Clearway Energy, Inc. (CWEN) Q4 2021 Earnings Call Transcript

Clearway Energy, Inc. (CWEN 2.30%)
Q4 2021 Earnings Call
Feb 28, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Clearway Energy fourth quarter 2021 earnings conference call. [Operators instructions] I would now like to turn the conference over to your speaker host Chris Sotos, president and CEO of Clearway Energy. Please go ahead, sir.

Chris Sotos -- President and Chief Executive Officer

Thank you. Good morning, and we first thank you for taking the time to join today's call. Joining me this morning are; Akil Marsh, senior manager of Investor Relations; Chad Plotkin, our chief financial officer; and Craig Cornelius, president and CEO of Clearway Energy Group. Craig will be available for the Q&A portion of our presentation.

Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially, please review the safe harbor in today's presentation, as well as the risk factors on our SEC filings. In addition, we refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations that are most directly comparable GAAP measures.

Please refer to today's presentations. Turning to Page 4. 2021 was a historic year for Clearway Energy. From an operational performance and captive generation standpoint, we exceeded our objectives for the year.

We also deployed approximately $820 million into accretive growth projects, or sponsor made significant strides in expanding its development portfolio, which will help drive our future growth. We materially reduced the risk in our natural gas portfolio with new contracts. Finally, Clearway Energy announced the sale of our thermal business at a very attractive multiple as a result of all these efforts. Clearway enters 2022 with unprecedented flexibility.

This flexibility provides Clearway with the longest visible runway for dividend per share growth in its history, with $750 million of net proceeds remaining for capital deployment after the thermal sale. In summary, we are very well-positioned for 2022 and beyond. For 2021, our CAFD generation performed well with full year capacity of $336 million ahead of our guidance. Clearway also announced an increase in quarterly dividend by 2%, or $1.3872 per share on annualized basis.

The sale of our thermal business is on track with anticipate closing in the second quarter. We're also increasing the amount of capital of remaining capital as a result of the sale from $600 million to now $750 million. This was primarily due to a recent change in California law, where prior suspension and the company's ability to utilize state wells in 2022 was reversed. For 2022, taking into account the sale of thermal at our current committed growth commitments, we're on track for $385 million of pro forma CAFD, translating into a $1.90 per share with $520 million out of the $600 million in capital commitments already funded.

Moving forward, Siemens is working to deploy the $750 million of remaining capital to drive CAFD and dividend per share. And working with our Clearway Energy Group colleagues, we have line of sight to a minimum of $250 million, or roughly a third of this capital being allocated to the next dropdown, with Clearway Energy Group's development pipeline growing to 19 gigawatts. This $250 million of capital deployment [Inaudible] as a floor that would potentially be increased depending on what climate and clean energy tax provisions working their way through Congress are ultimately passed. With the full deployment of a $750 million of remaining capital, Clearway will be able to drive CAFD per share to over $2.15 on a long-term basis.

Clearway also announcing a goal in 2050 of net zero GHG emissions. The ownership of our long-term contracted clean energy assets is at the heart of what Clearway does every day, and represents the significant majority of our CAFD and EBITDA generation going forward, as well as a platform for future accretive renewable growth to dropdowns from our sponsor or through opportunistic third party M&A. However, we thought it was important to formally state our board approved lon- term goal around climate change and our emissions, give it our natural gas holdings. As a leader in the clean energy transition, Clearway is well-positioned for 2022 and beyond to achieve the upper range of its long-term 5% to 8% DPS growth target through 2026.

Turn to Page 5. This provides a roadmap for anticipated CAFD growth, utilizing the now $750 million of remaining capital resulting from the thermal sale. Starting on the left side of the page, the $385 million or $1.90 CAFD per share takes into account the disposition of thermal as well as the committed growth investments. The next column indicates the anticipated CAFD on the next drop down from a sponsor with anticipated minimum cap requirement of $250 million, an average 8% to 9% CAF deal.

Through this dropdown, we now have line of sight to deployment of a third of the remaining proceeds from the sale of thermal. As discussed on previous calls, Clearway's always focused on the efficiency of capital deployment, with an emphasis on accretive growth. We're continuing to work to commit the remaining $500 million of thermal sale proceeds to accretive growth investments, driving CAFD on a long-term basis to approximately $440 million an CAFD per share to $215 or greater, depending on CAF deal. In this process, we remain focused on meeting our underwriting criteria.

If we cannot meet this criteria, retain the option to evaluate other means of capital allocation, including returns to shareholders. Page 6 provides an illustration of the environmental footprint. Clearway energy has one of the lowest GHG intensities in the U.S. power sector, driven by 5.2 gigawatts of net owned renewable generation.

As a result, approximately 91% of our electricity megawatt hours in 2021 were from renewable generation. This number should increase in the future as the size of our renewable fleet grows through investment our sponsors 19 gigawatts renewable development pipeline, as well as third party acquisitions. This renewable footprint also provides the vast majority of Clearway's economic value, with 75% of our pro forma CAFD and 82% of our pro forma adjusted EBITDA coming from renewables after accounting for the thermal sale. As we discussed over the years, Clearway used of gas fleet as essential for the transition to renewable energy of California's electricity generation.

Our natural gas assets are predominantly peaking assets that help ensure the grid's reliability during periods of high demand and for electric grids with high penetrations of renewables. Our California gas assets characteristics of being fast start, efficient, and load pockets are critical providing electricity during periods in which renewable generation may be waning. As I mentioned earlier, the board has approved a net zero GHG emissions target by 2050, aligned with the Paris Climate Agreement. Taken together, Clearway is a leader in clean energy and a premier investment opportunity in the energy transition space.

With that, I'll turn it over to Chad. Chad?

Chad Plotkin -- Chief Financial Officer

Thank you, Chris. And turning to Slide 8. Clearway had an excellent 2021 both operationally and strategically. The company finished the year strong, with fourth quarter cash available for distribution or CAFD of $35 million, and adjusted EBITDA of $250 million.

This brought full year 2021 results to $336 million in CAFD, or above our guidance of $325 million and adjusted EBITDA to $1.15 billion overall. As a reminder, full year CAFD results were impacted by approximately $25 million from ice storm Uri almost one year ago. Excluding that impact, CAFD would have been approximately $360 million for 2021. During the fourth quarter, the company's portfolio was balanced in the nonrenewable part of our business, both the conventional and thermal segments perform materially in line with expectations leading to a strong year overall.

For renewables, production across the wind portfolio during the fourth quarter was modestly above expectations, providing an offset to lower solar volumes. As a reminder from the third quarter call, strategic efforts did impact fourth quarter results relative to our original expectations due to a change in the timing of project level interest payments such that payments were made in the third quarter versus the fourth quarter. On the strategic financing front, the company continued to manage the corporate balance sheet in 2021 through effective liability management, capital formation in line with our leverage targets, and by implementing temporary solutions to execute on growth in advance of receiving the net proceeds from the thermal transaction. During the year, we raised $1.3 billion in new corporate level green bonds, which in part the company utilized to refinance the $950 million in the then outstanding 2025 and 2026 senior notes.

Through these efforts, and on a weighted average basis for the new financings, we reduced interest costs from approximately 5.5% to 3.75%, in the aggregate extended the maturities to 2031, and raised additional cost effective debt capital for growth. Importantly, Clearway has further mitigated its interest rate exposure as the company's earliest corporate maturity is now in 2028. And when also including the project level non-recourse debt, approximately 99% of the company's consolidated long-term debt interest costs are fixed. As mentioned on the last earnings call, due to the timing of when we expected to receive the net proceeds from the thermal sale relative to when we needed to finance committed growth investments, we required a temporary solution to bridge the company's capital needs.

To accommodate this requirement in November, we agreed with the company's bank group on an amendment to the revolving credit facility, providing for the ability to temporarily operate at higher leverage ratios, and to enter into a bridge loan to facilitate the closing of the $335 million acquisition of the remaining interest in Utah solar. Through these efforts, the company achieved significant financial operating flexibility to advance its strategic growth objectives. This included the ability to fund $520 million of growth commitments since November, which was instrumental to meet the 2022 CAFD guidance and its pro forma CAFD outlook. We do, however, want to emphasize that these should not be interpreted as a long-term change in our leverage targets.

Upon the closing of the thermal transaction, the company will repay both the bridge loan and outstanding balances under the credit facility and see its leverage ratios move back to a more normalized level. For 2022, we continue to maintain full year CAFD guidance of $395 million. However, and as noted on the company's last earnings call, due to the uncertainty of when the thermal transaction may close, guidance does continue to factor in the estimated for your contribution of $40 million in CAFD from the thermal business, as is our normal practice for strategic transactions, we will provide an update to full year 2022 expectations after the closing of the thermal transaction. Lastly, we want to also remind you that 2022 CAFD guidance also does not fully capture all CAFD expected relative to five year averages from committed growth investments, which informs the company's $385 million in pro forma CAFD outlook, a figure that already excludes any contribution from thermal.

And with that, I'll turn the call back to Chris for closing remarks.

Chris Sotos -- President and Chief Executive Officer

Thank you, Chad. Turning to 7. As I discussed the beginning of the call, 2021 was exceptionally strong year for Clearway Energy, which we delivered on our financial commitments. Invest in raised capital and efficient accretive manner, expand the profile of our natural gas assets, sign the sale of our thermal portfolio to strong multiple, and as a result of all these efforts, reduced our risk and create a high degree of financial flexibility that supports our view of growing CAFD per share at the upper range of our long-term 5% to 8% dividend per share growth rate to 2026.

Establishing our 2022 goals. We are focused as always on the near-term and also the long-term achievement of our 2022 guidance, with insensitivities growing our DPS at the upper end of the range and closing the sale of our thermal business. In parallel with the sale of our thermal, business, we are working with Clearway Energy Group to create a strong succession of drop-down opportunities that can be completed from their existing late stage pipeline under current law, even as we look to potential upside in capital deployment and capital contribution to climate and clean energy tax provisions moving through Congress forecast. [Inaudible] significant progress in reducing the near-term risk profile of our natural gas assets in 2021, we still have work to do and this will be continuing area focus in 2022.

Finally, I'd like to thank the employees of Clearway through the entire enterprise for all their hard work during another difficult year of the pandemic. To work through the Texas weather event, operate projects at high levels of reliability and safety, engage and support third party M&A, dropdown and capital raising activity, as well as deliver on the construction of new assets in this challenging environment is an achievement we can all be proud of. Thank you. Operator, please open lines for questions.

Questions & Answers:

Operator

Thank you [Operator instructions] Now, first question coming from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, team. Can you hear me?

Chris Sotos -- President and Chief Executive Officer

Yes, we can.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Thanks for the time, the opportunity. So first off, to start high level here. I'd just be curious, how would you compare the backdrop available for renewable assets quarter-over-quarter here as we've seen inflationary impacts and especially just the impact of higher rates? Filter itself out, how much does that change pricing? And then perhaps more specifically here, if you don't mind, we saw one of your peers, Hannon Armstrong here announce something of late in Texas with Clearway Group.

Can you comment on what that means for your business, especially as you think about the palatability and desirability of a large scale solar, for instance, perhaps there might be something to that as well. Thank you.

Chris Sotos -- President and Chief Executive Officer

Sure. I'll probably go to your second question first and then back. So for the Hannon Armstrong, Hannon's a good partner that we have in the White House currently. And I think, we do have a letter agreement with CPG to work on that assets.

I think both of us are kind of interested in that. And I think the view of long-term solar and ERCOT is a positive one, especially given our portfolio. So I think, nothing in particular there other than that's one of the assets that underpins our view of growth going forward. Your first question around comparing the backdrop, Q-on-Q also asked Craig a little bit for his view, obviously, working at more day to day is from our perspective, I don't necessarily think in terms of your PPA pricing, which I think is the basis of your question, Julien, there probably has been a big change in the near-term, longer term there might be -- I think your questions probably underpinning PPA question.

I don't think you've probably seen that work through in today's environment. But Craig, I know if there's any additional color.

Craig Cornelius -- President and Chief Executive Officer

Yeah. Sure. I think, Julien, first, in terms of the overall demand picture, it -- if it remains as robust as we've really ever seen it in the two decades that we've been building this industry here in the U.S. So, wholesale demands continued to accelerate and it's being driven by decarbonization goals and integrated resource plan among the utilities plan coal retirements.

In total, the demand that we're tracking here in the U.S., over 240 gigawatts of demand just from IRP that we plan to be able to serve as a company, and we project 80 gigawatts worth of coal retirements that will open up serviceable demand in the wholesale markets as well and across different corporate sustainability goals that will require additional clean energy PPAs for virtual power purchase agreements. There are 10 gigawatts more that will need to be signed and built over the coming three to five years. And when we look across that whole picture. The ability to serve that demand at prices that reflect today's cost structure is certainly there while providing a desirable customer value proposition.

So, we've worked with customers on new projects that we're building to be able to set price that makes business objectives -- they have beatable while also allowing for our projects to be economically accretive and the outlook that I have for our industry to be able to serve that demand even an inflationary environment is very strong.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. Excellent. Thank you. If you don't mind me going back to this question just to clarify this -- how do you imagine this going forward on that project in Texas here? You say that you've got a letter agreement with CPG to work on that asset.

Is this something that you can imagine a split? Is this a competitive bid at some point? [Inaudible] take on a more curious on what it means more holistically, but also as it pertains to the specific arrangement as you allude to.

Chris Sotos -- President and Chief Executive Officer

Sure. Maybe you're reading too much into it, Julien. I think it's very similar to what you saw in White House, where we probably would have a partnership with housing on that asset. It's not as if your question is, "Are we both bidding on it to own 100%?", that's not what we're doing.

I think it's much more of a partnership mode that you saw in White House and the end of 2020 that we deployed capital to in this year.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. OK. -- so more of a split situation. Sorry, go for it, Chad.

Craig Cornelius -- President and Chief Executive Officer

Yeah. Sorry, Julien, this is Craig. Yeah. Just to add to it.

I think, we think of the portfolio that we're building for Clearway Energy Inc. with Hannon as a partner as a portfolio that over time can incorporate additional assets that are complementary to the range of resource profiles and customer profiles that are that are in that existing portfolio. And what I think you see reference there is just the next in a succession of complimentary solar and storage opportunities that we hope both enterprises will ultimately see from us.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Great. Excellent. Maybe, the underlying point here is, you see a wealth of opportunities, it doesn't really faze you that you would be potentially splitting something here with CTG.

Craig Cornelius -- President and Chief Executive Officer

No.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. All right. I'll leave it there. Thank you, guys.

Operator

Our next question coming from the line of Colton Bean with Tudor, Pickering, Holt. Your line is open.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Morning. Just on the potential $250 million drop in, looking at the timing of this backlog, is that weighted to projects with commercial in service of 2023? And then a related question there. Any thoughts on third party M&A and if that could play a role in the remaining $500 million of proceeds?

Chris Sotos -- President and Chief Executive Officer

Oh, sure. It's definitely back way to '23 through probably the first quarter of '25. So if your question is, "Is it going to come online in 2022?", That answer in general is no, it's much more kind of '23 and beyond. It's your second question.

Definitely, third party M&A is something we're looking at. It was part of our capital deployment in 2021 with our [Inaudible] in Utah. So, we look at third party M&A all the time, and we have a binding agreement on something we would announce it.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

And maybe a related question there. I know it's still early days, but with interest rates moving higher, have you seen any shift in valuation discussions? Whether that be third party processors or potential seeds you dropped?

Chris Sotos -- President and Chief Executive Officer

I would say no to both. It's a little bit too early, and I think, well, obviously the interest rate move from around 70 basis points on the 10 year to depending where the court may be this morning, that at 1.9 is significant in multiple terms. It's at the end of about a hundred basis point move, which, maybe I've just been in industry too long, but the 100 basis points move do happen. So I think for my view, I don't think to date that has moved pricing around that much, either in a dropdown context or in a third party M&A.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

And the one on El Segundo. I know recontracting was expected sometime in 2022. Any updates to where we sit in that process? And just differences in expectations versus what you were able to get done on the peaker plants?

Chris Sotos -- President and Chief Executive Officer

Frankly, no. That process continues. Once again, as we occurred in the peaking facilities, the RFPs by the investor owned utilities basically happen in the second quarter. And we also work to hedge them with other parties as well outside of that process.

So I'd say, no new items or development remains on track for the normal timing.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Got it. Appreciate the time.

Operator

[Operator instructions] now next question comes from the line of Noah Kaye with Oppenheimer. Your line is open.

Noah Kaye -- Oppenheimer and Company -- Analyst

Thanks. I just went around the development environment to start or maybe to deal actually, but first part of it is, just around project mining. Looks like really no change overall for the amount of projects expected to hit [Inaudible] in 2022. Just look comparing quarter-over-quarter, it looks like maybe a little bit of shift our 2020 to 2024.

So the first part is really just around, what you're having to go through operation in terms of the timing of some of these projects dropping down overall, looks like you're managing things well, but just any color you can give us on supply chain, labor availability, all of it?

Chris Sotos -- President and Chief Executive Officer

Yeah. Craig, if you don't mind, you're close to that.

Craig Cornelius -- President and Chief Executive Officer

Yeah. Yeah, of course. Yeah. Thanks for noticing.

We've -- I think we're pretty satisfied with how we've managed this environment generally, and as compared to peers. And we think that the shareholders are Clearway Energy should be satisfied as well. We've been able to manage equipment availability and schedule risks really to keep our entire construction program that we've had planned for the next two years on track. That's really, first and foremost been driven by our ability to leverage our priority customer status and the large volumes that we're procuring.

It also reflects what I think has been insightful collection of equipment vendors that were more resilient to some of the factors that have driven both cost inflation and availability of equipment as a function of U.S. policy, it's meant that we've been managing shipping costs directly with logistics and freight providers in ways that other peers might not be able to, accelerating payments to lock in supply and hedge costs on long lead components, secure freight conduit, not all that has been costless to us at the sponsor entity, but it's certainly been more manageable for us than peers and also really reflects the strong commitment that we've been looking to maintain for the planned pace of growth for operating cash flows and dividends at Clearway Energy Inc.

Noah Kaye -- Oppenheimer and Company -- Analyst

It was very helpful. And then the second part of that development question, is that the overall pipeline going from 17 gigawatt to 19.1 gigawatts sequentially and obviously, more of this proves to me earlier stage, but does it really just back to what you're talking about earlier? The appetite from corporates and others extend the opportunity, says, is there something in the development engine that is maybe experiencing a little bit a step function in terms of ability to drive project into the system?

Chris Sotos -- President and Chief Executive Officer

Yeah. I think it really starts with the demand picture, which isn't strictly limited to commercial industrial customers. Utilities and load serving entities across the country have made a transition in the fuel mix the real central part of their plan for this decade. And that's allowed for us to make investments really the span, the continent, targeting the plans for fuel mix transition that each of those different customer classes have.

And what excites us about the development pipeline that we're building is the way that as it is evolved over time, it will really build out a portfolio of owned assets within Clearway Energy Inc, which is certainly sizable but also increasingly diverse, and will allow for us to really enhance the type of balance that Chad touched on earlier. So first, it just reflects our confidence in the demand picture over time. Second, certainly each quarter and each year, we get better and bigger as a company. So the types of capabilities that we can deploy behind development allow us to plan projects that are larger, that allow us to plan projects that have multiple components to them.

Integrating storage, for example, in places where you're not historically would have anticipated it. And then lastly, I think we're constructive that ultimately the policy environment here in the U.S. government is really going to help make projects in some places that might not have been economically viable quite as soon, economically viable for construction. So as we look ahead to the mid-decade, I'm very optimistic about how the family of these development activities are going to turn into construction cadence and in terms of operating cash flows within the fleet.

Noah Kaye -- Oppenheimer and Company -- Analyst

Helpful. Let me speak for [Inaudible] the thermal. There are really two parts [Inaudible] that's again, you mentioned, Chris [Inaudible] expectations for the second quarter close. That's really no change.

But we just give us some indication of [Inaudible]  who have a bias toward early of late in the quarter or any color on remaining steps to be taken. Then I think you mentioned on the prepared remarks that just due to the tax treatment here, that the cash proceeds are going to be potentially greater. So just remind us once the acquisition, everybody wants the divestitures done way back to shake out from a leverage perspective.

Chris Sotos -- President and Chief Executive Officer

Sure. I'll take the first part and then turn over to Chad for tax. But, to your first question, really, you're not [Inaudible] it would almost be the middle of May if we had to pick the fat part of the curve, so to speak. Once again, we're driving to move it sooner, but we obviously would like to get the cushion.

But once again, no kind of steer either way of size. So for us, also part of it's not only the regulatory process, but also working with other counterparties as well to make sure the transition occurs appropriately. So in terms of expectations, second quarter, we feel very strongly about, once again, we'll take the mid as the expected outcome May timeframe, but could be earlier, could be later. But a, Chad, on the tax --

Chad Plotkin -- Chief Financial Officer

Sure. To me a couple of points. I think, first on the cash proceeds or at least the estimated net proceeds. I think, as Chris indicated, we spoke about $1.35 billion as our current estimate now, before that was $1.3 billion.

But driver of that $50 million estimated change at this point was driven by California enacting Senate Bill 113 in the early part of February. This happened pretty rapidly, and what that did was it reversed a law that was put in place in 2020 at the start of the COVID pandemic, where they had suspended companies ability to use state and a wells for the periods -- for the tax periods from 2020 to 2022. So for 2022, we're permitted to use state and wells. And as a result of that, given how we looked at our current estimate and '22 business activity in the apportionment that would go to California that reduced that number -- excuse me, the potential immediate tax impact, I would remind that, these are estimates for taxes.

Naturally, business activity through the course of 2022 is going to affect that. But obviously, we realize because of the gain that will ultimately be generated by the thermal sale, there will be some leakage. On the leverage side, simply put, once we close the thermal deal, all the temporary borrowings that we have currently on the balance sheet will effectively be paid off. So that will reduce borrowings inclusive of the bridge facility we put in place for Utah by over $500 million.

And at that point, as we look at our pro forma targets, we'll be back in our range of 4 to 4.5 times and a little bit more on the 4.5 times times, but we're in range of where we would expect to be.

Noah Kaye -- Oppenheimer and Company -- Analyst

All right. Thanks so much.

Operator

Our next question coming from the line of Michael Lapides with Goldman Sachs. Your line is open.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Thank you for taking my question and congrats on a good 2021. Just real quick. Given the move in valuations across, pretty much everything clean it or fleet related.

How do you thinking about -- how are you on the board and the sponsor thinking about broader corporate M&A? And whether the market volatility in clean energy since at the end of 2020 has increased the attractiveness of corporate M&A. Corporate M&A is the use of of proceeds or use of cash flow and balance sheet relative to the returns you would generate some dropdowns from your sponsor?

Chris Sotos -- President and Chief Executive Officer

Sure. I don't think the backdrop has changed that much in terms of I think we've always looked at value in terms of what we think is the best value for risk in terms of the company. So I think Michael, to your question, will always look at dropdowns as obviously, that's the most transparent, dependable growth from our sponsor. But your question about corporate M&A, yeah, we look at project level M&A, for example, third party, as we talked about months storm and you're talking 2021 and we look at broader corporate M&A as well.

So I think, all of those are available to us. I think as well, the big part is where can you generate the best risk adjusted return? And so that's the focus. So I'm not sure if it's really changed that much in the past year from our perspective on the corporate side.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Meaning the valuation move lower of a lot of your peers among the publicly traded renewable companies. That move lower hasn't made corporate M&A more attractive.

Chris Sotos -- President and Chief Executive Officer

It really depends. There's not a list of 100 different candidates out there, if that's your question, Michael, that would get. So it really is relative among a couple of them. I don't think there's that many paradigm changes in that math over the past 12 months.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And then Chad, I -- one for you. I'm just looking at slides 23 and 24 in the appendices. Can you remind me the CAFD and the adjusted EBITDA numbers, especially the EBITDA numbers are pretty different between those two sides.

Can you remind me the difference? What's in '23 versus '24?

Chad Plotkin -- Chief Financial Officer

Yeah. Sorry. I'm just looking at the slides right now. Yeah.

I think if you're probably focused is, if I would guess, Michael, it's the drop in projected adjusted EBITDA. Is that what you're focused on?

Michael Lapides -- Goldman Sachs -- Analyst

Well, one of them has the EBITDA, like if I look at that is the slide 23, it's got adjusted EBITDA,  but bill 27 Slide 24 below five, just with the -- 

Chad Plotkin -- Chief Financial Officer

I think, the main driver there, I'd remind you of is, when we go out to our pro forma outlook, we've indicated that that is post a period of time in which the existing three California natural gas assets. So I would say that the obviously, when we do our estimates like that on a pro forma basis, there's a number of moving variables. But the material point of that would be the drop in expected EBITDA that we would have and being mindful that that's something we've been consistent about because as those projects become unlevered, we don't need the amount of revenue in order to sustain CAFD on an unlevered project basis, principally because you're not having to generate revenue to support the debt service.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. OK. That makes sense. And then I guess, one last one.

Speaking of those California assets. Can you remind me in the post '23 timeframe, how much of those have you signed up under? What percent of those assets have you signed up under R.A. agreements for '24 and beyond?

Chris Sotos -- President and Chief Executive Officer

Sure. It's 100% of Walnut Creek. There is 80% hedged through -- I'll call it 1127 of Marsh landing with 100 megawatt tail out longer than that and then 0% of El Segundo.

Michael Lapides -- Goldman Sachs -- Analyst

Got it! Thank you guys much. Appreciate it.

Operator

Now, our next question comes from the line of William Grippin with UBS. Your line is open.

William Grippin -- UBS -- Analyst

Great. Thank you and good morning, everybody. Just one quick one for me. The press release --talking about the investment in Daggett three, noted that the investment subject to some certain milestones and that that project is still in development.

I'm just curious, are you investing in that project before it's actually brought online? And then I guess, more broadly, how do you think about investing in projects after COD versus possibly doing earlier stage investments to to capture higher returns?

Chris Sotos -- President and Chief Executive Officer

To your first question, no. It's not as though we're investing well before COD, so you might do a little bit for COD in terms of months, just for tax equity credit in life, but you are significantly out, no is the simple answer your first question. To your second question, basically, the repowering is where we have a much better view of what the asset looks like because obviously, we've owned it for a period of time. We might start to walk a little bit more during construction, but pure development in general, we wouldn't.

So I think if I can define your question by terms of development, that's a no, in terms of maybe moving up a little bit closer to your full knowledge to proceed or when there's financing in place on a repowering project. We may look to that in the future just because we already obviously on the asset have a much better view of what it is, so on and so forth. But for dropdowns in general, I don't think we're trying to move earlier in the construction cycle as generalization.

William Grippin -- UBS -- Analyst

Got it. Thanks very much. 

Operator

I am showing no further questions at this time. I would now like to turn the call back over to Mr. Sotos for any closing remarks.

Chris Sotos -- President and Chief Executive Officer

Once again, thank you all for joining the call and look forward to talking next quarter. Take care.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Chris Sotos -- President and Chief Executive Officer

Chad Plotkin -- Chief Financial Officer

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Craig Cornelius -- President and Chief Executive Officer

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Noah Kaye -- Oppenheimer and Company -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

William Grippin -- UBS -- Analyst

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