Innergex Renewable Energy Inc. Q1 2023 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to <unk>.
2023 first quarter results conference call and webcast.
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The next question.
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I will now turn the conference over to Jack <unk> Senior Director Communications. Please go ahead.
Thank you Hello, everyone and thank you for being with us today.
Like to specify that this conference will be held in English members of the media are invited to ask their questions by phone after this call.
A presentation supporting today's discussion is available as we speak on the home page of our website at <unk> Dot com.
This call contains forward looking statements within the meaning of applicable securities. Although the corporation believes that the expectations and assumptions on which forward looking statements are based are reasonable.
Under the current success senses listeners are cautioned not to rely on duly although looking for on these forward looking statements has no assurance can be given that this will prove to be correct.
Forward looking information contained herein is made as of today.
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 occurring after today's hereof, unless so required by law. During this call. We will refer to financial measures that are not recognized according to international financial reporting standard.
Please refer to them as far as section of the MD&A for more information.
Our speakers today will be Mr. As Occidental, Chief Financial Officer, who will present Q1 results and Mr. Michel Letellier, President and Chief Executive Officer will review our personal.
Personal line right.
And now I'll turn the conference over to Mr.
Alright, Thank you, Kevin and good morning, everyone.
So before we start with the actual Q1 performance I'd like to do.
On January one.
The Corporation revised the presentation of its consolidated financial statements to enhance their relevance to readers.
<unk> tax credits or Ptc's previously recognized as other income had been reclassified directly below revenues to better represents the nature of Ptc's as income arising during the corporations ordinary activities.
The generation of electricity.
In addition, so it ends up totals have been removed from the consolidated statements of earnings and an operating income Subtotal was included and as a result of these changes sort of in the non <unk> measures have been amended as follows.
PTC is all now presented directly in revenues and production tax credits and in adjusted EBITDA, along with the realized portion of the change in fair value of power hedges.
Other income related to Ptc's has been removed from the revenues proportionate and adjusted EBITDA proportionate measures.
And proportionate measures now include only interjects shares of revenues and production tax credits and adjusted EBITDA of the joint ventures and associates.
The Corporation also revised the calculation of its free cash flow and payout ratio measures to exclude the prospective project expenses.
These amendments to our measures aimed to increase the relevance of the measures, allowing investors to better understand how operations contribute to funding the corporation continued growth and dividend policy.
The revised measures also enhance the comparability with current industry practices.
So now on the slide results as shown on that Slide the corporation posted growth in revenues for the three months ended March 31, 2023 compared to the last if you go to last year, despite exceptional and unfavorable weather conditions.
Production was flat at two point speed gigawatt hour in revenues and production tax credits were up 5% at $219 million compared with the same period last year.
This increase is mainly explained by the contribution of the acquisitions of Ala and <unk> St. Maggie facilities in Ontario, higher generation at the critics bomber facilities and higher spot prices from the Chilean facilities higher production from the U S wind facilities and higher production and the impact of new power.
Purchase agreements in place at facilities in France.
But these items were partially upset by exceptionally low production at the hydro facilities in BC due to drier weather and the BC hydro curtailment payments that we received in the first quarter of 2022.
The lower production from the wind facilities in Quebec, and loop irradiation in setting prices and higher economic curtailment at the Phoebe solar facility in Texas and at the solar sites in Chile.
So for the three months period ended March 31st operating general administrative and prospective project expenses were up 30% at $75 million compared with the same period last year. The increase is mainly attributed attributable to the acquisition of <unk> and the impact of the 2020 to supplement.
Sir Your budget Act and friends.
These items were partially offset by lower maintenance cost at some of our BC facilities and lower operating expenses at the solar.
Chilean facility.
As a result, adjusted EBITDA for the quarter reached $145 million, which represents a 3% decrease compared to the same period last year.
Revenues in production tax credits proportionate were up 4% at $224 million and adjusted EBITDA proportionate reached $148 million, which represents a 4% decrease compared to the same period last year.
The Corporation recorded a net loss of $13 million for the three month period compared with a net loss of $35 million for the same period last year.
Now on the next slide slide <unk>, the trailing 12 months.
And at March 31st.
Corporation generated free cash flow of about $136 million compared with $155 million for the corresponding period last year.
This decrease is primarily explained by a decrease in cash flows from operating activities as I discussed above and an increase in the interest paid mainly stemming from the additional indebtedness to finance the acquisitions and the construction activities.
An increase also in maintenance capital expenditures.
The decrease was partly offset by the incremental contribution from the 2022 and 2023 acquisitions the increase in merchant prices at certain USA and Chilean facilities and it and the decrease in free cash flow attributable to Noncontrolling interest of the BC hydro facilities.
The decrease of $19 million in free cash flow resulted in a payout ratio of about 108% for the trailing 12 months ended March 31, compared to 89% for the same period last year.
So on the next slide I'm, bringing back the slide on our indebtedness so our total.
Total indebtedness.
Amounts to $6 $1 billion at the end of the first quarter and.
And it's important to note that these loans have little exposure to rising interest rates.
With 92% bearing fixed rate or are fixed on their longtime hedging agreement and also 100% of the project loans and the tax equity financings are amortized over a weighted average life of 16 years and are supported by high quality and predictable cash flows what's important to note undecided.
That interjects facilities.
Have a useful life.
Far exceeding the current amortization period of the existing debt.
So when we if we were to amortize our debt on a straight line basis over the useful lives of our underlying assets to free cash flow and payout ratio for the trailing 12 months ended March 31st would have been up $160 million and the payout ratio would have been 90%.
That's important to note because we can refinance debt capital structure overtime and.
It's a better reflection of our capacity to generate cash flows over the long run.
Now I would like to take a few minutes on the next slide.
To shed some light on the weather situation multi surely in BC.
So we've done some analysis and we analyzed the past four decades averages.
Hydro metric data collected from water survey, Canada stations.
And these observed historical flows ever strong correlation with the hydrology of many of our hydro facilities in BC.
On the site. So it does that hydrology up 2022, that's the Green line that you see.
End of the first quarter of 2023, so the yellow lines for the first quarter deviated from the last four decades monthly averages. So the blue bars on the chart and this has significantly impacted energy production basically more water than what can be turbines was received in June and July 2010.
And very dry conditions were experienced in April and September October and November 'twenty, 'twenty, two and especially in February and March of 2023.
We can note from the graph that April 2023 trend gets closer to historical average.
And also the historical data that you see on the right side of the graph seem to demonstrate an upward trend in annual average flows over the last four decades, so small trends, but yet positive.
According to this graph here 2022, and the first quarter of 2023.
I think could be considered as an anomaly.
We can be hopeful that a return to the mean is in mother Nature's plan.
So that's give me.
I'd like to give you an appreciation of our earnings power and so this leads me to talk about.
Normalized.
Figures so.
If we are assuming 100% of long term average production.
That could be that would have been met.
That would give us like a normalized view of our numbers. So we excluded from the.
[noise] analysis, our activities in Chile, where our lower production is mostly offset by a better pricing environment and therefore has little impact on free cash flows, but as you can see when the LTA is normalized revenues and production tax credits and adjusted EBITDA would have reached $244 million.
And that $170 million, respectively in the first quarter of 2023.
On a trailing 12 month basis.
And with only the first quarter of 2023, adjusted or normalized for 100% of LTA.
The free cash flow would have increased by $21 million, resulting in a 14% point improvement to our payout ratio.
From 108% to 94%.
On a trailing 12 months with all four previous quarters normalized for 100%.
Long term average the resulting payout ratio would have been in a range from 72% to 77%.
As a concluding remark, even though our first quarter results were lower than expected in terms of production. Our fundamentals remained strong and we remain confident that our production will improve over the coming quarters and I will now give the floor to Michel for the quarterly operational and development review. Thank you.
Thank you.
It was an extensive press.
Dentation on I hope that you guys can appreciate.
The explanation on the long term average and the.
Normalized resolved so we although we were sad or well, it's hard to be had or snappy, but it's it's not.
Interesting to have two bad quarters in a row.
As you can see we think that long term average.
We will come back and then we'll have a much better results. So let's hope that mother nature will cooperate so far April has been a little bit weak still in the west but April is really strong and we're hopeful that the long term average NBC is coming back.
We have been busy this quarter again I think it's on page 12, you can see the three main activities.
I have actually signed and start the initiated the construction and Boswell. This is a 3300 30 megawatt.
Wind facility under a long term PPA of 30 years, so it's a.
It's a big project for US a very interesting cashflow will will come from that project. We are confident that Q4 2024 is our <unk> target date, we are retiring debt.
That date construction that started as I mentioned GE.
GE is all aligned to deliver the equipment and so we're confident that the state will be met.
Although.
Construction there is there still could be some.
We also have consistent with some of our.
The strategy in order to support the short term cash flow we have.
For the first time, while not the first time, but since 2018.
It's our first acquisition in Canada.
We have been successful in buying 60, 60 megawatt solar facility under.
Their contract in Ontario.
Glad to have that asset diversified Joe.
Geography of our portfolio and also in terms of technology those.
Those are very good track record on production, so we like that.
<unk> diversified our portfolio.
Footprint and I guess it will help also mitigate these quarter to quarter.
Variability in Mulder natures of our strategy to face more variability over time is to diversify we think thats the.
Our solution is to have more.
Diversification of our portfolio to take.
The advantage of the difference between the region and technology exposure.
Also pretty happy to have won the project.
MS <unk> extension, we call. It <unk> two extension or have you won extension glad.
Glad to have been able to capitalize on a very good relationship we have with the Mi'kmaq communities of the guests' busy area.
We had a good <unk>.
<unk> with them building the new one and it was just a natural to expand on the <unk>. So it's a first for us for a while in Quebec to to have been selected for a PPA, but it's certainly not the last hopefully.
As you will see we will talk about the Quebec.
RFP Theres, a 1500 megawatt RFP.
Going on right now due date is September .
We're very we're working very hard to be prison last time, we only submitted one project.
We were happy to win.
That project, but in the second phase, we will be ready and have more project submitted to that RFP and getting prepared for the subsequent one.
If we switch on page 13, I already covered.
And you too.
When.
<unk> is under construction.
Confident that it will be put in service late July or early August .
Uh huh.
Construction activities.
Activities as restarted last week in order to finalize the.
The upper.
<expletive> if you remember last year. Unfortunately, the winter got us too too early and we were not able to.
Close the water.
Bypass in order to create the.
Starting to basically close this.
Water deviation and we're confident that the project will be.
Able to produce its first kilowatt somewhere early July and that's going to take 30 to 40 days to finalize the CVD.
I've been also busy in in France.
We are hopeful that oxy bought a knee.
Cool cool hardcore.
Of course in front of the court.
We will be.
Judge in our favor.
And that project would be would be then green light to advance we also had a.
Moshe do.
This this project has its permit and its PPA.
The interconnection that is a little bit late.
Working toll potentially half a earlier date of interconnection right now we're scheduled to be in 2028.
We've been also very pleased to have been successful in obtaining for palomino the certificate of environmental kept ability.
Compatibility I'm, sorry, and public need that's a that's a long time.
For an environmental permit, but thats the main and last one that material impairment that we need in order to go ahead with palomino.
The remaining.
I would say.
A restriction for palomino is to have a final date to interconnect.
It's hard to see that PJM is so busy and they have difficulties to give us firm dates we're not the only one I guess the PGM is.
Is a little bit of a mess.
<unk> ability to provide a firm date for interconnection. So we're waiting.
So as our offtake palomino is on the frontline and already we just need the greenlight to interconnect.
Interconnection is also a little bit of a challenging what Thomas as you remember we have talked about what Thomas very nice.
Solar project in Washington.
Lot of inquiry for offtake, but again the transmission is is an issue. Unfortunately the U S. As you all know is a huge market a lot of possibility with the new.
Alright.
But.
Interconnection is the limitation of how fast you can grow so we're working hard find ways, where we can interconnect project quicker, but this is the challenge in the U S. I think we're not the only one.
This is the main challenge in the U S interconnection.
We have also.
Been a little bit active youre not equal way.
Eliminating deconstruction activity until we can have hopefully the green light to.
Sure.
Tpa.
Increasing price we have submitted a.
A proposal 50, 56% price increase to the PUC.
That has been supported by E coat.
The utility NOI, so we're waiting.
We think that we could have an answer by September so.
Stay tuned.
That.
<unk>.
Also I guess that the other activity in construction is talking about all in Santander has a battery storage I'll talk about it a little bit later in an interesting graph that I'll show you the logic behind the installing the battery in in Chile, but this is going very well we have started to receive.
The battery container all the civil works is it's done and we are only waiting too.
Put the battery together and hopefully being able to produce not just for us but to start using the batteries somewhere late July .
<unk>, we should start to.
Taking advantage of the battery and full commission on both sides should be done by Q Q4 of this year.
If we if we go on page 14.
I alluded a little bit our activity and the prospective project, we're still pretty active also in France, we now have quite.
Quite a bit of advanced project, we have over 200 200 megawatt of advanced project in.
In France, and a total of a portfolio of over 400 megawatt.
We have also being more active in solar as we mentioned in.
In the past the team is very.
<unk>, where the small team, but very efficient and pretty happy to see how France is evolving these days.
Working hard and Youll see some new numbers in in Q2 in terms of new project being added in the prospective.
We've been working hard in Quebec.
Ontario also we have been submitting a 100.
Megawatt.
100 megawatt hour.
100 megawatt four hours of storage and the RFP in Ontario, We also submitted to project 150 megawatt then <unk> five megawatt for our battery and the request of interest in New Brunswick.
Getting prepared also to answer the RSP in Saskatchewan, both in solar and wind we have two solar project and one very interesting 200 megawatt wind to be proposed in Saskatchewan.
We are actually very very active.
Proactive also.
To find ways to.
New project to our prospective pipeline.
On page 15.
Just to have perhaps I, just mentioned, but and it's no no way to minimize the other market, but I think that Canada, giving the new pre.
Program and budget for the federal supporting an ITC for renewable energy in Canada is putting a lot of attention and is creating potentially a lot of.
New opportunity, we already know and we've mentioned.
In earlier calls that hydro, Quebec, he is adding a.
A strategy to be coming back for RFP in all of the next four or five years in the range of 1000 to 2000 megawatts of new wind facility and potentially also some solar facility in Quebec, So Quebec will be busy.
Ontario has.
<unk> started to move also but my might take on Ontario, and BC I mentioned it before if Quebec is looking for more.
Duction.
And you know that Quebec.
Eating.
Habit in Quebec, we have a lot of houses that already are using electricity to heat the house.
So we need to basically decarbonize the transportation some natural gas also in the heating system, but also in industrial processes, but it's lower than Ontario, and BC. So if Quebec is busy like that trying to have more renewable energy in order to meet.
These these gold of <unk> the economy, I cannot imagine how busy, Ontario, and BC will have to be same with new Brunswick and U.
And I'm, not saying that because we will be less busy.
In the U S. We.
We think that there's a great opportunity also in the U S. But I think that we will have.
Great opportunity as well in Canada, and as you know we have been very successful in Canada over the years, especially being a first choice partner with first nation.
We have a great opportunity.
To develop future project in Canada.
We also I'm coming back to Chile.
Opportunity for the.
Battery, we call them best.
We have also been successful in securing the financing of Santander eyes.
For the construction.
It's a very interesting concept and I would like to.
Give you a little bit of a perspective on page 17 on that graph.
This is the average price of electricity on the node of Santana and Salvador. So when you producing solar this graph is not good.
A good story as you can see this is summer Doe.
It's probably.
More intense.
These are huge volatility during today because in summer time as you know obviously solar is producing at its Max but this is the price of the electricity in the north of Chile.
You see that basically as the Sun rise.
The price of electricity is going down up to some time zero during the mid afternoon and late.
Morning, and late afternoon.
You see the huge spread between $180 per megawatt hour versus almost zero. This is where the battery can make a lot of money.
Our business case in this.
Investment was to take about $50 of volatility now we're seeing over $100 per per day in terms of round trip for for the use of battery. We have 425 megawatt hours. If you used a 100 dollar.
Uh huh.
In that quarter on an annual basis, that's $40 million of revenue.
These battery so and we're almost the only one with material investment in in that.
Part of Chile, So I think that we're rushing to have those battery in service winter is coming and Chile. So these are these big.
Spread will narrow but.
It will be still very volatile and we can't wait to have those battery.
And they are available to make.
Some arbitrage during these great.
Volatility in that market and this is not going to slow down that much.
As you know.
The new interconnection in Chile will only come in service somewhere in 2021, 29, and perhaps 2030 31. So we will see a lot of volatility in the north of Chile for the next four or five years, and we intend to take advantage of it.
So on that note we would open the question.
Thank you, ladies and gentlemen, if you have a question.
Questions will be pulled in theater, there with fees.
Sure.
If youre using a speakerphone before Christian.
Sure.
Your first question comes from David <unk>.
From Raymond James Please go ahead.
Thank you morning, everyone My.
My first question here just just around.
Your M&A strategy and the payout ratio and appreciate the thoughts you provided.
What the payout ratio is with more normalized weather I'm, just wondering what the strategic implications of that or I know in passive use M&A as kind of a bridge to help with the payout ratio.
But it seems like you've got a lot of greenfield opportunity today does in this context.
Do you think Youll talk maybe a bit more away from M&A going forward and more towards those greenfield opportunities.
Well, it's a good question.
We like to take advantage of the M&A when it's.
And when it makes sense, when it's really accretive and as you all know.
We would be reluctant to use.
Our stock to fund new M&A, we see the price has been depressed and we're mindful of that we're sad about this and hopefully.
We'll do a better job explaining to you guys and to the market what we're doing.
I think we have great opportunity as you're mentioning in terms of growth.
Sure people on the on the ground, we are seeing a lot of opportunity we're working hard.
Building up the prospective pipeline as I mentioned earlier never been that.
That optimist in terms of ability to grow from our Greenfield pipeline.
I've been I've been in the business for more than 30 years.
And never pin that busy in trying to secure new project in our four market.
It's really impressive.
The opportunities are coming.
Never seen such a great.
Support from the federal government here in Canada, I remember the last.
Effort from the fed was the eco NRG program, which was a one for 10.
Years, and they only had committed to 1 billion four if I remember it well so that was very limited and having this ITC that will be available for all the renewable energy industry is providing us a great support but to answer your question I think we'll be opportunistic.
In terms of M&A, if there's something that comes and makes a lot of sense.
We May act, but I don't think we will be as aggressive as in the last couple of years.
There is also some.
Our strategy to recycle a little bit of our Seth as you know we are not.
We have not been very active on that side in the past.
We mentioned in the last call that France.
Portion of 30% that we bought from <unk> last year.
Could be.
Something that we could act in saying that we could sell 30% of the platforming, France, we have been approach.
Financial institution in Europe .
And we have actually started a small pro SaaS to see if we can find the right partner and the right value and if we do we could act on on that aspect I don't think it's it's a big secret that has been circulated in the web that we have retained.
<unk> has a an advisor on that process. So stays June we seen that.
They are spot flexibility off acting on this and that would solve some of the liquidity issue that you guys have in your mind.
You urge alluding also on our ability to refinance some of our asset <unk> asset lately.
Lately, we have renewed some long term PPA for hydro in BC and BC Hydro has been.
Acting on a program to renew we have renewed brown.
Lake we have we're in the process of finalizing Miller Creek.
Meadow Creek is a 33 megawatt hydro facility that was on the us.
Merchant.
Aspect, we were being priced on mid C. Lately. It has been good but we think that the price at BC Hydro has proposed in the $60 range with with inflation is a good compromise for Miller.
So we would have the ability to refinance Miller has no financing in place and we just renewed a 2020 year PPA.
Right over Creek is due also next year and it's part of the same.
Renewed program by BC Hydro. So just there we would have over 100 and Paul NEF also in Quebec, We would have close to 150 megawatt of new.
PPA on hydro facility without any.
Security on them so.
That's a great opportunity also to refinance so don't worry in terms of liquidity, we have a plan and we're acting on it.
<unk>.
It will be it will take a few months too.
To do this as you all know.
We are confident that these two initiatives will solve our.
<unk>.
Wouldn't say, we have liquidity issue, but he would give us a lot more flexibility in terms of liquidity.
It's a long answer.
If it.
Oh, no that's great I appreciate the thoughts.
And then maybe just.
One more for me just just thinking about some of your larger scale development project in the U S. I know you touched on.
OMA and palomino, but I believe there are others in Colorado, and Texas, It sounds like you've got some.
Thomas and development. There just wondering if you could provide any details on that yes. We have one race track is a 200 solar facility in Texas is ready to go it's asked that we.
We're not too keen in putting more money in Texas although.
We've been approach also by some some players that might be interested too to take this we may be able to advanced project or even build it and sell it.
In Texas, we I'm very well.
We are reluctant to add.
More asset in Texas.
So racetrack could be could be an opportunity to develop and hopefully make a profit of developing an and.
And letting and other players to take it over.
We have been submitting my life in the.
Colorado last RFP.
Though the month and a half ago. Unfortunately.
We missed the we were a little bit maybe.
Maybe high on their price, but there's more.
More RFP coming for Colorado, So we are going to adjust.
Then my line was 150 megawatts solar with four hour battery.
Well located close to the airport.
So we stay at the of Denver. So we think this is this has some good potential and we are going to still add them to that project.
Have also.
<unk>.
And.
In Minnesota area.
That has some promising we have big project.
In the U S.
Waiting for basically interconnection, we have to find ways to to have windows of interconnection. So what <unk> might be an interesting play it's a little bit off the <unk> spot in terms of interconnection. So working hard on the team is working hard on producing large number.
Bruce of project that are in the 200 to 400 megawatt range, so, but again U S is.
It's difficult to find the sweet spot to interconnect.
So that's unfortunate for the U S. But this is the.
The only I would say.
Bad news in the U S is interconnection.
Okay excellent I appreciate that color and Michelle I'll turn it over thanks.
Your next question comes from Nick.
From <unk> Securities. Please go ahead.
Thanks, Good morning.
You're talking about those really attractive U S and Canadian growth opportunities can you guys just rapid number roughly around the capex.
Estimated to be spent in 2023 and potentially in 'twenty 'twenty four as well.
Well in 2023 to 24, we have already committed the.
The equity for Boswell as if you remember we also have the tax equity lined up and financing for our Boswell.
John If you wanted to add up but this is our biggest initiative.
The battery in Chile is is finance.
Already the equity portion of it is already done.
And you will not be a big spend in terms of equity.
M U two is supposed to be in service by 2020 sick.
But we're working hard to advance this theres.
Theres, a possibility where we could advance the project.
But it will be financed 275% to 80%.
Long term.
Our average and the ITC will help also reduce the.
The equity component of those projects, so and you should quality should qualify for the ITC.
So we we.
We don't foresee a lot of equity need in 2023 two.
2024, although.
We also working on project in Chile.
For solar Camel.
It's not in our.
Prospective yet we have submitted a proposal to BHP.
But it's binary.
If we were selected we win if we don't we.
The news that we have renew.
With Pompe <unk> 34 megawatt of solar passive solar for their.
Codelco.
Copper mine.
<unk> Hot water.
Driven by solar pass this panel.
This is something that we might also be active in 2023 2024, maybe just to add a bit of color.
Nick on the Boswell project, we're really advancing the financing with the long term construction loan and long term takeout and the tax equity and and put together, we will get to very close to 90%.
Total cost and.
And right now we've already invested more than the equity required so at the closing.
The financing, we expect to actually get some funding back.
And then to continue the construction by drawing on the loan so that one is as interesting and also if we can actually kwan.
Qualified for the others the PTC others.
That would be also a nice a nice windfall if we can monetize upfront. These these adders.
And actually increases the IRR on that project significantly probably by each trends of 10%, it's roughly 4% to 5% increase.
After tax IRR. So that's that would be extremely positive for the project and then the HK in Hawaii is also.
Pretty much all the equity required has been funded.
As we.
Finalize the financing obviously, we need to obtain the PUC consent on the price revision, but once that's done and we put the financing in place. We would also recoup some of the funding that's already been put in H gates. So so that the.
For 2023 that does really the financings are really whats on our mind that right now, but once it's completed there is no more.
Major need for capital.
Okay that makes a lot of sense. Thanks, and then as we're looking at the BC hydro assets, there was a bit of an indication.
Your prepared remarks that some of those assets could have been potentially optimized and that youre looking at ways to improve the operation and maintenance of those can you talk a little bit about what those initiatives might be and the potential magnitude if they work.
It's not huge right. It's on the margin, but we already have done one.
The change of the.
It's called.
It's the water intake.
Kind of do that.
Yes.
You can take that it's Ken.
I.
Can't remember then I am sorry.
We have had some.
Early design issue that they were built with some floor and we changed that so that's going to help pass a little bit.
At trying to have better equipment for monitoring the incremental flow.
In the past it was a little bit more difficult too.
Calculate these these flow so in order to make sure that we would not break the environmental permit an obligation we were leaving a little bit more slow going over the crest of the dam. So all these little things are not huge but they are adding 2% to 3% perhaps on the long run.
<unk> and the team is working hard in order to maximize these and take advantage. We also have been successful in Miller Creek, an example to.
Eliminate some and Fremantle flow, where there were actually no fish and we were able to show that the amendment until flow was not needed in a section of the river. So these little things are not huge.
But they are adding right I mean every every little 1% or half of 1%.
Improvement is is going right in the bottom line so.
That's something and we have now better technology.
We have better data tracking and we're doing some analysis with big that one on what we could do in win also to try to tweak the.
The software in order to take advantage of a little bit better to win start or a little bit earlier in and when.
You have some high sing on the blades trying to.
Do you have some new methodology to restart.
So that has had some some high <unk> issue all of these things are not huge by itself, but if you had all these little things.
Makes.
Makes it makes our.
Some some material.
At the end of the day, but they're not big it's just on a day to day basis and trying to have.
Take advantage of the new technology that is coming up.
Okay. That's great color. Thank you very much.
Your next question comes from Mark Jarvi from CIBC. Please go ahead.
No Mark.
Yeah, Hey, good morning.
Lots of opportunities in Canada, you highlight that well on slide 15.
But it seems that there is still a little bit of uncertainty on the tax credits ITC, how does that play into your bidding strategy.
Do you think you'll have clarity on that before you have to submit into all these rfps.
That's a very good question Mark.
[laughter].
It is true that.
We don't have all the detail yet.
Our.
Fiscal team has been trying to get and provide some.
Feedback to the the tax team of deferral.
Agency.
World full it.
They understand that a lot is relying on their on their.
Their final documentation so the seems to work hard and trying to have.
Their final design by somewhere this summer.
We're hopeful that we will have all that information before September .
For hydro, Quebec, we've been talking to a hydro Quebec on what they would be trying to put in the in the RFP. This is the period, where we can ask a question during the RFP.
<unk> so a lot of.
Of our peers are having the same same.
Problems so either.
I'll take for granted that everybody will put that into their bids.
But it is true it is.
Implicating our life, a little bit if we don't know when we're bidding.
Is there any potential just to defer some pushed them back a few months just so you could maybe get clarity.
I would be surprised I would be surprised I think that the solution for hydro, Quebec from what I understand is that they could keep the option of <unk>.
A sharing the benefit.
Once the.
The the detail would be it would be clear. So that's one possibility that that's not creating a problem for either of us just a little bit more complicated to share afterwards.
Because as you know.
The ITC doesn't apply to the same level from a non taxable entity and the taxable entities makes our life a little bit more complicated, especially in Quebec, where in these rfps are requesting to have local partners either.
<unk>, our first nation. So yeah, I mean, we'll be working hard with our.
Tax.
Advisor to find the best strategy in order to take full advantage of the of the ITC, but I mean its part.
We're happy to have a program.
So we cannot be too.
Negative about it but of course, we would we would need to have clarity in order to take full advantage of the program.
Mark once we I mean, we are exchanging now with authorities when we whenever we can but it's also interesting for projects that we have already like a project like <unk> or the project we won in the arm.
From Quebec.
You too.
Could actually see some some.
Benefit out of that program. So we're obviously very interested to see the legislation when it comes out.
But there is potentially some upside for us and our partners on these two projects.
Obviously, we're very interested.
And more.
Second question for me is just the BC hydro assets, obviously the volatility obviously.
Don't want to see it investors don't want to see it maybe not looked upon positively by public investors can maybe it kind of dampens. How your shares trade would you consider again doing a partial sell down there where private investors might be able to ignore those quarterly variations and recognize the long term assets and contracts there seems to be updated views in terms of maybe monetizing a partial stay.
Can the BC hydro assets.
<unk>.
We are not so keen in doing so but it is something that.
Yeah has come to our mine and then we're always trying to be objective and not necessarily subjective and in our financial analysis, but but again right I mean, youre trying potentially to sell something that has had some.
But.
Orders.
We've seen that in Quebec, but 10 years ago.
Or even 13 years ago, we had two or three really bad hydrology year almost in a row and then things at play.
Cleared up.
<unk> seen what happened in California last last winter.
They had extended draw and then suddenly.
Ken and all the water and the snow would it be had received.
I'm positive about the outcome and in.
In the hydrology Azure.
<unk> the last four decade is showing an increase hydrology.
The.
Expert that we have been talking to are showing with your <unk>.
Winter in in BC.
But perhaps drier summer, but remember, we're making more money in winter on the pricing.
Structure in BC, and we are run up the river facility. So if there is.
More.
Melting event during the winter, we can catch more more water.
You've seen also last here on the graph that John is showing you is the fact that we had a huge praying.
Runoff.
Last last year and when you have run up they were you cannot catch that that big.
Run off in the spring so actually if.
The winter are getting warmer down the road and you have more.
Rain event during that period of time that is only better for our long term production. So we we're not saying never.
But we're very optimistic on the long term hydrology.
Just two really bad quarter back to back that just hurt us.
In BC.
And the last statistic that can happen, it's very unfortunate, but I believe I'm, a strong believer or diversification and.
By growing in other places in order.
Technology that portion of our exposure in BC, Hi, E Hydro will get smaller as our portfolio gets bigger too.
Yeah, Okay that makes sense last question just to clarify in terms of when you might be able to do the sort of get onto the re contract at re contracted assets are unencumbered assets is that something that can happen in 2023, Yeah. I think it's something that can happen in 'twenty three so we're working and as Michelle pointed out we have some renegotiation.
Contracts to put in place so that we can gather the longest.
Visibility on the on the power pricing and revenues on the facilities.
And there is some some reorders potentially beneficial to that as well so we're optimizing now that the.
The.
A number of facility that we'd like to refinance and yes definitely it's something that we have to complete by yearend.
And Mark you were talking about potentially selling some assets in hydro and VC, but actually refinancing. These assets on a long term basis is somehow a divestiture or a little bit of our equity exposure there to some degree right.
We go back and put an order of 75% to 80% of our financing on those.
Assets indirectly.
Our.
We are reducing our equity exposure to these to these assets and it's cheaper.
That is much cheaper than trying to sell equity.
That's a very good point, okay I'll leave it there.
A substantial amount also maybe you can give an indication it's certainly an amount above $200 million that we would probably be.
Get out of a refinancing like this that would delever the topco.
It's material for us.
Okay. Thanks, Sean.
Your next question comes from Nelson <unk> from RBC capital markets. Please go ahead.
Great. Thanks.
A few questions on Hawaii. So I guess my first question is in terms of the.
$13 million that you would get back.
Can you just give a bit of color as to whether that's like whether you're just getting back a deposit or are you actually.
Taking some gain out of the arrangement of terminating some of the battery contracts and then the second part of that question is.
Can you just give an update on your.
Hawaii strategy, because I guess you sold.
In the early stage projects, you're canceling some of the battery supply.
Agreements can you just give a bit of color on.
Yeah, I guess, what your longer term strategy there for Hawaii.
Yes.
Yes.
Youre right, we had a little bit of a deposit with Tesla.
The contract that we had with Tesla work firm in terms of delivery and we had also the option to have the battery deliver somewhere else. So.
Tesla was actually willing to pay offs of finality to basically break that that obligation and hence we made.
More money more money, we we made more.
Money, then only our deposits in.
In those.
Our renegotiation so we did capture a little bit of that value on doing this to come back to you I don't want to expand too much on Hawaii and you'll understand we are in front of the PUC for a legal way.
But you could probably understand that if we are.
Selling these things or breaking the commitment with Tesla.
I guess it is.
If we find the right moment and the right.
Opportunity I think we have.
Better use of our resources in other market.
Okay that makes sense and then just one quick question on.
Simmons Creek in Rutherford Creek, So I think in the MD&A disclosure, saying there in breach of their credit facilities is that mainly just due to.
Hello, hydrology and ill kind of go back to normal.
Okay.
And then on Rutherford, it's important to note there.
A little less in the long term financing.
Only $1 6 million within the long term and was put back in the short term, there's only one year left really too.
To the debt schedule.
Okay got it.
And then just.
I guess, one last question on <unk>.
The hydro developments I know, it's small it's seven five megawatts and you only own 50%, but I.
I noticed that disclosure on the EPC contractor asking for.
Roughly $58 million.
I think.
I think looking at some older reports from a few years ago.
The original project cost was about $125 million on a.
100% basis.
So.
Can you just comment on.
Where we are on on Cogent, yes, yes.
We're showing in our MD&A.
A provision of $17 million of extra cost.
Why are you using this I cannot go too deep we had on our <unk> process that I cannot talk too much about but we were we were very close to to have an agreement and unfortunately for the reason I mentioned that the contractor could not put the.
The diversion.
In place.
And then delayed the project for about four or five months.
We have liquidated damage for.
They're not meeting the targets you the date.
And I think they were.
They were discouraged.
That aspect so we retain all our rights to litigate to those liquidated damage I think that the.
The $70 million that we have.
Bedded in hour.
Total cost now.
Is conservative and according to our lawyers, we have very strong.
<unk>.
Against the contractor and that $17 million.
In front of the court should hold and we.
I think it's very conservative.
Okay Alright.
That's great I'll leave it there thank you.
<unk>.
Your next question comes from John Mould from TD Cowen. Please go ahead.
Thanks, Good morning.
Maybe just going back to your broader growth strategy in the context of that in 2025 run rate.
Free cash flow target.
You'll probably see at least in the near term slowdown.
M&A and referenced at least in the context of the U S. The challenge of interconnection. So.
Maybe just looking beyond your current pipeline you know.
What markets are you hopeful will be the primary driver of that remaining growth to get you to that target for about two and a half years.
It's true that it's challenging.
John in terms of that.
The delay.
<unk> in the state that's a little bit of cost out so.
We always said that the 2025 targeted was challenging is still challenging we still think we can make it.
M&A will have to play a little bit of a role in this.
We cannot be dogmatic also if we have huge and great opportunity to develop project and create long term value for shareholders. That's what we're going to do.
So yes, we have put a very.
I would say challenging target for $2025 per share.
We were trying to to to go on that path, but we're not dogmatic if.
All kinds of reason.
M&A is expensive and we have other great opportunity to create long term value by securing great.
<unk> for the future that's what we're going to do we will keep you apprised on how we are making on that long term strategy.
But I think that.
We were there for the long term, we're therefore, creating value for our shareholders and there's huge opportunities out there in all our four market. It's not only I know that I've been very optimistic cannot beat on Canada, because it is actually.
Opening up and fast, but boy I mean, the U S, France, and Chile are great market as well there is huge opportunity in all our markets.
At this time.
And therefore.
We are we've been and we have and will be.
A company that makes project development as you know we are fully integrated.
We are able to develop Greenfield project follow construction and we love to operate our facility on a long term basis, we have not changed and will not change.
There's a little bit of difference is our willingness sometimes these days given the very low appreciation of our stock is to recycle some of our assets.
We've been also in the past willing to refinance and I think John has shown you our ability to refinance some of our existing assets in order to give us some more flexibility that is less dilutive than issuing stock we could use this more flexibility to perhaps makes are attractive.
M&A that would help our.
Payout.
Target and cash flow per share target, but.
We're not we're not dogmatic.
Just want to make sure that we're creating value for our shareholders and take advantage of the great opportunity that we have.
Okay. Thanks for that all of that I think John maybe just one quick one on your PC growth strategy and I realize a few minutes ago, we were talking about.
Some real potential need there by 2030, you identified in your slide deck and you've got a decent early stage pipeline I think mostly hydro from Alterra, but how do you think about that.
The opportunity there they are pretty long dated projects in terms of.
Permitting.
Profits in the horizon, but your thoughts would be appreciated.
Might that NBC is that they have been he'll advice by I won't say, who.
And they will wake up with a very bad headache.
Site C has been a nightmare I cannot believe that the media is not covering that nightmare.
1000 megawatt that is going to cost to do their last forecast with $16 billion and counting and there has been there.
Laying the <unk> sites.
Every time since they became public.
And now Theyre 'twenty five 'twenty six.
<unk> will not be enough to drive the shell expansion shell has committed to go E drive if BC hydro can bring their transmission line to service right now.
I don't have the capacity and they don't have the line to service the expansion of shell LNG that has been announced just that it's going to take between 700 megawatts.
800 megawatt of Permian energy, So I think that BC will wake up and have a real nightmare to be able to have renewable energy for their clients and their customers.
Okay.
I'll leave it there.
Maybe to add to this.
Important to note we have a lot of assets in development in our pipe that could actually answer that need whenever BC hydro wakes up and request a new capacity. So we're well positioned nbc's today and with the teams on the ground.
Your next question comes from Matt <unk>.
From a capital markets. Please go ahead.
Hi, good morning.
Just wanted to go back to the topic of organic growth.
The last couple of projects that you're developing the U S where in 2021 and now you have Boswell for next year. So there's a.
It's a bit lumpy theres a bit of a gap there and understand interconnection as an issue.
Guess what.
What kind of growth do you think you can go find in Canada, let's say now that.
It seems there's a bit of momentum there to maybe help offset some of the lumpiness in the U S.
Well.
Quebec like I said is going to be very busy we have am Youtube, there's 1500 megawatt now.
In terms of RFP that are scheduled to be in service by 2728 29.
We hear that next year will be and I'll recall in.
And delivery will be in the range of 28 910, 30, So Quebec will have a stream of.
Of RFP, our intention is to be present, we have.
We'll be putting more than 1000 megawatt in the 1500, and we intend to put as much if not more next year in Quebec.
So Quebec will be a big focus for us, but like I said I think that new Brunswick will have also some needs not a big market, but we have a few very good asset there.
And it will need the electricity before 2030.
We are in 2023.
It seems far 2027, and 2008, but I mean once you have.
<unk> been awarded project and <unk>.
You can define what it is at you could guys put some value on these future project on a discounted value and I think that even if there.
Further down the road in order to being in operation. We all know that when you have a good PPA price and when you have secured your.
Your location.
Permit.
You are creating value for the shareholders and people are willing to ascribe value for their assets for these asset sometimes unfortunately, the public market are not seeing that that clearly, but definitly others funds in private.
<unk> is seeing that value as well.
Just to pick up on some of the points there in Quebec, specifically any thoughts about what's different in this RFP or the next one versus the one that just concluded what are you seeing in terms of.
Indications on pricing outside of the RFP are you still looking to do some projects directly with other partners as you mentioned since there is interest.
Yes.
Theres something that.
We're going to be active on is the renewal of all our.
Asset.
With that said I think I remember that we were the first to the first wave. So <unk> is due in 2026 and.
Seven and then call. It in 2028. So there is this discussion that we'll have to be done with hydro, Quebec, either through RFP or direct negotiation and there is possibility of expansion. There is a possibility of adding some kind of hybrid.
Good.
Proposal, where we could have a.
A new machine with existing machines. So theres all kinds of scenario were looking in order to create value for us and for hydro, Quebec, obviously.
And the good news is that <unk>.
Price.
Is coming up even with ITC.
I think that renewal of existing project.
Has substantially better value than before we have seen.
Utility really needs this renewable energy for.
For the future. So I think that it's a great window of opportunity for us to re contract our portfolio of wind assets in the guest the peninsula.
Okay. That's good to hear and look forward for updates on it and just one last question on capital recycling.
You covered well sort of the funding outlook for the year no need for equity right now, but when you just think about deleveraging or maybe future growth next year do you have any specific targets on capital recycling in terms of.
How much you'd like to get into.
Sense of proceeds.
Refinancing.
I would be easier to talk like you.
Youre, saying its.
Should be well over $200 million.
We will be looking into some other opportunity if if possible we have few other.
<unk> down the road next year to repackage, perhaps some some asset this for US is a way of recycling capital.
Without selling the asset itself. So always interesting to we'll be looking at that first like I said the France.
Bit difference I think that the evaluation of <unk>.
Private equity or financial institution in Europe .
Is very attractive and perhaps this is one way to make a little bit of arbitrage between the valuation of our stock and the real value of that asset in Europe . So if we find.
Very accretive.
And value headed proposal we might.
We said that.
Some asset in Texas is not necessarily our Texas, it's not necessarily our prime.
Market, we don't necessarily.
Like the exposure of PBS an example, not easy to transact on these asset but.
If we can find the right value we could act on those things.
I appreciate the details thank you very much.
Ladies and gentlemen is there any additional questions at this time. Please press the star followed by the one.
If you're using a speaker phone. Please have your handset before pressing any keys.
The next question comes somebody Wiseman from National Bank. Please go ahead.
Good morning, everyone I'm, just filling in for Rupert here Okay.
Thanks.
Just a quick question on certain France.
Consider building projects on corporate Ppas like is that an opportunity rather than waiting for the government.
Yes, definitely yes, there is that theres a lot of.
Appetite for corporate PPA, we've been approach for.
One project one or.
Asset of course, yeah, Yeah sure I mean.
If the price is better and the credit.
Is acceptable to us.
Yes, why not definitive.
Definitively.
And then I guess just one other one so you guys were talking just briefly there on the Boswell capital structure. So I'm. Just wondering if you guys have like any sort of free cash flow forecast not a bad debt amortization for that project.
Yes, I guess, we did.
We did provide that.
In our press release.
Early in January when we signed the PPE became effective.
So we are expecting operating cash flows.
If I am excluding the financing structure.
The operating cash flows would reach about in Canadian dollars about $30 million.
On an annual basis, and we would then on top of that obviously benefit from the PTC right. So that's an additional $52 $53 million Canadian.
To the project and that that is indexed in for 10 years.
Does not include any bonus PTC that we may receive we're aiming to qualify boswell.
For boat plus 10%.
Two times, 10%.
It would be incremental to that.
Okay. Thank you that's it for me.
There are no further questions at this time.
Thank you. Thank you all we will talk to you in August .
Thank you everyone. Thank you.
Ladies and gentlemen, you may now disconnect your lines.