Clearway Energy: Dividends from Community Power

The solar and wind generation assets of Clearway Energy, Inc. (CWEN:  Nasdaq) are flung all across the continental United States and the Hawaiian Islands. Altogether, the company’s projects have a capacity of 4.4 gigawatts composed of utility-scale wind and solar plants.   Community and distributed solar sources add another 300 megawatts.  Over the last year Clearway recorded $1.18 billion in total revenue from power sales, earning $57 million in net income or $0.49 per share. 

Of course, for dividend-hungry investors, cash is more interesting.  Clearway captured $508 million in operating cash flow from the $1.18 billion in sales.  That represents a sales-to-cash conversion rate of 43% which is lower than the average conversion rate of 47% over the last four years. 

Clearway has been busy building its portfolio, making one or two announcements a month in each of the last few months for new projects, pacts with local power aggregators or successful project financings.  The company’s most recent victory is in California where Clearway as struck agreements with two community aggregators for power from its 200-megawatt solar project at Victory Pass near Riverside County.  The Victory Pass project features 200 megawatt hours of storage that could be particularly helpful for communities that are increasingly under pressure from exceptional summer heat.

Indeed, Clearway appears to be carving out a defensible position in the local niche of the renewable power industry.  In April 2021, the company announced completion of its first community solar farm in Illinois.  Community solar farms are constructed on unused farmland and then subscribed to local residential and commercial customers.  The arrangement has advantages over distributed residential or office building installations by avoiding the complexities of building codes, zoning restrictions or homeowner association rules as well as bypassing the limitations of unskilled homeowners.  The arrangement also makes it possible communities that are too shady or have insufficient wind to economically access solar and wind energy.  Community solar also opens the door to renters as subscribers, who receive federal and other tax credits in proportion to the investment right along with landowners. 

There is plenty of room to grow in the community solar farm market.  Only thirty-nine of the fifty states have taken the first step toward this powerful renewable energy vehicle.  That bodes well for Clearway’s future growth.  In a presentation in May 2021, management described a development pipeline with potential for 10 gigawatts of new power generation.

That pipeline is apparently giving management confidence in future cash flows.  Leadership has also pledge 5% to 8% annual dividend growth over the next five years.  The company first paid a dividend in 2015 and has not skipped a quarter payment since.   Indeed, the dividend has increased steadily to $0.329 per share in May 2021, which is significantly higher than the first dividend of $0.20 per share in May 2015.  This track record gives management some credibility in its pledge and makes CWEN a worthy target for dividend hunters.  Of course, the 5.0% forward yield is also a good incentive.

 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.