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Edited Transcript of INE.TO earnings conference call or presentation 15-May-19 1:00pm GMT

Q1 2019 Innergex Renewable Energy Inc Earnings Call

LONGUEUIL May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Innergex Renewable Energy Inc earnings conference call or presentation Wednesday, May 15, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jean-François Neault

Innergex Renewable Energy Inc. - CFO

* Karine Vachon

Innergex Renewable Energy Inc. - Director – Communications

* Michel Letellier

Innergex Renewable Energy Inc. - President, CEO & Director

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Conference Call Participants

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* David Quezada

Raymond James Ltd., Research Division - Equity Analyst

* Jeremy Rosenfield

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Mark Thomas Jarvi

CIBC Capital Markets, Research Division - Director of Institutional Equity Research

* Nelson Ng

RBC Capital Markets, LLC, Research Division - Analyst

* Rupert M. Merer

National Bank Financial, Inc., Research Division - MD and Research Analyst

* Sean Steuart

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2019 First Quarter Results Conference Call and Webcast. (foreign language) (Operator Instructions) I would like to remind everyone that this conference call is being recorded.

I will now turn the conference over to Karine Vachon, Communications Director. Please go ahead.

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Karine Vachon, Innergex Renewable Energy Inc. - Director – Communications [2]

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Thank you. Hello, everyone, and thank you for joining us today. I'd 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 pertaining today's discussion is available. You will find the link to the webcast on the homepage of our website at www.innergex.com or in the Investors Report section.

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 unduly on these forward-looking statements as no assurance can be given that it will prove to be correct. Forward-looking information contained herein is made as of the date of this MD&A, 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 the date hereof, unless so required by law.

During this call, we will refer to financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the non-IFRS measures section of the financial review for more information. Our speakers today will be Mr. Jean-François Neault, Chief Financial Officer, who will do an overview of our Q1 results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our Q1 operational highlights and Q2 priorities.

I now turn the conference over to Mr. Neault.

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [3]

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Thank you, Karine, and hello, everyone. I am pleased to report strong first quarter results stemming mainly from the numerous acquisitions achieved in 2018. Before going further, I must stress that all 2018 amounts mentioned were restated to be comparable with 2019, given that the activities from HS Orka were re-classed as discontinued operations. However, the combined results of the continuing and discontinued operations are presented in the MD&A in the discontinued operations section.

In the first quarter, our Production Proportionate, which include our share of joint ventures and associates, grew by 52%, while we achieved 99% of the overall long-term average. Our Revenues Proportionate and Adjusted EBITDA Proportionate also posted strong growth at 29% and 27%, respectively.

On next slide, production improved mainly due to the increase of 411-gigawatt hours in the wind segment caused by the acquisition of the remaining interest in the 5 Cartier Wind Farms. The hydro segment recorded lower production, mainly due to the below average water flow in BC, which couldn't be totally compensated by the good results in Québec.

Continuing to Slide 10. Quarterly revenues reached $126.4 million, due mainly to the Cartier acquisition. Growth was, however, impacted by our hydro activities in British Columbia due to the lower production than for the same period last year.

Now if we look at the adjusted EBITDA, we can see a good improvement over the last year at $93.2 million. Again, the Cartier acquisition being the main factor. When adding our share of the joint ventures and associates, on Page 12, our Adjusted EBITDA Proportionate reaches $99.7 million, a $21 million increase over the same period last year. Contribution to -- of the investment in Energía Llaima in Chile and the commissioning of Flat Top explain the increase.

On next page, change in the financial position items result mainly from the initial application of IFRS 16 and to the progress made at the Phoebe and Foard City projects.

As shown on the next slide, our free cash flow increased by almost $23 million to $119 million, mainly due to the Cartier acquisition and the favorable timing of interest payment that should be offset later during the year. Our payout ratio improved at 77% compared to 79% a year ago.

Finally, we announced on May 8 that we have completed a construction financing of USD 290.9 million for the Foard City wind project by a tax equity investment commitment of USD 275 million and a 7-year term loan facility of USD 23.3 million with a 10-year amortization period that will be provided at commercial operation, leaving an investment of approximately USD 86 million for Innergex to complete construction of the 327.6 megawatt layout.

On Page 16, we are presenting on an indicative basis, Innergex profile of estimated average annual share of Adjusted EBITDA before Flip Point and during PPA, along with 3 scenarios after Flip Point and post PPA.

Looking at the first column, before Flip Point, while Innergex is getting 80% of the EBITDA, it is important to mention that Innergex is also getting 100% of the estimated pay-go contribution of $4.3 million on an average P50 basis. Since tax equity investment return is fixed at P95 basis. In other words, everything above 87% of long-term average production would be paid through the pay-go mechanism.

Now looking at the 3 scenarios for different pricing post PPA. Innergex annual share of Adjusted EBITDA could improve anywhere between 50% and 200% compared to the EBITDA before Flip Point due to the tax equity investment being fully amortized and Innergex getting 95% of the EBITDA and cash distribution. Also important to mention that the project will be debt free after Flip Point.

On that note, I will give the floor to Michel for the operational review of the past quarter. Thank you.

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [4]

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Thank you, Jean-François, and good morning, everybody. I guess we'll come back on Foard City, I'm sure you will have a few questions. Please take note that this slide is available on the deck and from my perspective, it's a very important slide so for you to understand a little bit more the tax equity and the type of cash flow we have received from Foard City.

So talking about Foard City, we were glad to report that the financing has been closed and also, we have had the commitment on the FAA permits on the first 94 turbine. Very, very confident that we will get the next 36 very soon, so that the construction will not be delayed, and we will able to deliver the project as planned in the fourth quarter of 2019.

Coming back also on a very important construction project, Phoebe. Phoebe construction is going very well. We will be starting producing electricity in the next few weeks. I hope to have some production by July and the project should be finished in very early falls of 2019. So I tip my hat to our team there working hard on 2 major projects, 1 250-megawatt Phoebe project and the Foard City 327 megawatt. So those will add up almost 600 megawatt by the end of the year in Texas.

On the development side, we've been busy in Hawaii. The bigger project is going perfectly. The other one, we have some discussion with some landowner in the area, some community. Very confident that we will find a solution to finalize this project, which is in the early stage of permitting. So there's -- I would say, the team is working hard. I don't see any big issue in our ability to have these projects being fully permitted and commissioned in due time in 2022.

Coming back to also some focus that we have done in the Q1 is the sale of HS Orka. Mind you that we have -- just a quick remember, that we will receive over CAD 400 million. We're hoping to close by the -- and receive the proceed of the sale somewhere in mid-June. We have announced the signature of the purchase and sale agreement. It's just a matter of waiting from the usual delay for the first right of refusal from our local partner.

A quick reminder also that at that price, that would represent over $60 million of profit over the book value that we ascribed when we acquired Alterra. So it's still a pretty good transaction for us. You've seen also in the discussion with Jean-François that only if we wouldn't have excluded the HS Orka, we would have actually had the long-term forecast a little bit better than the long-term forecast budgeted. So it's -- it shows that diversification of technology and geography is helping. That being said, we are selling HS Orka, but our strategy to maintain a very good diversification both in technology and geography, we will be focusing on solar in United States and in Chile. So we will be basically getting back the diversification that we had on our portfolio and the diversification given by the geothermal assets.

We are very confident that the solar industry will be a very powerful growth sector in the world of renewable energy and Innergex intend to be very present in that sector. We'll take full advantage of the ITC program in the United States that has been extended towards 2025. So we'll have our own greenfield project. Our team on the ground is working hard to have a healthy portfolio of project in Texas and in PGM.

Very glad to report that we will -- we are advancing, and we will have strong project in the months to come to add up in the pipeline and to be available for COD in 2020, '21 and '22. So we're building up that portfolio strongly. In the meantime, we are developing the Hillcrest in Ohio as the next solar project and that would be a 2020 delivery program or project.

So Hillcrest is advancing. We are finalizing the potential PPA and trying to maximize the value. In the meantime, we have obtained all the right to the interconnection grid. So this was probably the last box before being able to be fully in a position to negotiate a PPA or hedge or a long-term contract with a third party in Ohio.

We will be also developing future -- well, developing -- we'll be focusing on future RFP in Hawaii. There will be an RFP and it has been announced. So we will have at least 3 projects to be submitted in the future RFP. I think the date is somewhere late in 2019, and we should know about the winning project early in 2020. So hopefully, we'll have some success there as we did in the first RFP.

Still focused heavily on developing our Yonne project in France. I know that we're coming back to saying that it's a long process, but it is and -- but we are advancing. We have now 150 megawatt that would be ready to build starting as early as 2021. This is our expectation, and of course, we're trying to add up and to speed up the other project. But a potential COD date anywhere between 2021 and 2022 is now foreseeable for these projects.

If we are going back to Chile, Frontera is -- I guess, the last portion of Frontera is for us to find a good financing, working on different scenario over there and advancing also with all the supplier to try to have best cost of the project. We will also be focusing, and we're quite active in looking at the existing facility that are for sale and perhaps had some difficulties with some of their project finance, just as we did with Duqueco. So there is a few opportunity that we are working on, on the M&A side, and we're confident that during the next years or months, we will be finding some other interesting investment in Chile to build up on our strategy of having a diversified portfolio in Chile.

Of course, we're still working in Canada. We have a few opportunities in Canada that are advancing to some degree pretty well, some activities with First Nation in Canada. And of course, we'll be looking into future potential M&A always on the, I would say, opportunistic side, always in a view of creating value for our shareholders.

So on those notes, we'll start taking questions.

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Karine Vachon, Innergex Renewable Energy Inc. - Director – Communications [5]

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Julia?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Sean Steuart from TD Securities.

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Sean Steuart, TD Securities Equity Research - Research Analyst [2]

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A few questions. Thanks for the detail on the Foard City cash flow stream with the tax equity, that helps a lot. I have one question on Foard City with respect to the construction cost, and I just want to bridge what you have in your MD&A with what you provided in the slide deck. I think the MD&A referenced an expected construction cost of CAD 513 million, and Slide 15 of the deck shows breakup of tax equity of $368 million; construction financing of $389 million; and a term loan on top of that. Can you bridge, Jean-François, those -- the CAD 513 million construction cost with those line items you gave in the slide deck?

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [3]

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Yes, construction costs -- we have to -- I think, if you refer to Q4 -- I'm looking at Karine -- the dollars were into -- I think you should refer to the dollar amount into the MD&A are in Canadian. So CAD 513 million and into the slide deck will represent the dollar amount in U.S.

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Sean Steuart, TD Securities Equity Research - Research Analyst [4]

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I think there was some Canadian figures provided as well and maybe we can follow up afterwards, but I couldn't quite bridge that.

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [5]

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Yes, the construction loan, I think, it's a typo, $388 million. I think you are right. So we'll take that remotely, Sean...

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [6]

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But the U.S. number are good, so perhaps the...

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Sean Steuart, TD Securities Equity Research - Research Analyst [7]

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Got it. I'll focus on those. Michel, your comments on prospective solar growth in the U.S. and Texas and PGM. Can you give us a little bit of context on the scale that you might be considering for those type of projects as you advance the prospective pipeline there?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [8]

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Yes. We are starting to have a strategy where we're buying solar panel in order to have the safe harbor strategy and the amount of panel we're buying should secure anywhere between 650 to 750 megawatts worth of solar project. So the team on the ground are working, and this is for 2020 and 2021. So the team on the ground is making sure that we will have at least that much project ready to build in those years. So far, I would say, that we have 1 completed project in the range of 200 megawatts that is almost fully permitted as well to next year. So I would say that we're very, very -- I wouldn't say aggressive, but focused on that strategy. And then after that, we'll see what type of financial engineering we will get in order to maximize this -- those investments. Of course, we'll need and take full advantage of the tax equity through the ITC, but perhaps some financial partnering and financial engineering could help enhance the type of return that we're looking. But given the experience we've seen and the project we've seen being sold on an advance or NTP stage, we think we can create quite a value for us in that strategy.

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Operator [9]

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Your next question comes from the line of Nelson Ng from RBC Capital Markets.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [10]

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A quick question on Shannon wins. And I think the EBITDA reduced by about 50% and the generation increased by 50%, I think one of the reasons that was flagged was just higher property taxes. I was just wondering whether -- what was the size of the property tax and whether that was recognized fully in the quarter or whether that was, like, spread out through the year?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [11]

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That's a good question. We'll take a closer look, but the -- some of the issue will remain in the basis risk that we have to suffer still in Shannon. So mainly a little bit of the miss on the pricing differential between the different point of injection, and so we still had a little bit of a challenge there perhaps for the...

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [12]

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On the property tax, I'll get back to you on that precisely whether it's related to -- specifically to Q1 or it's something that I [lagged there].

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [13]

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Okay, perfect. And then for the Chilean assets, could you just talk about the EBITDA profile over the year in terms of how Q1 should compare with the rest of the quarters, like are, I guess, Q2 and Q3 the stronger quarters or how do you like just -- can you just give a big picture profile on EBITDA?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [14]

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Well, obviously, for the solar asset, which is not the material one, it's more Duqueco complex and Duqueco complex, the -- our winter is their -- or beginning of winter is the melting season for Chile. So you have to look at -- on the reverse since it's the south hemisphere. So basically, it's -- the winter is pretty good, that the quarter -- the first quarter is pretty good for Duqueco. And then you have also, which is the Q -- yes, Q1 and Q1 is not bad, I'm trying to figure it out. It's the reverse of -- exact reverse of what we can see in BC because Duqueco has also some glacier melt, and of course, the winter is more rainy than the later part of their summer.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [15]

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Okay. So Q4, Q1 are the stronger quarters for Duqueco, right?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [16]

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Yes.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [17]

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Okay. Perfect. And then just one question on Foard City. The -- I guess, it looks like the hedges are at around $15, $16 per megawatt?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [18]

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No, we have shown it blended because the hedges -- we're not selling 100% under the hedge, we sell perhaps on P75 or P78 or between P75 and P80 and the rest is sold on a market basis. So on average, we are looking into being a little bit conservative on $15 per megawatt hour. So we get the hedge around something -- a little bit over $18 and we're trying be somehow conservative on what we can get on the spot market.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [19]

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Oh, I see. Because I would have thought the hedges are below market, but you're assuming the spot price is going to be lower than the hedge, whereas I thought hedges are generally lower than the spot price?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [20]

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I agree. I agree, the hedge is in the range of $18 and the spot market is anywhere -- and of course, it depends and it varies a lot, but it averages anywhere between $20 and $28. But depending on the availability of the wind and so forth, so we've been a little bit conservative and err on the conservative side to complete, and it's also sometimes we might lose money when we're not producing and we have to buy on the spot. So hence, this approach be on a blended basis where we sell and buy. At the end of the day, we think that this is the right conservative long-term forecast for the hedges -- for the period of the hedge is around $15 per megawatt hour.

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Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [21]

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Okay, got it. And then moving to France, could you just clarify whether you were able to get your projects up to the level where you can bid into the wind RFP?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [22]

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Yes, Yonne has submitted its final construction -- permit for construction, and then we have 2 or 3 -- 1 years of waiting time. And this is one of the big one we have, it's about 40 megawatt. And hence, something next year, we should be in a position to be ready to have that project ready to bid. And hopefully, ready to start construction by early 2021.

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Operator [23]

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Your next question comes from the line of Rupert Merer from National Bank.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [24]

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Looking at Foard City and Phoebe, can you walk us through on a high level what we should expect to see in the cash flow and balance sheet the next few quarters? And in particular, will they remain consolidated or will you hold them as JVs after the tax equity is received?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [25]

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For the moment, we own 100% of the sponsor equity. So just as Kokomo and the other small...

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [26]

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Spartan.

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [27]

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Spartan. We'll be able to put them as 100%, unless we -- somehow we divest of them in some (inaudible) -- some minority financial position, then depending on the type of shareholder agreement, we have then -- you may end up having it in a joint venture. But for the timing, we own 100% of the sponsor equity, so hence, they will be fully consolidated in the financial statement.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [28]

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Okay. Maybe can you give us your thoughts on capital recycling and at this point, do you think you will look for minority interest ownership in those assets to look to recycle some capital in the future?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [29]

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We want to make sure that we create and we capture the maximum value of these projects. And of course, the maximum value comes when you have a good [acuity] and you have to prove out that those projects are generating well. For the time being, we don't need that capital in a sense and we want to make sure that we come to the COD and makes those projects operate certainly a few quarters. But there is always some incoming inquiry on our asset. So depending on the type of other opportunity we have, this is definitely, I wouldn't say a liquid position, but having a minority financial partnering with us has been a way to recycle capital and create a little bit of a value for our shareholders. So we'll be looking into it, but we don't have any plan right now to do this. Given the sale of HS Orka, our financial position on the line of credit by the end of the June should be something over $200 million worth of available room on our credit facility. So there is no rush for us to do anything on that side. But like I said, if we said all along that we had enough money to do Foard, Phoebe and some development. But if we're very successful and we -- if we have to make another acquisition, of course, we'll be reconsidering some of our opportunities and alternatives and one of them is to sell some minority position in our existing facility.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [30]

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Okay, great. And then one final follow-up on this line of questions. If we look at the financials you put together for Foard City or your estimates for the performance going forward, if you don't do any sell downs, what would that give you as far as an equity return?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [31]

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Well, if you look at the slide that we have provided for Foard City, just on cash on cash, you could see that we do double digits cash on cash. So we will have double-digit internal rate of return. We have provided some alternative or some sensitivity on the price of electricity past the initial PPA. So Foard City is something that we're quite proud. I think that the market or you guys would -- I would encourage you to look into these numbers and make your own calculation, but it'd be nice for people to understand that these tax equity structures are complicated to understand, but they're providing a lot of value, especially after the initial PPA or hedge period. You can see that in the case of Foard City, this project is generating quite a bit of our cash flow and there is no debt.

The tax equity structure is made in a way that after the 10 years period, if everything goes well, then the project is debt-free and all that cash is for the benefit of Innergex. So definitely Foard City and eventually our own greenfield project for solar might be a little bit less rich than Foard City, because they are solar and it's a little bit tighter in terms of return, but this should be quite interesting. And obviously, if we develop them, I think then that we can create quite a bit of value because in the waterfalls of return, solar is becoming one of the most, I would say, risk-free type of investment that a lot of financial investor and infrastructure funds are very fond of. And hence, if you develop them at a decent return, there's always a potential for quite a good return when you sell down some of those position in the -- once they are in the COD.

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Operator [32]

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Your next question comes from the line of David Quezada from Raymond James.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [33]

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My first question here, just a follow-up on Foard City. I'm wondering if you could give us your thoughts on how you arrive at the long-term projected sale price for power in Texas. And like puts and takes on how you see that developing over time and whether or not you see potential for it to come outside the range you've provided on the slide here?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [34]

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Well, there's always the possibility they can be lower than $30, but mind you that, that's $30 in 10 years from now. So inflation without the -- it's the equivalent of something around $24, $25 today. That's probably where we're trading roughly in the spot market in Texas. That doesn't take into account a lot of carbon tax to be implemented in the future. Obviously, we have like any other developer or active player in the states, we have all kinds of third-party studies that's showing that some of those number can be improved quite a bit. But we rather provide you with what we think to be fairly conservative. I think that in Texas these days, there's always the natural gas price, which drives a lot of the merchant or the spot prices in Texas. I don't see the natural gas being a lot lower than it is today.

I think we've seen, of course, there can a movement here and there, especially in the intra season, but I think, we've seen the -- probably what we can perceive as the lowest natural gas price, especially if you don't take into account carbon tax and incremental constraint that shale gas might have to deal with in the future. So hence, I'm pretty confident that in 10 years from now, we could see on a regular basis something around $30 in terms of selling prices for electricity in Texas. And mind you, that's why we also like to have wind and solar in Texas, so that they could be complementary and past our first commitment in the initial years we would be free to bundle wind and solar and potentially some batteries in the mix and hence perhaps have a premium over the spot market for a potential corporate client in the future in Texas.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [35]

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That's great color. Just my only other question on hydrology in BC. I know that 1Q is seasonally not the biggest quarter, but could you talk about how the hydrology has been at all in 2Q and if you see a catch up there?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [36]

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Yes. Well, first of all, we were -- well, diversification, diversification, diversification, right? But the quarter in BC was terrible, terrible. We were 60% from our long-term forecast. So I mean, what we've seen so far, we had a fairly cold winter and not too wet neither. The snowpack was about 80% in most of the area from the historical data, but we have a fairly good spring in the sense that, as you know, we're run of the river so even if you have huge snowpack, but you have a very warm and rainy spring, you may lose it -- you may lose that advantage. So far, we're catching up very slowly, and April was a little bit -- still a little bit under, but May will be over the long-term average, big time.

And we'll see probably June, if everything stays, June is difficult to be a lot higher because most of the plant are scheduled to be fully -- in full production in June, given the profile of the water in BC. But I think we're catching up and we'll have a very decent Q2 in BC. So -- and then for the remaining of the year, God knows what's going to happen in July or in the fall for -- but I think, we're due for a rainy fall in Vancouver area or in BC in general. We've been having a couple of dry year in the last couple of years. So I think, we're due for something rainy and wet despite the -- our own employees in BC dislike this type of weather for business. It's much better to have a wet season in BC. But so far so good for the Q2 in BC.

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Operator [37]

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Your next question comes from the line of Jeremy Rosenfield from Industrial Alliance.

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Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [38]

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Just let's start with Québec wind, the performance at Cartier. I'm wondering if you can break that out relative to maybe some of the other assets in Québec. I know the wind performance was very strong though.

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [39]

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The other 2 asset is Mesgi'g Ugju's'n and Viger-Denonville. The -- all the wind assets did pretty good in the last quarter in Québec. It wasn't just Cartier, everything performed, yes?

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [40]

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The (inaudible) did very good.

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Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [41]

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Okay. And then just on the Foard City term loan, I guess the -- I'm wondering if you have sort of an estimate for the all-in rates and what you're seeing in terms of the -- just more broadly the market for sort of back leverage as you think about additional development prospects both on the solar and on the wind side?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [42]

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For term loan, it's -- it gets fully amortized over 10 years and it's a 7-year term and the all-in rate, I don't have it handy, but it's in a range of low 4%.

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Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [43]

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And is that consistent with what you're seeing for sort of the other development projects that you're working on that are in your pipeline, sort of attractive back leverage financing that can support the targeted equity IRRs that you're looking for?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [44]

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So far we've been -- we have a lot of support for Foard City and the others unless there is something different in the future in the economy of the states, but this structure is very well known and the tax equity provider we have are pretty solid as well. So we haven't seen any problem getting back leverage at good terms and condition and financial institution are supporting us in that aspect. So far, we -- there's still plenty of money available for that type of project in the United States.

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Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [45]

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Okay. Good. And maybe just -- finally just on Orka and I may have missed this, you may have mentioned it earlier, Michel, just in terms of the third-party consents that are required to -- for you to obtain prior to closing the transaction, where are you in that process?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [46]

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Well, we -- the only big one was the Arion Bank, and it's getting in the process. We don't anticipate any issue with Arion Bank and the other one is the -- basically is the first refusal from -- first right of refusal from the local partner and they still have until the May 27 to exercise their offer.

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Operator [47]

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(Operator Instructions) Your next question comes from the line of Mark Jarvi from CIBC.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [48]

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Just a quick question. I saw that you guys increased the capacity on the credit facility for the Cartier asset. Maybe you can just explain why you had to do that or what's the purpose of that upsizing?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [49]

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Well, we just wanted to have a little bit more flexibility until the Foard City project finance was put in place which is, I would say, just an insurance policy to make sure that we have flexibility, given the construction activities were ongoing on Foard City. But I'm glad to report that now the project financing is fully in place, and hence, we don't necessarily need that extra flexibility. But given the fact that HS Orka was signed and announced and imminent cash flow was coming from that asset, it was an easy way to get some flexibility.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [50]

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Okay. Understood. And then going back to Foard City, is it safe to assume that the 130 megawatts is going to be the sort of cap on the size of project that you probably can't get to 350 megawatts?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [51]

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Well, we're still working on it. Our team worked very, very hard in redesigning the location of the wind turbine. Designing it on their laptop is easy, but then you have to have all the land and access to the land and for the transmission corridor as well. So it took a bit of time and there is a parcel of land that seems to be still quite interesting for us to put another 10 turbine to reach a 350. It's just that we have to finalize with -- it's a big piece of land, but it has a few owner, it's a family and it was just a little bit more complicated to get all their consent and have their agreement.

There is not -- there were some traveling and there were some abroad. So -- but we're still hopeful that we will be able to find a room for these 10 turbine to bring it up to 350 by the end of the year. But just since we don't have all of the land and the FAA permit, we were not forecasting it as we speak, but working on it to come back to 350. Those would be probably good and profitable turbine given the fact that there is a lot of fixed cost or that has already been spent on the project. They are on the marginal investment basis so they should be profitable.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [52]

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Yes, that makes sense. So my question would be then, the follow-up would be, how do you go about financing the additional capacity, given that you've already kind of closed the tax equity. Would you just go back to the tax equity provider and try to adjust terms or how do you facilitate that small increase?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [53]

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No. They understood that this is a possibility so they are in the financial arrangement. There is some flexibility to extend both the project finance and the tax equity to take into account this marginal investment.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [54]

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Okay. And then 2 more questions on Foard City. One, maybe this is for Jean-François -- would be, how do you think about presenting the EBITDA contribution for the asset whether or not you include the PAYGO payments? And then second is, given the location, any thoughts on basis risk and sort of price differential versus the $30 to $36 you guys have talked about in the slide deck?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [55]

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Yes, go ahead Jean-François.

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Jean-François Neault, Innergex Renewable Energy Inc. - CFO [56]

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No. For the PAYGO, calculation is an annual calculation. It's unclear how we're going to treat that accounting wise as other revenue. It's a compensation for generation above 87% of long-term average. So this is an annual calculation that would be made. I just want to remind you that Foard City will be fully consolidated. So you will see probably that flowing through the EBITDA calculation for now. But it's unclear where it's going to be accounted for at this time. And your second question.

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [57]

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Yes. The -- we think that Foard City is a better location than Shannon in terms of discount on the injection point. We've looked into third-party assessment on that aspect. They have provided us a positive view on the limitation of the discount there. We'll see, but we feel that it's a better injection point than Shannon. So hopefully, we'll have less issue there than we had in the past with Shannon. Mind you, that the Texas Utility Commission is focused on trying to minimize these losses and they are very proactive in line improvement and over time, we're hoping that these discounts would get minimized over time.

I'm pretty impressed with how they're reactive in Texas. It's probably easier for them to build line and improve line than perhaps in places like Ontario or Québec, which -- or in BC that -- or New England for a change. There is not that many area where you have a lot of opposition to do this it's -- Texas, on that aspect, is great because if you need to build infrastructure, it's pretty easy to do so. So I'm hopeful that in the future, they'll find ways to improve their transmission asset, and hence, have a more efficient grid.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [58]

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Okay. And maybe just one quick follow-up would be just with the hedge arrangement, is the basis risk shared at all or is it all put back to you guys?

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [59]

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It depends the type, but it's mainly our responsibility.

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Operator [60]

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Ms. Vachon, there are no further questions at this time.

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Karine Vachon, Innergex Renewable Energy Inc. - Director – Communications [61]

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Thank you, Julia. Thank you, everyone. We will talk to you in August for our Q2 results.

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Michel Letellier, Innergex Renewable Energy Inc. - President, CEO & Director [62]

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Thank you.

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Operator [63]

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Ladies and gentlemen, you may now disconnect your lines. Thank you.