Q4 2022 Innergex Renewable Energy Inc Earnings Call
Yes.
Good morning, ladies and gentlemen, thank you for standing by welcome to enter Jack's renewable energies 2022 for quarter and year end results conference call and webcast.
Yeah.
Sydney Funny, Yeah. This is John .
<unk> connect is an exhaustive Jimmy tender Sydney object NLC undergrad.
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Thank you Andrew I really wanted to thank you for joining us today.
Like to specify that this conference will be held in English members of the media are invited their questions by phone after this call.
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This call contains forward looking statements within the meeting of that pick up both securities laws.
Although the corporation believes that the expectation and assumption on which forward looking statements are based are reasonable under the current circumstances.
Another question that you rely on Julien. This forward looking statements as no assurance can be given that such will prove to be correct.
Forward looking information contained herein is made that the date of this call and the corporation does not undertake any obligation to update or revise any forward looking information, whether as a result of events or circumstances.
After that they see erupts unless so required by law.
During this call we will refer to financial measures that are network device out there.
The international financial reporting center.
So first to the ammonia first measures section of the MD&A for more information.
Speakers today will be Mr. John Sedan, Chief Financial Officer, who will present Q4 and year end results and Mr. Michel <unk>, President and Chief Executive Officer will review our own purposes on a whole lot of lights.
And now I'll turn the conference over to Mr. <unk>.
Good morning, everyone.
I think a little bit more time than usual today, because I'd like to discuss our.
Financial results, but also the debt structure and the 'twenty to 'twenty five targets.
But first I would like to start with a review of our actual performance versus our 'twenty to 'twenty two guidance as you can see from the table most of our 'twenty to 'twenty, two targets or essentially met except for the production and the free cash flow per share targets.
The loan production is mainly due to exceptionally low hydrology levels and British Columbia during Q4, 2022 but also to lower than expected generation within our three segments compared to our long term average for the fourth quarter, but also for the year as a whole in fact, only our solar facilities.
Ontario, and our Quebec based hydro and wind assets performed at or above expectations in Q4 and in 2022 as a whole.
Revenues adjusted EBITDA.
And adjusted EBITDA proportionate targets or essentially met thanks to the contribution of the acquired assets in 2021 and 'twenty to 'twenty, two and higher selling prices experienced mainly in Chile and at our Texas facilities.
And excited as shown on slide six.
Even with a below expectation fourth quarter, our financial performance posting growth in 2022 compared to the normalized figures in 2021.
Production was up 13% and revenues were up 26% at $871 million compared to the same period last year.
This increase is mainly explained by the contribution of the 2021 and 2022 acquisitions, namely the remaining 50% interest in Energizer Lima.
And so and address the can and Ela in Chile, as well as Curtis Palmer in the U S.
The increase is also explained by the commissioning of the Griffin Trail and Hillcrest facilities higher production from the facilities in Quebec higher selling prices at the Phoebe solar facility and by the BC Hydro curriculum and payments received in Q1 2022.
For the year ended operating general administrative and prospective project expenses were up 29% at $286 million compared with 2021.
This increase is mainly attributable to the 2021 and 2022 acquisitions and asset commissioning as mentioned earlier as well as higher maintenance costs at some of the hydro facilities in BC. Following the floods that occurred at the end of 2021 and the impact of the 2022 supplementary.
Budget Act and friends.
So as a result, adjusted EBITDA for the year reached $585 million, which represents a 24% increase compared to the same period last year.
For the year production proportionate was up 10% revenues proportionate were up 22% at $996 million almost all.
While most of our opinion.
And adjusted EBITDA proportionate reached $696 million, which represents a 20% increase.
The Corporation recorded a net loss of $91 million for the year compared with a net loss of $121 million in 2021 normalized.
The variance was mainly due to the recognition of an aggregate $113 million share of impairment charges in the flat top and Shannon joint ventures, located in Texas in 2021.
These items were partially offset by the increases in depreciation and amortization and finance costs attributable to recent acquisitions and commissioning.
Continuing to the next slide.
For the year 2022, the cash flows from operating activities totaled $430 million, which represents a $148 million increases increased compared to the normalized figure last year.
This increase was primarily explained by the incremental contribution from the acquisitions over the last two years and after commissioning the BC hydro curtailment payments as mentioned the realized gains on financial instruments related to the issuance of green bonds for the Chilean facilities and the clothing of defense Ecuador.
Sure.
And the timing of interest payments for certain D. C project debts in Q4, 2022.
And these items were partly offset by an increase in finance costs paid mainly related to the Griffin Trail and health care facilities commissioned in 2021 and two the issuance of the green bonds and the unfavorable settlement of the Phoebe power hedge during 2022.
The $36 5 million dollar increase in adjusted free cash flow versus the normalized period last year resulted in a significant improvement to our adjusted payout ratio, which amounted to 85% in 2022.
When accounting for the $24 7 million dollar investment into our greenfield portfolio of prospective projects.
Payout ratio reaches 100% in 2022.
So now I'd like to shed some light on our debt structure.
Our key objective is to use an appropriate amount of leverage while keeping a comfortable capacity to service our debt from the cash flows generated by our asset base.
Very typical to the it infrastructure and renewable industry in order to in order to maintain our investment grade rating.
Our debt structure reflects the high quality of our underlying assets and the high number of hydroelectric facilities that we own it.
It reflects also the long remaining weighted average life of our purchase power purchase agreements. The fact that 90% of our cash flows are contracted on a long term basis and that our exposure to rising interest rates is minimal with only 8% of consolidated debt at floating interest rates.
If we start by looking at our total corporate debt, which stood at $1 $3 billion at year end and this includes the revolving credit facility the unsecured and the unsecured loan the convertible debt and also the alterra loans.
So does that is supported by the cash flows from the business, but also supported directly by 19 diversified facilities all free of project debt.
And these facilities are a remaining weighted average useful life of almost 35 years.
68% of corporate debts are fixed rate or benefiting from long term interest hedging agreements.
And we have no debt maturity over the next two years.
No.
Turning to the nonrecourse project loans, they stood at $4 $5 billion at year end and it has essentially no exposure to rising interest rates with 99% of these debts bearing fixed rates or or fixed under a long term hedging agreements.
100% is amortized over a weighted average life of 17 years and is supported by all.
Obviously, a high quality and predictable cash flows.
And the tax equity financing is amortized over the next seven years, mainly repaid yeah. The generation of production tax credits.
The repayment schedules of these nonrecourse project loans are quite aggressive.
Our prison see entirely embedded in our payout ratio calculation.
On a consolidated basis.
So corporate.
Corporate debt and non recourse project loans, the weighted average debt maturity equals the weighted average PPA remaining life at approximately 13 years versus a weighted average useful life of 37 years power assets and when we talk about useful life, we use 75 years for our hydro assets.
C D 35 years for the solar assets from CBD in 30 years from the for the wind assets.
Even if we know that after these periods of time these assets still have valuable market value.
Now, let's talk about our guidance.
We are confident in achieving the growth targets of the strategic plan.
Given our execution track record and Dimitri D of our existing development activities.
The free cash flow per share is a very key metric for us and we therefore reiterate our target free cash flow per share of $1 and one.
For sure on the 2025 run rate basis.
So compared to 2022, we have to bridge, a 29 cents per share gap.
And how are we going to do this I guess 24 cents per share is expected to come from a combination of three things Firstly, the recently announced M&A.
Acquisition in Ontario, which is expected to close in the coming weeks.
Our base business growth, mainly from inflating power purchase agreements setting price.
And thirdly, the already identified and Derisked projects under construction and under redevelopment. So we have 368 megawatt under construction as we speak and.
And on top of that we have 85 megawatts of battery systems.
All of these projects under constructions are meant to be in service by the end of 'twenty 'twenty four and some actually in 2023. We also have 240 megawatts identified projects under development.
So for a total of 600 and close to 610 megawatt that is either under construction or development.
And then five cents accretion per share to come up with the 29 is expected to come from existing advance.
Advanced stage Greenfield.
Developments or new M&A activity.
As concluding remarks, even though our fourth quarter and year really results were lower than expected in terms of production our fundamentals remained strong.
It's important also to note that this guidance is taking into account all of the debt the tax equity and the equity funding required to grow the portfolio and bring the projects under construction and projects under development assets in service and does not rely on any potential rotation of capstone initiatives that could help alleviate the pressure there.
You shouldn't even further.
So on this I will now give the floor to Michel for the quarterly and yearly operational and development.
Thank you and.
Just a funny note I guess, we'll take a rain check on the on the next quarter and the hydrology.
Very unusual to have seen such a bad ideology and actually some weakness also across our portfolio. So.
I would I would think this is just a little bit of an anomaly on a long term forecast, we're still confident on our long term forecast for the for the entire portfolio.
You know our strategy is to diversified.
Through geography technology and at the end of the day, we should have a very stable and.
Predictable long term long term.
Forecast enhanced having secured cash flow coming from our portfolio. So let's hope that the last quarter was not the trend and that we're focusing on our long.
Long term forecasts as we always did.
Thank you for.
Covering the.
The.
The financial result.
To just to go back a little bit where at the end of the year. It's always interesting to have a quick look on what we have achieved in the last 12 months.
Pretty busy in the sense that we have been.
During <unk>.
Utility new facility, we have advanced a lot in our portfolio of prospective a project but.
But we have been also very successful in closing some very good acquisitions that are going to contribute to.
The payout ratio going forward. So we started the year with <unk>.
Acquiring a 50 megawatt Santana at its facility in Chile.
Then we also initiated.
Two battery.
Project in Chile.
One with our existing Salvador facility and since we just bought the Santander is facility at the beginning of the year, we thought that the strategy you had battery there would be very interesting and given the fact that we took the decision early on we were.
Able to secure a pretty competitive price for the battery and hence.
It looks really good in terms of future contribution in in terms of financial contribution for us.
You know we've seen a zone that was mentioning that are in.
In some cases youre seeing some weak production in Chilean solar but.
It's also some curtailment that happens when of course, you're producing in during the day you all know that Chile is a very long and tank country and.
And given the fact that at that come up dessert, it's probably one of the nicest place on her to produce a solar in during the midday, it's creating a little bit of a kind.
Congestion on the distribution system and hence the idea of putting battery.
There, we think that before this will be.
Minimized by a new line.
We'll have a fairly good.
Long fairway to amortize and make good.
Good business sense on those battery so very.
Very happy on that on that aspect.
Also we have conclude on a lot of wind portfolio remember, that's a 332 megawatt.
And that is completing our strategy on portfolio approach for Chile.
Remember that we wanted to have the three technology actually the 14th technology now that we have initiated battery as well so for US. It's important in Chile, you have this small kind of a small utility we have now the ability to secure long term contract and surf corporate.
The contract in the future. We also have been very happy to commission the ton that battery energy storage system in France.
That technology, if you remember coming from <unk>.
A division of hydro, Quebec, so where we weren't allowed to be deferred customer.
To put that new technology on service.
I'm very proud of having been able to secure the PPA for Boswell spring, we'll talk about it this is.
The biggest project for this year.
320 megawatt power purchase net power purchase agreement because it's attorney. It's 330, but then we have about 10 megawatt loss on the on the line to a two two hour point of injection in the system.
Very very interesting project and we are pretty confident also that with the new rules regarding the PTC powder bolt on local content and community.
We think that the Boswell spring, we'll be able to benefit from those two.
It's too early to conclude in banking on those two are great, but if ever.
The up here this is going to boost our return.
<unk> for our Boswell Spring project.
And then at the end of the year, we concluded on a consolidated eating too portfolio one in France.
We bought the the 30% minority interest in France that's.
That was for making a little bit of a consolidation and giving us more flexibility to develop future.
Initiatives in France, and we did also the acquisition of the remaining 37% outstanding share in monitoring the Irwin portfolio, we were really happy with the outcome.
That performance of that.
Portfolio in Idaho and for us it seems to be a logic to it.
Well I guess the simplified the structure and profit from the fairly good cash on cash on on that portfolio, so pretty busy year.
Now if we switch on page 13, you have a map there on our activities on construction and that Vince.
Project.
Our intention is of course to deliver on those advanced project.
In our rig construction will be finalized and construction should be.
<unk> done and <unk> I mean, it should be done by by July .
Well screen, we have started the construction all the finalizing a document and and <unk> are being finalized for our balance of plant.
And EPC construction.
Activities very.
Very bullish on the on this project as I mentioned.
It's.
It's going to be a fast construction.
We're hoping to be in service by late next year.
We are planning for a Q4 COPD.
Working for that for the moment everything seems too to be green light on on that day for us for us to be able to have Boswell intuit.
Late next year.
Palomino are as you know we're working towards the <unk> date, we were hoping to be mid <unk> 25, but it seems that with the congestion on interconnection queue in PGM.
They are having a hard time being able to interconnect to us.
So we well two to date that would be earlier than the end of 2025. So it's hence our guidance for CBD into two in 2025.
But the demand for renewable energy in Ohio.
Still very strong so a very.
Positive on securing.
A good outcome for the price for our price of electricity for Palomino.
So stay tuned, but we are we're heading towards the end of 2025 for Palomino now.
Now if if I.
And the battery storage and some of it all and Santander is remember that Salvador battery storage has been included in the refinancing of our Chilean portfolio. So this will be fairly accretive to our cash on cash once these battery will be on <unk>.
On service right now, we're adding towards something in.
In August to be in service and then San Andres will will be into the by the end of the year. So equipped with the with those two battery we think.
We'll be making good.
Money on the Abbvie trash just to give you a perspective in Chile. These days.
Mid day, sometimes we are even curtailed in the north of Chile.
But in the rest of the day the the electricity run between $90 do sometimes $200 per megawatt hour. So the arbitrage is huge we have not made dollar decision on that widespread but is that spread.
Remain these battery will be very very profitable for us in the first few years until the.
We are.
Going to built a new line to basically.
Minimize these curtailment.
From Tara and Anadarko are likewise, very small addition that we are going to probably start construction somewhere.
This year or early next year, but it's very small increment on our existing facility.
But frontier and San Carlos If you remember, saying how long is this isn't the same river restaurant Tara.
The idea there is that I've said made the time, we need to have a long term.
In order to take the decision to to do those two those are material project together there are over 250 megawatts. So we want to have a strong out.
Oh well.
Uptake or I'm sorry.
To take the decision to start the construction, but it makes sense.
We as we advance also on the permitting of the San Carlos and remember that these would also have a four to five hours storage ability so that would be very good in a market like Chile.
Going to a Y a busy quarter here also on Hawaii.
We've been actually happy to submitted together with equal.
<unk> price increase to the PUC just yesterday.
Material increase in line with what we've seen lately being accepted with the PUC.
We're expecting a decision in roughly 90 days for that so construction is still.
Slow until we have the green light, we're all very old pool that will have the green light equal has supported our demand. So this is a very good outcome, but.
But we will have the final answer by the P. C P.
You see in the matter of 90 days or hopefully Alico Tio is still if you remember we had the consistent.
Case, there so we're fighting that outcome and outcome.
We're not sure where I think we're very positive on it we have gone through the hearings and and all the administrative.
Activities that rely on the system rely on but what we'll see on peer who haul the outcome will be.
France is a is as busy as you know Europe has a has had some great.
Policy towards more and more renewable.
But as you know France is it's complicated in terms of getting all the permit but we're working hard there were had been seeing quite a bit we have had in.
Another three to five project to the hour perspective.
Pipeline, so France is still a very strong market. It's just it takes time as you know to develop project in France, but.
Our initiative that started about five years ago are starting to create.
Create some great opportunity for us.
But I guess that this is the actual.
Vince project and construction activities, but I'm very very excited about the Portland and EV that lies in front of US we are seeing a lot of rfps activities and very happy to report that our Quebec as we said in the in the last call is going to be Super active.
<unk>.
We are going to see a lot of new and future RFP for Quebec.
So and our focus now is to create a lot of the.
Opportunity for US we have had quite a bit of a megawatt of perspective in the last quarter and we our intention is to show you also some more activities.
We're working on four or five a great opportunity to add to our prospective project right now people on the ground and working hard.
Quebec is it's going to be a busy place toward for us in the next few years.
Also we have enter into a joint venture with Krueger energy.
To submit some storage proposal in the Ontario RFP we'll.
We will see its going to be a crowded market for for.
Toward that RFP, but I think we have a nice project to to present, its a little bit of over 100 megawatts of storage.
In the chat in a county in Ontario, Saskatchewan has announced also in RFP.
We've been busy in Saskatchewan in the past so we recycling some of our project to submit a future RFP in Saskatchewan.
Also new Brunswick has announced a 200 megawatt win.
RFP so we have some good.
Project also in New Brunswick.
We see it hasn't announced anything but as you as you know my view is that VC will wake up one day with a very big headache, and other too decarbonize. The economy, so sooner or later be see we will see some more activities and of course, when we're going back to the U S. We're seeing.
A ton of RFP activities.
We are answering calls with our project in Colorado called Mylohyoid, that's going to be 150 megawatt solar coupled with batteries as an option.
Very competitive very crowded rfps, but I think we will see more activities in Colorado also we'll be submitting some some proposal with what tomas to potential.
Ryan Thiago light and power has also a request of interest.
And we will be submitting our Wap tomah in.
In the project been also active in the Minnesota area, creating another potential project around 300 megawatt solar so as you can see our teams in all our.
Country and market are very busy we are seeing a lot of activities and this is what makes me very positive towards the future a lot of demand for renewable energy are going to be.
In front of us and our teams are on the ground ready to answer and creating a lot of opportunity for us in the near future.
So I guess that on final note I'm very happy to come back in acquisition in Canada.
You've seen in our announcement on the so Cincinnati solar portfolio at 60 megawatt with good PPA.
Very happy to have had the opportunity.
To be successful in an acquisition in Canada. That's heading also on the geography, Ontario, it's not a market that we're very present, we have some solar as you know and some hydro.
So adding solar in Ontario is a good diversification on our portfolio. So on that I would open up the question.
Thank you ladies and gentlemen.
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Your first question comes from Rupert <unk> from <unk>.
Please go ahead.
Hi, good morning.
Hey, good morning.
Sean if I can start with you on our debt structure and cash flow targets with 68% corporate debt fixed rate how much of a headwind are you seeing from higher interest rates. This year on your caf deeper share and can you talk about what's baked into your 2025 targets.
So we have about 400 million that's unhedged.
On the corporate facility so.
Right now we're expecting rates.
That we I mean, we've expected rates as we've seen them and then I guess since November so it hasn't moved much.
Our port but of course, if rates were to increase a while you can do the math at grade and rehab every 1% it would be a 4 million headwind.
<unk> to us.
Okay.
Act into your 2025 target as far as the interest rates go.
Oh I can get back to you with the exact figure in Rupert.
Yes, I think we have is we have lowered a little bit of the interest rate dollar expectation is short term rate will ease past 2023, 2024, but we can't even remember how much we.
It's been counted.
Some of them as much.
Relying on hedges versus fixed rate and can you give some color on the mechanics of the hedges and how those maybe the settlements are feeding through to operating cash flow.
Yeah. So when we have hedges on interest rates depends on the base rate for the underlying debt. So in some cases, it's a it's a.
Labor.
Some cases SBA, so we will swap.
And the payments on the monthly basis, usually like selling on a monthly basis.
So you would expect or the yeah.
And Michel if I can ask you about your battery systems in Chile, how much confidence you have that they will be in place by the timelines you gave us I think all I guess for the first one.
And give us a little more color on the market are you seeing many other batteries coming in close to you is there any chance that you're going to see enough storage capacity to to move the.
The market price of the arbitrage opportunity in the next few years.
Yes, okay.
Actually we have inverter being already delivered on site.
And the best container are coming starting mid March so very confident at Mitsubishi.
Our commitment and actually we were hoping to have them.
<unk> delivered.
At the beginning.
On <unk> it was supposed to come in November and December and Mitsubishi Mitsubishi is exposed to liquidated damages on not huge but.
It will be.
Liable for liquidated damages the have already and all that.
So the half this motivation to continue delivering.
The containers, but to continue to the first wave of container.
Due to come mid March so we're very confident that our August .
Unless there is a bug on on commissioning. These these are battery, but we think that Mitsubishi has the experience to be efficient in the commissioning. So that's why we were aiming at August , but we might see for your.
<unk> ability.
And for.
For St Andres.
The container our schedule.
To come later during the summer time, so <unk> by the end of the Q4 is still a.
It's still our target and Mitsubishi Hasnt gave.
Give us any new date. So we think that this is a this.
This is the this is fairly firm.
That being said are you seeing.
Never know with with project, we may be delayed a few weeks, but we're very confident on this and to answer your question well the.
There was a line that is supposed to be built from from the north to get to San Diego and this line is supposed to be commissioned in 'twenty eight 'twenty nine.
But you know given the difficulties to build new lines in our in anywhere.
In the World, We think that this will not been between before 2000 32031, but nonetheless, even if that line is is built and giving you some guidance on how profitable. These battery can I can't be in Chile, and we were the first to initiate this this activities.
And we had secured the price it was a battery.
Probably 20%, 25% lower than the price of today. So there's not that many new announcement on battery in the north of Chile, but I would say that these batteries are not necessarily relying.
On a long term basis on this.
I'll be trash.
We wanted to have a portfolio approach as I mentioned in Chile.
And right now the long term price for electricity in Chile.
He is going to average between 55 and $60 and being fully indexed.
The idea is to build out of that.
That amount on average.
You could probably probably produce solar around 25 to 30 when around 50, new hydro around 65, and then battery around 80. So if you mix all that that you end up with a 55. So this is why we are talking about portfolio approach. So the battery is just an aldi.
Sure.
<unk> of the puzzle for us to be able to sign long term contracts, but we will be taking advantage of the really high volatility that we're seeing right now.
And then if this whatever the T fade will embed the cost of its battery into our calculation to.
Basically signed long term contract. This is how we think fortunately.
Great. Thanks for the color.
Your next question comes from Sean Stewart from TD Securities. Please go ahead.
Thank you good morning.
Good morning.
First question.
This is typically the period, where you guys could give 2023 guidance and we see that that wasn't provided.
Any context on maybe your reluctance to give guidance for 2023 year should we just think about it. This is the 2025 guidance is intact and that's where we should orient our thinking around.
Yeah, I'll, let John answer, but you're right I mean, our focus and I don't want it sounds like.
Like a famous politician in Ontario, a buck for beer here.
Buck per share this is our target for 2025.
I must say that you hear us talk about Basel.
Boswell being a very strong contributor for our cash flow.
And Boswell is going to come in 2020 for the battery are coming late also in 2024.
And this year, we don't have a lot of new <unk> so basically.
We'd like to make the bridge of.
This year towards 2025.
And of course, the big increase in the cash flow per share is coming in the year of 2000 late 2024 and in the.
Run rate of 2025. So this is why we haven't.
Put a lot of in phases in 2023, if things are good and in a sense. If we have an average a year and we don't.
We don't suffer any any bad situation.
We should do better in terms of payout ratio than a 2022.
Slightly better as as you've seen because we have done also some acquisition, but our main target is really 2025, we want to.
Provide you guidance on and build our strategy to have a dollar per share by 2025.
There's no hidden agenda in not providing guidance in 2023 is just that it will not be materially.
Very different and then 2022 in a sense it.
We're hoping to improve on the payout ratio, but not super materially because like I said the big contributor are coming later.
That makes sense, okay. Thanks for that.
Last quarter, you had mentioned your your thoughts around funding, we're evolving given pressure on the share price and you'd mentioned that asset recycling as it is more.
Front of front of mind in terms of.
Raising capital and you guys have sold off some currency hedges any any broader thoughts on asset sale opportunities over.
Over the near to midterm to.
To bolster your funding position.
But we said that.
I don't want to create a.
Huge expectation, but we.
We said that.
A transaction like one of our peers in France might be consider.
Depending on the capital cost, we think that Europe .
Even though the cost of capitalized going up is still lower than North America. So there's maybe a little bit of App, we're trying to do there.
You've seen that we have acquired a 30% on our minority interest in <unk>.
In the portfolio in France, but the structure was a little bit complicated it was true.
A corporation in Canada, So it was not super clean for potentially a European.
Partner. So I was also part of the strategy to basically clean up the structure so that if.
If we are consider reading and then an investment from a European based.
It would be a lot cleaner.
<unk>.
Multiple on portfolio on prospective project in Europe or <unk>.
Multiple on value that what we are seeing in North America. So.
If we wanted to create a little bit of.
Of value added this is probably where we would be heading and maybe if I can add there.
Value added also to not only do we recycle the.
One asset but to recycle a participation in a platform like developing platforms are are very sought after and that's something that we may entertain obviously in 2023.
That makes sense.
Okay. That's all I have for now thanks very much guys.
Sure.
Your next question comes from Nicolas Boy, Chuck from Carmack Securities. Please go ahead.
Thanks, Good morning, a little bit on earlier on the M&A opportunity would be appreciated just interesting to hear that the Ontario acquisition was kind of to get you into new markets.
Is that the strategy moving forward is there a specific.
So shopping list either markets or technology.
Technologies that you'd be looking at there.
Well, we'd love to we've been.
Successful in buying hydro if you remember with Curtis Palmer, we'd love to be able to buy hydro live it.
It tends on the price and it depends on the location but.
It's always interesting we if there is some opportunity there we are always very interested especially if there's some.
I guess.
Repair or upgrades on Idaho, we've been pretty good in doing this over the years. So we could probably have the value added and can those type of projects, but nowhere, where we're looking to opportunities that makes sense and as you know we're using M&A more specifically to help us bridge.
The pressure on our payout ratio, while having a decent return compared to de risk and taking advantage of the diversification also on Geography's always welcome.
There is all kinds of opportunity in South America as well so.
We're mindful of our existing position, but as our portfolio grows in and an.
And our <unk> are coming in we may still have a little bit of room to look into South America as well.
Europe is difficult.
Nick in terms of cost of capital and you just heard me, saying that the.
The cost of capital in Europe is probably a lot lower than.
What we can see in North America, and certainly a lot lower than what we can see in South America.
Okay. That's great. Thanks, and just on South America as a quick follow up would it be more expansion in Chile or could that actually become almost a platform for you to leverage into other attractive regions.
You're right I mean, we have now a strong presence in in Chile, We had a very good team we were getting stronger there. So yeah. It could be a platform to look into other market that being said, we said that.
Peru has always been on our radar, but right now it's a little bit in terms of.
Political.
Problems, so we would be very careful.
On that market.
Said that also Uruguay might have might have some it's a small market, but very very stable with good opportunity on long term PPA. So that might also be an interesting market, but argentina or Brazil.
Colombia are quite.
We don't we're not very comfortable with those market. So.
<unk> Uruguay.
It might be some some target, but like I said payroll is a little bit complicated these days, but there's still opportunity in Chile that makes sense for us.
We could act.
Awesome. Thank you.
Okay.
Your next question comes from Nelson <unk> from RBC capital markets. Please go ahead.
That's great Thanks, and good morning, everyone.
Hello.
Hi, first question relates to on the Ontario Solar acquisition could you just provide a bit of background on that acquisition I presume. If it was a competitive process and are you expecting to realize any synergies there and.
Okay.
Just wondering what the strategic value.
The U S from those.
Those assets or are there opportunities to add batteries are there yeah.
Yeah there's.
Ran at very high for a poor ISO so therefore might not be as competitive but down the road it might change.
Funny enough that that region is really interesting in decarbonising there.
Their economy, so send me actually.
The city.
Office to develop economies develop and reach out to us and they have great initiative in the in the area as you know it's a heavy industrial and these are part of the war so theres potentially some interesting development in the future in that area, but yeah, we could probably also help a little bit on the <unk>.
On the operation side, we already have some activities in Ontario, but I guess the data the quality of the cash flow that we were also looking into diversification solar in this part of the of the country.
We have no no exposure so both to the quality of the cash flow upfront the cash flow for at least 11 years with what we.
We're interested in and the diversification.
And being present in that in that.
Area like I said.
Present, a lot of opportunity to decarbonize the heavy industry.
There will be potentially talk to talk about our hydrogen in these nicoletta.
Neck of the wood.
Some.
Like I said heavy industry that might benefit on the long term so it's diversification having.
Our present in that.
Area of Ontario is something that potentially on the on the future development might help.
Okay. Thanks for the color and then just moving onto Hawaii. So obviously you started off with four projects are cost of increase for.
The projects, you're moving ahead with our your <unk>.
Submit a new PPA for our PPA price for.
One of the projects Halley.
I don't know.
I'm struggling with that Nelson as well highly buoy me, but it's not that he entered try though [laughter].
But you mentioned that you have canceled the contracts for two of the projects right. So you're obviously looking to move ahead with few of them and you've canceled the project for the other two.
And I think in your.
Your MD&A, you mentioned that you're cancelling two of the projects because of higher costs because of cost escalation.
Can you just describe or give a bit of color.
To like obviously costs have increased for all four projects why are you sticking.
Sticking with two and counseling too.
It's a good point.
I think OE was where more advance and we had initiated with equal.
A renegotiation on the price.
But it took a long time and equally is doing a great job in the sense that they cannot accept.
The price increase in the range of over 50%.
Slightly so they're they're they're going through all our assumption from the day, we were bidding towards what happened in the <unk>.
Supply change in inflation, so they're working diligently and takes time.
And then you have probably 90 days at the PUC and then why we haven't that's why we have decided to get out with equal.
Basically I agree that we could cancel can and barbers point in the interview that RFP three was coming and we could not submitted these project in RFP tree, if we were still under the contract so.
Together with equal we decided to cancel the existing PPA because the likelihood that we would have been able to negotiate with them going through <unk>.
PUC and then.
If something was wrong, we would have.
So we missed the opportunity or the window to bid into the RFP tree. So all the assumption and even the PUC.
Spectation onto prices.
RFP tree is much higher than the historical price RFP, one speak too. So we thought that we had the better chance to rebid actually these project in their RFP tree to create a little bit more value for us. So that's the reason behind it.
Until you have the certainty on the repricing your existing contract is still alive. So we would've been borne by the obligations of the existing contracts as well on the Cana and barbers yeah. So it was a it was a.
More interesting too to terminate them without penalty and rebid than it to incur potentially a.
If you see.
Negative decision from the PUC and remain with these ppas in place.
NPI why we have kept it to two.
To stay.
Stakeholder have well twice.
Stakeholder have had the ability to challenge. This in court the PUC decision on the EPA, So having that EPA I think we can renegotiate down the road that location is very desirable for eco so they were willing to support.
The existing PPA and eventually some price increase through the PUC.
But the I would say that if were.
If we if we win in court.
Then the P. The EPA would be.
I guess protected for.
A future.
Challenge. So that's why we also kept the <unk> because we have invested in the permitting and the <unk>.
Process in court.
Good reason.
Okay. That's great color and then just one last question moving to <unk>.
As well so can you just give a bit more color on how that project will be financed obviously tax equity is involved are you using.
Nonrecourse debt and I think you mentioned that.
How about $40 million U S of.
Sponsor equity or your equity as has already been invested.
Yes, the totals that make a very long story, but.
Having the ability to have the back leverage because this is a 30 years PPA, we were happily surprised to see how.
Banks and a half.
Those are some some structure.
We could leverage it up to 88% to 90% roughly.
About 90% 90, 90% so hence if you make the calculation our equity contribution there is just over $50 million on this case was slightly over 50.
So very actually very happily surprised we've already committed and invested they told me they drawn under the revolving credit line for a large part of that as we mentioned in the press release.
Back in January .
Yeah.
So there's no more equity.
Hum until the the financing is due so we're still investing a little bit of money.
Through L NTP and advancing the construction stage, but as soon as the financing will be done.
We'll be able to actually recapture our equity because we're.
We're going to have the ability to have the equity being contributed at the end so actually one of the first draw from the financing will.
Will enable us to recapture the equity that we already have put in.
The range of $460 million I think telling the forecast so and also the interesting thing is that it does not include any potential upside from.
Benefiting from a 10% adder to the PTC. So if we if we will see the ruling.
Still the delay coming out, but if this works it's going to be a great.
Great outcome also for Boswell Yep.
Go ahead, Im sorry, whats the split between tax equity versus back leverage debt and that 88% to 90%.
Yeah. So.
Tax equity is roughly $2 90 and back leverage 190.
Yeah.
Yeah.
Our fleet a little bit over that.
Bank leverage will be close to 200.
Okay. Thanks.
Alright, thanks for all the color I'll leave it there.
Your next question comes from Ben Pham from BMO. Please go ahead.
Hi, Martin Hi morning.
I wanted to go back to your comments on 2023 and I wanted to.
Clarify when you when you say you don't expect much change.
I'm guessing you're referring to the free cash flow per share Patrick Yeah, Yeah. Yeah. Yeah. Yeah. Yeah of course, we will have more EBITDA. There was an increment right because it on free cash flow per share because of acquisitions, but as Michelle mentioned I guess the largest portion of the increment.
We'll come out of the.
Boswell and the other <unk> that we mentioned on the <unk>.
So.
There's a there's a an improvement from 2022.
But then also it depends on that last part of the plan if the M&A. The other M&A comes in earlier than later than May be the increment would come in also in 2023.
Okay.
I think I think if.
You could put out some.
At least directional benefits for cash flow into 2023 of acquisitions on all the other.
Keith you mentioned and hydro conditions well below.
Does that help with recovery.
What about some of the maybe the headwinds then because I just I would just thank you for your cash flow should be up quite a bit in 'twenty three where those two drivers is there maybe some headwinds that I'm.
I'm not picky about market and then we don't want to create some some some some uncertainty on this Ben is just that.
We've been burned than last year, and having seen the bad hydrology that we've seen in BC.
So we just want to be a little bit more conservative in and of course, when we're looking at quarters and quarter, it's difficult to.
There's so many variables as you know we didn't want to put ourself to too tight.
There are some some moving pieces also on the.
The exchange rate the U S exchange rate it.
It seems to improve so we might see a little bit more.
Improvement on that sense do but.
We'd love to see a good year in terms of our long term forecast that would be very welcome.
Last year was difficult that's why we're just a little bit more.
Cautious.
On that aspect, but.
I mean 2000 trainee tree if things are right.
We should see an improvement as you were mentioning.
Okay that makes sense and are you able to.
It's not an easy calculation like what.
Have you assumed long term average for 2022, what what do you think your payout ratio would have been.
<unk> been good [laughter] because we.
We haven't done that calculation, but it would have been a lot better yes.
Okay got it.
Got it and then maybe.
My last one.
Update on on it.
Not necessarily equity needs, but you had that <unk> 5 billion.
And I Wanna Investor Day, and it sounds like Boswell you can take on a bit more debt if monetize some items in there so is that.
Does that amount right now.
Go for it.
Probably.
A little bit lower and as.
John has alluded we already have advance on the contribution from M&A and.
So we might not have to be that.
Hum.
I would say that I wouldn't say aggressive but.
We might not need that.
That much money.
The transaction makes sense and they are accretive on the long term value as well so we might.
I know that we have had some.
Pushback on this.
From Investor and you guys aren't on our forecast of saying that we will need.
Equity to complete our program.
Again, if you if you believe on this dollar and perhaps.
Going forward, even more cash flow per share that's a huge accretion in terms of of cash flow per share.
And I think that if we are delivering on that path and and co beyond 2025.
On that same same path I think were creating a lot of value and it's a mix of good M&A and being also.
Hum.
Good on creating value on our pipeline of development and.
Executing on these pipeline to create value and then put project on <unk>. So it's a good mix, we always said that.
If we wanted to stay with the dividend.
We have to be created a little bit because we want to grow we want to grow fast.
And of course, if we if we grow and we invest in in our pipeline of new projects. This year in our budget, we're talking about $36 million of.
New money going towards our pipeline. So it's fairly aggressive in a sense that if we're successful in this endeavor were creating hopefully a lot of value on the long term.
And using a very very pointed and.
Acquisition debt.
Have a focus on good quality.
Project.
I think it's a good recipe and hopefully we will be delivering on this the onerous. It is on us to deliver on the plan and and comes into view in the Investor that our plan is as strong.
And this is what we are going to focus.
Okay. Thank you.
And.
And then I guess just.
Approximately like if we have like worked through the long term average in using just a very rough average.
The pricing range, obviously, obviously it depends on which area you produce but.
We'd have probably something more than making the $40 million to $50 million more.
Revenues, if we hadn't hit the long term average.
It's a rough estimate.
Okay, I don't quote me on it.
Okay. So quite.
So quite quite significant that okay. Thank you very much.
Your next question comes from Matt.
From a capital markets. Please go ahead.
Hi, good morning.
Good morning, I just wanted one.
Just wanted to go back on the call.
No.
Sort of financing.
Liquidity is going to be a bit tighter now pro forma the alterra acquisition. So.
In terms of capital recycling can you provide a bit more color on timing and what do you think is more likely at this point the development partner, just straight asset sell downs or maybe a portfolio or sell them.
Well like I said these things can take time.
Even if.
We we wanted to do it right away.
Probably closing with being Q3.
Most likely.
And like I said.
We wouldn't like to sell hydro, even though theres great value in Idaho, we.
As you know we love to have the diversification and hydro is not easy to build so hydro wouldn't be a first on the line.
Like I said, if you look at the cost of capital around the World Europe is probably the lowest and they're also very willing to pay for a premium for platforms.
So I think that.
I said it enough.
There's not that many.
Portfolio that we have that fits those criteria.
Okay.
Quite clear.
And just talking about Quebec.
So I mean, the hydro, Quebec cancel their rfps that were supposed to be launched last year.
And I think they mentioned that they are going to focus on maybe a new mechanism to Uh huh.
You know about three to four gigawatts of new wind.
Through the end of the decade can you provide any updates on <unk>.
Maybe negotiations, you're having with them and what do you. If you think this development is good or bad for you.
No I think it's a great.
It's a small setback, but I think the strategy is better I think that hydro, Quebec wanted to make sure that they are providing guidance on where they can and to interconnect the new project at a reasonable cost and.
At a reasonable timing so.
Their focus on trying to bring the first wave of project can being interconnected quickly and then the second wave will take little bit more time.
In developing <unk>.
Material project in Quebec or anywhere in the world.
It takes roughly especially in Quebec, you have winter. So it takes at least two years to build projects and transmission line upgrades and new expansion can take 345 years. If you include the permitting so that's why hydro, Quebec, you need needs that energy.
Quickly they would love to have energy by 2026, 27, so hence there refocused.
On saying and providing.
Our industry to places where they want the the energy. So we we've been proactively thinking about this and trying to have our best estimate where hydro Quebec.
It would be more interested in having a new early interconnection and that's how we have been focusing on our.
Energy.
The best.
Estimate that we have is that they are going to produce this this map of the area of interest.
Probably by the end of March beginning of April and from there. They are going to probably provide six to eight months nine months for the industry to prepare bids.
So that's my best guess, though of course.
This is just my personal estimate.
<unk>, but it's probably the case they may also.
You want to.
Have some RFP, but potentially also some direct negotiation with some potential.
Partner, they've done that in the past though.
We might benefit from that as well we are certainly are in a good position to take advantage of the boat strategy.
Okay.
Just a final question on this so oh.
I guess that the parts of a hydro, Quebec CEO doesn't really change anything for you in your role in the growth of the market in the province, but based on what you are saying maybe F.
On a project.
Deloitte until next year and see how they won't be before 27 or 28.
Well like I said, it's difficult to have new project, maybe some might be might be able to be in service in 2020, but if you do the math. It takes two years to permit and two years to build so very very difficult to do something.
Before four years, yeah. So if they provide the greenlight by let's say the end of this year you had you had.
Four years your 28 <unk>.
27 means end of 2006 is stretching very stretching.
Okay got it thank you very much thanks.
Thanks.
Ladies and gentlemen.
Any additional questions at this time. Please press the star followed by the one as a reminder, if you're using a speaker phone. Please lift the handset before pressing the keys.
Your next question comes from Mark <unk> from CIBC capital markets. Please go ahead.
Hey, Mark good morning, Thanks for fitting me in.
Yeah just on that.
The dollar one of free cash flow per share, which is the same number in your Investor day. Since then you've announced some tuck in deals that are accretive boswell financing looks a little bit better why would that not move where the transactions that you completed already kind of contemplated in the dollar one in terms of M&A driven growth and anything changed in terms of financing.
Okay.
But give us a break.
We started from roughly 50.
Two years ago, and now we're doubling that.
I'll take a.
Wow.
If we if we can do better we'll do better, but I think it's 50% increase in less than three or four years is.
Is not bad as a growth.
On that ASP and Youre right Mark rates. Some M&A was was in the plan, so where we're doing the M&A that we work. So we're hoping to do we're almost complete in that in that sense, because we only need like four.
Four five cents more of them they need to complete the plan and the other factor also that we need to think about it is that when we did the plan our share price was higher so it's higher prices a bit lower now so we account for that as well so theres a bit of a dilution effect also.
Cause of the share price, but.
We're trying to beat the plan, but as Michelle says I guess, if we can track on it and get the Buck of share.
In 2025 run rate that would be that'd be great.
The good thing I think is and I guess.
Paraphrasing myself, but they get like we have less and less reliance on M&A to achieve the plan as we stand today compared to like a year ago or two years ago.
Understood that honestly, it's a much better number than where we stand today or a couple of years ago, I'm, just trying understand whether or not the announced transactions were additive or kind of already contemplated. So it seems like there sort of contemplated already.
Last question for me just on.
When you think of what the proceeds from a potential asset sale is it all the fund growth or would there be some deleveraging or are you comfortable with where that stands right now I'm sure I understand what would be ultimate use of proceeds from potential asset sales.
Of course, we like to have a little bit more.
Margin on the debt side.
We're committed to keep Fitch so.
That cell recycling with could probably go towards lowering the volume they would sell the funds from operations right. So you get like a nice amount upfront, but you need to consider to keep.
To keep the ratios are in good checks. So yes, there would be the application of some of that funding towards towards reducing the debt.
That provides a little bit more flexibility. This revolver as you know our market is very flexible so.
We're using it.
Sure.
It's always nice to have a little bit of margin on that aspect to it.
It helps when you.
We could we can make small acquisition tuck it up and then.
Part of their part that financing there for a while and we have also due to you know to look into where refining some contract.
BC and in Quebec. So there's there's also like as I was saying there is theres quite a bit of a facility supporting that revolver that potentially could could be.
Put into a project finance and depending on the price of the price of the electorate.
The yield.
On such a thing that we might consider flipping.
Flipping some of our assets into a nonrecourse.
That that aspect would help on Fitch, because then they would not be record recourse on the corporate level. So that's another alternative for keeping a good a good rating for us.
Okay. Thanks, Michelle Thanks, Sean.
Thank you.
Mr. <unk> there are no further questions at this time.
So thank you very much everybody and we'll see you in a bit in inmate.
Yeah. Thank you everyone.
Ladies and gentlemen, you may now disconnect your lines.