PG&E bankruptcy forces Clearway to cut dividend, forego solar deal

Solar power plant. Source: Gamesa Electric

February 14 (Renewables Now) - Clearway Energy Inc (NYSE:NYLD) today unveiled some measures taken by the US energy infrastructure investor, including a dividend reduction, in view of the bankruptcy of one of its largest customers -- Californian utility PG&E.

Clearway Energy, a renewable and conventional generation company previously known as NRG Yield Inc, said in a statement that its board has declared a quarterly dividend on each of the firm’s Class A and Class C common stock of USD 0.20 (EUR 0.177) per share for the first quarter of 2019, which is a reduction from a distribution of USD 0.331 apiece made in December. The newly-announced payment will be made on March 15, 2019 to shareholders of record as of March 1, 2019.

Jonathan Bram, chairman of Clearway Energy’s board and founding partner of its controlling shareholder Global Infrastructure Partners III (GIP), stated that the dividend reduction is aimed at proactively maintaining the company’s balance sheet and capital allocation flexibility.

At the same time, Clearway Energy will exercise the equity backstop with GIP for the acquisition of a gas-fired power plant in California, and forego a drop-down offer from NRG Energy Inc (NYSE:NRG) concerning an additional 35% interest in the 290-MW Agua Caliente solar project located in Dateland, Arizona.

Following the equity backstop Clearway Energy is revising down its 2019 cash available for distribution (CAFD) forecast to USD 270 million from USD 295 million.

All of these actions reflect last month’s announcement by PG&E Corporation (NYSE:PCG) that, alongside fully-owned California utility Pacific Gas and Electric Company, it has filed for bankruptcy.

“The PG&E bankruptcy has heightened the risk that project level cash distributions could be restricted for an undetermined amount of time, thereby impacting the Company’s corporate liquidity and corporate leverage,” commented Christopher Sotos, Clearway Energy’s president and CEO. He noted that the dividend will be reassessed once the PG&E situation is clarified.

Clearway Energy pointed out that it owns or has invested in 1,200 net MW of electric generation projects that have long-term supply or capacity contracts with PG&E. The utility's bankruptcy filing has triggered defaults under the power purchase agreements (PPAs) and related project level financing deals. Among these assets is the Agua Caliente solar park.

The company explained that unless an agreement is reached with project level lenders, distributions from these projects may not occur during the bankruptcy process and this could lead to Clearway Energy accumulating less unrestricted cash.

As of end-2018, the company’s unaudited balance sheet included about USD 1.4 billion of non-recourse debt associated with assets with PG&E contracts, which represent some USD 90 million of potential exposure to 2019 project level CAFD.

As of February 14, 2019, PG&E has not indicated if it might take any actions regarding these contracts.

Meanwhile, Clearway Energy said its right of first offer (ROFO) pipeline has expanded with the addition of Hawaii Solar Phase II, which includes two solar-plus-storage projects in Oahu, Hawaii, totalling 75 MW. These are the 39-MW Mililani I Solar and 36-MW Waiawa Solar Power projects with expected commercial operation start in 2021.

(USD 1.0 = EUR 0.885)

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Ivan is the mergers and acquisitions expert in Renewables Now with a passion for big deals and ambitious capacity plans.

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