Enlight Renewable Energy posted strong financial results for the third quarter of 2023, with revenue growing 3% year-over-year (YoY) to $58 million, and net income increasing by 35% to $26 million. The company also saw a significant rise in operating cash flow, reaching $31 million for the quarter. Despite potential delays in certain projects, Enlight reaffirmed its full-year 2023 guidance and outlined its strategies for future growth.
Key takeaways from the earnings call include:
- Enlight's adjusted EBITDA increased by 32% to $47 million in Q3 2023. For the first nine months of the year, revenue grew by 39% YoY to $182 million, while net income rose by 201% to $82 million.
- The company has successfully reached its goal of 1.8 GW of operational generation by the end of 2023.
- Delays in the COD of certain projects, such as Project CO Bar, are expected due to interconnection queue reform.
- Enlight is working on securing project finance for the solar portion of Atrisco in the US and a solar plus storage cluster in Israel, expected to secure over $500 million.
- The company plans to recycle $300 million of excess equity invested in these projects back to Enlight.
- Enlight is implementing a capital recycling strategy by selling down minority stakes in projects to fund further growth.
- The company expects to recycle $300 million of excess equity from a project back to Enlight, providing the equity needed for a total operational portfolio of 4.6 gigawatts and 3.6 gigawatt-hours extending into 2026.
- In the US, the flagship CO Bar project is expected to be delayed by one year due to an interconnection queue reform by Arizona Public Services.
- Construction on the Atrisco solar project in New Mexico remains on schedule, while the storage portion is delayed due to supplier issues.
- Enlight has signed a power purchase agreement (PPA) with PNM for an expansion of Atrisco called Quail Ranch, and also added the Country Acres project in California to its mature portfolio.
- The company expects to achieve commercial operations on these projects in 2025 and 2026, respectively.
- Enlight raised $84 million in unsecured corporate debt and expects to complete project finance transactions worth over $500 million.
- The company reaffirmed its full-year revenue outlook of $265 million to $275 million and adjusted EBITDA outlook of $188 million to $199 million.
Despite potential delays, Enlight's projects are progressing well. The company has closed the tax equity transaction for the solar portion of the Atrisco project and expects to close the debt side and the battery storage project soon. They are also in discussions with utilities to reprice PPAs, and have seen new PPAs at higher prices compared to last year.
Enlight is also benefiting from a reduction in panel prices, particularly from a contract in India linked to the price of polysilicon. The company expects to continue benefiting from the drop in panel prices in both existing and future projects. Additionally, the company highlighted the robust pricing for capacity in the Western United States, driven by high demand and limited interconnection capacity. The company expressed confidence in their projects and projected above-market returns and growth.
InvestingPro Insights
Enlight Renewable Energy's recent earnings report reflects a company navigating through a challenging environment with a strategic focus on growth and operational efficiency. The company's commitment to expanding its operational portfolio is evident in its pursuit of securing significant project finance and implementing capital recycling strategies.
InvestingPro Data metrics offer additional context to Enlight's financial health and market position. With a market capitalization of $1.96 billion and a P/E ratio of 28.52 for the last twelve months as of Q3 2023, the company is maintaining a solid valuation in the market. The gross profit margin stands at an impressive 82.08%, showcasing Enlight's ability to manage its cost of goods sold effectively.
However, it's important to note that revenue has declined by 55.61% over the last twelve months as of Q3 2023, indicating challenges in maintaining sales growth. This is further confirmed by a quarterly revenue decline of 69.37% in Q3 2023. Despite these dips in revenue, the company has managed to maintain a strong gross profit, which suggests that the core operations remain profitable.
InvestingPro Tips highlight some critical areas for potential investors to consider. Firstly, the company operates with a significant debt burden, which is a common trait in the capital-intensive energy sector but requires careful financial management. Secondly, analysts are optimistic about the company's future, predicting sales growth in the current year and expecting the company to be profitable.
For those interested in further analysis and additional InvestingPro Tips, a subscription to InvestingPro offers a comprehensive suite of tools and insights. Currently, there are 17 additional tips listed for Enlight Renewable Energy on InvestingPro, which can be accessed by subscribers. As part of a special Black Friday sale, subscriptions are now available with a discount of up to 55%, making this an opportune time for investors to gain access to valuable market intelligence.
Full transcript - Enlight Renewable Energy (ENLT) Q3 2023:
Yosef Lefkovitz: Good morning, everyone, and thank you for joining our third quarter 2023 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 and potential growth. Discussions with commercial counterparties and financing sources, progress of company projects, including anticipated timing of related approvals and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel on our operations and financial condition and Company actions designed to mitigate such impacts and the Company’s future financial and operational results and guidance, including revenue and adjusted EBITDA are forward-looking statements within the meaning of the U.S. federal securities laws, which reflect management’s best judgment based on current 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 annual report filed with the SEC on March 30, 2023, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking information. 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 the earnings presentation for today’s call, which are posted on our Investor Relations website. 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 Jason for a review of our U.S. activity and then to Nir for a review of our financials. Our executive team will then be available to answer your questions.
Gilad Yavetz: Thank you, Yosef, and thank you all for joining us today. Before talking about the business and our quarterly performance, I would like to address the current situation in Israel. Over a month ago, Israel was brutally attacked by a terrorist organization and now find itself in a state of war with the aim to defend its civil population as well as the values of freedom and democracy. Given all the extreme events taking place in our country, we are quite proud that Enlight has succeeded in maintaining its normal operations and in parallel, engaging in support for our society with extensive community outreach and act of goodwill during this difficult period. It’s a tribute to our employees and our company’s values that we are able to maintain our commercial growth and success while at the same time, looking after families and small businesses that have been affected by the war. In terms of our operational project in Israel, all are producing power hardly without interruption. Moreover, our geographically diversified portfolio is a source of strength for our company. In the first 9 months of 2023, 74% of our revenues were generated in European and in the U.S. with the remaining 26% in Israel. Moving on to a discussion of our business, Enlight results for the third quarter and 9 months were solid. Third quarter revenue grew 3% year-over-year to $58 million, whereas net income grew 35% to $26 million, and adjusted EBITDA grew 32% to $47 million in the quarter. Revenue for the first 9 months of 2023 grew 39% year-over-year to $182 million, 9-month net income grew 201% to $82 million and adjusted EBITDA grew 64% to $142 million for the 9-month period. We also saw significant growth in our operating cash flow, which reached $31 million during the quarter and $126 million for the first 9 months of 2023, an increase year-over-year of 57% and 135% respectively. Continuing our momentum from last quarter, we are pleased with the progress made on Project Björnberget in Sweden, which has reached full production. On the back of solid third quarter results, we reaffirm our full year 2023 guidance. Before Jason and Nir go deeper into our project and results, I would like to focus on our company’s 2 main objectives: delivering above-market project returns and delivering above-market growth. First, let’s discuss returns. In recent months, there has been a growing debate amongst investors as to whether project returns are high enough to withstand rising interest rates. This concern has grown in light of light to recent announcement from several major companies in the renewable energy sector, cutting their outlook, whether across offshore wind, residential solar or utility yieldcos. I would like to tackle these concerns head on and be very direct. Project returns at Enlight remain robust and are increasing. This has been achieved through our clear and defined strategy, which includes: one, amending existing PPA pricing higher, while driving pricing significantly higher on newly signed PPAs. Two, remaining nimble on supply chain, enabling us to capture the value of rapidly easing cost across solar panels and batteries, and three, reaping the benefit of the IRA, which uniquely favor our portfolio. I will now provide detail on each of these points. First, we amended over 1.8 gigawatts of legacy PPAs in the past 18 months with price increases on average of 25%. There are several more amendments currently under negotiation. Moreover, our newly contracted projects, PPA pricing has moved higher. During the third quarter, we signed PPAs in the U.S. at prices on average 25% higher than what we were seeing a year ago. Similarly, in Europe, we signed an inflation-linked 15-year CfD at close to EUR 70 per megawatt hour. How have we managed to amend existing PPAs and drive new PPA pricing higher? With our interconnection advantage. Put simply, we are uniquely positioned to deliver large scale renewable energy projects to utilities who urgently need power now, and our customers are willing to pay. Second, we have secured a competitive advantage in supply chain. While many have opted to lock in module supply in the U.S. through long-term arrangement at a very high pricing, we chose to enter into flexible contracts that enable us to capture the value of wafer price decline. As a result, today in the U.S., we can buy up to 2 gigawatts of panels at less than $0.30 a watt. We were modeling between $0.36 and $0.40 a watt across our U.S. projects just a few months ago. In Europe, the decline has been more dramatic. We can acquire panels today in Europe at less than $0.20 a watt. Similarly, battery container pricing has come down dramatically in the last 3 months from $250 to $180 per kilowatt hour on average - a nearly 30% decline. In short, some in this sector have been dragged down by legacy PPAs, which have not been amended, coupled with take-or-pay equipment contracts at high pricing. On the other hand, we’ve been able to generate significant operating leverage from declining equipment costs while pushing PPA prices higher, driving robust project returns. Finally, we are reaping the benefit of the IRA in the U.S. in addition to the increased tax equity we can raise on projects under the PTC (NASDAQ:PTC) track, which benefits our Westech focused portfolio. We also stand to benefit from tax credit adders. Approximately 1/4 of our U.S. projects are eligible for the energy community adder. The most recent examples of this are Atrisco, Quail Ranch and Rustic Hill, all of which are in our mature portfolio. Putting this all together, based on the above factors, we are now modeling a substantial improvement in the returns we expect to generate from our 3.6 gigawatt and 5.5 gigawatt hour of projects that are expected to COD between 2024 and 2026. This portfolio is now expected to generate an unleveraged ratio of around 10%, approximately 80 basis points higher than our expectation for models we prepared in the second quarter. Even in a higher base rate environment, with this unlevered returns, we expect to deliver healthy mid-teen levered project returns. And to be very clear, our focus on returns is a fundamental feature for a joint developer and IPP business model. The alignment of interest that results from both the developer and IPP being under one umbrella means that Enlight is focused on developing projects that our internal IPP can profitably hold. Driven by the strong project fundamentals, we aren’t giving up on our growth. We are continuing to accelerate it. We reached commercial operation on 256 megawatts of generation and 90-megawatt hours of energy storage during the quarter, including Genesis Wind, the largest renewable energy project in Israel. We have thus completed the entirety of our plan to reach 1.8 gigawatt of operational generation by the end of 2023. We also made significant strides on the conversion of our development portfolio. We added 530 megawatts and 1.3 gigawatt hour through our Mature Project portfolio, including Country Acres, a new and substantial projects in California, as well as Quail Ranch in the second phase of our flagship Atrisco project. Both projects which have signed PPAs and signed interconnection agreements are targeted for commercial operation in ‘26 and ‘25 respectively. However, I do want to note that we are now expecting a delay at Project CO Bar, which is expected to COD in ‘26 versus our original expectation in ‘25. The delay has been driven by an interconnection queue reform being implemented by APS in Arizona, which will delay the receipt of our interconnection agreement. To compensate for the delay, we’ve been able to accelerate some of our other major projects from ‘26 to ‘25, highlighting the depth of our development engine. Jason will elaborate more on CO Bar and our plan for 2025 and 2026 in the U.S. Finally, to deliver above-market growth and above-market project returns, we are working also to optimize the access to high-quality capital and debt. We are in the final stages of achieving financial close on 2 major projects, the solar portion of Atrisco in the U.S. as well as the solar plus storage cluster in Israel. In total, we expect to secure above $500 million of project finance. We hope to be able to update you in the coming weeks as we complete each of these transactions. Post closing, we expect to recycle $300 million of excess equity invested in this project back to Enlight. The capital recouped from this project plus the cash we have on hand and cash flow we expect from operational projects is expected to provide us with the equity required to deliver a total operational portfolio of 4.6 gigawatts and 3.6 gigawatt hour extending into 2026 CODs. To fund further growth thereafter, we expect to execute on our capital recycling strategy - selling down minority stakes in projects. We began to execute this capital recycling strategy during the third quarter. We sold off our 10% stake in Faraday, a 680 megawatts pre-NTP project in Utah for $190,000 per megawatt, obtaining $13 million of capital for future years. We also sold our 50% share in several small operation projects totaling 25 megawatts in Israel for $6 million. These transactions, while small, nevertheless, illustrates the potential to unlock value and growth capital through sell-down. In summary, we see attractive fundamentals in our business, pricing power for our projects and easing supply chain and access to product finance which will all enable us to deliver on our twofold objective of above-market project returns and above-market growth. I will now hand it off to Jason, who will provide more details on some of our U.S. projects.
Jason Ellsworth: Thank you, Gilad. In the U.S. project, fundamentals remain strong. PPA prices are increasing and equipment pricing is falling. At the same time, we are making steady progress in growing and advancing our project portfolio. Against that positive backdrop, it is likely that our flagship CO Bar project will be delayed approximately one year due to an interconnection queue reform by Arizona Public Services. Construction on the solar portion of Atrisco in New Mexico, comprising 364 megawatts remains on schedule. All major equipment is on site. Our project racking is 99% complete and 96% of modules are installed. We plan to achieve COD at the beginning of the third quarter of 2024. And as Gilad mentioned, we’ve materially finalized the definitive documents required for project finance on the solar portion of Atrisco, including term debt and tax equity and closing is expected imminently. However, the storage portion of Atrisco, comprising 1.2 gigawatt hours is now delayed due to supplier issues. COD is expected during the fourth quarter of 2024. We are evaluating the possibility of a change of storage supplier to meet project time lines and bank financing requirements. In parallel, we are expanding the potential of our Atrisco complex under our land-and-expand strategy. We are pleased to announce that in October 2023, we signed a PPA with PNM, the current offtaker of Atrisco for an expansion of Atrisco. The new project called Quail Ranch is sized at 120 megawatts of solar and 400-megawatt hours of storage. The project will benefit from Atrisco’s completed development status and therefore, has been added to our mature project portfolio this quarter. Moreover, like Atrisco, Quail Ranch will benefit from an energy community tax credit adder. Under our land-and-expand strategy, we can reduce risk and compress development time lines while increasing returns. We plan to start construction in 2024 and achieve COD in 2025. In addition to Quail Ranch, we also added a large new project to the mature portfolio this quarter called Country Acres. Located in California, it is sized at 392 megawatts of solar and 688 megawatt hours of storage. We recently executed a PPA and interconnection agreement with Sacramento Municipal Utility District. The solar is contracted for 30 years and storage for 20 years under [busbar] agreements. Clenera has a long history of project development in California, and we are excited about this new major project and the quality of our partner. We expect construction on Country Acres to begin in 2024 and commercial operations in 2026. Finally, we expanded our Roadrunner project with Arizona’s AEPCO by additional 44 megawatts of solar and 140-megawatt hours. We continue to work with AEPCO to meet their growing need for clean and reliable power and capacity. In total, between Quail Ranch, Country Acres and the Roadrunner expansion, we added 556 megawatts of solar and 1,228 megawatt hours of storage to our mature portfolio in the U.S. during the quarter. On CO Bar, our 1.2 gigawatt solar and 800-megawatt hour storage project located in Arizona, we expect to see a 1 year delay. As Gilad mentioned in September, Arizona Public Services enacted a reform of its interconnection queue process. The reform changes APS’ interconnection study review from a first-come-first-served basis to a first-ready-first-served approach. While CO Bar’s real estate, permitting, offtake and system impact study are already secured, it is expected that the revised process will cause an approximate 1 year delay to the project. As a result, we have moved the project’s expected COD from 2025 to 2026. We are working with our partners in the state to try and shorten this delay given the project’s advanced status. To help offset the impact of the CO Bar delay, we are accelerating the scheduled COD for Roadrunner, that’s 294 megawatts of solar and 940-megawatt hours of storage from a 2026 to a 2025 COD. As I mentioned a moment ago, Quail Ranch, including 120 megawatts and 400 megawatt hours entered the mature project portfolio and is also expected to reach COD in 2025. These projects are both mature and well suited for 2025 completion. While we are disappointed with the delay to CO Bar, the depth of our development portfolio affords us the ability to be nimble. Recapping. We are encouraged by our team’s progress in the development and construction of our U.S. portfolio; where there are delays, we are advancing other portfolio projects to fill our schedule and continue to deliver strong results. Our projects are well sited and well developed, evoking strong demand from off-takers and we are benefiting from falling equipment prices. Overall project returns are robust, and we are encouraged by the strength of the U.S. market. With that, I’ll turn it over to Nir to review the company’s financials.
Nir Yehuda: Thank you, Jason. In the third quarter of 2023, the company’s revenue increased to $58 million, up from $56 million last year, a growth rate of 3% year-over-year. Growth was mainly driven by the revenue contribution of new operational projects and inflation indexation embedded in PPS for already operational projects. This was largely offset by a decline in revenues at Gecama year-over-year driven by lower electricity price relative to the price observed in the same quarter last year. Since the third quarter of last year, 544-megawatt and 81-megawatt hour of projects started selling electricity, including Björnberget in Sweden, Apex Solar in the U.S., ACDC in Hungary and several small solar and storage projects in Israel. This project collectively contributed $8 million revenue during the third quarter of ‘23. The biggest contributor was Björnberget $5 million, which is now operating at full production. Gecama revenues fell year-over-year by 38%, $8 million year-over-year driven by lower power price relative to last year’s peak electricity pricing. Finally, the company also benefited from inflation indexation embedded in its PPA which contributed an additional $3 million of revenue during the quarter. This reflected on average indexation of 7.2% across 592 megawatts of PPAs for projects that have been operational for a full year. Net FX impact was immaterial to results for the quarter. Net income increased to $26 million, a growth rate of 35% year-over-year. There was a noncash benefit of $8 million this quarter attributed to the mark-to-market of interest rate hedge the company entered into ahead of financial close process at Aristo. The residual change in net income was driven by a reduction in the expectation for earn-out payment linked to the acquisition of Clenera of $12 million. compared to $18 million reduction during the same period in ‘22 and again recognized on project divestitures of $8 million. In the third quarter of ‘23, the company adjusted EBITDA grew by 32% to $47 million compared to $36 million for the same period in ‘22. Aside from the factor which affected our revenues growth, important items included gains recognized from project divestiture and the final $2 million installment of compensation payment from Siemens Gamesa linked to the delay in reaching full production at Björnberget. With respect to the divestiture, the company sold its 10% stake in the Faraday solar project in the U.S. for $190,000 per megawatt. We recognized a gain of $3 million in the third quarter and expect to recognize an additional gain of $2 million in the fourth quarter. Similarly, the company sold 50% of several small operational projects in Israel, so $465,000 per megawatt recognizing again in the third quarter of $5 million. These gains were offset by $1 million increase in overhead. Moving to 23 guidance. We are pleased to reaffirm our full year ‘23 outlook provided last quarter. We expect annual revenue between $265 million to $275 million, with adjusted EBITDA between $188 million and $199 million. Looking to our balance sheet, Enlight engaged in a number of capital raising transactions during the quarter. In September, the company raised 309 million shekels, approximately $84 million at the time of unsecured corporate debt in Israel at an effective rate of 5.8%, expanding on the existing senior unsecured 6 series. We have also been working to achieve financial closing on both Atrisco Solar in the U.S. and our Solar plus Storage project in Israel. We have almost reached the finish line, as definitive documents have been finalized. We hope to be able to update you in coming weeks as we close each of these transactions. The combined sum of these 2 transactions is expected to be more than $500 million. From this amount, there is more than $300 million of excess equity capital, which we expect to recycle back to Enlight. This transaction should further strengthen our balance sheet reinforcing the financial footing needed to deliver the future growth of our business. Finally, as of the end of the quarter, we had $170 million of revolving credit facility at several Israeli banks, of which $110 million remain undrawn. The facilities provide us with additional financial firepower and flexibility as we allocate equity investment in projects and optimize project financing over time. In conclusion, we benefit from a strong funding position and access to capital with clear plans to deliver on our mature portfolio. We are executing well and are very excited about the future. With that, I will turn it over to the operator for your questions. Operator?
Operator: [Operator Instructions] Your question comes from the line of Mark Strouse from JPMorgan (NYSE:JPM).
Mark Strouse: Jason, I wanted to go back to the interconnection reform with the CO Bar project. Thanks for the color there. Can you -- when you look at your other projects that are pending over the next few years, let’s say, are there other utilities, other states kind of any level that are looking at similar reforms? And how do you think about the risk on some of the other projects?
Jason Ellsworth: Yes. That’s a great question, Mark. We’re watching that carefully across all of the utilities. The fortunate thing is we have such an advanced status across all of our portfolio, including approximately 10 gigawatts of solar. And that has put us in a position to be well out ahead of changes. The impact on CO Bar is procedural. And as we work through that, certainly, that has a delay, but it is not impacting the remainder of our projects in Arizona. So it’s very specific to CO Bar and we don’t currently see a risk to our other projects in terms of interconnection, Q reform and changes there. Of course, there are overall delays in the market in terms of queue and projects that are sitting in the back of those queues are seeing delays. And many of those are seeing significant delays if they are to be successful at all, projects that are at the head of the queues as much of our portfolio are advancing and continuing to move forward. We’re also continuing to -- as we’ve said in the past, engineering and procurement agreements with utilities in order to accelerate the process that allows the utility to advance the work on their side in advance of having the facility studies complete or in advance of an LGIA in such a way that project time lines are benefited.
Mark Strouse: And then a follow-up probably for Gilad. You obviously want to be sensitive to the -- what’s happening in Israel right now, but I do want to ask if there have been any employees that have been called out for service, kind of how we should think about what roles might be impacted there and kind of your ability to kind of backfill for that?
Gilad Yavetz: It’s a great question. So I will start with the answer by saying that what we see in Israel right now is that we continue -- we are able to continue the operations of all our sites in close to 100% despite all the events. In terms of the employees, so first, as a matter of figures, so about 45% of the total employees of the group are located in Israel, 120, more or less out of close to 300. About, I would say, 1/4 of them are either in reserve service or spouses of people that are in reserve service, but the remainder of the employees are supporting all the operations. So we are very confident, but also very proud in our employees in the way they are handling the situation and also in parallel supporting the civil society in many, many actions that we are doing to support other businesses and also civil populations. We feel that this is part of the values of the company and we are doing it without affecting the business side.
Operator: We will now go to our next question. And the next question comes from the line of Julien Dumoulin-Smith from Bank of America (NYSE:BAC).
Unidentified Analyst: It’s [Alex Gravel] on for Julien today. I wanted to press a little bit more just on the sort of financing environment that you guys are operating in. Obviously, at Atrisco, good to see that sort of fully termed out and ready to close at this point. We believe that it’s still a little bit delayed from your expectations and beyond just the sort of back and forth between investors and counterparties across the space on returns, there’s also been a lot of debate around ability to get tax equity, the transfer market and the evolution there. I’m just curious if you can kind of give us what you guys are seeing the latest. Do you expect to use PTC or ITC transfer deals here forward? And if you can add, I mean, how would that impact the return profile that you guys sort of elegantly laid out at the beginning of the call relative to sort of your underwriting assumptions?
Gilad Yavetz: Yes. So first, I’m very happy to update that we did close already the tax equity transaction for the solar portion of Atrisco with Bank of America. It’s a major transaction and an important milestone for the project. And I hope that in the coming days or weeks, we’re going to close also the debt side of the project and the solar side of it. And then we’ll go for the next milestone of closing tax equity and debt for the battery storage project. So first, in terms of Atrisco, we are very confident in executing the project finance and tax equity for the project, the suppliers out there of the equity and the debt and it’s more about the operation of the facility agreements in the current environment in the U.S. We are working very closely to optimize also the financial terms of the deal in order to make sure that we keep executing on profitability also. And I think this is also shown in our quarterly numbers where profitability has increased. And this is what we are doing in Atrisco. So I agree that they were around one project -- one quarter delay, but I think we are very confident. And as you see, the project is advancing both in terms of its construction and also in terms of financing.
Yosef Lefkovitz: Yosef, here. just to touch on the strategy kind of in terms of underwriting for the longer term, when we model our projects, particularly for the strategic lens, we’re looking to use tax equity in the places which are strategic for us, for the large scale, very material projects in our portfolio. When we look towards some of our projects, which may be smaller, we may look to transferability for both ease of execution and liquidity of that market. So we believe we have access to the tax equity market, but we also want to be selective and use that tax equity for the projects which are most important and meaningful for us.
Unidentified Analyst: Got it. Yes, makes a ton of sense given the backdrop and the amount of demand out there. On the other side, I mean, congrats again, I guess, on the amount of PPAs you guys sort of continue to reprice and renegotiate. Again, I wanted to ask, there’s another sort of key debate in the space, how do those discussions go for you guys? And also sort of what are you hearing across the space? Obviously, you operate in mostly a physical power market, others do some things around virtual PPAs, et cetera. I’m curious sort of like what you’re hearing from your customers when you go back to them for those things, what you’re hearing from others and how you expect that to evolve from here given the sort of push full of higher rates against much lower equipment costs that you guys alluded to at the beginning of the call.
Gilad Yavetz: Maybe I can start, Jason, and then you can complement me, okay? So I would say that first, it’s very important to reiterate, as we said in previous quarters that all the discussions we are doing with the utilities on the repricing are doing in goodwill and in mutual interest. There is nothing that is legal about this discussion and I think this means that there is a mutual interest. And the interest is to see projects that are becoming operational soon because the utilities need the electricity and as we all see, there are some delays in the market. So whenever projects are more ready to get constructed, and to support the need of the utilities, I think there is a strong support from the utilities to help them get there. It is true that prices of equipment are going down; from the other side, the steel prices of electricity in the market, which are the alternatives are much higher and also interest rates are still very high. So I think this still supports, I would say, this kind of actions that we are doing, and we are still seeing also new PPAs that we’ve signed in the last quarter that were -- they were 25% higher than the price of PPAs on average that we close on comparing the period last year. So we see that the environment of PPA pricing in market is also influencing our ability to reprice.
Jason Ellsworth: Thanks, Gilad. Yes. I would reiterate that project readiness is a key characteristic of those discussions right now. It is so important to the utilities to have line of sight to projects coming on to the grid, supplying the needs of their customer base. And so in that environment, we found a lot of support for repricing, though, those conversations are never, never easy. They’re done respectfully and carefully with the utilities considering their needs and the needs of the project and we have been consistently successful in that. We are not looking to advance those beyond what the needs of the projects are in terms of obtaining the increases that are necessary to keep pace with the inflationary environment, especially rate inflation. But with that in mind, the utilities have been very understanding and helpful in that process. And as Gilad has noted, even our new PPAs are seeing roughly the same level of increase versus some months and even years ago. So at a roughly 25% average increase across the board, we continue to find reception and support from utilities, though, as mentioned, those discussions are carefully orchestrated and done respectfully with the utilities. They’re not easy, but they are and have been successful. Got it.
Operator: [Operator Instructions] We will now go to our next question. And your next question comes from the line of Justin Clare from ROTH MKM.
Justin Clare: So I wanted to go back to the CO Bar project. So it sounds like it’s now planned to be completed in 2026. So I just wanted to understand a little bit better, the potential for that time line to change, whether it could be accelerated back into 2025 or what the risk is that it could be delayed into 2027? And then wondering what you’re waiting on in order to be able to start construction for that project? So that would be helpful.
Gilad Yavetz: Jason, would you like to take that question?
Jason Ellsworth: That’s a good question. So in terms of the delay by way of specifics, there is a cluster-type process that is proceeding. And in that process, the time lines, if a reasonably measured out, we’ll put the project into 2026. We are comfortably into 2026. We are work together with the utility and our offtake. APS is the interconnection utility, the offtake -- the primary offtake on the CO Bar project is SRP. We also have an offtake contract with APS at that site. With all of those parties, we are discussing the potential to accelerate given the advanced nature of this project. Affected systems studies were completed already by all affected parties. And so there is potential that the project can be accelerated given its readiness. We don’t have details on that. It is unlikely right now that the project would be accelerated so much as to move it back into 2025. But the current time lines point to a comfortable completion in 2026. And Justin, you asked about the potential to accelerate the build on that project or start construction and what might gate that. Of course, the interconnection time line is important for that for purposes of timing out the project. And we have already begun engineering and procurement with the utilities. So we executed an E&P agreement with APS already. And so there is certain level of procurement and work associated with the interconnection that has already begun.
Justin Clare: That’s very helpful. And then just shifting gears a little bit here. So you closed the tax equity portion of the financing for the Atrisco project. Was wondering if you could share how much of the project CapEx could be supported by the tax equity investments and then is that project -- did you elect for the PTC there? And then were you able to also secure the energy community adder as a part of the tax equity investment and then when we look to future projects, if there are projects that are similar to this with the PTC and energy community, would you expect similar terms for a tax equity investment?
Jason Ellsworth: So for PTC deal, just given the generation profile and where it sits in New Mexico naturally, the adder is not part of the PTC quantum. It is something that we will be monetizing ourselves through the transfer market. And the base tax equity check basically reflects around 50%, a bit north of 50% of project CapEx.
Justin Clare: And then the timing of monetizing it in the transferability market, what would that timing be? Is that -- does it need to be closer to COD or after COD, or?
Jason Ellsworth: Yes, exactly right. That’s exactly right. That will be closer to COD.
Justin Clare: And then one other one, just on the capital recycling. So this quarter, you had completed some minority sales. I was wondering if you could just speak to your plans for either the remainder of 2023 or 2024, any meaningful sized projects that you’re looking to complete a minority sell-down? And then are any of your project time line dependent on completing those sell-downs in order to acquire the equity capital?
Gilad Yavetz: I will start by saying that there is no project time that is dependent on any sell down. With the equity that we have right now in hand, we are fully funded to construct the whole material portfolio pipeline, which is about 4.3 gigawatts plus a significant amount of storage; this is the first part. The second part is that we do, I would say, part of our strategy is to perform sell-down in 2024. I don’t see additional material sell-down in ‘23, but ‘24 is -- part, I would say, part of our strategy will be to perform sell-downs. This is in order to improve the profitability and also recycling equity for the future project because we will continue to grow also towards 26%, 27%, and we would like the sell-downs in the equity that we recycle through sell-downs to be part of our resources. And by doing that, really minimize the need of equity from the market.
Operator: We will now go to our final question for today. And the final question comes from the line of David Paz from Wolfe.
David Paz: I just wanted to touch back on the Atrisco storage supplier delay that I believe you mentioned. Are you -- well, first, maybe any more color you can give that you did not address in the call? And then are you using the same supplier for your other storage -- for your other projects that have storage? And if so, which projects?
Jason Ellsworth: Thank you for the question. First, I will say that currently, we are optimistic not to have delays in the supply of the storage part in the project. We are considering replacement of the battery supplier in the project, while EPC will remain the same in order to meet or to be more confident in meeting the timetable of the project and some finance ability that will be improved, but we are confident on the ability to deliver the project on -- in the time framework that we estimated. Regarding future -- the second part of the question was on future projects. So as always as part of our supply strategy, we are working with multiple suppliers without exclusivity to any suppliers. So we do work also with other channels, not only in this project, but in the future projects. So we have the flexibility to do the same thing also in the future projects.
David Paz: Got it. And then just given some of the project shifts that you mentioned some -- pushed out, some brought forward, do you still anticipate the same EBITDA growth rate through ‘26 as you did, say, a quarter ago? And do you also anticipate -- do you anticipate any new common equity through 2026.
Jason Ellsworth: So what we’ve articulated and you will see it in the release as well that we have sufficient equity to -- in terms of the capital we have on hand plus recycled capital. We have enough for 4.6 gigawatts and 3.6 gigawatt hours. Anything in excess of that, we intend to focus on our capital recycling strategy, the minority sell-downs and some of the dispositions that we’ve outlined. And remind me, what was your first question?
David Paz: Just do you still anticipate the same EBITDA growth rate through ‘26?
Jason Ellsworth: So we’ve obviously accelerated some of the projects, roughly 400 megawatts and 1.3 gigawatt hours of projects from ‘26 to ‘25. Obviously, that doesn’t account for the full delay of the COR project to 2026. But again, as we look towards the end of 2026, the growth is just more back-ended as CO Bar will come in 2026, and we’ll be benefiting from the growth of that project in 2026.
Operator: We do have a follow-up question, one moment please. And a follow-up question comes from the line of Julien Dumoulin-Smith from Bank of America.
Unidentified Analyst: One quick follow-up here, if I can. Just on the panel prices you alluded to and sort of the cost items, curious like if that’s sort of what you’re seeing across the broader market? Or do you think that’s somewhat unique to some of the supply contracts that you negotiated, I think, over a year ago with some parties in India or otherwise? And how are you planning to sort of, I guess, expand that panel strategy into the coming years given the amount of sort of construction or execution that you guys have ahead of you?
Gilad Yavetz: So I would say, and I can start, Jason then again, can complement me. So first, I would say that in an existing contract with where we were able to benefit from the reduction in prices, although the contract was already signed because it had some linkage mechanism to the price of polysilicon. So I think this was a very strong upside we got from the, I think, wise supply chain strategy, we conducted. And on the broader term, yes, we do see the panel price dropping also on the broader market, also internationally and maybe even more dramatically internationally. So going forward, we believe we will continue to benefit from that on increased returns in the project while being able to do that also on the existing projects that we are entering into construction.
Jason Ellsworth: Thanks, Gilad. I would add that the India contract was structured in such a way that it was indexed to certain floating prices in the industry, and we have benefited from that. That indexing also provides an anchor for our other negotiations. And so we are seeing similar pricing levels from alternative suppliers, other supplier relationships that we have. And that is benefiting multiple projects beyond the existing India contract. So we expect to see broader application of those prices and that benefit across the portfolio. And are going to -- as we look forward to the coming years, we continue to expect softness on pricing in terms of modules, given the module supply situation across the industry as it impacts our business here in the U.S.
Unidentified Analyst: Yes, makes sense given kind of what we’re seeing as well. And just one last one as far as I know I asked about the renegotiation and sort of how those discussions go earlier. I’m curious also just -- I mean, you guys have alluded, I think, mostly to the solar end of it or the generation stack. On the capacity side, we’re seeing some really robust pricing there. I think, frankly, it’s almost counterintuitive to what you would see on the cost deflation side for batteries themselves. I’m curious if you’re seeing the same and then sort of how capacity prices or tolling agreements, if you will, on storage have evolved in parallel around these rate generations and the cost of equipment movements.
Gilad Yavetz: Jason, why wouldn’t you take it?
Jason Ellsworth: Yes, I’ll be happy to take that. And thanks for pointing that out. It is a really good time for capacity, especially in the West and over 2/3 of our portfolio is focused in the Western United States where capacity is in great demand and those markets have advanced rather rapidly. We are seeing significant demand that is having a positive impact on rates especially as we are negotiating multiple contracts and continue to see a demand with every solar contract we’re seeing here in the West, demand for capacity. The one fundamental driver for that is the limited interconnection capacity that’s there. So when we have a solar project or other interconnection capacity, the utilities are looking for the opportunity to put battery on there. And the demand remains super strong. We will continue to have some positive announcements as it relates to battery as we move forward. As you can see from the information shared here today, a lot of battery attached to the solar that we are announcing.
Operator: I will now hand over to Gilad Yavetz, CEO and Co-founder of Enlight for closing remarks.
Gilad Yavetz: Thank you, operator. Thank you, everyone, for your time. We see strong fundamentals for our project and are excited about the year ahead as we execute an above-market project returns and above-market growth. Thank you. See you next quarter.
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