Enlight Renewable Energy Ltd (ENLT) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Enlight First Quarter 2023 Earnings Call and Webcast. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Yosef Lefkovitz. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining our first quarter 2023 earnings conference call for Enlight Renewable Energy. With me this morning are Gilad Yavetz, CEO and Co-Founder of Enlight; Nir Yehuda, CFO of Enlight; and Jason Ellsworth, CEO and Co-Founder of Clenera. Gilad will provide some opening remarks, and will then turn the call over to Nir for a review of our first quarter results, and then to Jason for a review of our U.S. activity. Our executive team will then be available to answer your questions.

Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity and potential growth, completion of development and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA, may be forward-looking statements within the meaning of the U.S. federal securities laws, which reflect management's best judgment based on currently available information. We reference certain project metrics in this earnings call, and the full information can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable. We undertake no obligation to revise any statements to reflect changes that occur after this call.

Additionally, non-IFRS measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations web page.

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

Thank you, Yosef, and thank you all for joining us today. Enlight delivered record quarterly results in the first quarter, and our strong start to the year gives us further confidence in reiterating our guidance for the year. As a brief reminder for those new to our story, Enlight is a greenfield developer of utility-scale renewable energy projects. We source projects from scratch organically and control the full project life cycle.

As the first pure-play utility-scale developer to be publicly traded on a national exchange in the U.S., we aim to deliver value to our shareholders by continuing to deliver on our twofold objectives, executing on above-market project returns and above-market growth. Our unique footprint across the U.S., Europe and Israel provides opportunity in some of the fastest-growing renewable markets in the world. We have significant portfolio diversification, not just in geography, but in technology and revenue structure. We are not only in solar but are also experimenting storage and wind, and we believe we have a cost of capital edge.

Now moving on to our Q1 results. Quarterly revenue grew 103% year-on-year to $71 million. Net income grew 275% year-on-year to $33 million, and adjusted EBITDA grew 118% year-on-year to $54 million as we continue to benefit from the ramp-up of our operational portfolio totaling 1.4 gigawatts today. These are record quarterly figures for the group.

In comparison to the same period last year, the company added Emek Habacha, Gecama and Bjornberget to its operational portfolio, totaling 810 new megawatts. These new projects collectively contributed $32 million of revenue. We also benefited this quarter from the indexation of PPAs to our operational portfolio at an average of 6% year-on-year, which contributed $2 million of quarterly revenue, which is a unique advantage in today's inflationary environment.

We are also seeing significant growth in our cash flow generation. The company generated cash flow from operations of $55 million in the first quarter, a growth of 315% year-on-year. We believe this rapid growth is poised to continue at pace over the coming years as we execute on the conversion of our mature project portfolio. By 2025, we expect to reach 4.5 gigawatts and 3.5 gigawatt-hour of operational capacity, over 3x our current operational capacity.

To deliver this growth, we are laser-focused on execution. First, regarding our portfolio under construction, the 1 gigawatt and 1.7 gigawatt-hour of projects we have under construction are moving ahead as scheduled. I would like to hit on some of the major projects.

Apex Solar, our first project in the U.S., is concluding construction and on schedule with the COD anticipated by end of the second quarter 2023.

Genesis Wind, the largest renewable energy project in Israel, which we have expanded to 207 megawatts this quarter, is in the midst of commissioning and is on pace to reach COD by the end of the third quarter this year.

Atrisco Solar, a 360 megawatts and 1.2 gigawatt-hour project in New Mexico, which commenced construction last quarter, has made significant progress. We believe project is on schedule to reach COD by the end of the second quarter 2024.

Moreover, we made significant progress during the first quarter on the project finance package for Atrisco. The company is negotiating arrangements with several lenders to provide both a construction facility exceeding $800 million permanent back leverage of $380 million and tax equity of $450 million. At competitive terms. The banks include some of the largest and most active financial institutions in the renewables sector, highlighting the strength of the project. We are on target to reach financial close before the end of the second quarter and hope to have further details upon closing.

In their first full year of operations, Apex, Genesis Wind and Atrisco are expected to contribute $90 million of annual EBITDA in total.

Moving to our pre-construction portfolio totaling 2.1 gigawatts and 1.8 gigawatt-hour. The majority of this portfolio is driven by two main projects: One, CO Bar, one of the largest solar products in the U.S., totaling 1.2 gigawatt solar and 824 megawatt-hour storage; and two, Gecama Hybrid, the hybridization of our operational wind farm in Spain with co-located solar and storage. Both projects are moving ahead on schedule.

Starting with CO Bar. In the first quarter, the company contracted an additional 475 megawatts of the cluster. Nearly 1 gigawatt of the project is now contracted. With the remainder of the solar project expected to be contracted with a different counterparty in the coming months. The first 824-megawatt hour of storage at the site is expected to be contracted in the coming months as well. Jason will elaborate more in his remarks on this unique and strategic project.

Gecama Hybrid has received its interconnection and is in the process of permitting now. Once the permit is secured, the project will be largely de-risked, and we will commence procurement of key equipment. Construction is on schedule to commence by the end of the year.

If we aggregate the contribution of these two projects in their first full year of operations, CO Bar and Gecama Hybrid, we expect to see over $100 million of annual EBITDA. We are also pleased to have further increased the size of our mature project portfolio this quarter by 800 megawatt-hours, reflecting the addition of one stand-alone storage project in Italy and a stand-alone storage cluster in Israel, both of which are expected to reach COD by 2025.

We believe that our growth trajectory is clear, and we are poised to deliver not just this iconic project, but also our mature project. We believe we will continue to drive strong execution across our development verticals and project financing.

Taking a step back on our IPO road show, we emphasized two elements of our strategy, growing faster than the market and delivering project returns that are above market. I've just described the growth strategy we are on. I would now like to spend some more time on returns.

We are focused on maintaining the return targets we have set, delivering above-market returns on our project, and we are pleased with the results. This is driven by: One, our greenfield development expertise, particularly on interconnection, enabling us to secure attractively priced PPAs; and two, game-changing benefits under the IRA.

In the first quarter, we successfully amended nearly 500 megawatts of PPAs at an average price increase of 30%. This is in addition to the nearly 1 gigawatt, we amended last year. These price increases are designed to enable us to offset the return compression we have seen from increased CapEx and financing costs. Our ability to secure price increases is driven by the strategic interconnection position on our projects. Our projects are advanced from an interconnection perspective.

As of the date of this release, we have nearly 8.7 gigawatts past system impact study, which we believe is a unique position in the U.S. market. This also puts us in a strong position to negotiate attractive PPA pricing. We signed another 475 megawatts of PPAs this quarter at attractive pricing terms.

Our portfolio's returns have also uniquely benefited from the Inflation Reduction Act. PTC benefits our U.S. portfolio in significant ways as it's largely located in the Western U.S. location that are perfect for solar. We are also pleased to share more information surrounding our U.S. portfolios present in energy communities according to the latest treasury guidance under the Inflation Reduction Act.

As of the date of this release, we estimate that approximately 25% of our total U.S. portfolio is located in energy zones and is, therefore, expected to benefit from a 10% ITC or PTC adder. This will further enhance the returns of such projects. We believe our unique portfolio is poised to deliver above-market returns despite higher interest rates and a broader inflationary environment.

Today, we are pleased to present our funding capabilities, which is informed by the strong growth and return profile of our project portfolio and supported by our strong financial position after the U.S. IPO. We believe we have sufficient equity capital required to complete the mature project portfolio, which includes 4.5 gigawatts of generation and 3.5 gigawatt-hour of storage, utilizing existing resources, including cash on hand and distribution generated from our project or based on our current operating plan, and its underlying assumptions.

Moreover, we believe we have the financial flexibility to further accelerate our growth thereafter at our stated project deployment guidance of 1.5 gigawatts per year from 2026 based on the current operating plan through a combination of distributions generated from our projects, proceeds from sale of a minority ownership stake of our project in the U.S., issuance of unsecured bonds or project refinancing without requiring additional equity financing.

In our investor presentation posted to the company's website, we have included additional detail on our financing capabilities. In short, we had an excellent Q1, and we believe that our successful IPO has put us in a unique financial position to capture the massive opportunity we see ahead.

I'll hand it off to Nir, who will provide more details on our Q1 performance.

Thank you, Gilad. In the first quarter of '23, the company's revenue increased to $71 million, up from $35 million year-over-year, a growth rate of 103%. The growth was mainly driven by the revenue contribution of new operational projects as well as the inflation indexation embedded in the company's PPA for projects that were already operational last year.

In comparison to the same period last year, the company added Emek Habacha, Gecama and Bjornberget to its operational portfolio, totaling 810 megawatts. These projects collectively contributed $32 million of revenue. The company also benefited from inflation indexation embedded in its PPA, which contributed an additional $2 million of revenue during the quarter. This reflected an average indexation of 6.3% across 483 megawatts of PPAs. 42% of the company's operational project possessed PPA with annual inflation indexation, which we believe is an advantage in today's inflationary environment.

Finally, the year-over-year increase was also partially driven by the recognition of all proceeds from the sale of electricity by the Halutziot project as revenue following its reclassification out of financial assets in the second quarter of '22, which contributed an additional $2 million to the revenue in the first quarter of '23. This positive impact totaling $36 million were offset by weaker currency exchange rate, particularly between euros to U.S. dollar, which had a $2 million impact.

In the first quarter, the company net income increased to $33 million, up from $9 million year-over-year, a growth rate of 275%. $40 million of the growth was driven from new projects. The residual growth of $11 million was driven from interest income on deposits as well as foreign exchange impacts, strengthening U.S. dollar relative to shekel, on our cash-on-cash equivalents.

Moving on to adjusted EBITDA. In the first quarter of '23, the company adjusted EBITDA more than doubled to $54 million compared to $25 million for the same period in '22. The increase was driven by the same factors, which affected our revenue increase in the same period, offset by $3 million increase in overhead as the team scales to accommodate rapid growth. The first quarter benefited from higher EBITDA on Project Gecama as the vast majority of the production was hedged at high prices.

In addition to the above, the company sold $3 million of electricity in projects treated as financial assets in the quarter, which under IFRS, we are required to account for as financing income or other non-P&L metrics.

Moving to '23 guidance. We are pleased to assume our outlook for '23, including revenue between $290 million and $300 million, adjusted EBITDA between $188 million and $198 million. I will note that electricity sold by our financial asset is not included in our financial guidance.

I will now hand it over to Jason, which will go into detail on some of the key themes we are seeing in the U.S.

Thank you, Nir. It's great to be part of the Enlight team at such an exciting time. In the U.S., the company delivered meaningful progress across its large portfolio during the quarter. Gilad mentioned Apex and Atrisco, both are in construction and progressing on schedule. In Montana, Apex Solar is on track to achieve commercial operations by end of Q2. In New Mexico, construction crews are advancing Atrisco Solar on schedule for a Q2 2024 completion.

With Apex and Atrisco, the company is demonstrating ability to pay strong project economics and predictable execution, all with attractive project financing. In Arizona, the company is making meaningful progress on the CO Bar project. At 1,200 megawatts of solar and 824 megawatt-hours of storage or ultimately 4 gigawatt-hours of potential storage, CO Bar is a huge project. As Gilad noted, we successfully contracted an incremental 475 megawatts on the project, bringing the total contracted solar at CO Bar to nearly 1 gigawatt. A PPA on the remaining 200 megawatts is presently under negotiations, and that PPA will add the first 824 megawatt-hours of storage on the project. More details will be announced in Q3.

On the development front for CO Bar, the project has primary land control and permitting in place. The system impact study for interconnection is complete, and the facility study is nearing finalization but moving slowly. By signing and funding an E&P, or Engineering and Procurement, agreement with APS, we've implemented a mechanism that allows us to advance interconnection engineering and long lead time orders despite possible delays finalizing the facility study. CO Bar is expected to start construction in the fourth quarter of 2023 and achieve COD in phases through 2025. Discussions are underway on contracting all or a portion of the remaining 3.2 gigawatt-hours of storage capacity at the project.

CO Bar lays the foundation for completing a series of other large projects in Arizona, and builds on relationships we have with Arizona utilities. In Arizona, we see a combination of lots of sunshine, good land, great utilities and strong demand for both generation and capacity. All that, coupled with our large Arizona development portfolio, signals great things to come for the company in the Grand Canyon state.

Across the portfolio, we continue to make significant progress on project development, especially interconnection, with more than 8.7 gigawatts of projects past system impact study, that's incrementally 240 megawatts versus where we were in Q4. The company believes it is well positioned to accelerate its growth in every one of its U.S. target markets. While some interconnection delay may be unavoidable, the advanced stage of our projects allows us to move forward confidently on scheduled milestones, knowing the utilities and their unique transmission rules and processes allows us to address most delays as they arise.

One example is the use of E&P, or Engineering and Procurement, agreements to keep projects on schedule. Pricing power remains strong given the advanced stage of our interconnections and related development versus the market. We have an amazing crop of maturing projects, and we look forward to updating the investor community as major milestones are reached, especially as PPA awards are converted into signed PPAs, we see significant demand for our projects with particular emphasis on storage. Based on the published U.S. treasury guidance, the company can now estimate the percentage of its U.S. portfolio, which may benefit from the Energy Community Tax Credit adder under the Inflation Reduction Act.

The Energy Community adder gives a 10% multiplier to the project's PTC value, and a potential 10% addition to the ITC rate. The company estimates that approximately 25% of its portfolio in the U.S. may qualify under the guidance. Note that the 25% estimate does not include any projects that may qualify as brownfield sites. We are reviewing brownfield possibilities in detail, and we'll have a more informed view by end of quarter.

Moving to supply chain. The company's diversified sourcing strategy continues to meet its module supply needs in the United States. The company has the right to purchase up to 2 gigawatts of modules from India, with delivery through 2025.

We also have access to additional supply from Southeast Asia. Our battery cell source is now qualified in factories -- in international factories, and we are seeing strong progress in reaching our goal to have qualified domestic supply for 2024 deliveries. Our procurement strength is proving to be a source of strategic advantage in negotiating project contracts with utility offtake and demonstrating to financing parties we can hold construction schedules.

With that, I'll turn it over to the operator for questions. Operator?

(Operator Instructions). Now we're going to take our first question. And the question comes from the line of Mark Strouse from JPMorgan.

I wanted to go back to the comments about improving returns. So you signed 470 -- or no, 480 megawatts with increased pricing, that's in addition to the 1 gig from last year. Can you just talk about when those price increases flow through into the financials? And how does kind of the pace of these negotiations, how does that compare with kind of your targets that you were planning back at the time of the IPO?

And then a quick follow-on would be just kind of as you look at the portfolio now, how many additional megawatts are out there that you think you could still renegotiate higher?

Yes. Mark, it's Gilad. I'll start with a general overview, and then Yosef can complement me on a walk through on the numbers. But in general, some of the PPA we have amended are already influencing, like the one in Bjornberget in Europe.

All the PPAs amended in the U.S. will start to impact results as soon as '24 when Atrisco is scheduled to become operational at first half around June 24. And then going forward towards '24 and '25. So we will see the impact still upsiding in the next 1 or 2 years.

And just to add, Mark, it's Yosef, we've got 550 megawatts roughly of further PPAs under negotiation. We expect increases there to be roughly in the range of 20% to 25% in accordance with, I think, the commentary we've given across the IPO process.

Okay. And then maybe a question for Jason. Just thinking about the Energy Community adders. So I understand there's still some analysis on the brownfield side, but just overall comments that you could provide on what that process looks like, when everything is known for sure, when you start receiving that funding? Is it retroactive? Any other color would be helpful.

Yes, absolutely. Thanks, Mark. So on the Energy Community side, we've been through the analysis based on the treasury's guidance. And as noted already, roughly 25% of the company's portfolio is located in Energy Community zones or in locations that will qualify.

On the brownfield side, there is further analysis required at each site, really site by site in more detail, and we're working through that with outside legal help and progressing quickly in terms of understanding where those projects sit. Now what that impact is to each project will be realized in the future as these projects are either in construction or not yet in construction.

So there's really a situation here that reflects growth in the future and revenues to be realized in the future, not really something that we need to look at looking back and capturing those benefits historically.

Just maybe to jump in, Mark, as well to add to Jason's commentary. One of the projects we have, which in the Energy Community is 1.2 gigawatts of solar and 4 gigawatt-hours of storage. Assuming 10% at or on the PTC, we're talking probably a value of $57 million just on the solar addition. And then on the storage, for 4 gigawatt-hours of storage, would be an NPV, an extra 10% on the storage cost of $120 million.

So it has a significant impact on project returns and particularly projects with significant amount of storage in our portfolio.

Thank you. Now we're going to take our next question. And the next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Just following up on the last set of questions, if you don't mind. First off, can you talk a little bit about the financing plan today, just in terms of potentially selling assets down versus call on remaining equity that you guys have on the balance sheet. Just thinking about the geography shifting and any thoughts about that?

And then related, if you can, also, you guys updated your pipeline start here on development. Can you comment a little bit on the pace of activity just to sign new deals, just given the ambiguity around domestic content? Do you expect some kind of true-up or acceleration later this year as you think about the counterparty willingness to engage without that clarity?

Yes. Julien, Gilad. I'll start with answering the question on the final strategy. And then Jason, why don't you elaborate on the development questions. So regarding the financing strategy, I think we've reached an excellent point in our -- I think in our life cycle where we have created a kind of an autonomous machine with our mature portfolio, where -- from one side, we have a mature portfolio of 4.5 gigawatts and 3.5 gigawatt-our of storage that is already fully funded. So if you walk through our presentation, we can see that we need additional $800 million of investment in order to compete the mature portfolio, but we have availability for $850 already.

And the outcome of that is a portfolio that creates for us to generate for us, distributions of $155 million per year.

If you reduce from that the overall overhead of the Topco corporate and so forth, which are around $55 million, so you reach a free cash flow that is distributed on Enlight's part only of $100 million per year. And if you translate this $100 million to our growth plan, it means that together with minority sell-downs, we would be able to autonomously funding of a pace of around 1.5 gigawatts, without -- per year, without requiring additional equity raise or any other means.

And just the quick calculation is that the cost or the average, the blended cost for us to construct 1.5 gigawatts between the geographies will be around roughly $0.9 million per megawatt or $900 million per gigawatt. We believe that the weighted average equity check that will be required will amount to around 20% of this sum. So altogether, in order to contract 1.5 gigawatts per year, we will be required for $270 million per year.

Now if you look on our -- what this machine of our mature portfolio is creating, so we get first this $100 million from distribution. And then if we perform minority sell-down on the 1.5 gigawatts, so under an assumption, which we believe is a reasonable fair of a premium of around $200,000 per megawatt, and if we sell down only 30% of the holdings, so we remain the majority holder and the control holder, of course, of our portfolio, we keep growing, but we reach this I would say sources of $270 million per year to match the equity required to fuel this growth.

So we believe that the combination of the conversion rate of the company bringing us to this point of maturity with our portfolio and the U.S. listing, the rate of $290 has helped us to create this machine that can help us now to grow with our current -- I would say, current resources plus a strategy of minority sales on.

And of course, we have additional tools. So we have a lot of flexibility in the market that we can raise if we want to further accelerate the growth or to blend it with other means. But I think this brings us to a very good point right now. And maybe Jason can elaborate on the development right now.

Yes. Thanks, Gilad. And great question, Julien, on the development portfolio. So we have several awarded PPAs, and we are actively -- and that's both in solar and storage. And we're actively working through negotiations to finalize and sign those PPAs. We'll have more information to announce as those are finalized and project milestones have been achieved.

On the front of domestic content and the impact on those PPAs and potential delays in terms of signing, all of that pricing has been negotiated and finalized in advance of the domestic content. So we have not incorporated into our analysis nor into the pricing any of that domestic content benefit. And yet those -- so we see that as upside, and offtake have finalized with us the pricing on those projects. So none of that is, again, dependent on the further clarification we expect to receive on the domestic content side.

Excellent. And if I can, just to come back, I think your storage development number was up like 58%, if I see this right here. Do you want to just elaborate what do you guys see or find here in the development side of the world? Is this tied to California? Or what are you guys seeing on that front that would push it that much quarter-over-quarter here?

So maybe I'll take that. What we're seeing is a lot of the conversations with utilities, maybe before, we're just solar. But now every conversation, there's a talk about solar and storage. So on interconnection positions that we have where we initially were thinking of just doing solar, now much of that has been upscaled for storage as well.

And I would add just quickly as it relates to storage here in the West, there is a very -- a maturing demand for storage and capacity. So that theme that Yosef is pointing to of a consistent sort of solar plus storage demand is playing out really in all of our conversations in the West where the bulk of our portfolio is concentrated.

Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Maheep Mandloi from Credit Suisse.

Congratulations on the quarter. Just a question on the guidance. You saw a nice growth in revenues and you've also increased your PPAs in some projects here. So just curious, could you see any upside to the guidance over here?

Or I just want to understand the drivers for guidance going forward?

Maheep, thank you for the question. So first, yes, we are very confident on the results and very satisfied with the results. Having said so, we are still on the first quarter. Of course, we enjoyed some high electricity prices in Europe this quarter. But looking forward, since we see also some volatility, so we would like to be careful and we'll wait at this time with changing the guidance. Of course, we are very confident with the current guidance.

Got it. And then for the U.S. portfolio, and Slide 9 is pretty helpful to understand that. But just curious for the other projects, is there any -- that you're waiting for any other details on those projects? Or could they qualify in the future? Or do you have identified them to not qualify over here?

So the question was on the brownfield, Maheep?

Yes. Brownfield, yes, sure.

Yes. So in general, Jason just related, we are working on classification right now of the project where we believe there is a brownfield potential in order to get the tax equity adder. So we hope that we will have a news on that soon.

Got it. And then just one last question for me. Just looking at the Slide 12 on the economics of the 1.5 gigawatts and cash uses and services. If I do the math, that somewhat implies a 6% cash yield for your minority stake investor. Does that sound reasonable? Or do you expect or remember seeing something else over there?

No. It will be a significantly higher cash yield there on a sell down. We're thinking high single digits for a potential sell-down, cash-on-cash.

(Operator Instructions). Now we're going to take our next question. And the next question comes from the line of Justin Clare from ROTH MKM.

I guess just first on Q1, your cost of sales actually declined in the quarter relative to what we saw in Q4 despite the higher level of revenue that you had achieved. So just wanted to check in on that, what enabled you to kind of achieve that lower level of cost? And how should we think about that going forward from here?

Yes, definitely. We see an increase in the margin, both on the profit and the EBITDA rate. It's impacted by the fact that during the last year, we have another project in Europe come online, mainly Gecama, which enjoys from high retail due to the higher electricity price in Spain. And this is why you see an improvement in margin, both in the profit and the EBITDA.

Got it. Okay. And then just shifting to the U.S. Wondering, can you talk more about how you're managing your equipment purchases for U.S. projects. Given that we don't have guidance yet on the domestic content adder, are you holding back on making some purchases at this point until you have more clarity? Wondering if you just elaborate a little bit more on the strategy there?

Yes, Jason, so should you take this answer?

Yes. I'll take that. Yes, great question. Looking at the U.S., of course, supply chain is a major strategic decision for each project. We have roughly 2 gigs of module supply secured out of India as we require that and additional module supply in Southeast Asia. So in general for those (inaudible) we're over strength in terms of the ability to support a project that may have strategic advantage as it relates to those projects...

(technical difficulty)

Jason, can you hear us?

Yes.

You were disconnected a little bit. So I can try to take the answer and then see if the line is improved. So -- in general, we will divide it to the solar panels and the battery.

So on the solar panel, as Jason said, we are building current supply coming mainly from India right now with a very good supplier. And we are complementing that with AD/CVD eligible panels coming from Southeast Asia under the decree.

And on the battery side, as we mentioned, last discussion, we have purchased the batteries for the very large project in Atrisco from a U.S. supplier, therefore, I would say, also controlling the risk of trade with China this way.

And Jason, if the line is now better you can elaborate on that.

Let's go to the next question, please.

Now we will take our next question. And the next question comes from the line of David Paz from Wolfe.

Can you guys discuss your unlevered and levered returns in the U.S.? Are they -- unlevered returns expected to be consistent with the 8% to 10.5% you have outlined for Atrisco and CO Bar. Going forward, do you see any potential uplift or degradation in that? And then maybe just some color on levered returns?

Yes. So we do see this trend continuing with a high single-digit return on unlevered basis also in the U.S., mainly because of strong fundamentals of the projects, the higher PPAs and of course, the IRA adders. And we do see even some upside from Energy Community and local content that may still be in addition to what I just mentioned.

In terms of the levered return. So at this environment of high single digits, even with the higher interest rates in the current financing in the next 1 or 2 years, it will still result in nice double-digit returns. And again, with the upside may be very nice still. And of course, in the future, when interest rate hopefully will go slightly down, so I think the spread will be even a little bit better.

Okay. Just maybe quickly on the financing for future financing plans. Can you maybe elaborate on the 30% minority interest assumption and as well as the $200,000 per kilowatt (sic) [megawatt] premium that you guys illustrate here. Is that -- just maybe where are you getting that from? Why 30%?

So we believe that this is, I'd say, a good trade-off and a good balance from, I would say, our strategy to continue and use the PPA and developer combined business model, which we believe brings the highest returns and the highest differentiation in the market, while still recycling the required amount of equity to fund our business.

And I would say, having said so that if you look on our average holding in our current project in Europe and Israel, it matches this principle of 70%. Currently, all the portfolio in the U.S. is held entirely by our group. So it leaves us this flexibility of matching the average holding that we currently have and still manage to fund our business in a very good manner.

And in terms of the $200,000 per megawatt assumption, that's effectively the midpoint of the $180,000 to $220,000 that we expect to receive on a recent project sale, project Faraday, which we've -- we're under contract to sell. So that guides us, and we see kind of what's going on in the market today.

(Operator Instructions) There are no further questions, and I would like now to hand the conference over to the management for any closing remarks.

So thank you all for joining the call. We'll be in New York next week for the Credit Suisse conference. So we look forward to connecting with you, and good morning.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.