Q3 2022 Innergex Renewable Energy Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, thank you for standing by and welcome to <unk> renewable Energy's 2022 third quarter results conference call and webcast.
And of course, it all fully funded.
This is Joe there is a touch of towards emptiness.
Xander finish up then that was X and there was even flat at this time all participants on the phone and Internet are in a listen only mode. Following the presentation. We will conduct a question and answer session for analysts and institutional investors and instructions will be provided at that time for you to queue up for questions.
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I would like to remind everyone that this conference call is being recorded I will now turn the conference over to Katherine vessel Senior Director Communications. Please go ahead.
Thank you and Hello, everyone I'd like to specify that this conference will be held in English.
As of the lithium for invited to ask those questions by phone after this call.
A presentation supporting today's discussion is available as we speak on the home page of our website attributable use chegg dot com.
This call things forward looking information within the meaning of applicable securities law.
Although the corporation believes that the expectation and assumptions on which forward looking statements are based.
Under the current circumstances.
A question that's really on Giulia on these forward looking statements.
Given that this will prove to be correct.
Forward looking information contained herein is made as of the data thats half of the preparation that they take any obligation to update or revise any forward looking information with as a result of events or suggestion.
Shortly after the date hereof.
Acquired by law.
Also during this call we will refer to financial measures that are not recognized.
According to international financial reporting standards.
Please refer to the ammonia first measure section of <unk> for more information.
Our speakers today will be Mr. As Occidental, Chief Financial Officer, who will present Q3 results and Mr. Michel Letellier, President and Chief Executive Officer will review our operational highlights.
I'll now turn over the conference to Mr. <unk>.
Alright.
And Hello, everyone.
So just to start with results the corporation's financial performance posted a very strong growth for the three months ended September 32022, compared to the same period last year production was up 19% and revenues were up 40% at $258 million compared with the same periods last year.
The increase is mainly explained by the contribution of our 2021 and 2022 acquisition.
The 50% interest in NCR Lima for which results are now included in Interjects performance, the Curtis Palmer assessed and address as well as the wind farms and Judy.
Commissioning of the Griffin Trail and Theres, No Christmas royalties and higher selling prices and the Phoebe solar facility.
And also increased production in BC are.
Due to the temporary shutdown at <unk> Creek last year from wildfire damages.
As well as the new Ppas that we negotiated with higher selling prices at some of our French wind facilities.
The items previously mentioned were partly offset by lower wind regimes and lower exchange rate.
The French wind facilities as well as lower selling prices at the start of our solar facility.
G&A and prospective project expenses were up by 24%.
We're up 24% at $77 $2 million. The increase is mainly attributable to the acquisitions as mentioned above and decommissioning activities.
As well as higher maintenance costs at some of our BC hydro facilities.
As a result, adjusted EBITDA for the three months period reached $181 million, which represents a 48% increase compared to the same period last year.
Moving on to the next slide our proportionate financial performance also posted growth for the three months period ended September 30.
The increase in proportionate.
It's largely driven by <unk> as explained by in the previous.
Previous price above.
And also as part of the upset by the decrease of PTC generated by the wind farms and it's mostly due to the lower production of our.
Sydney facility.
Continuing to the next slide.
Operating and free cash flows for the trailing 12 months ended September 30 at.
The corporation generated free cash flows of $159 million, which is up from $107 million on a normalized basis last year.
This increase is explained by obviously the contributions of our acquisitions and the recent commissioning activities that we mentioned earlier.
Partly offset by higher debt principal repayments from the <unk>.
Acquisition.
And at the beginning of debt principal repayments for the upgraded with Boulder Creek and Hillcrest project loans.
An increase in free cash flows as we do to Noncontrolling interest stemming mainly from Curtis Palmer acquisition and unfavorable differences between the sales of the <unk> node into purchases.
Haircut South hub.
So the increase in free cash flow versus 2021 resulted in a 30.
Three percentage point improvement to our payout ratio, which amounted to 91% for the trailing 12 months for the quarter compared to 121%.
Normalized last year.
So when we exclude the prospective expense of $27 million.
Adjusted free cash flow stood at $186 million versus $128 million.
And so therefore, the adjusted payout ratio, Consequently reached 78% compared to 96% this year, which is.
I'll review a great improvement.
For the Corporation.
On the next slide net out some financial events I guess.
On October 4th we completed the acquisition of the remaining minority interest.
In the 16 wind assets in France.
I mean, we.
For a total consideration of $96 million and so this allows us much greater flexibility to optimize our platform in France and in order to finance Barclays. This acquisition.
Monetize.
Our euro CAD or a part of our your cat foreign exchange forward contracts for a total gain of $43 5 million.
And we concurrently amended I guess, the the euro foreign exchange contracts and now we have a total notional amount of $115 million amortizing until 2043 at a new fixed rate of 148.
CAD for Euro.
As well also in France, it's been quite active.
Over time, we took advantage of the current very favorable energy pricing environment in France to enter into to Gpa's blood onshore and Beaumont wind facilities.
Start to take effect on January one 2023 concurrently with the early termination of these ppas.
In addition, it's important to note the new Ppas will effectively increase the contracted period of the facilities to December .
At December 2032.
And also on November 3rd.
Finally, the Canadian government released its full economic statement and finally D.
A major item related to the renewable.
Energy industry, and I guess, the key areas of interest for <unk> are obviously the investments expert at 14 technology. So this is a refundable tax credit that will equal so 80% of the capital cost of investment in electrical generation systems, such as PV solar wind run of the river hydro.
Others in the ITC will also cover the batteries and pumped storage.
So.
<unk>.
Also some.
That will adhere to certain labor conditions will be tangible to the full 30%.
While those who don't would be eligible for a period of 20%, but we don't believe this is a big constraint in the context of the Canadian context to meet the 30%.
And the credit will be available as of the day of the budget 2023 and will phase out until 2035. So this is a great answer to the American ITC that.
As the experience over the last 20 years, so finding in Canada.
Have a similar program that will actually help the development of renewal renewable energy within Canada and on top of that there is also an investment tax credit and 14 hydrogen.
So.
We understand that the department of finance will launch a consultation on how to best implement.
This created based on the lifecycle of the carbon intensity of the.
The facilities and with the lowest carbon intensity and meeting.
Meaning it would be eligible to up to 40% of ITC. So the proposed ITC will be refundable and available for investment made.
As of the day of the budget and the credit would be phase out. After 2030. So this this helps bridge the gap on two fronts I guess from a.
Production of renewable energy and also on the capital expenditure for electrolysis system. So it certainly going to help bridge the gap between the Green and degree hydrogen in the coming years. So as a concluding remarks, we're very pleased with the performance of the <unk>.
Third quarter.
Versus last year and the past few months, where we're very fruitful with the execution and delivery of various initiatives. So we therefore reiterate our August 2022 guidance and growth targets as we discussed previously.
I will now give the floor to Michel for the operational review of the past quarter.
Thank you.
A coal your comment on that great.
<unk>.
Proud of what the team at <unk> in the last three months.
<unk> on this strategy and very very pleased to see that.
This is now paying out in terms of reducing our payout ratio.
Yeah.
Said that.
One of our priority.
Wildly blot being our pipeline of development so very pleased.
Do you have that performance and thanks to the dedicated team that are always always striving to.
Execute on our strategy.
Just talking about strategy as you know.
We want that they've lost.
The storage component.
The storage sector of our industry and pleased to report that finally the ton their facility.
Were put in service in France.
With a little bit long, but one has to understand that this this battery system is aimed to mitigate.
Mitigate the fluctuation micro fluctuation in the in the grid. So therefore.
This machine or dis battery has to react very very fast on it.
That happens on the grid, so I think that the team our team and the team from Hydro, Quebec has done a great job and putting that in coming as Shane we have learned both team have learned a lot and I think this is.
This is a good investment in a sense that it's going to be very useful for the very active market right now in France, but it's giving us a lot of experience.
To do some more.
<unk>.
The project in the future.
In terms of.
Flip to the other page construction activities.
We've been active in Hawaii as you know we are trying to renegotiate the price we have submitted.
Three proposal to equal.
Regarding IAA Kuwait.
Barbers point.
And cole Haan.
So we are negotiating a sit a little bit hard to say.
Say, a little bit too early to.
To conclude on where we will be.
And up in terms of negotiating but.
Things are progressing well.
I equally.
Hey, just as you know advance we have slowed down the construction activities, while maintaining the value of our asset and investment that we have put there.
Like I said, we still have a window of opportunity to deliver this project by Q3 2024.
For continuing and engaging.
The.
Construction activity at that full scale, we have to have an agreement with eco.
<unk> is progressing well, we still have some critical.
Window of opportunity to finalize the.
Spillway before the winter.
The team are still optimistic to do that this quarter and hence being able to put the project.
Service late in Q in Q1 2023.
Going back to battery.
We have been advancing on standby the.
Battery pretty happy to.
To have made that decision a little bit earlier.
Last year, because the battery price as you know have gone up.
And.
In the market in Chile is there any would create great opportunity.
Do you take.
Do you have that battery in the system I think it's a very very good combined complementary tools to our portfolio approach in Chile.
Our our general manager was sitting in in some of.
The meetings with the.
The industry and.
That's too bad.
Battery system Salvador, and Santander is our making our competitor a little bit jealous that we have been able to initiate that investments. So very pleased on that aspect I think that this is a very very good complementary.
The portfolio as we mentioned Chile is.
Is it good market in terms of.
Renewable energy development, but they've had some.
Some component of delivering Permian energy, so and so I think that our strategy is paying out and very pleased to have also since then.
If we flip to the development activity since then.
We will also be.
Put in service by 2023.
Same supplier of battery.
So we are.
Going also for the battery package to be in service by 2023, but I think on the developing activities the big.
The big point that I want you to focus is the.
The signature.
And the advancement of Boswell project.
Wyoming.
Just making sure that people are enough.
Confusing the.
The fact that we have not declared construction just yet.
Team have.
<unk> made the switch between the development activities and construction activities.
There is one thing that we saw.
Still have to receive two things do we still have to finalize with the PPA.
But it's very.
I would say technical.
Pacific Corp is waiting to have the written notice from the PUC.
Half their green light.
Go and build the salt weight gain.
<unk>.
We are actually under construction on the field.
Matter of we don't know why it takes so long to.
Have the.
Verbal bench decision to be written.
Maybe COVID-19, maybe some delay in the <unk>.
In in all of these administration.
Officers.
But anyway Pacific Corp is fully committed and we already started the construction on the transmission line that is needed for Boswell to interconnect. So boswell is going forward.
We have all of the.
Contractor lined up and supplier so pretty good project, we're very very proud of having been able to renegotiate a good price with best Fe Corp, and will keep you appraised on the advancements of Boswell, but this is a big step forward in the United States for Us Palomino.
Is also advancing well the price are very strong in Ohio, the only the only challenge with we have the only but.
The biggest challenge we have with them is the interconnection ever you know everybody knows that PJM in terms of interconnection is really really busy.
That's a problem across the U S. This is probably one of the limited factor.
To see more and more project being built in the in the states is the ability to interconnect. So palomino is having a little bit of a challenge in terms of.
Establishing a firm schedule for the interconnection.
Optimist.
2025.
<unk> date will be maintained.
But it might slip a quarter or two depending on the schedule of the <unk>.
Connection.
Going back to France also we are developing and trying to advance.
Our project in France Oxy.
Still.
There's still a 20.
2025 project, although we are not certain exactly on the <unk>.
But I think that given the.
Circumstances in France, and the need for renewable energy and I think we're very confident that this project will go forward.
And lastly, there will be put in service by 2023.
If we go to prospective project.
I'd like to maybe stress the fact that hydro, Quebec has just deposit their long term forecast for there.
Their demand or customer need.
And pleased to report that for.
For the next 10 years Hydro, Quebec is forecasting a growth of their demand by 'twenty five data what our that's 14% of their total capacity. If you translate that into a wind facility or wind facility with 40% utilization factor you would need more than seven.
Megawatt of new installed capacity in order to fulfill that demand gap.
So I think that the Quebec will be a tremendous tremendous market for us.
Have all the intention to participate and take tower full share of the market.
In Quebec.
We are having a lot of new discussion, we had landowner and.
Other stakeholder in order to.
Expand our activities in Quebec to focus on over the next few years, we will definitely be.
Back to to Quebec and be successful in meeting the need of hydro, Quebec for new growth.
I think that Canada.
With the new.
C.
Program as John described.
Certainly be a very busy place I think that Ontario will eventually wake up.
Same with BC.
We think also that.
The eastern provinces.
Could benefit from the federal willingness to increase the renewable energy portfolio, and New Brunswick and <unk>.
<unk>.
Nova Scotia, Thank you.
I think that this one this is one way for.
<unk> for the east to capture some of the federal.
Our financing debt will be available.
That's in the in the West a lot of federal funding is going to be in the blue hydrogen.
Aspect, so I think that the east can certainly benefit from the eastern Luke.
Ontario, Quebec, New Brunswick, Nova Scotia, and Newfoundland would be.
A little bit more integrated and <unk>.
Exchange renewable energy for a basically new Brunswick, and Nova Scotia, So I think and eventually Ontario. So I think that this will be a great opportunity in the east as well.
France as you know is definitely growing I think that when might have a little bit of difficulties and permitting is it's always a little bit more complicated in France, but nonetheless, I think that the.
They need their own little energy and definitely are very aggressive on solar so our strategy in France Ash test a little bit we're still developing win.
In France, but definitely looking more.
For solar project and initiative in France.
Safety is still really busy I just mentioned one of the issue is interconnection in the states, it's true everywhere, but in the states, it's differently a little bit more present that would say.
But our teams are developing and making project.
In a lot of.
Of States northwest is very active as you know we have what Thomas project in that area.
Which is a 400 megawatt solar we have a lot of incoming calls for potential long term PPA.
Pacific Corp will also be active in the future for future RFP, we have a nice win there.
That we have acquired a while we were developing Boswell, let's call wind dancer 400 megawatt wind in that area. So we're getting equipped to be able to sustain the development also in the in the United States, Chile always interesting to see the market is still strong.
Summer time will their summer time, we'll see perhaps a little bit of easing on pricing do you have the ability to receive some.
<unk> gas from Argentina in Summertime, Argentina are not delivering.
Natural gas in the winter do you needed to.
<unk>.
<unk>.
Their citizen, but in summer time, they have a little bit of a surplus so that put a little bit more pressure on price.
To go down in <unk>.
In Chilean summer time, but I think that the fall in the winter, we will see again very strong pricing in Chile.
So that would conclude my presentation.
Just a big thank you to Kevin in a hurry.
Her team to have been able to produce at Tcf ripped.
The report that we are putting online one of you has mentioned that we were the first renewable energy to do such to do too.
Publish such reports I'm very proud to two.
Two the team that's done a great job.
So it's it's a first for us and we're happy to report on it.
We're open to the questions.
Thank you.
Ladies and gentlemen, if you have a question. Please press star followed by one on your Touchtone phone you will hear a tone acknowledging your request your questions will be pulled in the hotel to harvest.
Please ensure you lift your handset if you are using a speakerphone before pressing any keys.
And your first question will be from David Cucina.
Raymond James Please go ahead.
Thanks, Good morning, everyone and congrats on a really strong quarter.
My first question maybe on the on the two facilities in France that will re contract it looks like you've got longer term. There then.
And then you've had in the past just curious if there's any other detail you can share on those agreements.
Yeah, well, it's a little bit we don't like to disclose it too much.
Yeah.
Very competitive right now on those renewal, but let's say that we.
We have.
<unk>.
Taken that strategy of extending the contract, but at a lower price than the ceiling, but yet at the very good premium from the <unk>.
Existing contract so we kind of.
Mitigated or Lego compromise a little bit on the short term in order to have a better long term premium contract.
Okay excellent that's good color. Thank you and then maybe just just on the topic of <unk>.
Interconnection and challenges on that specifically in the U S. I'm wondering.
Michelle are there any.
Detail you can provide on.
How you stack up in terms of interconnection queue positioning.
Ross your advanced and I guess, maybe even mid stage development projects and maybe any comments you have around what coma and wind answers specifically just in terms of.
What you see as the outlook for interconnection there.
As you know PJM has switched to have some cluster approach, which.
He is going to change a lot of the Q so the queuing.
PGM to some degree.
We'll be shelf reshuffle quite a bit with that approach.
We are theoretically grandfather, and our approach to be able to interconnect and palomino. That's why we were still fairly optimistic, but we never know if we end up being catching this cluster approach.
The team is still positive that we should be able to have our hour window of interconnection and still have the 2025 project window.
In terms of when the answers and that's a little bit of interesting one because we actually acquired this this facility because our transmission line from Boswell is going through that land. So theoretically we would be able to interconnect on our online.
Pacific Corp shouldn't have.
A lot of room in their new <unk>.
<unk> buildup of the gateway west so.
That should that should not be a big issue.
And then what homa interconnection will be a little bit of a challenge, but we have a few.
The option, there and to put the <unk>.
<unk> is.
Your situation is situated where we have a few options. So.
Either we are going through.
The mid C or <unk>.
<unk> sound and directly in the West. So there is there is some room. So I think we're fairly in good shape.
And in Colorado is preparing.
An RFP for beginning of next.
Next year.
And then we have a project called mile aisle, there that is getting ready for answering that question, but in general were not that bad. We also have advance in the north of Minnesota.
Place where perhaps.
Little bit less.
Wind and solar capacity, but more room for interconnection. So we're trying to be.
Be smart and perhaps having less.
Resources.
In terms of gross capacity of those of those projects, but perhaps a better interconnection.
Opportunity.
It's difficult to answer more.
David on those aspects because it is moving so fast in in the states.
That's good color. Thanks, Michelle appreciate those comments I will get back in the queue. Thanks.
Thank you next question will be from Nelson <unk> of RBC capital markets. Please go ahead.
Great. Thanks, and good morning, everyone.
My first question is I, just wanted to get a bit more.
<unk> on your liquidity position. So you ended the quarter with $217 million of cash.
You've bought the rest of your French business for 96 million and then you had the FX gain.
Can you just give some color as to where you stand in terms of cash availability at the corporate level and then also can you talk about.
Your Chilean battery project does that fully funded through that refinancing yes.
So yeah, the Chilean the Chilean project is actually financed with the refi that we did in Chile.
And that our best project is <unk>.
<unk> investing in things. So we will draw further on that private placement to fund entirely.
The project and at the corporate level, we have a revolver available that's quite substantial right. Now. So we were able to finance the acquisition of the French asset as you mentioned a party with the.
Repricing of the hedge.
And then the usage under revolving revolver line of credit So right now our institution is good and looking to 2023 and we also have available to conduct our development.
Of course, we may.
We may look into.
If we're very successful obviously in our development than we may have to look for.
And as I mentioned actually in the IR day, as well that we will look for some.
And ways to finance, our activities and it could be in the form of.
Quasi equity or.
Disposal of certain assets that we have will part of assets that we have so we are looking into this right now as well.
Always looking into the waterfall of ways to finance, our our activities in the <unk>.
Last remaining ops.
The option would be to do a stock issuance, but we havent different options I think we have different ways to rotate some of our capital that we have.
In our in our on our books.
We will try to optimize our structure.
And just to clarify so for Chile does your facility also fund the San Andreas Battery storage project no no notice and address so its finances, this or that or Beth Wilson address in 2023.
That's one that we're looking at adding into the U S. Private placement right now or to have a financing on its own for the for this and Andrew that's something that we're working on actually too.
Do you have like a financing option by end of Q1 2023.
Okay, and then so I guess looking forward near term it sounds like Boswell spring. This will start construction, possibly later this year early next year, so that would be the next big.
Big project too.
Thank you are looking to finance, yes, that's one of the that we're actually now looking at it like to commence with tax equity partners and also with a term loan.
And does that one and then the other one the other piece that we are actively looking at refinance as the GDP.
Sub debt.
<unk> facility. So that comes due in February 2023, so it's something.
Something that we're actively looking at refinancing right now and Nelson the most of the equity is already spent in <unk>.
In Boswell Theres, a little bit more to put but then.
When financing will be put in place probably in Q1 or very early Q2.
We wouldn't have to contribute more equity into the project and matter of fact, we might we might have received something yet.
It's come back depending on the.
Success of the <unk>.
Financing.
Can you just clarify that because I.
Obviously construction hasn't started but youre, saying youre net equity needs after tax equity and after a term loan.
Mike.
Negative.
Yes, it's already there is only maybe $10 million to $15 million that we have to continue funding until the financing we have already.
Order and put deposits on turbine.
Big portion of those engineering, we had had if you remember continuous construction on boswell to maintain there.
Its qualification for the PTC, so theres not much equity last two put in Boswell and when it's in construction and actually we have purchased.
The the turbine.
Like I said the initial payment has been has been paid for.
From the road so have been been done some foundation of.
Turbine has been <unk>.
So just a matter of.
We.
This quarter the construction.
The contractor are getting mobilized finalizing the contract.
Of the contractor for all the balance of plant contractor for transmission line has been.
<unk> and engineering has already started on that purchasing of components thats been done as well transformer and stuff. So it's.
It is going forward.
Okay, well it sounds like it's.
Sounds a lot more advanced than I thought so so on the Boswell project. So I think the sticker price was about like $544 million do you have a rough breakdown in terms of.
Of the capital structure in terms of tax equity term loan.
And sponsor equity remember that.
John will answer that but remember that we have at 30 years PPA. So.
There will be quite a bit of capacity for a back leverage financing as well over and above the tax equity. So the leverage will will be fairly high in <unk>.
The new 75, so I think that tactic.
And I can take it offline as well that Nelson, but to be more precise but I think it was <unk> five.
Tax equity portion and then another 10% 15% of that.
No.
Alright, great. Thanks for the color.
101.
Maybe 20%.
Alright.
Yes.
Excellent and then just one last question on that so before I get back in the queue with interest rates heading higher like has tax equity the cost of tax equity and has a cost of debt.
Essentially moved up one for one with what's.
The.
What's the tenure with a higher 10 year rates or how should we think about the cost of tax equity and.
Good.
Good question Nelson I don't think its a one for one year with the bone ULA has gone up to 150, maybe tax equity has gone up 100 ish, yes, okay.
Right.
Okay, and I presume that is obviously close to one one for one yes that is yes.
Not in a big rush due to fixed rate now.
That portion we as you know most of our debt is already fixed I think that.
Interest short term interest rate is going up as we all know.
But then the long the long end with the inversion of the curve in the.
Talks about a recession coming not sure that the 10 years and plus have a lot of room to go up.
Yes, I agree with that.
Okay. Thanks for the color I'll get back. Thank you. Thank you. Thank.
Thank you next question will be from Nick <unk> at.
Core Mark Securities. Please go ahead.
Thanks, Good morning.
Power prices in Texas spiking to pretty high levels. This quarter can you. Please walk us through what your thoughts are on securing ppas in that market compared with remaining merchant.
That market is crazy as you know so we don't want to get fixed and we like being exposed to to the merchant and Texas, We've learned it from the hard way.
P a a or quasi PPA, where you have to be firm with one asset.
Nothing.
We see that.
That we like about that so no not looking to be very aggressive on fixing.
Pricing firm pricing in <unk>.
Texas.
And Michelle does that include going with a corporate PPA could an opportunity arise where.
<unk> ratio could come in maybe partner in that way.
Sure Brett.
We like being floating in Texas. It brings a lot of volatility, but at least you don't hold your harman the leg to somebody if things are not going your way.
This has produced above last.
Produce unless SaaS produce and it's a good price, but we will never ever ever again do the.
The Sealy power hedges never never again.
Okay. That's good thanks.
Also a comment in the MD&A to the Salvador battery storage as I could have a delayed delivery, but that you would receive compensation by liquidated damages.
Can you just walk us through what that means and how that will be structured.
Well, it's a it's a cost per day.
Can't remember exactly how much is the quantum per day.
It covers our.
Interest in <unk>.
And not be <unk>.
Totally linked to the lost revenue because that was difficult for the supplier to accept but it's a fair compensation that being said, we're talking about maybe a month 45 days ish that the Mitsubishi would need.
You have to.
In <unk>.
And to come back maybe on your.
Your view of <unk>.
Fixing pricing in ERCOT.
We're not too hot on this issue because we don't see very good long term pricing.
Power in Texas, but this is very different in Chile, Chile, where we're starting to see.
<unk>.
Big demand for a long term PPA directly with.
Players that had already long term contract obligation in Chile.
I think that a lot of people were caught in thinking that.
Building new facility would be fairly cheap so we're seeing and we're starting to think that the.
The time has come to maybe fix more PPA, we have term sheets on the table and price are around $60 60 ish dollar. There is new this goal coming in next year, where you were going to see.
Rice around the $60 range with full inflation. So at that level, we are starting to think that.
Its becoming a good bet to start signing long term PPA in Chile.
Okay, sorry, so just to clarify I think that could be a San Andreas Solar for example, that's currently merchant you could potentially get a PPA 60 with an inflation factor.
Yes.
We're not gonna indicated asset we have a portfolio in Chile, So we have the ability.
Actually becoming a small utility with.
Portfolio, where we can in Chile, it's financial transaction as well. So we can use any of our facility to supply the obligation the contractual obligation that we would enter into.
So Chile.
Beth.
Beth.
The battery system would contribute to our ability to supply.
NRG to a third party.
Understood.
It's important to know is very different from what we lived through in the aircraft because what Michelle said that you can service. These these offtake agreements from many different.
Point of interconnection grid from all of our assets.
We have the ability to store at some assets and with a battery system, that's going to be even more flexible.
Yes.
And we can and we can build new project.
Around 60, $60, which full inflation.
From Terra or send catalogs are starting to make sense.
And.
We are like we said we are we will be.
Very focused on.
Seizing the opportunity if the opportunity arise that our project becomes profitable.
Start construction, but we don't want to start construction without having a strong.
Price Centennial.
Got it that's really good color. Thank you.
Just last for me.
Can you just walk us through any inflationary effects you are seeing on the cost of maintaining the existing asset base.
While labor labor in some components.
As we said every percentage of inflation higher than.
Our 2% or two 5% initial forecast is cash positive on a portfolio basis to about $1 5 million yes.
At that level. So yes, we have some some inflation in our operation, but its welcome Ben say that by our inflation indexed.
<unk>.
Awesome. Thanks, so much guys.
Thank you next question will be from Robert Baird.
National Bank. Please go ahead.
Hi, good morning, everyone that Greg critical order kind of revert thing.
So you seem from your comments to be more open to consider asset sell downs, given the market conditions and I do think the market wed like that would you consider a sell down.
Stay can development projects like Boswell as you move to.
To financial close.
We will depend on the on the price.
Could we could but boswell will have and.
Probably boswell theres another rifleman.
When you when you will understand that the the matrix the financial matters of law as well do you understand it's a very cash accretive project, especially in the first 10 years, where we have the full benefit of the PTC and the PTC inflation as well so.
It would not probably the one that we would be willing to divest.
We are considering some asset that we own some small ones that are creating a little bit of.
I would say stressed on on management and not big contributor. So that could also be on our strategy just to clean up our portfolio and making sure that our people are available.
Two.
To put their energy on.
More profitable project or more aligned.
In developing some other activities.
France might might look too.
In some ways, we might benefit from a partnership with financial partnership from our European base.
Based you know that we just acquired that 30% of France, but on the other end.
We.
We have created value by re signing PPA. So there's may be some opportunity.
To partner with some financial.
<unk> in France.
Market is still very very strong for portfolio.
And platform.
We were going to look into projected also are not necessarily generating a lot of.
Cash flow for us.
We will take our decision but of course, we will have to replace these bi.
Also very good.
And long term value the asset.
Great. Thanks for the color and talking about another partnership we saw hydro Quebec mill.
Make a fairly large acquisition in the U S. Recently did you look at that deal and do you see potential for involvement with hydro Quebec in future deals.
Quebec RFP.
Yes.
John has worked with hydro, Quebec and our team has worked with auto go back on the early days of that deal we decided.
The common ground that this assets with little bit big for us.
Given also the weak market condition for us it was a little bit of a challenge, but I think that.
One of the issue is also the fact that back.
Back wanted that asset, it's very strategic for them.
The as you know they have long term contract to supply in New York.
They think that this asset has a very long term value for them as well.
You just heard me in saying that they are looking for $25.
<unk>.
225 to help with our of new energy.
No.
If they could supply their commitment into state by in the United States. Our assets I think it's a good thing for them, but it was on the common ground that we decided to let them go alone on that transaction.
A little bit also on the fact that it would have been difficult to establish.
Strong governance on how do we how would we valued the electricity.
Given the fact that hydro Quebec has this long term commitment to sell a facility in New York. So I mean, we're all front on that transaction.
We're very happy for them that the winner of that asset.
As she said I think that they paid a good price, but but an expensive price, but I think D C that asset as a long term.
So I guess it doesn't change any fundamental to our long term relationship and our <unk>.
Try to look at.
And maybe if I can add like we did two partners are looking at two into extending that partnership now because there was a three year window originally for the commitment from hydro, Quebec. So we're looking at extending this further in the environment. We will obviously adjust the partnership now we know how each of their works we know whats of interest.
With more granularity I guess in the coming year for the coming years.
And I think.
And defensively in Quebec also.
The alliances.
Very.
John maybe you can clarify just the comments around equity needs for next year seemed like San Andreas.
Im sorry, San Salvador, and Boswell there was no more additional equity required so what would be there in terms of spending for next year would that be.
San Andreas and then Boswell and be the sort of bigger ticket items next year potentially for equity requirements.
Well, it's really if we have more success I guess in our development pipeline and there's a fairly good amount of prospective projects that are advancing.
As well in our in our business. So things are moving fast and if we do further acquisitions, then we may need to access the market of course, so we have done.
We've done that.
Friends acquisitions in.
We're preparing ourselves to see okay, where we're.
The PUC has.
For battery and solar.
I think that equal has some motivation to calm and finalized the negotiation with us, perhaps a little bit below that threshold.
Question about how come this is <unk>.
The inflation has gone up fashion.
The delivery of items can be also delayed if we are not taking some decision right away. So.
Given where we stand now.
Reasonable timeline for Cod's for those projects.
<unk> as I mentioned, we still have a path towards the Q3 2024.
We can maintain that we have a little bit of a buffer as long as we can have a decision from the PUC.
Early Q1 2023.
And the other ones like Barbers point.
Barbers point is another story, that's one of the smaller one.
We may elect to bid it in the RFP three that one we were still in negotiation, but that one might be a little bit tougher to come to an agreement.
We made select to go for our battery on Barbers point.
And the timelines for the RFP three.
We're supposed to announce it next year and to you the day would be 2026 or 27.
Okay.
And then my last question is just on Phoebe.
Seems like you guys. It looks like you booked higher revenues, but then there is the realized loss on the hedges.
Net net.
Is the cash flow profile coming off of <unk> right now and is it above plan or below plan at this moment.
It's probably not great it would've been.
Positive last quarter.
It was slightly positive last quarter, but if you're asking us since when we took the decision to invest in PB or yes.
It's a little bit neutral from what we had expected at the beginning of the year, but it's always challenging.
We're seeing more activities in a rig around Phoebe and it's terrible for me to wish to have four rig.
As you know where renewable energy, but that is the fact that demand around Phoebe is mainly oil related activities.
And one of the assets Youre kind of alluding to that's maybe a bit more challenged than something that takes up too much time, you guys would think about selling right.
Thanks. Good morning, just one follow up for me guys.
Follow up on France do these two contracts you've signed exhaust all your re contracting opportunities there and can you give us a sense is this a new contract with EDF or is it corporate off takers.
That was great.
It's a good off taker very very nimble we had.
Adding up that customer in France.
The previous ones, Sean where with corporates one was.
Surplus profit.
There's a lot of noise in France regarding the ability of.
The government to impose special taxes and stuff like that so.
We're taking our time we.
We're examining still our option.
<unk> is still one that we can.
We can get out of the contract without penalties.
Understood.
The rest of my questions have already been asked thanks very much guys. Thank you. Thank you Sir.
Thank you next question will be from Ben Pham with BMO capital markets. Please go ahead.
Hello, Matt.
Hi, good morning, everybody.
You mentioned in your cost of capital has gone up.
I wanted to confirm how has that changed how you.
The capital structure of how you're going to be financing your projects going forward.
I guess with our cost of capital has gone up everybody has seen their cost of capital will go up I think that we have been punished a little bit more than our peers on on our price or share openly that.
By delivering good quarter over quarter over quarter people will get back.
Two to buying our stock.
But.
We're reacting as everybody else knowing that our total cost of capital I E.
Project Finance, our equity everything has gone up by 200 basis point ish. So so we're trying to adapt and.
Any acquisition that we are seeking thing back in contribution.
Even if we're doing acquisition with our.
The price of stock, we always take the current price of our stock to calculate the potential accretion of the transaction. So always kept in mind.
We have a certain cost of equity in.
And the average cost of capital.
And tried to adjust in our targeted return when when we acquire or when we develop projects.
Okay and then.
I know you also mentioned selling assets.
Practice.
Has that.
Return on asset sales or what I guess, what everyone call it has that.
You're seeing it more.
A lot of cash or equity.
All of those those asset.
Expected return on these asset versus public companies, our price gets adjust very quickly.
So there is a disconnect between the.
The public market and the private transaction always lagging in some ways I would I would say.
How much is difficult to say, but.
If we if we go up.
By 150 to 200 basis points in our cost of equity typically.
Translate to 50 75 basis points in the private transaction.
Okay, Great and then maybe one last one on board.
More detailed one.
The news flow on the B C truck droughts are you are you generally immune to that based on.
Where your assets are located.
Now you've seen that our quarter was not that great coming from BC.
That's the reaction, although when you have very warm summer some hour.
Water basin.
Have some some melting snow in some melting glacier, so that kind of mitigated a little bit the our production versus the the dropped itself.
But no unfortunately.
BCE has been hit by this.
Dry condition.
Good turnaround as you've seen in the last year's BC.
A little bit more volatile than in Quebec.
You have very very good quarter science, sometimes followed by.
Fairly bad quarter and dry spell.
But hopefully BC is due for a good wet here going forward.
Okay. That's helpful. Thank you.
Thank you next question will be from Andrew Kuske.
Please go ahead.
Thank you good morning over the years, you've managed to build out a nice business in France.
Restriction historically has been challenging for permitting smaller land parcels and just in general tougher regulatory processes.
How are you navigating the current environment and are you seeing any change where there could be a potential acceleration of activities in France, and just maybe easier processes around development.
Yes.
Right Andrew there is there is.
There is some <unk>.
Some.
I would say some legal not legal.
Political.
Desire.
Streamlines the process, especially for solar.
Solar we'll get we'll get some.
Acceleration.
Those are all I think in some.
Permitted permitting issue when is still difficult department in France, and the willingness of the politician to standby win.
Is not so strong so I think that there will still be able to develop wind in France.
But solar will be a lot easier to do alone.
And then eventually solar and batteries might also becomes very useful for the French market.
Like I said when will.
We will still continue to develop wind.
But there is definitely more.
Hmm.
More.
Pushback for wind acceleration.
Hoelzel in the legislation then for solar for sure.
Okay. That's helpful. Thank you and then maybe just a follow up.
Given what we've seen with your FX hedges earlier on and just the current levels of some FX spot rates are you more inclined to put capital window into France, and maybe youre broadly.
If you find sufficient returns of opportunities just on a reversion to mean countertrade, you're actually wind up with a pretty meaningful lift on just FX alone.
That was I guess that was a large lock up means we hedged ourselves and <unk>.
Having this.
Huge plus value sitting on the hedge and our ability to actually re contract net adds at around 148 48.
All coming from 170 273.
We thought versus the spot.
It's kind of easy.
Z call right I mean, we.
We decided that we.
148 is still strong.
<unk> level and.
<unk>.
We took advantage of that I was quite a bit of money.
The $43 $40 43.
$43 million of value that just there.
But I don't think we are focusing too much on FX. It just happened to be very profitable.
Do that trade.
That doesn't really change our strategy to invest in in France. The return we're trying to do.
To calculate the return.
Based on its own merit and France.
We always need some money to continue developing in France.
Repatriating cash from France, sometimes can be challenged so if we if we have the ability to recycle some of that capital we were willing to do so.
Also looking as I mentioned, there is a lot of.
Willingness also from financial partner in France too.
Come in.
Fairly aggressive cost of capital to continue developing projects in France in Europe . So.
That could also be.
We said in the alternative for us too.
Yeah.
Increase our president.
We ended the lumping in trends by having a potential partner in Europe .
Okay. Appreciate the time thank you.
Thank you ladies and gentlemen, if there are any additional questions. At this time. Please press star followed by one and your next question will be from Matthew Baidu.
Capital markets. Please go ahead.
Hi, good morning, Congrats on the good quarter, just wanted to start off with a clarification question you didn't increase the guidance for this year. Despite the good results.
That's not sort of.
Relating an expectations about Q4.
Well, we didn't I mean, we didn't.
I guess.
Republished guidance because the guidance that we provided in Q2 and during the IR they are still valid.
Alright.
This quarter, there is a bit of a.
Some timing also on the debt repayments and so.
So the guidance, we felt that we were comfortable with what it was in August I mean, we will see how the quarter. The next quarter goes in terms of production and revenues.
We felt just comfortable staying staying as is.
Yes.
The east is doing great and production BC as you know.
October was still drive, but it's picking up now in November so.
Always difficult to call on one quarter.
It depends also on the level of pricing that we experience I mean, we have benefited from it.
It's softening a little bit into <unk>.
Some of our.
Forecast.
So that's good.
But yes. So the plan is to issue guidance at the beginning of the year and then mid year or two.
Issuing updates.
And then.
And unless something material was to happen obviously.
Okay, Okay got it.
Just wanted to go back to the topic of partnerships.
Asset sales, but just starting with hydro Quebec.
When do you think would be the timeline to maybe move forward on the project with Hydro Quebec.
And the province outside of the Rfps that they are looking to do.
Well.
<unk>.
Yes.
Sooner than later.
It's difficult in Quebec to put go through all the permitting and interconnection delay construction.
Depending where you did love that.
Difficult in Quebec.
Built in winter time, so putting project in service before 2026.
There's a little bit of a challenge some can be done, but then it's definitely more 27 28.
The COPD.
And thats the timeline that hydro, Quebec is looking forward to add new capacity is going to be post 2026, and right now with the CES 2032, although we do through 2032 or above.
So we're positioning ourselves really like to ensure that no net requirement.
And in time I guess whenever.
Hydro, Quebec feels ready to come in and join US I mean, we will be happy to.
<unk> Entertainment.
Sure.
Our partnership at the project level as well.
Typically a project that has been the lump in the north it takes two years to permit in Quebec linked through the Labatt.
But with the announced public and then usually it takes two years to build it.
So four years, starting in 2023 puts you at the best that 2026.
In the early 2027.
Okay. So based on those timelines it sounded like you could find.
On something next year.
Oh definitely we are.
We're working.
Very intensely to secure some project in Quebec, 7000 megawatt is doubling the total installed capacity in Quebec in terms of when that took 20 years to build.
So we will be busy.
Not a lot of neatly fit but definitely.
Opportunity.
And just on asset sales I mean, you just that the French portfolio consolidation.
That helps kind of simplify the structure of that.
I guess, it's two questions. One do you see other opportunities to maybe consolidate your ownership in assets I'm thinking.
The wind farms or hydro facilities in North America.
And then.
Then how do you think about the tradeoff between partial asset sales and and maybe like you said partnerships and franchise, maybe just make the structure more complex again now.
No I agree with you that the complexity of our financial assessment is something that we heard investors, saying that.
Sometimes our financial statement, a little bit complicated because we have.
Joint venture we have some also some consolidation and we have PTC.
We are pleased to have been able to come through the data our French asset.
But it's always.
Compromise.
We would rather keep it.
If we if we think that the arbitrage between the cap rate of Europe in our ability to deploy our.
Our capital to at a higher rate somewhere else.
That's the compromise that we will have to do and.
And in France.
Important to strategically position ourselves to be in control of the operating assets. So we had a partner on operating assets, but not on development assets. So the idea would be to eventually.
To your point you saw cap rates are are good investors are looking at that type of platform. So now we have something different to offer.
If we want to partner with someone and so youre right. It would.
Bring in partners, so sometimes it looks like its more complicated, but if it's a partner for the overall platform.
Really simplifies our ability to grow the platform because we are aligned on the operations, but also on developments.
Both sides.
So we did the same thing in alignment right, we bought back our partner to gain control over assets and then it was putting us in our best position to acquire further assets into a pool.
Got form to in some cases, it's really strategically driven I guess to buy buy out a partner and in some cases just to simplify the structure.
And in this and in this case, we had a willing willing.
Willing sellers.
For all kinds of reason.
Was was probably.
Half year.
To dispose of their investment in France to deploy it somewhere else.
So we took advantage of that alternative and also easier for us being the sole owner to we take the decision on.
Re signing PPA renegotiating, our portfolio and in some cases than having a partner to shared decision so but once everything would be settled and we would know more about.
Our strategy regarding the re contracting activities.
We might consider looking for a partner in France.
That's very helpful and just to be clear.
I guess, there arent any other major opportunities today to consolidate other owner ships.
There are within the portfolio I think you mentioned there are some.
So if you look at our statements you'll see that we have some minority positions in our business. So we're looking at.
When it might not be feasible in some cases in some cases it might be so I think it's important for us to just take a good look at it and see if something can be done.
And then just to add up two trends I mean, it was a greater portion of the I think at the.
<unk>.
EBITDA level that we bought back our minority I think it was a great deal for us because deploying capital on acquisitions in France, it's much harder in a process like environment within the body that their old fashion like we did now I think it was a great opportunity as well. So we'll look at what we have and we will try to find ways to go.
But sometimes you have minority partners that on incentives as well we can force.
Necessarily point them out.
Okay I appreciate the details looking forward to a mark that's it so thank you.
Thank you.
Thank you.
And at this time this is vishal there are no further questions.
Well I. Thank you very much everybody for your time and I always appreciate your support thank you very much.
Thanks, everyone. Thank you thank.
Thank you. Thank you.
Ladies and gentlemen, this does indeed conclude could your call for today once again.
Thank you for attending and at this time, we ask that you. Please disconnect your lines.
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