Dear Shareholder:

 

Overview

For Greenbacker Renewable Energy Company LLC (“GREC” or “Greenbacker”) and, in our view, the renewable energy industry in the US, 2023 was a year of overcoming adversity in the macro environment and forging a new path forward as the need for energy transition became ever more obvious in the quest to sustain economic growth and resiliency.

From the third quarter of 2022 to the third quarter of 2023, the Federal Reserve raised interest rates eight times, increasing the federal funds rate by 375 basis points in an effort to stanch inflation. ¹ These actions contributed to a wave of bank collapses in the spring of 2023, ² significantly increasing financing costs ³ and limiting liquidity in the market. ⁴

In addition, we believe the US renewables industry had, in many ways, become a victim of its own success.

• Rapid expansion in renewable energy development led to massive queues for interconnection studies ⁵ and other permitting requirements overwhelming many government agencies. ⁶
• Local labor forces struggled to keep up with the demand for construction and maintenance activities causing labor shortages and prices to rise. ⁷
• Continued US efforts to improve working conditions and traceability in the global supply chain led to equipment delays at ports and constrained supply for the renewable energy industry, extending construction timeframes and driving up build costs. ^{8 9}

While macro issues slowed the pace of deployment, we believe the need for the energy transition has never been more obvious.

Last year set a record for weather- and climate-related (“W&C”) disasters in the US. A record-high 28 W&C disasters caused over $1 billion in damage each in 2023—surpassing the previous record of 22 in 2020—and amassing a total price tag of over $92.9 billion for the US. ¹⁰ From 1980–2023, the country averaged approximately nine $1+ billion W&C events per year (after adjusting for inflation); between 2019–2023, that average jumped to over 20 per year. ¹¹ While the US may be better positioned than most nations to handle this changing environment, we believe the cost of the historic indecision on the issue of climate change is coming home to roost.

Despite these headwinds, GREC’s fleet of renewable power projects continued to grow and diversify as we captured opportunities created by the newly minted Inflation Reduction Act (“IRA”). During 2023, Greenbacker also completed its first wind repower (replacing older wind turbines on existing GREC assets with new, more efficient ones), bringing three projects through redevelopment and construction. Two of these projects entered commercial operation in late 2023, with the third reaching that milestone in February 2024.

Repowering these facilities creates value for Greenbacker in several ways, including:

1. Harnessing efficiency gains in newer technologies to improve the projects’ power-generating capacity.
2. Extending the projects’ expected useful life and contracted power purchase agreements (“PPAs”).
3. Requalifying the projects for additional tax credits under the IRA.

As part of our repower strategy, our operations team sourced equipment for the projects domestically, supporting well-paying long-term jobs for Americans and qualifying the facilities for the domestic content tax credit adder. The domestic content requirements of the IRA offer a 10% bonus investment tax credit (“ITC”), bringing the total credit to 40% of the qualified build cost. Monetizing this credit through a sale-leaseback financing allowed Greenbacker to both fully finance the repower cost and support a distribution to GREC, which will be reinvested into our pre-construction pipeline.

The table below illustrates Greenbacker’s estimated timeline for bringing into service its current pre-operational pipeline. It is important to note that timelines may change or be adjusted based upon market conditions.

 

	Operating Fleet (MW)	Pre-Operating Fleet (MW)	Total (MW)
4Q 2023	1,533	1,751	3,284
4Q 2024	1,788	1,469	3,284
4Q 2025	2,246	1,038	3,284
4Q 2026	3,103	181	3,284
4Q 2027	3,257	27	3,284

 

Compared with the estimated timeline included in Greenbacker’s third-quarter results press release, we have moved out the expected commercial operations dates for some of our projects as their development dynamics have evolved. This included renegotiating some of our PPAs and other core contracts to improve project economics and extend the available development window.

Compared with the third quarter, the table reflects approximately 64 MW that have been removed from Greenbacker's fleet. The majority of these MW represent pre-operational assets that no longer optimally align with the Company’s investment strategy for various reasons, and their removal was de minimis to GREC’s overall value, demonstrating our commitment to maximizing returns.

Despite the challenging market conditions, we believe there is an opportunity for higher investment returns due to less competition in the marketplace and, more recently, some of the macro factors have moved in our favor. Interest rates have fallen from their highs in 2023, ¹² thereby lowering the cost of project debt. The price of solar panels, which had increased significantly in 2021 and 2022 due to supply chain constraints, has fallen sharply in recent months. ¹³

We believe the outlook for our business and the sustainable infrastructure asset class more generally remains bright and that we are well positioned to take full advantage of the situation to drive the next phase of our growth.

 

Performance ¹⁴

GREC’s investment performance in 2023 was down relative to our annual performance in 2022. Including cash distributions, the total annual return based on monthly share value for 2023 ranged from -1.0% to 0.2% across all share classes, compared with the annual return in 2022, of 5.4% to 6.7% for the individual share classes. Through 2023, the inception-to-date annualized net return ranges from 2.8% to 6.4%. GREC’s average annualized distribution yield across share classes was approximately 6.9%, which equates to a tax-equivalent yield ¹⁵ of approximately 8.2%.

The tax-equivalent yield in 2023 takes into consideration our first year with shareholder-taxable dividend income, driven by the taxable gains from the aforementioned repower sale-leaseback transactions. Your distributive share of the taxable dividend income is reported on Schedule K-1, Part III, boxes 6a and 6b. As qualified dividends, they are eligible to be taxed at lower capital gains tax rates for most taxpayers. ¹⁶

Our annual performance reflects the relative stability of the value of our portfolio’s assets, given the contracted and predictable long-term revenue streams they generate. For comparison, during 2023, the market saw renewable energy stocks drop significantly, with the Investor’s Business Daily (“IBD”) Energy-Solar industry group falling approximately 28%, while IBD’s Utility-Electric Power industry group was down 13%. ¹⁷

As a component of our total return, over the course of 2023, GREC’s aggregate net asset value (“NAV”) per share decreased, beginning the year at $8.69 per share and ending the year at $8.16 per share. This decrease in NAV was predominantly driven by three factors:

1. As the Fed increased rates, the equity cost of capital for renewable power increased ¹⁸ and the discount rate used to value expected future cash flows from our renewable assets moved up as well.
2. The views of third-party market consultants on forward power prices went down, particularly around the long-term cost of power in the US. ¹⁹
3. Insurance costs for our projects rose as climate change increased the frequency and severity of insurable events nationwide.

Much of our new investment activity in 2023 was directed toward the development of our pre-operational assets and the initiative to selectively repower certain of our fleet’s existing operating assets. Generally, we look to repower those assets that are advanced in age and would benefit from significant operational improvement.

Pre-operational and repower assets have historically offered higher long-term returns due to the value-added nature of project development work. However, these projects do not sell power during the development and construction phases but they do incur holding costs, resulting in a J-curve-shaped initial drag on operating performance. As these projects are placed into service, we start generating revenues and therefore we believe our operating performance will improve.

While the IRA was passed into law in 2022, the benefits of the legislation were difficult to realize in 2023. Delays in IRS guidance for how the credits would be interpreted, ²⁰ and market uncertainty regarding how the credit transfer process would function between buyers and sellers, limited transactional volume throughout the year. As guidance was issued month by month, we saw that the market began to form a transactional precedent, and volumes increased. Greenbacker was at the forefront of these structural developments, transacting not only on one of the first domestic content tax credit transactions but also one of the first solar Production Tax Credit (“PTC”) deals. ²¹ In 2024, Greenbacker expects the tax equity financing market to stabilize even further as precedent becomes more established and transactional efficiencies increase.

 

Operational Growth ²²

We are pleased to report that in 2023 our investment management business segment, Greenbacker Capital Management (“GCM”), launched its fourth sustainability driven investment strategy. GCM hired former Blackstone Managing Director David Zackowitz to the newly created position Head of Real Estate Investments to lead the strategy, as well as expand its real estate investment team with other key hires, including former Blackstone Principal Evan Sherman. The new strategy focuses on acquiring energy transition real estate where the company can leverage access to electricity to host distributed generation, storage, and charging infrastructure.

Over the course of 2023, GCM's managed funds raised over $263 million, increasing fee-earning AUM ²³ to over $703 million. Aggregate AUM, ²⁴ which includes the assets managed for Greenbacker Renewable Energy Company, for which GCM does not receive management fees, rose to approximately $3.8 billion.

On the independent power producer (“IPP”) side of our business, approximately 93% of the clean energy projects we own were, or will be, selling power to investment-grade counterparties, including utilities, municipalities, and corporations, under long-term PPAs as of the end of 2023. In line with the end of 2022, the portfolio had approximately 18 years of contracted cash flows associated with these PPAs. As of December 31, 2023, our clean energy project fleet represented a total power generation capacity of approximately 3.3 gigawatts of operating and pre-operational assets across 32 states, Washington, DC, Puerto Rico, and Canada. ²⁵

We’re also proud to share that during 2023, GREC reached several new company milestones.

• Our project fleet generated over 2.5 billion kilowatt-hours of clean energy. While this represents a year-over-year increase of 7%, that growth was somewhat mitigated by the three wind assets that we strategically took offline in order to repower them with new equipment. With their repowering complete, those projects have now returned to operation, generating wind energy at higher efficiency and contributing to the fleet’s revenue.
• We put approximately 292 MW of renewable energy assets into service, growing our overall operating fleet by about 23%. This included the portfolio’s second and third largest operating assets to date:
  • The 104 MWdc / 80 MWac MTSun solar project entered commercial operation in Yellowstone County, MT during the first quarter.
  • The 99 MWdc / 80 MWac Fall River solar asset in Fall River County, SD reached commercial operation in September.
  • The annual solar energy produced by the pair of utility-scale projects is expected to power over 34,000 homes across the two states, while offsetting over 260,000 metric tons of carbon emissions. ²⁶
• As mentioned earlier in the letter, we completed our first project repower, a process that can enable a project to operate for decades longer than the originally estimated useful life, while also typically increasing power production significantly and therefore the amount of revenue Greenbacker can generate from the asset.

 

After continuing to accelerate our growth in 2023, the team looks forward to pushing the boundaries even further in 2024. This includes: the expected start of construction on our largest pre-operational asset to date; further repowering of our existing operational assets; and the continued expansion of our in-house development capabilities. Looking further ahead, we expect to complete construction on our entire pre-operational fleet and place it into service on a rolling basis by 2028.

 

Impact

Greenbacker remains committed to our vision and values, enhancing our impact, and participating in systems that uplift and empower our neighbors—particularly through the efforts of our two employee-led, impact-focused Committees: our Corporate Social Responsibility (“CSR”) Committee and our Diversity, Equity, and Inclusion (“DEI”) Committee.

During the year, the CSR Committee refined and reaffirmed its commitment to education, both in the communities where we operate and across the sustainability asset class. We were happy to launch a new partnership with Solar Energy International (“SEI”), the world's most experienced and trusted training center for renewable energy education. Our commitment to SEI helps support the development of a first-of-its-kind technical training program to cultivate future talent in the renewable energy field. Given SEI's large national presence, we believe this partnership will have far-reaching and significant impact on the future of our industry’s workforce. SEI will serve as the inaugural partner in our Keystone Partners program, for which we expect to select additional partners in 2024. The CSR Committee also expanded its relationship with Innovation Charter High School in New York, sponsoring a trip for students to tour Greenbacker’s solar and wind projects in Vermont. Students were also connected with employees in our Montpelier office to learn about the renewable energy generation industry.

Greenbacker's dedicated DEI Committee continues to help us increase our competitive edge, cultivating a workplace that encourages equitable recruiting, fostering diverse talent, and developing a supportive and inclusive culture. Since 2022, the DEI Committee and our HR team have engaged an external consultant, Firefly Inclusion Solutions, to provide guidance on DEI best practices and training for our senior leadership. In 2023, we were proud to extend that initiative to a large swath of our employees, who completed several Firefly training modules over the course of the year.

One of the DEI Committee’s cornerstone initiatives is the internship program they established in partnership with the City University of New York (“CUNY”) school system. Through the program, undergraduate CUNY students engage in hands-on training across multiple departments, including finance, accounting, and technical asset management. Interns are also connected with Greenbacker leadership mentors, providing them with skills and insights they can take to the next stage of their professional journeys. Our goal is to support young talent in building their professional network and developing practical skills for their future careers. In 2023, the second cohort of students successfully completed the program, and the third iteration is on track to roll out in 2024.

In 2023, Greenbackers volunteered 1,641 hours, hosted 14 group volunteer events, and donated over $320,000 to non-profit organizations directed both by the Committees and the broader Greenbacker workforce. Greenbacker also reached a number of environmental and sustainability milestones during the year:

• Our renewable fleet has now abated nearly 6.2 million metric tons of CO2e since 2016. ²⁷
• The Company’s clean energy projects have saved almost six billion gallons of water. ²⁸
• Our business activities will sustain over 6,400 green jobs. ²⁹
• Greenbacker officially became signatories of the internationally recognized Principles for Responsible Investment and was also named to the prestigious ImpactAssets 50 2023 impact fund managers.

Plans for the Future 

In September 2023, Greenbacker’s board of directors approved the suspension of our Share Repurchase Program, a step we continue to believe is in the best interests of the company. As noted in our prior letter on September 27, we have embarked upon a strategic review of our options with two investment banks. That process continues and we look forward to updating shareholders on our progress as information becomes available. In the meantime, we believe maintaining the suspension of our Share Repurchase Program will allow us to devote more of our operational cash flow and financing dollars into converting our pre-operational project fleet into revenue-generating operational projects and increasing Greenbacker’s pre-operational pipeline further, which we expect will provide long-term organic growth to earnings into the future. Increasing our capacity to self-fund our growth is accretive, as it reduces our need to source outside investment.

We expect to continue building out our pre-construction pipeline in 2024, as we convert development opportunities into risk mitigated pools of operational cash flows. There may be opportunities to recycle capital from some of these de-risked opportunities, by selling either minority positions or majority interests to investors with a lower risk tolerance and return profile and then reinvesting the proceeds into our pre-construction pipeline. In doing so, the team will look to capitalize on our operational expertise and seek to deliver value to shareholders through yield compression on our assets. History shows that the best opportunities to invest have come out of periods of turbulence and uncertainty; with global infrastructure fundraising down significantly in 2023 ³⁰ and, in our view, a period of unprecedented macro expansion ahead of us in the energy transition space, we believe that the time to act on that opportunity is now.

 

A Word of Thanks

I would like to take a moment to thank you for your investment in GREC and your continued support of our mission to empower a sustainable world. We take the trust you place in us very seriously and aim to adhere to the highest standards of care and best practices on behalf of our investors. We are both excited about the potential for Greenbacker’s business lines and grateful to our shareholders for helping us get to this point. If you have any general questions regarding your investment, please don’t hesitate to contact us at (833) 404-4104 or visit www.greenbackercapital.com.

 

Sincerely,

Charles Wheeler

Chief Executive Officer

Greenbacker Renewable Energy Company, LLC