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spk06: Hello, ladies and gentlemen, and welcome to the telephone conference on the financial results of the fourth quarter and exercise 2023 of Boralex. Please note that all readings are in listening mode only. At the end of the presentation, there will be a question and answer period during which financial analysts, shareholders and investors will be invited to ask their questions by pressing star 1 and 1 on your phone. Please also note that this conference is recorded. Pour les participants à la webdiffusion, vous pouvez également poser des questions au cours de la conférence, mais celles-ci obtiendront réponse par courriel après l'appel. Enfin, les représentants des médias qui ont des questions sont invités à contacter directement Camille Laventure, conseillère affaires publiques et communications externes chez Boralex, aux coordonnées indiquées à la fin du communiqué trimestriel. J'aimerais maintenant passer la parole à Stéphane Milot, vice-président relations avec les investisseurs de Boralex. Good morning, ladies and gentlemen, and welcome to Boralec's fourth quarter and fiscal 2023 financial results conference call. Note that all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session in which financial analysts, shareholders, and investors will be invited to ask their questions by pressing star 1 and 1 on the telephone. Also note that the conference is being recorded. For webcast participants, you can also ask questions during the conference, but they will be answered by email after the call. Finally, media representatives are invited to contact Camille Aventure, Advisor, Public Affairs and External Communications at Boralex. Her contact information is provided at the end of the quarterly press release. I would now like to turn the conference over to Stéphane Milot, Vice President, Investor Relations for Boralex. Please go ahead.
spk03: Thank you, operator, and good morning, everyone. So, welcome to Bar-LX's fourth quarter and year-end results conference call. So, joining me today on the call, Patrick Dacoste, our president and chief executive officer, Bruno Guilmette, executive vice president and chief financial officer, and other members of our management and finance teams. So, Mr. Dacoste will begin with comments about market conditions and the highlights of the quarter. Afterwards, Mr. Guilmette will carry on with financial highlights, and then we'll be available to answer your questions. So as you know, during this call, we'll discuss historical as well as forward-looking information. So when talking about the future, there's a variety of risk factors that have been listed on our different filings with securities regulators, which can materially change our estimated results. So these documents are available for consultation at cdarplus.ca. So in our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis. So when talking about the results, we generally refer to combined numbers, and when referring to cash flow and balance sheet, we generally refer to consolidated numbers. So please note that the combined is a non-GAAP financial measure and does not have standardized meaning under the IFRS. Accordingly, combined may not be comparable to similarly named measures used by other companies. For more details, see the Non-IFRS and Other Financial Measures section in the MDNA. So the press release, the MDNA, the Consolidated Financial Statement, and a copy of today's presentations are all posted on the Boralex website at boralex.com under the Investors section. If you wish to receive a copy of these documents, please contact me. So Mr. Dacoste will now start with his comment. Please go ahead, Patrick.
spk00: Thank you, Stéphane, and good morning, everyone. It's a pleasure for me to present our results and achievements for the fourth quarter and fiscal year 2023. 2023 was a record year for Boralex on several parameters. Combined EBITDA of 675 million, up 22% on 2022. Net income of 115 million, AFFO of 179 million, and EFFO per share of $1.75. We also added 1.5 gigawatts of project to our pipeline, now representing 6.8 gigawatts of solar, wind, and storage project. In a challenging environment, we demonstrated that our agility, disciplined approach, and sound management has consistently proven effective. resulting in improved financial results and making good progress on our strategic plan execution. Looking ahead, we're in a solid financial position with close to $550 million in available cash resources and authorized financing facilities, providing significant flexibility to fund our growth. This last quarter, we continue to focus on our main projects under construction and ready to build. They are progressing according to plan with our wind project in Quebec and Lime Kiln in Scotland expected to start operation at the end of 2024, as well as our two battery storage projects in Ontario expected to be commissioned in 2025. In the fourth quarter, we have also been very active in the development of our project in North America. We're very proud that our two projects, our Tabasca and Monoir, totaling 315 megawatts, were selected in the Hydro-Québec's RFP. It shows both our competitiveness in this market and our ability to work closely with local partners. Our team is working full steam ahead to further develop projects in Quebec. Ontario is also a very promising market for Boralex with strong clean energy needs identified in the coming years. Ontario's ISO is projecting energy shortfalls before 2030 and is planning a series of procurements to meet demand. After 2030, Ontario intends to mitigate the growing shortfall by building small modular reactors, SMRs, and refurbishing Pequing B nuclear power station and other measures. Even under SMRs and Pequing refurbishment scenario, with all associated cost and schedule risk, demand gap still exists. We are therefore rapidly developing cost-effective solutions to meet demand in Ontario. In December, we submitted bids for 525 MW of storage projects and our team is working on a diversified array of wind, solar and storage projects to pursue our growth in this region. Finally, we submitted 240 MW of solar projects in New York expedited RFP in January 2024. Results should be announced in April and another RFP is expected in the fall. Given our experience and the strengths of our balance sheet, we're confident that we can successfully complete these various projects which are well spread over time. Before covering markets conditions, I would like to highlight our achievement in the past five years for some key metrics. First, our installed capacity went from 1.9 GW in 2018 to 3.1 GW at the end of 2023, a 10% KGAR, while our pipeline of projects increased significantly and more than double in the last three years. This growth was achieved while maintaining our debt level almost flat at 3.3 billion. Our AFFO and AFFO per share grew by a CAGR of respectively 25% and 19% during this five-year period. I'm very proud of these results and would like to take this opportunity to thank all Boralex employees for their commitment and hard work during these years. I also take this opportunity to thank our partners in our different projects. I won't go into all the details of market conditions, but in general, I would say the demand for renewable energy remains high in all our core markets, with strong commitments from the government to reduce their carbon footprint, leading to investment in renewable energy sources. Even if some political parties are not highly favorable to the development of renewable energy, one thing is sure, the transition will continue. It's based on strong demand forecast with a clear lack of supply in the short to medium term. In Canada, we still expect legislation around ITC to get final approval sometime in the first half of 2024 in france we had positive news from the 2024 budget act with the price cap raised to 105 euro per megawatt hour and the level of revenue shared with the government and above this threshold is which is increased for to 50 percent versus 10 percent in 2022 and 2023. Even if merchant prices are lower than 105 euro a megawatt hour right now, we still have some upside in 2024 coming from our short-term contract signed in 2022 for periods between Q4 2022 and 2026. I will now rapidly review the main variances in our portfolio of projects and growth paths. The increase in the early stage was mainly due to, first, the addition of one new wind project and one storage project in North America, as well as two wind power projects and five solar power projects in Europe for a total of 454 MW. Then, the transition to the mid-stage phase of five wind projects and five solar projects in Europe for a reduction of 126 MW. In the mid-stage, the progression of these 126 MW of projects was offset by the transition to the advanced stage of three wind projects in North America and three wind projects and two solar projects in Europe for a reduction of 500 megawatts. In the advanced stage, the change were mainly due to the progression of these 500 megawatts, but also the transition to the secured phase of one wind power project in North America for a reduction of 133 megawatts and the inclusion of two wind projects in Europe in the under construction stage for a reduction of 29 MW. In total, our pipeline now comprises project totaling 5.9 GW of wind, solar and storage project. In the growth path, the secured stage increase with the progression of one wind project in North America for an increase of 133 MW. The construction and ready-to-build stage increased by 2 MW with the progression of the wind project Fontaine-les-Boulons and Febvin-Palphar in France, and the commissioning of two other wind projects in France, totaling 27 MW. I won't cover in detail the progress made in our four strategic directions, as I have already talked about the major highlights. but you can find all the details in the slide of the webcast and in our MD&E. This completes my part. I will now let Bruno cover the financial portion in more detail, and we'll be back later for the question period.
spk04: Bruno? Thank you, Patrick. Good morning, everyone. I will start with a review of the progress made in light of our 2025 corporate objectives. As mentioned by Patrick, Our balance sheet is strong with close to $550 million available cash and authorized financings, which is about $150 million more than in the previous quarter. Total debt remained stable in 2023, with project debt now representing 85% down from 90% in 2022. The AFFO and reinvestment ratio are progressing according to plan, while combined EBITDA had a strong 22% increase in 2023. Lastly, on our corporate objectives, we continue to make good progress on our CSR strategy as presented on slide 17 of the webcast. In 2023, we significantly improved on our avoided emissions to over 1 million tons. We increased our initiatives around health, safety, and diversity and continued to improve our governance on different fronts like compensation, ethics, and risk management. For more detailed information, I invite you to read our 2023 CSR report, which has been published earlier this morning. I will now cover the financial results for the quarter, starting with production. Overall, total combined wind production for the quarter, combining Canada, U.S., and France, was slightly higher than the anticipated production and 33% higher than the same quarter last year. High availability of wind farms and strong wind conditions in France compensated for less favorable wind conditions in Canada. The total production for the hydro sector was 4% higher than anticipated and 18% higher than the same quarter last year, attributable to favorable weather conditions in the US. Finally, production from solar assets was 3% lower than the same quarter last year, and 16% lower than anticipated. In summary, total production for the quarter was 1% higher than anticipated, but 30% higher than the same quarter last year. Fourth quarter, combined revenues were stable compared to the same quarter last year, while EBITDA increased by 32%. EBITDA growth was mainly attributable to the US acquisition, higher production and commissioning of assets in France, and also to positive Euro-CAD exchange rate, effect of 9 million in Q4, capacity revenues of 8 million as part of short-term contracts signed in Q4 2022, and tight controls on overall costs. Operating income amounted to $119 million compared to operating income of $14 million for the same quarter of 2022. This significant increase is mainly attributable to the increase in EBITDA and the decrease in impairment. Net income was $58 million, a $65 million improvement compared to the net loss of $7 million for the same quarter of 2022. On a consolidated basis, AFFO was $90 million compared to $77 million in the same quarter last year. Our financial position remains very solid with the net debt to total market capital ratio of 42%. Finally, I would like to highlight that overall for the year, we generated an extra $20 million in EBITDA thanks to our commercial strategy in France by exiting some contracts at the end of 2022 and recontracted the vast majority of this volume at better conditions until 2026. Please note that this amount is net of the inframarginal rent or the price cap formula. This clearly demonstrates we have created value with our exiting assets or exiting contracts in France in 2023. In conclusion, fiscal year 2023 and the fourth quarter were strong periods in which we continued our disciplined execution of our plan. We increased combined EBITDA and EFFO compared to 2022. We continue to be very active in the development of new projects in North America with two new projects totaling 315 megawatts selected under the Hydro-Québec RFP. We recently submitted bids for 525 megawatt of storage in Ontario and 240 megawatt of solar projects in the New York expedited RFP. And finally, we maintained a solid financial position with close to $550 million in available cash resources and authorized financing to support our growth. Thank you for your attention. We are now ready to take your questions.
spk06: Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. Thank you.
spk01: We are now going to proceed with our first question. And the questions come from the line of Davey Quisada from Raymond James.
spk06: Please ask a question. Your line is open.
spk02: Thanks. Morning, everyone. Maybe I could just start off with a high-level question here, just thinking about capital allocation and your growth priorities. I know that you've got now quite a few exciting emerging opportunities and come back on Ontario. I'm just wondering how you, I guess, allocate capital between those and other things that you've looked at in the past, like some of your growth projects in the U.S. outside of New York and I guess potential M&A. Is there a way that you'd prioritize those opportunities or will it just come down to returns at the end of the day?
spk00: Yeah. Hi, David. Thank you for the question. Essentially, indeed, Ontario and somewhere Quebec arrive as a new interesting market from 2021 strategic plan. So, and we are able to to catch a very interesting rate of return in both of these markets and with long-term contracts. Ontario is a 22-year contract and Quebec is a 25 to 30-year contract. So it's a very interesting market. So indeed, yes, we have reallocated some development people. We have also increased, thanks to our good position, we have also increased a little bit our budget for 2024 in terms of development to continue to invest in the four jurisdictions where we are. And last but not least, if we continue to be successful, and that's why I expect in this market, we will have to work on a way to finance this project with some potentially capital recycling, minority sales like we did in France, and also the projects are also, as I mentioned in my speech, well spread in time, so we don't have any difficulty to finance them.
spk02: Okay, excellent. Thank you for that. And then just maybe... Thinking about the upcoming RFP in New York for the fall, I'm just curious how you expect that to shape up. Is there any sort of guideposts you could provide on the volume of projects that you think you could bid in there just in terms of how advanced the development stage projects you have in the state are?
spk00: Yeah, it's always difficult to commence before knowing the exact rules of the tender. On the expedited RFP, the threshold of development, meaning development license, operating license and grid connection was quite high and that was favorable for Boralex because we had advanced project to bid. I also expect somewhere but I have no crystal ball that the next RFP will have also a quite high threshold on authorization and development advancement. And in this case, we would be able to bid somewhere a big part of the contract we obtain in 2021. But again, it's with all the the disclaimer of not knowing the new RFP rules.
spk02: Thanks, Patrick. That's a great caller. I'll turn it over.
spk07: Thank you.
spk06: Thank you. We are now going to proceed with our next question. And the questions come from the line of Rupert Murrah from NBS. Please ask your question. Your line is open.
spk13: Hi. Good morning, everyone. If we can start with the changes to the regulation in France, the 2024 Finance Act. Can you give us some color on how your contract prices are changing in 2024 on those assets which you exited the contract, roughly where that price will be? And with the change in the regulation, what do you see as the year-over-year impact on your operating performance?
spk05: Thanks.
spk00: Very interesting question. The first point is you can assume that all the power we exited in 2022 has been signed for 2024 at a price higher than 105. That's the first point. So five euro is there already per megawatt hour. On top of this, I will not comment on the average price, but the fact that we share no 50% over the 105 will have some significant improvement of our AFFO this year. And I will let you see that in the next results of the first quarter, I think. Bruno, I don't know if you want to comment more.
spk04: The amount I mentioned, I guess, which addresses indirectly your question, Rupert, is this year, in 2023, last year, we had an impact of $20 million. And you can see with current prices, market prices are lower in 2024, expected to be lower in 2024 than 2023, but The finance law helps us on the flip side by taking less to the government in terms of taxes. So we won't be more precise than that.
spk13: All right. I guess we'll have to roll up our sleeves.
spk04: That's pretty much it.
spk13: All right. Well, if I can maybe turn to Quebec and Ontario and the recent RFPs that It seems from looking at those processes, the ones we've had so far, where you've been quite successful, that there hasn't been a huge amount of international competition. I wonder if you can comment on maybe what your competitive strengths are and any challenges that international players might have getting a foothold in this market. And do you see any changes in that competitive landscape in the future RFPs here?
spk00: Yeah, that's interesting. I think there is two answers. The first is in Ontario, we restart development two and a half years ago when no one was thinking about development in Ontario. So this gave us quite advantageous position when it was time to bid in February and in December with very good partnership with First Nations and with municipalities. So I think Ontario was more a story of saying, okay, the demand gap is there, the storage and system regulation gap is there, we should invest before even knowing that there would be a tender. So that's one thing. And in Quebec, at the same time, I think we have been also very good locally I think I mentioned on different previous calls that I was confident in Quebec because, yes, there was 3 gigawatts of bid, but Boralex was the only one with bid on nodes where there was no competition. On some nodes in Quebec, there was two players, even three players. So on the nodes where we bid, there was only Boralex. So this is... allow us to be a little bit more aggressive in terms of bidding with a price which is a little bit higher than, at the end, the average price of the tender. So that's the first part of my answer is local presence and good vision of the market. And the second part, indeed, I think lots of international players have opportunity in other markets. And that's because the global energy transition is there and some American players are playing big projects in America. Some European players are playing big projects in Europe. And so we are all quite busy, which is good in terms of competition because it's reducing competition.
spk13: Do you see that situation changing at all the next few bidding rounds? Do you think we'll see more international presence?
spk00: It's a possibility, but my last comment is there. There is lots of potential projects in the U.S. There is lots. B.C. will seem to... They will open also, they announced something, so there will be also a project in BC. So competition between, there is a tender coming in the UK, there is many tenders. In Germany, if you look to Germany, they were permitting one gigawatt per year. They are now permitting five gigawatt per year. So if you are RWE or another German company, you don't have to go in Quebec and to have interest in Quebec and Ontario because you have a lot of things to do in Germany and in France and in the UK and in the US. So I have no crystal ball, but I think that competition will be probably less than it was in the past when renewable was highly supported by government.
spk07: Great. Thank you. I'll get back to you. Thank you.
spk01: Thank you. We are now going to proceed with our next question.
spk06: And the questions come from the line of Nick Boychuk from CoreMax Securities. Please ask your question. Your line is opened.
spk09: Thanks. Good morning, guys. Can you please provide some color on how your teams are faring at finding newer, earlier stage projects? Patrick, you mentioned that the development sort of cost might increase. What are you seeing in your core markets and technologies, and how is that impacting your outlook to 2030 goals?
spk07: In. Yeah.
spk00: Yeah, yeah, the the essentially. We are focusing in on four C jurisdiction. Canada, specifically Quebec and Ontario, the state of New York, UK and France. So so we're not we will. Yeah, if there is some opportunity elsewhere in the US with a potential than New York. Like I mentioned in the past, Illinois, we can go, but specifically we have a lot of work in these four jurisdictions. In terms of technology, we have 380 megawatts under construction in storage. We have 525 pending, so the storage diversification is going very well. And it's interesting revenue. And I think it shows when you look to Ontario, UK, there would be other opportunities in storage. We need to continue the diversification in solar because I think it's a very interesting diversification. But these three technology plus wind obviously would be there. So in this jurisdiction, long-term contract, long-term contract meaning also long-term PPA, commercial PPA, like we did in France, where there is a big market for that. And I'm sure that this will come even in jurisdiction like Quebec. We're speaking about long-term corporate PPA, even if the low is not yet there, but the low will come. So there is a lot of opportunity for long-term contract, this jurisdiction and this technology. And does it change anything for 2030? Somewhere it confirms that our view of 70% of our growth coming from organic growth is reachable and we will continue in this direction because with organic growth we are creating lots of value for biotics.
spk09: Okay, got it. So comparing it exactly to the 2030 targets, I think, rough math, you'd have to add about, call it just under 3 gigawatts in the U.S. of new solar and about a gigawatt of contra wind in the U.K. Between the New York State and, say, Scottish markets, you're comfortable with being able to source the vast majority of that organically?
spk00: Yeah, globally, the answer is globally, yes. There is more opportunity in Ontario and Quebec than expected. Uh, and, uh, and we are definitely, you know, accelerating in the UK with the, with the team we bought, uh, an integrate, uh, two years ago and the success we had was lime kiln. And we will also concentrate on the accelerate once the, at the end of April, we will have, uh, uh, the news about the New York, uh, RFP. Like you have seen, NYSERDA is now progressing at the right pace, seems to be. They just approved two projects offshore wind yesterday with a high price. So I think that this is a good sign that they will continue to approve projects onshore too. And that would be really the base of our organic development in the U.S. for the next years.
spk09: Got it. Thank you. And the last for me, just thinking about projects in those markets moving from the earlier to mid to advanced stages, are you starting to identify any or see any potential bottlenecks or issues like maybe interconnection queues, timelines, delays, supply chain issues, anything that could derail this outlook? Or are you comfortable with how everything sits so far?
spk00: There is some interconnection issues in the U.S. It depends on where it is on specifically as I was mentioning in in in the previous question on uh the our specific project the roughly one gigawatt pipeline we have in New York we have secured interconnection so I'm confident in that if we want to go elsewhere and accelerate uh yes there is interconnection uh cues there uh but I'm sure that again the The states will have to do, like in the UK, like in France, like in Quebec, investment plan to reduce this interconnection bottleneck. And on the other side, in Quebec, I think we have been, and in Ontario, we have been very smart to go where no one was. and not to have to fight for interconnection. And we will continue to use this intelligence and understanding of the market to go there.
spk07: Okay. Thank you very much, Nicolas. Thank you. Thank you, Nick.
spk01: Thank you.
spk06: We are now going to proceed with our next question. And the questions come from the line of Nelson Ning from RBC Capital Markets. Please ask a question.
spk10: Great, thanks and congrats on a strong quarter. So my first question is the two battery storage projects in Ontario. I think you mentioned that they'll be commissioned in 2025, so I presume you need to start construction pretty soon. Can you just comment on where you are in terms of like raising project financing and things like that on those projects?
spk00: Yeah, first, thank you, Nelson. First point is we have secured the procurement of the battery. We have finalized engineering on the one of the project and we're working on the other one. And globally, the news are very positive in terms of budget and then in terms of return of this project. and for the financing, I will let the floor to Bruno.
spk04: Thank you, Patrick. And to your question on financing, Nelson, we've started working on the project finance. We expect that in the second part of this year that we'll be able to close the financing on this. We're quite confident, and this is also a reminder that these projects are eligible for the ITC, which we expect will be passed in terms of law in the first semester of this year. So generally speaking, the financing of these projects is well underway.
spk10: Okay, so financial close in the second half of this year. Does that mean construction will have to wait until the second half of this year as well?
spk04: No, we can start. We already have on the equity side, we have the capacity to invest the equity needed and we'll be fine in terms of timing for the financing process. which is likely in the first part of the second half, if I can say it in more precise ways.
spk10: Okay, thanks for the additional clarity. And then just moving on to NYSERDA, the 240 megawatts bid into the expedited process. So I think previously you had about 740 megawatts of solar that was previously awarded. So, technically, you could have bid a lot more than 240 megawatts into the expedited process. I guess, were the restrictions pretty high in terms of being able to construct very soon, or can you just give a bit more color as to, you know, relative to what was previously awarded, how did you arrive at resubmitting 240?
spk00: yeah you're right Nelson the threshold of advancement of the development of the project was high and to be transparent we have advocated that to NYSERDA because we think it's the best way to have a very low attrition risk on the number of projects awarded and finally the number of projects connected. And so this limits us to bid 240, but this limits also competition on the tender. So that's where we are. That's why we have not been able, but we were comfortable with that, to bid all the 740. But in the next round, we would be able to bid the 700, the remaining part, probably in the next round this year or the round next year.
spk10: OK, got it. And then my next question just relates to the fact that you maintained your 2025 target. And I think you mentioned earlier that 70% of your growth will be organic. So in terms of hitting your 2025 targets, does it rely on any M&A to hit that number?
spk00: Yeah, in 2021, what we said is for the first period of the strategic plan, meaning the 2025 target, it will be 50-50 organic and M&A, and after 2025 to 2030, it will be 70% organic, 30% M&A, because it was not possible to move globally to 70% before 2025 due to the delay of development. What I can say to you is today we are really on the right path for the organic cash flow that will come for 2025 from the organic development and we are still confident but as I mentioned previously this will need some M&A and we will not do M&A at any cost we will do it only if it's first accretive Secondly, creating value on the long term for Boralex and its shareholders. So there is still almost two years to do this. And so we're monitoring the market and we have the possibility if there is an interesting transaction with the condition I just mentioned, we will do it. Otherwise, we will have to continue organic development, which is creating a very high return presently.
spk10: Thanks, Patrick. And just one last question. You mentioned that you're adding more people into your development team. I think the development costs in 2023 was about $40 million. How much higher do you think 2024 will be? Will it be closer to $50 million?
spk07: Yeah, that's a pretty good estimate, Nelson.
spk00: And just another point, Nelson, is there is a part of as soon as we obtain a contract or some other condition on top of the contract in France, we can capitalize some development costs. So we are also hiring people but paying them on specific projects which are secured instead of paying them on projects with a little bit higher risk of development. So this is also something. I see more development people in the offices. Some are capitalized and some are not.
spk08: Got it.
spk00: Okay. Thanks for the clarification. I'll leave it there. Vincent?
spk06: We are now going to proceed with our next question. And the questions come from the line of Mark Jarvie from CIBC. Please ask your questions.
spk11: Hi. Good morning. I wanted to come back to the question Rupert started with around realized pricing in France expectations. Can you just remind us again how many megawatts would be on those hedges that you put in place in 2022? And then I guess the other part would be, you were going to be a vehicle merchant post-commissioning for 18 months on some assets, but given where spot price is, should we assume that you've locked in all your PPAs on recently commissioned assets?
spk00: Yeah, the first point is, hi, Mark. The first point is... if i'm correct 326 megawatt were early terminated in 2022 and with we have signed exactly at the same time contract to secured q4 2022 up to 2026 with the price the forward price of this moment and it's not uh like i mentioned many times it's no a guarantee of volume so it's not edge it's a new PPA new utility PPA that we sign with another European PPA utility sorry the second point is in 2023 and 2024 we have these 18 months of new project which are the project with a with a future contract and indeed what was impossible last year in Q1 because the low was like 30th or 31st of December 2022 and we have not been able to edge the price at that time. This year, since it was based on the low of 2022, we have been able during 2023 to edge a part of the price of the 18 months before the price of the market coming down. So the 18-month contract will contribute a lot in 2024 and stay somewhere better compared to actual price than in 2023. So I tried to answer your question to give you the exact price going forward, but it has been well managed by the team there.
spk11: Got it. Now that's helpful to put those pieces together for us. And then maybe, how do we think with the tax credits in Canada on sanctioned projects versus pending or recently completed bids? Like the projects that are secured in Quebec, is there a give back if the ITC is awarded in Canada to Hydro-Quebec? Are there certain projects where you keep all the upsides? Just maybe walk us through sort of which projects can get the bigger benefits and which ones sort of have shared economics with the offtake
spk00: Yeah, the first point is on APWIT, DENESH, and Argersville project in Ontario, we didn't take into account the existence of the ITC at bedtime and when we signed the contract. And we have no, say, clawback or giveback clause in the contract. In Tilbury, the smaller project in Ontario, we decided at that time to be a little bit more aggressive, saying we gave back at that time already the ITC to the Ontario ISO. The good news is that we expect the ITC will come. I met with Chrystia Freeland some days ago and she confirmed that it will come in the first half of the year. And the second point is lithium has gone down and the cost of the balance of plant also has been really well managed by the team. And I have now a budget with an interesting return, the double digit return on this project and some room of budget contingency. So de-risk project even for Tilbury. For the last tender, uh we have taken into account the itc and uh and optimize our price taking that into account and and taking into account the specific quebec rule uh to to say transfer back to hydro quebec a significant part of the itc 75 percent 75 okay and the last question for me is yeah as you look at the us project i guess particularly in new york
spk11: updated views on how you think about tax equity. We've seen some transfer deals done to, you know, monetize tax credits annually. I know, you know, you have the option now maybe on some of those projects, picking PTC versus ITC, sort of just updated views in terms of how you want to optimize the usage of tax equity in the U.S. going forward.
spk04: Yeah, Mark. We, we, Certainly have not spent much time in changing our view. So, I mean, today we still have a view. It helps us because it makes it more liquid. It certainly helps the market in general. But we have not looked into the specifics recently of this.
spk07: Okay. Thanks for your time today.
spk06: Thank you. We are now going to proceed with our next question. The questions come from the line of Ben Pham from BMO. Please answer the question.
spk12: Hi. Thanks. Good morning. I was wondering your thoughts on the CapEx, maybe not the CapEx, but the equipment cost trends. You know, what are the next three or five years? Do you think that the projects you're bidding in today there's a potential for equipment costs to potentially move lower over time by the time you've secured the equipment?
spk00: Yeah, it's a good question. Hi, Ben. What we're doing essentially is we moved from a period where everything was going down to going up very quickly And we have been able during the last almost two years, if you look to the French market typically or somewhere, this is more confidential information, but if I look to the price we sign in Quebec for bilateral contract and the average price of the new tender and the price that we bid in the tender, to transfer to the off-taker a lot of the increase of the cost. So I'm comfortable that we are covered on this, and definitely we have put higher contingency in our budget while bidding. What we are doing, and in Ontario that's exactly what we did, we bid in February, we were awarded in May, and we have frozen the price of the battery in December or even November with Tesla. So we secured this. We will do the same on others. What I think is equipment, that's my crystal ball, equipment will go down, but I'm not convinced that in North America balance of plant will go down because this is more due to the lack of resource in this business. And that's why we are putting so much emphasis on engineering and working on optimizing the project a lot with the with the team and this is a part when i was seeing a part of the team of development team had increased and is capitalized is typically these people we put lots of emphasis and we are also working with a specific contract with balance of plant companies to be incentivize both to reduce the cost of balance of plan so we are sharing this is what we call a say something like common engineering or sharing the cost of this so so we can reduce the and and and de-risk the project on this part of the cost so so that's my view something to add just to limit more on
spk04: It's important to shorten the period between the time that we bid on the contract and the signing of the supplier's contract, as Patrick mentioned, but also the financing. So we're trying to keep that period as short as possible and to reduce the risk of variations between what we modeled in our bid and what we finally realized on. So I think we've been successful so far in doing that, which has avoided significant losses on past deals. And we think we have the teams to continue to be successful on that.
spk12: Okay, that's good cover. Thank you. And then my second last question is, I know you mentioned you can self-fund your secured growth and whatnot has been the message for some time. Are you able to maybe frame it as how much net megawatts you can sell fund a year or how much free cash flow? I guess we can calculate that ourselves, how much free cash flow you kick out and you can lever up. Maybe just to frame it a little bit in a different way.
spk04: Yeah, I think what we prefer to say at this time is we're well financed this year. We can, in terms of equity, our different financing tools, project debt, the market is very receptive. We have very good relationships with our lenders. We are able to select different forms of our different... the best offer on financing. So project debt side, as I mentioned, the ITC in Canada, we expect to be coming. Partnerships is something that we'll consider, we'll continue to include and consider more in the future. The recycling of capital is something that we'll continue to work on and we see in the next little while we see certainly opportunities in our portfolio to arbitrage value once we've created value to sell down a portion and sometimes even more of some assets. So with all these tools that we have available on financing and plus the AFFO that we keep as As you've seen, we put a range of reinvestment ratio of 50% to 70%, and we're in that range and we've been able to maintain that, which means we're producing, say, call it this quarter, 62% of our AFFO is reinvested in the business. So with all these financing available, we're increasingly able to self-finance our growth, but At the moment, equity is still a need in a portfolio and, I guess, a solid balance sheet. So at some point, we'll also need to have some equity.
spk07: Okay. All right. Thank you, both of you. Thank you.
spk01: Thank you. We are now going to proceed with our next question. And the questions come from the line of John Mould from TD Securities.
spk06: Please answer your question.
spk08: Hi, good morning. Maybe just going back to your projects, a bit into the NYSERDA RFP. You said earlier they were well spread over time. Are you able to give us a little more of a sense just in terms of how those CODs are spread out and when they start, just to give us a flavor of what your mid-term capital needs could look like from those projects if you are successful in the bulk of them in the RFP?
spk00: Yeah. Thank you, John. Essentially, if we are awarded these contracts, since they are well developed and advanced in terms of development, we would be able to start construction quite quickly. So I think if you say... I'm not convinced... 2025 is reachable, but I'm sure that 2025 to 2026 is reachable for these 240 megawatts. And that's where we are. And as Bruno just mentioned, it will be our interest also to go quickly because it's the best way to secure the bid return quickly. And so we have our construction team and engineering team is already working hard on this project to be ready as soon as the 22nd of April to go ahead or at least go to the board in May and accelerate it afterwards.
spk08: Okay. And just to be clear, that would be like a 2026 COD, not started construction. Is that correct?
spk00: Yeah, yeah, yeah.
spk08: Okay, great. And then You're just going back to the project financing for the Ontario storage projects you've got contracted. I'm just wondering what share of capital costs for those projects could be debt financed, just given that they do have a merchant component to the revenue model versus the typical fixed price contracts that you would have seen in most of your other project financings in Canada.
spk04: That's a good point. What we expect and what we certainly are working towards is that a good portion of the contracted piece will support a significant portion of project debt. And equity and ITC will certainly help fund the merchant part But on the contract part, there will be a significant amount of project debt.
spk07: Okay, great.
spk04: The contracted part, I think we indicated in the past that the contracted part is about 70% overall, which would be quite highly levered.
spk07: Okay, great.
spk08: Terrific. Okay, those are all my questions. Thank you very much.
spk01: Thank you. We have no further questions at this time. I will now hand back to you for closing remarks.
spk07: All right. So thanks a lot, everyone.
spk03: And if you have additional questions, don't hesitate. You can give me a call. I'll make sure to quickly answer your questions. So our next conference call to announce first quarter results will be on May 15. at 9 a.m so it's going to be also the the same day as our annual general meeting of investors so looking forward to to see you there have a good day and a great weekend thank you thank you thank you ladies and gentlemen this concludes today's conference call thank you for participating you may now disconnect your lines thank you and have a good day
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