existing investors? Yeah. Yeah, I think it's been, yeah. That's great. That's right. Oh! Okay, clock's running. All right. Good morning, everybody. I think it's still morning. You're good. All right, next session is with Altus Power. We have Gregg Felton, CEO, and Dustin, CFO. Gentlemen, thank you very much for joining. Thank you for having us. Thank you. Great. Okay, with that, let's get stuck in. Maybe for the uninitiated, and I think, I mean, this is a good thing and a kind of an educational thing for Altus is you are kind of the voice of C&I solar. So kinda, for those that are uninitiated, can you kinda talk about the size of the opportunity? How big is this market? What's the penetration, kind of the longer-term growth rates for this market that you're talking about? Sure. So, again, thanks for hosting us today, and thank you for joining the discussion. So we think about this segment of the market, and it's often called C&I. Our description is commercial scale. This is a 1-20 MW or 1-15 MW type of opportunity, and what we're really doing as a company is building solar where there is local consumption. We're not doing anything on rooftops of homes, which is often called residential scale, and we're not doing utility scale, which are the hundreds of megawatt systems that are built very far from consumption areas. So we're often building on the top of a large industrial rooftop or adjacent to areas of consumption. That's the nature of the business. The penetration is incredibly low. This business has tremendous opportunity. If you were to fly into any airport, you would see very few rooftops that are currently sitting with solar on top. And the reason for that is that it does require, in order to engage in our business, which is to build solar where there's robust demand, it really does require not only power prices that actually make sense, where there's sufficiently high cost of power that solar is a good a good opportunity. We are operating today in 25 states. It also requires, oftentimes, engagement with local regulators, who are providing programs that allow us to actually take this power and sell it into the community. And so we'll get into more detail around that, but I would say the opportunity set is quite large. The other thing I'd say as it relates to the backdrop that everyone should keep in mind, this opportunity is somewhat new in the course of history. We're talking about a decade or so. The reason for that is, from a macro perspective, the cost of creating these assets, so the cost of components and labor to build solar, is relatively modest, relative to what it might have been a decade ago. And the thing that we sell, which is power, is up and to the right. There's pretty consistent growth in retail power prices, which is what we sell. That's the all-in cost of power, including not only the supply rates, but transmission distribution. So significant tailwind that we think will cause a lot of growth in this sector over time. Great. Okay, so, De-SPAC, a few years ago, you had your first Analyst Day, you know, just in May. Very helpful Analyst Day. You laid out some targets that I wanted to talk about. So kinda 20%-30% megawatt CAGR through 2026. You've got a couple of different businesses. You acquire megawatts, and you self-develop your megawatts. Can you talk about kinda the mix of business between the two of those that's embedded in that 20%-30% CAGR? And kinda talk about the size of the opportunities. I mean, are these kind of one megawatt, two megawatts here or there, or are there kinda opportunities for dozens, if not hundreds, of megawatts at a time? Yeah, yeah. So we did put out a three-year forecast at our Analyst Day, which called for 20%-30% megawatt growth over that period. We ended 2023 at 896 MW, so you know, just shy of a gigawatt. And we put out that forecast to give some more longer-term visibility into our business, which can be lumpy at times from when we actually add megawatts. And you touched on kind of the way that we've historically grown, which is both new builds as well as being active with acquiring assets that are already in operation, both large and small. And so our three-year forecast looks to both of those, so. Excuse me, both of those sources for growth. And it's a reflection of our pipeline and the opportunity set that we see in front of us, and we think that we have good visibility into those results. And so we're gonna look to provide additional visibility or additional color on how we expect our pipeline to unfold over. We're currently in a review of our development opportunities, so we're gonna give the market more color there once that review is complete. Okay. Yeah, definitely want to come back to that. Before we get there, I mean, just sticking with kind of the three-year forecast, can you talk about how much of that is already in your backlog or at least in your pipeline, kind of further down the conversation line? Yeah, I would say one thing that's maybe unique about our business or and how we're positioned is that we can step in at any stage of the development cycle. That includes early engagements somewhere between the end of the development cycle and into construction, as well as operating assets. So our pipeline encompasses all of those. And you know that's gonna be a part of how things will unfold over the next three years. One thing maybe just for those that are less familiar with our business, the early engagement with a client to asset completed in an operation can be a three-year cycle. For our 2026 guide, only those things that are currently in development as it relates to the early stage, you'd know what's going to hit your 2026 numbers. What happens with great frequency that is already in our pipeline and might be added to our pipeline are opportunities that are coming from channel partners, and these are folks that might show up and say, "Hey, I have an opportunity. It started the development in 2020 or 2021. It's now ready to be constructed." And what we mean by development, just to decode that term, is somebody actually identified a site, worked with the planning and zoning office to figure out what could be permitted, has a lease, has an offtake. Did all of that sort of pre-construction work, and that asset is actually at a point where that project is ready to be built. We often step in in a development project right before construction, and obviously, we both have those in our pipeline, but those might come to us this year or next year and still be part of our performance in 2025 or 2026. So that's the nature of the business. And then finally, just to touch on operating acquisitions, naturally, the cycle of that could be a lot shorter, where we can step into a deal that we might be working on today, and it could be live in three months. That sort of thing. Yeah. Yeah. Again, kind of going back to that initial point about unique within C&I. I mean, a lot of investor focus on utility scale and what we're hearing about project delays- Yep and whatnot. What would you say are kind of the greatest risks to your medium-term guidance? I mean, with your. Maybe kind of talk about financing, the partnerships that you have- Sure . the number of opportunities that you have because of the other partnerships. I mean, just- Yeah what are the kind of the landmines potentially out there? Sure. So I think it would be useful to break down, and Dustin, I'm sure, will chime in as well. At the starting point of the question, we are incredibly well set up as a business to be front-footed, with respect to the opportunities that are coming our way. And the reason for that is that we have a business that, in the first instance, generates cash flow from our existing in-place assets. So we are unique in that if you separated out the growth capital or the capital needed to invest in new assets, the company generates cash. So that's the starting point. As it relates to new assets that we want to build or acquire, we have construction facilities that allow us to finance those assets, both from a construction short-term perspective as well as from a long-term, termed-out perspective. So we have ample capital to support the growth needs of the business. That allows us to look ahead and actually respond to what the current environment is presenting, and the way we would characterize it is, as everyone is aware, cost of capital is quite a bit higher than it was three years ago. And what that has meant is a significant flow of opportunity coming to us from partners who otherwise might have thought they would hold on to an asset or frankly, might be seeing fewer buyers in the market. So there's a bit of a consolidation that is happening, that's leading to a fairly appropriate and robust amount of supply. We can talk to you about the exiting of the market. The way we would frame what is happening and the source is at the larger end of the market, folks that are incredibly well-capitalized are finding it hard to scale. And so we are seeing a number of utilities and other large players exiting and looking to sell to somebody like Altus. And on the smaller end of the market, you're seeing capital constraint among smaller developers who need to sell. And so we're seeing it from both sides, and that is, that's the sort of the framing maybe of the current market. Dustin, you want to take it from there in terms of how that reflects in our numbers? Yeah. I think it's. Your question mark was around the risk to our executing on our guidance. I think, it's certainly, you know, Gregg touched on the overall market backdrop, and it's, and it's prosecuting those opportunities. I think, in addition, we have a, you know, nearly a gigawatt of operating projects. Of course, we need to make sure that those are producing the expected amount of power that we can then sell to our customers. Risk there are certainly weather, and uptime. And then, you know, I would say additional risks, maybe back to the growth piece, are, you know, your typical, regulatory, political, and numerous, say, interest rates play a factor as well. So, you know, those risks, I think we outlined pretty well in our, in our 10-K. Okay, going back to the, sorry, the strategic review of the self-development business, just kinda explain the rationale behind that move. Is this kind of an existential question or to remain in that market? Is it more kind of how fast to deploy in that market? I mean, what, what's being reviewed and kind of what's the timeline of when to communicate? Sure, I'll, I'll take that. So, the way that we think about the review is pretty simple. We went public with CBRE two and a half years ago, and we and they, and I think investors, all thought that that opportunity of coming together with CBRE would produce a robust and, frankly, increasing flow of opportunity and velocity that we have not realized. What we want to be clear on is, there's been incredible client engagement. There's not a corporate or large real estate owner that we don't have access to and engagement with. The challenge, and this is an industry challenge, not specific to us, is how do you get these clients who are committed? You know, a J.P. Morgan might be committed to decarbonization, but when you think about actually moving the needle and moving from, "I'd like to do this," to actually, "Tell me how to implement it," we're doing. Obviously, we're putting up the capital, number one, so we're not looking for these large enterprises to commit any capital. We're not looking for them to, frankly, engage in the mind share with us in terms of: How do I bring a project from here to there? What we are trying to figure out is the, you know, moving concept into action and operation. And we're financially oriented, meaning we care about, and investors care about, how can we sort of create some speed with respect to moving these leads, and opportunities, and engagements into operation? That's the root or the core of what we're focused on. So we do not want to create an impression that we're moving away from, this. What we are saying is that we've been frustrated, by the lack of pace or velocity with respect to which our pipeline, opportunities and engagements are moving forward, and that's really what we're, focused on. You know, solar, back to the industry, commercial scale in particular, is not something that you can wave a wand and make work in 50 states if your focus is on providing a lease to a landlord and saving the customer money on energy. If those are the binding constraints, we're in 25 states, not 50, for a reason. If the answer is, "I want to pay up, I'm not really focused on the economic benefit," you can obviously put solar everywhere, for the most part. So what we're talking about is trying to map out and figure out, particularly as it relates to large enterprises who have a desire to move quickly, how do we do that in the context of the backdrop? Okay. Sorry, you might have said this earlier, kind of the timing of when. I don't think anybody's going to stick you to it exactly, but kind of what's the latest expectation? We intend to update the market in Q2 in the context of our earnings call, so we'll have some form of update that we'll be prepared to share then. Great. Okay. All right, so pivoting to the acquisition side. So you've already done the 84 megs with Vitol. There was another big acquisition late last year with Basalt. Kind of talk about the expectations for. I mean, we touched about kind of the next three years, but what about 2024, your visibility into this year's megawatt adds? Yeah, so the one thing that, maybe I'll start with is, discipline, which, which is that we think like you as investors. We are large investors in the company, and we don't want to just grow for the sake of growth. We want to do smart deals, frankly, that you would look at that deal and that opportunity and say, "That's accretive. That's a good deal." That's really the mindset that we have, and so, Dustin used the word before, lumpy. Our business is lumpy, and it's lumpy because there are other segments of the market, not to call any out in particular, that are more volume-oriented and maybe less disciplined than we are. And from our perspective, that's sort of a key ingredient or the DNA of the firm, and it makes it hard for us to sit here and say anything other than the following, which is that we see a lot of opportunity. There's no shortage of flow. What we are focused on are engaging with partners who are prepared to sell to us, whether, whether it's somebody who owns an asset or, or somebody who's a channel partner that is looking to monetize, as we said, a development deal that's ready to be constructed. It's the same, which is, we are here. We're very credible. We've built an excellent reputation. We provide execution certainty 'cause we have the capital, we have the know-how, we have the domain expertise, and so we are a buyer that is going to actually be there and, frankly, be a long-term partner with the customer, to the extent that that matters to the customer, which we think it does. And so, we are fairly optimistic that the combination of factors that we represent as a long-term owner-operator of solar with the key domain expertise that we have, we think that that translates into a lot of opportunity. I think it's fair to say that in a lower rate environment, there would be a lot more velocity, right? Because some of the challenges in the current environment is somebody committed to a project, or they own a project, just like real estate, asset values are down because interest rates are up. We've been successful because notwithstanding that, we are relatively well-positioned, and so to the extent somebody needs to sell, they have either cost of capital, they can't hold on to an asset, or they have a, frankly, a fund structure that has some life to it that they have to exit. We're getting that call, and we've had. I think you can look at the nature of the people with whom we've done deals, Basalt Infrastructure, D.E. Shaw, Vitol. These are large, sophisticated enterprises that are doing business with Altus because we not only can pay a fair price, but also we have execution certainty. That hopefully should provide a positive read-through, but what we are not able to do is sort of try to provide 2024 incremental commentary because we don't want to put ourselves in a position where we feel wedded to some number that's not gonna allow us to continue to be disciplined, frankly. Sure. Yeah, makes sense. I mean, with that in mind, though, is there a certain bogey or threshold for a project as far as IRR, or ROE? Yeah however you wanna think about it. Absolutely. The metric that we would suggest that the world should be thinking about, hopefully this will resonate with all of you, is we think about long-term cost of funding. So we borrow at the ten-year Treasury plus, call it 2.25%. That's our last spread to ten-year Treasury. So if the ten-year's at 4.25%, and we're borrowing at 6.5%, long-term fixed rate, by the way, you're gonna wanna use that as a borrowing benchmark. Which will mean that in order to have an asset that is going to pencil or make sense, it's gotta be a high single-digit unlevered rate of return, that we can lever into the mid-teens or low to mid-teens. That's the framework. The other thing that I would say that's super important for investors to understand, is that not only are we playing the long-term game by engaging in long-term fixed-rate funding that does not step up, unlike some other structures that folks have entered into, we also have callability of our debt. And that's hugely valuable, which is to say, if interest rates go down, we have the ability to reset the rate lower. I know that that doesn't resonate at this moment in time, but we believe that's a very attractive option for us as investors to own in the business. So we have flexibility to refinance, but we have long-term fixed rate, and we think about returns relative to the marginal cost of capital. So Dustin, what's important to add to this is, if you said: "Well, what's the blended cost of capital for your senior funding that you have to date?" What is the- It's around 4.80% 4.8% would be a blended current cost of debt in the current gigawatt portfolio that we own, approximately. The marginal cost of capital is what I'm quoting to you for every incremental asset that we buy. We think with that orientation, we think that's the right way to think about it. Okay. Any questions? Sir, right here in the middle. Just following up on that, are the project returns different for acquired projects or organically developed ones? No. And that is an answer that we tried to make incredibly clear at Investor Day, because people scratch their heads at that, and frankly, we scratch our heads at that. Let me tell you what the key difference is, which is, we think, the reason why they have similar rates of return. The key difference is that an existing asset that is operating has already taken the benefit of tax equity. That is to say, if you build a new asset for $100, and you can finance $0.65 or $0.70 of that 100, and you can get tax equity for a good chunk of the balance, so your equity requirement is super thin, the barriers to entry as it relates to development, you don't need a lot of capital. That is not a barrier. If you'd want to go acquire an asset, it's capital intensive, much more so on a relative basis. So we're talking about 25%-30%. We have financed assets with lower equity because they're good value, and obviously, to the extent that the financing markets are, are providing attractive financing. But we generally talk about 25% or 30% equity check, so there's more capital necessary. That is the key ingredient. Now, what I find fascinating is, if we talk to institutional private capital, that capital is looking to get deployed. That capital wants more equity in a deal. The public market, obviously, we all know, would prefer less equity to be invested in a deal because we, as we've said pretty consistently, have no desire or intention to issue stock at current prices. So we are focused on the fact that, we're not gonna be an issuer. Capital is a question in terms of: Tell me about your funding, and we can talk more about that, Mark. And yet you've got a private investor base that is very enamored of the assets that we're originating and is looking to deploy more capital. And the reason I say it that way is, we believe that there is an important message here for people to take away, which is the underlying assets that we own and the assets that we continue to originate are incredibly attractive assets for large pools of private capital. Sir? As you think about hitting your forecast targets, are there any plans to potentially raise any equity or convertible debt to achieve those goals? No. The largest owners of this company are insiders and strategic partners, CBRE, Blackstone, obviously, people in this room. We are incredibly aligned with our shareholders. We have no need or plan to issue any equity or equity-linked instrument. Following up on that, I mean, the IRA and the kind of tax credits that help with that funding, can you talk about what you've seen over the last four or five weeks since the domestic content guidelines came out? How are you including that in your- Yeah, so this is, this is super important, actually, Mark, and I'm glad you brought it up. The equity required for this business, I mentioned, on a new build basis, is less than 10%, it could be 5%. Domestic content is going to add and domestic content, what that means is that 40% or more of your project is made from domestic components. The domestic content, when that's available, is going to add another 10% of tax benefit, and what that might mean is that you might have negative equity required for a project. We are not. We don't think anybody is eligible today for domestic content. W e believe that that will be coming and available to us as an industry late 2025. And the reason for that is we're standing up a domestic supply chain. We're gonna have domestic materials, which is mostly what we care about to get to that number, is going to be the, modules with domestic cells. And, the level of supply that's coming online, we think will cause us to be able to be eligible for, and therefore benefit from, significant additional tax benefit. And what that means, of course, is less equity required for a new build. Yeah. So I kind of started with Domestic Content, but I mean, there's also been kind of updates on energy communities that matter. I mean, what does that look like for you? I would say that anytime we can build in an area. This is, again, back to the bespoke nature of what we do. Anytime we can build in an area, a landfill, a brownfield, or some energy community as defined under the act, we want to do it. And the way we like to talk about it is that we're pursuing this broad-based opportunity that obviously deals that have a particular profile. It might be more expensive to build in certain areas, so you've got to take that into consideration. But an important variable is, if you have a desirable site or attractive land, where you're gonna be in the right zone, you want to build there. A recent example is they just changed the map for Illinois, and we have a bunch of deals or opportunities in Illinois that, you know, had the benefit of a lift from a return opportunity standpoint by virtue of that. So we, we think about that as a component, but it's not the sole screening mechanism. It's more, as, as we look at every deal and try to underwrite the deal, a factor that will influence the economic viability of a project will include the tax equity that's available. Does the election play any influence on your kind of investment opportunities? Are you accelerating some things, maybe waiting on other opportunities? You know, we've looked at the election as. The question that we often get is: What about rollback risk for the Inflation Reduction Act? We're not particularly concerned about that. We don't think most people should be concerned about that. Specific to our industry, there's some things around the margin that have been talked about. But, you know, we look at the benefits that we derive from the IRA, and we just don't think that that's gonna change, so we're not changing our business plan at all. I think what is interesting is what other macro factors will change. So to the extent you have a view on interest rates, you know, will that change post-election, or could that change post-election? Those are the types of things that we think could be more consequential. I'm thinking more down than up personally. But, in any event, yeah, we're not really changing our posture at all, based on the election. What about some of the other geopolitical headlines that have been out there with the anti-dumping, countervailing duties, investigation, Section 301, whatever, maybe it doesn't matter. But, you know, all of that, are you seeing a change in either availability of some equipment or maybe the pricing of that equipment, and how does that potentially get layered in? Does it. For your projects that you've already got an off-taker- Mm-hmm. You're under construction. Yeah. Does that kind of squeeze your margins at all? Yeah, probably the important point there would be that we, post the COVID environment, we started to put on balance sheet, components like modules and, other components that we thought, would be helpful, as it relates to fulfilling our pipeline. The components that we talk about, which is transformers and switchgear, which have tended to be the long lead items, those continue to be long lead items. I don't think it's getting worse. I don't know if it's getting materially better. And so the geopolitical and the tariff risk and all of that, you know, frankly, we're looking past, given what we hold on balance sheet as it relates to inventory, because we think that when you fast-forward to the end of next year, which we're obviously, we can see that ahead pretty easily if you're in this space, in this environment, with the type of build cadence that we're talking about, you're very quickly gonna be in late 2025. You're gonna be dealing with a domestic content world, where there's gonna be plenty of supply for components. So we're not really particularly concerned on the geopolitical side, and frankly, we're enthusiastic and optimistic about all the domestic content that's being stood up in this country, thanks to the IRA. Yeah, I agree. Okay, we've got a minute left. Any questions? Last chance. Lev? Just, uh- Do you mind waiting one sec? Sorry. Someone in here. Thanks. Yeah, just a quick check on the interconnection queue. Do you have any issues there? Like, what do you see, and how does it change over time, you think? Want to do that? Go ahead. So, you know, the interconnection queue has been much talked and written about, and it is much more consequential for utility scale than it is for us. So one of the things that we sort of should talk about is, when we're building a new project, we're not building a project—every instance that we build a new project, it's interconnected with the grid. But the scale of our projects are quite a bit different from the scale that utility scale represents, and our projects are built typically under some framework or program, whether it's a behind-the-meter deal, selling into a building, or whether it's a community solar deal, which is a virtual net metering. These are all parts of programs that are prescribed at the state level, and the relevance of that is we can't. You know, there may be a cap to the size of the system we can build. Might be in one location, 5 MW or in another, 10 MW, but they are part of a sort of overall cap. And what that means is not that we're not subject to dealing with the utility and engaging with interconnection studies, which are largely about: If I put an asset here, how much will it cost for me to actually pay for grid upgrade to accept the power? That, we engage in, and we go back and forth with the utility as it relates to the cost. But the queues that you hear about and are written about are not as material an issue for us. It's more about the viability of the project based on utility upgrade cost. Okay, with that, we should wrap. Gregg Felton, Dustin Weber, thank you very much. Thank you.