Enlight Renewable Energy Ltd (ENLT) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Enlight and the IRA Transition Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Yonah Weisz, Director, IR. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining the call. Our investor presentation entitled Enlight and the IRA Transition has been published on EDGAR and also appears on our website, and I encourage you to view it along with today's discussion. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans; our project portfolio; market opportunity; utility demand and potential growth, discussions with commercial counterparties and financing sources; pricing trends for materials; progress of company projects, including anticipated timing of related approvals and project completion; expected impact from various regulatory and legal developments; completion of developments; and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA are forward-looking statements within the meaning of U.S. federal securities laws, which reflects management's best judgment based on currently available information. We will reference certain project metrics and terms in this call and additional information about such metrics and terms can be found in today's investor presentation. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2024 annual report filed with the SEC on March 28, 2025 and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. Note that these non-IFRS measures should be considered in addition to and not as a substitute for, or in isolation from, our results prepared in accordance with IFRS. With me this morning are Gilad Yavetz, CEO and Co-Founder of Enlight; Nir Yehuda, CFO of Enlight; and Adam Pishl, COO and Co-Founder of Clenera. Gilad and Adam will provide some opening remarks, after which our executive team will be available to answer your questions. Gilad?

Yes. Hi, guys. Hi, all. Thank you for joining the call. I think it will be best to handle this call as a Q&A session as I believe all of you having and questions and interest in the policy that was published in legislation process, so we'll be happy to answer and relate to your questions. And I'll just say very briefly, as we published the presentation, But in general, as you know, the legislation process has begun. House of Representatives have passed a version of the law [ not ] going to the 70-days, so forth. So although this legislation process is still not completed, it created a lot of interest from our investor base across markets, and we thought it's a good idea to refer to what we see as the current policy, even if it's not final and to share with you information on how it impacts our specific business, so our specific plans of Enlight and I would say, in the broader manner to the utility scale sector of solar and storage where we operate in the U.S. So in general, if we analyze the criteria that is now part of the legislation process and Adam, after me I think, will maybe go over you together of what we understand is the criteria. So it looks very favorable to us as basically, under this criteria of project achieving COD by the end of '28, coupled with the safe harbor conditions in the U.S. that is added to this, I'd say, draft the 60 days. So we believe that with this criteria, if we analyze our mature portfolio and advanced development portfolio, we think that we have a potential basically to achieve COD with a total capacity of 6.5 to 8 factor gigawatts in the U.S., including the 0.7 that was already contracted and connected and operational today coming from Atrisco and Apex project and of course, all the new projects under construction and the ones that are getting into construction. So altogether, we believe under this criteria, will be eligible to full tax equity under the current, I would say, theme of 6.5 to 8 factor gigawatts. And if we translated that to revenues, total revenues and income run rate for the end of 2028, we believe that this has a potential to grow our revenues to around $2 billion per year annually by a rate for the end of '28, so basically, accounting of the full year of '29. So this is in terms of, let's say, what we call the transition period as we see it. As the way we see it, this legislation is outlining the transition period until the end of '28, with some criteria on safe harboring and so forth and, of course, some equipment origin from China that was mentioned. And there is a new regime without tax equity beginning '29. What we believe is that in addition to the capacity that we can achieve until the end of the transition period that I just mentioned before, we believe that the market will be able to adjust for 2029 and onwards to the new regime without tax equity and why? Because equipment cost is declining, I would say, quite sharply worldwide. We see it in the markets where we operate very significantly because they do not carry tax equity nor tariffs. So we can see, let's say, the core prices or cost of equipment, whether solar panels or BESS. And from the other side, we see a growth in the demand for electricity in the U.S. that is steady and healthy, primarily driven by the data center development, but maybe, to some extent, also from other industries, such as the EV and other electrification trends. And what we see is that this demand is driving a strong need for production or generation of electricity. And that currently, the queue is -- in the queue, we see primarily renewable energy. And within that, of course, solar and storage. And the utility-scale sector, we believe, will basically answer most of this demand. So in this regard, the combination of growing demand, increasing power -- or, let's say, inclining power prices in the U.S. because of this equation of demand and supply, plus declining equipment costs are such that will enable transition of the U.S. market to a non-tax equity regime from '29. And therefore, we continue to develop the 15 gigawatts portfolio that we have for the years '29 and onwards currently, and that is being also all the time enlarged, and the 8 gigawatts that we would like and believe that we can qualify even before. So altogether, 22 gigawatts. So this is, in general terms. I'll be happy to hand over the call to Adam to talk a little bit about the criteria. So we can be together, let's say, on one page, and this can serve afterwards your questions. Adam?

All right. Thank you, Gilad. I appreciate the opportunity to clarify and talk a little bit about more our focus on these projects that we have. Of course, as everyone is aware, that recent tax bill that was passed by the House of Representatives is still being debated in the Senate. And so we don't know exactly what the final outcome will be. But what we do know and what we're considering is as if this law was in effect, how it will impact the projects that we have in process. So under the proposed policy projects, we'll need to meet a couple of different requirements to receive the tax credits: number one, beginning of construction no later than 60 days after the enactment of the law; and number two, the commencement of commercial operations no later than the end of '28. The road map outlined in the presentation assumes that this legislation will be enacted into law within 90 days, and the requirements I've outlined here will remain unchanged. This applies if the deadline for attaining safe harbor by the end of construction is within approximately 150 days from today or by the end of October 2025. As we've looked at that and analyzed where we are in the projects and the acceleration that we've been doing for some time, within this time frame and according to the current language in the bill, Enlight anticipates between 6.5 and 8 factor gigawatts, we'll achieve safe harbor. And so the breakdown of the overall gigawatts of projects meeting these requirements are as follows: 4.9 factor gigawatts of capacity is estimated to have already met this requirement, which includes 2 projects that are currently operational and projects under construction. And 1.7 factor gigawatts of capacity is estimated to meet requirements in the coming weeks as we're working through and planning on starting construction. And 0.5 to 2 factor gigawatts of capacity is estimated to meet the requirements within the eligibility time frame that I've outlined. So I'll turn the call back over to Gilad.

Yes. Thank you very much, Adam. So just a few comments on going just working the workflow on the presentation slides. So if we look on the, say, road map that we outlined as a result of this policy. One comment I would like to make is that the outline of the road map until 2027 is the same as we presented just a few weeks ago in the earnings call of the first quarter. So we outlined 8.6 gigawatts that will be operational by December '27. This has not changed as we believe that we will be able to qualify those projects under the criteria Adam just mentioned. We added to this road map, the year '28 because we wanted, for your convenience, basically to refer to the year '28, which is part of the new policy. So under these, let's say, I'd say, assumptions, we believe that together with our global business, we will be able to bring to operation between 11 to 13 gigawatts and the orange part in the slide in the graph refers to the U.S. market. So you see there is a delta that is referred to the global market. We'll, of course, connect also projects in Europe and Israel. And if we go to the left for the revenue and income representation, so basically, it refers to the same value. So we believe that this portfolio or this capacity represent a growth to around $2 billion by the end of '28 as an ARR that we will be able to achieve under this criteria, as mentioned by Adam, and this represents a CAGR of around 40%, as you can see in the presentation, which is very similar to the CAGR that we've shown in the last 8 years. So we are very happy that -- and I think in this regard, we believe it's very important that legislation on the IRA is under process because we believe that in the last few months, since the election, there was a lot of concern of interest within the U.S. and global markets regarding 2 main areas: the tariff policy; and the IRA policy. And now that we believe that in these 2 vectors, they are still, both of them, still undergoing, but we see that we at least follow the trend, so we believe that this clarification within, hopefully, the new coming months is something very positive. And the policy itself that allows this transition until the end of '28 with, of course, the criteria of safe harbor in the 60 days after legislation is enacted, is providing, we believe, enough clarity for us and room for us to construct the portfolio that we want to execute in the next 2, 3 years. So this is very positive. Another comment that we wanted to make is regarding the competitiveness of renewable energy and primarily, solar energy in the U.S. So this is the next slide basically. And the comment is the following: according to external sources, what we see is that solar energy is still economical together with storage in the U.S. versus fossil fuels, but more significantly in the WECC market, which is representing most of our activity as in Enlight U.S. or Clenera. And in this area, the LCOE is estimated at $45 per megawatt hour, which is very competitive, but also shows that in case in the coming years and even in the regime with our tax equity, from 2019 and onwards, we believe that the low LCOE in WECC allows a good cushion in terms of power prices versus other segments in solar generation. Meaning that the PPA prices that we signed together in WECC can be lower and represents the same IRR because of the lower LCOE that comes, of course, from the higher solar resource. And this means that if it will take -- or if it takes more time for equipment costs, for example, in the U.S. to adjust to the global values, maybe because of tariff policy or any other transitional, I would say, consideration, we believe that the WECC market represents a better flexibility in this regard and allows us to be the source of generation in the U.S. that is so required in order to meet the demand for electricity and primarily data centers. So this is why we are optimistic, first on, I would say, the U.S. in general, as the growth for electricity demand must be answered and we believe that solar generation, solar and storage are positioned within the U.S., I would say, at the best place in order to answer this demand and are a big part of the interconnection queue until 2030 anyway. And specifically within WECC, we believe that we represent the most attractive area in order to mitigate or, I would say, smoothen the transition period to economical values as we see in Europe and Israel. So this is why we are positive about that as well. So we presented or published additional slides on PPA pricing in the U.S. and the growth. But I think you are very familiar with that. So having said so, we will be very happy now to hand over the call for you and refer to your questions, if any.

Thank you very much, Gilad. Operator, can you please move to Q&A session?

[Operator Instructions] Our first questions come from the line of Justin Clare with ROTH Capital Partners.

I appreciate the update here given the potential policy changes. So I wanted to start out here, as you look to accelerate the start of construction for some projects, I was wondering how you plan to qualify for the start of construction. And then you have a range here, 6.5 to 8 gigawatts that could be eligible for the credits. Can you just kind of walk us through the scenario in which you get to the 8 gigawatts versus the hurdles that might prevent you from getting to the full 8 and the scenario where you may only qualify the 6.5?

Yes. Justin, thank you for your questions. So I would say that not necessarily we need to accelerate. And why? Because if you look and follow our road map in the U.S., and again, as I want to emphasize that, as we already outlined in previous presentation, so we have a very, very steep growth by the years '25 to '27 anyway and also '28, which means that we should focus because we worked so hard together with Clenera, of course, on the execution of the portfolio, on the development, on conversion of the portfolio from development to construction. And we achieved, I think, excellent results in terms of being able to derisk a very large portfolio. So there is like an exponential growth anyway between '25 and '27 that if we execute, we get to $1.4 billion by the end of '27 in terms of annual rate of revenues and income. And by the end of '28, yes, we can -- we may accelerate a little bit and qualify even more projects and this really more, I would say, is more referring the '28 year than the '27, which we do not need to accelerate. Basically, we need to execute on the current plan. And in this regard, we will basically consider whether we want to accelerate maybe procurement of certain elements in order to reach the safe harbor rules that are the same rules currently under the IRS or in certain projects, to be able to get to physical works before. But this all applies to this margin between 6.5 and 8, which is not necessarily the case for the steep growth that we are doing anyway, which means that we can focus and this is the important part. I think this legislation if it's finally enacted, provides for us the window to focus on a huge growth plan that we have anyway. And if we can execute it and we believe and we are confident that we can execute it, so we have very good clarity to a huge growth that I believe puts the company in a totally different place. So we are very proud in doing 40% year-on-year in the last 8 years in Enlight. But in order to do that in the scale now, we are already with a guidance of around $500 million revenues and income for the year '25, to grow to $2 billion annually by the end of '28 is a huge growth and now we can focus. We believe that the policy, as we understand it, allows us to do that under the regular regime, so we don't have to do huge adjustments. And it means that we have enough time in order to adjust to a non-tax equity regime from '29, and we are very confident on the market, not only on us to be able to do that because of the equipment cost already in the market -- in the global markets today. I just would like to give you a data point. We are procuring panels, the same panels as we procure through the U.S., we procure today for Europe and Israel in less than $0.09 per watt. And we are procuring BESS sales and not only us, but I mean the market is procuring BESS or energy storage sales in now less than $100 in Europe and Israel in our markets. And this means that the core equipment cost is such that can allow this transition. Of course, the U.S. market has to adjust to this regime. And we believe that this window is enabling that and we believe it's important to do that. And as much as the economy will be, I would say, based on the fundamentals, we believe it will be competitive.

Got it. I appreciate that. And then just given that you may start construction on some projects earlier here in 2025, wondering if we should anticipate any meaningful change in the CapEx spend in 2025 or changes in expenses or anything that may impact the guidance for the year?

Yes. So no, because anyway, the plan was very, I would say, aggressive. So as we outlined previously, we are already under construction of 1.4 factor gigawatts in the U.S. market, plus additional capacity outside of the U.S. this year. And our plan was to get into construction anyway of additional 2.8. So it means to be under construction during '25 of 4.7, so we don't need to accelerate that. This is the exact plan. We do want to qualify, as planned again, additional capacity in terms of start-up construction or safe harboring, which is the initial works, but this is the first 5% and so forth. So in this regard, we are under the same plan. We don't need -- maybe marginal, but we don't need additional major funding in order to basically execute the same plan that we wanted to execute before.

Okay. Got it. And then maybe just one more here. When we look out to 2028, you're looking to have 11 to 13 factor gigawatts of capacity by the end of the year. Wondering if you could talk to how many of those projects have PPAs in place right now versus how many projects would still need to have PPAs signed? And then maybe just speak to the timing in which you anticipate making progress on contracting that capacity.

Yes. This is a great question. So first, it's important to reiterate, I think it appears also in the presentation, that for the year '29 and forward, we have the full flexibility. So we still didn't procure the equipment or signed PPAs. So for the non-tax equity regime, we don't have any commitments. And so it means that we have the full flexibility basically to follow the economic equation between power prices and, of course, equipment costs, tariffs, whatever will be the case. For the year '28, which is the 11 to 13, so we are not contracted in terms of PPA. We are contracted to all the capacity that is expected to reach COD until the end of '27, so the 8.6. So it means that everything above that is still not contracted. We have enough time to do that and still meet the criteria I mentioned before. And again, it provides us flexibility. So this is in terms of the numbers that you asked.

Our next questions come from the line of Corinne Blanchard with Deutsche Bank.

Maybe just one question on FEOC and the requirements there. How do you think you're going to be able to navigate that? And for the storage, I think you have about 20% that is still about exposed to that requirement. So just interested to know how you can navigate about that in the next 6 to 12 months.

Yes. Okay. So first, of course, this is -- the latest development is something that is very new, but in general, so we cannot refer to the actual question of whether the administration or the congress are the one to do the tariff legislation. But while I can refer to the actual policy of this administration that we followed in the last period. And what we saw and also, I think, reflected in the earnings call last quarter, is that the procurement strategy of Clenera in the last 2 years was such that we were able to navigate it out of the dependence on Chinese sources in the panel side or wherever we have Chinese panels, they are already delivered to the U.S. So basically, according to the current situation, not I would say, under the tariffs. And on the battery side, we based 80% of the projects that are under construction right now on Tesla, which is exposed, of course, also to Chinese tariffs, but I would say, comparably to the other Tier 1 suppliers with a lesser exposure. So I think we position ourselves in a good place. And also, we provided slides to show that with all the different layers of protections that we have from what I just mentioned, but also from the tax equity that is compensating for CapEx increase and some adjustment mechanism that we have or believe will be achieved in the contracts with utilities and with the suppliers. So we believe that according to different scenarios we outlined in our presentation, from 30% to 145% of tariffs, the impact will be quite minimal. So we thought that we are currently quite protected from the current, I would say, different scenarios of the policy of the administration, whether it is after it's decided within the U.S. system to be finally decided by the administration or needs to be legislated, but anyhow. And then we saw that the policy of the administration itself is trending towards lower level of tariffs, which means that under the scenario outlined, we are under even better situation. So all in all, we hope, first, the policy will stay as we see in the latest trends and will be calmed down. And we will follow, of course, the way the policy will be executed in the U.S., whether under administration or legislation. And in this regard, we will follow like all of you.

Great. And sorry if I missed it, but can you talk about the PPA like in terms of pricing expectations? Do you expect pricing to go further up in the next coming years?

Look, in the presentation published recently, so we are showing a graph of the development of PPA pricing in the U.S. between wind, solar and blended in the last 4 years. And we can see that it really fits the growth in demand, the growth trend, the soaring growth in demand in the same period in the U.S. between '20 and '21 to '25 with demand growth growing from 0.5% period to around higher than 1.5% period. So we are not analysts, but we believe that there is, I would say, a usual equation where higher demand and supply is driving the prices higher. We don't know if this remains the case. But we follow like everyone, the development within primarily the data center sector. So we've seen charts that shows that a data center electricity consumption in the U.S. is expected to grow to around 12% by 2030, comparing to 3.7% today. So it looks like this demand, and I don't know if this will happen or not, but this demand is really what is going to drive the prices in the sector.

Our next questions come from the line of Maheep Mandloi with Mizuho.

Maybe back to Corinne's question just on the foreign entity of concern, could you just help us understand what are you assuming on China content for your projects which will come on in '27 and '28? Or is that the understanding that if they start construction within or before October, that you don't have to worry about the China content in modules or batteries or things?

Yes. Thank you, Maheep, for the questions. So in general interpretation, the acceptable interpretation right now and, of course, nobody can know because it's still not legislated, but according to the current wording and the acceptable interpretation of -- we saw some of the leading legal firms in the U.S., so they interpret it that if you meet safe harbor or start of construction criteria within '25, so your tax equity is basically protected even if you procure the equipment from Chinese origin. So this refers more maybe to other sectors that will not meet -- or other projects, I mean, that will not meet anyway the '25 and then procurement in '26 and on will not be eligible to tax equity, if you procure from Chinese origin. But the fact that we anyway refer to projects that will meet the 60-days safe harbor period or start of construction, so it means that they already include inside the protection in terms of this clause as well. And this is the current interpretation. Of course, we will wait to see, like everyone else, the final wording.

Got it. And can you help us understand the start of construction? I know you've talked about having a lot of equipment already in the U.S. But for '27, '28 projects, how do you plan to achieve that? Is it the transformer switchgears? Or do you probably need to procure any other equipment in the 60-day period?

So I think like Adam just mentioned, we believe that we have already met the requirement for 4.9 gigawatts out of the 6.5. An additional 1.1 are expected, according to our estimation, to meet the startup construction criteria within the following weeks. So we believe that we have good probability to meet 6 factor gigawatts already within a few weeks. And then, of course, we don't know what will be the legislation period, but just assuming, and this is as good assumption as anyone, but we want to outline it, so we took a 90 days assumption, plus the 60 days, meaning 150. So we believe that in the 150, we'll be able to qualify at least 0.5 in addition. So altogether summing up to 6.5. So this is exactly. To your question regarding different tracks, it can be transformers, it can be other equipment, it can be physical start of works. But according to the current IRS criteria, this is our estimation, of course.

And then just a follow-up on that. Like, is that where you have a mix of strategies, but do you expect any cash needs to -- if you're buying some of the equipment upfront, do you expect any cash needs? Or would you expect it to be financed through the warehouse or something else?

Yes. So again, we don't see a material change in the cash needs of the company. We anyway planned '25 to be an intensive capital, I'd say, expense year CapEx in terms of the new project. We already arranged for that in order to be able to execute the very large portfolio, the 4.8 that -- or 4.7 that we are planning to put under construction in parallel this year. So we already arranged for that. And in terms of meeting, say, criteria for safe harbor on additional, it was already the plan anyway for a new project. So again, for the majority, we do not see increase. Maybe there will be, of course, some additional capital in order to accelerate, but we don't see it as a material change in our capital needs for '25. Again, maybe thanks to the fact that anyway, we planned a very intensive investment year for the company. And maybe because of that, we believe that this legislation is supporting our plan because I think we were in a quite unique position in terms of the growth that we plan for '25 and, of course, reflecting afterwards in CODs '26, '27. So this, I would say, policy is helpful for us in the term, in the aspect that it provides us the capability to execute our plan.

I appreciate that. And just like one quick housekeeping. On Slide 5, you show the LCOE for solar storage. Does that include the tax credit or that's unsubsidized? I mean $45 from before?

Yes. So this includes -- to my understanding, of course, we use a source that we refer to as a footnote 6. But to my understanding, it includes tax credit.

Got it. All right. No, appreciate all the color here and definitely you guys are better placed in the transition here.

Yes.

[Operator Instructions]

So guys, thank you very much for participation in the call. We hope that we've been helpful.

One more question. I'm sorry.

Okay. It's okay for today. We hope that we were instrumental and helpful in terms of reflecting the impact of the policy on our business, and we'll be very happy to address your questions, additional whenever you need. So thank you very much.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.