XPLR Infrastructure Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 25, 2024

There are 9 speakers on the call.

Operator

Good morning and welcome to the NextEra Energy Inc. And NextEra Energy Partners LP 4th Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. To withdraw your questions, please press star then 2. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Kristin Rose, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, Andrea. Good morning, everyone, and thank you for joining our 4th quarter and full year 2023 combined financial results conference call for NextEra Energy and NextEra Energy Partners. With me this morning are John Ketchum, Chairman, President and Chief Executive Officer of NextEra Energy Kirk Kruse, Executive Vice President and Chief Financial Officer of NextEra Energy Rebecca Kiava, President and Chief Executive Officer of NextEra Energy Resources and Mark Hixson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners as well as Armando Pimentel, President and Chief Executive Officer of Florida Power and Light Company. John will provide some opening remarks and will then turn the call over to Kirk for a review of our Q4 and full year results. Our executive team will then be available to answer your questions.

Speaker 1

We will be making forward looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release and the comments made during this conference call and the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, LP, www.nextEraenergy.com and www.nextEraenergypartners.com. We do not undertake any duty to update any forward looking statements. Today's presentation also includes references to non GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non GAAP measures to the closest GAAP financial measure.

Speaker 1

With that, I will turn the call over to John.

Speaker 2

Thanks, Kristen, and good morning. NextEra Energy had strong operational and financial performance to both FPL and Energy Resources in 2023. NextEra Energy delivered full year adjusted earnings per share of $3.17 up over 9% from 20.22 exceeding the high end of our adjusted EPS data through a challenging environment the last 2 years, delivering compound annual adjusted EPS growth of roughly 11.5% since 2021. These were unprecedented events for our sector and clear headwinds for renewables, but disruption often presents opportunity. At NextEra Energy, we relied on our 25 years of renewables experience And our culture of execution to navigate this tough environment.

Speaker 2

On the strengths of our scale and competitive advantages, our world class supply chain capabilities, customer relationships, access to and cost of capital advantages, the strength of our balance sheet, our data driven development playbook fully managed through the disruption. Our scale and competitive advantages served as key differentiators and allowed us to continue to deliver for our customers and extend our long track record of earnings and dividend growth. Over the past 10 years, we have delivered compound annual growth in adjusted EPS of roughly 10%, which is the highest among all top 10 power companies. Over that same period, the remaining top 10 power companies have achieved on average compound annual growth and adjusted EPS of roughly 2%. Notwithstanding the strong adjusted EPS results, we recognize and are disappointed by the underperformance in the share price.

Speaker 2

And as we start 2024, we remain steadfast in our continued focus and creating long term value for shareholders. We believe the disruption over the last 2 years has made NextEra Energy an even stronger company. Our business model is more resilient, our development platform is even more advanced, and our supply chain is more diversified it has ever been. Bottom line, we believe NextEra Energy is well positioned headed into 2024. And there is good reason for optimism at NextEra Energy.

Speaker 2

Although nobody can predict with certainty what 2024 will bring, inflation and interest rates have declined from their peak and NextEra Energy has taken steps to mitigate its exposure to interest rate volatility through its interest rate hedging program. The Commerce Department has provided the final determination around circumvention, providing solar suppliers with more certainty around the rules and expectations of importing solar equipment. New solar supply chains have been established in the U. S. And internationally, leading to lower solar panel prices, and we see the continued longer term push towards EVs as being incrementally positive for continued reductions in battery prices.

Speaker 2

Solar panel and battery prices have already declined by roughly 25% from their peak over the last 24 months heading into 2024. We have proactively procured critical electrical equipment to complete our renewable projects, securing enough transformers and breakers to cover our expected build through 2027. And due to our scale and construction partnerships, we have not experienced any labor shortages impacting project timelines. Ultimately, all these tailwinds are great for customers and we believe should drive greater renewables demand in 2024 and beyond, all on the heels of consecutive record years for new renewables originations at Energy Resources in 20222023, totaling over 17 gigawatts. NextEra Energy offers a unique value proposition with 2 strong businesses that we believe are strategically positioned with standing prospects for future growth.

Speaker 2

FPL, which represents more than 2 thirds of our company, is the nation's largest electric utility And continues to deliver what we believe is the best customer value proposition in one of the fastest growing states in the U. S. Energy Resources, the world's renewables leader, has differentiated itself in an industry in which Scale, experience and being well capitalized matters. At NextEra Energy, the plan is simple. Our 2 businesses are deploying LP.

Speaker 2

Capital in renewables and transmission for the benefit of customers providing visible growth opportunities for shareholders. At FPL, we identify investment opportunities that drive value for customers and support Florida's growing economy, while keeping bills approximately 30% lower than the national average. We focus on running the business efficiently and continue to lead the industry with the lowest non fuel O and M per megawatt hour of any large utility in the nation. Our emphasis on modernizing FPL's generation fleet to improve efficiency and reduce fuel costs has saved customers over $15,000,000,000 since 2,001. We continue this trend in 2023 by placing into service approximately 1200 megawatts of cost effective solar and expect to add roughly 4,800 megawatts over the current rate agreement.

Speaker 2

And by 2,032, we expect to increase FPL Solar from 5% of our total generation today to roughly 35% by adding over 15,000 incremental megawatts. We are also continuing to invest in FPL's grid to make it stronger and more resilient for our customers. Almost All of FPL's transmission system has been hardened with concrete or steel towers or poles, and we continue to invest in underground in our distribution system to further enhance reliability and resiliency for customers. The capital plan of the current rate agreement of $32,000,000,000 to $34,000,000,000 extends our customer value proposition and provides clear visibility for growth through 2025. Beyond 2025, we continue to believe FPL is strategically well positioned as Florida remains one of the fastest growing states in the U.

Speaker 2

S. With a population growth that is expected to roughly double the national average through 2,030. Florida's economy is also growing and is now the 14th largest in the world if Florida were a country. FPL is responsible for keeping the lights on for approximately $2,000,000,000 per day of Florida's GDP. These long term growth prospects coupled with investment opportunities in renewables and transmission and distribution infrastructure enhance our best in class customer value position and support our belief that FPL is the highest quality rate regulated utility in the country.

Speaker 2

Energy Resources' deep expertise in renewables and transmission serves as a key differentiator with customers. As a result of our data driven development playbook, Energy Resources had a record year of new renewables and storage origination, adding approximately 9,000 megawatts to our backlog. Driven in part by the roughly 5,600 megawatts placed in service in 2023, Energy Resources grew adjusted earnings almost 13% versus 2022. Energy Resources continues to see strong demand and is well positioned to realize its development expectations over the 4 year period ending 2026. Assuming we achieve the midpoint of the range, Energy Resources will be operating roughly 63 gigawatt renewable portfolio by the end of 2026 that would be larger than the installed renewables capacity of all but 9 countries.

Speaker 2

Energy Resources also is extending its excellent track record of optimizing our existing footprint to create additional shareholder value. To date, we have repowered 6 gigawatts of our existing 24 gigawatt wind operating fleet, investing roughly 50% to 80% of the cost of the new build and starting a new 10 years of production tax credits, resulting in attractive returns for shareholders. By 2026, Energy Resources' wind footprint could be roughly 32 gigawatts and with over a decade to potentially qualify for repowering, it represents a great opportunity set. We believe there are multiple opportunities to drive value from the footprint, multiple wind repowers, adding solar underneath existing wind and co locating battery storage with existing wind and solar. And we have dedicated teams leveraging our development playbook to optimize our existing and future fleet.

Speaker 2

We can maximize existing land, permits, interconnection capacity and operations to provide enhanced value to customers and shareholders. By 2026, Energy Resources could operate up to 53 gigawatts of generation with the potential to co locate battery storage, which represents a great long term opportunity, especially considering the likely future capacity needs of customers. Throughout 2023, Energy Resources also continued to build what we believe is the nation's leading competitive transmission business. As growth in renewables occurs throughout the U. S, there is a growing imperative to build additional or upgrade existing transmission.

Speaker 2

2023 was a record year for our competitive transmission business. NextEra Energy Transmission was awarded projects to construct transmission in PJM, Cal ISO and SPP that would roughly double the investments made in the existing business. We anticipate deploying approximately $1,900,000,000 of capital through 2027 to complete these transmission projects, which we estimate could enable up to 12 gigawatts of new renewables. Beyond 2026, Energy Resources is strategically positioned to benefit significantly from the irreversible shift towards electrification. With renewables only comprising roughly 16% of the U.

Speaker 2

S. Generating mix, Energy Resources is just getting started. Renewable penetration is expected to double to over 30% by 2,030 and Energy Resources is ready. We have a substantial development pipeline, including 150 gigawatts of interconnection queue positions for new renewables and storage projects. We believe Energy Resources has the most comprehensive renewable energy business in the world and is better positioned than ever to capitalize on long term growth prospects.

Speaker 2

FPL and Energy Resources individually have executed well, delivering value for our customers. Both businesses complement each other, push one another to be better and together create scale and foster innovation. We have one of the sector's strongest balance sheets and constructed and placed into service roughly 6,800 Megawatts of new renewables and storage projects in 2023. To put that into context, 6,800 Megawatts of installed U. S.

Speaker 2

Renewable generating capacity is enough on its own to rank as the 4th largest U. S. Renewable energy company and the 14th largest utility. Turning to NextEra Energy Partners. We continue to focus on executing against the partnership's transition plans and delivering an LP distribution growth target of 6% through at least 2026.

Speaker 2

Last September, we made the tough decision to reduce the target distribution growth rate to 6% when NextEra Energy Partners no longer benefited from a competitive cost of capital. With the growth rate now comparable to its peers, we are focused on the partnership's cost of capital improving, which is critical for its future success. Towards that end, we are evaluating alternatives to address the remaining convertible equity portfolio financings with equity buyout obligations in 2027 beyond. We are executing against the transition plans and with the Closing of the Texas Pipeline portfolio sale, the partnership has addressed 2 of the 3 near term convertible equity portfolio financings. The STX Midstream Convertible Equity Portfolio Financing has been extinguished and we have sufficient proceeds available to complete the NEP Renewables 2 buyouts that are due in June 2024 2025.

Speaker 2

The 3rd convertible equity portfolio financing associated with the Mead Natural Gas Pipeline assets is expected to be addressed in 2025. Looking ahead to 2024 and beyond, NextEra Energy Partners does not expect to need an acquisition in 2024 to meet the 6% growth and LP distributions per unit target. And the partnership does not expect to require growth equity until 2027. We are executing against the growth plans and have identified 985 Megawatts of Wind Repower through 2026, making progress against our expectations. As we turn the page on 2023 and head into 2024, we are optimistic about the renewable sector about our opportunity set, about customer demand and about NextEra Energy's future.

Speaker 2

Demand for renewables has never been stronger and yet the challenges have never been more complex, making the stakes even higher for customers. Our Scale and competitive advantages are enabling us to be the partner of choice with both power and commercial and industrial customers. On March 14, we will discuss Energy Resources development process in greater detail at our development investor event in Juno Beach and illustrate how our proprietary tools differentiate energy resources with customers. And then on June 11, we will hold our NextEra Energy Investor Day in New York to discuss our long term plans for both energy resources and FPL. Our optimism for NextEra Energy's future flows from the strength of our 2 world class businesses, FPL and Energy sources that leverage our scale and competitive advantages to differentiate themselves as leaders.

Speaker 2

Our optimism is driven from our proven playbooks of deploying capital in renewables and transmission to create value for customers. But I am most optimistic because we have spent The last 2 decades building a world class team at NextEra Energy and it is by far our greatest competitive strength. Our team lives and breathes a culture of continuous improvement, working together to solve the tough challenges of the day. We drive innovation relying on data analytics and automation to make better decisions and we have developed and deployed smart, low cost clean energy solutions that lead our industry. Most importantly, our team remains hyper focused on continuing our long track record of serving our customers with excellence and providing long term value for shareholders.

Speaker 2

With that, let me turn it over to Kirk, who will review the 2023 results in more detail. Thanks, Sean. Let's begin with FPL's detailed results. For the full year 2023, FPL's adjusted earnings per share increased $0.22 versus 2022. FPL's adjusted earnings results exclude the approximately $300,000,000 after tax gain on the sale of Florida City Gas, which closed on November 30, 2023.

Speaker 2

The principal driver of the 2023 full year performance was Average annual growth and regulatory capital employed to be roughly 9% over the 4 year term of our current rate agreement, which runs through 2025. For the full year 2023, FPL's reported ROE for regulatory purposes will be approximately 11.8%. During the full year 2023, we used approximately $227,000,000 of reserve amortization, leaving FPL with a year end 2023 balance of roughly $1,200,000,000 FPL's capital expenditures were approximately $2,000,000,000 in the 4th quarter, bringing its full year capital investments to a total of roughly $9,400,000,000 These capital investments supported the successful commissioning of roughly 1200 Megawatts of Solar in 2023, continued hardening of the grid and our efforts to underground our distribution system. During the Q4 of 2023, our 25 Megawatt Hydrogen Pilot at the Okeechobee Clean Energy Center successfully achieved commercial operations. As a reminder, we plan to utilize this facility together with adjacent solar projects to create green hydrogen and blend it with natural gas at our Okeechobee plant.

Speaker 2

Key indicators show that the Florida economy remains strong and Florida's population continues to be one of the fastest growing in the country. Florida's economy continues to trend upward and its GDP is now roughly $1,600,000,000,000 an increase of 9.3% over last here. For the Q4 of 2023, FPL's retail sales increased 1.6% from the prior year on a weather normalized basis, driven primarily by continued strong customer growth, which increased by nearly 81,000 from the prior year comparable quarter. For the full year 2023, FPL retail sales increased 0 0.6% from the prior year on a weather normalized basis, also driven primarily by the strong customer growth in our service territory. Now let's turn to Energy Resources, which reported full year adjusted earnings growth of approximately 12.9% year over year.

Speaker 2

Contributions from new investments increased by $0.35 per share due to strong growth in our renewables and storage portfolio. Contributions from our existing clean energy assets decreased results by $0.11 per share, driven primarily by the impact of weaker wind resource. 2023 was the lowest wind resource on record over the past 30 years. Our customer supply and trading business increased results by $0.16 per share, primarily due to higher margins in our customer facing businesses. Other decreased results by $0.26 per share year over year.

Speaker 2

This decline reflects higher interest costs of $0.22 per share, of which $0.10 was driven by new borrowing costs to support new investments. Energy Resources delivered our best year ever for origination, adding approximately 9,000 megawatts of new renewables and battery storage projects to our backlog, which includes approximately 2,060 megawatts since our last call. Our 2023 origination performance reflects continued strong demand from power customers looking for the least cost alternative to serve load and to replace uneconomic generation and commercial and industrial customers looking to help decarbonize their operation or meet their data center and AI demand. Our renewables backlog now stands at more than 20 gigawatts after taking into account roughly 2,470 megawatts of new projects placed into service since our Q3 call. We believe our 20 gigawatt backlog provides clear visibility and Energy Resources' ability to deliver for shareholders through 2026 and beyond.

Speaker 2

Turning now to the consolidated results for NextEra Energy. For the full year, adjusted earnings from our Corporate and Other segment decreased by $0.08 per share year over year, primarily driven by higher interest costs. We successfully supported the growth in our underlying businesses from our strong operating cash flows, including the sale of tax credits, as well as historical funding sources. In 2023, we grew cash flow from operations well in excess of our adjusted earnings. We transferred approximately $400,000,000 of tax credits, establishing relationships with numerous counterparties.

Speaker 2

We believe this will prove to be a competitive advantage as buyers look first to NextEra Energy given its size, experience and the overall quality of its tax credit program. Overall, our funding plans for 2024 through 2026 remain consistent with the information we shared on the Q3 earnings call. We continue to believe NextEra Energy is well positioned to manage the interest rate environment. While the recent decline in interest rates is encouraging, we remain committed to managing the business to deliver value for customers and shareholders. Overall, we believe we are well positioned with $18,500,000,000 of interest rate swaps and we will continue to closely monitor the interest rate environment as declines in rates certainly represent a tailwind for our sector and customers.

Speaker 2

Our long term financial expectations remain unchanged. We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted EPS expectation ranges in 2024, 20252026. For the last 14 consecutive years, NextEra Energy has met or exceeded its financial expectation, which is a record we are proud of. From 2021 to 2026, we continue to expect that our average annual growth and operating cash flow will be at or above our adjusted EPS compound annual growth rate range. And we also continue to expect to grow our dividends per share at roughly 10% per year through at least 2024 off a 2022 base.

Speaker 2

As always, our expectations assume our caveats. Now let's turn to NextEra Energy Partners. In terms of the transition plans, NextEra Energy Partners closed the sale of the Texas pipeline portfolio in late December, providing net proceeds of approximately $1,400,000,000 NextEra Energy Partners expects to complete the NEP Renewables 2 buyout of roughly $190,000,000 $950,000,000 on their stated minimum buyout dates of June 2024 2025, respectively, as the partnerships continue to benefit from the low cash coupon through 2025. In terms of NextEra Energy Partners growth plan, as a reminder, it involves organic growth, specifically repowerings of approximately 1.3 gigawatts of wind projects through 2026, as well as acquiring assets at attractive yields. Today we are announcing plans to repower an additional approximately 2 45 megawatts of wind facilities through 2026.

Speaker 2

The partnership has now announced roughly 985 Megawatts of Repowers with strong cash available for distribution yields. While the partnership does not expect to need an acquisition in 2024, the LP distribution growth target of 6% is supported in part with roughly 175 megawatts of wind repowers, which are expected to generate attractive cash available for distribution Finally, we were pleased with the high yield note issuance of $750,000,000 which was completed during the Q4 of 2023. This opportunistic refinancing allowed the partnership to pay off its corporate revolver in mid December. Let me now turn to the financial results for NextEra Energy Partners. 4th quarter adjusted EBITDA was $454,000,000 and cash available for distribution was $86,000,000 Adjusted EBITDA growth versus the prior year comparable quarter was primarily due to new asset additions and the incentive distributions right fee suspension, while cash available for distribution was also impacted by incremental debt service.

Speaker 2

For the full year 2023, adjusted EBITDA was approximately $1,900,000,000 up 13.6% year over year and was primarily driven by the contribution from new projects acquired in late 2022 and during 2023 and the incentive distribution right fee New investments added approximately $228,000,000 and the incentive distribution right fee suspension added approximately $113,000,000 of adjusted EBITDA year over year. This growth was partially offset by a decline from existing projects driven primarily by weaker wind resource. Cash available for distribution was $689,000,000 for the full year and primarily driven by contributions from new projects of approximately $42,000,000 and the incentive distribution right fee suspension of $113,000,000 while being partially offset by the weaker wind resource. Yesterday, the NextEra Energy Partners Board declared a quarterly distribution of $0.88 per common unit were $3.52 per unit on an annualized basis, which reflects an annualized increase of 6% from its Q3 2023 distribution per unit. The partnership grew its LP distributions per unit by more than 8% year over year.

Speaker 2

From an updated base of our Q4 2023 distribution per common unit at an annualized rate of $3.52 we continue to see 5% to 8% growth per year in LP distributions per unit with a current target of 6% growth per year as being a reasonable range of expectations through at least 2026. We continue to expect the partnership's payout ratio to be in the mid-90s through 2026. We expect the annualized rate of the Q4 2020 for distribution that is payable in February 2025 to be $3.73 per common unit. NextEra Energy Partners is introducing December 31, 2024 run rate expectations for adjusted EBITDA in a range of 1.9 $2,100,000,000 and cash available for distribution in a range of $730,000,000 to $820,000,000 reflecting calendar year 2025 expectations for the forecasted portfolio at year end 2024. As a reminder, our expectations are subject to our caveat.

Speaker 2

That concludes our prepared remarks. And with that, we will open the line for questions.

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble the roster. And our first question will come from Shahriar Pourreza of Guggenheim Partners. Please go ahead.

Speaker 3

LP. Just starting on LP. I guess how are you sort of thinking about funding it? And really more importantly, is there any specific Status on the money pool that could be looking to buy in directly into projects, whether it's dropdowns or organic growth at the net level, Could these sort of equity investors help solve the 26 growth and financing issues? And I guess when do you plan to update on that?

Speaker 2

Sure. So with respect to repowering Shar, we look at that as on the project level. There's really 2 options there. We can look at it from a project financing standpoint and pair that with transferability or we can look at it as tax equity. So LP.

Speaker 2

So we will look at both of those options and decide that at the time of the repowerings. With respect to your Good question. We are looking at all options right now as John said in the prepared remarks. We are exploring a number of opportunities and alternatives for addressing the convertible equity portfolio Things that are coming due in 2027 beyond. There's really not a timeframe in terms of the update now, but we are looking at all options and with the goal of really maximizing unitholder value.

Speaker 4

Got it.

Speaker 2

Yes. And Shar, this is John. Just adding on to that, again on the repowers, just like we do at knee, I mean, just think LP. And again, the private capital raises provide us With a number of options, but we're looking at a lot of different alternatives, that being one of them.

Speaker 3

Okay, perfect. And then lastly, John, we haven't had Any updates from the SEC? Has anything sort of been communicated to you regarding sort of the investigation, how quickly You will look to settle assuming they take up the case. And as we're kind of thinking about the process, right, it's confidential. So curious on how you're going to update investors like Would we see a press release or an 8 ks from you confirming the FEC process and that you'll update investors In the future on next steps or could we see a single communication on the FEC pickup and a concurrent Settlement, let's say.

Speaker 3

I'm just trying to assess how long this could be an overhang assuming the case moves forward and whether you've already laid the groundwork for all options to get this kind of past this quick when a ruling comes out? Thank

Speaker 2

you. L. B. So let me just take those in order. First of all, there's no update.

Speaker 2

We have not been contacted by the FEC. And I think Just to remind investors of the timing, first of all, these are just guidelines I'm LP. I mean, there is no prescribed timeline in terms of the FEC providing But as you may recall, we originally received the FEC complaint, I guess, is what you would call it, That had been filed by a group called CRU back in November of 2022. And if you follow the historical precedent of the FEC. It's usually 12 to 18 months after you first are notified of a claim LP.

Speaker 2

Filed that you would learn whether or not the FEC decides to find that there is reason to believe that they ought to conduct LP. We have not heard anything from the FEC in that regard. The second thing I would remind investors of is this is Not material. Again, these were 5 allegations totaling political contributions of Roughly $1,300,000 to $1,500,000 So we're talking about smaller Our amounts and how and when we would update investors would depend on what exactly we hear from The FEC.

Speaker 3

Perfect. Thank you very much. Appreciate it, guys. See you soon and congrats on the results. Appreciate it.

Speaker 2

Thank you, Shar. Thanks, Shar.

Operator

The next question comes from Steve Fleishman of Wolfe Research. Please go ahead.

Speaker 4

Yes, hi. Good morning. Thanks. I guess a couple of big picture questions. First, obviously a lot more focus In the elections now as we're in 'twenty four and curious your thoughts In the event of Republican trifecta, so to speak, just how you're thinking about the sustainability of IRA provisions?

Speaker 2

Sure, Steve. Let me go ahead and take that. This is John. First of all, in the 21 years I've been at the Company, as we've changed administrations and we've seen changes in Congress, we've never seen a change or appeal Of tax credits, no matter what form they've taken, Ira is the form we're talking about here. So that's the first Point I would make.

Speaker 2

2nd, it's really hard to overturn existing law. I think Obamacare is a very good example of that. It's just very difficult no matter what the political wins are. The third point I would make is that The Ira benefits both sides of the aisle. It certainly is advantageous for obvious reasons for Democrats, but it also has a big benefit to Republicans, because if you think about Where the investments are being made around Ira and where a lot of the benefit of Ira is flowing, it's flowing to Republican States and it's flowing to parts of those states that are really difficult to stimulate Economically, and we're talking about rural communities in these states.

Speaker 2

And so when we come in and we build a Wind project, we built a solar project, we built a battery storage project. It's a complete turnaround for these communities. We're providing An economic base in the form of jobs. We're providing an economic base in the form of spending that in that community will provide an economic base in the form of property taxes and sales tax revenues. These are 180s for these rural communities and make a huge difference on their viability going forward.

Speaker 2

Just think about Hospitals and staffing doctors at county hospitals or paying teacher salaries. I mean, the property tax revenues have significant benefits. And so for those reasons, we've always been able to work with both sides of the aisle. So see any Feel of Ira as being unlikely.

Speaker 4

Okay. And I guess 2 other big picture questions on the renewables business. Just Any kind of new thoughts color on your data center strategy and also your thoughts on hydrogen after the based on the post rules that came out?

Speaker 5

Good morning, Steve. It's Rebecca. First on the data centers, Clearly, there is an enormous amount of demand being driven across the U. S. Economy by the growth in data centers, driven by a lot of things, of course, but specifically generative AI, and that growth is pretty explosive at this point.

Speaker 5

And I think the characteristics of that demand are a little bit unique and driving different ways in approaching the marketplace for a number of these technology companies, where it is imperative that these projects get built on time, on budget and produce the energy that they're Expecting, because the opportunity cost for these customers is so significant, if they aren't able to power them and, of course, meet the commitments that they've made to their own stakeholders. So we're seeing those relationships expand and also deepen, where it's not Just signing the megawatts of the day, but also working with them collaboratively over a long period of time to ensure that they get the energy and capacity that they need where they needed to support their projects. Just alone in

Speaker 3

our backlog, not even counting what

Speaker 5

we have installed, we have Not even counting what we have installed. We have over 3 gigawatts of projects that we're building in the coming years for these LP. And I do believe that's the tip of the iceberg. And again, not even talking about what we already have installed. So it's pretty exciting, and our Team is very ingrained in working with these customers, and we're excited about the years ahead.

Speaker 5

And then turning to hydrogen, Obviously, the guidance that first came out, the draft guidance in December is really steering towards hydrogen projects that will be essentially from day 1, needing to match on an hourly basis. And that, of course, increases the ultimate cost of hydrogen. And unfortunately, I think if it stands as currently drafted, would limit to an extent how much will be built for the U. S. Market.

Speaker 5

We're obviously advocating for more of a relaxed matching requirements and more of an annual match for a period of time and then transitioning to hourly over time, so that you can kick start the hydrogen market. And hopefully, We'll hear that and know that having a kick started hydrogen economy will certainly further their ambitious goals, which of course we are very excited about meeting to see the full decarbonization of the U. S. Economy over time. So more work to be done and we're excited to pursue the marketplace.

Speaker 5

Regardless, these are probably end of the decade type projects. So more of an investment in the near term for opportunities in the long term.

Speaker 4

Okay, great. Thank you very much.

Speaker 6

Thanks, Steve.

Operator

The next question comes from David Arcaro of Morgan Stanley. Please go ahead.

Speaker 7

Hey, good morning. Thanks so much for taking my question.

Speaker 4

Good morning, Adam.

Speaker 7

Maybe on the renewables demand side of things, Could you give a little bit more detail on the origination trends that you're seeing? I guess it looked like solar and storage quite Strong in the quarter, but then wind a little bit lower in terms of the new bookings added. Maybe what's your latest confidence In achieving those 25 and 26 targets, particularly on the wind side of the business?

Speaker 5

Hey, Dave, it's Rebecca. I'll take a first cut at that. We're obviously excited about the origination, as John and Kirk have highlighted, originating 17 gigawatts over the last 2 years and in both years serving as a record. So this year Last year's record is very exciting. We also, of course, see the mix being more focused towards Solar and storage and as I've commented in the past, I think some of this is an after effect of the strong demand that we saw going into 2020 when we and others thought that the production tax credit would ultimately phase down and then ultimately go to 0 over a period of time.

Speaker 5

So there was a pull forward of demand. And then the second dynamic that I think has impacted the short term is that the solar production tax Credit clearly simulated near term demand and deployments for our customers and obviously we're very excited about that. Storage is growing at least as well as we thought, perhaps exceeding even our expectations in terms of adoption, not just in the Western markets, but now really spreading in a very constructive way through the Midwest. And we've got, as John highlighted in the prepared remarks a really advantaged position to be able to respond quickly to the demand characteristics that we're seeing where our customers need capacity quickly, where they hadn't anticipated the demand that they would see in their underlying business. And so getting to market quickly is very much a premium and a priority and we're there to serve them well.

Speaker 5

In that storage market, as we've talked about from a returns standpoint, it's an awful lot like wind, and it's certainly complex to deliver the value, that our customers are looking for in the various streams. I'd say the other part that is at least as strong as we anticipated when we laid out the expectations is repowering. And we're excited about the economics of that and economics specifically in context to the value that it brings to Bringing some incremental generation and extending the life of these projects, often extending the contracts with our customers at the same times that we do repowering. So overall, with all those comments in context, I feel really good about meeting our development expectations in aggregate. We'll continue to look at the mix in individual technologies over time.

Speaker 5

But at this point, we're LP. Leaving the ranges as we've had them now for a couple of years, in part to reflect what I'm sure you recall, wind is a very short development cycle, Maybe not the actual laying the groundwork to be able to build a project, but when we enter into a contract and Acquire the turbines and put it into service can be as short as 9 months. So there's still a lot of time left between now and the end of 'twenty six to add more wind to the to not only the backlog, but ultimately commission. And when I look at the forward couple of quarters, there are Couple of chunky opportunities that our teams are working on, and I feel good about bringing them some of those to fruition.

Speaker 7

Excellent. Thanks for that. Very helpful. And then maybe secondarily, just it sounds like the backdrop It's gotten more challenging for small developers in the renewable space. Wondering if you're seeing opportunities for market share gain as a result and potentially Any development pipelines to pick up from developers that might be struggling right now?

Speaker 5

Sure. We always are out in the development rights acquisition market. In the recent couple of years, we've really prioritized our greenfield portfolio, in part because of our ability to work so closely with our customers and make sure that we're building the projects over the long term, where they need But we will always be opportunistic in the development project market to be selective and create opportunities where it may be particularly attractive. The dynamic From a couple of years ago where a number of the development portfolios were acquired by folks looking to, I would say, compete with us, but certainly have a bigger presence on the development side. We haven't seen those holistically come back to market.

Speaker 5

I think that may change over time. I know the private equity cycle of wanting to be able to turn over capital quickly and realize isn't necessarily completely aligned with the development cycle where Sometimes things are a little bit faster, a little bit slower than you anticipated and you need to be patient. So I'm optimistic there'll be opportunities. But most importantly, and this is one of the things that we'll focus on in March is we want to keep Our fate, our development opportunities in our own hands, and I am super excited about what our team is working on from a greenfield development standpoint the competitive advantages that we're investing in to make sure that we can serve our customers well, not just in the next 2 or 3 years as we often talk about for you with you all, but in the next 5, 7, 10 years plus down the road.

Speaker 7

Okay, great. Thanks so much for all the color.

Operator

The next question comes from Carly Davenport of Goldman Sachs. Please go ahead.

Speaker 6

Hey, good morning. Thanks so much for taking the questions. I wanted to just ask about transmission. You highlighted the $1,900,000,000 of capital through 27 And as we look at the EBITDA contributions at NEAR for 2024, that piece is moving higher as well. So Could you just talk a bit about what sort of growth you could see at NEAT over the next several years and then what that EBITDA contribution could be over time?

Speaker 5

Good morning, Carly. So from the pipeline perspective, as no doubt you appreciate, transmission opportunities take a couple of years to come to fruition. So we're thrilled with the awards that the team has been able to secure in the last On one part of it, building on investments that we already have, so expansion opportunities that are Significantly enabling new renewables development headed into the California market. And then other parts The U. S.

Speaker 5

Competitive opportunities that we went through competitive processes. In terms of Timing, as we highlighted in the prepared remarks, the in service dates are out to 2027. So as we invest capital, Obviously, that will start to become more of a material contribution over time. And we'll give more color as we get into the investor conference as we typically do to give more of a breakdown by business and what those contributions will look like over time. But the momentum is terrific.

Speaker 5

And as we've highlighted, everybody understands, maybe not to the extent that we think it's going to happen, but in order to unlock the renewables opportunity that we and others see across the United States. Transmission needs to be built, and we stand ready to be a part of the wherever we can be and bring cost effective solutions to customers.

Speaker 6

Great. Thank you for that. And then Maybe just one more on the financing side for this year. Just based on what you've seen so far in the markets, how are you thinking about the mix Of the different avenues that you can use to monetize tax credits, whether through tax equity or transferability, how do we think about the sort of magnitude of each of those in your financing plans for 2024?

Speaker 2

Yes. Carly, this is Kirk. The financing plan as we shared in our prepared remarks is consistent with the information we shared on the Q3 call. And As we approach those options, we will use the historical approaches project finance And tax equity, and but we are also very encouraged by what we're seeing with the transferability market. We are Having really good progress with in those conversations, we're seeing really good demand for the NextEra Energy Tax Credit.

Speaker 2

And ultimately, we look at all those as options and we'll optimize between project finance and transferability and tax equity. And we will use those within the ranges that We shared in the 24 to 26 funding plan that we provided between the disclosure that we provided, but we are seeing really good demand for the credits and expect to continue to utilize transferability as an option going forward.

Operator

The next question comes from Jeremy Tonet of JPMorgan. Please go ahead.

Speaker 8

Hi, good morning.

Speaker 2

Good morning, Jeremy.

Speaker 8

Just wanted to build off that a little bit as what you're talking about before. How do you balance, I guess, Looking forward, the wealth of growth opportunities in the associated funding needs relative to dividend growth, do you look at industry trends for dividend growth at all and how that might change as utility CapEx increases and just a final point there, just wondering how the E and P business competes for capital against everything else that you have in a lower gas price environment?

Speaker 2

Sure. So, when we look at capital allocation and you look We shared on the Q3 call, the returns that we see within the renewable business And as we shared in at Energy Resources within For wind, we see returns in the low 20s on a levered ROE basis. In solar, we The returns in the mid teens and then storage is also in the low 20s. And so It's great returns and we look to get capital allocated to the renewable business. And that As John discussed in the prepared remarks, we are allocating capital across both businesses and Renewables and Transmission.

Speaker 2

And so that is the priority with the way that we allocate capital. And then in terms of The funding of that, again, it's the way that we've traditionally funded the business. It's tax equity, it's project finance, and then we also use the transferability

Speaker 8

Got it. Thank you for that. And then maybe just pivoting a little bit towards The backlog, a lot of additions in the quarter, but there was a little bit that fell out, I think $350,000,000 and there was a little bit more in the post 2026 timeframe that's in the backlog. So just wondering if you could talk a bit more on kind of some of the drivers, the puts takes within the portfolio addition composition over time?

Speaker 5

Sure. I'll take that. In terms of the obviously, the clog additions are quite strong and we're thrilled about that. And for this quarter in terms of the removal that we had, it's really project Specific items in one part is really related to higher interconnection costs for a particular project where we need to go back and do a little bit more work. Very likely, these project megawatts will come back into the backlog.

Speaker 5

They're The projects, but in the near term, we're removing them while we work through the issues. I think it's important to keep in mind that as we add something to the backlog. It's tremendous visibility and we're really excited about moving forward with the projects based on what we know at the time. But this is still a development business, and there are things that you have to work through before you commit significant capital to a project and occasionally some of those things that we work through are better, sometimes they're a little bit worse and we need to make the decisions that are ultimately right for our shareholders at the time that we need to make them. So in context of a 20 plus gigawatt portfolio, I think it's de minimis for what is kind of the normal run rate for development type issues.

Speaker 5

And fortunately, we've worked through the issues that we had talked about over the last 2 years around antidumping, countervailing duties and the significant changes in the marketplace related to The inflationary pressures and changes in the interest rates. So at this point, I think we're in kind of like normal development. Every once in a while, there's something that changes our view on a specific project and we're going to do the right thing from a shareholder perspective and only commit capital where it makes sense.

Operator

This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
XPLR Infrastructure Q4 2023
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