Enlight Renewable Energy Ltd (ENLT) 2024 Q1 法說會逐字稿

Good morning, everyone, and thank you for joining our first quarter 2024 earnings conference call for Enlight Renewable Energy. Before beginning this call, I would like to draw participants' attention to the following certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity, utility demand and potential growth discussions with commercial counterparties and financing sources, pricing trends for materials, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of developments, the potential impact of the current complex in Israel on our operations and financial condition and company actions designed to mitigate such impact expected changes in combined narrows leadership.

The company's future financial and operational results and guidance, including revenue and adjusted EBITDA, are forward-looking statements within the meaning of US federal securities laws, which reflect management's best judgment based on currently available information.

We reference certain project metrics in this earnings call and additional information about such metrics 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 2023 Annual Report filed with the SEC on March 28, 2024, and other filings 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 financial 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 earnings presentation for today's call, which are posted on our Investor Relations web page.

With me this morning are Gilad Yavetz, CEO and Co-founder of Enlight; Nir Yehuda, CFO of Enlight; Jason Ellsworth, CEO and Co-founder of Clēnera; and Adam Pishl, COO and Co-founder of Clenera.

Gilad will provide some opening remarks and will then turn the call over to Jason and Adam for a review of our US activity and then to Nir for a review of our first quarter results. Our executive team will then be available to answer your questions.

Thank you, Seth, and thank you all for joining us today. Enlight is off to a strong start to the year, and we are pleased to present a robust set of financial results for the first quarter, revenue grew 27% year over year to $90 million, while adjusted EBITDA grew 28% year over year to $68 million in the quarter.

We benefited during the quarter from high production levels across our 1.9 gigawatt operational portfolio, particularly at some of our largest wind farms. Net income was $24 million versus $33 million last year, which benefited from one of financing income we recognized post IPO last year, which I will explain in more detail later on, on the back of these results, we are pleased to reaffirm our full year 2024 guidance.

In addition to the strong financial results, we continued to execute on our project portfolio during the quarter our projects are proceeding on schedule, including the 579 megawatts in 1.7 gigawatt hour expected to reach COD this year as well as the 1.1 gigawatts and 2.9 gigawatt hour of new project we expect to start construction this year.

Enlight is on the cusp of a major expansion, which will ultimately result in the tripling of the company's generation and storage capacity to 5.1 gigawatts in 5.7 gigawatt hour by 2026. We are laser focused on the execution and delivery of our plan.

Let me describe what we are seeing in the United States where the industry fundamental backdrop is one of the best we have ever seen. First of all, demand for electricity is increasing for most of the past decade. Forecasts for long-term annual US load growth stood at approximately half a percentage a year but this accelerated in 2023 when forecast for long term demand nearly doubled to 0.9% a year until 2028.

This represents an additional 38 gigawatts of peak demand over the next five years. To put that in perspective, that is the equivalent of 75% of California's peak load today. This rapid acceleration in demand has been driven by the reshoring of manufacturing EVs and most importantly, the installation of data centers, which consume an immense quantum of power.

And there is a strong possibility that this does not capture the true demand picture, which would drive up to 1.5% annual growth until the end of this decade. This also explains why PPA pricing remains high even as equipment prices have been falling Enlight is uniquely positioned for this tight power market environment with a broad set of projects that are deliverable in the short two medium term.

These projects include the Atrisco, our 364 megawatt and 1.2 gigawatt our flagship project located in New Mexico, which will see completion of its solar component during the third quarter of this year. While the storage part is on track for COD during the fourth quarter, both as planned.

Moreover, Quail Ranch, Roadrunner and Country Acres, the three major projects we expect to start construction in the United States in 2024, totaling 810 megawatts in 2 gigawatt hour have completed all critical development milestones and are on schedule.

We will soon initiate major procurements for this project. Equipment pricing remains beneficial to us with current prices around $0.25, or in battery prices are now one $70. Both these elements have fallen by 30% to 35% from start of 2023.

All these factors combined contribute to improving unlevered returns on the project that we are planning to build between now and 2026. This stands at 10.5%, an improvement of 50 bps since last quarter. And with additions of financing reached mid to high teen levels on the levered equity return.

In Europe, while short-term power prices have been unusually low, long-term power prices remain high, reflecting attractive returns for light operational and development portfolio as we continue to secure important milestones at our near term project.

We reached financial close for 94 megawatts wind farm project grouping in Serbia and arranging a $95 million financing package from EBRD and Erste the same partners. We financed our operational Blacksmith projects, which is a decent Pupin.

Pupin, which has signed 15-year CFD agreement at EUR69 per megawatt-hour is now under construction and is expected to reach COD as planned in the second half of 2025. In addition, we reached financial close on two of our smaller and gas projects recovering $29 million of excess equity invested.

The normalization of European energy prices and the resulting higher cost of capital are sparking a greater flow of attractive later stage project acquisition opportunities across the continent. We are currently evaluating several project acquisitions and we make seek to take advantage of this opportunistic window.

In Israel. We continue to engage with the newly deregulated power sector enhancing our ability to generate and sell electricity to different segments at our home market are part of value three, a part of the Israel solar and storage cluster reach COD during the first quarter as we maintain the rollout of this product clusters through 2024.

We also signed PPAs with two additional companies for 50 megawatts of supply as we further expand our reach into Israel corporate power market.

And finally, we announced the formation of a new subsidiary named in light local, led by one of the top management teams in Israel, which will address the power needs of Israeli municipalities and agricultural customers by building distributed power infrastructure.

Finally, turning to our operational portfolio. Electricity generation volumes at most of our wind farms were well above expectations, including a telecom in Spain, Blacksmith in Serbia and Genesis Wind in Israel. This was partly offset by weaker metal pricing, especially at Karma, were lower electricity prices were recorded during the quarter.

Despite this merchant market conditions, our hedging strategy provided significant downside protection as we hedged 65% of the commerce anticipated production at the high price of EUR100 for 2024. As we show in the slide deck accompanying this quarter, results, even in an extreme case, were merchant prices for the rest of 2024 and up 50% below the internal forecast we made at the start of the year, our corporate adjusted EBITDA would only drop by 2% from the midpoint of our guidance range.

I would like to emphasize that we do not expect lower merchant prices to impact our financial outlook for 2024. Moreover, we are also looking to adapt our commercial strategy to current conditions after the extra ordinary returns that we have made Gecama, we're a heavy merchant market exposure over the past two years has returned half of the equity we invested in the project. We are now considering options for entering into a long-term PPA.

To sum up this quarter showed strong financial performance and we continue to be on schedule in meeting our COD and project development goals. Business fundamentals in the US are very supportive for planned expansion there with rising power demand and low equipment cost translating into higher PPA pricing and increasing project returns.

And it is exactly this trend that enable in light to achieve its dual goal of delivering higher than market growth at higher than market returns.

I'd now like to hand the call over to Jason, Jason?

Thank you, Gilad. Enlight and Clenera are rapidly expanding in the US and we are laser focused on construction and project finance. In total, we plan to be in active construction on more than 1.2 gigawatts of solar and 3.2 gigawatt hours of battery during 2024 of 364 megawatt and 1.2 gigawatt hour at Atrisco project in New Mexico is on schedule.

We expect to reach COD on the solar in the third quarter. Solid project has already reached mechanical completion and commissioning work is underway. The battery is expected to be complete during the fourth quarter. Equipment is almost all on site and work is underway to connect the initial circuits.

Looking beyond Crisco, we plan to begin construction on country acres, Quail Ranch and road runner in the second half. These projects together totaled 810 megawatts of generation and over two gigawatt hours of energy storage, the 392 megawatts and 688 megawatt hour country acres project in California is expected to begin.

First, all regulatory and permitting hurdles are clear and construction contracts are nearly complete. Quail Ranch is not far behind 128 megawatt and 400 megawatt hour project in New Mexico is ready to start construction but awaiting PPA regulatory approval finally than 290 megawatts and 940 megawatt. Our Roadrunner project in Arizona is completing its remaining governmental approvals.

Before year end, we expect all three of these projects under construction. Each is an important part of delivering our 2026 objectives. Our Roadrunner project in Arizona is comprised of three Roadrunner PPAs totaling approximately 1.2 gigawatts and 824 megawatt hours and contrasted with APS. and SRPs.

The APS queue reform is ongoing and is still on track to support a year end 2026 COD for the vast majority of the project with the remainder to follow in early 2027. We continue to engage with APS to advance the interconnection work as quickly as possible as a reminder, another 3.2 gigawatt hours of battery potential is under development at the site, but not yet contracted.

Taking a step back. We continue to see strong support for our project fundamentals PPA pricing remains sticky. In Enlight of the trends, Gilad mentioned earlier. Equipment prices have also declined with costs for both solar panels and batteries falling in the past year.

Since the beginning of 2023, both solar module and battery pricing have dropped by approximately 30% to 35%. This has served to offset the increase in financing costs and deliver improved returns.

Turning to supply chain, there's currently renewed concern regarding possible trade sanctions aimed at Asian equipment producers. Clean Air uses module supply from Southeast Asia and India that are audited by third parties to ensure compliance with today's UFLPA and AD/CVD rules.

Our suppliers have proven ability to work efficiently and successfully through routine customs investigations and deliver on time if additional sanctions emerge. Clenera has supply contingency plans in place to limit potential sanction impact, including use of US assembled bifacial panels and batteries.

On a final note, Adam will lead the company's US commentary next quarter. I'm excited to see the organization grow and develop under his exceptional leadership. I'd now like to turn the call over to Nir for a review of our quarterly results near.

Thank you, Jason. In the first quarter of '2 show, the company's revenue increased to $90 million, up from $70 million last year, a growth rate of 27%. Year-over-year growth was mainly driven by new operational projects compared to last year, while being offset by a decline in revenue caused by much lower electricity prices in Spain relative to the prices observed in the same quarter last year since the first quarter of last year, 10 new projects in the US, Hungary and Israel started selling electricity.

The most important of these is Genesis win, which contributed $9 million to revenue. In addition, joined Bell, which barely sold power at the start of '23 contributed $7 million in this quarter. Ecommerce generated approximately $20 million in revenues.

However, its contribution fell 6% year over year due to much lower Spanish power prices compared to Q1 '23. We sell power in Spain at an overall average price of 65 per megawatt this quarter versus EUR85 per megawatt in the same period last year.

The decline in pricing was offset by very high production volume, which was 20% higher than last year, as well as the result of our hedging strategy which allowed us to sell 52% of Tacoma production at a price of EUR98 per megawatt in Israel, 7 of the 12 solar plus storage cluster units are now in operation contributing $3 million, while none were selling electricity in the same period last year.

Finally, the reclassifications of financial assets project in Israel to fixed asset projects boosted revenues by $3 million, though, at the same time, we moved the some from the financial income line. Q4 net income declined by 26% to $24 million from $33 million last year due to unusually high finance income in '23.

In the first quarter of last year, we recorded a one-off $12 million benefit caused by the depreciation of the Israeli shekel on the large amount of cash the company had received following completion of our Nasdaq IPO in February '23.

In addition, we recorded $2 million noncash gain in Q1 '24, stemming from the mark-to-market of interest rate hedges and the positive revaluation of foreign exchange denominated liabilities. Cash from operation declined by 36% to $35 million from $55 million last year, influenced by working capital.

In the first quarter of 24, the Company's adjusted EBITDA grew by 28% to $68 million compared to $54 million for the same period in '23. On the whole, adjusted EBITDA growth was driven by the same positive factor, which affected our revenue growth look into our balance sheet and knight achieved financial close in four projects in Central Europe.

We were $95 million loan for the construction of the floating wind project in Serbia and $42 million financing facility for the construction of the proposed solar project in Hungary. We also recycle $29 million of excess capital back to a net result of this transaction.

In addition, it has $325 million of revolving credit facility at Israeli and international banks. As of the balance sheet date, none of which have been drawn. This is $65 million above what we reported in our Q4 '23 results.

Moving to '24 guidance, given the solid set of results we delivered for the first quarter. We reaffirm our financial outlook for the year, expecting annual revenue between $335 million to $360 million and with adjusted EBITDA between $235 million and $255 million.

In addition, 90% of '24 generation output will be sold at fixed price either to hedges or PPAs. Our guidance reflects annual growth of 36% and 30% at the midpoint compared to '23, respectively, demonstrating our accelerated growth path in '24 in the years ahead.

I will now turn it over to the operator for questions.

If you would like to ask a question, (Operator Instructions)

Justin Clare, Roth MKM. Please go ahead

Hi, everyone. Thanks for taking our questions. First of all, just wanted to start on module supply. I was wondering, since the announcement of the latest AD/CVD case that's targeting Southeast Asian countries, can you talk about whether you're seeing any change in the market?

So far you mentioned pricing is down to $0.25 a watt. Are you seeing that change? You're seeing it move higher at this point? And then if tariffs were placed on both cells and modules from Southeast Asia. Can you just talk about your ability to access supply and whether you see any potential for disruption to your product timelines?

Jason, would you like to take the answer, and I will compliment you if needed.

Yeah absolutely, thank you. Great question and it's certainly on our mind something we've been spending a good amount of time on as we work through details related to supply chain. So specifically, we're seeing the Market Fare and remain fairly stable in terms of supply and pricing.

There is there is some shuffling going on. And certainly some of that shuffling is an increased emphasis on investment in the US and acceleration on those investments by a by producers who are looking to increase US content as the demand is there, and there's likely need for that in the future.

In the meantime, we're seeing a mix in terms of our supply chain that is that is manageable. And given the outcomes, especially given our emphasis on nontargeted, Southeast Asia supply and that that said, we also have a solid set of relationships and work related to supply out of the US that that would allow us to sidestep eventual issues and with some cost impact. But it's an it's a manageable amount of cost impact a few a few pennies of cost impact to us.

And then and then to the projects, of course, the benefit there is there's additional opportunity related to domestic content and the upside related to domestic content if that shift occurs. So we see this is generally a on the in large part, a neutral on that topic in the near term, and potentially in the longer term, accelerating the shift to domestic supply that that will in fact benefit the projects.

Got it, okay. So maybe--

I'm going to add 2 short points to that. First, in general, we still see a positive trend in terms of the panel's pricing. So we see them still going down and then offsetting some of the other elements. And it's worth to mention the strategic step we did last year with Warid, the engine supplier that and the say that we have with the supplier that allows us very good responsiveness to the AD/CVD future steps that will be taken. So we have a good source that we believe will be available.

Got it. Okay. Just to follow on that with the domestic content adder, can you talk about the timing potential in which you think you could secure that adder on the solar side of the business, but then also for storage projects as well. Curious what the what the timeframe might be?

So we are aligning some of the our project in order to get more from the domestic content, especially in project where, the tax equity path will be IPC, then we see a strong benefit for that, for example, Rustic Hills, and we believe that for '27, we will be on track to get the adder on that.

Got it, okay. And then maybe just one more here. The we've seen obviously a very strong increase in demand for electricity from data centers. Wondering if you're looking to participate in RFPs that are being done from data centers and whether or not those might incorporate solar and storage.

Yeah, I'll start and then Jason can complement me. So I think it's a great question. We see a very positive environment for us right now that is being created in the US because of the data center, a growth. And that leads to this increasing electricity demand primarily and also opens up a lot of opportunities for us also in the business model.

So it's not only participating in PPAs. We are reviewing and exploring other business development and even M&A options that are related to this trend, which will be we believe that will be long term.

And maybe just add to that in the West, which is obviously power constrained and with big data center builds over the next decade that is contracted via the utility. So the utility will sleeve the corporate demand through a PPA direct with the utility.

So we won't see it in an RFP with the data center provider directly. We'll see it with increased demand from utilities and just given the interconnection positions we hold in the West, we think that puts us in a really position to deliver in the near term for those data center clients, which is a huge value too.

Got it. Okay, very helpful. Thank you.

Maheep Mandloi, Mizuho. Please go ahead.

Hi, good morning. Thanks for taking the questions here. But just on the model procurement, if I could ask on that, can you talk about the sourcing I talked about, why are you being one of the big ones and you're looking to source solar cells from them or potentially modules from there's a potential expansion in the US? Or do you have any other suppliers lined up for that as well?

Jason, would you like to take that?

Yeah. So I'll take that. Our relationship with Warrior includes time solar cells and worry as a producer of solar cells. So yes, on their crude produced solar cells are part of our of our sourcing plan with them and our contractual relationship.

We're continuing to look at it at the at the advent and introduction of solar cells in the in the US, and that's a longer-term equation. That is that is the 2027 timeframe for projects and domestic content. That dialogue was referencing, where we're targeting that timeframe.

To Be careful, though, we're, of course, open to and working on accelerating as much as possible as it relates to other projects and opportunities that might pull us in a little earlier than that. But the 2027 is really the reasonable timeframe that we're looking at to include US sales.

Appreciate that. And then maybe just switching to the construction schedule. You kind of talked about everything at the seams on target now are on track. But curious on your thoughts on how should we think about going forward?

Do you expect any bottlenecks away here on a run rate basis, either from EPC constraints or transformers switchgear constraints, the for the market, and we're obviously hearing from some of the suppliers that the projects are getting pushed out. But just curious why you're not seeing that right now? And what are your expectations for that going forward?

Thanks, Maheep. And this is a great question. I think that we are very confident right now on the operational track first inventory Atrisco. That is a major project for us. And we plan the COD of both the solar side and the battery side before the end of '24. And we are at least on track.

And I believe that we took the very important operational and procurement decisions that will also support construction on time of the of the new three projects that we are going to build in the US in '24, including decision for transformers that we did and other elements that can be bottleneck.

So we feel quite confident right now on our plan.

And if I may add two points, I think all those projects have signed interconnection agreements signed PPAs, real estate and for the large part of their permits. So that gives us a large degree of comfort on the milestones that these projects have achieved that we're on plan. Got it.

And maybe just one last one on merchant pricing in Spain on the table in the press release was pretty useful to understand the sensitivity and but for prices already down 50% versus the EUR68.5 number you have in there. Just curious how to how should we treat that stable or going forward here? Thanks.

So what was exactly the question?

The spot prices in Spain is almost around 30 something dollars right now per megawatt hour. So almost 50% below your assumption of EUR68.5, does that imply like EBITDA could be 2% below the midpoint for the rest of the year?

No, the current price today may be 30. But if you look at the forwards for the remainder of the year, they're in the 70 range, if not higher. So the there's been kind of a short-term decline in power prices, which we've seen in the Jan and February and mostly in March, which has been driven by strong hydro and a lot of wind and solar resource that Hydro is expected to come off, which is why I see the near term future is at this the 70 range, July, August, September and so on and so forth. So the 30 is maybe today's price, but it's not the expectation of price in the market for the remainder of the year.

And I would add to that is that the point we are making in the presentation is our resilience two, even short term in a downturn in the prices in the spot prices in Spain. And the point that we just shown is that even in a reduction of 50% in the merchant prices we don't see any impact on the EBITDA and the opposite, what we see is other, let's say, positive results in other projects.

So we do not see any reason why to reduce our guidelines, maybe to the opposite, but we will consider that next quarter. And on the long term, we see also in Spain very good. If I would say forecast unfolds for a in the electricity prices, including PPA.

So the fact that we get offers right now for 10 years, PPA on a high basis provided a lot of confidence that we can either remain in the in the merchant profile where we have benefited a lot in the last in the last two years, as you know, and basically being able to withdraw more than 50% of the equity of the project.

So we had a very good uptrend in the last two years. And what we see currently forward for the next 10 years, is it good levels of prices and also flexibility to sign long-term PPA at high levels that we represent, I would say, higher it returns than the original model.

So I think that we stand there with very, very good situation in Spain on this. I think this was the goal of showing that table on the on the shoulder.

Got it. Good, and I appreciate that color as well. Thank you.

Mark Strouse, JPMorgan. Please go ahead.

So this is Michael Fairbanks on for Mark Strouse. Thanks for taking our questions. For the US development pipeline, how are you feeling about the availability of tax equity, particularly on the PTC side?

We've heard some tightness there. So just wondering if you're seeing that and to what extent can you use transferability to offset that? Thanks.

So I can begin the necessity will adjusted. I think the profile of our offtake, rest of the fundamentals, but primarily offtake of our projects in the West, is a very attractive tax equity providers because we have long term busbar PPAs for 20 years in some projects 30 years with a very, I would say, a solid profile.

So as produced, we don't have any exposure to a curtailment rate as opposed to hub central PPA that you can find in other areas. So this leads to, I think, a very strong demand that we are getting for tax equity for the project.

So we feel less the bottlenecks right now, I think and this is one of the advantages of the portfolio that that we see right now in work and specifically with the project online right now.

And just to add, there's also the optionality that transferability has provided to do the hybrid structures, which is around the tax equity providers, syndicating the credits to corporate clients of theirs, which have tax exposure and then retaining the interest for the purposes of monetizing the depreciation. So there's plenty of demand. It's just a matter of exactly the structure that works best for us.

Great. Thank you very much. And then just one follow up. Any update you guys have on the overall ramp up at the Genesis and beyond wind projects since the last call?

Yeah, it's I think it's an on-plan and even better than plan. So we see improved performance of both plants. And also we are getting to arrangement continuous arrangement with the supply on the on the past. So we feel very good there.

Thank you'.

(Operator Instructions)

David Paz, Wolfe Research. Please go ahead.

Hi, good morning.

Good morning, David.

How great merger, I wanted to just circle back on your PJM portfolio and you touched on it, but it's just if you could maybe at a high level, talk about your plans in that market and then in particular with all the demand that, of course, we're seeing from data centers and so forth.

We do anticipate as part of your farm-down strategy, I think it was 30% or so on going forward is just one of those kind of portfolios we should look at. What kind of interest are you seeing? And are you particularly looking at breaking it down pieces that you mentioned that you're on earlier comments on M&A, just on the overall this address your PJM six strategy.

Yeah. Thanks for the question, David. So first to begin with, we continue to advance the PJM portfolio and advanced well. We have more than five project there, but with five projects, we are on fast track and with network operating cost of less than $5 million per project, which I think is it's just fantastic for PJM. I think that I understand that on the fast track and light holds 40% of the project right now that on our on the fast from PJM, I think it's amazing.

And then to your question, yes, we believe that PJM is a potential for our strategy on the sell-downs. There are some elements in PJM were I think maybe positioned this project is a good, I would say, options for doing this kind of equity recycling we mentioned in previous quarter when the project finally mature, it completely mature and get to their optimal value.

We believe that the high PPA prices in PJM derived by the data centers on demand. And I would say a multiple players that are interested in project there. It may create very a high upside for us in this month.

Thank you on that. And then just on your unlevered return target for your '24 to '26 portfolio, obviously, those rates 50 basis points improvement Helm, how locked in from here are those returns due to state more movement on the again, just with that said, those set of projects on your returns or have you locked in the pricing and so forth that we should call it kind of into that in a steady state.

So thanks, David. So PPAs are signed for over 90% of that block, right? So the revenue side, obviously, we feel a great degree of confidence on the cost side. We're naturally going to be going to procurement in a significant way, and that's on everything we're going to obviously start building this year.

So we're in negotiations in advanced negotiations on procurement decisions, for example, on the three big projects in the US that we're going to commence construction this year, naturally we have the at-risk project where procurement is obviously all done and that's locked in yet.

So we feel we feel pretty good. And I think there is their single bar, which is obviously a big project which we hope to make some procurement decisions by the end of this year early.

Okay, thank you.

That concludes our question-and-answer session. And I will now turn the call back over to you [Usaf] for closing remarks.

Thank you, operator, and thanks, everyone, for joining today. We will be at the JPMorgan Energy Conference in New York as well as Roth's Sustainability Conference in London, and we look forward to catching up there. Thank you.