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Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Algonquin Power & Utilities Corporation 2021 Fourth Quarter Earnings Webcast and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Amelia Tsang, VP Investor Relations. You may begin your conference.
Good morning, everyone. Thanks for joining us this morning for our fourth quarter and full year 2021 earnings conference call. Presenting on the call today are Arun Banskota, our President and Chief Executive Officer; and Arthur Kacprzak, our Chief Financial Officer.
Also joining us this morning for the Q&A part of the call will be Jeff Norman, our Chief Development Officer; and Johnny Johnston, our Chief Operating Officer. To accompany our earnings call today, we have a supplemental webcast presentation available on our website, algonquinpowerandutilities.com. Our financial statements, management discussion and analysis and annual information form are also available on the website as well as on SEDAR and EDGAR.
Before continuing the call, we would like to remind you that our discussion during the call will include certain forward-looking information, including, but not limited to, our expectations regarding future earnings, capital expenditures and pending acquisitions. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures. Please also refer to our most recent MD&A filed on SEDAR and EDGAR and available on our website for additional important information on these items.
On our call this morning, Arun will provide an overview of our Q4 and annual performance. Arthur will follow with the financial results, and then Arun will conclude with an update on our strategic plan for the business. We will then open the lines for questions. I ask that you restrict your questions to two and then re-queue if you have any additional questions to allow others the opportunity to participate.
And with that, I'll turn it over to Arun.
Thank you, Amelia, and a very good morning to those who have been able to join us on the call and online. Given that this is our year-end earnings call, I want to provide some highlights and speak to performance, both financial and operational for Q4 and full year 2021.
Firstly, on financials, I'm pleased to report steady year-over-year growth in the following key financial metrics: 2021 Adjusted EBITDA of nearly $1.1 billion increased 24% year-over-year from $869.5 million, largely from new facilities that came online in 2021 on the Renewable side, including Maverick Creek Wind and Altavista, as well as contribution of new facilities on the Regulated side, including Empire Wind and a full year of contribution from BELCO and ESSAL.
Our 2021 Adjusted Net Earnings per share of $0.71 was up 11% from the $0.64 reported in the prior year and came in line with our expectations. Last year, we reported annual dividends per share of $0.67, representing our 10th consecutive year of dividend increases. We also exited the year with approximately $16.8 billion in assets, a 27% increase over the $13.2 billion reported in the prior year.
Secondly, on execution, the company undertook a number of successful growth initiatives and continued to execute on strategic priorities in 2021, which are positioning us well for the future. We continue to focus our efforts on Algonquin's three strategic pillars; growth, operational excellence, and sustainability. And I will provide more details on each of these pillars.
Earlier this year, we closed on the acquisition of New York American Water, which services over 125,000 customer connections across seven counties in Southeastern New York, and we officially welcome the New York American Water employees into Liberty. The transition has gone very well as planned.
Staying on the topic of growth, I want to provide you an update on our pending $2.8 billion acquisition of Kentucky Power Company and AEP Kentucky Transmission Company. We remain excited and firmly committed to this transaction and look forward to bringing the benefits of our local operating model to Eastern Kentucky. As we previously mentioned, our expectation of enhancing Kentucky Power's local operating model, bringing benefits to customers by exploring opportunities to reduce customer rates through investing in green energy and creating increased local employment are all attributes that are expected to help customers and the local communities, while driving value for our shareholders.
To that end, you are likely aware that we jointly filed with AEP an application with the Kentucky Commission on January 4 for the approval of the acquisition of Kentucky Power. By statute, the Commission must issue an order on the application within 120 days. We expect to close the transaction in mid-2022 after receipt of state and first level approvals and satisfaction of all other closing conditions. To-date, we have already received Hart-Scott-Rodino and CFIUS approvals.
Staying on the regulatory front, our rate review at Empire Electric continues to progress well. On February 4, 2022, a stipulation was reached among Empire Electric, Office of the Public Council, Staff of the Missouri Public Service Commission and other interveners. Hearings were held on February 7 on rate design, and a hearing on the stipulation was held on February 10, with new rates expected to be implemented in May of 2022.
We believe the settlement represents a fair outcome for customers and the company. We continue to invest in our network to deliver mission-critical services to our communities, while keeping customer affordability top of mind.
Another growth pillar in our Regulated business is focused on deploying capital to benefit our customers. In 2021, the Regulated Services Group invested over $1.9 billion, including the completion of our Midwest greening (sic) [greening the fleet] (00:07:47) initiative, where we brought 600 megawatts of wind generation online. In the coming years, we expect to invest between $800 million and $1.2 billion annually into our rate base to improve safety, security, reliability, resiliency and customer experience.
Turning to the growth levers on our Renewable business. In this business, our ability to originate and execute projects is a critical growth lever. 2021 has been a record year for Algonquin, with nearly 1,200 megawatts of new Renewable projects either closing or reaching commercial operations. In December 2021, we completed our latest project to achieve commercial operations, the 24-megawatt EBR wind facility in Québec, with all of the energy being sold to Hydro-Québec.
The 175-megawatt Blue Hill facility in Saskatchewan, with all of the energy under contract with SaskPower, is on track to achieve commercial operations in March 2021. Our construction program continues with the expected start of construction in Q2 2022 of the Deerfield 2 and Sandy Ridge 2 wind projects. Also, we continue to progress our partnership with Chevron and expect to start construction on the first two of these solar projects in mid-year.
The fact that we continue to successfully execute on construction in the midst of the COVID pandemic and supply chain challenges is a testament to the hard work, entrepreneurial culture and experience base of our employees.
At our Investor Day, we discussed our strong development platform, where our ongoing development has resulted in growing our greenfield pipeline of prospective generation projects to 3,800 megawatts by the end of 2021. This growth is net of projects totaling 640 megawatts, which advanced from our greenfield pipeline into our five-year capital plan. The 640 megawatts that advanced includes the Riverbend Wind Project in Michigan, the Blue Violet combined wind/solar project in Illinois, and four projects being developed in partnership with Chevron in New Mexico and Texas.
Two other important initiatives in 2021 to establish a strong foundation for future growth include building a 1,700 megawatt hour pipeline of prospective energy storage projects and entry into renewable natural gas with the agreement to acquire Sandhill, a developer of RNG projects. Sandhill represents an attractive platform, giving us immediate entry via its portfolio of four projects in the state of Wisconsin, two of which are currently under construction with first production expected around the end of Q1 and two projects which are in late-stage development.
According to a US Environmental Protection Agency report, Wisconsin represents the state with the second largest universe of renewable natural gas opportunities, and we are excited to utilize Sandhill as an RNG growth platform. This acquisition is expected to close in the first half of 2022.
Moving on now to operational excellence. In a mission-critical industry, safety and reliability are always key areas of focus. I'm very pleased to share that we have passed the impressive milestone of over 750 days. That is nearly 11 million work hours without a single lost time injury across our North American business, while keeping our customers and communities safe and maintaining our system reliability and resiliency.
I want to thank all of our employees for their ongoing focus on safety and preparedness for weather events. I want to particularly call out and thank the electric team in Tahoe as that area received record breaking snowfall over the Christmas holidays. Liberty crews worked hard throughout the holiday weekend to restore power to our customers and communities as quickly and safely as possible during harsh weather conditions. The hard work and dedication of our employees did not go unnoticed by the customers and local communities we serve.
And finally, we remain firmly committed to sustainability through the inclusion of environmental, social and governance values in our broader corporate strategy and day-to-day operations. In 2021, we announced our target for net zero for Scope 1 and 2 emissions by 2050 with a credible path supported by our strong decarbonization track record, extensive experience in regulated utility management, and deep expertise in renewables development.
On the governance side, we successfully embedded sustainability into our management's compensation model, continuing to enhance how ESG factors are embedded throughout the organization's business goals. And finally, in 2021, AQN's ESG ratings continued to improve in the aggregate, positioning the company as a sustainability leader.
More recently, I'm pleased to report the company's inclusion in the 2022 Bloomberg Gender-Equality Index for the third year in a row. Our inclusion into their Index is a testament to our continued efforts for continued gender equality – improved gender equality and transparency as we target above-market gender representation at our board and executive levels.
With that, I'll pass it over to Arthur, who will speak to our fourth quarter and full year 2021 financial results. Arthur?
Thank you, Arun, and good morning, everyone. I'm pleased to report that Algonquin has reported steady fourth quarter and full year results, reflecting the benefits of our diversified and resilient business model and proven track record of disciplined growth. Our fourth quarter 2021 consolidated Adjusted EBITDA was $297.6 million, which is up approximately 18% from the $253.1 million we reported for the same period last year.
The Regulated Services Group delivered $191.4 million in operating profit in the current quarter, which compares to $162.4 million in the same quarter last year, an increase of about 18%. This improvement reflects contributions from our Midwest wind facilities, which were placed in service in 2021, as well as contributions from BELCO, our Bermuda electric utility; and ESSAL, our Chilean water utility as both acquisitions closed during Q4 of 2020. Results also benefited from new rates implemented at CalPeco and Granite State Electric Systems as well as Park Water and Apple Valley Water systems in California. This was offset by lower consumption driven by milder weather. Results were also impacted by higher non-pass through fuel costs at Empire Electric as well as higher operating costs at Granite State and CalPeco.
The Renewable Energy Group reported fourth quarter divisional operating profit of $123.9 million, which compares to $97.9 million in the same quarter last year, an increase of about 27%.
The addition of the Sugar Creek and Maverick Creek wind generation facilities contributed to the year-over-year increase in operating profit. Our investment in Atlantica also continued to provide benefits with dividends received increasing by $4.4 million over the prior year.
Q4 also benefited from the sale of our New Market Solar facility to a joint venture with our renewable construction partner Ares, resulting in a recognized gain reflecting a step-up in the value created through the development process. However, this increase was partially offset by lower overall production on some of our wind and solar generation facilities and higher operating costs, while performance at our Sanger facility was negatively impacted this quarter by higher compliance costs and lower capacity payments.
Our investment in the Texas Coastal Wind Facilities was also negatively impacted by higher than expected basis cost, lower than expected production and an acceleration of HLBV losses of $9 million related to Q1 hedge settlements caused by winter storm Uri that were expected to largely reverse in the future.
Fourth quarter corporate expenses were higher by approximately $10.5 million as compared to last year, driven primarily by higher administrative expenses and higher overall net development expenses as compared to last year.
In total, our Q4 Adjusted Net Earnings per share came in at $0.21, which is in line with last year. In addition to the drivers discussed, our results were negatively impacted by financing costs associated with the capital deployed in 2021 and an increase in the weighted average shares related to the Kentucky Power acquisition funding.
For the full year, Adjusted Net EPS came in at $0.71 and compares to $0.64 reported in the prior year, representing an annual growth in Adjusted Net EPS of 11%, showing solid year-over-year growth.
Although we delivered strong results, we did encounter various headwinds throughout the year. As a result of record load wind resources experienced throughout the early part of the year, which was an industry-wide phenomenon, generation on our wind facilities was down approximately 10% from long-term averages. Also, much warmer-than-normal weather in the Midwest negatively affected customer usage in the early and latter parts of the year. Compared to normalized weather patterns, this represents an impact of approximately $48 million on our 2021 operating profit, or about $0.055 on our Adjusted EPS.
Moving on to the balance sheet and financing activities. First, I wanted to spend a few minutes to provide an update on our progress towards the financing of the Kentucky Power acquisition. On announcement of the deal back in October of last year, we executed a Canadian dollar bought deal offering of common shares, raising a US dollar equivalent of approximately $640 million in proceeds. Early this year, we issued approximately $1.1 billion of hybrid debt and a concurrent public offerings in the US and Canada. Recall that hybrid debt receives 50% equity credit from S&P and Fitch and never converts to common shares.
We have issued this financing on an attractive expected 10-year rate of approximately 4.95% after factoring hedging. That brings the total raise for the transaction to just over $1.7 billion towards the $2.8 billion purchase price. On closing, we expect to assume approximately $1.2 billion of Kentucky Power company debt of which approximately $500 million is targeted to be refinanced using Liberty Utilities' established 144A debt platform, which we would expect would benefit our future Kentucky customers. We continue to see this acquisition as providing compelling value and look forward to closing later this year.
Moving on to the broader capital and financing plan. In 2021, Algonquin deployed $3.7 billion of capital on our organic initiatives relating to the safety, reliability of our electric, water and gas systems, as well as delivering new renewable generation from our projects, including Maverick Creek Wind, Altavista Solar and our Midwest Greening.
For 2022, Algonquin is targeting to spend over $4.3 billion in capital, with the majority related to the acquisitions of New York American Water, which closed earlier this year and Kentucky Power, which is expected to close in the middle of this year. Our funding plan for the remainder of the year is predicated on maintaining a strong and resilient balance sheet, targeting a BBB investment-grade credit rating. I spoke to the funding associated with the Kentucky Power acquisition already. The remaining funding requirements can be solved by a combination of various funding sources available to us, including retain cash, some more hybrid debt, proceeds from securitization of certain regulatory assets and as well as issuance of long-term debt. As we discussed during our Investor Day, asset recycling or selling down a portion of our non-regulated renewables can also be viewed as another source of potential value-accretive capital for us this year.
Considering the various funding sources available, we do not expect to raise additional capital, but we have issuance of discrete common equity for the remainder of this year. Our funding plan is supported by a strong liquidity position. At the end of 2021, we had approximately $2 billion of committed capital in reserves available, not counting the acquisition facility that was arranged in connection with the Kentucky Power transaction.
Before turning things over to Arun, I'd like to provide a brief update on our 2022's Adjusted Net EPS guidance. We continue to expect our 2022 Adjusted Net EPS per share to be within a range of $0.72 to $0.77, which was communicated previously at our Investor Day. We continue to assume in our earnings guidance, normalized weather patterns and rate decisions in line with expectations, as well as resource production and realized pricing at our renewable-generating facilities consistent with long-term averages.
We also assume that there are no impacts from COVID-19 on our operations. We look forward to continuing to deliver solid earnings from our diversified and growth-oriented business model, which along with our history of superior dividend growth, we believe, will continue to drive strong shareholder return.
With that, I will now hand it back to Arun to outline our strategic plans.
Thanks, Arthur. Before we close out our prepared comments this morning, I want to give an update on our strategic initiatives. At our December Investor Day, we updated our five year capital investment program, which projects $12.4 billion from 2022 through the end of 2026 with a very visible capital plan. Of that, we have already closed on New York American Water earlier this year, executing on approximately $600 million of the capital plan in January.
On the Regulated side of the business, the additions of New York American Water and Kentucky Power are expected to drive long-term Adjusted Net EPS growth, while a large portion of the capital plan is being spent on organic investments to improve the safety, reliability and resiliency of our network.
On the Renewable side, we are excited about the growth potential and believe that we have a once in a generation opportunity to accelerate renewables growth and add shareholder value. In just over a period of one year, we have made investments and have grown our prospective greenfield pipeline from 3,400 megawatt to 3,800 megawatts, while converting 640 megawatts from that greenfield pipeline into our new five year capital plan.
We also introduced our new prospective pipeline of storage opportunities of 1,700 megawatt hours at our December Investor Day. We believe this validates the strength of our development platform. We now have scale across both our development platform as discussed, and we own and have investments in over 4,000 megawatts of renewable generation.
At our Investor Day, we spoke of accelerating renewables growth and adding shareholder value as we plan to increase our investments in greenfield development, which we expect will allow us to capture the higher development margins and take a number of those projects through construction. Once in construction, we see an opportunity to partner with institutional investors wishing to make alternate, sustainable investments with our ability to develop and deliver on long-term contracted sustainable assets.
In particular, we should be able to sell down to the investors, while earning an operating fee. We could then deploy some or all of the capital gains in further greenfield development, creating a potential new recurring source of earnings for our investors. With scale, we expect to get incremental benefits, including improved negotiating power, lower transaction costs and access to greater opportunities.
We are on our way to completing planning and plan to execute this strategy in 2022. I'm excited about the prospects for Algonquin's Regulated and Renewables businesses, which are both well-positioned to contribute to and benefit from the decarbonization transformation that is currently underway and which will only accelerate over the coming years.
In summary, our three strategic pillars of operational excellence, growth and sustainability would be a key foundation as we continue to build the business and strive to bring long-term value to our shareholders. We remain well-positioned to continue to execute on our growth strategies, while pursuing our sustainability goals.
With that, I will turn the call over to the operator for any questions from those on the line. [Operator Instructions]
Your first question today comes from the line of Sean Steuart with TD Securities. Your line is now open.
Thank you. Good morning, everyone.
Good morning, Sean.
Good morning. A couple of questions, the New Market Solar Project sale to the joint venture with Ares, how should we think about that project pipeline going forward for future sales into that vehicle?
Sure, Sean. So, look, we have been talking a few times now about the ability for us to provide recurring shareholder value through the growth of our development and construction pipeline. And so what I talked about towards the end of my presentation was really how that New Market Solar also fits into our strategy of producing recurring shareholder value through such sell-downs. So because of the fact that we believe it's going to be a recurring source, we thought – believe it is prudent to knot just that out of our earnings.
Okay. Understood. The pace going forward, though, for future projects to be sold into that vehicle, any context you can provide there?
Well, we're about done with our planning process, I mean starting our execution process on that, Sean. So, we'll probably be able to give a lot more detail at that at the next quarterly call.
Okay. Thanks for that. The Sandhill acquisition and I guess context on the amount of capital you expect to invest into those projects, and more broadly speaking, larger investment opportunities for whether it's RNG or other energy transition-type investments. Any details you can provide on that front?
Hey, Sean, it's Jeff. Yeah, I think the Sandhill acquisition and the four projects are anaerobic digesters. And so, they're relatively small in terms of CapEx. It's important to us because of the benefits of advancing RNG and improving our knowledge in that area, more so than an absolute capital play. That being said, we do see RNG expanding. RNG includes hydrogen. And so, as we start to build our knowledge, start to build how we trade and expand more, we do see that as an important area. But there's still a lot of information to unfold.
Okay. Thanks, Jeff. That's all I have for now. Thanks, guys.
Thanks, Sean.
Your next question comes from the line of David Quezada with Raymond James. Your line is now open.
Thanks. Morning, everyone. My first question here, just on New York American Water, now that that's closed, I'm curious what kind of potential you see there, I guess for spending CapEx either organic or otherwise. I think at the time of the acquisition, there were some talk about opportunities for consolidation there. So, any thoughts around that would be appreciated.
Look, I mean, we are very much in the planning process for continued investments in New York American Water. Our next rate case is not due for some time. But, as with all of our other utilities, we continue to invest in the safety and reliability and resiliency of that water system as with anything else. Now, given our unique positioning in terms of renewable energy, as you know, there's quite a bit of energy required to transport water. One of the unique things we do do is look at opportunities to see how we can substitute the current energy profile with our renewable energy generation to serve our water utilities also, which I think is a unique capability that we have. And we have utilized that already. So that's something we're taking a close look at as well.
Excellent. Thanks, Arun. Maybe just one more from me just on the topic of cost inflation, and I'm thinking specifically about your Regulated business. Curious if you've had any discussions with regulators, especially on your active regulatory dockets, if inflation has been raised as a concern there at all and how are those discussions going.
Sure. Look, David, I mean, inflation is the current topic du jour, right? So obviously we're seeing more inflation than we have seen in the past, probably, what, 10, 15 years at least, I think. On the Regulated side of the business, look, I mean, inflation is largely a pass-through. But at the same time, we are acutely aware of the potential impact on customer affordability, so we track that extremely closely. And that's a continuing source of discussion we have with the regulators on how to balance all the cost increases vis-à-vis the right level of customer rate.
On the renewable energy side, it's largely a function, in our minds, of you have three significant contracts on the renewable energy side, right? You've got your large equipment contracts, you've got your EPC contracts, you've got your offtake contracts. Once you sign those three agreements, all of them are fixed price contracts. And so, in our mind, the strategy that we employ is trying to sign those three contracts as closely concurrently as possible, so that we are not left holding the inflation risk. So – and that's the way we've been able to protect our return margins.
Excellent. Appreciate the color. Thanks, Arun. That's all I had.
Thank you, David.
Your next question comes from the line of Rob Hope with Scotiabank. Your line is now open.
Good morning, everyone. First question is just on the – it looks like a little bit of a pivot on the renewable power strategy to a bit more of a capital light strategy. Is this what's driving the investment in capital projects in the Renewable Energy Group of $5 million to $30 million in 2022? Because, if I look at slide 7, it looks like it should be a relatively busy year. So is the assumption that you're going to be kind of bending down more than half of these projects, equity count for them and kind of recoup your capital here pretty quick?
That's basically it, Rob. What you're seeing there is basically the spend that's really beyond balance sheet spend, but obviously, a lot of activity going on in the year and certainly, a lot of development spend and continuing construction spend, but that spend is mostly reflected in our construction JVs.
And that activity is only likely to keep on increasing, Rob. And that's why, if you notice, we've started including a slide that shows you the level of construction activities, which is fairly significant. So we have not slowed down in terms of continue to advance our greenfield projects through the development process, through construction and into operations.
All right, that's helpful. And then, I guess the question is, how should we think about the $3.6 billion of CapEx that you put forward at your Investor Day? Is that then more of a 100% number and then net to AQN could be significantly smaller, then we'll add on more projects as they come?
Yeah. You could think of that as the gross number. I mean, obviously, as we think about how much is actually retained versus monetized and so forth would be determined in the future.
All right. Thank you.
Thanks, Rob.
Your next question comes from the line of Nelson Ng with RBC Capital. Your line is now open.
Great. Thanks and good morning, everyone. Just a quick follow-up to that question in terms of the JV. So can you give a bit more color on your relationship with the Ares Management? Are they a long-term buyer of your assets? Is that part of the plan?
Yeah. Nelson, it's Jeff. I wouldn't characterize it as a long-term buyer, so we've got a strong relationship with Ares, and we expect to do more than one transaction with them. But it's not an exclusive relationship. And I think there's a very robust market out there and we want to keep our options open.
Okay. So, I know in the past you would move assets into a JV, have it constructed. And then at the end, you would usually kind of buy it back at a nominal price. But this isn't the case, right? Ares will be a long-term equity shareholder in New Market and the other assets. Is that right?
Yeah. There's two elements to think of – on that. The first one is on the development side, where we are moving projects through and are participating in the risk on those projects. And then there's the construction type JVs. I think the primary difference is Ares – the primary difference between the original construction projects and this would be, we may not take them back at the end, but it may not be Ares that has the long-term hold. There may be a third-party that picks up thereafter as well. So, that's not absolutely certain at this time.
Okay. Thanks. And then just one last follow-up question, in terms of timing, so is it the plan to have things sold down and move to a JV, I guess, on financial close or just prior to construction or during construction, rather than on or after completion? I presume there's still a bit of extra value to be had if after you hit COD.
The plan is that we're in the best position to de-risk these projects through development and through construction. But those are clearly areas of expertise we have and take them through a certain period of operation, take care of all the initial bidding down issues [indiscernible] (00:38:40) and then sell them. [indiscernible]
(00:38:45)
Okay. Thanks for that. Yeah. Sorry go on.
No. I was just going to add, and I mean – so, with the construction JVs, Algonquin still looks to retain the full obviously outside value throughout the construction cycle.
Okay. Got it. All right, I'll get back in the queue. Thanks, everyone.
Thanks, Nelson.
Your next question comes from the line of Ryan Greenwald with Bank of America. Your line is now open.
Hey. Good morning, everyone. Maybe starting with any additional color how you're thinking about the dividend growth going forward? Looks like excluding the gain on the sale here, you guys were tracking at approximately 100% payout ratio. So any way to help frame how you're thinking about that ahead of the annual cadence in which you would typically revisit it?
Yeah. I'd say it's – our stance really hasn't changed what we communicated previously. Look, our dividends, we certainly want it to be a sustainable dividend. And I think we've communicated in the past an 80% to 90% payout ratio target. I mean, it's a long-term target that we're targeting between 80% to 90%, so there is going to be a lumpiness in certain years. But from an overall long-term perspective that that's where we end up seeing and certainly do see some further dividend growth as well.
Got it. That's helpful. And then in terms of the sale to Ares instead of AY, can you just talk about that and how you're thinking about the AY relationship going forward?
Look, the AY relationship remains strong, right? I mean, you saw we have dropped down some other assets into AY as well. Like I've told multiple times, I mean, we like the ESG profile of Atlantica, so the relationship remains strong. And I just want to remind folks that in the whole construct around – with AY and the dropdowns were that it is going to be around non-regulated, non-North American assets, right? So this does not obviously necessarily fall into that category. So I think as a company, as we grow our Renewables portfolio, we find ourselves in a good position that we have multiple options.
Yeah. Understood. And then maybe just one more, if I may. In terms of your appetite for further M&A and the market environment, can you touch on that a bit? And then perhaps separately, given where LDCs have been transacting from a private valuation perspective, would a regulated divestment be on the table or is any asset recycling going to be more on the Renewable side?
Look, I mean, Ryan and I will tell you that we're always looking to increase shareholder value. And then we're never closing any doors and saying, there are no sacred cows here, right? Having said that, from a strategic perspective, when we look at all of our assets in our portfolio and given the external market as well, we believe that the fourth phase is really the sell-down on the Renewable side of the business because we see our ability to be able to control more that development pipeline, the construction pipeline, the flow of the number of projects into operations.
So, it's a much more recurring and it's a much more controllable piece of recurring shareholder value rather than one-offs right now. Having said that, we're not against doing one-offs either and so, one of the ways we look at that is, is any particular asset more valuable under our ownership versus in somebody else's ownership. So, that's something we're always looking at.
Great. I'll leave it there. Thanks so much for the time.
Thanks, Ryan.
Your next question comes from the line of Ben Pham with BMO. Your line is now open.
Hi. Thanks. Maybe I want to start off – to follow up on I mean some of the questions you had on Ares and some of the structures that you utilize. And I'm wondering when you look at asset dropdowns or asset sales, like how do you position where it fits? Is Ares many development construction, AY, operating assets and then you compare that to third-party? How do you – there's a bunch of different structures going so it would be interesting to see how you think about where things fit?
So basically, when we look at development and construction, one of the options we have, obviously, is to utilize this joint venture with Ares, right? So we do not have any other – but we could develop it totally ourselves as well, so we have that flexibility of doing either or. We are not normally developing projects or going through construction with Atlantica.
On the operational side, by and large, we are the operating entity on our asset base and Atlantica is the operator on their set of assets. I mean, we obviously try to learn from each other, but those are two separate operation platforms.
Okay. And then your 2022 guidance or even thinking the 7% to 9%, I would assume, correct me if I'm wrong, there's a dropdown element baked into those numbers?
Yeah. We do certainly look at extracting value out of our greenfield development pipeline, and we have baked that into the guidance. Now, whether it's a pure dropdown or a pure gain or whether it's to extract it through different ways such as management fees and so forth, that's to be still worked through. But there is certainly – and we are looking at it is obviously some of the value created through our current growth pipeline.
Okay. I understand. And then my last one, you mentioned some of the bridges on the funding for Kentucky Power. I wasn't sure, Arthur, were you suggesting that you're now fully funded for Kentucky Power or there's still a slice left?
Yeah, we're basically done in terms of the notional amounts for Kentucky Power with our hybrid debt of $1.1 billion, which we funded the cash purchase price. Now, we obviously need to kind of put everything into the mix and make sure our credit metrics come out right on the other side of all of this. So the rest of our funding plan certainly considers that.
Okay. Got it. Okay. Thank you.
Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is now open.
Thanks. Good morning. I guess the first question is really around the ability to monetize certain assets, portions or entirely and then use those proceeds to effectively accelerate growth. All that can be pretty compelling. But how do you balance just a more complicated structure versus being more simple, and how do you think about that, whether the financial term sort of warm or fuzzy kinds of feelings?
Andrew, great question. Thank you. So, fundamentally, if you really look at it, what we're trying to do is leverage two specialized skill sets we have, right, one on the development side and one on the operational side. And I think over the years now, we have a certain level of skill on both sides of the business, and we believe that we should be able to just accelerate that growth by utilizing and leveraging those specialized skill sets even more in a given external environment and the whole decarbonization thesis that's out there, right? So that's really the fundamental thesis.
Now, obviously, to grow significantly along that renewable energy portfolio, you obviously need to access a lot of capital. And our view is that, again, looking at the external market with the amount and number of sustainable investors out there, we believe that we should be able to sell down to those sustainable investors at a point where we can provide recurring value to our shareholders, right? So that's really the thesis of that flywheel, if you will, continue to expand our renewables greenfield pipeline, taking those, de-risking those through development, construction and operations, selling down, redeploying that capital back into more renewables growth.
That's helpful. Appreciate that. And then maybe just thinking about that flywheel and your businesses and the transactional marks we've seen in the US more recently on the LDC side. Is there an opportunity to really focus your expertise in both the renewables business and the utilities business more broadly through the Caribbean because you've got the exposure in Bermuda? But there's other assets there that do have good decarbonization stories, renewable needs and offer just more compelling value from an investment standpoint. How do you think about that region more broadly?
Well, we're attracted to Bermuda from a lot of different factors, including the – we even looked at things like hurricane profiles, things of the sort. Bermuda does experience fear of hurricanes and then the other parts of the Caribbean. So there's obviously a lot of things we look at when we look at any acquisitions. Scale is important, we believe in terms of being able to do a lot more with less.
So building scale across any one of our three modalities, especially electric and water are things that we look at very closely. But again, we end up looking at a lot more opportunities than in terms of executing against those just because we continue to be extremely disciplined around which assets we bring under our fold. We just have a lot of financial metrics, risk metrics that we need to [indiscernible] (00:50:08). But again, I hope I'm answering your question, Andrew. It's a longwinded answer.
It wasn't a concise question either, so I appreciate the time.
Sure.
Your next question comes from the line of Naji Baydoun with Industrial Alliance. Your line is now open.
Hi. Good morning. Just wanted to start off with I guess a clarification on the balance of funding for this year, so the large debt offering. And in terms of the priorities for asset recycling, can you just clarify if you're thinking about existing asset monetizations or non-core asset sales or is it really just more focused on developmental loans for this year?
Hey, Naji, It's – so for this year, I mean, as we think about our funding plan, look, we've got – I would say, first of all, we got optionality. As always, we've got a lot of different funding sources that we can look at the top. I mean, asset recycling is certainly one of those funding sources and that would potentially come from existing assets that are in our fleet. But again, it's – we've got quite a lot of funding sources to potentially satisfy what we needed to do this year.
Okay. So there's now I guess, a necessity in terms of accelerating some of that here in the short-term.
Yeah.
Okay. Just the other question I have was about the accelerating renewables growth that you mentioned. I know they have a lot of projects in the pipeline for this year, but maybe just beyond 2022 and 2023. Can you just give us an update on how the new development projects are going that could potentially extend that runway over time?
Naji, it's as Jeff and I think everyone referred to our greenfield pipeline, the 3,800 megawatts which we rolled out at Investor Day. That is what we see feeding our five year capital plan. And we continue to add to that pipeline, as well as advance the projects in that pipeline for pulled down into the capital plan. So we feel like we've got the pump well primed or the flywheel turning here. And we're making good progress across the spectrum from new entrants into that greenfield pipeline, pulling stuff out into the capital plan. And so 2022, 2023, 2024, we won't be able to say anything concrete until we have names ready to share with you. But the process is certainly working well.
And on top of that, we also showed you the 1,700 megawatt hours of storage pipeline, which we're pretty bullish about.
Of course, and again, just to be clear, I think you said you are looking to add about 1 gigawatt of new projects in the next five years. So, are you – do you feel that you're still on track to do, at least 200 megawatts this year of new development?
Yes, in terms of new development that would fall under the capital plan that we share at Investor Day, we would expect that at least 200 megawatts.
Yeah. Okay. Got it. Thank you.
Yeah. Thank you, Naji.
Your final question today comes from the line of Rupert Merer with National Bank. Your line is now open.
Hi, good morning, everyone. And another question on asset recycling, I'm afraid. Can you talk about the potential to sell your existing assets? Are you only looking to do sell-downs on development assets or could you do sell-downs on existing assets as well?
Hey, Rupert, it's Jeff. Yeah, existing assets are certainly on the table, and we believe they've got good value, given the transactions we're seeing in the market. And to the extent that we're looking to monetize anything in the shorter term, that's where the more material amount would be.
And then would you look to aim or look to, say, control 51% of assets in the future, so you are going to maintain control and then you have a joint venture accounting somewhat like you have with your Texas assets?
Not necessarily, Rupert. I mean, we have not decided exactly what level of ownership we're going to take. I believe what is more important for us is to make sure we are operating an asset management entity, because again, creating and furthering skill on that side of the business also continue to be important for us. So, that's what we're focused on, exactly what percent is we sell down, that's still in the planning stages.
Great. And then just finally on Texas, you saw some headwinds at the Coastal Wind assets. I know you gave us some color on that situation back in December, just wondering if you could walk us through what you saw in Q4 and what the outlook is for these assets going forward. I understand you're looking at improved transmission there over time. But what does the outlook look like for the remainder of this year?
Sure. So, Rupert, so there are really a combination of factors, right, on those Coastal Wind Facilities. First of all, there was lower wind resource, which again, I believe is an industry-wide phenomenon that affected quite a number of our North American wind assets in 2021. On top of that and during periods of oversupply, the prices were obviously lower than anticipated in the market. And third, one of the projects actually got to COD later than anticipated. And finally, as you saw that was late of the year, there was general in transfer income stream that was announced by ERCOT. So, it really was a combination of factors.
We believe that the first – three of those should be transitory. The fourth one, we believe, is going to go away with time because of the announcement of a general transfer income stream, that means that both ERCOT and the commission have already approved transition upgrades at – around that region and that facility. So, we believe that over time, starting 2024, that basis risk is going to be – should significantly go away. So of those – the four factors I talked about, three of them are transitory. One, we believe will continue until 2024.
Okay. Very good. I'll leave it there. Thank you.
Okay. Thank you, Rupert.
There are no further questions at this time. Arun, I turn the call back over to you.
Thank you, operator, and thank you everyone for taking the time on our call today. With that, please stay on the line for our disclaimer.
Our discussion during this call contains certain forward-looking information, including, but not limited to our expectations regarding earnings, capital expenditures, pending acquisition, capital recycling and future growth. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website, and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.
Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. We disclaim any obligation to update any forward-looking information or to explain why material difference between subsequent actual events and such forward-looking information, except as required by applicable law.
In addition, during the course of this call, we may have referred to certain non-GAAP measures and ratios, including, but not limited to, Adjusted Net Earnings, Adjusted Net Earnings per share or Adjusted Net EPS, Adjusted EBITDA, adjusted funds from operations and divisional operating profit. There is no standardized measure of such non-GAAP measures and consequently AQN's method of calculating these measures may differ from methods used by other companies and, therefore, they may not be comparable to similar measures presented by other companies. For more information about forward-looking information and non-GAAP measures, including reconciliation of non-GAAP financial measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR in the United States and available on our website.
And that concludes our call.