U.S. Markets closed

Edited Transcript of PEGI earnings conference call or presentation 6-Aug-19 2:30pm GMT

Q2 2019 Pattern Energy Group Inc Earnings Call

San Francisco Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Pattern Energy Group Inc earnings conference call or presentation Tuesday, August 6, 2019 at 2:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Esben W. Pedersen

Pattern Energy Group Inc. - CFO

* Michael M. Garland

Pattern Energy Group Inc. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Benjamin Pham

BMO Capital Markets Equity Research - Analyst

* Brian K. Lee

Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst

* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* David Quezada

Raymond James Ltd., Research Division - Equity Analyst

* Jeremy Rosenfield

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

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Nelson Ng

RBC Capital Markets, LLC, Research Division - Analyst

* Rupert M. Merer

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen. Welcome to Pattern Energy Group's 2019 Second Quarter Results Conference Call. (Operator Instructions)

I would like to remind everyone that today's discussions may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on Pattern's risks and uncertainties related to these forward-looking statements, please refer to the company's 10-Q, which was filed earlier today and available on EDGAR or SEDAR.

Now I'd like to turn the call over to Mike Garland, Chief Executive Officer of Pattern Energy Group Inc.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, everyone. Thank you for joining us today. Earlier this morning we released our 2019 second quarter results, which you can find on our website at patternenergy.com. You can also download a copy of the presentation that accompanies today's call from our website by selecting Invest, then Events on our web page.

For those of you that have the presentation, please turn to Slide 3. It was a good quarter overall for the sector and for Pattern. The macro environment for renewables in our core markets remains strong. In the U.S. there are several positive indicators. The cost curve for renewable technology continues to improve, and the most recent trade tariffs are not expected to have a major impact on the sector. Interest rates have softened with the recent Fed fund rate reduction, which is helpful to capital-intensive sectors like ours. Demand is strong, with wind installations year-to-date more than 50% higher than the U.S. compared to last year. Corporate customers are continuing to be a growth driver, with more than 50% of the new contracts signed in the U.S. year-to-date coming from corporate purpose utility off-takers.

In Japan, the market is also very strong, with the Tohoku interconnection auction and the offshore siting process moving forward well. Additionally, we saw the cancellation of a major new coal plant that has been in the planning stages for many years. These fundamentals support our performance and the business plan at Pattern Development, which continues to see robust growth in the U.S. and Japan.

This morning's results and announcements put us on track for our 2019 and 2020 growth targets, delivering CAFD per share growth without issuing new common equity and driving down our payout ratio. We reported a $53 million CAFD, cash available for distribution, which is a strong outcome and in line with our expectations. As a result, we are reconfirming our 2019 CAFD guidance in the range of $160 million to $190 million. We are maintaining our 2020 CAFD guidance of $185 million to $225 million that we announced on the fourth quarter call in March, which would be an annual 10% CAFD growth per share through 2020.

Our adjusted EBITDA was $102 million, which included contributions of $112 million from our operating business and a contribution loss of $5 million from our investment in Pattern Development. Revenue was at $140 million, flat to last year.

Today we announced our third quarter dividend of $0.422 per share, unchanged from the prior period. We are committed to maintaining our dividend and driving down our payout ratio towards our targeted level of 80% by the end of 2020 without the requirement to issue new common equity.

This morning we also announced a series of transactions that demonstrate our continued execution of our business plan objectives. Specifically, we have entered into an acquisition of interest totaling 57 megawatts in North Kent and Belle River for $45 million -- $44 million -- that have been -- both projects have been on our iROFO list and a $250 million bank loan to fund the growth as well as expand our liquidity.

Moving to Slide 4, production was 2,114 gigawatt-hours, which we report on a proportional basis. Resource and production were each 91% of LTA, or long-term average. However, we are seeing the benefits of our diversity. For example, previously -- and it applies in this quarter as well -- we have indicated that in ERCOT, low wind often corresponds to higher slot prices and lower bases, offsetting much of the lower revenue costs by low wind. This quarter we saw the average power price paid for our output offsetting over half the production shortfall.

The balance of CAFD improvement came from routine fiscal activities such as lower debt service than expected. As such, we want to reinforce that our business performance is driven by more than just wind resource levels. To be more specific, our wind resource levels were around or above the LTA in western U.S., Japan and Puerto Rico and below the LTA in eastern U.S. and Canada. As I previously mentioned, the wind resource impact on cash flows was materially offset by the price improvement in ERCOT, including our short-term hedge of Gulf Wind as well as by Japan. We have consistently demonstrated a track record of managing for wind variability and still delivering on our business objectives.

Moving to Slide 5, this morning we announced the acquisition of interest in 2 facilities totaling 57 megawatts of operating capacity, specifically through North Kent and Belle River facilities, each of which are about 100 megawatts of operating capacity. These assets are similar to our existing portfolio -- strong assets with years of onsite data, long-term power contract agreements with high-quality off-takers and best-in-class equipment. They are in operation today and move us one step closer to completing our buildout of the portfolio in Ontario. The final iROFO asset remaining in Ontario, which is in the final stages of construction, is the 300-megawatt Henvey Inlet wind project.

The purchase price of our interest in the 2 acquired projects is approximately $44 million, which represents a 10x multiple at the 5-year CAFD from the 2 projects. The facilities have more than 17 years remaining PPA life with an A-plus rated counterparty, the Ontario IESO.

The North Kent and Belle River acquisitions put us on track to meet our 2019 and 2020 growth targets. Based on our identified ROFO list, the next 2 projects available for dropdown are the 220-megawatt Grady project in New Mexico and 150 megawatts of the 300-megawatt Henvey Inlet project. These 2 projects will form a significant contribution of the new investments portion of our 2019 and 2020 guidance.

Together with the expected distributions from Pattern Development in 2020, we are well positioned to deliver on the 10% CAFD per share per year growth through 2020. That growth gets us to our targeted 80% payout ratio. The result of this growth would be in line with our historic performance over the past 5 years.

Moving to Slide 7, last week we also raised $250 million to fund growth with a 3-year bank loan priced to take advantage of the recent softening in the interest rate environment. This facility offered us a great way to enhance liquidity at a low price ahead of future acquisitions. The facility does not amortize and remains flexible to be repaid in anticipation of further corporate capital optimization.

The funding expands our pro forma available corporate liquidity post the acquisitions that I mentioned to $331 million. Esben will highlight the detailed capital outlook in a moment. In short, the debt transaction enhances our liquidity substantially and is a supplement to what we expect to be a series of capital raises to fund our growth, which we expect to achieve without raising common equity. Most importantly, our ongoing funding obligations are limited, and with our increased liquidity and capital funding options, we are confident we can manage our maturing obligations, including the 2020 convertible notes and the Tsugaru earnout payment.

As you can see on Slide 8, after the 2 acquisitions, Belle River and North Kent, our iROFO list stands at 845 megawatts or 30% of our existing owned capacity, which is approximately 3 gigawatts. With the capital invested in Pattern Development over the past 2 years, we have a number of exciting opportunities on the horizon that will replenish or expand the iROFO list and set the stage for the next phase of growth.

At this point, I'd like to turn it over to Esben to review the financials in more detail.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [3]

--------------------------------------------------------------------------------

Thank you, Mike. Let's start with a review of how we did in Q2 relative to what we had expected when we outlined our 2019 guidance. This is on Slide 10. As Mike mentioned, we remain on track for our CAFD guidance. Our CAFD for Q2 2019 was $53 million, and our midyear results for CAFD is $105 million. Based on these results, we are reconfirming the guidance range for 2019 at $160 million to $190 million, with a midpoint of $175 million. Our 2020 guidance is $185 million to $225 million, with a midpoint of $205 million, which represents a CAGR of approximately 10% on a CAFD per share basis over our 2018 results. We believe we can achieve these growth targets without issuing new common equity through a combination of acquisition of projects and distributions from Pattern Development.

To provide some background on our overall results, revenues of $140 million were lower than expected due to production being below our LTA but were partially offset by wind resources near or above LTA in regions with higher average power prices. In particular, our Japanese portfolio and Gulf summer heads continued to outperform our expectations. We also made reserves in our budget in anticipation of potential shortfalls in production.

Our net expenses, including project and G&A activities, were modestly positive relative to our expectations, and our fleet continues to run at high levels of availability. We had lower cash flows out of our unconsolidated investment which, combined with the net revenue, resulted in a slight shortfall in the operating and corporate segments of adjusted EBITDA.

At our Pattern Development segment, our adjusted EBITDA included a $5 million loss, primarily due to development costs. The sale of a project located in South Dakota positively impacted gross margin and offset development expenses. The project did not have an off-take agreement, and we did not exercise our ROFO rights.

It is important to note that the development business is a separate investment from our normal operating business, and it has been funded through capital calls. While future calls could be required to reported losses primarily reflect investments in development activities, we expect that these investments will be offset over time as the portfolio matures and assets are monetized. Our confidence in the development business is based on a medium to long-term view of what development can deliver through growth in capacity starting in 2020.

Next, our financing activities' impact on CAFD produced results better than expected due to lower debt service costs, release and reserves and other cash items that impacted our CAFD, which ended up at $53 million for the quarter. Year-to-date, we're now $105 million of CAFD compared to the midpoint of our full-year guidance range of $175 million.

Finally, this morning we declared our third quarter dividend of $0.422, unchanged from the previous period. Without any additional dividend increases for the year, at the midpoint of our guidance we would end the year with a 95% payout ratio.

Moving to Slide 11, we'll review the year-over-year changes to our results. Revenues were flat at $140 million in Q2 compared to the same period in 2018. Production from our new facilities, MSM and Stillwater, increased revenues by $8 million and mitigated the impact of the divestitures in 2018 of El Arrayan. Adjusted EBITDA was $102 million, down 6% compared to the same period in 2018. The variance is due to changes to the portfolio and equity and earnings from Pattern Development. And specifically, adjusted EBITDA from the existing operations was $3 million lower due to lower costs in the 2018 period and the divestiture of El Arrayan and K2 down $11 million, which were offset by lower Pattern Development expenses of $3 million of new projects acquired, up $5 million. As mentioned, CAFD was $53 million in Q2. That was down 10% compared to the same period in 2018. The $6 million decrease was primarily due to a $4 million reduction because of divestitures, a $2 million reduction from projects fully operational in both periods, and partially offset by $1 million contributed from new projects acquired.

While our CAFD was lower in Q2 of 2019 relative to the same period in 2018, our year-to-date CAFD of $105 million compared to $102 million in 2018. The portfolio changes were unevenly distributed through the quarters, and our overall target for growth in CAFD for 2018 remains in line with expectations.

Moving to Slide 12, as of June 30, 2019, our available liquidity was $615 million, which consisted of unrestricted cash, restricted cash, revolver availability, undrawn capacity under certain project debt facilities and post-construction project facilities. Subsequent to the end of the quarter, we secured a $250 million bank loan on a pro forma basis at June 30. And assuming the loan had been in place at that time and we had funded the 2 acquisitions of $44 million, our total available liquidity would have been $825 million. We expect to use the remaining proceeds from the loan to repay a portion of the revolving credit agreement, which makes $331 million available under that revolver on a pro forma basis after payment of the acquisitions. We expect our corporate ratings outlook to remain unchanged at BB-/Ba3, and we ended the quarter with corporate debt to corporate EBITDA of just under 4x, which is consistent with our financial policy.

In addition to the bank loan, we remain focused on expanding capital access. The Grady and Henvey projects are nearing completion and would be candidates for acquisition in the same way we purchased Belle and North Kent. We have the capacity to raise an incremental $300 million to $500 million in new corporate capital from project refinancing activities, monetization, Japan local financing efforts and hybrid equity securities. The timing and execution strategy of these financings is something we're carefully assessing.

We also anticipate that we'll raise $200 million to $300 million in corporate debt or convert to address our $225 million convertible note maturity, again to ensure that the financing activities carefully line up with acquisitions and other activities so as to maximize shareholder return and minimize negative carry.

I also want to make a note of the status of the 2 projects we have under construction, namely Gulf repowering and the Tsugaru Wind project. The Gulf repowering project is well advanced and is expected to be financed in Q4, primarily with nonrecourse debt and tax equity commitments. The remaining Pattern Energy corporate funding obligations are estimated at up to $40 million.

The Tsugaru construction project is now ahead of schedule and remains on budget. The CapEx for the projects has been fully financed at start of construction with nonrecourse debt. As a result, the only near-term obligation we have is the approximately $100 million earnout payment, which we expect to pay at term conversion of the project late in Q1 2020.

Finally on Slide 13, I'd like to take a moment to highlight the details of the bank loan. The loan is $250 million of senior secured debt with a 3-year term. We view this loan as a flexible financing at attractive terms from a syndicate of 4 banks which we have positive long-term working relationships to demonstrate the continued faith that our corporate lenders have in our business and our ability to attract low-cost capital. We believe we maintain a conservative capital structure, which provides an opportunity to access additional capital while maintaining our stated financial policy. We do not envision issuing new common equity at the current level to fund growth.

We have effectively positioned the company now to maintain our commitments to the current dividend level, fund growth and reduce our payout ratio to approximately 80% in 2020. Thank you, and I will now turn the call back over to Mike Garland.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [4]

--------------------------------------------------------------------------------

Thanks, Esben. In March we established CAFD guidance for 2019 and 2020. That level of visibility demonstrated the confidence we have in our ability to execute, fund growth and drive our payout ratio back to our targeted 80% level by the end of 2020. We have a path to growth and our CAFD per share of approximately 10% on a CAGR basis through 2020, which we have shared with you. The progress I have highlighted this morning positions us to deliver on each of these goals.

Two new acquisitions put us on track to achieve our 2019 and 2020 growth objectives. We expanded capital access to capital to fund growth, including all the existing project obligations through 2020 without issuing any new common equity. And we continued progress at Pattern Development with significant achievements of our activities and advancements of our activities in Japan and New Mexico, which we hope to discuss in more depth in the coming months.

On that front, Pattern Development continues to advance its pipeline of exciting opportunities. In July it transacted on its first third-party asset sale, a 103-megawatt project located in South Dakota. This transaction signifies the second phase of Pattern Development's evolution that we highlighted last year, the monetization of individual projects with transaction gains that can be reinvested in the development business for continued growth.

We view our investment at Pattern Development as a clear differentiator for the business compared to our peers. It's a strategic investment that secures us access to continued growth opportunities as well as material and durable returns that we anticipate will begin next year.

In closing, we believe we are stronger and better positioned today to capitalize on the exciting renewable opportunities in our core markets than ever before. We have scheduled our Investor Day for Thursday, September 5, in Midtown New York City. The event will be webcast live for all interested parties, and we will be inviting investors individually to attend. We are excited to share more details with you at the event about the progress at Pattern Development and the growth opportunities we see in the U.S. and Japan and our strategy to execute on them. At the event we will be launching our first ESG report, which the team is quite excited to share with you.

I'd like to thank our shareholders. We have a plan for creating long-term value for investors, changing the way electricity is made and transferred in developed countries while respecting the communities and the environment where our projects are located.

With that, I'd like to turn it over to your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

[Operator Instructions.] Your first question comes from the line of Brian Lee from Goldman Sachs.

--------------------------------------------------------------------------------

Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [2]

--------------------------------------------------------------------------------

Mike, just still wanted to clarify. I think you had mentioned Grady and Henvey Inlet as the next 2 potential dropdowns. Are those required to achieve the 2020 targets? I thought maybe you had referred to that, but wanted to clarify. And then just from a timing perspective, would those be in '19, or are we thinking more like the first half of 2020?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [3]

--------------------------------------------------------------------------------

Yes, they'll impact 2020 more than 2019. There may be a little bit of benefit in 2019. We haven't closed yet. We haven't acquired them yet. Grady just went into COD yesterday, I believe, and Henvey is on track to go into full operations this month. So even if we executed in September, there wouldn't be that much CAFD impact this year. It will be primarily in 2020.

--------------------------------------------------------------------------------

Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [4]

--------------------------------------------------------------------------------

Okay, and those 2 are part of the bridge to the 2020 CAFD growth target?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [5]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [6]

--------------------------------------------------------------------------------

Okay, great. And then just on the North Kent and Belle River acquisitions, both of those were minority interest. Is this a new normal strategically, or maybe you can just walk us through why those deals were struck that way, maybe simple capital preservation. But I thought the goal was generally to be a majority interest investor where possible. So just wondering what the --

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [7]

--------------------------------------------------------------------------------

Yes, that continues to be the case. Keep in mind that we have an issue there where, A, we're still in joint venture with Samsung 50-50, and then the local community of Chatham-Kent elected -- when we got our permit, they asked to be able to participate, so they own a piece of the action as well. So by definition, we're maximizing our ownership position in both of those projects, but they're limited because of the arrangements we had to make during the development period. Our approach hasn't changed at all. It was just circumstances.

And then we did do the Belle River transaction with PSP under the obligation or the arrangement we created in 2017. They didn't participate in North Kent, so we took up all the available ownership in North Kent. So our strategy still is to own as much as we can of the assets we go into, but there will be occasions where we take a smaller percentage.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [9]

--------------------------------------------------------------------------------

My first question relates to you mentioned that Pattern Development divested, I think it was a wind development in South Dakota. Could you just give a bit more color as to, I think, did Pattern Development get involved in that project 2 years ago, and why did it choose to divest the asset rather than push it further along and potentially -- could it potentially be a dropdown candidate like 1 or 2 years from now?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [10]

--------------------------------------------------------------------------------

Yes, it could have potentially. It didn't have an off-take agreement, and as we've talked about with Pattern Energy, we are going to be looking at potentially recycling capital like I think highlighted the Mexico business. We're not taking an ownership position. PEGI's not taking an ownership position, and so they're selling those assets and getting cash from it and reinvesting it in development opportunities, which benefits us, PEGI, in the sense of less capital demand is required because they're effectively self-funding a portion or all of the development activities.

So it's in the business plan. I think we've described it in the past that we anticipate selling down some of the project opportunities that we have at Pattern Development. Keep in mind, our sense is the market does not want us to raise a lot of capital common equity, and so we have more opportunities than we can invest in at the moment, given our debt limitations and our goals. But it was primarily a goal to not expand on our merchant activities. Pattern Development could have held it and run it as a merchant facility and hope to get a PPA someday to use it as a dropdown, but we felt it was more appropriate to go ahead and sell it down and help defer capital calls through the profit of the sell-down.

--------------------------------------------------------------------------------

Nelson Ng, RBC Capital Markets, LLC, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Okay, and just to clarify --

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [12]

--------------------------------------------------------------------------------

It's important to remember -- sorry, Nelson -- at least it gives us an opportunity for us to -- we get the benefit through our ownership in Pattern Development whenever these activities occur. And so in that way, I think the alignment, I just want to remind you that that's one of the reasons we set the business up the way we have.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay, and just to clarify, that project was still in advanced development stage?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [14]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay, got it. And then just a related question. In terms of Pattern Development doing or developing projects, so we've touched on solar in the past in terms of, I think, Pattern Development was looking at solar in, I think, Texas, but it's probably earmarked for a third-party sale. But from big picture, should we, could we see PEGI do some dropdowns or do some acquisitions on the solar side in the U.S.? Or should we assume that most of Pattern Development's solar activities would be divested to third parties?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [16]

--------------------------------------------------------------------------------

Yes, in the near term, I think you can assume that we're going to divest it to third parties. The solar market, while it would add diversity and in some ways stability in cash flows, the returns are well under what PEGI requires, for example, on the wind projects, it gets on the wind projects. And so we have been loath to buy solar because the returns are so low.

Now if we can get an opportunity where the returns are more attractive, we would absolutely execute on it. But right now the market is so strong that it's driving down returns still even further. So I don't anticipate this year or next buying solar assets, but if the opportunity comes up, we'd love to.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay, and then this one last question is probably for Esben. I know it happens occasionally and also in this quarter, so it looks like $6 million of the CAFD relates to release of restricted cash. Could you just provide a bit more color in terms of what it relates to?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [18]

--------------------------------------------------------------------------------

Yes, we had a couple of projects, Post Rock and Spring Valley, where we had cash that had been sitting in the business related to activities for basically operating activities, and they got released out of those projects in recent months. Post Rock is in development.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [19]

--------------------------------------------------------------------------------

It's pretty consistent with what we've done in the past. You probably have seen it, Nelson, from other projects.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [21]

--------------------------------------------------------------------------------

On Pattern Development, wondering if you could give us some color on how the earnings should develop from the portfolio over the next few quarters from operation of assets if you've got Grady and Henvey moving to COD, and then potentially additional sell-downs to third parties from that portfolio.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [22]

--------------------------------------------------------------------------------

Yes, I think what we've said, and I think it's still the case, that this year we'll be reporting on gains such as Willow Creek and other assets that are in the sale process from Pattern Development. That's not assets that -- we don't consider that appropriate for PEGI. So that will be purely on a reporting basis.

We anticipate next year, so no net distributions coming out or distributions coming out in the next 2 quarters of actual cash. Next year we anticipate there will be distributions out of Pattern Development -- modest distributions. I think in our forecast we assumed $17 million of distributions were falling into our CAFD numbers over the year. We don't specify what quarter because development, as you know, is lumpy and sometimes it gets delayed. And so we'd rather not specify exact timing and which specific projects will create some of that CAFD or distributions. So that's really what our game plan is currently and has been for the last year.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [23]

--------------------------------------------------------------------------------

Maybe a reminder, Robert, is our adjusted EBITDA incurs, is impacted by the expenses that are occurring at Pattern Development. We had funded that investment previously. The last capital call we had made was in the first quarter of this year. This is the recognition of the cost of the investment activities or some of them -- some of them are capitalized and some of them are expensed at the Pattern Development business segment, and they are not reflective of new cash outflows on an ongoing basis.

At the CAFD level, we recognize the income when cash distributions are received out of that investment, and so that's really the first time you'll see positive inflows at the CAFD level.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Right, understood. But from the perspective of looking at your reported EBITDA, would you expect, though, that you should see, say, less of an EBITDA loss in the back half of the year with the contribution from these new projects?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [25]

--------------------------------------------------------------------------------

We don't provide guidance on adjusted EBITDA. The general comment we can make is that these earnings impact from Pattern Development will be lumpy, though sometimes they'll be modest, like this quarter. Other times they'll be more significant. What we really are focused on is ultimately the realizations that we get out of the overall business and the distributions that we're going to start seeing from the investment as opposed to predicting the specific earnings that come out of that. And the reason it's difficult to do that is because of the expensing policy around the development assets really very much relates to specific circumstances at each asset, and it's not something that we're going to forecast.

--------------------------------------------------------------------------------

Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [26]

--------------------------------------------------------------------------------

Okay, fair enough. And secondly, you may not want to answer here in too much detail, given you may not want to front-run the Investor Day. But I was just wondering if you can give us a little more color on development activities at Pattern Development and what we might expect to see for the next iROFO projects as far as location of the projects and technology. If you can give us just a little bit of a preview, thank you.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [27]

--------------------------------------------------------------------------------

Yes, in terms of iROFO projects, you can anticipate they'll probably come from Japan and our activities in the U.S. Those are the -- our greatest activity in the U.S. right now is in New Mexico, so those are the 2 markets that are probably the most exciting from an investment standpoint.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And will there be projects that are going to reach COD, say, in 2021 and 2022? Or how should we think about that?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [29]

--------------------------------------------------------------------------------

Yes, it's probably more spread out. As you know, Japan is a longer lead time than the U.S., both construction as well as development lead time. So they tend to spread a little bit longer between when you qualify for an off-take agreement and when you actually become operational. And the New Mexico projects that I mentioned are really large-scale projects down there that we've talked about. It's possible that we might see some of that putting in service in '21.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Your next call comes from the line of Ben Pham from BMO.

--------------------------------------------------------------------------------

Benjamin Pham, BMO Capital Markets Equity Research - Analyst [31]

--------------------------------------------------------------------------------

I just want to clarify your comments on no need for common equity. Does that also include your ATM as well in that definition?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [32]

--------------------------------------------------------------------------------

Yes, we don't. Correct.

--------------------------------------------------------------------------------

Benjamin Pham, BMO Capital Markets Equity Research - Analyst [33]

--------------------------------------------------------------------------------

Okay, all right. Another thing I wanted to check on is going back to Henvey and Grady., just looking at the megawatts and rough math on CapEx needs and then equity, I just want to check. Is there any sort of other partners that could step in and communities or PSP to think about there?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [34]

--------------------------------------------------------------------------------

I'm sorry, Ben. Ask the question again.

--------------------------------------------------------------------------------

Benjamin Pham, BMO Capital Markets Equity Research - Analyst [35]

--------------------------------------------------------------------------------

Yes, sure. On Henvey Inlet and Grady, there's about 350 megawatts or so, so that looks like a $300 million equity check or so. So I just wanted to check -- is there any sort of other investors or communities that could step in and reduce that, just like Chatham that stepped in?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [36]

--------------------------------------------------------------------------------

No. You know that Henvey Inlet is a 50-50 partnership with the Nigig band, and so that's the partner we have there. Pattern Development owns about 150 megawatts, and the Nigig band effectively owns the other 150 for the 300 megawatts. Grady, there are no other partners.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [37]

--------------------------------------------------------------------------------

We still have our joint venture arrangement with PSP, which they'll be a potential participant as well.

--------------------------------------------------------------------------------

Benjamin Pham, BMO Capital Markets Equity Research - Analyst [38]

--------------------------------------------------------------------------------

Okay, that's great. And my last one on -- I know you talk about this $300 million to $500 million capital that's available to you. Could you refresh us on the ranges in terms of what's driving that $200 million range?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [39]

--------------------------------------------------------------------------------

Your question got a little garbled. There was something in the line. Could you just -- $300 million to $500 million was?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [40]

--------------------------------------------------------------------------------

Additional capital available that we could raise? Is that what…

--------------------------------------------------------------------------------

Benjamin Pham, BMO Capital Markets Equity Research - Analyst [41]

--------------------------------------------------------------------------------

Yes, I'm just wondering what's, when you guys built this range, what was driving going from $300 million to $500 million? Is that really you guys are thinking $400 million mid and then take it to $500 million, it's capital that is a hybrid, for example, that you may or may not need?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [42]

--------------------------------------------------------------------------------

We are looking at what the opportunity set is for raising capital. That includes project finance activities at our existing projects that we can either finance projects that are not currently financed or even change the financing profile of existing projects, refinancing, for example, in Canada. We're looking at our monetization strategy in Japan. We're looking at the potential for raising corporate hybrid securities, as we have talked about in the past. And we look at all of those together, and we are considering -- and by the way, monetization, potentially, of other assets. And we believe that a $300 million to $500 million range is a reasonable range among all those options for us to bring up corporate capital that can be used to invest in these opportunities that we just talked about.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [43]

--------------------------------------------------------------------------------

And then you may have read in some of the trade magazines that we and Samsung, we've already started initiating some efforts in Canada around refinancing. So this is -- these are activities that are right in front of us and available to us. These aren't just a theoretical list that Esben's giving you. They're real opportunities to raise funds if we want or need them.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.

--------------------------------------------------------------------------------

Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [45]

--------------------------------------------------------------------------------

Maybe to follow up on some of the last series of questions here, if you can. Would be curious -- how do you think about the scale of the development business going forward for the 2.0 structure? I don't want to get too specific, as alluded to already with this Analyst Day, but when you think about a 29% stake in the business and a consistent $17 million of distributions, how do you think about the scale required? Not thinking about like what you have in backlog right now or what-have-you, but like on an ongoing basis, we've seen a lot of your peers scaling up the renewables businesses. Is this a half-gig annual, a gig annual, more than a gig annually of solar and wind development? I'm just kind of trying to get a sense of the scale here that you guys are contemplating as you think about this new 2.0 structure, and especially post PTC and pivoting into the new solar world. I'll start there.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [46]

--------------------------------------------------------------------------------

Yes, as you know, development is lumpy, and particularly with these larger projects. When we talk about Japan, I think we've mentioned some of the new projects tend to be 100 to 200 megawatts. Those are 3x or 4x the scale of, say, a U.S. project, the cost and so on. And if you look at the off-take arrangements, they're even much better than that. So they tend to be really lumpy. In the U.S., our big projects in New Mexico are extremely lumpy.

And so when we look out and say, “Okay, for the next 5 to 10 years, what do we think?” I mean the thing that's extraordinary in our pipeline right now is we're looking at 5 and 10 years out, not just 1 and 2 years out. I think historically in our past, it's always been a 1-, 2-, 3-year horizon with a vision of where we should be to take advantage 3 to 5 years, 3 to 10 years out, but never had an actual pipeline that is expected to materialize in the 5- to 7-year period. So if you look out over 5 to 7 years, it's a little over a gig a year if everything goes right. We haven't decided yet whether we're going to partner on some of it or whether we're going to go with a loan. But if just looked at our announced strategy in Japan and our announced strategy in New Mexico, not counting the projects like Willow Creek and the solar projects and all that sort of stuff, it would be over a gig a year over the next 5 to 7 years.

--------------------------------------------------------------------------------

Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [47]

--------------------------------------------------------------------------------

Excellent. And just following up real quickly, if I can, on the financing decisions, how do you think about sort of the longer-term capital structure? I'm thinking specifically towards opportunities to refinance and upsize the convert as well as preferreds. This is something you've talked about or contemplated before. How do you think about that to pay down revolver versus terminal, and then how did you decide on the latest course of action, if you can as well?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [48]

--------------------------------------------------------------------------------

Yes, maybe we can start with the $250 million loan we just raised. That was a relatively straightforward opportunity to term out our revolver while we're waiting for distributions to start coming out of the Pattern Development business. So that was a relatively discrete, very low cost and attractive capital-raising opportunity. Beyond that, we continue to optimize our project financings. That is where we think the cheapest capital continues to come from. Those opportunities exist first and foremost in Canada, and so we're working on those.

The second set of, really, project-like opportunities is what we're doing in Japan in trying to raise equity there from institutional capital investors, and so that would be the second place where we think we can get really well-priced capital and in that case, high equity content.

And then at the corporate level, we are really balancing the financial policy that we're very careful to not put too much leverage on the business with the cost of the funding. And so we think that we have a little room to raise corporate debt, but predominantly, we're looking at project cash flows coming up to support it through these financing activities or some sort of hybrid product that will be high in equity content. So that's the prioritization that we have and then how we're thinking about it.

--------------------------------------------------------------------------------

Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [49]

--------------------------------------------------------------------------------

Got it. And just quickly elaborating the timing of some of those pieces, especially the Japanese piece here, so the Canadian financing, just to understand that relative to the timing of the convert? Sorry to fixate too much here.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [50]

--------------------------------------------------------------------------------

The timing? This is all -- the sequencing of this is really around what acquisitions we have. We will not go raise the capital until we need it, and so the opportunities we talked about are the dropdown opportunities. Those would be available here in the fourth quarter. The convert, we have 3/4 of a year to address that. We are thinking about the proper timing for that. And the earnout payment that's due for Tsugaru is in the first quarter of next year. So as we look at the funding obligations, we're really trying to make sure we time the capital raisings around when our funding obligations are going to come up.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Your next question comes from the line of Colin Rusch from Oppenheimer.

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [52]

--------------------------------------------------------------------------------

Can you talk about what you need to see to revisit the dividend policy?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [53]

--------------------------------------------------------------------------------

Hey, Colin, it's kind of muffled. It's hard to hear you. Can you -- ?

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [54]

--------------------------------------------------------------------------------

Let me try it again. Could you let us know what you need to see to revisit the dividend policy?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [55]

--------------------------------------------------------------------------------

That's a great question. I wish you would call my Board chair. I think our priority is to get our payout ratio down. So when we start getting down in the 80s, say 85%, we can start talking to the Board about what's our growth outlook look like, and can we start raising the dividend again. And our Board has just been pretty fixated on not lowering the dividend.

And then secondly, they think that the market is concerned about our payout ratio. Last year we felt like there was a lot of pressure around -- we were at 100% payout ratio, and I think there were a number of people saying, “Gee whiz, a bump in the road, you could have to cut your dividend.” We demonstrated, I think, pretty well that we manage our business so that can't happen or won't happen. But the Board is just concerned about that, that the message that we want to convey is that we're going to create a payout ratio daylight between our dividend and our cash flow so that we can have more flexibility and we can reinvest in our business.

And so my guess is, as I've said, is mid-80s to the 80%, we'll start -- once we get down to 80%, it's up the Board, but that would be the logical time to think that we might start growing the dividend back to the way we were. So that's the answer.

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [56]

--------------------------------------------------------------------------------

That's super helpful. Yes, thank you so much. And then this is maybe kind of an adjacency or technical question around your underwriting capabilities. But you guys have always been a leader in terms of predictability of wind resource and looking at site valuation. Are there areas for material improvement in terms of that capability, and what sort of investments would be required to improve that capacity?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [57]

--------------------------------------------------------------------------------

Sorry, this is our -- I'm not sure I totally understood the question, but is it --

--------------------------------------------------------------------------------

Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [58]

--------------------------------------------------------------------------------

Your ability to predict wind resource and performance of the assets.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [59]

--------------------------------------------------------------------------------

Yes, okay. The way I would answer it is the science of resource assessment has come to a point where it's really quite good. And if we look back 10 years ago where the industry was, I think that the changes that have happened, especially with large wind farm analysis and wake effect, has been really changed quite a bit. I think we are coming to diminishing returns in understanding that. There are big, cyclical changes in wind resource performance, seasonal as well as also multiyear impacts that are hard to predict when and how they come about. But we feel very confident that most of our science is based on 20 to 30 years of historical analysis that's correlated to the onsite wind farms which tend to have 5-plus of onsite data. So the statistical side of that is really quite good. And then the incremental improvements that have happened on the science side in terms of how wind farms perform, both individual wind turbines but also the overall wind farm on itself, has seen tremendous improvements in the last 4 or 5 years. So we think we have come to a point where we as an industry, and particularly Pattern, understand very well how these wind patterns, they impact production. The near-term and the medium-term changes to the wind profile, long-term average, is something that really is dependent much on larger global climate factors that can, like I said, cause long-term -- longer to medium-term variations in the performance against the average.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [60]

--------------------------------------------------------------------------------

The only other color I would add is we spend a lot of time and effort analyzing wind results and so on. And I think we've mentioned to you that we use, even in our analysis, we probably use -- I don't know what it is -- 5 or 6 different modeling techniques to look at each one of our projects, and we have special proprietary, forward-looking modeling. We can't say the forward-looking modeling that's 6 months a year is that well developed compared to the onsite long-term data that has been described, but it tells us something about how the weather patterns are going.

And what we try to do is anticipate some of these things in managing our overall business and reserves and thinking about the volatility in a different way than we had 5 years ago. And so I think it's a little more in the background a sophisticated business model, not just a wind prediction model that we're trying to manage to. And it's a very interesting business right now. Diversity, as I mentioned in the comments, is very helpful for us and was intentional in how we located some of our projects, and we think that's adding some benefit to us. I think the Japanese business over time will be extremely helpful in that diversity.

So it's more than just a prediction business now. It's also much more of a prediction coupled with a business strategy that I think really allows us to maintain our objectives.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

David Quezada, Raymond James Ltd., Research Division - Equity Analyst [62]

--------------------------------------------------------------------------------

My first question here is just on the cost side of the business. I'm wondering if you could just remind us where you are in terms of cost savings on your self-perform initiatives and how much more runway you see there.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [63]

--------------------------------------------------------------------------------

Yes, it's going very well. Thank you for asking. I was thinking about that this morning when we went through our script. It's the one area we didn't really address, and we usually do. The self-perform has been terrific. We have driven down costs. And the secondary benefit, which we haven't talked too much about, is that it has driven down the costs of the OEMs. We have, last year, signed a contract for an OEM at levels that were more competitive with our self-perform than in the past. So the 5 -- I think we have 5 projects or 6 under self-perform currently -- they're all doing very well. We are anticipating, I think in 2020, 1 or 2 more going into self-perform. And as they roll off the short-term agreements with the OEMs, we'll make a decision whether we ought to be re-upping those with the OEMs or going to self-perform.

The market is doing some very interesting things around self-perform. We're not the only ones. But there are some very interesting approaches, if you can manage your business in a way that you can actually lower staffing at some of the -- and not in terms of eliminating staffing, just so my friends at the sites don't get worried. We're talking about how do you optimize around joint staffing efforts where you can move people around or have people go and help where you have maintenance, and can you time the maintenance in a more sophisticated way. So there are some really interesting aspects of the business, the data analysis that's coming out of what's important, things around mean time between visits, where that seems to be really a powerful measure in driving down costs, where people have a tendency to go out and check things out, and then when they do, they have to shut down turbines, so you try to drive up your mean time between visits. In that, we're seeing some very good changes in that area.

And over the next coming years, we still are believers that technology improvements are going to be retrofitted. There's a lot of talk about it in the last couple of years. We've had 3 different demonstration projects, I think it was, on new technologies that didn't prove out at our sites. And so talk is a little too easy in some cases. But we're still very optimistic that you're going to see some pretty significant cost reductions over time in terms of results from technology. I think we've talked in the past about even things like our use of drones now to inspect not just the blades outside. We're working with manufacturers to talk about even doing drone inspections inside the blades. There's just a lot of technologies that are coming on. You just have to be very disciplined about making sure you're choosing the right ones that are putting real dollars in your pocket.

Kevin Devlin, who heads up our operations and construction activities, kicked off a business this year called Every Megawatt Counts, which I think is a clever way of saying it's not just a cost saving; it's an evaluation of how do you produce more for less. And Kevin, in the data analysis, we went back and have discovered that a couple of our sites were well below the power curve, and nobody anticipated that. So he and his team are really looking at ways to up the production because, obviously, producing more kilowatt-hours is just as important as saving costs. So we have a 2-pronged activity of reducing costs but also increasing production.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

Your final question comes from the line of Jerry Rosenfield from Industrial Alliance.

--------------------------------------------------------------------------------

Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [65]

--------------------------------------------------------------------------------

It was a good try. Jeremy, but that's okay. So let me just clean up. The CAFD range here for the full year, unchanged, it's still relatively wide. And you're more than 7 months through the year; 6 months reported, but you have a pretty good idea of July as well. What do you see as the major variables other than wind that really could be impacting where you come out within that range? Because it looks to me that, in your minds at least, it probably is a tighter range. What do you think?

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [66]

--------------------------------------------------------------------------------

I'll give you the quick answer, and then Esben can give you the more sophisticated answer. It's wind and price. Congestion is always an issue in Texas, but we seemingly understand that right now enough to it shouldn't be -- hopefully, it won't be a big variable. But it's really wind and slot prices.

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [67]

--------------------------------------------------------------------------------

We've done well so far this year. As we've said, we are in line with expectations. We still have another 6 months to go, and we haven't changed the range we're guiding to at this point. The variables that Mike's mentioned is predominantly on wind variability and then secondarily on the growth and the timing of the dropdowns and the terms of the financings from those. I just might remind you that what we had suggested in our guidance was about $5 million of capacity coming from new investments for the year, and then the rest is really operating performance on our existing portfolio. And we haven't really seen any change to that, but we still need to see our way through the rest of the year before we know where we're going to end up.

--------------------------------------------------------------------------------

Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [68]

--------------------------------------------------------------------------------

Okay, that's perfect. And maybe just one other question. In terms of the asset sale in South Dakota -- maybe not that asset sale specifically, because you're probably loath to speak about one sale. But just in terms of the returns that you're earning or that you're seeing or that you anticipate maybe on asset sales, either in terms of a CAFD multiple or in terms of a percentage return, something like that, just so you can give us an idea relative to the dropdown that you're making between Pattern Development and Pattern Energy and between what you're seeing in the market when you go out and sell to third parties.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [69]

--------------------------------------------------------------------------------

Yes, I think on the South Dakota project, you have to think of it more of a twofold. One is a profit issue, not a CAFD multiple in that it helps fund the development activities. The second is it was a merchant project that it wasn't contracted, it wasn't completed in its development. And so you have to weigh the cost and the returns, or the profitability against the risks. And so I don't know quite how to answer your question. It's a judgment call when we look at these things to say, “Is it better?” And somebody -- I think it was Ben -- earlier asked, “Why not hold onto it?” And -- no, maybe it was Nelson -- versus selling it. It's a judgment call at the time. I think we still believe that our development activities create about a CAFD multiple, if you're contracted and decent, at about a 6x to 8x, 7x. And we buy the assets at PEGI at around a 10x multiple. And so that continues our belief in the 2 businesses. So I don't know if that's very helpful, but Esben, do you have some thoughts?

--------------------------------------------------------------------------------

Esben W. Pedersen, Pattern Energy Group Inc. - CFO [70]

--------------------------------------------------------------------------------

The one, just to step back from it, the overall business objective of Pattern Development is to really get 2x our money back and a 15-plus percent return. Every project that we do needs to be contributing to that overall investment return profile. And so we've invested $200 million today. That doesn't mean that every project has to return 2x its money. But really, what we are looking at is how much capital we have at risk for every project and how much we think we can sell it for. Sometimes a project might give us 1.25x the money we have invested, sometimes at 2.5x or 3x. It really depends on the riskiness of the project and what ultimately you can think of as yield compression between the buy-and-hold return that the asset has and what it can be sold to a third party, whether it be PEGI or somebody else. And we look at where do we think we can maximize return.

In this case, given the capital we had invested in that South Dakota project and the opportunity that somebody else presented us with, in terms of taking the project now before we had to put construction capital in and then sell it at COD, was deemed to be a more optimal case than the alternative. But every asset is evaluated that way.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [71]

--------------------------------------------------------------------------------

I didn't mean to be answering your question. Sorry.

--------------------------------------------------------------------------------

Jeremy Rosenfield, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [72]

--------------------------------------------------------------------------------

Yes, the combination of the 6x to 7x and, I think, just what Esben said in terms of 15%-plus, that's very, very useful. That's exactly what I was looking for. Thank you.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

There are no further questions. I turn the call back over to Mike Garland for closing remarks.

--------------------------------------------------------------------------------

Michael M. Garland, Pattern Energy Group Inc. - CEO & Director [74]

--------------------------------------------------------------------------------

Again, thank you, everyone, for joining us today. We look forward to updating you on our progress next quarter and at Investor Day. So have a good day and feel free to call us if you have further questions.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

That concludes today's conference call. You may now disconnect.