Q3 2023 Innergex Renewable Energy Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, thank you for standing by and welcome to Interject renewable energy 2023 third quarter results conference call and webcast. Given you had a call center telephonic and a web teaches you want there is just trying to push him. He met the nixdorf sustainment for dinner Jack's NLC renal renewable.
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Thank you.
And thank you for joining us today.
I'd like to remind you that this conference will be held in English members attorneys are invited to ask their questions by phone after this call.
Presentation supporting today's discussion is available as we speak on the homepage of our website at <unk> com.
This call contains forward looking statements within the meaning of applicable securities laws, Although the corporation believes that the expectations and assumptions on which forward looking statements are based are reasonable under the current circumstances listeners are cautioned not to rely on jewelry and these forward looking statements as no assurance can be given.
So this will prove to be correct forward looking information contained herein is made that census, as of this call and the call.
Corporation does not undertake any obligation to update or revise any forward looking information.
As a result of events or circumstances occurring after today.
During this call.
Will.
Refer to financial measures that are not recognized according to international.
Financial reporting standards.
Please refer to the on the fairest measure section of the MD&A for more information.
Our speakers today will be Mr. Michel Letellier, President and Chief Executive Officer, who will present, our corporate development and growth opportunities and Mr is up to the Chief Financial Officer will discuss the execution of new initiatives, a financial overview and I'll turn over the conference with services.
Kathy and good morning, we have a very nice sweater in Montreal, It's snowing.
So anyway.
We will be going through our resolve and I'll I'll be talking about the major activities that we had during the last quarter.
Starting with the commissioning of our center Salvador battery storage I had the pleasure to you are always the minister of energy, while we were celebrating the C or D of this facility I think.
The presence of the minister of energy in our opening ceremony shows that these type of investment it is very important for Chile.
It will be in enhancing the ability of taking the advantage of the great son, and so solar resources in the north of Chile.
For us, we're pretty happy things have been going.
On a fast drag if you remember we are taking advantage of being an early.
Adopter of this technology.
Technology in Chile.
At the beginning like I said in the past, we will be taking advantage of the arbitrage between today and the evening enduring denied these battery will benefit also from a very strong capacity payment.
The coordinator in Chile has put together it will represent between 45 and 50% of the expected revenue. So it's a strong base to support these type of investment and based on very conservative forward curve, we think that we will be capturing.
Around 50 to $60 per megawatt hour as arbitrage.
That is fairly conservative giving the.
Actual arbitrage, we can and have been capturing lately.
Over $100, so what youre seeing here as a <unk>.
$8 $2 million is a run rate in terms of are you taking into consideration the capacity and a fairly conservative arbitrage I told you also that our long term view of these investment is to be basically embedding. These battery in our portfolio and strategy to make sure.
We can serve.
We're a long term contract on 24 seven hours so.
Of course, we're going to take advantage of the early years.
Where we think we'll see a lot more volatility in the.
Price drain the days and nights, especially in the north of Chile.
But the long range business case in these investment in batteries is do have this other tool and other technology in our portfolio. So they will be embedded in long term contract commitment that we will be doing in Chile.
If we go on the other page some activities construction and development activities highlights starting with our <unk>.
A small hydro facility in the north of of Quebec had been delivering electricity.
We are finalizing all the commissioning one has to understand that this is a remote community and the hydro has too.
Over and make sure that the power is stable. So it takes a little bit more time to commission than the regular hydro facility.
But we're confident we'll be able to achieve our skew the soon.
Also still in Chile, the second project sentences.
Bass storage initiative.
Are advancing very well same principle add Salvador I Should've said same same batteries same same system same philosophy, we think we'll be able to start injecting into grid beginning of December and commissioning should be.
Should be happening a few weeks later maybe.
Maybe end of December beginning of January four full commissioning.
Boswell spring is a big undertaking it's a big project, but we're happy to report that the construction is going very well we're advancing the scheduled.
Remember that this U D is supposed to be happening on Q4 next year. So everything is aligned.
All the foundation that has been poor.
The main transmission line is almost finished so we're pretty happy on the speed of the the speed of construction on on that Big project. John It's going also to talk about the financing. We are happy to have concluded our financing on that project Alex.
If you remember we had been successful in price increase.
Our PPA has been accepted by the PUC. So.
Even though we had limited activities of construction during the quarter things off ramp up pretty fast on a on this quarter and we're already putting solar panels on trackers. So things are still are looking for and see what date in October next next year.
MS <unk> number two.
Off of the project we won in the last RFP of Hydro, Quebec is getting all the organized we're negotiating construction agreement and also we're also working on environmental permitting so things are going well on that front.
In France, we have sign our interconnection for Oxy Buaben you Oh, that's a 29 megawatt wind facility. The last thing we need is to have the conclusion of the.
Legal challenge that some opponents have I've made a were awful that we should get that in the next month or so and that would be the only milestone last two to go through before starting construction on this project.
Switching to.
A more general.
Discussion about the hydro Quebec action plan.
Was made public last week, very very positive and I think that that will take a few minutes to explain what it means for us for Quebec, but also for the market in Canada in general.
The broader message to our to the Wow [laughter] due to stakeholder from hydro Vac is that by 2050, they will need to double the size of our hydro Quebec production. So basically.
They're calling for doubling the use of the electricity green electricity in Quebec.
Why this is so important for us and I think for the opportunity in Canada just to give you a abroad.
In the pie of the total energy consumption in Quebec.
About 42% of this is electricity the rest is fossil fuel and view.
You can't do that.
<unk>.
Why I think this is.
Awakening for the rest of Canada is that if for hydro Quebec.
42% already clean energy in order to take to take out all the other fossil energy.
You would have to double the size of our electricity imagined the rest with Gander, where this 42%.
Already our electricity consumption is probably less than 30% in many other markets in Canada. So if hydro Quebec has to double when they are 42% you can imagine the other one the.
The other market opportunities. So that's why we're so bullish also in Canada.
In BC, Ontario, Saskatchewan, and New Brunswick are our preferred market to play, but I think that this is providing you a the size of the Fortunately for Canada developing in the next years, but to focus more on their more short term vision of 2000.
35, what does that mean for us, they're calling for tripling the capacity of the when power install capacity in Quebec.
We're committing to had 10000 megawatt of new facility by 2030 fives. So obviously, our focus on Quebec will be mainly a win but there will probably be also some opportunity in solar batteries and some small and medium hydro a possibility might arise also in that plan.
So pretty a pretty important for us and of course, they will have to focus and they are calling for a lot of investment in the trends.
Mission infrastructure and I think this is the key also to be able to interconnect new facility I think that other provinces should also look very carefully on that plan.
And hopefully they will also act accordingly, giving us opportunity on other markets in Canada.
If we're switching progress in Canada, United States I'll cover very briefly what we're doing in our four market but.
You mentioned, Canada, I think Canada is going to provide a lot of opportunity we're getting.
Ready to.
<unk> Pro proposed project into Saskatchewan, RFP, we have two solar and one when that has been pre quantified.
BC Hydro has also announced an RFP that will be a data and updated but date for depositing proposal will be August so quickly coming we.
Our refocus on refocusing our team there in BC remember that we have a strong office in Vancouver, and we're ready to take the challenge to bring new project in B C.
We are also of course like I said, Quebec is a huge market for us in the next year. So we will be accelerating and focusing our effort in order to grow our perspective project in Quebec in order to have many.
Many projects ready to submit the future RFP.
We have been submitting two project totaling 400 megawatt in the last RFP, we're waiting for the results starting probably December that could be extended in January but the hydro, Quebec had said that they will try.
To give the winning.
Winning a project in December.
United States is a huge Margaret I say don't get me wrong, very pen pump up on Canada, but the United States.
Is huge.
Our market and we have of course, our team focused focus in trying to bring new project as well.
We have been somebody they get also our palomino 200 megawatt win.
Wind solar project into the last step for obtaining our interconnection date.
Very anxious to get it.
All of the teams are ready to start we have our offtake or on the sideline waiting to finalize the PPA same thing with contractor we have all our environment is environmental permit and so very anxious to get upward dates so that we can start the <unk>.
Construction on palomino.
We also worked pretty hard on some new.
Solar activities in Colorado are they.
There will be some call in Colorado, So we're getting there we're getting ready down there as well, but we also have initiated more development activities on 400 megawatt win in Wyoming very closed to Boswell, whereas you remember we have this die.
Transmission line that interconnect to pack and we have room on our right of way to put an order transmission lines. So we're pretty optimistic that we could.
Paul and other Big project can that part of the world in the next few RFP that back is planning.
France is always a great opportunity as you know it takes time to develop project in trends, but we're getting there as I've mentioned our project Oxy is getting very close to start construction.
We are also advancing new project the team is in place.
And we have now the support of <unk>.
To support the development in a in a in France, and we're hoping that having also a strong financial.
Local partner May help us.
The social license in some area in France, one of our our interesting project is the 87 megawatt solar this is a big project in <unk> in.
In France as you know usually we can see smaller project, but this is a very interesting concept, we are providing agnico voltaic.
The opportunity to generate more revenue for.
Atlanta owner, but how.
How do we think farmers are farmers SKU, that's an easy one.
So I think that this new way of proposing partnership with local farmers to enhance their total growth in U will be very well received in that region.
I mentioned, Chile also.
With the best but we also have quite a bit of interesting opportunity to sign long term contract Codelco just made a call last our last month, we submitted a.
Proposal for 250 gigawatt a year.
We are very careful in our bidding in Chile.
We're putting.
Very.
Interesting.
Price of PPA, if we win them will be very happy other opportunity also is for the disco PPA. This is.
The total regulated.
Utility that comes up every now and then two do you have long term PPA. This time.
The Ppas are for 20 years fully indexed the PPA, so pretty interesting we intend to submit then participate also in that RFP.
And we also have acquire and the process to finalize the acquisition of 45% interest in bump I view this.
This is an interesting solar low eat.
Water to support Codelco are we have just renewed.
10 years extension on take firm firm delivery of hot water with Codelco. So this acquisition is giving us the opportunity also.
Two did love future project in.
In Chile, offering hot water coming from solar in industrial processes. This is very interesting business I think we have also some opportunity.
In the future and that technology on that I will pass.
To answer it.
It's you see.
To give you some financial highlights and I'll come back at the end and of course, we'll be available for questions. Thank you.
Thanks, Michelle and good morning, everyone. So I guess, we're very busy as you can see and it's important to note that we also added 587 megawatts of new prospective projects during the quarter and we're as Michel mentioned, we're actively working on several new opportunities as well. So I will go quickly over the financial highlights.
And as shown on the slide here.
Corporations financial performance posted strong growth for the three months ended September 32023, compared to the last year last year.
<unk> production reached two six.
That was one gigawatt hours or 88% of long term average and revenues and production tax credits were up 9% at $292 million compared with the same period last year and the results of the quarter I can mainly be explained by two things lower production at the hydro facilities in BC that constant.
Over the quarter and nowhere wind regimes at the Quebec facilities, which were mainly impacted by very unusual weather conditions. So it's important to see that and when we isolate. These two factors had production level has been equal to their long term average for just these two specific items revenues would have been higher by approximately.
The $30 5 million and $60 3 million for the quarter and the year to date periods, respectively. So these two items.
Define really the quarter in itself.
The recent acquisition of three solar projects in Sault Saint Mary in Ontario earlier, this year and the overall performance of the other assets.
Contributed to partly offset the effect of these unusual weather events for.
For the three month period.
Operating general and administrative and prospective expenses were up 12% at $87 million compared with the same period last year and this increase is mainly attributable to this recent maybe acquisition.
But in large part also the impact of their friends are 2022 supplementary budget Act.
Spence from higher maintenance expense at several facilities in Quebec wind facilities and higher operating costs in the in the states.
As a result, adjusted EBITDA for the quarter reached $180 million, which represents a seven 5% increase compared to the same period last year.
On a proportionate basis revenues and production tax credit proportionate were up 7% at $317 million and adjusted EBITDA proportionate reached $201 million, which represents a 5% increase compared to the same period last year.
And the Corporation recorded net earnings of $4 million for the three months ended September 30, compared with net earnings of $21 million for the same period last year.
On the next slide for the trailing 12 months.
The corporation generated free cash flow of $121 million compared with $186 million for the same period last year.
And this decrease is mainly explained by a decrease in cash flows from operating activities as I explained and increase in interest base stemming from many additional indebtedness to finance, our acquisitions and the construction activities and an increase in maintenance capex.
On some projects.
These items were partly offset by the incremental contribution from the 2022 and 2023 acquisitions.
The increase in merchant prices that sort of in U S and <unk>.
And facilities and a decrease in free cash flow attributable to noncontrolling interests.
The BC.
The BC hydro facilities.
The decrease of $65 million in free cash flow resulted in a payout ratio of about 121% for the trailing 12 month period compared with 78%.
For the same period last year. So it's important to normalize this in our view and so when we normalize and we assume a 100% LTA and were very.
Conservative in our normalization, we normalize also the projects that had benefited from higher pricing for example, so when we normalize.
Assuming a 100% of LTA, except for Chile.
Our revenues and production tax credits and adjusted EBITDA would have reached 310 and $199 million respectively. In the third quarter on a trailing 12 months basis with all previous four quarters normalized for 100% LTA again, except Chile.
<unk> payout ratio would have been in the range of 75% to 82%.
Yeah.
I would like to take a few minutes to give an update on our funding initiatives that were mentioned previously so I guess, we have good announcements.
First on July 14, we announced that.
Construction financial close of the Boswell screen spot project and more recently, we've announced also the tax equity commit.
Commitments.
<unk> closed.
For $442 million on October 19, so with the tax equity commitment completed the financing activities for the Boswell Springs projects ours and ours are all completed.
Secondly on August seven we announced the signature of an agreement to form a long term partnership with Kinsey Agricola echelons for the sale of a minority interest in our French portfolio and on October 26, we announced the completion of that partnership and we received the proceeds from the proceeds were used to.
To reduce interjects revolving credit facilities, which will then be used to fund the corporation's development activities over the coming years.
Last quarter, we also announced two phases of nonrecourse project financing initiatives for hydro assets in Canada.
We are about to close the first phase of debt refinancing with the first three Canadian hydro assets. Its expected very soon and that should yield proceeds of about $170 million and we have three additional hydro assets that are part of a second phase, which is expected close somewhere in 2024 and that's that.
The second process is targeting a proceeds of about $80 million.
So by financing our unencumbered assets, we are taking a proactive step to reduce our revolving credit facility and by executing on that strategy. We increased liquidity of course would protect also the investment grade rating that we have and we stay on track for funding our growth.
And now in addition to focusing on the execution of our funding initiatives I would like to put an emphasis on the way we are.
The way, we derisked, our our projects and protect our return and performance for our current portfolio of assets in operation. So we generally use.
A high proportion of long term debt that is nonrecourse to the corporation.
Finance all the capital requirements of our facilities, we mitigate the risk of rising interest rates by entering into fixed rate long term financing agreements and or interest rates swap agreements. So our interest rates are not impacting our capacity to generate cash flows from operations.
So that's it is small floating rate exposure at the corporate level, mainly but once the funding initiatives that I mentioned earlier are completed we will have essentially no exposure to interest rate fluctuations.
The segments in which <unk> operates have been impacted by rising.
Inflationary pressures, our operating facilities have shown resiliency towards inflation as most of our long term ppas contain partial or full indexation clauses that annually adjusted for the effect of inflation, so as such and inflationary pressures on operating expenses are generally offset by higher revenues.
And lastly periods of above and below expected resource.
As we are living it now.
There is obviously throughout the life of our assets, but our.
Our strategy is to always maintain and increase the diversification of our portfolio of assets. Both in term of geography and sources of energy to additive yet the seasonal production variation genera.
Generating long term stable cash flows and building high quality projects with our focus of course, and we continue to believe that diversification is really key to achieving these goals.
Now I just spoke about the resiliency of our existing operating base, but I'd like to also highlight the disciplined approach that we take to maintain our target levered IRR or internal rate of return on future projects. So when we submit prospective projects to all the rfps requests.
For proposals in the coming Rfps that are mentioned Michel talked about earlier, we of course consider all aspects of recent cost increases inflationary pressures and interest rates and et cetera.
The intent that we always have.
<unk> always done it to capture a spread of about 600 to 800 basis points over the Canadian 10 year bond yields.
This translates today and about a target return of about 11%, 12% Levered. After tax return a couple of years ago. It was eight.
Eight 9% the importance of this is that we always need to.
Capture a return that will give us sufficient return for the sufficient premium over there is that we take.
And this targeted return will of course fluctuate in time as market conditions evolve, but it's always been our approach to to the rfps.
Consequently, our future project incorporates the new market reality and will provide a strong profitability and will be accretive to our shareholders. We will continue to be very careful in allocating capital to the right projects.
So not only building megawatts.
That are very valuable to communities into the environment, but also a sustainable stream of cash flows with the goal of increasing free cash flow per share.
So lastly, I guess overall, our financial focus.
Our financial reports, which are also are key drivers for future performance are too.
Firstly execute on development and construction activities on time and on budget.
Secure equity funding for our existing projects to be commission over the coming years. So.
Pushing away pushing back as much as we can as far off as we can the need for equity issuance.
We are focused on clothing, our hydro portfolio of nonrecourse project refinancings.
We have a disciplined and selective rotation of capital that we will find the initiatives to strengthen our balance sheet reduce risks and finance additional growth as required and we have a sound management of our balance sheets. According to the reading agencies requirements to protect our investment grade rating and lastly, all of this obviously is.
To deliver accretive free cash flow per share value to our shareholders.
So I will now turn the floor back to Michelle for the closing remarks. So thank you. Thank you and I would echo your comments on many things but.
On the short term we will be.
Focusing on getting our financing of the Unlevered facility <unk> facility as John mentioned this is going to bring some new liquidity in the short term basis, focusing on Santander is battery storage Brexit Chin, Chile is very well advanced and I think this is going to contribute right.
Into the Q4.
Bottom line advanced construction on Boswell as I mentioned this is a big project. This is also going to be a great accretive project when it's going to get in service had equal weight same focused on starting to accelerate the construction. So we can deliver at that project and in October of next week.
France as I mentioned, we're getting very close to half.
Construction initiatives in France, we had been waiting for a long time for this but it's starting to pay out and as we've seen the kids the Iga Karl has.
Award of Das or gave us the benefit of that growth over the years in the valuation of their 30% acquisition stake in our portfolio. So that was a.
Right.
Hum.
The prospect, but proxy on what we have been able to develop and create value over the years in France, and it's only the beginning we have now good and strong presence in France.
Just wanted to make sure also we are renewing our vow to create value on our development activities as I mentioned, we are seeing so many.
Possibility in the foreign market that we are working and so our focus will be to bring more and more prospect project. So that we will eventually have more and more PPA signed and committed to develop these projects down the road.
Are they saying we have taking into consideration all of the new reality in terms of interest rate.
Construction costs and supply of <unk>.
The.
The winter mine ore to solar panel. So we are updating all our bidding.
Assumption in order to secure good return for accretion on our bottom line going forward. So thank you and we'll be starting taking some some questions.
Thank you ladies and gentlemen, if you have a question. Please press star followed by the one on your Touchtone phone.
Your tone acknowledging your request.
Questions will be pulled in the order they are received.
Sure you lift the handset if you are using a speaker phone before pressing any Keith. Your first question comes from Rupert <unk> with National Bank. Please go ahead.
Hi, good morning, everyone.
Good morning, Bonnie.
With the debt financing youre looking to raise on the Unlevered hydro assets can you give us a little more color on that what rates do you think you can achieve on those and what's the duration that youll have on that financing.
Well, it's pretty easy.
Rupert Yes, as you know.
These type of bonds or financing project financing or based on bond roughly 15 years bonds are trading roughly at 375. These days and then you have to have a spread that is anywhere between $2, 25% to 75%. These days.
The premium so you would end up having a coupon just over 6% theoretically, but we are staging it in a sense that we're getting very close to closing on the first phase.
Giving the.
I wouldn't predict it but given the likelihood that interest rate pressure is starting to ease we have decided to do it in two trenches.
We will do a the other tranche of $80 million to $90 million in the first quarter of next year.
So when you think about timing there is potential rates are coming down, but what's what's the urgency on the need for capital.
At this point I think you highlighted your pay down your revolving credit line, but if you don't close that financing or you hindered in any way in your ability to continue to invest in growth.
No. We just saw a mindful that Fitch is looking into our.
Exposure into the <unk>.
All into our line of credit.
So this is basically the target there that we just want to make sure that we maintain our rating with Fitch.
Great and then secondly, if I could ask about boss wells. This is your biggest construction project today can you give us a little more color on the low total cost and the schedule.
For that project and any risks there may be do either of those items the budget for the schedule and how you're managing those risks.
I think that we've been working hard and making sure that we have now.
Fix the fixed price component.
Martinson.
And the transmission line is basically done so we have done it in the budget.
And we have also secured a pricing for.
The turbine.
So we don't foresee much risk down there there's always some possibility when we built but we have now fixed all of the price.
And the delivering of the.
The major component.
The only risk.
It is giving the erection of.
The turbine you, sometimes you have a little bit of winter.
Constrained if it's too windy, sometimes you can have some delays that are building we have some contingency on that plan, but this is.
Basically the last hurdle, we could see.
We have more wind days that are delaying the installation we may have some some cost overrun on those aspects of the this is certainly not material.
And so are we.
We have all the delivery of GE secured.
For early early spring so that we as soon as the snow is out we are starting to erect.
The turbine and.
Margins in his all.
All committed to have.
The crane and the crew to make sure that we get into operation.
In October and November next year.
Alright, great ill leave it there thank you.
Thanks.
Your next question comes from David Kassie.
With Raymond James Please go ahead.
Thanks, Good morning, guys.
Maybe turning over to Quebec in the RFP bid into there recently.
All you can provide on how competitive you expect that will be you know there are a lot of.
Rfps coming or maybe even any just color on your on your bidding strategy there.
Of course, we will not tell our secret.
But I think that we've been always.
<unk> been open and and.
We can be a great partner with first nation.
So we have been working with first nation community and into rest of Canada too.
Make sure that we have good support from local community, including to first nation.
So I think that this is.
Something that.
You have to have in Quebec.
Certainly in Bcf well you want to make sure that you are well come in in the communities and I think that <unk> has been.
On the forefront of being a good partner with local communities and first nation I think that this is something that we.
Are good.
And I think this is a the fancher two two to the rest of the industry I'm not saying that the other guys cannot do it but I think that we have proven to be a very good long term partner with first nation.
And maybe just to add to that.
Did we secure the next because DVD also piss him at first nation in this particular RFP so large.
I guess, all the territory that claim territory of the <unk>.
And excuse me is a good thing and then we submitted one project with them.
So with.
Now it becomes a question of price of course, but I think we have a good differentiator there.
And it was competitive but not that competitive if you remember.
Yes.
The area, where interconnections with available came in late.
In the process last year's end.
<unk>.
I think that.
Although it was competitive it was not that crazy competitive when you look at the multiple of bids compared to the awards that will that are that we're waiting to see the 500 megawatt I think youll see the number of bids.
It was closer to 3000, but become somewhere and we're competing against each other in that ratio is actually quite acceptable compared to recent RFP that we've seen in other markets, where the multiple of bids compared to the awards is much different much higher.
That's great color one thing I appreciate that.
Hum.
Maybe just one sort of follow up on that.
Certainly sounds very encouraging the targets that hydro, Quebec has in the province I was wondering.
If you could maybe just update us on any of them.
My discussions you may have had with hydro, Quebec with respect to your partnership there.
What what kind of opportunities do you see that providing going forward here.
I think a good hydro Quebec is.
And I don't want to talk for them, but given the amount of the sheer amount of work in Quebec, I think Andrew Quebec will try to be.
Creative in their approach in order to.
Have the support of local community as well and.
Accelerate the development there.
There has been in the past on some some opportunity where hydro Quebec has selected to go direct with a group of developer being also including some local communities this might be one opportunity over and above some RFP that the hydro Quebec is going to.
Lead.
So we'll be we'll be in touch differently with hydro, Quebec, we'll try to be a great.
A great partner of choice for first nation in that approach.
And hopefully we will act success, we differently.
Have a target to have our fair share of that 10000 megawatt going forward. Historically, we have had anywhere between 20 and 30% of these award.
This is this is definitely a target that that would be.
I wouldn't be happy if we if we miss.
Okay excellent. Thanks, Thanks for that answer I'll turn it over.
Your next question comes from Nelson <unk> with RBC capital markets. Please go ahead.
Great. Thanks.
To start off with more of a big picture question. So you have a number of wind developments that you're.
We're advancing.
How do you think about.
The turbine suppliers and do you have a preferred turbine supplier I'm, just asking because we've heard about that Siemens running into.
Some troubles lately.
Well, that's a good point.
We are hoping that.
For the sake of the industry that these turbine manufacturer get better financing that financing but.
Get their act together.
It is important for all of us I think that.
As.
As our industry is getting.
I would say more and more opportunity going forward.
I'm, hoping that the turbine manufacturer will get.
That we don't necessarily need.
Every second year of new turbine, we need realogy will efficient turbines that works.
I think they get it.
I think that that race to have new model every now and then is.
He is scaling them.
So I think that and we.
Have heard Siemens Gamesa problems, we don't have any MSR.
Turbine in our fleet. So we're not that Montana I know, it's a different model.
Yes, yes, well, we have Siemens gamesa.
MSR. So we're free of these the issue we're not saying that we don't have issue with GE or <unk>.
But I think that.
Theyre getting reef.
<unk> focused and it's a good thing.
And even if the rise the price if we know in advance we are as Chinese, saying updating our our strategy to bid taking into consideration. These.
These new price.
For turbine.
The important thing is that we know in advance so that when we bid we have these new price, but what we.
Wishing is that this model will not have serial defects and all kinds of issues.
This is basically.
Something that.
I think now their board and Investor are tailing down to just concentrate on delivering good turbines.
The world needs a lot of wind down the road and we certainly don't need.
Two turbines that have not been tested before being sold to.
To produce long term long term electricity.
That's good color and then just on.
On that topic of this higher project costs higher equipment costs you mentioned.
Earlier that in Hawaii.
The PPA price increase at about 56% was was approved.
I think you guys fit into that projects like way back in yet.
2018.
Can you just give some color or just big picture as to like how costs have changed since then is it relatively consistent with that 50 or 60%.
The increase in the PPA price.
Yes, but.
A little bit more in interest rate has gone up so even if it's a 50.
Person price increase.
It's bring an okay return.
But it's certainly not our most profitable.
Project, but of course, it did help but it shows you that.
In the lab soft time.
Price have gone up quite a bit in some of those facility, but we're happy to have that price increase.
This is supporting an okay return, but not not a great return.
Thank you.
Demonstrates also is the.
Willingness from public utilities to actually revisit the pricing even when they were bid to win RFP.
They don't necessarily have to do this but they they want these megawatts and they want to clean the grid in transition. So we've obtained that type of relief from from heat cool, but also from back at Boswell and it just so that I think the.
It's something that we would have never seen before but but nowadays utilities I think our listening in.
They accept to revisit pricing.
Because they understand that the reality is change for pretty much everyone, including themselves as well.
And.
They need the electricity down the road I think that the what I mentioned.
Hi opener for me and I hope for.
The rest of the industry and all the stakeholders is that if we're serious about decarbonising hour our industries in the world.
We need to start today, and we need to do it fast and we need a lot a lot a lot of wind solar and hydro going down.
That path.
And then I just have one last question.
With the battery storage projects in Chile, almost completed one of the two completed.
Have you I presume you've looked at North American battery storage opportunities like are there any.
Good opportunities to add batteries to existing sites in North America, I'm thinking, Texas, specifically or even other areas.
Haven't thought of.
Ontario is a good place with the RFP, because theyre committing to pay for our Capex capacity payment were not a big players yet.
Ontario.
We've looked at Texas with problem in Texas, They don't pay for capacity, so pretty difficult, we don't want to invest in batteries and playing just merchant as I mentioned.
It just happened that since we're early investor in Chile will take advantage of the big swing until some.
Some some other batteries will be built.
But then the long term strategy is to have them embedded in our technology. So there'll be there'll be supporting long term PPA.
This is what I think is smart investment in batteries, but will be on the outlook to have some some project to answer call. When utility are willing to pay a fair price for capacity because if you.
Rely only on merchant.
Becoming quite challenging for establishing a stable long term cash flow forecast on these investments are we we will be looking towards.
Places, where we can capture to maturity of our revenue.
Through capacity payments or embedding these.
These batteries into a portfolio or to supplement solar into certain call.
So this is where we're going to be focusing more we will not be a big players of putting batteries for merchant exposure.
Okay, that's great color. Thanks, I'll leave it there thanks.
Your next question comes from Mark Jarvi with CIBC. Please go ahead.
Yes, good morning. Thanks.
Thanks for providing the normalized payout and highlight that you adjusted for the power prices as well as the generation.
If you look forward with those projections is that the right proxy for where you think you would be next year, just sort of other puts and takes in terms of year over year is something around an 80% payout ratio the target for 'twenty 'twenty four yes.
Well, it's certainly a good proxy to use because it reflects our earnings power.
In terms of the normalized the future 2024 is a bit different in 2023, so I'll leave it at that because we don't we're not in a position yet to give guidance for 2024, but it just I think I just it helps the street to just revisit that.
The notion that.
Whether it's something in the weather patterns out of that office stock caused stuck up on us is especially in BC, but when things normalize themselves and we believe in it we believe that.
Eventually, we'll revert back to the mean, especially because we have 85 assets. So the diversification effect.
It should come back and help.
I guess you can certainly.
Put that in the mix and use it as a proxy for it.
I'm sorry.
And when do you guys think youll be in a position to update growth targets and provide the outlook for 2024 and beyond.
Good question that I don't want to Dodge that question, but.
Given the great opportunity that we have in all of our markets, especially in Quebec, we.
We just want to be patient and absorb.
The our strategy to come back to you into a more in light or insight.
We're going to be also sitting down as I mentioned with hydro, Quebec trying to understand how we can help with certainly some our first nation partner.
Into this endeavor that would be.
Just announced so we will take our time guys.
Don't read into this that we don't know where you're going we know we're going is that there is tremendous opportunity. We just want to make sure that.
We are updating our strategy in the right fashion and communicated to you I think that what Johnny is saying.
Yes, you can take the normalize in.
And extended to 2000 2040 won't be that wrong.
Also just an update I'm surprised that you havent asked but.
Our fourth quarter looks a lot better its still early in the in the quarter, but BC is back.
The forecast for rain for November is great.
We have had a good October month, and november's looks really good in terms of production of hydro in BC I don't know about December.
But so far this quarter seems to be pretty good for for BC hydro production.
Production so.
I think that as Johnny is saying, what we didn't understand it in the last few quarters, given our great diversification, we've been hit hard in some cases.
Still thinking that diversification of technology and geography is the right strategy in order to have less volatility in terms of production.
And we will certainly continue to deploy that strategy going forward and be prudent also in establishing long term forecasts and tried to take into consideration.
All the new input that we can get in terms of.
Potential.
Winter pattern change going forward, but like I said I think that the strategy.
Diversification is the way to go.
Okay and then just last question from me John did I hear you say that Youre essentially of all your floating rate debt exposure.
<unk> put away once youre done with these financings is that.
Is your expectation that your credit facility will be essentially.
Fully repaid.
Once we're done the debt financings and Conversely, with credit Agricole proceeds.
No, we think will be a balance still yeah.
Fully repeat of course, but there will be a remaining balance but that remaining balance we have hedging products in place. So right now the portion on the revolving facility that is unhedged would essentially disappear.
And on the hedged portion of the revolver credit facility like what would be the effective interest rate today on that piece.
Oh, that's a good question it's probably.
Around four I would say like the hedge portion.
So much lower okay.
All four and a half.
Your next question comes from Ben Pham with BMO. Please go ahead.
Hi, Max.
Hi, good morning.
<unk>.
I'm not sure if you mentioned this in the beginning.
I missed the first few minutes.
Can you talk about the dividend sustainability from your perspective and is there any.
Conditions that you may have to really look at the dividend.
This is no we haven't mentioned that band as you always.
I don't want to Dodge that question, but I think that this is something that the.
The board has.
<unk>.
Jurisdiction on.
We are looking in all our.
Possibility of cost allocation dividend is not the first thing that we would look into.
To raise capital Tomorrow.
But obviously.
We're seeing great opportunity going forward.
We mentioned, we have a lot of initiatives to reduce.
Our.
Our need to go into issuing stock we have been recycling asset we have.
Undergoing some some refinancing activity. So we don't need to raise capital in next two three years due to fund our portfolio. So I would I would keep it in that.
But like I said, we are always looking into cost of location optum.
<unk> and we have of course, a great opportunity going forward, so I would leave it that way.
I think that John has shown you also that on a normalized basis.
The dividend is well covered and be mindful also that in our calculation of <unk>.
Budget, we are putting about $40 million in development activities prospect activities. This is already built in our hour.
Budget for next years and we've been.
Investing.
On the basis of close to 30. This year. So we can support both the dividend and our prospective activities.
But I.
I think that we always consider all of the capital allocation avail.
Available to us.
Okay.
And then maybe just a follow up on that then.
I know you talked about the payout ratio.
Improving and I tried to say at 80% and that's that's being close to your target of 75.
Chris that that delayed.
Do you think.
That's the right.
Payout ratio on this <unk>.
Environment, where lets.
Looks like you're still going to ramp up crop activities and.
Interest rates are rising and you have to manage the volatility and resource conditions is 75%, but right target to go to.
While the 75% include doesn't include dollar perspective expenses so.
We can certainly try to improve on this and you are right.
Great opportunities for us to deploy.
I don't think interest rates will go higher but that's my guess.
I think that we hopefully we have seen the peak of the interest rate movement, but.
Things can be volatile in this world today, but.
I think that we've seen the worst and again I would I would like to think about creation of value for the shareholders. When is the best for creating value for our shareholders going forward. It will always depend on how successful we are also in securing.
Project.
You have good project getting the capital is not a big issue, usually theres all kinds of.
Fund that are chasing good investment in green infrastructure like like we also for time being we are focusing on creating value for our shareholders in our prospective activities securing long term PPA with good margins. So that we can generate accretive cash flow per share to our shareholders.
Can I sneak one more and I know you mentioned capital allocation.
And you also mentioned some of the returns.
Targeting.
To be eight to nine and announce 10 or above.
Well the yield at 8% so I don't.
I recall your stock of her being this.
For some time like isn't it.
Isn't it better just to buy back stock.
Or is it more to Fitch ratings to test first before looking at that.
But it could on their short term, obviously, we think that the price of our stock is depressed and doesn't represent the value of the <unk> value of the portfolio on the other end.
We want to create value on the long term and the opportunity in the window of opportunity to secure long term PPA are now.
We want to make sure that we have a good long term PPA pipeline in our portfolio for delivering project K in 2007 2829, we have to take that.
That opportunity and Thats, how we are going to focus so.
I would love to be able to buy our stock at $9.
I think that on the long term basis.
We are going to use our liquidity liquidity wisely.
Main focus I repeat is to grow profitability from our own pipeline of development and like I said, there's huge opportunities in the four markets that were that were operating in.
Okay understood. Thank you.
Thanks.
Your next question comes from John Mould with TD Securities. Please go ahead.
Hi, Good morning, just one question I wanted to ask about investment in Quebec in the context of your existing wind fleet I think the first the first PPA I think it'd be decided that expires.
Those three years and in the last several calls the next one what kind of re contracting process are you anticipating.
Back to wind assets and does this present, a broader repowering opportunity or more of a short term PPA extension well. That's a very good question, giving the amount of energy hydro Quebec needs. These projects are already embedded in the transmission system.
We have initiated discussion with hydro, Quebec the goal that we have.
I guess express is to have a long long term vision on these sites. So how do we maximize the existing.
<unk> facility mind, you that we are operating.
These facility ourselves so we have very good knowledge and ability to.
Maintain these to these win win.
Wind farm, just too small recall, we have a little bit over 400.
400 units of.
One five.
That fleet, we know them, we have been taking care of them. So there is a big bunch of those that can be extended.
And the initial 20 years, but we would love to be able to create value on a long term basis with hydro, Quebec, having some kind of a hybrid.
System, where we can take.
The existing facility or an existing location and make the best of both world keeping some old machine running.
And then putting you technology repowering, some some part of the portfolio to maximize the existing footprint and to create long term sustainable.
<unk> forecast cash flow for us having the ability to phase these repowering in sequences.
And like I said, they're having.
The certainty of our output with hydro, Quebec, but like I said hydro Quebec needs. These these these type of project to be.
Our renewed and Repower, we'd over time like I said again do you want to have 10000 megawatt of new facility by 2030 35, they don't need to shut down some existing plant.
And to give you an appreciation of repowering with the new technology to that some of these sites increases the power generated by 25%, 30%. So there is a great gain also farnham, Quebec in terms of the energy that it could provide.
The grid from these assets. So I think we're in a good position to actually.
Holding discussions and get the best outcome.
Yes.
Okay. Thanks for that context, that's great I'll leave it there. Thank you.
Ladies and gentlemen, if there are any additional questions. At this time. Please press star followed by the one.
A reminder, fee are using a speaker phone. Please lift the handset before pressing any keys. Your next question comes from Nick <unk> with Cormack Securities. Please go ahead.
Hi, Nick.
Hey, good morning, guys.
Now that you've secured the debt package and tax equity financing for Basel Springs, and I've gone through that whole process can you just speak to the general availability of capital and how competitive it was all of the sources and how how many options you have to evaluate is it getting harder to source capital or are you still find it to be a fluid market.
Yeah. That's a good question Nick so the market is actually pretty thin in terms of the available pool of capital for tax equity range. So.
So it'd be Dr. So we run a process we had several.
Players that were excited about a project like Boswell I think it calls to strong sponsorship strong PBE update occur.
And good technology, and so an experienced sponsor in the sense that we've done tax equity often.
Now so so that was recognized.
But at the same time I mean, the pool is not that vast right and that's one of the constraints from the following the <unk>. It brings a lot of projects and other products, but at the end of the day.
This is going to be one one area to look into and as long as the interconnection interconnection index equity pool of capital constraints.
The goal.
And here, we've also shown the market that we're bringing to new.
Partners.
Didn't deal with us before us.
Right because it improve.
Improved the capacity that we will have at <unk> to do this.
I think I'm confident that we can do it again, we have these relationships now and we've proven that we can do it and it's a significant amount of capital as well as you can see so.
It's not a concern for us, but for the industry and to get to the goals that the army wants to achieve it is a concern.
The terms and conditions, obviously are not easy I mean dealing with tax equity is I'm not going to say, it's an easy thing.
I mean, it's.
It's an approach where the proposed terms and conditions and you try to make it work with you more than that than the real true negotiated position, but there are some areas, where this whole flexibility and they've accepted some of our.
Proposals and so we moved on.
I think also that an interesting.
Did luffman will be to see how the industry is coping with the transferability.
Tax equity and PTC certificate that may.
Rob the the market.
We are.
We're looking into this we know that theres. Some brokers that are trying to pull some some some capital in order to answer the demand for future tactically that was an interesting twist in the new the new.
Version of.
Those PTC and ITC.
Have yet to see how liquid and efficient this will will.
We will translate.
It's just one year old rates. So the Ari I mean people are getting their act together and I'm trying to get their head around that but we see some transferability deals done.
But for US it was it was not the case, yet because we didn't we didn't need it but it's going to be interesting to see how it unfolds and the good thing about the areas that previously ability of tax equity for 10 years right. So at least we.
<unk>.
We are away from what it used to be.
A couple of years boom in Boston and the PTC market. So now we have a visibility over 10 years. So that helps so theres a few good elements, but still the pool of capital needs to increase in a bit more.
Got it thank you.
Does the same logic apply to it.
Step with the project finance market or no any more players there.
More players got more many players to more much more liquid market.
Okay. Thanks, and obviously I appreciate that growing projects organically is the priority but.
These challenges led.
Bled into other earlier stage developers or maybe those who were as well capitalized or are you seeing opportunities, where you could potentially acquire either late stage development assets.
In fact, if terms though.
This is the area, where we might still.
Transact in M&A, if we can find affordable.
Our community to speed up our.
Development or construction activity.
Yeah of course, there is theres need here and there and we will be.
On the look out not necessarily huge deal.
Some some some transaction.
Might be interesting in order to do.
To speed up some some some projects so that.
We could have <unk> and 'twenty six or even late 'twenty five.
Got it. Thank you and then just coming back to Nelson's question about the turbine supply.
Guys finding that suppliers are changing any of the terms.
Are they if they are trying to scale production or are they asking for deposits earlier in the process are they requiring longer lead times or giving preferential treatment to certain purchasers any change in their activity.
<unk> here.
There are certainly wising up.
Actually in the type of.
Of pricing, they're giving.
We have one characteristic if you remember also on there are some players that are more interested in staying in the O&M and versus the price of the sale of the turbine we have some flexibility down there for us being able also to operate facility. So we can play a little bit that game.
Some manufacturer are less exposed to North America, and it would router.
Put perhaps a price on the turbine, but let us operate and provide some supervision and some.
Some spare parts, so we have little bit more flexibility than maybe some other players that would not consider doing their own operation.
But like I said.
We expect them to.
To provide us some price that they can sustain same with O&M like I said I think we are very picky.
Particular in our approach on O&M AFD, if they are committing to do something on the O&M, we have very strong.
<unk> agreement that we would like to use and if they don't want to do this we can manage the operation of ourself.
Excellent. Thank you very much guys. Thank you.
This is vishal there are no further questions at this time.
Thank you. Thank you everyone, we'll be talking again in February have a nicely. Thank you all thank you. Thank you very much everyone.
Ladies and gentlemen, you may now disconnect your lines.
Mhm.
[music].