capital allocation framework and a robust pipeline of growth opportunities, Clearway Energy appears poised to continue its trajectory as a leading player in the renewable energy transition.