Clearway Energy, Inc.CWEN
Clearway Energy, Inc. Income Taxes Disclosure
Income Taxes
Effective Tax Rate
The income tax provision consisted of the following amounts:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Current | |||||||||||||||||
| U.S. Federal | $ | (1) | $ | 1 | $ | (13) | |||||||||||
| State | 5 | 4 | (2) | ||||||||||||||
| Total — current | 4 | 5 | (15) | ||||||||||||||
| Deferred | |||||||||||||||||
| U.S. Federal | $ | 42 | $ | 22 | $ | 13 | |||||||||||
| State | 10 | 3 | — | ||||||||||||||
| Total — deferred | 52 | 25 | 13 | ||||||||||||||
| Total income tax expense (benefit) | $ | 56 | $ | 30 | $ | (2) | |||||||||||
As of December 31, 2024, the Company elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the federal statutory rate of 21% to the Company’s effective rate in accordance with the guidance in ASU 2023-09:
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In millions, except percentages) | (In millions, except percentages) | ||||||||||||||||||||||
| Loss Before Income Taxes | $ | (175) | $ | (33) | |||||||||||||||||||
| Tax at 21% | (37) | 21.1 | % | (7) | 21.0 | % | |||||||||||||||||
State taxes, net of federal benefit (a) | 12 | (6.8) | % | 6 | (18.2) | % | |||||||||||||||||
| Tax credits | (1) | 0.6 | % | (4) | 12.1 | % | |||||||||||||||||
| Nontaxable/nondeductible items: | |||||||||||||||||||||||
| HLBV impact | 84 | (48.0) | % | 32 | (96.9) | % | |||||||||||||||||
| Tax credit sales, net | (3) | 1.7 | % | — | — | % | |||||||||||||||||
| Employee share-based payments | — | — | % | 2 | (6.0) | % | |||||||||||||||||
| Other | 1 | (0.6) | % | 1 | (2.9) | % | |||||||||||||||||
| Income tax expense | $ | 56 | (32.0) | % | $ | 30 | (90.9) | % | |||||||||||||||
| Effective income tax rate | (32.0) | % | (90.9) | % | |||||||||||||||||||
(a) State taxes in California made up the majority of the tax effect in this category.
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate in accordance with the guidance prior to the adoption of ASU 2023-09:
| Year Ended December 31, 2023 | ||||||||
| (In millions, except percentages) | ||||||||
| Loss Before Income Taxes | $ | (16) | ||||||
| Tax at 21% | (3) | |||||||
| State taxes, net of federal benefit | (2) | |||||||
| Impact of non-taxable partnership earnings | 21 | |||||||
| Valuation allowance | 3 | |||||||
| Investment tax credits | (1) | |||||||
Production tax credits (a) | (16) | |||||||
| Rate change | 1 | |||||||
| State taxes assessed at subsidiaries | (3) | |||||||
| Other | (2) | |||||||
| Income tax benefit | $ | (2) | ||||||
| Effective income tax rate | 12.5 | % | ||||||
(a) On December 6, 2023, the Company executed an agreement with a third party to sell the PTCs generated by the Alta X and Alta XI wind facilities, which resulted in a $14 million income tax benefit (reduction to income tax expense) during the year ended December 31, 2023.
For the years ended December 31, 2025 and 2024, the overall effective tax rate was different than the statutory rate of 21% primarily due to the allocation of taxable earnings and losses based on the partners’ interest in Clearway Energy LLC, which includes the effects of applying the HLBV method of accounting for book purposes for certain partnerships.
For the year ended December 31, 2023, the overall effective tax rate was different than the statutory rate of 21% primarily due to the allocation of taxable earnings and losses based on the partners’ interest in Clearway Energy LLC, which includes the effects of applying the HLBV method of accounting for book purposes for certain partnerships, partially offset by the impact of PTCs generated.
For tax purposes, Clearway Energy LLC is treated as a partnership; therefore, the Company and CEG each record their respective share of taxable income or loss.
The temporary differences, which gave rise to the Company’s deferred tax balances consisted of the following:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred tax liabilities: | |||||||||||
| Investment in projects | $ | 245 | $ | 191 | |||||||
| Total deferred tax liabilities | 245 | 191 | |||||||||
| Deferred tax assets: | |||||||||||
| Interest expense disallowance carryforward - Investment in Projects | $ | 24 | $ | 18 | |||||||
| Production tax credits | 12 | 16 | |||||||||
| Investment tax credits | 6 | 7 | |||||||||
| Investment tax credits subject to transferability | 304 | — | |||||||||
| U.S. Federal net operating loss carryforwards | 44 | 58 | |||||||||
| State net operating loss carryforwards | 7 | 7 | |||||||||
| Total deferred tax assets | 397 | 106 | |||||||||
| Valuation allowance | (25) | (4) | |||||||||
| Total deferred tax assets, net of valuation allowance | 372 | 102 | |||||||||
| Net deferred non-current tax asset (liability) | $ | 127 | $ | (89) | |||||||
Tax Receivable
As of December 31, 2025, the Company had a $5 million tax receivable.
Deferred Tax Balances and Valuation Allowance
Net deferred tax balances — As of December 31, 2025 and 2024, the Company recorded a net deferred tax asset of $127 million and a net deferred tax liability of $89 million, respectively. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income, which includes the future reversal of existing taxable temporary differences to realize deferred tax assets. The Company considered the profit before tax generated in recent years as well as projections of future earnings and estimates of taxable income in arriving at this conclusion. The Company believes that $4 million of existing state NOLs, based on forecasted future earnings and estimated taxable income, will expire unutilized, resulting in the recording of a valuation allowance.
NOL and Tax Credit carryforwards — As of December 31, 2025, the Company had tax-effected domestic NOL carryforwards for federal income tax purposes of $44 million. Additionally, the Company has a cumulative tax-effected state NOL carryforward of $7 million, which will expire between 2026 and 2042 if unutilized. In addition, the Company has PTC and ITC carryforward balances totaling $18 million, which will expire between 2036 and 2045 if unutilized.
Tax Credits
As of December 31, 2025, the Company’s accumulated deferred ITCs are $289 million, including $283 million, which is net of a $21 million valuation allowance, subject to credit transferability and included in other non-current liabilities on the Company’s consolidated balance sheet. During the year ended December 31, 2025, the Company received $3 million from the transfer of PTCs and ITCs. In January 2026, the Company received $282 million in cash proceeds from the sale of ITCs earned by the Pine Forest facility to third parties pursuant to tax credit transfer agreements, as further described in Note 10, Long-term Debt.
Income Tax Payments, Net of Refunds
During each of the years ended December 31, 2025 and 2024, the Company paid $1 million in federal income taxes. Additionally, the amount paid in state income taxes, net of refunds received, was immaterial for each of the years ended December 31, 2025 and 2024.
Unrecognized Tax Benefits
The Company has unrecognized tax benefits with an after-tax value of $19 million and zero as of December 31, 2025 and 2024, respectively. The increase is due to seeking state income tax refunds with respect to prior year tax returns. If recognized, the position would impact the effective tax rate. No material interest or penalties have been recorded as of December 31, 2025 and 2024.
The following table summarizes the Company’s unrecognized tax benefits activity:
| (In millions) | |||||
| Balance as of December 31, 2024 | $ | — | |||
| Increase due to prior year positions | 19 | ||||
| Balance as of December 31, 2025 | $ | 19 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.