Q2 2022 Boralex Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Good morning, ladies and gentlemen, and welcome to Boralex second quarter of 2022 financial results Conference call note that all lines are in listen only mode. Following the presentation. We will conduct a question and answer session in which financial analyst shareholders and investors will be invited to all the questions to ask.
Your question. Please slowly press star one and then one on your telephone please.
Also note that this conference is being recorded.
Webcast participants you can also ask questions during the conference, but they will be outside by email after the call.
Finally media Representatives I invite you to contact to come in and I don't show from Boralex. Her contact information is provided at the end of the quarterly press release.
And I would now like to turn the conference over to Mr. Stiff stiff and mellow Sydney Senior Director Investor Relations from B Riley. Please go ahead.
Yeah.
Well, thank you operator, and good morning, everyone. Welcome to Biotics second quarter results Conference call. Joining me today on the call. So I'll take the cost.
But president and Chief Executive Officer.
Our vice President and Chief Financial Officer, and other members of our management and finance teams.
Okay.
With comments about market conditions, and the highlights of the quarter afterwards, Mr. Guilmette will carry on with financial highlights and then we'll be available to answer your questions.
As you know during this call we will discuss historical as well as forward looking information.
When talking about the future there are a verity of risk factors that have been listed in our different filings with securities regulators, which can materially change our estimated results.
Documents are available for consultation at SEDAR Dot com.
And our webcast presentation document the disclosed results are presented both on a consolidated basis and on a combined basis unless otherwise stated all comments made in this presentation will refer to combined basis figures.
Please note that combined is a non <unk>.
<unk> financial measure and do not have standardized meaning under <unk>.
Accordingly, combined may not be comparable to similarly named measures used by other companies for more detail see that known I FRS and other financial measure.
I'm sorry, it measures section in the MD&A.
Press release, the MD&A, the consolidated financial statements and a copy of today's presentations are all posted on <unk> website at <unk> Dot com under the investors section if you wish to receive a copy of these documents. Please contact me so Mr. Douglas will now start with his comments. Please go ahead Betsy.
Thank you Stefan and good morning, everyone.
A pleasure for me to present, our Reynolds.
<unk> for the second quarter.
As you have noticed we continued to vigorously execute the word growth and diversification strategy during the quarter.
177 megawatts of wind and solar projects as well as 26 megawatts of storage projects were added to our pipeline.
Sorry.
We are also selected.
For fiberglass and 40 megawatt of solar project and 77 megawatts of storage in the latest New York Alright.
We grew consolidated operating earnings by 18, 9% 61 on a combined basis and EBITDA by 15%, 14% on a combined basis, even despite lower production than last year.
The main drivers of this growth were the effect of high market prices in France and to a lesser degree in the U S.
We continued to optimize our operations and our capital structure during the quarter the reduction of our debt level.
We will have a favorable annualized ethic of $19 million on ASF.
Finally, we got confirmation at the end of July for early termination of three power purchase agreements representing a total of 58 megawatts in France. The termination will be effective on October one 2020.
The electricity will be sold on the market from the effective date of termination.
Market conditions continue to evolve rapidly by region during the quarter.
In the U S positive news came last week with regard to measures potentially harmful.
To the realization of project in particular solar Indeed, the Senate majority leader, Chuck Schumer, and Joe mentioned boosting actors announced an agreement on the package, including roughly 370 billion in energy and climate spending.
If approved by the U S Senate and the house over the next weeks the Bill would restore federal ITC tax credits to the full rate for renewable energy projects completed in 2022 or later.
It would remain at this level for at least the next 10 years.
In Canada, the Canadian government has 10, new investment of around $9 billion and specific measure for electrification and decarbonization of electricity and the trends with the transition.
Two renewable energies and storage, including an investment tax credit specific to battery storage.
How are you.
New power needs confirmed as early as 2025 and in the years that follow are prompting the independent electricity system operator to develop supplied mechanisms to meet their tenders are expected shortly.
Turning to revenue the Jabil geopolitical context continue to reinforce the need to ensure security of energy supply and sovereignty.
In France <unk>.
<unk> with nuclear reactors cruising historically low level of protection are still going on and are pushing electricity price at a very high levels.
France lacks local production and has become a net importer of electricity during the energy crisis.
On July 28, the minister of energy transition in France, published a press release.
Indicating a first set of emergency measures.
To favor.
The acceleration of renewable energy development.
The following measures should positively impact our development in the short and mid term.
The first measure is low renewable energy project to sell their electricity on the market.
During 18 months before the start of theirs.
Premium countries.
Integrated second measure is integrate inflation in costs.
Cereals between awards and start of construction for all.
Future renewable energy project.
Final measure is although all renewable project already selected in Rfps to increase their capacity by up to 40% before the end of construction.
We will provide more info on our next call regarding these measures as the criteria are not yet precise enough to give us an idea of the expected effect on lower development and the positive financial impact.
Please note also that the legislative project is under discussion in.
The parliament in France to share the revenue generated beyond.
The contract price on certain feed in premium contract for which we recorded additional revenues since the beginning of the year.
As a result.
We may be required to repay a portion of the amounts collected in 2022. If the legislation is passed and is effective on January one 2022.
I would know rapidly review the main variances in our portfolio of projected gross baths.
The 307 megawatt increase in the early stage came from the addition of two wind project.
And the solar project totaling 66 megawatts in Europe , following the acquisition of <unk>.
The addition of two new wind project.
And three new solar project totaling 71 megawatts in Europe .
And the change in the expected capacity of a solar project in Europe , and two solar projects in North America for a total of 176 megawatts.
Project in the mid <unk> and Thats been stages continue to progress with no material changes to report in total.
Our pipeline now comprises project totaling three nine gigawatt up to 298 megawatts from the end of the first quarter of 2022.
Wind projects segments is totaling two three gigawatt up 49 megawatts from the previous quarter.
The solar power segment's pipeline includes project totaling one six gigawatt up 249 megawatts from the previous quarter.
Lets review the change to the gross fast now.
As shown on slide 11, we had assets in operation.
Two five gigawatts of installed capacity.
June 32022 down 14 megawatts from March 31st.
2022, following the disposal of two small power station in April 2022, and the commissioning of three facilities in May and June 2012.
Commissioning of secured facilities.
And project under construction is expected to bring our capacity to three two gigawatts.
As you can see on slide 12, we are pursuing the execution of our strategic plan and are making good progress.
All four strategic orientation.
I won't cover in detail our progress as I already highlighted all remain achievement.
One last point from my part as alluded to earlier in my comments, we have contracts maturing in the next five years for which we have been doing analysis on optimal strategies.
Given the highly favorable pricing environment in France were being very agile and looking to all possibility to create maximum value.
As mentioned earlier, we received confirmation of early termination for some contracts and we are expecting additional answers in the coming quarter. We are also continuing to evaluate potential repowering, where it makes sense.
In the past three years, we have put important efforts to create our expert team to commercialize electricity.
We knew this strength was to accelerate and are very happy to have this team, helping us to take the most optimal decision in the current situation.
To conclude as mentioned in the previous quarter solar and onshore wind farms can be commissioned quickly and at low cost we're increasing our efforts in discussion with the various levels of government to accelerate our development and offer sustainable renewable energy supply solutions in the <unk>.
Region affected by the energy crisis.
And those targeted for our growth in Europe wherever this acceleration will be done in a win win settings for the countries and producer we invest in fleet inflationary conditions resident in a higher level overall overall risk.
This complete my part I will.
That Bruno cover the financial portion in more detail and we'll be back later for the question.
Yeah.
Thank you Patrick good morning, everyone.
I will start with a review of the progress made in light of our 2025 corporate objectives.
As mentioned by Patrick capacity decreased slightly following the sale of two small plants total capacity now stands at two five gigawatt of a 100% renewable energy.
Our last 12 months EBITDA and <unk> increased due to strong results reported earlier today for the second quarter.
Our reinvestment ratio stands at 60%, which is in line with our 50% to 70% target.
About our CSR strategy, we continued to make good progress on the environmental social and governance fronts.
We improved our ranking with a COVID-19 just from similar last year to gold this year and made good progress on the assessment of physical impacts of climate changes.
Following the closing of our partnership in France Sweat AIP.
Our balance sheet is very solid with more than $900 million in available cash and our trade financing facilities to continue implementing our growth plan.
Taking a look at our debt objective now.
Our corporate debt to total debt ratio decreased compared to the previous quarter due to early repayment of project debt and a significant reduction of the amount drawn on our corporate credit facility.
We are pursuing to work toward our objective to obtain an investment grade rating and increase the proportion of corporate debt in due time.
I will now cover the financial results for the quarter starting with production.
Second quarter wind conditions were good in Canada, but weak in France wind production in Canada was in line with anticipated production.
And equal to the same quarter last year.
In France wind production was 13% lower than anticipated and 12% lower than in the same quarter last year.
Overall total wind production for the quarter, combining Canada, and France was 5% lower than anticipated production and 5% lower than last year.
Turning to hydro production now in the U S production was 11% lower than anticipated production by 28% higher than in the same quarter last year.
Canadian Hydro had production, 5% lower than anticipated, but 15% higher than last year.
Total production for the hydro sector was 8% lower than anticipated, but 20% higher than last year.
Finally production from solar assets was 4% lower than anticipated, but equal to the same quarter last year with the commissioning of solar assets in France.
In summary, total production for the quarter was 6% lower than anticipated.
And 2% lower than last year.
Second quarter revenues were up 12% compared to last year, mostly due to the high pricing level in France and to the increase in hydro production.
For the second quarter of 2021.
<unk>.
Second quarter of 2022 on a combined basis operating income was up 61% and EBITDA.
$133 million compared to $117 million for the same quarter of 2021.
14% increase.
Sure.
Please note that the $5 million increase in investor administrative cost is mainly related.
Two an increase in the number of employees and market adjustments in the administrative functions to support our development and an adjustment for first one share units due to the good performance of our stock price.
On a consolidated basis, we generated $97 million of consolidated net cash flows.
Related to operating activities compared to $84 million in the second quarter last year.
Cash flow from operations was $86 million in the second quarter at 20 million or 32% increase over the same quarter last year.
<unk> <unk>.
<unk> 13 million compared to negative $7 million in the same quarter last year.
Our financial position is very solid with our net debt to total market capital ratio of 35% on June 30, compared to 48% on December 31 2021.
In conclusion, we continue to generate strong results.
The increase is mainly attributable to high electricity sales prices.
Certain feed in premium contract in France for which a legislative project to share with the French state the revenues generated beyond the contract prices is under discussion in Parliament.
Several initiatives were implemented with respect to the growth and diversification orientations of the 2025.
Strategic plan.
We have favorable conditions for project development and acquisitions in our target markets.
The optimization of the capital structure and the transaction with AIP puts us in an excellent financial position to pursue growth.
And finally, we have successfully promoted employees and recruited new talent in development and administrative support functions.
Thank you very much for your attention attention. We are now ready to take your questions.
Thank you as a reminder to ask a question you will need to slowly Presto woman then one on your telephone and wait for your name to be announced once again, it's still one and then one on your telephone please.
Please stand by while we compile the Q&A roster. This will take a few moments.
We are going to proceed with the first question.
Okay.
Our first question comes from the line of Sean Stewart from TD Securities. Please ask your question.
Thank you good morning, everyone.
I want to start with with France can you give us an indication of how much.
Strong merchant power prices there contributed to.
Either Q2 adjusted.
Adjusted EBITDA or <unk> any any context, you can provide there.
Alright got it.
Okay.
Yes.
The upside from the.
The price is 15 for Q2 and <unk> 15 for Q1 for a total of $30 million Canadian.
Okay.
And just so I understand that the process going forward.
All of the assets that have.
The contract structure that allows you to participate.
And the upside at least until potential legislative changes, that's all going to be merchant power prices, but for the contracts that are expiring.
Is the intent to sell to establish corporate ppas for all of that capacity or will it be a hybrid.
Merchant exposure and corporate PPA exposure for those assets.
Yes, good morning, Sharon.
Yes.
As to half.
Our global portfolio with a part of merchant part of.
Utility Ppas, which are not eds PPA.
Corporate PPA and then the.
Eds classical PPE or contract for difference if you didnt premium contract. So we will be flexible than that depending on the market condition.
And be sure that we take the opportunity when the market is high.
Fixed contract and keep.
The merchant exposure.
Okay. Thanks for that Patrick.
Last question for me it doesn't look like you participated in the Quebec RFP.
Or are there.
<unk> can.
Can you give us.
The strategy there are you content with the net.
Senior either bolt prey projects, you already have with with energy or any hydro Quebec.
Any context on.
What it doesn't appear you participated in the RFP can you give us.
Some details there.
Yes, Indeed, we are.
We are very happy with our three project a 400 megawatt was the next season.
Quebec for sure.
This tender we expect we were expecting it would be.
Especially competitive because the volume was smaller there is another tender that will come 4000 megawatts of wind.
1300 megawatts of capacity from renewable resource.
By the end of the year and we will look for two bits of projected vendor.
And we have we are always also looking too.
<unk> bye.
Offsetting the electricity.
Oh, okay.
All I have for now thank you very much.
Thank you.
We're going to proceed with the next question.
Our next question comes from the line of David Quezada from James Please ask your question.
Yes. Thanks, Good morning, everyone. Maybe a question for me on.
New York I understand there is some updates too nice start of Rec procurements, just curious how you see those.
Changes affecting your strategy for upcoming Rfps.
Got it thank you.
Yes, Youre speaking about.
The legislation that will come for me.
Build back better idea on tax.
David.
My understanding is that there was some I guess some buy American provisions.
Yes, some heightened standards environmentally.
From nicer to specifically.
Yes, but there is there is also there is <unk>.
General trend do you have to have to try to re shore production. There is also a provision in the agreement between the mention that tumor of last week. So what we need to see what I can see today is that we have since we evaluate the seats and we have still to be sure.
How the market will react and what would be the cost of of panel produced in the U S compared to other options and since the decision.
Since the agreement was announced last week and it is not yet in full force because it has to go through the Senate back to the house and then.
And then confirm.
I cannot tell you exactly what is the impact today, which we are again, we are looking to all the potential options and what is important is we have.
<unk> time in front of US are aware contract because we have no short term cliffs dates.
Okay excellent. Thank you for that and maybe just one more for me.
Moving back over to France, I'm just curious.
How are your discussions with corporate buyers of renewable power have been developing just given the potential legislation and the revenue sharing.
That could come into place in France.
Do you get the sense that buyers of corporate Ppas are waiting to gauge any changes there before moving forward.
No not really because it's different contract.
The change in legislation we mentioned.
Wood effect.
The feed in premium contract, which are the contract we put in service and in force since 2019, so its young contract.
More discussing on corporate PPE, where there is a lot of.
Demand strong demand coming from Corporation.
For the contract we are terminating order contract, which are under corporate Ppas will come to an end.
Typically by the end of next year.
And finally also for new project, we are discussing some greenfield project like we have done with mid haul.
There is a strong interest.
Beyond ESG view to have a stable price of electricity for the long term and so we are discussing with different corporation. When it's an interesting alternative to go through a tender.
Excellent. Thank you for that that I will turn it over.
Thank you.
We will proceed with the next question.
Our next questions come from the line of Rupert <unk> from NBC. Please ask your question.
Hi, good morning, everyone.
Patrick Eric Burton.
Terminated contracts.
Megawatts of wind in France, but it sounds like Youre looking to terminate more.
May need some approvals for the termination can you can you walk us through that process and what limits your ability to terminate contracts.
Yes, good morning Rupert.
We have.
We're expecting other answers by the end of the quarter.
<unk>.
Remaining contract we send a notice of termination there is no reason that it's not terminate but b just if.
Purely factual it's not we don't have the ethanol regiment.
Acceptance, we have the accumulation of receipts of the subjects shortage acceptance from the counterparty.
And so we're just monitoring that and we will inform you.
Next time.
About this.
Okay, and then typically you would have a concern about a three month lag from.
From the acknowledgment to the actual termination of the contract.
It's three months from the notice we sense.
Okay.
And then.
We're not losing time.
Because we have done the work in June .
The acceptance of the lenders also on this project, but we are we're in the middle of the summer and we need to have two counterparties, sending a suspect electric.
Thanks, Andrew.
Do you anticipate any penalties for the contract terminations.
There is no penalties in the contract we sent notice.
Alright, very good so what could be the the total megawatts.
Termination, let's say, how many how many have you.
Have you submitted.
Yes.
You have seen we have more than 400 megawatts, where that would come to where the contract will come through and then before 2026.
So a significant part of them we have gone through this process specifically the contract where do these new tenants.
Okay, Alright, very good and then just one.
One other question Bruno I think you touched on this briefly.
You have.
<unk> had more than $700 million cash on the balance sheet at the end of the quarter and I understand.
A little bit is gone to debt reduction and your savings and cash flow growth, but.
Give us some more color if you can on on what you plan to do with the cash on the balance sheet, how long will it sit there.
Yes.
Yes, so Ryan Thank you Robert.
We are clearly monitoring as I mentioned.
M&A opportunities, we continue to do that and.
And funding our pipeline growth.
Are the two key priorities.
We've used some of our cash approximately 100.
Just above $130 million to reimburse some.
Some project finance debt, that's where that was more expensive the rest of it will be mostly for for growth.
Excellent. Thank you very much I'll get back in the queue.
We're going to proceed with the next question.
The next question comes from the line of Ali Primer from CIBC. Please ask your question.
Well he prime Mark your line is open.
Hello Ali Your line is open you may ask your pie. This is mark can you hear me.
Hey, Mark.
Sorry about that confusion here on the title here.
Yeah, So I wanted to come back to the proposed legislation.
Just clarify that.
Profit sharing is only on the feed in premium.
Sort of contracts that you have with EDF and not would apply to any of your merchant or a corporate PPA agreements you might put in place.
Yes, yes, Mark exactly the point is the following.
We are coming back.
Close to the business model of the project when we when we build them. Okay. This is the I D.
The French administration at.
At the time of signing the contract was not expecting the price we're seeing to date and so we're in a different situation indeed.
So I'll need to seek started up cutting oil price they are changing.
Clothes, which were very interesting to us and that's where we think they are doing but it does not affect its not a windfall tax it's not something that gives us just on the specific contract.
And then can you clarify then you talked about a threshold price so relative to the strike on the contract for differences at higher or at what point do you start to shares at $50 50 on any of the excess profits.
No.
Yes.
I don't have figures factual figures to date.
There is this will go through potentially process was the.
Regulator that will give us advice to dominion's turned and administer we'll see but it will not be 50 50 to my expectations it will be less for us than that.
Okay.
And then around these early terminations and some of the projects that youll have the opportunity to either get a corporate PPA or.
Our cross border, even repower, given where power prices are right now.
Makes sense to defer Repowering and just make sure the assets are operating and Youre, capturing you should really higher spot prices.
We have at least in the near term. So I guess the question is.
Given the spot price dynamic, what's your sort of updated views on timelines for Repowering.
Yes, that's exactly what we are.
Doing for the moment we are.
We're looking to the difference.
The flexibility we have.
So one of the flexibility is to continue to operate at the present price.
Another flexibility is huge the measure I mentioned, it's very important it's not yet a decrease from the minister, but it was announced with press release last week, an independent of the Ministry itself. The fact that we can be merchant 18 months before starting the contracts for <unk>.
When years is an important point new in the past there was like.
The rules of silky three months is the maximum time with commissioning and since surprise was low we were trying to reduce disagree with as much as possible and then there was confirmation discussion with the government to increase it and the reason why the government bring that its an incentive for us to accelerate construction. So we are also looking to accelerate.
<unk> construction to start as early as possible the merchant exposure for the 18 months or so where we're looking to everything and trying to adapt to the situation of the of the market and for the the contract.
Which are early terminated we are also as I mentioned in the Q2.
If not we would not sell everything they want to <unk> with.
We sell the electricity.
For the next the next two years at the price of today.
Inc.
There is there is the strategy for the end of this year.
The strategy, which is scimitar, which was different metrics for next year for 2024th 2025% to enjoy <unk> because.
The market curve price is in backwardation. So it means it is very high to David it's going down in 2025 2026, and so we are managing everything every day. So thats why we need experts internally and we have these experts uncertainty.
Okay, that's great and then.
Bruno mentioned, the fact that you have some cash there for for growth, but also M&A. Maybe if you can just give us an update in terms of what youre seeing out there in the market.
Others have said the transactions and the prices are becoming more rational.
In terms of the core markets Youre looking as a priority more on development pipelines are mix of operating development and just maybe sort of updated views on how you see the M&A market right now.
Yes, Mark Thank you.
So we are continuously analyzing different types of opportunities.
Certainly.
So in the U S and Europe .
As we mentioned in terms of our expansion markets.
Our key targets.
So we continue to look for a combination of good cash flows but also also development developing pipeline. So it's really a case by case.
By case basis, whether.
The opportunity makes sense from a financial perspective, but also from.
Strategic perspective, where we can add value. So if it's an operating asset.
Where we're going to look to two assets, where we can we can clearly add value and create additional additional opportunities there.
And.
And we're looking to to some some more sizable opportunities given given the.
The amount of money that we currently have on the balance sheet.
And can we infer the fact that you didn't retire any more debt right now and youre keeping the cash that you are quite active and something you could transact at some point this year.
Fortunately these are two to qualify and this market changing conditions and so on.
As I mentioned, we are.
We're certainly active looking at looking at things.
Whether we can close something this year.
Remains to remains to be seen due to changing market conditions, but certainly.
We're in a good position.
Changing market conditions, certainly have affected some some other players in the industry.
So relatively speaking.
It's better for us.
These these changing conditions today puts us in a better position than some of our some of our counterparties.
Alright, Thanks fair enough. Thanks, Patrick.
Thank you.
And then to proceed to the next question.
Our next question comes from the line of Nelson <unk> from RBC capital markets. Please ask your question.
Great. Thanks, and good morning, everyone. Just one follow up question on France.
Can you just remind us how much.
How many megawatts currently have merchant exposure today, and how you expect that to change.
Over the coming I guess or.
Why do you expect it to be by the end of.
This year at next year.
Okay.
Sure.
Okay go ahead Patrick.
Yes, there is again there is different different thing.
There is the feed in premium contract with the market exposure and its 208 megawatts if I'm.
Remind correctly.
Then we have a small exposure.
<unk>.
Long term contract in wind that is.
Naturally too and then during the last years and this is roughly 20 megawatts. Then we have an exposure which is Q.
Delayed starts.
Contract with EDF, because we have anticipated the 18 months I mentioned earlier.
To bring it to three months or more with some some some idea of our team.
So typically we have we have some some assets which are presently for example, we just re Bauer.
No.
And putting surges Weatherford then this is fully merchant. So this is the 52 mega what we have with the in service.
So all in all that you have these different kind of things okay.
And to your question by the end of the year come back to my answer to Rupert we have sent for a significant part of the contract.
That will come naturally to and then before 2026.
Today, we have obtained 58 zero by the end of the year you would have to add the 58 today and more to come waiting for the.
Acceptance of termination by Eds.
Okay great.
If I may add Nelson is that this will.
Be applying starting in Q4 so.
Part of 58.
Okay. So just to summarize like as of today, it's that 208, plus the 20 plus a 52.
And then next in Q4, it's another 58, plus you are trying to terminate additional projects, which would increase by that amount.
In terms of the 208 megawatts.
<unk> contracts I think last quarter, you guys mentioned how.
If your if the market prices high enough and you.
Don't receive any.
It takes time for some of the 208 megawatts too.
Be effective in terms of the merchant exposure because of there is a timing difference in terms of.
Subsidies received from the government versus subsidy is paid to the government.
Is all of that 208.
<unk> like the benefit from the merchant price today or does some of that.
Benefit.
Kick in later in the year.
No.
I'm, sorry is 201 megawatt and it's completely.
C pass through the breakeven points off the contract for 201 megawatts.
Okay, and then just to clarify that that revenue sharing applies to the that 201.
Plus they're delayed start projects and not they expired projects right.
And then also with that and then the project terminating sharing sorry, the revenue sharing apply on the other 201 megawatt.
It's the modification of the specific contract to come back to the.
D of the closed that the government has in 2018.
Yes.
But it would not apply.
Two the 18 months from from from what the Minister as released last week. The 18 months. There is no sharing and the idea is the following.
If we have the benefit of the 18 months, we are really incentivize when you look to the present price in France.
And specifically the price for Q4, which are north of 800 Euro.
With our.
To accelerate.
Construction as much as possible and when it's possible.
To be online for the next winter and not see at the end of the spring. So we are working on that too, but there is no revenue sharing in these contracts.
Okay, and then there's no revenue sharing on the terminated contracts.
No as well right.
Okay.
And then assuming you get more terminated contracts.
Will you try to lock in some of that upside.
True.
Hedges.
Like obviously this I think my single hedges.
Hi, Yes, no no no.
<unk> with commitment of volume.
But yes look.
Sure.
But.
With no commitment of value. This is very important.
Yeah.
Okay Hasnt counterpart.
Without commitment of volume.
We maintain our structure of payoffs produce yes, the risk the risk is scimitar, we remain payoffs produce.
But within.
A more interesting price.
Okay got it and then just one last question on France.
In terms of those projects Youre trying to terminate they are obviously there are they kind of older projects does that imply that some of that in Europe contracts, you can terminate or youre just.
Making a decision to terminate older contracts from a risk perspective.
Yes, we don't know exactly we don't want to terminate all the contract because the younger the contract is the more it's bearing debt.
So we need also to have the approval of the lenders through the project finance and Thats, what we got.
And we think in term of risk it's not it's not the time to go 100 persons merchants.
So I think in portfolio management.
Very reasonable way too.
Benefit from these upsides without taking too much risk for the company.
Okay, that's great that makes sense.
I'll leave it there.
Thank you Vincent.
We're going to proceed with the next question.
Our next question will come from the line of Nick about Chuck from coal Mexico. It is please ask your question. Your line is open.
Thank you. Good morning, I was wondering if we could get an update on the timing of some of the U S solar projects under development.
200 megawatts of solar in New York that previously a question about 2023 Sidoti to 2024 last quarter are you seeing any change the ability to get those developed faster.
It's a very good question the good news is.
With the new agreement of last week.
And I understand that this agreement could.
It's come into force in the next.
Yes.
Three to six weeks, depending loss descendants and availability and obviously visibility.
And as I mentioned, we need to really see all the market of the suppliers will settle down and what will be the impact of this on the electricity price on the financing price because there is some.
<unk>.
Points.
Nuts to the direct piece, but there is an interesting point to see that you can sell your advantage to somebody so avoiding.
Tax equity financing.
We need to see where the mother lease and then if the planet the airline or project or where that fits two.
To go ahead, and there is no cliff states.
For us.
In front of us.
Which are dangerous to keep our contract.
Okay.
Okay understood. Thanks.
And just looking at the pipeline and backlog I'm wondering if you can clarify for me. Please the 540 megawatts. You. Just recently were awarded in New York, RFP, where do those sit and when do you think we'd get a timeline as to when they could be operationally.
We are on this site are as I mentioned earlier.
Another call when we are bidding.
RFP we have.
We are we have the best price on the more major project most advanced projects. So the difference project or a different stage of of advancements.
800 megawatt.
540. So these 540, we are working to continue development and it's interesting because we will have a bigger volume.
<unk>.
Project to attract.
Suppliers.
Find some economies of.
<unk> scale.
So so so we will come back with.
I think in potentially six to six to nine months, we will have a better view of when these projects would be able to be in service.
Yeah.
Okay got it also on that front.
We normally don't move the projects in the pipeline.
Before they are signed so the we've been selected for these contracts, but the contracts have not been signed yet so we wait for the signature or the official signature before moving them into the pipeline.
Okay understood. Thank you.
I think I'll go back to an earlier comment about the corporate ppas and the strength in the French market.
MD&A also seem to mention that you might be looking at corporate ppas in the U K.
Wondering if you could please expand on the dynamic that you're seeing in that market and how that might be impacting your growth strategies and new markets that could that potentially expedite your entrance into the market since we no longer have to wait for a government regulated.
Hakan.
Yes.
Yes, the answer is yes.
The UK market was typically importing.
Two gigawatts from trends since almost ever since the Atms are new the flex is in the opposite sense.
In France, because of the lack of production trends.
There is as you have seen some announced delay by EDF on the construction of increasing soon and so all of this is putting pressure on the electricity pricing. For example, promoted prices is knowles to 50 pounds and they go with our so typically there is the same trend of people.
I want to buy long term electricity from somebody who is.
Our real project and the good news is we have obtained.
The extension.
Of the Limekiln project.
Six new turbine and we have obtained also the increase of the size of the blades and turbines.
The line can project to the extension is also the same size of big size. So so.
The cost of production is reduced on our sites everything equal.
And then we.
We're in negotiation of cooperating you didn't have the strong demand on that U K too.
And I think this is also in that vintage I would not it would not change drastically the way we are developing the company, but the fact that we have build this team and trends that we have already signed.
<unk> corporate PPA, we have some bit of.
Discuss the discussion we have already when you sign a corporate PPA you have to the different closest or specifics. So we have this expertise also on the legal side to lower people of the <unk> team and I think we have an opportunity to.
Commercialized.
Christi.
The weighted in the past, which is a good option for us.
Not all of the company.
Hello.
Did we lose.
Okay.
I Hope you think.
I think we lost connection for a while.
Okay I was seeing that that we have I think ICD side that we're seeing that it's good to have the team internally being able to negotiate the corporate PPA for sure there is demand.
And we will continue to work on this because it's.
Nobody knows all along.
The crisis will last.
But there is no good sign off.
When you look to the future there is new good news on the nuclear side in France. There is no. Good news on the nuclear side of the U K.
There is a lot of.
Germany will be struggling the next the next months with the institution.
Guests from from from Russia. So there is a lot of <unk>.
Clients customers, we're thinking it's good to sign for a significant part of their demand to have the bulk of their electricity from renewables.
On the Nikola mutual basis, instead of just the ESG and.
<unk> CSR basis.
Got it thank.
Thank you and the last from me you.
You mentioned that the administrative cost kind of crept up a little bit.
The decline in some of the development team.
Part of it was related to performance share units I'm wondering if you could please let me give us a sense of what the run rate administrative and for corporate G&A costs are now and whether or not you need to continue to invest in that further.
Alright, thank you.
We've made a significant push on that side. So I think that the impact is.
Certainly.
Mostly reflected.
Well, we'll see we'll see similar.
Relatively speaking a similar increase for the rest of the year. So relatively speaking the same same percentage increase.
Sure.
And.
I'm just not sure if that answers your question.
Yes, that's okay. Thank you. Thank you everyone for your time.
Thank you.
We're going to proceed with the next question.
The next question comes from the line of Ben <unk> from BMO. Please ask your question.
Hi, Thanks, good morning.
I wanted to go back to.
Some of your commentary around.
The merchant side of things in France and.
Good luck on the add on contracts for our MX merchant and Hum.
I'm wondering.
When you.
Do you decide on that mix of contracted versus.
Merchant.
Are you comparing it to the current for it.
Or are you looking at your models pre COVID-19.
And presumably you would have had a post contract price in there.
See like where we're at a relative.
The differences are.
No.
Yes.
<unk> is the following is.
If we look to the next.
And the 2022, then 2023 to 2026 cash flow for single project.
And with the contracts.
And we see okay. If we terminate the contract we can be exposed to the price and as I mentioned since we have the right counterparty, we can fixed in a in a in a.
Pes produced contract, we can fix our price for the next quarter at the end of the year or the next years. When there is confusion in the market. When we look to this we say okay.
When.
Is it interesting to sign for example, 100%.
And 600 <unk> with the forward curve of today from 2022 to 22006. The answer is no because if you look to 2025 and 2026, we think that the market is a little bit optimistic of the solutions that wouldn't be bring in Europe .
Uh huh.
For nuclear and the German fossil fuel exposure and then we think it's good to have a certain amount fixed in 2023, a lesser amount in 2024, and maybe nothing fixed today in 2025 and just wait.
Is that the market will come with a reasonable price of electricity, which will be higher than what is today.
And when we do this calculation.
We are sure we want to be sure we are Norse.
Of the expected.
The expected.
Contracted cash flow from the existing contract and then we have like a free option to make more money and then we have a middle case base case.
And then the upside case and then another case, where we say okay. We can if the prices going down for any reason, we don't move today and that's not my view, but if the price is going down.
Can fix at that time, and yes, it would be lower than today, but it would be higher than the contract that we have today. So in any case. This is this.
This is a move that will create value for the company and we think that the best ways to be 100% contracted limits for years to date.
As close as we would be from 2025, we will.
We will.
Fixed comp fixed price with the counterparty when it would be interesting in Oman and opportunistic basis.
Okay. That's great. It looks like you have a lot of detailed models work at <unk>.
Maybe also ask.
What do you think is a sweet spot for you why don't you take let's say 2025 mix of contracted versus merchant.
Or you think you maximize cost of capital.
And you've.
You've got the credit rating initiation feedback from project lenders like what is what is the mix. There that you think is ideal.
Stephane Ben I, just I don't think we have a specific target for that elsewhere.
Listing all of the options that are out there with the.
Kind of a portfolio analysis view and.
We try to optimize as much as we can and.
Taking risk, but not too much because we want to to remain contracted so so let's take it sits.
It's very difficult to give you a number at this point.
Yes.
Okay.
Sorry, unimportant pointed this will move in the time, if you look to 2025 today.
We can be a little bit more exposed than in 2023 for 2025 and 2024 for 2025, we will not be exposed.
A lot exposed to you have we have three different products.
In the market we can buy.
Your base loads, we can by Pete we can we can sell baseload against peak load, we can say month or quarterly monthly weekly. So we get all this it would have we have the analysis. So it's very difficult.
Should you see that.
We don't want to take the risk to beef.
Too much exposed to the merchants on the deal had pieces and we're thinking that the market is a little bit looking to 2025 2026 was.
Thank you.
Classes.
Okay. That's very helpful. Thank you.
Okay.
We're going to proceed with the next question.
The next question comes from the line of Justin strong from Scotiabank. Please ask your question.
Yeah.
Hey, guys. Thanks for taking my call just.
Firstly just quickly.
The 58 megawatts of early.
Contract termination that goes into effect beginning of Q4 is that part of the 201.
Megawatts.
Guys have been speaking about with EDF.
No. The 201 are the contract with <unk>.
We commission the assets from 2019 to today, Okay not the exact these neighborhoods. Okay. So its young contract with non remained migration the contract we will we have Jeremy.
Terminating is the contract with a small tail from some months.
244 years.
So less depth attached to this contract and the lenders model because when we have done or refinancing it three years ago in 2019, there is cash.
Cash flow attached to each contracts. So we have work around this and negotiate with our lenders.
To have the best risk reward approach.
Okay great.
That makes sense.
And then just.
On a little bit more on that.
So these are revenue shares.
The 201 megawatts is revenue share above.
Certain.
Premium but.
French government is kind of looking at those and not exactly sure what that will be is that.
About right.
John .
Patrick If you answer just just want to clarify on this as it does on a contract.
Contract for difference the 201 in the sharing we don't know exactly what will be.
The formula that will be used in the future, but it is sharing the upside between the market price and the price of that contract, but it's we cannot tell you at this point what will be the exact number because we don't know where it will be the bar what will BD that cap.
Price where.
We'll give the extra above this specific price to the state and where we will.
The risks so.
That will.
Correct.
In the future.
Great. Thank you and then just quickly on with reconciliation Bill in the U S. How do you see that impacting.
Competition and more.
And your development strategy and you asked like where do you land.
Net net and now that the.
The ITC and PTC there are back in full force.
Can you maybe just give us some color on how that <unk>.
<unk> sure kind of return profile.
Essentially.
In terms of strategy.
We're still looking to the same market Queens market, where.
We are creating value when developing projects. So again, when it's not so easy to develop projects, New York, Illinois, Pennsylvania.
That's the targeted market in the U S for Greenfield developments.
The energy crisis, which is.
Specifically European with which is for the world is something which confirm to us that.
The fundamentals have not changed and if we develop the right project in the right place, we will big correct return for the company and its shareholder. So that's that's the point and it doesn't change.
The level of return expectations from the project on our site.
Okay.
<unk>.
<unk>.
Does it change your kind of priorities at all in terms of capital allocation.
I'm sorry could you just repeat the question no. It doesn't change it doesn't change our strategy on capital allocation.
Always.
<unk> in the U S market.
We've continued to to win.
Nice.
Nice projects and we will continue to grow there.
Alright, thanks for taking my call.
Thank you thank you Jason.
Sure.
We're going to proceed with the next question.
The next question comes from the line of Andrew Kuske from Credit Suisse. Please ask your question.
Thanks, Good morning.
I guess, if you sort of step back and look at the big picture and they've got pretty ambitious goals, but very achievable and the market for renewables continues to grow at an accelerated fashion. So I guess the question really is what are the challenges you see yourself facing on potentially accelerating some of the development activities that you can do I guess.
The roadblocks or just internally or externally what are the main challenges that you're facing at this stage in time.
The challenge are different from one market to the other but.
Essentially in Europe , it's obtaining authorization for approaching generally speaking in France, or the UK or backwards, where we're active.
The limitation is is the delay of authorization. The good news is that considering the present situation the government.
Really need the system really need more power and so there is and this is the Repower EU plan in French.
French plant to accelerate and to incentivize us to accelerated also.
<unk> with the administration, because if you look to France in the last.
The last years.
The financing to wind.
In 2015, it was 1 billion euros in 2020, it was almost 2 billion U K debt financing subject to wind in 2023, it's minus 333 5 billion euros. So economic each change completely so the government is no incentivize into many industries.
They're sending that renewable is reducing to bid and not increasing debate. So that's one thing.
In the U S. The situation, which is limiting for the moment is the unknown around the ITC. The solar project, which we are as I mentioned, we are pursuing developing projecting the REIT market. Because we think it's good and I think we have shown that with the with the tender in New York, We went from two.
200 to 540, and we would be able to bid on the project for the next the next quarter. So the team is working hard on this.
Canada, we're organizing useful so in Quebec at this restarts.
Which will restart so we are organizing as to the specific markets, where we are good.
And if we can use a little bit of the of the extra money that we will make through the good situation in Europe and the good good.
EBITDA in the next months to accelerate the organic development, we will do it in a reasonable way. Okay. I mean, there is we have a budget every year of Greenfield developments and we think we have.
To look to that.
Keep it reasonable.
Great.
That's very helpful color and context sorry.
Sorry, I was just wanted to see if I may add one point on that is that I think in the current context that it is changing so rapidly.
Keeping our agility.
And being able to size opportunities, having our balance sheets are strong will be key and I think it's just it's a very.
An important competitive edge that we have right now.
So just my two cents.
Well, maybe more than two cents worth but when when when you think about.
The value of the Euro now.
Does that give you at this dynamic of maybe pushing farther ahead in your European exposure, but there's an interesting duality that you may be able to invest on a value basis.
Given where the euro is but do you worry a little bit about just the FX risks on the front end with the devaluation of the euro on the cash flows coming out of Europe into your business.
Yes.
We've integrated that risk in our in our hedging strategy on.
The hero.
Okay I appreciate the time thank you.
Thank you.
Uh huh.
We'll go on to the next question.
We have our next question is coming from the line of 90 banking from a capital markets. Please ask your question.
Hi, good morning.
You've been more active in the corporate PPA market in Europe now for some time now.
Now that you are seeing this evolving power price dynamic and maybe taking a more dynamic approach to balancing merchant versus contracted exposure.
Do you think you have the right talent the right team in place or do you need to build out a broader power marketing.
Group in Europe .
Yes, Thank you and as you know.
Hi.
We start working on this.
In 2017, 2018 really with very good people internally, who have typically experienced in the Spanish market before.
And we're part of the <unk> team. So we have we.
We have people to Trinity, we have hired people from engie.
From also data scientists and data engineered because it's a lot of data management and Agua Rica.
So we have built.
It team in France for this part we have also increased during the last.
Three years, the commercial power selling electricity going to a customer listening to our customers. It's crazy, but we were not really listening to our customers with the utility was imposed contracts so nowhere.
Thinking about what energy solutions, we can bring to them how it works if they have land to do something behind the meter and all those things. So we have real sales people working for us and that's our that's where we are specifically in France because it's.
Distribution of the market and we are using and leveraging that in the UK for the moment and we can do everything in Europe from the French platform exit see selling to a corporation, but which is more specific which all the market understanding it's just managing data that we can.
Do from the yield trends.
Okay got it.
And just wanted to get maybe your thoughts on the <unk>.
National Ization of Eds.
Do you think that could impact.
I think you are positioned in the country going forward or just the potential pace of new capacity build out in the country.
Yes, it's difficult to say because.
No.
The nationalization is is announced.
But it will not solve the problem the problem on the on the nuclear side because essentially the idea of the nationalization is too.
As to take.
Through the taxpayer to problem of EES.
On nuclear.
Will it change anything I don't think so.
But it could be as that eds.
Make a spinoff of the whole or part of the eds.
Renewable Big company.
Good.
The 15 billion euro value.
But it will not change our situation because this is all radio competitors. So I don't think it doesn't really impact. The main point is the fundamental of the market.
The <unk>.
The system needs more electricity and the only way to to bring more interesting is renewable this journey don't need possibly to bring more interest in Europe in the short term.
Appreciate it thank you.
Yes.
Thanks, Jonathan.
Thank you have no further questions at this time I'll hand back the conference to you for closing remarks.
Well, thanks, a lot. Thanks, a lot everyone for your attention and all the good questions.
45 minutes or so I'd say, that's 45 minutes, an hour and 15 minutes galasso.
Thanks, Alright. Thanks for the question. So if you have additional questions. Please call me at 504 to one three answer for final pleasure for me to answer your question quickly. Our next call to announce third quarter results will be on Thursday November 10 at 11, a M. So I hope you enjoy the rest of your summer.
Will do.
Have a nice day everyone.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect your lines.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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Okay.
Okay.
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Okay.
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