Our main source of organic growth is really in that RA pricing. I think, for us, given the hedges that we did before in order to contract through the middle of 2026, that’s probably where you have your main organic CAFD generator is depending on where those RA prices go in 2027 and beyond.
Angie Storozynski: And then changing topics. Obviously, ’23 has been a challenging year for actually a number of assets. But the results for the Thermal assets were weaker than expected. Now how much of that weakness or lessons learned have you incorporated in your ’24 guidance on CAFD?
Chris Sotos: From our perspective, we’re much more in line in our 2024 guidance with that the upper end of that $1 to $1.50 we talked about, long-term energy gross margin. Obviously, given when we gave guidance in November of ’22 for 2023. Yes, as you’re well familiar, the markets were much stronger for what were expected sparks that didn’t show up in several of the months that we were looking for. So for us, we’re materially kind of in the upper end of the range at lower $1, $1.50, I mean, upper of the $1, $1.50 that we have for long-term EGM guidance. So to your point, we’re being more conservative for full year ’24 than we were for partial year ’23.
Operator: Our next question comes from the line of Mark Jarvi of CIBC.
Mark Jarvi: As you think about expanding the time horizon for growth, Thermal proceeds fully deployed now, obviously balance sheet funding clarity is really important in today’s market. So how do you think about as you extend that runway when you think about future drops, communicating the funding plan in terms of how much clarity you can give? And I guess, how prescriptive it could be in terms of how you match funding with asset growth?
Chris Sotos: Sure. I think we’ve always been pretty prescriptive in how we viewed it. We have an undrawn revolver currently with significant liquidity underneath it. So we had to fund something we could on a temporary basis. But I think how we’d fund it is in line with our long-term view. At about 4x to 4.5x would be a corporate debt number of the corporate capital, the remaining being equity, obviously using any excess cash we have in the system first. So certainly, I think we’d look to deviate from that long-term funding model that has been successful in a wide variety. We may need to warehouse some facilities depending on where the volatility is for a period of time. I think, for us, it wouldn’t deviate from our long-term funding model that has worked over a number of years.
Mark Jarvi: So I guess you’d be okay with, if you saw, say, a couple of million dollar funding gap for equity to hit your targets and, say, it’s sort of a bit TBD in terms of the sources, you’d be fine sort of laying that out there. And I guess you saw the need for external equity, would you be open to things like an ATM or something like that as you march forward?
Chris Sotos: I mean, we used ATMs before, which we think are a very effective equity funding mechanic. We’ve done smaller kind of issuances as well. So I think we do things very consistently with how we have in the past. I wouldn’t just spend any deviations. I just think that maybe kind of to where your question is going, given how volatile things are currently. We may seek to kind of use our revolver more depending on size to hold facilities until kind of markets settle down and take a much more measured approach to getting that long-term capital deployment given current volatility.
Mark Jarvi: Okay. That makes sense. And then just on the conventional units, as you continue to operate them, as you see these RA processes, the contracting process play out, sort of any updated thoughts in terms of ways to optimize them from a commercial strategy? I’m just curious in terms of the amount of capacity you secured into 2027. Could you have gotten more? Was it just a trade-off with price? Just kind of understanding the depth of the market and opportunities you’re seeing right now in terms of contracting?
Chris Sotos: Yes. It is very focused on price. And apologies if you already know all this, but you kind of bid in on an auction basis and kind of see what you get awarded. We typically give kind of 1 and 1.5-year bids and 3-year bids a combination of different price points to kind of see what the customer wants. The customer at the end chooses what price they’re looking for and tenor. So to your point, it’s not as though we could really optimize that conversation because it is a well-attended auction. But we provide a number of price points as part of our submission. And at the end of the day, the customer fixed the price point that they thought made the most sense.
Mark Jarvi: If you could do sort of a retrospective look at how you did most recently, do you think there was an opportunity to clear more capacity as you think forward in the next processes?
Chris Sotos: I don’t think there’s the ability to clear more just because what, to see your question, what cleared, what’s accepted. You kind of don’t really know exactly what demand there is on the other side. So not to chip your question, it’s a little bit opaque for me to say directly what the number is.
Mark Jarvi: And just last question for me, and maybe for Craig, your view in terms of tax equity transferability is playing out, how that sort of impacts where you think actually returns could be for projects? And ultimately, I guess, we’re, maybe it comes back to Chris, in terms of drop-down CAFD yields potential under sort of a transfer ability scheme on funding?
Chris Sotos: I’ll kind of answer the last part and then, Craig, will let you answer kind of the first part of the question. So in terms of what it means for a CAFD deal, I think that’s really in our all-in CAFD deal that we’d get. I think, Mark, if your question is we’re doing things at a 10% CAFD yield, now would that lead to a 14% CAFD yield? I don’t think that’s the right interpretation. I think basically, all of the components will need to be required because it passes through. As we talked a little bit on the call, the PPA price is affected by the transferability of PTCs, right? It kind of all has to work together in a chain. So it’s not as though that PTC transferability will lead to an economic rent or significantly above market CAFD yield simply due to that. But Craig, I’ll let you answer the first part of the question.
Craig Cornelius : Yes. Sure. First, the market is really still taking shape and becoming organized. As you may very well know, both the banks that traditionally provided fully integrated tax equity solutions that would both monetize tax credits and depreciation are playing roles to provide sponsors like us solutions to monetize depreciation while also looking to serve as clearing houses for the disposition and monetization of tax credits that projects produced there. They’re certainly an important part of organizing this market. There are numerous other channels that are looking to establish themselves as more direct conduits to buyers of tax credits. And the market structures for how everything from indemnities to timing of payments to take place are still forming and stabilizing.
