CWEN

Clearway Energy (CWEN -1.73%)
Q2 2023 Earnings Call
Aug 08, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Clearway Energy, Inc. second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

After the speakers presentation, there will be a question-and-answer session. [Operator instructions] Again, please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Sotos, president and CEO.

Chris Sotos — President and Chief Executive Officer

Good morning. We first thank you for taking the time to join Clearway Energy, Inc.’s second quarter call. Joining me this morning are Akil Marsh, director of investor relations; Sarah Rubenstein, CFO; and Craig Cornelius, president and CEO of Cleary Energy Group, our sponsor. Craig will be available for the Q&A portion of our presentation.

Before we begin, I’d like to quickly note that today’s discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today’s presentation, as well as the risk factors in our SEC filings. In addition, we refer to both GAAP and non-GAAP financial measures.

For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today’s presentation. Turning to Page 4, Clearway had a soft first half of the year as weather and renewable resource conditions deviate substantially from historical averages across most geographies. For the second quarter, Clearway generated $137 million of CAFD with the lowest quarterly wind production in the company’s history. As we look ahead to the balance of the year, we are updating and reducing our full year guidance to a range of $330 million to $360 million, which accounts for our first half results and reflects a range of potential outcomes and renewable resources and weather impacts on load.

All results have stabilized in July and are materially on plan for the month. We are cautious, given the weak renewable resource and relatively mild weather in California through June. Nonetheless, enabled by our prudent financial management, Clearway is announcing an increase in its dividend of 2% to $0.3891 per share in the third quarter of 2023, or $1.5564 on annualized basis, keeping on target to achieve the upper range of our dividend growth objectives for 2023. Despite our challenges, Clearway continues its focus on growth in long-term CAFD and our asset base.

In terms of dropdowns from Clearway Energy Group, we recently committed to acquire Cedar Creek Wind for $107 million at a greater than a 9% CAFD yield, as well as Rosamond Central Storage for $32 million at approximately 11% CAFD yield. As such, we are raising our pro forma CAFD outlook from $410 million to $420 million. In terms of our continued growth trajectory, our sponsor’s pipeline has grown over 30 gigawatts including 6.9 gigawatts of late-stage projects expected to reach COD in the next four years. We continue to work toward binding commitments on the remainder of dropdown ’24 with Texas Solar Nova, which will have an estimated capital commitment of $40 million.

Working with Clearway Group on dropdown ’25 that begins our deployment of $220 million of capital commitments, we have received our first offer on these assets in the form of Dan’s Mountain, a wind farm with a target completion at year end 2024 and a greater than 9% CAFD yield. Offers that are subsequent dropdown ’25 assets are anticipated from our sponsor over the balance of the year with the contribution of those assets targeted provide a CAFD contribution consistent with our goals. Here at Clearway, we are keenly aware of the capital market volatility of recent months. I want to reiterate a key point around capital, which is we have enough cash to fund our line-of-sight dropdowns that underpin our $2.15 per share long-term target.

Clearway also benefits from an undrawn revolver, excess cash flow generation, and unused leverage capacity to fund additional growth through this volatile period. In summary, Clearway continues to execute its growth plan with a very strong internal liquidity profile, so it’s well positioned to grow beyond the $2.15 CAFD per share, combined with the EPS growth rate in the upper range through 2026. Turning to Slide 5 to provide an overview of our recent capital commitments. On the left side of the page, review Cedar Creek Wind, 160-megawatt Idaho project underpinned by a 25-year busbar PPA with an investment grade utility.

This project should produce 10 million of CAFD annually for an approximate 9.3% CAFD yield by chief commercial operations targeted for the first half of 2024. On the right side of the page, our Rosamond Central Battery Storage project is co-located with the Rosamond Central solar facility. This project is expected to require $32 million of capital with an approximately 11% CAFD yield when achieved commercial operation in the first half of 2024. This represents our continued diversification into a new asset class beyond wind and solar, with CWEN owning or committing to invest in over 550 gross megawatts of storage today.

In summary, we continue to advance our growth objectives with these two high-quality capital commitments. Slide 6 provides an update about our path to invest the thermal excess proceeds and achieve our growth targets. With our announced investments in Rosamond and Cedar Creek, our pro forma CAFD outlook now increases to 420 million, with our remaining capital targeted for investment in Texas Solar Nova and the anticipated 220 million hours of commitments in dropdown ’25 offered from Clearway Group, of which the recently offered Dan’s Mountain represents approximately 35% of this future commitment. Despite our current challenges due to poor renewable resources in the first half of the year and ongoing capital market volatility, Clearway remains on track regarding continued executions versus $2.15 CAFD per share goal and beyond.

Now, I’ll turn it over to Sarah. Sarah?

Sarah Rubenstein — Chief Financial Officer

Thanks, Chris. On Page 8, we provide an overview of Q2 results, including adjusted EBITDA for the second quarter of 2023 of $316 million and cash available for distribution of $137 million. These results reflect the previously disclosed historically low wind production that resulted in an approximately $30 million reduction to second quarter revenue, including a decrease as compared to expectations of approximately $16 million for the Alta projects. Results at the conventional segment were also below internal expectations.

The Marsh Landing and Walnut Creek facilities, whose initial tolling agreements ended in May and June, respectively, generated lower-than-expected merchant energy margin in the quarter because of milder-than-normal temperatures. Despite the first-half challenges impacting CAFD, the company remains well positioned for growth with its long-term CAFD per share outlook intact, a strong balance sheet, large revolver capacity, and pro forma credit metrics in line with target ratings. There continues to be no external equity needs for line-of-sight growth to meet the $2.15 of CAFD per share and results in dividend per share objectives. Moving to Page 9, we provide a walk from our previous 2023 full year CAFD guidance of $410 million to our revised guidance range.

Starting from the left, the first quarter of 2023 reflected lower solar irradiance due to above average rainfall in California, which resulted in lower-than-normal solar revenues. First quarter 2023 results also reflected extended outages at the conventional facilities that reduced capacity revenue and increased maintenance costs compared to expectations. As previously noted, second quarter reflected historical low wind production yielding a decrease in revenue compared to expectations of approximately 30 million, with a material shortfall at the Alta facilities, along with generation underperformance across all wind facilities in the portfolio. In addition, the conventional facilities generated lower-than-expected merchant energy margin due to milder-than-normal temperatures.

The impact of the first half of 2023 results led to a revision to full year 2023 CAFD guidance down to a range of $330 million to $360 million. We have observed more normal wind production trends for the month of July. And while we have not altered our long-term view of P50 median production estimates, the revised guidance range reflects the possibility that renewable resource may trend lower than normal for the balance of 2023, given the more volatile renewable resource experienced in 2023 thus far. The guidance range also reflects a sensitivity for merchant energy margin at the conventional facilities for the remaining summer months.

While temperatures increase during the month of July, the company cannot predict how weather, as well as other factors, such as gas prices and the availability of other generation sources, may impact energy margin at the conventional facilities. Finally, the revised guidance range reflects the expected timing of committed growth investments, including estimated project CODs. And with that, I’ll turn it back to Chris for closing remarks.

Chris Sotos — President and Chief Executive Officer

Thank you, Sarah. Turning to Page 11. Through the challenging first half of the year and potential volatility in the back half of the year, we will be unable to achieve our original CAFD guidance of $410 million. While we do not control the weather, all of us within the Clearway enterprise take this very seriously by continuing focus on improving results and forecasting of both the short and long term.

Despite these challenges, we remain on track to support the upper range of our 5% to 8% long-term dividend objective. As discussed in previous years, the rationale for a long-term payout ratio of 80% to 85% is precisely to manage through years like 2023, so that Clearway can continue to grow its dividend based on long-term cash flows without undue financial stress despite periods of short-term negative weather volatility. In addition, Clearway continues to work through commitments for the remaining dropdown offers from October of 2022 with our investments in Cedar Creek Wind and Rosamond Central Battery Storage and our first offer on the next batch of dropdowns with Dan’s Mountain. We expect to have commitments completed for all dropdowns that underpin our $2.15 CAFD per share line of sight by the first half of 2024.

Beyond the $2.15 of CAFD per share, we continue to add projects, such as the Cedro Hill repowering that was discussed last quarter, the extension of resource adequacy contracts on our California fleet, and continued improvement in our operational performance. In conclusion, 2023, thus far, has been a difficult year for Clearway, given the weakness in the renewable resources and volatility in the capital markets. While these headwinds impact us currently, Clearway Energy has always been about the long game, about compounding our dividend over time that leads to stock price appreciation. The foundations of this long-term growth are still intact: strong sponsorship and a key growth sector of America’s infrastructure; significant development capital spent to provide growth opportunities for Clearway Energy, Inc.; and a discipline capital and investment approach.

As Clearway celebrates its 10th year of existence, our ability to withstand and grow through these challenges has been demonstrated in the long term. Operator, open the lines for questions, please.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America. You may proceed.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Hey, good morning, team. Thanks so much for the time. Appreciate it. Hey, quickly, obviously, you know, you’re talking a lot about the challenges past tense here through the first half of the year.

Can you talk a little bit more about sort of today, mark-to-market, if you will, through part of the third quarter. How are trends continuing across the portfolio in terms of renewable generation?

Chris Sotos — President and Chief Executive Officer

Sure, I think as I mentioned in my comments, you know, July was on track for plans, so we didn’t see a significant deviation on a CAFD basis for that portfolio as a whole. So, I think, you know, August, it’s early days. You want to get a full month in there. But July was on track.

So, we’re hoping that the weakness we saw in the first half of the year has abated.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Got it. Oh yeah, I see stabilized here, yup. And then, more to the point, in terms of the capital market backdrop, you alluded to the challenges. At the same time, you know, clearly, transaction models in the market have come in.

How do you see that as transforming and impacting the plan that you described or brief reaffirming here today in terms of acquisition and acquisition multiple? There’s obviously some puts and takes in terms of your financing plan. But can you speak to a little bit what the transfer multiple through acquisition, multiple through your contemplating past tense in the plan versus today, if you will?

Chris Sotos — President and Chief Executive Officer

I don’t think they’ve shifted that much, given I think kind of what you’re saying, Julien, may have phrased differently, is a lot of the volatility in the 10-year Treasury has really shown up past two weeks, depending on how you look at it. And so, from my perspective, a lot of the multiples we were looking at in terms of acquisition, which are very similar to what we have for dropdowns, really hasn’t changed that much. I think for us, you know, I don’t know if what we’re seeing in terms of about a 4-10, I think, 10-year Treasury environment currently versus call it a 3-7, 3-8, maybe three, four weeks ago and if that’s transferred through real seller price expectations to date. So, long way to way of saying, I don’t think it’s impacted us that much in the current period, but we’ll have to see how sticky this Treasury environment is and if it translates to M&A multiples.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Right, but your point is, despite seeing some transactions in the quarter here at, perhaps, lower headline multiples, you wouldn’t necessarily read into those as being indicative of the wider trends, right? They’re more discrete to specific portfolios and the issues that might otherwise be embedded in them, if I hear you right.

Chris Sotos — President and Chief Executive Officer

Correct. I don’t think you can extrapolate best upon the past three weeks of Treasury volatility, there’s capitulation, the M&A market comes new levels.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Right, or more important — more specifically, transactions actioned through the balance of the second quarter here, if I hear you right.

Chris Sotos — President and Chief Executive Officer

Correct.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

And then, just lastly here, if you don’t mind, super quick, on the backdrop of California. I mean, data points continue to accrue across the forward curve at very robust prices, if not higher quarter over quarter. Again, would love to come back to how you’re thinking about your commercial strategy here and then ultimately extending out your outlook, too.

Chris Sotos — President and Chief Executive Officer

Sure, so a couple different questions here, Julien, I’ll try to unpack it. I think to your point, you know, some of the forwards are still very strong. In California, however, I think as we’re, you know, all familiar with peaking assets, when it occurs, run times, and exactly what the peak price achieved are critical assumptions in determining profitability. So, right now, you have a relatively cool environment in California that’s supposed to heat up kind of back end of next week or middle of next week.

So, I think in terms of run times and seeing really where we’re at, it’s probably much more a next-week event than in current. So, for us, you know, especially the comments I gave, July was kind of on plan. It was tough for some days, then came in really well other days. It’s just the nature of peaking assets.

So, I think for the remainder of the year, we feel pretty good about where we’re at, but once again, it’s highly — now, telling you, they don’t know. It’s highly dependent on weather, highly dependent on duration and severity of that weather. In terms of the longer term, you know, RA pricing, as we’ve talked about over the year, we bid in as part of the RFP conducted by the utilities, you know, in the second quarter. We anticipate getting any results and announce those on the November call.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Understood. Assets running OK in California here?

Chris Sotos — President and Chief Executive Officer

Yes.

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Excellent. Wonderful. Thank you, guys. Good luck.

Operator

Thank you. One moment for questions. The next question comes from Mark Jarvi with CIBC. You may proceed.

Mark Jarvi — CIBC World Markets — Analyst

Thanks. Good morning, everyone. So, just coming back to the last commentary on the California assets, just when you think of your guidance, any changes at all went into guidance here now around expectations for energy margins in the back-half 2023?

Chris Sotos — President and Chief Executive Officer

Not in terms of the baseline number. However, it does help inform the range if kind of some of the cooler weather that I talked about were to appear. So, maybe to answer your question, it doesn’t really change our pinpoint estimate, but in terms of helping inform the range, yes it does.

Mark Jarvi — CIBC World Markets — Analyst

And then, when you think of the range specific to those assets, what do you think — like, obviously, there’s the renewable assets, it brings some more variability, particularly wind. But what’s the sort of, I guess, the range you think is conventional in terms of swings in terms of CAFD expectations for the balance of the year? Is it —

Chris Sotos — President and Chief Executive Officer

I don’t know if — yeah, I don’t know if —

Mark Jarvi — CIBC World Markets — Analyst

Is it narrower than the broader range you’ve given? Or is it about the same in terms of that sort of $30 million range?

Chris Sotos — President and Chief Executive Officer

I would say it would be within the range given. It’s not as though that the wind would — or, you know, renewable assets would kind of offset a deviation in the gas feed, if that’s where you’re going. So, it’s not as though the deviation is wider than that. The deviation on the conventional would tend to be within that range.

Mark Jarvi — CIBC World Markets — Analyst

Got it. And then, just in terms of the offer here on Dan’s Mountain, 9% CAFD, you know, what — it performs at a bit lower than where I think the 9.5% range, you know, stocks trading at 8.5%. So, how do you think about that transaction off your own, you know, currency in terms of your share price, what you’d be buying back stock at? And if there’s anything around the funding plan you could optimize to bring up that CAFD yield over time with Dan’s Mountain.

Chris Sotos — President and Chief Executive Officer

Sure, a couple different questions there. I’ll try to unpack that. I think part one, you know, for Dan’s, we put approximately in these for a reason. You know, sometimes it ends up 9.2.

The big point is when we first talked about dropdown ’24 and dropdown ’25, we talked about those on a weighted average basis being about 9.5 for the entire fleet. Some of those are going to be below the 9.5. Some of those, like Rosamond bests are, you know, at 11. So, I think the key point is, each end of — when we say 9.5, it doesn’t mean every asset is going to be 9.5 or greater.

That’s the portfolio as a whole, some being a little bit lower, some being higher. So, I’d say it’s consistent with how we view things overall. Second, basically, I mean, the asset is pretty attractive with a 12-year contracted basis. So, once again, longer is better, but 12 is pretty strong in today’s market.

And so, overall, we think that that’s, you know, once again, subject to diligence. And going in front of the GCN and the like, that number doesn’t surprise me nor do I view it negatively. To your point around stock buybacks and the like, that’s something we look at. I tend to think that as long as we can continue to find accretive acquisitions or dropdowns from our sponsor, those tend to still be a better form of investment because it helps to diversify the portfolio, broaden it out and then, also, keep adding to our PPA tenure and the like.

If we were to, let’s say, stop doing dropdowns and focus solely on stock buybacks, you know, through time, that PPA duration would kind of walk in on you a bit. So, I think with the acquisitions that we just talked about, actually the dropdowns we just talked about with Cedar Creek and Rosamond, as well as hopefully Dan’s Mountain, you continue to see kind of that PPA duration being done in a creative basis for dropdowns versus dilution.

Mark Jarvi — CIBC World Markets — Analyst

OK, that makes sense, Chris. And then, just coming to the dividend increases, obviously, you’ve talked about not needing equity to hit the 2.15 and drive 8% dividend growth. But given where the stock’s going to trade now and market conditions, if you’re not being rewarded for the increases, you start to moderate down the lower end or you just take that long-term view and stick with the plan? You’re at 8% for the foreseeable future.

Chris Sotos — President and Chief Executive Officer

Sure. I think, you know, subject to moving conditions, I would inform your answer by a couple things. One, as I talked about in response to earlier questions, I think we all need to see where the Treasury market kind of settles out at. This kind of fore-handle has been a pretty recent phenomenon, which I think has driven some of the weakness in the stock.

So, part one is, you know, where do treasuries kind of stabilize. Part two, to me the difference in growing let’s say at six versus eight to come up with, you know, a number that’s lower than eight for purposes of the conversation isn’t a significant deviation in terms of, you know, significant cash that’s left on the balance sheet, right? Four hundred ten million dollars of CAFD, every 1% is $4 million of CAFD, so a 2% difference in growth is about $8 million. It’s not a paradigm shift in saying, well, we have a lot more cash on the balance sheet with which to basically, you know, invest in assets for like. So, I don’t see the dividend growth rate and changes in that really driving a significant deviation in retain cash that can be available for investment.

To your question around, you know, how do we think about moderating that in the future, that I think will be based upon — you know, if we’re never valued for it, right? I think that’s pushing the envelope. But if, for example, you know, the market just doesn’t value dividends anymore, which, to be clear, I do not think is the case currently, then we kind of take a look at it again. But I think right now, we’re comfortable with the long-term growth rate. We’re comfortable with the high end of the range.

And everybody uses eight, but just to be clear, it’s kind of 6.5 to eight. It’s the high end of our range. And third, you know, I still see value in the dividend in terms of our equity holders. I think we just need this tenure to settle down a bit and then we’ll kind of see where we’re at.

Mark Jarvi — CIBC World Markets — Analyst

OK, all right. I’ll leave it there. Thanks for the time today.

Operator

Thank you. One moment for questions. Our next question comes from Angie Storozynski with Seaport Research Partners. You may proceed.

Angie Storozynski — Seaport Research Partners — Analyst

Good morning. So, one question on the gas plants. So, could you comment on the dispatch of the assets and how it differs versus what we saw for the output from these assets under the tolls?

Chris Sotos — President and Chief Executive Officer

I can’t really say there’s a difference that can really be identified, Angie. Obviously, the tolling entities probably ran them differently based upon what they’re seeing in their portfolios versus us just taking market signals. So, I will say — and it’s also a little bit difficult because, obviously, we’ve only got really two months of full data, maybe three, and also not around the full fleet. So, I don’t know if there’s a really good basis for that comparison, Angie, to be fair to your question.

Angie Storozynski — Seaport Research Partners — Analyst

OK. I understand. And then, changing topics, on the CAFD per share expectation, so I’m looking at your HoldCo debts and maturities and where these bonds currently trade. And I know that some of them are 2020 and further out.

But I mean, is there a plan how to absorb the incremental interest expense from that refinancing in that CAFD per share projection?

Chris Sotos — President and Chief Executive Officer

Sure, I think to your question, if I’m answering correctly, the corporate bonds are in 2028, 2031, and 2032. And I think while again, you know, that gives us some time to continue to grow the portfolio. You know, if in the end, Angie, if those things are, you know, yielding nine, it may make sense to buy those back at that period of time because you obviously have a pretty strong cap yield at that point. So, I think, for me, you know, A, we’ve got a bit of time between now and then; two, one way to manage those and continue to grow the portfolio; third is — you know, obviously, the other two are very long-dated with 2031 and 2032.

So, hopefully that answers your question.

Angie Storozynski — Seaport Research Partners — Analyst

Yup, thank you.

Operator

Thank you. Our next question comes from Noah Kaye with Oppenheimer. You may proceed.

Noah Kaye — Oppenheimer and Company — Analyst

Thanks for taking the questions. Maybe just a little bit of cleanup math here following prior questions. I mean, the midpoint of your revised guide, you’ve got the 1Q ’23 plus 2Q ’23 numbers in that deck very clear, and then there’s basically another 5 million slightly lower CAFD at the midpoint in the back half. Is that the right way to think about the potential for lower energy?

Chris Sotos — President and Chief Executive Officer

That’s correct.

Noah Kaye — Oppenheimer and Company — Analyst

OK, anyway —

Chris Sotos — President and Chief Executive Officer

Yeah, the way I would put it, Noah, is given the first-half results, we kind of skewed the range a bit to the downside, just taking into account the first half of the year. Once again, I think to some of the other questions, fortunately, we haven’t seen the weather patterns that persisted in the first half of the year in July, so we’re hoping the trend in July continues. But, you know, long way to go.

Noah Kaye — Oppenheimer and Company — Analyst

So, just a little bit of conservative on basically —

Chris Sotos — President and Chief Executive Officer

Yup.

Noah Kaye — Oppenheimer and Company — Analyst

On the first half. And then, just not changing your view — or actually you increased your pro forma CAFD view because of those portfolio additions, but not changing your view of the existing portfolio’s pro forma, long-term EBITDA, CAFD, I guess what underpins that at this point? You know, you talked about this being historically low quarter for wind production. Obviously, some mean reversion would be implied. But as a company that is generally investing on the right side of climate change, you know, you certainly have to look at some of these weather patterns and wonder is there anything to be concerned about.

So, talk to us about your assessment of the portfolio and how hard you’re testing those long-term assumptions.

Chris Sotos — President and Chief Executive Officer

Sure. Part one is typically, any long-term assumptions, we’ll update in November. So, just to be clear, it’s not as though we don’t see any adjustments at all occurring, just simply we don’t do that kind of every quarter. We do that comprehensively in November, which takes into account any revisions to P50s, which we’ve done in previous years, cost increases, merchant curves, and the extension of RA contracts and the like.

So, part one is that the long-term view is typically done in November, where you comprehensively bring everything else down. Part two is, I think to your question, you know, for us on long-term data, also, if you look back at our historical production indices, it would be exception of this year, they really do oscillate around 100. You kind of have 93 and 90 — 103, I beg your pardon, and 97 showing up. So, you do see kind of that oscillation around 100, pick your year, some better, some worse.

So, I think for us, it’s really about continuing to get longer-term data and refining that. So, in terms of like, are our models necessarily wrong? Not — when we get enough data in them, no. And that’s kind of we would use Alta to demonstrate that. And I do think just this year is so — you know, I think, not to minimize the question, there’s a reason that we kind of don’t maximize leverage.

There’s a reason we don’t maximize payout ratio, right? There was a question about dividend growth. Easiest way for me to generate dividend growth is to move the payout ratio to 90, right? It doesn’t require anything. I think, from my perspective, these years are going to happen, and we try to basically run things in terms of being able to manage that. To me, I would actually — I’m not going to argue it’s a positive, obviously.

But given the weakness of this year, to view that we were able to amortize all project debt, pay off all corporate interest, and still generate at the midpoint, you know, $345 million of cash, despite a P90 or P85 year in multiple parts of the fleet, and it’s a weakness in conventional, don’t get me wrong, wish it was higher. Not making that point, but I think it actually shows the robustness of the system to deal with these weaknesses that we are going to see over a 10-year period once in a while in terms of the book.

Noah Kaye — Oppenheimer and Company — Analyst

Appreciate that. And one last question if I could, you know, just with Rosamond, you have the 15-year RA agreement in place with the high-quality IOU. What kind of attributes do you need to see to invest in additional stand-alone storage projects? I assume you need some elements of long-term revenue visibility, you know, hopefully in a desirable market. But just walk us through how you think about the investability of stand-alone storage.

Chris Sotos — President and Chief Executive Officer

Sure. I think if you’re saying to invest in stand-alone storage purely on a merchant basis, where capacity and energy are open, that’s probably tough for us, unless it fits in with other parts of our book where we’re trying to mitigate positions or scarcity pricing. So, I think kind of step one from our view is that if you were to say, hey, what’s the likelihood of CWEN investing in 100% merchant storage that’s not integrated with the rest of its portfolio, that’s not a probable place we’re going to invest. Secondly, I think that because storage is a little bit, you know, nascent from an asset perspective, the significant — I think we use the term, you know, significant majority of the economics are from the capacity side of things.

So, we don’t want to bet a lot on, let’s say, merchant energy. Not that we don’t need any, that would be a little bit too positive. But we’re really trying to mitigate that through contracting as long as we can on the capacity side of things. So, from our view, you do need kind of that merchant dispatch, but if not, we’re not going to take a 75% bet in terms of economics on the merchant portion of it either, if that’s kind of your question.

Noah Kaye — Oppenheimer and Company — Analyst

Yeah, that’s very helpful. Thank you.

Operator

Thank you. I’d now like to turn the call back over to Chris Sotos for any closing remarks.

Chris Sotos — President and Chief Executive Officer

Thank you. Once again, I appreciate everyone’s patience during this difficult year. I think we’re working it through. And like I said, you know, July looks to have reversed some of the trends we saw in the first half.

We hope it continues, but thank you all for your support. Take care.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Chris Sotos — President and Chief Executive Officer

Sarah Rubenstein — Chief Financial Officer

Julien Dumoulin-Smith — Bank of America Merrill Lynch — Analyst

Mark Jarvi — CIBC World Markets — Analyst

Angie Storozynski — Seaport Research Partners — Analyst

Noah Kaye — Oppenheimer and Company — Analyst

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