Enlight Renewable Energy Ltd. (NASDAQ:ENLT) Q4 2022 Earnings Conference Call March 15, 2023 8:00 AM ET
Yosef Lefkovitz – VP of Corporate Finance and M&A
Gilad Yavetz – CEO and Co-Founder
Nir Yehuda – CFO
Jason Ellsworth – CEO and Co-Founder of Clenera
Conference Call Participants
Mark Strouse – JP Morgan
Julien Dumoulin-Smith – Bank of America
Maheep Mandloi – Credit Suisse
David Paz – Wolfe Research
Justin Clare – MKM Partners
Good morning, everyone, and thank you for joining our Fourth Quarter and Full Year 2022 Earnings Conference Call for Enlight Renewable Energy. With me this morning are Gilad Yavetz, CEO and Co-Founder of Enlight; Nir Yehuda, CFO of Enlight; and Jason Ellsworth, CEO and Co-Founder of Clenera. Gilad will provide some opening remarks, and we’ll then turn over the call to Nir for a review of our fourth quarter and full year results and then to Jason for a review of our U.S. activity. Our executive team will then be available to answer your questions.
Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity and potential growth, completion of development and the company’s future financial and operational results and guidance, including revenue and adjusted EBITDA, may be forward-looking statements, which reflect management’s best judgment based on currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to materially differ 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. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today’s call, which are posted on our Investor Relations web page.
With that, I will turn the call over to Gilad.
Thank you, Yosef, and thanks all for joining us today. We are very excited to announce strong results in our first earnings conference call as the U.S. public company. We delivered both record annual and quarterly results, continuing to demonstrate our track record of converting projects from development to operations.
In 2022, we succeeded in connecting 810 megawatts over the course of the year. These successful conversions and strong performance across our business drove record financial results in 2022 and with revenue up 88% to $192 million and adjusted EBITDA up 96% to $130 million. In addition, we sold $18 million of electricity, which was not recognized under IFRS as revenue or adjusted EBITDA for our project treated as financial assets. As a result, the IPP arm of the business is already generating material cash flow. The company generated $90 million of cash flow from operation in 2022.
Before we dive deeper into numbers, since this is our first earnings call as the U.S. public company, I wanted to take a few minutes to talk about Enlight and what we believe makes us unique. First off, we are a true greenfield developer of utility-scale renewable energy projects. Our greenfield development expertise enables us to source projects from scratch organically and control the full project life cycle. We source land, find scarce interconnection, manage complex relationship with local communities, find offtake for power and ultimately construct, own and operate our projects over the long run.
This approach has helped us to achieve market-leading project returns, which we have demonstrated over the past decade, having successfully developed 4 gigawatts of projects. Second, we believe we are in the right markets at the right time. Our unique footprint across the U.S., Europe and Israel provides exposure to some of the fastest growing renewable markets in the world. We believe our U.S. portfolio, which is largely located in the western part of the country, is well positioned to benefit from the game-changing Inflation Reduction Act.
In addition, we believe our European portfolio, located across 9 different countries, is positioned to benefit from the high power price environment and increasing urgency from the European Union to accelerate the energy transition. Third, we have significant portfolio diversification, not just in geography, but in technology and revenue structure. We’re not only in solar, but are experts in working in solar, storage and wind. We are not 100% contracted, but we are not overly exposed to merchant. This provides us with clear visibility on our cash flow with long-term PPAs together with upside potential through select merchant exposure in Europe.
Finally, we believe we have a cost capital edge. Through the credibility we have built, having successfully developed 4 gigawatts of projects, we’ve been able to cultivate the appetite of institutional partners on a global basis over the years. This is giving us access to what we view as a competitive cost of capital, which has amplified our equity return. As the first pure-play utility-scale developer to be publicly traded on a national exchange in the U.S., we aim to deliver value for our shareholders by continuing to deliver on our twofold objective, executing on above-market project returns and above-market growth. As many of you know, we have been a public company in Israel for the past decade and have produced very strong results and shareholder returns.
We were very gratified by the response to our U.S. IPO. We intend to be very active on the investor relationship vector in the U.S. market and to deliver the same level of transparency and engagement that we are known for in Asia. Moving now to the fourth quarter of 2022 and full year-end results.
In short, Enlight had a terrific year, and we believe the business has never been better positioned. The year was characterized by 2 main things: one, the successful conversion of the project portfolio; and two, the optimization and derisking of project returns.
Starting from conversion. In 2022, we succeeded in connecting 810 megawatts over the course of the year, including Gecama, the largest wind farm in Spain, Emek Habacha, the largest operational wind farm in Israel and gradually Bjornberget, one of the largest wind farm across Europe, which we expect to reach full COD by the end of Q2 2023.
Similarly, we continued to not only convert projects to operations, but also progress projects to the start of construction. In 2022, we commenced construction on 630 megawatts of generation capacity and 1.7 gigawatt hour of storage. This included Atrisco Solar, our flagship solar in storage project in New Mexico. We now have 1 gigawatt of generation capacity and 1.7 gigawatts hour of storage capacity under construction, which provides clear visibility on our future performance through 2024 as projects come online. Finally, we expanded our Mature Project portfolio by nearly 0.9 gigawatts of generation capacity over 20% this year through our successful development efforts in the U.S. and Spain. As a reminder, our Mature Portfolio includes operational projects, projects under construction, projects in preconstruction, meaning those due to commence construction within a year of today’s date and projects with signed PPAs. It is our portfolio of projects that we consider largely and relatively derisked.
With a total mature product portfolio of 4.5 gigawatts generation and 2.7 gigawatt hour of storage, all of which is expected to be operational by the end of 2025, we see a clear path for the future of our business.
Moving to the second theme. This year, we successfully managed to navigate a volatile macro environment, which included supply chain challenges and overall cost inflation. We secured increases in PPA prices of around 17% to 25% for projects totaling around 1 gigawatt. These price increases enabled us to offset the return compression we had seen from increased CapEx and financing costs. We are currently in advanced negotiation with offtakers to increase the PPA price for an additional 900 megawatts of contracted projects.
Our ability to secure this price increase is driven by the strategic interconnection position of our projects. Offtakers lack energy and capacity as they are very few large-scale renewable energy projects that can meet their procurement needs given jammed interconnection queues. Our projects, which are advanced from an interconnection perspective and a significant scale, offer utilities the solution they need. As of this release, we have nearly 8.5 gigawatts past system impact study, which we believe is a unique position in the U.S. market.
On supply chain, we believe we have been ahead of the curve, particularly in the U.S. Our first project, Apex Solar was sourced with solar panels from Waaree, a Tier 1 Indian supplier, and we continue to receive deliveries to the project site. We have since expanded our relationship with Waaree and now have the ability to purchase up to 2 gigawatts from Waaree for our U.S. portfolio through 2025. Similarly, on battery, we have acquired utility scale battery solutions from a U.S.-based supplier.
This will enable us to benefit from the domestic content adder on storage, a unique advantage in battery, where there are very few U.S.-based suppliers.
Looking to 2023 and beyond. We benefit from what we see as healthy adjusted PPA prices, derisked supply chain, material regulatory benefits and certainty post the IRA and REPowerEU and a substantial pipeline of advanced development projects in addition to the Mature Portfolio, which totaled 4.2 gigawatts. We are also seeing significant demand for battery storage, especially from offtakers in Western U.S. Battery helps us accelerate our growth and increases project returns on the same development effort. These are all tailwinds for our business.
Based on the positive trend in the business and the factors I described, we are increasing our mid-range annual deployment guidance from 1 to 1.2 gigawatts per year to 1.5 gigawatt per year starting from 2026 and beyond. Over time, we also expect that the U.S.-based project will represent at least 50% of our business.
I’ll now hand it over to Nir to discuss our results and 2023 outlook.
Thank you, Gilad. Before I provide an update on 2022 performance and 2023 guidance, I would like to discuss some of the recent volatility in the Israeli financial markets over the past few weeks, which has been driven by political uncertainty around the proposed judicial reform. While Enlight is headquartered in Israel, ultimately, we are largely an international company. Pro forma for the IPO, 81% of the company’s cash as of year-end was held in dollars or euros. In the fourth quarter of 2022, approximately 80% of our revenues were denominated in either euros or other European currencies.
We have limited exposure to the Israeli shekel, which reflects the growing part of our business in Europe and the U.S. And it’s important to note that we have not made any deposits or other investments with Silicon Valley Bank and to the best of our knowledge, we have no exposure to it.
In the fourth quarter of 2022, the company’s revenue increased to $61 million, up from $35 million in the same period in 2021. The growth was mainly driven by the addition of new projects, including Gecama, Emek Habacha and Selac, which contributed an additional $32 million in the fourth quarter and the recognition of all proceeds from the sale electricity by the Halutziot project from the second quarter of 2022 as revenue following its reclassification, which contributed an additional $2 million to revenue in the fourth quarter.
This positive impact was partially offset by lower production and onetime events, which reduced availability that had a $6 million impact and weaker FX, which had a $3 million impact. In addition, we sold $2 million of electricity in projects treated as financial assets in the quarter, which under IFRS, we are required to account for the financing income or other non-P&L metrics.
In the full year 2022, the company’s revenues were $192 million versus $102 million in the full year 2021. The increase in revenues was mainly driven by the addition of new projects, which contributed an additional $86 million, the reclassification of Halutziot, which contributed an additional $12 million and $2 million from PPA inflation indexation. This positive impact was partially offset by lower production and onetime events, which reduced availability that had an $8 million impact and weaker FX, which had a $6 million impact. In addition, we sold $80 million of electricity from project treated as financial asset in 2022, which under IFRS, we are required to account for a financing income or other non-P&L metrics. In the fourth quarter of 2022, the company’s adjusted EBITDA almost doubled to $43 million compared to $22 million for the same period in 2021.
The increase was driven by the same factors, which affected our revenue increase in the same period. For the full year 2022, the company’s adjusted EBITDA also nearly doubled to $130 million compared to $66 million in 2021. The increase was driven by the same factors, which affected our revenue increase in the same period that was offset by an additional $8 million from corporate overhead expenses. I would like also to reiterate Gilad’s comment on the company’s growing cash flow. For the full year 2022, the company reported $90 million of net cash from operating activity versus $52 million for the same period in 2021, an increase of 73%.
Our IPP arm is beginning to generate substantial cash flow, which will help finance our growth going forward. Moving to 2023 guidance. We are pleased to issue our outlook for 2023, including revenues between $290 million and $300 million; adjusted EBITDA between $188 million and $198 million; 1.8 gigawatt operational by year-end 2023. Our guidance for 2023 is based, amongst others, on the following assumptions: full COD of Bjorn by end of Q2 2023; Genesis Wind to reach COD by end of Q3 2023; Apex Solar to COD by the end of Q2 2023; euro to U.S. dollar of 1.04 and U.S. dollar to shekel of 3.65.
It is important to note that our adjusted EBITDA estimate does not include the tax credit to be received at the COD of Apex Solar. We also note that following the reclassification of the Halutziot project, we still expect proceeds from the sale of electricity generated for the projects treated as the financial assets, that are not reflected as revenue or adjusted EBITDA, to reach approximately $15 million in 2023.
We are pleased also — we are pleased to also share project tables at the back of our earnings release and in excel format on our website. These tables provide significant detail on our Mature Project portfolio, particularly projects under construction and preconstruction. We hope to provide best-in-class transparency on our business. It is important to note that our adjusted EBITDA estimate per project does not include tax credit recognition and possesses forward looking information, which is subject to the disclaimers provided in our earnings release and in our projects tables.
I will now hand it over to Jason, who will get into detail a bit more on our U.S. projects.
Thank you, Nir. While I was part of the U.S. IPO roadshow for those who haven’t met me, I’m the Founder, President and CEO of Clenera, based in Boise, Idaho. Enlight acquired Clenera in August of 2021. This has been an exceptionally synergistic partnership as the company share the same DNA, vision and entrepreneurial spirit. The company is executing successfully across its U.S. project portfolio, focus continues to be on progressing a large volume of projects to maturity through the development process.
Apex Solar, located in Montana, is progressing as planned. Commercial operation date is expected by the end of June 2023. Atrisco Solar, located in New Mexico and totaling 360 megawatts DC solar and 1,200 megawatts or megawatt hours of storage, commenced construction during the fourth quarter of 2022. Major equipment is ordered, and the construction agreement has been executed. All interconnection studies are complete.
The draft interconnection agreement is underway and expected to be signed in April. The company is advancing negotiations with financing providers, debt and tax equity. There are strong benefits for Atrisco under the Inflation Reduction Act, including PTC on solar tax equity and the possibility of a domestic content adder on the battery energy storage system. COD is expected by mid-2024. The company has made significant progress on one of the largest projects in its portfolio, CO Bar. It’s located in Arizona and totals 1,200 megawatts DC solar and 824 megawatt hours of storage. The initial 580 megawatts DC of solar is contracted and the remaining capacity, including storage, is in advanced negotiation with offtakers. The project has secured its primary real estate and conditional use permit. The system impact study is complete, and facilities study is nearing completion. CO Bar is expected to start construction in second half of 2023 and achieve COD in phases through 2025.
Like Atrisco, the CO Bar project stands to benefit from the Inflation Reduction Act, including PTC on solar tax equity and the possibility of a domestic content adder on the battery energy storage system. There is further potential to contract an additional 3.2 gigawatt hours of storage at CO Bar in the future, as our land — as part of our land-and-expand strategy. CO Bar is a good example of our land-and-expand strategy, where we have succeeded in securing large and cost-effective interconnect and developing one of the largest solar projects in the region. With respect to the supply chain, the company continues to derisk its project portfolio. The company executed an agreement with Waaree for up to 2 gigawatts of modules with delivery through 2025.
Together with other module procurement contracts, the company had clarity on meeting module supply needs for its mature project portfolio in the United States. Amidst increasing interconnection queue congestion across the United States, the company continues to see strong interconnection results, thanks to its advanced portfolio and market-specific knowledge. In the quarter, the company increased the projects beyond system impact study, known as — that is the point in which we know interconnection costs and time line, by approximately 2,000 megawatts DC. With more than 8.4 gigawatts DC of projects past system impact study, the company is positioned to accelerate its growth in the United State. Given strong results across our U.S. portfolio, we are confident in our ability to deliver above market returns and above market growth.
I will now hand it back to Gilad to discuss the company’s European and Israeli projects.
Thanks, Jason. Enlight continues to benefit from the strong demand for power across Europe. Despite declining natural gas prices, natural gas remain significantly above historical average. Moreover, the steep increase in recent months in the price of carbon, recently eclipsing EUR 100 per tonne, has kept thermal generation expensive. For example, in the fourth quarter, Gecama, our merchant asset in Spain sold electricity at an average net price of EUR 115 per megawatt hour. 82% of which was hedged. Project Beyond in Sweden, one of the largest onshore wind farms in Europe, totaling 372 megawatts, continues to progress with 26 turbines operational out of 60 as of the date of this release. 52 turbines are fully erected. In Sweden, we can generate revenues from the sale of electricity for operational turbines even before the project reaches full COD. We expect Bjorn to reach full COD by the end of H1 2023. On the development front, Gecama Solar, a 250-megawatt solar and 200-megawatt hour storage project at the same site as Gecama wind, advances as planned.
With real estate and interconnection already secured, the project awaits its environmental and construction purpose. Construction is expected to commence by the end of H2 2023 with COD expected by year-end 2024. Once the whole complex is built, we intend to reassess the commercial strategy and financing for the asset. In Israel, in the fourth quarter, we commenced construction on Solar + Storage 2, totaling 163 megawatts and 328-megawatt hour storage. Corporate PPA negotiations are ongoing with COD expected over the course of 2024.
In addition, Genesis Wind, the largest renewable energy project in Israel, totaling 189 megawatts, has completed erection of all its wind turbines. Commissioning tests have begun with COD slated for end of Q3 2023. We also signed a collaboration agreement with NewMed Energy, the largest natural gas player in the Eastern Mediterranean, to develop renewable energy projects in the region. While we are market leaders in Israel, developing in Israel can often be slow and bureaucratic. Israel has ambitious renewable energy goals of 30% by 2030, yet the pace of development of projects is insufficient to achieve this goal.
We believe that together with NewMed, we will be able to unlock projects of very significant scale and high returns outside of Israel borders with Israel as the ultimate offtake.
To sum up, we have never been better positioned or more excited about our business. Our U.S. IPO is an unmistakable signal that Enlight become a major force in renewable power on a global scale. As you can see from our guidance, we expect another year of profitable growth in 2023, but that is just a small part of our story. Despite being public for more than 10 years, we are still in the very early stages of our opportunity.
I’d like to thank our employees, customers and partners around the world for their support, and we look forward to keeping investors updated on our progress. Before we open the call up for Q&A, we would like to note that we intend to be active with regard to investor relations and plan to conduct a number of non-deal roadshows and attending various investor conferences after our first quarter earnings report in May.
With that, I’ll turn it over to the operator for questions. Operator?
[Operator Instructions] Our first question comes from the line of Mark Strouse from JPMorgan.
Welcome to the U.S. public markets. Can we start with just kind of looking at your Mature Portfolio and the — just the pipeline you have through the year-end 2025? Can you talk about the funding that you have in place, both from an equity perspective and from a debt perspective? And I know you already mentioned that you don’t have any exposure to Silicon Valley Bank, but can you just kind of talk about your general views regarding your access to capital going forward?
Mark, I’ll refer the question to Yosef, and I can complement it further on the capital side.
Thanks, Gilad. So Mark, as you’ve seen from the disclosure, our Mature Portfolio now comprises 4.5 gigawatts and 2.7 gigawatt hours of storage. The equity that we’ve raised in the U.S. IPO will be sufficient to finance the completion of the Mature Project portfolio from an equity perspective. Obviously, there are certain projects there we need to raise tax equity and that project finance more broadly, but the equity for the Mature Portfolio is largely funded.
Yes. I will just add to that to the second part of the question, Mark, on our capital funding strategy. So as you know, we base our capital strategy on 4 tracks. One of them only is equity raise, which we successfully completed recently, and we are very excited about that. But we do have an increase in cash flow coming from the project.
We just completed 2022 with $90 million of cash flow coming from operations, and this is something that contributes to the growth of the company. In addition to that, we have full flexibility also to raise through corporate bonds, which we’ve done very successfully in the Israeli market, and we believe this is the edge of the company with its flexibility today not only in the U.S. stock exchange, but also in the Israeli stock exchange. And we can complement that always with minority sell-downs at COD when projects, especially in the U.S., come to fruition. We still hold 100% of the portfolio in the U.S., and we believe there is significant upside that will reduce our equity check and further increase our returns by performing from time to time also minority sell-downs and keeping the IPP model with the majority of the holdings like we do in Europe.
Okay. Great. And then just for a follow-up. The industry continues to wait for the treasury within the U.S. to give us more guidelines about the IRA. The longer that goes on, does that impact any of your project timing looking out over the next 18, 24 months? And then kind of similarly, in Europe, does the talk about incremental incentives from here, does that potentially put things on hold for a period of time?
Yes. Well, for the first part, Jason, why don’t you take it, and I’ll complement on Europe.
Yes. No, thank you. For the U.S., absolutely, the lack of clarity is a challenge. However, much of that is around content adders — U.S. content adders and other incentives beyond the baseline that we’ve already budgeted in our models. That is not a cause for delay on our projects. In fact, projects are proceeding as planned and on time.
Thanks, Jason. Just complementing on the Europe side. So we’ve seen a huge growth in Europe this year, 34% in renewable energy installations. We see a strong push for renewable energy going forward, ’23, ’24 because of the lack of energy in Europe and the low cost of renewable energy versus the traditional price setters in Europe. So currently, we believe that we will gain and we will benefit from this increased need even before additional Regulation Act in Europe. And in the future, we are also attentive to the new incentives that may arise. We believe that this will only accelerate, but we don’t see any [indiscernible] to the opposite.
Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.
Congratulations, again, I should add. Welcome to the U.S. market indeed. So I wanted to come back to the first point you made earlier around the increase in the 2026 and onwards targets here. Can you break down a little bit as to why now and specifically what data points led you to the outcome, including how do you think about the geographic breakdown of that pro forma 1.5 gigawatt target now as you think about the contributor?
Well, I can start generally and then Jason, you can complement me on the details. So on the overall, about 70% of our portfolio comes from the [West] states in the U.S., and we see increasing conversion of this portfolio into advanced phases in many areas. So we see very strong indicators for our portfolio. And therefore, we see a higher level of implementation from ’26 and on. And Jason, if you want to complement me on the details and on the breakdown.
No, that’s great. Thank you. And great question, Julien. We have — since the acquisition, we’ve been able to move 2.6 gigawatts of projects to mature and advanced status. We now have 1.7 gigs in mature category here in the U.S., with 8.4 gigawatts through system impact study. So across the portfolio, things have accelerated. We’re experiencing strong demand for our projects. In fact, over the last several months, we have been awarded through RFPs, approximately 1.5 gigawatts DC of solar projects and 2.1 megawatts — or 2.1 giga hours of storage. All of that is driving an increase of momentum across the U.S. portfolio, most of which is, to Gilad’s point, centered of in the Western U.S.
For example, we are planning to start construction on our CO Bar project here in second half as noted already. And that is for the first half of the project already contracted, roughly 600 megawatts of the total 1.2 gigawatts. The remaining 600 megawatts has been awarded through RFP and is in negotiation — advanced negotiation now, and we expect to, over the coming months, announce a number of completed PPAs. So lots of momentum that is carrying us forward and giving support to increased guidance for future years. And again, much of that is located in the West, where we’re benefiting from PTC and other benefits under the IRA. So yes, thanks for the question.
And then related to — sorry, go for it.
Julien, just to add into Jason’s great inputs of 8.4 gigawatts past system impact studies, we were just in the roadshow presentation, and I suppose you remember that at this time, it was 6.5. So we grew from 6.5 to 8.4 past system impact studies on a short term, and I think this adds up to our confidence.
Got it. And then specifically, if you can elaborate, you guys talked about some fairly large developments in PJM. I think there’s north of 1 gigawatt of potential development. Is that included in that ’26 number? What is the status on that piece? And then related — I know you gave some updates on CO Bar and Atrisco here, but the expansions at those sites seem pretty meaningful and chunky. Can you just give us a quick update on potentially the commercial progress on those expansions — further expansions?
So Yosef, you will start with the data and then Jason on CO Bar.
Yes . So thanks, Julien. So for PJM, the gigawatt that we have there, that’s not a 2026 COD, that’s a bid after driven by the [indiscernible]. Maybe I’ll hand it over to Jason to talk a bit about what we’re seeing on the commercial strategy for the second phases of these large-scale clusters we have in the West.
Yes. No, thank you. So the second phases of those large cell clusters are, again, coming together well. So on CO Bar project, as mentioned, what we’re looking at is completing contracts here in the second half. And the intent is to have — to kick off our continuous — our construction here this year in the second half on the first bit of contracted projects with the intent to have maintained continuous construction through the end of 2025, achieving full COD on the 1.2 gigawatts at that site through the end of 2025.
Following the strategy we have of really the pieces are coming together on this land and expand with these large projects where what we’re doing is adjusting the seats of the table in such a way that we have efficiency on the EPC contracting and can emphasize sort of continuous construction without a mobilization and demobilization. So for example, on CO Bar, we’ll be achieving COD at the beginning of 2025 on the first half that has already been contracted. And by the end of 2025 and in the second half complete the remaining 600 megawatts through a carefully planned set of activities at the site.
Your next question comes from the line of Maheep Mandloi from Credit Suisse.
Congratulations, indeed, coming to the U.S. markets here. Just depending on the previous question here on the 1.5 gigawatt per year kind of run rate you talked about. Can you remind us how much of that is funded by the cash flows from the existing projects? Just trying to see if that would require any additional capital raise beyond what talked about here?
Yes. So I’ll refer the question to Yosef.
Thank you, Gilad. So in terms of the 4.5 gigawatts of mature projects and 2.7 gigawatt hours, we’re generating significant free cash flow from our existing portfolio of operational projects. We have, as you can see in the earnings release, a significant liquidity position as well, and we have access to additional corporate-level facilities and the corporate bond market here in Israel. So through those sources, we will be able to reach the 4.5 gigawatts and gives us a lot of certainty on our funding plan to reach that project at capacity and operational capacity. One thing to add is, we’ve made significant progress on the Atrisco project financing, and we have significant confidence in our ability to secure project finance and tax equity across our U.S. project portfolio. You will see in the tables in the back of our earnings release are equity assumptions that we’ve made per project, which is driven by some of the quotes we’ve received from lenders and the equity requirement for each of those projects.
Yes. Just adding to that, on a general note, you can see cost of CapEx for the project, which is roughly $1 billion per each gigawatt going forward. Today, with us benefiting from locations in the West and having the PTC track, we can get down to an equity check of 15% only through $150 million per each new gigawatts. And if we perform about 30% sell down of the project, we can get it down to around 7.5% to $75 million per each gigawatt, and this allows us a lot of flexibility together with our, I think, very solid liquidity position right now.
Got it. Got it. And separately, just on the IRA here. Can you just remind us what is the status of all the guidance you’re expecting from the treasury here on energy community or domestic content adders, any time line you’re looking forward here?
Yes. Thank you. Jason, would you like to refer to that?
Yes. No, I’ll take that. That is a wonderful question. I think we’re all standing at the ready, awaiting that guidance, as mentioned, while that’s really important to our upside, it is not necessary for the mainline track of projects. The baseline models do not include the upside on content or energy community. We are hopeful that we’ll achieve that upside.
So for example, on our battery supply, while we’re not disclosing details on the battery supplier for Atrisco, we are noting that the supplier is on track and meeting key milestones, including ramp-up of U.S. supply. So we see a great deal of growing confidence in our ability to deliver a U.S. content equation on battery for Atrisco, which is further upside to our model. But like you, we’re anxiously waiting guidance. Gilad, anything you’d like to add to that?
No, that’s prefect. Thanks.
The next question comes from the line of David Paz from Wolfe.
For my first question, for the potential PPA amendments, do you expect similar PPA increases as you’ve seen in the last year or so?
Yes. So I’ll start and Jason, feel free to complement me. So we are now negotiating additional PPA increases in the volume of 900 megawatts. So we do see an upside on an opportunity to further increase PPA, and we do see PPA price continue to rise in the U.S. according to the data that arrived from the latest quarters. And Jason, would you like to add to that?
So we have a volume of PPAs here in the U.S. that are continuing down that same path as Gilad has mentioned. We are consistently achieving the same 20% to 25% increase from those existing rates. And when we note PPAs, that includes awarded projects, some of our historical awarded projects, the process of being negotiated. So those have all largely been adjusted in terms of rates.
And as we announce those numbers looking forward as those are contracted, what you’ll see are the adjusted — the numbers that have been adjusted upward, reflecting an increase in our price in the marketplace. And a lot of that ability to price is emphasized with our increased volume through system impact study.
What we’re finding is that there are very few — the supply of projects that are interconnection ready and have advanced status in terms of land and permitting are, in fact, limited. There are very few of those and a great deal of [indiscernible], which is giving us pricing power in the market and that continues. And we’re seeing that also in our — on the [indiscernible] side, again, noting that over the last several months, we’ve garnered 1.5 gigawatts of solar awards and another 2.1 gigawatt hours of storage, and we’ll have more to announce in the next few months. Back to you, Gilad.
Thank you very much, Jason.
Great. My last question, just what is the expected annual cash generation from your updated mature projects?
Yes. so Nir, would you like to refer to that?
Yes. So first of all, from the — on consolidated basis, based on the current production and generation of cash flow during ’22, as you can see in the financials, we generated around $90 million cash flow from operating activities, and our shares is around 65%. We presume that while all the mature portfolio will start generation on a run rate basis, will produce something around 150 based on the current assumption.
[Operator Instructions] We will take our final question. And your question comes from the line of Justin Clare from MKM.
I guess, first off here, I just wanted to ask about your merchant exposure in 2023 and what you’ve kind of baked into guidance, how much should we expect in terms of merchant sales? And maybe how much of that have you hedged today? And how are you thinking about hedging your merchant exposure either this year or even into next year?
Yes. Thank you very much for the question. I’ll start and then Nir can complement me on the detailed data. So in general, as can you see, our Mature Portfolio is blend in — around 20% coming from merchant and 80% coming from long-term PPAs with the fact that in the U.S., all our projects are for long-term PPAs on 100% of production. So going forward, we see a declining percentage of revenues coming from merchants.
In Europe, in the year of 2023, we might see areas where in the blend, to some quarters, it will be a little bit more than 20%. But what we see currently is that the level of prices of electricity in the market — in the forward and future for 2023 are much higher than our original financial model. So even in the trend that we see and by the way, we believe is positive of the stabilization of electricity prices in Europe and normalization of electricity prices, we still see levels that are significantly higher than the original financial models, driving higher returns on the project. And going forward in the global perspective, we believe that this level of around 15% of exposure to merchant in selected markets with liquidity and good visibility towards the price setters in this market is going to provide a good hedge against volatility to the company.
Okay. Great. That’s really — go ahead.
Okay. Thank you very much.
And then I had one more, if I could,take one more in here. You had mentioned earlier, there are still some uncertainties that need to be resolved by the treasury regarding the IRA and the tax credits. Was wondering how that’s being treated in your tax equity negotiations? Is there any potential for tax equity investments to be delayed if the guidance is delayed? Or are you expected essentially to be funded at kind of baseline levels and then there could be upside later if you do get the adders successfully?
Yes. So I think, as Jason mentioned, first, the baseline assumption of our coming project, like Atrisco, our flagship project, around $900 million project in terms of CapEx are based on the current incentives that provide very high return, solid double digits. And potential upside from energy community and the domestic content will only add to that if they occur. While currently, we negotiate on the tax equity on Atrisco, PTC track for the solar and ITC track for the batteries. So this is the base case.
We believe that in case we can be on time with domestic content on the batteries, we might have this adder even as early as in Atrisco already and maybe also the energy zone. But these are all upside on top of a very solid return on this project. Going forward, we do build a strategy that will allow us to gain the adder for the domestic content on the battery. And on several positions of the company, we believe that we have a nice potential also in the energy zones, but we will wait for that.
I would now like to turn the conference back to management for closing remarks.
Yes. So we are very excited to be here on our first call. Thank you, everybody, for your time. We are very positive, as you saw on all main indicators of the company both for the performance we’ve shown in ’22 and also the guidance that we provided for ’23 that shows an additional increase of more than 50% in the main indicators. So it’s something that we are looking forward to our next quarterly meeting. Thank you.
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