Boralex Inc.

Bonjour Mesdames et Messieurs et bienvenue à la conférence téléphonique pour tenter les résultats financiers du deuxième trimestre et de l'exercice 2022 de Boralex. Veuillez noter que toutes les lignes sont en mode d'écoute seulement. À la fin de la présentation, il y aura une séance de questions et réponses au cours de laquelle les analystes financiers, actionnaires et investisseurs seront invités à poser leurs questions en appuyant sur l'étoile suivie du chiffre 1 et 1 sur votre téléphone. Veuillez également noter que cette conférence est enregistrée. Pour les participants à la webdiffusion, vous pouvez également poser des questions au cours de sa 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 de Boralex aux coordonnées indiquées à la fin du communiqué trimestriel. J'aimerais maintenant passer la parole à Monsieur Stéphane Milleux, directeur principal des relations avec les investisseurs de Boralex. Good morning, ladies and gentlemen, and welcome to Boralec's second quarter of 2022 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. To ask a question, please slowly press star 1 and then 1 on your telephone. Please also note that this 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 Laventure from Boralex. Her contact information is provided at the end of the quarterly press release. And I would now like to turn the conference over to Mr. Stéphane Milot, Senior Director, Investor Relations from Boralex. Please go ahead.

Well, thank you, operator, and good morning, everyone. Welcome to Boralek's second quarter resource conference calls. Joining me today on the call, Patrick Dacoste, President and Chief Executive Officer, Boudinot Guilmette, our Vice President and Chief Financial Officer, and other members of our management and finance teams. 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. As you know, during this call, we will discuss historical as well as forward-looking information. When talking about the future, there are a variety of risk factors that have been listed in our different filings with securities regulators, which can materially change our estimated results. These documents are available for consultation at CDAR.com. In our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis, unless otherwise stated, All comments made in this presentation will refer to combined basis figures. Please note that combined is a non-GAAP financial measure and do not have standardized meaning under IFRS. Accordingly, combined may not be comparable to similarly named measure used by other companies. For more details, see the non-IFRS and other financial measures section in DMDNA. The press release, the MD&A, the consolidated financial statements, and a copy of today's presentations are all posted on the Boralex website at boralex.com under the investor section. If you wish to receive a copy of this document, please contact me. So Mr. Dacasse will now start with his comments. Please go ahead, Patrick.

Thank you, Stéphane. Good morning, everyone. It's a pleasure for me to present our results and achievement for the second quarter. As you have noticed, we continued to vigorously execute our growth and diversification strategy during the quarter. 177 megawatts of wind and solar project as well as 26 megawatts of storage project were added to our pipeline. Sorry, we are also selected for 540 megawatts of solar project and 77 megawatts of storage in the latest New York RFP. We grew consolidated operating earnings by 89%, 61 on a combined basis, and ABDA by 15%, 14% on a combined basis, even despite lower production than last year. main drivers of this growth were the effect of high market prices in France and to a lesser degree in the US. We continued to optimize our operations and our capital structure during the quarter. The reduction of our debt level will have a favorable annualized effect of 19 million on AFFO. Finally, We got confirmation at the end of July for early termination of three power purchase agreements, representing a total of 58 megawatts in France. The termination will be effective on October 1st, 2022. The electricity will be sold on the market from the effective date of termination. Market conditions continue to evolve rapidly by region during the quarter. In the U.S., positive news came last week with regard to measures potentially harmful to the realization of projects, in particular, solar. Indeed, the Senate majority leader, Chuck Schumer, and Joe Manchin, both senators, announced an agreement on a package including roughly $370 billion in energy and climate spending. If approved by the U.S. Senate and House over the next weeks, the bill would restore federal ITC tax credit to the full rate for renewable energy projects completed in 2022 or later. They would remain at this level for at least the next 10 years. In Canada, the Canadian government has planned new investment of around 9 billion and specific measure for electrification and decarbonization of electricity and the transition to renewable energies and storage, including an investment tax credit specific to battery storage. In Ontario, new power needs confirm as early as 2025, and in the years that follow are prompting the Independent Electricity System Operator, IESO, to develop supply mechanisms to meet them. Tenders are expected shortly. Turning to Europe now, the geopolitical context continues to reinforce the need to ensure security of energy supply and sovereignty. In France, problems with nuclear reactors causing historically low levels of production are still going on and are pushing electricity prices at very high levels. France lacks local production and has become a net importer of electricity during the energy crisis. On July 28, the Minister of Energy Transition in France published a press release indicating a first set of emergency measures to favor the acceleration of renewable energy development. The following measure should positively impact our development in the short and mid-term. The first measure is allow renewable energy projects to sell their electricity on the market during 18 months before the start of their feed-in premium contract. The second measure is integrate inflation in cost of materials between awards and start of construction for all future renewable energy project. Then the final measure is allow all renewable projects already selected in RFPs to increase their capacity by up to 40% before the end of construction. We will provide more info on our next call regarding these measures as the criteria are not yet precise enough to give us an idea of the expected effect on our development and the positive financial impact. Please note also that the legislative project is under discussion in the Parliament in France to share the revenue generated beyond the contract price on certain feed-in premium contracts for which recorded additional revenues since the beginning of the year. As a result, we may be required to repay a portion of the amounts collected in 2022 if the legislation is passed and is effective on January 1st, 2022. I will now rapidly review the main variances in our portfolio of projects and growth paths. The 307 megawatt increase in the early stage came from the addition of two wind projects and a solar project totaling 66 megawatts in Europe following the acquisition of InfiniRG. the addition of two new wind projects and three new solar projects totaling 71 megawatts in Europe, and the change in the expected capacity of a solar project in Europe and two solar projects in North America for a total of 176 megawatts. Projects in the mid and advanced stages continue to progress with no material changes to report. In total, Our pipeline now comprises project totaling 3.9 gigawatts, up 298 megawatts from the end of the first quarter of 2022. The wind project segment is totaling 2.3 gigawatts, up 49 megawatts from the previous quarter. The solar power segment pipeline includes project totaling 1.6 gigawatts, up 249 megawatts from the previous quarter. Let's review the change to the growth path now. As shown on slide 11, we had assets in operation with 2.5 gigawatts of installed capacity as of June 30, 2022, down 14 megawatts from March 31, 2022, following the disposal of two small power stations in April 2022 and the commissioning of three facilities in May and June 2022. Commissioning of secured facilities and projects under construction is expected to bring our capacity to 3.2 gigawatts. As you can see on slide 12, we're pursuing the execution of our strategic plan and are making good progress on all four strategic orientations. I won't cover in detail our progress as I already have highlighted our main achievements. One last point from my part, as alluded earlier in my comment, we have contracts maturing in the next five years for which we have been doing analysis on optimal strategies. Given the highly favorable pricing environment in France, we're being very agile and looking to all possibility to create maximum value. As mentioned earlier, we received confirmation of early termination for some contract and we are expecting additional answers in the coming quarter. We are also continuing to evaluate potential repowering where it makes sense. In the past three years, we have put important efforts to create our expert team to commercialize electricity. We knew this trend was to accelerate and are very happy to have this team helping us to take the most optimal decision in the current situation. To conclude, as mentioned in the previous quarter, solar and onshore wind farms can be commissioned quickly and at low cost. We're increasing our efforts and discussion with the various levels of government to accelerate our development and offer sustainable renewable energy supply solutions in the region affected by the energy crisis and those targeted for our growth in Europe. This acceleration must be done in a win-win setting for the countries and producers who invest while inflationary conditions result in a higher level of overall risk. 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. 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, capacity decreased slightly following the sale of two small plants. Total capacity now stands at 2.5 gigawatts of 100% renewable energy. Our last 12 months EBITDA and AFFO increased due to strong results reported earlier today for the second quarter. Our reinvestment ratio stands at 60%, which is in line with our 50% to 70% target. About our CSR strategy, we continue to make good progress on the environmental, social, and governance fronts. We improved our ranking with EcoVegis from silver last year to gold this year and made good progress on the assessment of physical impacts of climate changes. Following the closing of our partnership in France with EIP, our balance sheet is very solid with more than $900 million in available cash and authorized financing facilities to continue implementing our growth plan. Taking a look at our debt objective now, our corporate debt to total debt ratio decreased compared to the previous quarter due to early repayment of project debt and a significant reduction of the amount drawn on our corporate credit facility. We are pursuing the work toward our objective to obtain an investment grade rating and increase the proportion of corporate debt in due time. I will now cover the financial results for the quarter, starting with production. Second quarter wind conditions were good in Canada but weak in France. Wind production in Canada was in line with anticipated production and equal to the same quarter last year. In France, wind production was 13% lower than anticipated and 12% lower than in the same quarter last year. Overall, total wind production for the quarter combining Canada and France was 5% lower than anticipated production and 5% lower than last year. Turning to hydro production now. In the U.S., production was 11% lower than anticipated production but 28% higher than in the same quarter last year. Canadian hydro had production 5% lower than anticipated but 15% higher than last year. Total production for the hydro sector was 8% lower than anticipated but 20% higher than last year. Finally, Production from solar assets was 4% lower than anticipated, but equal to the same quarter last year with the commissioning of solar assets in France. In summary, total production for the quarter was 6% lower than anticipated and 2% lower than last year. Second quarter revenues were up 12% compared to last year, mostly due to the high pricing level in France and to the increase in hydro production. For the second quarter of 2021, second quarter of 2022 on a combined basis, operating income was up 61% and EBITDA at $133 million compared to $117 million for the same quarter of 2021, a 14% increase. Please note that the $5 million increase in administrative costs is mainly related to an increase in the number of employees and market adjustments in the administrative functions to support our development and an adjustment for performance share units due to the good performance of our stock price. On a consolidated basis, we generated 97 million of consolidated net cash flows related to operating activities compared to 84 million in the second quarter last year. Cash flows from operations was 86 million in the second quarter, a 20 million or 32% increase over the same quarter last year. was $13 million compared to negative $7 million in the same quarter last year. Our financial position is very solid with our net debt to total market capital ratio of 35% on June 30th compared to 48% on December 31st, 2021. In conclusion, we continue to generate strong results. The increase is mainly attributable to high electricity sales prices on certain feed-in premium contracts in France, for which a legislative project to share with the French state the revenues generated beyond the contract prices is under discussion in Parliament. Several initiatives were implemented with respect to the growth and diversification orientations of the 2025 strategic plan. We have favorable conditions for project development and acquisitions in our target markets. The optimization of the capital structure and the transaction with EIP puts us in an excellent financial position to pursue growth. And finally, we have successfully promoted employees and recruited new talents in development and administrative support functions. Thank you very much for your attention. We are now ready to take your questions.

Thank you. As a reminder, to ask a question, you will need to slowly press star 1 and then 1 on your telephone and wait for your name to be announced. Once again, it's star 1 and then 1 on your telephone. Please stand by while we compile the Q&A roster.

This will take a few moments. We are going to proceed with the first question.

Our first questions come from the line of Sean Stewart from TD Securities. Please ask your question.

Thank you. Good morning, everyone. I want to start with France. Can you give us an indication of how much strong merchant power prices there contributed to uh either q2 adjusted ebitda or affo any any context you can provide there i'm gonna go yeah the the upside from the uh the price is uh 15 for q2 and 15 for q1 for a total of 30 million canadian okay and just so i understand the process going forward so All of the assets that have the contract structure that allows you to participate in the F side, at least until potential legislative changes, that's all going to be merchant power prices. But for the contracts that are expiring, is the intent to establish corporate PPAs for all of that capacity, or will it be a hybrid contract? merchant exposure and corporate PPA exposure for those assets?

Yeah, good morning, Sean. The intent is to have a global portfolio with a part of merchant, a part of utility PPA, which are not EDF PPA. corporate PPA and then the EDF classical PPA or contract for different feed-in premium contracts. So we will be flexible on that depending on the market condition and be sure that we take the opportunity when the market is high to fix contract and keep a merchant exposure.

Okay, thanks for that Patrick. Last question for me. It doesn't look like you participated in the Quebec RFP, or there were some recent closures. Can you give us a sense of the strategy there? Are you content with the Signerie de Beaupre projects you already have with Energier and Hydro-Québec? Any context on what – it doesn't appear you participated in the RFP. Can you give us some details there?

Yes, indeed. We are very happy with our three projects of 400 megawatts with energy in Hydro-Québec, for sure. This tender, we were expecting it would be especially competitive because the volume was smaller. There is another tender that will come for 1000 megawatts of wind and 1300 megawatts of capacity from renewable resource. by the end of the year, and we will look forward to bid some projects in this tender. And we are always also looking to any alternative idea of selling the electricity.

Okay, that's all I have for now. Thank you very much.

Thank you.

We're going to proceed with the next question. Our next questions come from the line of David Quezada from Remo James. Please ask a question.

Yeah, thanks. Morning, everyone. Maybe a question for me on New York. I understand there's some updates to NYSERDA's REC procurements. Just curious how you see those changes affecting your strategy for upcoming RFPs.

Patrick, do you want to go on?

Yeah, you're speaking about the legislation that will come from former Build Back Better ID on tax credit, David?

My understanding is that there was some, I guess, some Buy American provisions, some heightened standards environmentally from NYSERDA specifically.

Yeah, but there is also, there is It's a general trend to have to try to reshore production. There is also provision in the agreement between the Manchin and Schumer of last week. What I can say today is that we have still to evaluate these things and we have still to be sure how the market will react and what would be the cost of panel produced in the US compared to other options. And since the agreement was announced last week and it's not yet in full force because it has to go through the Senate back to the House and then confirmed, I cannot tell you exactly what is the impact today. But again, we are looking to all the potential options. And what is important is we have time in front of us on our contract because we have no short-term cliff date.

Okay, excellent. Thank you for that. Maybe just one more for me, moving back over to France. I'm just curious how your discussions with corporate buyers of renewable power have been developing, just given the the potential legislation and the revenue sharing that could come into place in France. Do you get the sense that buyers of corporate PPAs are waiting to gauge any changes there before moving forward?

No, not really, because it's a different contract. The change in legislation we mentioned would affect the feed-in premium contracts, which are the contract we put in service and enforce since 2019, so it's young contract. We are more discussing on corporate PPA where there is a lot of demand, strong demand coming from corporation for the contract we are terminating or the contract which are under corporate PPA and will come to an end typically by the end of next year. And finally, also for new projects, we are discussing some greenfield projects like we have done with Métro because there is a strong interest beyond EESG view to have a stable price of electricity for the long term. And so we are discussing with different corporations when it's an interesting alternative to go to a tender.

Excellent. Thank you for that. I'll turn it over.

Thank you.

We will proceed with the next question. Our next questions come from the line of Rupert Marra from NBC. Please ask a question.

Hi, good morning, everyone. Patrick, you've terminated contracts for 58 megawatts of wind in France, but it sounds like you're looking to terminate more, but may need some approvals for the termination. Can you walk us through through that process, and what limits your ability to terminate contracts?

Yes, good morning, Rupert. Yeah, we're expecting other answers by the end of the quarter. On remaining contracts, we send a notice of termination. There is no reason that it's not terminated, but to be just purely factual, it's not we don't have the acknowledgement of acceptance. We have the acknowledgement of receipt, but not the actual acknowledgement of acceptance from the counterparty. And so we're just monitoring that and we'll inform you next time about this.

Okay. And then typically you would have a, is it about a three month lag from the acknowledgement to the actual termination of the contract?

No, it's three months from the notice we sent. And then we're not losing time because we have done the work in June and have the acceptance of the lenders also on this project. But we are in the middle of the summer and we need to have the counterparty sending us back the letters.

I see. And do you anticipate any penalties for the contract terminations?

No, there is no penalties in the contract we send notice.

All right, very good. So what could be the total megawatts of termination? Let's say, how many have you submitted?

Yeah, as you have seen, we have more than 400 megawatts. where the contract will come to an end before 2026. So a significant part of them, we have gone through this process, specifically the contract where there is no penalty.

Okay, very good. And then just one other question. Bruno, I think you touched on this briefly. You have had more than 700 million cash on the balance sheet at the end of the quarter, and I understand A little bit's gone to debt reduction, and you're saving some cash for growth. But give us more color, if you can, on what you plan to do with the cash on the balance sheet. How long will it sit there?

Yes, so thank you, Rupert.

Yes, so thank you, Rupert. So we are clearly monitoring, as I mentioned, M&E opportunities. We continue to do that. And funding our pipeline, our growth, are the two key priorities. We've used some of our cash, approximately 100 and just above $130 million to reimburse some... some project finance debt that was more expensive. The rest of it will be mostly for growth.

Excellent. Thank you very much. I'll get back in the queue.

We're going to proceed with the next question.

The next question comes from the line of Olly Primack from CIBC. Please answer your question. Olli Primack, your line is open. Hello, Olli, your line is open. You may ask your question.

Hi, this is Mark. Can you hear me? Hey, Mark. Sorry about that confusion here on the titles here. Yeah, so I wanted to come back to the proposed legislation, just clarify that the profit-sharing is only on the feed-in premium, the sort of contracts that you have with EDF, and not would apply to any of your merchant or corporate PPA agreements you might put in place.

Yes, Mark, exactly. The point is the following. We are coming back close to the business model of the project when we build them. This is the idea. The French administration, at the time of signing the contract, was not expecting the price we're seeing today. And so we're in a different situation, and that's only the things. They're not cutting our price. They are changing a clause, which were very interesting to us, and that's where we think they're going. But it does not affect. It's not a windfall tax. It's not something like this. It's just on the specific contract.

And then can you clarify then, you talked about a threshold price, so relative to the strike on the contract for difference, is that higher? At what point do you start to share? Is it 50-50 on any of the excess profits?

No, I don't have figures, factual figures today. This will go through potentially a process with the regulator that will give his advice to the minister and then the minister will say, but it will not be 50-50 to my expectations. It will be less for us than that. Okay.

And then around these early terminations and some of the projects that you'll have opportunity to either do a corporate PPA or go spot or even repower, given where power prices are right now, Would it make sense to defer repowering and just make sure the assets are operating and you're capturing these really high spot prices that you have at least in the near term? So I guess the question is, given the spot price dynamic, what's your sort of updated views on timelines for repowering?

Yes, that's exactly what we are doing for the moment. We're looking to the different flexibility we have. So one of the flexibility is to continue to operate at the present price. Another flexibility is due to the measure I mentioned. It's very important. It's not yet a decree from the minister, but it was announced through a press release last week, and it depends on the ministry itself, the fact that we can be merchants. 18 months before starting the contract for 20 years is an important point. In the past, there was like a rule to say, okay, three months is the maximum time of commissioning. And since the price was low, we were trying to reduce this period as much as possible. And then there was confirmation discussion with the government to increase it. And the reason why the government bring that, it's an incentive for us to accelerate construction so we are also looking to accelerate construction to start as early as possible the merchant exposure for the 18 months so so we are we're looking to everything and trying to adapt to to the situation of the of the market and for the the contract which are early terminated we are also as i mentioned looking to We will not sell everything day one to say, okay, we sell the electricity for the next two years at the price of today. We think there is a strategy for the end of this year, a strategy which is similar but with different metrics for next year, for 2024, 2025, and 2026. The market curve price is in backwardation, so it means it's very high today, but it's going down in 2025, 2026. And so we are managing everything every day. So that's why we need experts internally, and we have these experts internally.

Okay, that's great. And then Bruno mentioned the fact that he has some cash there for growth, but also M&A. Maybe you can just give us an update in terms of what you're seeing out there in the market. Others have said that transactions and the prices are becoming a bit more rational. just in terms of the core markets you're looking, is a priority more in development pipelines, a mix of operating development, and just maybe sort of updated views on how you see the M&A market right now?

Yes, Mark, thank you. So we're continuously analyzing different types of opportunities, certainly more so in the U.S. and Europe, as we mentioned in terms of our extension markets. key targets. So we continue to look for a combination of good cash flows, but also development pipeline. So it's really a case-by-case, on a case-by-case basis, whether the opportunity makes sense from a financial perspective, but also from a strategic perspective where we can add value. So if it's an operating asset, we're going to look to assets where we can clearly add value and create additional opportunities there. And we're looking to some more sizable opportunities given the the amount of money that we currently have on the balance sheet.

And can we infer the fact that you didn't retire any more debt right now and you're keeping the cash that you're quite active and something you could transact at some point this year?

Opportunities are hard to qualify in this market, changing conditions and so on. But as I mentioned, we're certainly active at looking at things. whether we can close something this year remains to be seen due to changing market conditions. But certainly we're in a good position. Changing market conditions certainly have affected some other players in the industry. So relatively speaking, I think it's better for us these changing conditions today puts us in a better position than some of our counterparties.

All right. Thanks, Bruno. Thanks, Patrick. Thank you.

We are going to proceed with the next question. Our next questions come from the line of Nelson Ning from RBC Capital Market. Please ask your question.

Great. Thanks, and good morning, everyone. Just one follow-up question on France. Can you just remind us how many megawatts currently have merchant exposure today and how you expect that to change over the coming, I guess, or what do you expect it to be by the end of this year and next year?

Okay. Okay, go ahead, Patrick.

Yeah, again, there is different things. There is the feed-in premium contract with the market exposure, and it's 208 megawatts, if I remind correctly. Then we have a small exposure of long-term contracts in wind that have come naturally to an end during the last years, and this is roughly 20 megawatts. Then we have an exposure which is due to the delayed start of contract with EDF because we have anticipated the 18 months I mentioned earlier to bring it to three months or more with some ID of our team. So typically we have some assets which are presently, for example, we just repowered Louville and put in service Bois de Fontaine, this is fully merchant. So this is the 52 megawatts we have put in service. So all in all, you have these different kinds of things, okay? And to your question, by the end of the year, come back to my answer to Rupert, we have sent for a significant part of the contract that will come naturally to an end before 2026. uh today we have obtained 58 so by the end of the year you will have to add this 58 today and more to come waiting for the the acceptance of termination by edf just on this okay if i may add nelson is that this will be applying starting in q4 so for the 58. okay so just to summarize like as of today it's

the 208 plus the 20 plus the 52. And then in Q4, it's another 58 plus you're trying to terminate additional projects, which would increase that amount. In terms of the 208 megawatts, the FIP contracts, I think last quarter you guys mentioned how if the market price is high enough and you don't receive any It takes time for some of the 208 megawatts to be effective in terms of the merchant exposure because there's a timing difference in terms of subsidies received from the government versus subsidies paid to the government. Is all of the 208 merchants, do you benefit from the merchant price today or does some of that benefit kick in later in the year?

No, and I'm sorry, it's 201 megawatts and it's completely, we have to pass through the break-even points of the contract for 201 megawatts. Okay.

And then just to clarify that revenue sharing applies to that 201 plus the delayed start projects and not the expired projects, right? And then the project that you're terminating.

The revenue sharing applies on the other 201 megawatts because it's the modification of this specific contract to come back to the idea of the clause that the government has in 2018, but it will not apply to the 18 months from what the minister has released last week, the 18 months, there is no sharing. And the idea is the following is if we have the benefit of the 18 months, we are really incentivized when you look to the present price in France and specifically the price for Q4, which are north of 800 Euro a megawatt hour to accelerate construction as much as possible, when it's possible, to be online for the next winter and not, say, at the end of the spring. So we are working on that too, but there is no revenue sharing on this contract.

Okay, and then there's no revenue sharing on the terminated contracts as well, right? No.

Okay.

And then, assuming you get more terminated contracts, will you try to lock in some of that upside through hedges? Like obviously this, I think pricing is very high.

No, no, no classical edges with commitment of volume, but yes, lock price, but with no commitment of volume. This is very important. Okay. We have a counterpart without commitment of volume.

We maintain our structure of pay as produced?

Yes, the risk is similar. We remain pay as produced, but with a more interesting price.

Okay, got it. And then just one last question on France. In terms of those projects you're trying to terminate, like they are, obviously they're all the kind of older projects does that imply that some of the newer contracts you you can't terminate or you're just or you're just making a decision to terminate older contracts from a risk perspective yeah we don't want exactly we don't want to terminate all the contract because the younger the contract is the more it's bearing debt

So we need also to have the approval of the lenders through the project finance, and that's what we got. And we think in terms of risk, it's not the time to go 100% merchants. And so I think portfolio management is a very reasonable way to benefit from this upside without taking too much risk for the company.

Okay, that's great. That makes sense. I'll leave it there.

Thank you, Nelson. We are going to proceed with the next question.

Our next questions come from the line of Nick Boychuk from Cormac Securities. Please ask your question. Your line is open.

Thank you. Good morning. I was wondering if we could get an update on the timing of some of the U.S. solar projects under development. There's 200 megawatts of solar in New York that were previously pushed from about 2023 CO2 to 2024 last quarter. Are you seeing any change in the ability to get those developed a little bit faster?

It's a very good question. The good news is with the new agreement of last week, and I understand that this agreement could come into force in the next, say, three to six weeks, depending on the Senate availability and the House availability. And as I mentioned, we need to really see how the market of the suppliers will settle down and what will be the impact of this on the electricity price, on the financing price, because there is some interesting points not the direct pay but there is an interesting point to say that you can sell your advantage to somebody so avoiding the tax equity financing so we need to to see where the model is and then if the planet are aligned our project are well advanced to to go ahead and there is no cliff date for us in front of us which are dangerous to keep our contract.

Okay. Understood. Thanks. And just looking at the pipeline and backlog, I'm wondering if you can clarify for me, please, the 540 megawatts that you just recently were awarded in the New York RFP, where do those sit? And when do you think we'd get a timeline as to when they could be operational?

We are on this side, as I mentioned earlier in another call, when we are bidding in the RFP, we have the best price on the more major project, most advanced project, so the different projects are at different stages of of advancement with 800 megawatts and we won 540. So these 540, we are working to continue development. And it's interesting because we will have a bigger volume of project to attract suppliers and find some economies of scale.

uh so so so we will come back with uh i i think in potentially six to six to nine months we will have a better view of when this project would be able to be in service also uh on that front we normally don't move the project in the pipeline before they are signed so we've been selected for these contracts but the contracts have not been signed yet so we wait for the signature or the official signature before moving them into the pipeline.

Okay. Understood. Thank you. And coming back to an earlier comment about the corporate PPAs and the strength in the French market, the MD&A also seemed to mention that you might be looking at corporate PPAs in the UK. So I'm wondering if you could please expand on the dynamic that you're seeing in that market and how that might be impacting your growth strategies in new markets? Could that potentially expedite your entrance to new markets since you no longer have to wait for a government-regulated auction?

Yeah, the answer is yes. The UK market was typically importing 2 gigawatts from France almost ever since the 80s. I know the flux is in the opposite sense, feeding France because of the lack of production in France. There is, as you have seen, some announced delay by EDF on the construction of Inclay Point C. And so all this is putting pressure on the electricity price. And, for example, tomorrow the price is nosed to £50 a megawatt hour. So typically there is the same trend of people saying, I want to buy long-term electricity from somebody who has a real project. And the good news is we have obtained the extension of the Lime Kiln project, six new turbines, and we have obtained also the increase of the size of the blades and the turbines on the Lime Kiln project, too. The extension is also the same size, a big size. So the LCOE, the cost of production is reduced on our side. everything equal. And then we are in negotiation of corporate PPA and we have a strong demand on that in the UK too. And I think this is also an advantage. It would not change drastically the way we are developing the company, but the fact that we have built this team in France and that we have already signed five corporate PPA, we have some bit of discussion We have already, you know, when you sign a corporate PPA, you have to, the different closes are specific. So we have this expertise also on the legal side of our people of the legal team. And I think we have an opportunity to commercialize our electricity in another way than in the past, which is a good option for us. And not all the company are

Hello?

I think we lost connection for a while.

Okay, I was saying that it's good to have the team internally being able to negotiate the corporate PPM. For sure there is demand. And we will continue to work on this because nobody knows how long the crisis will last. But there is no good sign of when you look to the future, there is no good news on the nuclear side in France. There is no good news on the nuclear side in the UK. There is a lot of Germany will be struggling the next months with the situation with the gas from Russia. So there is a lot of clients, customers who are thinking it's good to sign for a significant part of their demand to have the bulk of their electricity from renewable on an economical basis instead of just ESG and CSR basis.

Thank you. And the last for me, Bruno, you mentioned that the administrative costs kind of cut up a little bit to fund some of the development teams. but that part of it was related to performance share units. I'm wondering if you could please kind of give us a sense of what the run rate administrative and corporate G&A costs are now and whether or not you need to continue to invest in that further.

I think we've made a significant push on that side, so I think that the impact is certainly mostly reflected. We'll see a similar, relatively speaking, a similar increase for the rest of the year. So, relatively speaking, the same percentage increase. And I'm just not sure if it answers all of your questions.

Yes, that's okay. Thank you, everyone, for the time. Thank you.

We're going to proceed with the next question. The next question comes from the line of Ben Pham from BMO. Please ask your question.

Hi, thanks. Good morning. I wanted to go back to some of your commentary around the merchant side of things in France and looking to add on contracts or keep a mixed merchant. I'm wondering, when you do decide on that mix of contracted versus merchant contracts, Are you comparing it to the current Ford price or are you looking at your models pre-COVID and presumably you would have had a post-contract price in there to see where the relative differences are?

The idea is the following. If we look to the next end of 2022, then 2023 to 2026, cash flow for a single project and with the contract. And we say, okay, if we terminate the contract, we can be exposed to the price. And as I mentioned, since we have the right counterparty, we can fix in a pay as produced contract, we can fix our price for the next quarter at the end of the year or the next years when there is fluctuation in the market. When we look to this, we say, okay, is it interesting to sign, for example, 100% and 600% with the forward curve of today from 2022 to 2026? The answer is no, because if you look to 2025 and 2026, we think that the market is a little bit optimistic of the solutions that will be bringing in Europe for and the German fossil fuel exposure. And then we think it's good to have a certain amount fixed in 2023, a lesser amount in 2024, and maybe nothing fixed today in 2025, and just wait that the market will come with a reasonable price of electricity, which will be higher than what is today. And when we do this calculation, we want to be sure we are north of the expected contracted cash flow from the existing contract. And then we have like a free option to make more money. And then we have a middle case, base case, and then a hub side case, and then another case where we say, okay, we can If the price is going down for any reason we don't know today, and that's not my view, but if the price is going down, we can fix at that time. And yes, it will be lower than today, but it will be higher than the contract that we have today. So in any case, this is a move that will create value for the company. And we think that the best ways to be not 100% contracted for the next four years today. As close as we will be from 2025, we will fix price with the counterparty when it would be interesting on an opportunistic basis.

Okay, that's great. It looks like you have a lot of detailed models to look at. Maybe to also ask, what do you think is a sweet spot for you, whether you take, let's mix of contracted versus merchant where you think you maximize cost of capital and you got the credit rating, initiation, feedback from project lenders. What is the mix there that you think is ideal?

Stefan, Ben, I don't think we have a specific target for that. We're not losing all the options that are out there with the kind of a portfolio analysis view. And we try to optimize as much as we can and taking risks, but not too much because we want to remain contracted. So it's very difficult to give you a number at this point.

We remain focused. Sorry, an important point. This will move in the time. If you look to, if you say, okay, 2025 today, we can be a little bit more exposed than in 2023 for 2025 and 2024 for 2025. We will not be exposed, a lot exposed day ahead. We have very different products in the market we can buy your base loads, we can sell base loads, we can sell peak loads, we can sell quarterly, monthly, weekly. So we get all this and we have the analysis. So it's very difficult as Stefan mentioned to say, but we don't want to take a risk to be too much exposed to the merchants on a day ahead basis. And we're thinking that the market is a little bit looking to the 2025-2026 with pink glasses.

Okay, that's very helpful. Thank you.

We are going to proceed with the next question. The next question comes up from the line of Justin Strong from Scotiabank. Please ask your question.

Hi, guys. Thanks for taking my call. Firstly, just quickly, the 58 megawatts of early contract termination that goes into effect at the beginning of Q4, is that part of the 201 megawatts that you guys have been speaking about with EDF?

No, the 201 are the contract we commissioned the assets from 2019 to today. Not exactly today, but... So it's a young contract with a long remaining duration. The contract we are terminating is the contract with a small tail from some months to four years. And so less debt attached to this contract in the lenders model, because when we have done our refinancing three years ago in 2019, there is a debt or cash flow attached to each contract. So we have work around this and negotiate with our lenders pool to have the best risk-reward approach.

Okay, great. Yeah, that makes sense. And then just on a little bit more on that, so these are revenue shares of the 201 megawatts, this revenue share above a certain premium, but the French government is kind of looking at those and not exactly sure what that will be. Is that about right?

I can take this one, Patrick, if you want. Just want to clarify on this. These are the contract for difference, the 201, and the sharing, we don't know exactly what will be the formula that will be used in the future, but it's is sharing the upside between the market price and the price of the contract. But we cannot tell you at this point what will be the exact number because we don't know where will be the bar, you know, what will be the cap or the price where we'll give the extra above this specific price to the state and where we will keep the rest. So that will clarify.

No, that's perfect.

in the future.

Yeah, and great. Thank you. And then just quickly on with the reconciliation bill in the US, how do you see that impacting competition and more importantly, your development strategy in the US? Like, where do you land net-net and now that the ITCs and PTCs are back in full force? Can you maybe just give us some color on how that impacts your kind of return profile?

Essentially, in terms of strategy, we're still looking to the same market. It means market where we are creating value when developing projects. So, again, when it's not so easy to develop projects, New York, Illinois, Pennsylvania, that's the targeted market in the U.S. for greenfield development. the energy crisis which is specifically european but which is for the world is something which confirmed to us that the fundamental have not changed and if we develop the right project in the right place we will make a correct return for the company and its shareholder so that's that's that's the point and it doesn't change the the level of return expectations

from the project on our side okay um does that um does it change your um kind of priorities at all in terms of capital allocation i'm sorry uh could you just repeat the question no it doesn't change it doesn't change our strategy on capital allocation uh we've uh

always believed in the U.S. market. We've continued to win nice projects, and we'll continue to grow there.

All right. Thanks, Jake, Michael. Thank you.

Thank you, Justin.

We are going to proceed with the next question. The next questions come from the line of Andrew Kask from Credit Suisse. Please ask your question.

Thanks. Good morning. I guess if you sort of step back and look at the big picture, you've got pretty ambitious goals, but very achievable. And the market for renewables continues to grow in an accelerated fashion. So I guess the question really is, what are the challenges you see yourself facing on potentially accelerating some of the development activities that you can do? I guess what are the roadblocks or just internally or externally? What are the main challenges that you're facing at this stage in time?

The challenges are different from one market to the other, but it's essentially in Europe, it's obtaining authorization for projects. Generally speaking, in France or the UK, they're backwards where we are active. The limitation is the delay of authorization. The good news is that considering the present situation, the government really need, the system really need more power. And so there is, and this is the repower EU plan, and this is the French plan to accelerate and to incentivize us to accelerate and also to say to the administration, because if you look to France, in the last years, the financing to win was, in 2015, it was 1 billion euros. In 2020, it was almost 2 billion euros, okay, that was financing the subsidy to win. In 2023, it's minus 3.3, 3.5 billion euros. Economically, it's changed completely. The government is now incentivized and the men in the street is understanding that renewable is reducing the bid and not increasing the bid. That's one thing. In the US, the situation which is limiting for the moment is the unknown around the ITC, the solar panel, but we are, as I mentioned, We are pursuing developing project in the right market because we think it's good. And I think we have shown that with the tender in New York, we went from 200 to 540 and we would be able to bid on the project for the next quarter. So the team is working hard on this. And in Canada, we are organizing this also. In Quebec, it has restart. In Ontario, it will restart. So we are organizing this to play this specific target where we are good. And if we can use a little bit of the extra money that we will make through the good situation in Europe and the good ABDA in the next months to accelerate the organic development, we will do it in a reasonable way. I mean, we have a budget every year of greenfield development, and we think we have to look to that to keep it reasonable also for the companies.

That's very helpful in a coloring context. Sorry.

Sorry, I just want to say, if I may add one point on that, is that I think in the current context that is changing so rapidly, keeping our agility and being able to size opportunities, having our balance sheet so strong will be key. And I think it's a very important competitive edge that we have right now. just my two cents.

Well, maybe more than two cents worth. But when you think about the value of the euro now, does that give you this dynamic of maybe pushing farther ahead in your European exposure? But there's an interesting duality that you may be able to invest on a value basis, given where the euro is. But do you worry a little bit about just the FX risk on the front end with the devaluation of the Euro on the cash flows coming out of Europe into your business.

And we've integrated that risk in our hedging strategy on the Euro.

Okay. I appreciate the time. Thank you. Thank you.

We're going to do the next question. We have our next questions coming from the line of Najib Beydin from IE Capital Markets. Please ask your question.

Hi, good morning. You've been more active in the corporate PPA market in Europe now for some time. Now that you're seeing this evolving power price dynamic and maybe taking a more dynamic approach to sort of balancing merchant versus contractor exposure, Do you think you have the right talent or the right team in place, or do you need to have a lot of a broader power marketing, uh, uh, uh, group in Europe?

Uh, yeah, thank you. And as you know, uh, I, I, we start working on this in 2017, 2018, really with, uh, very good people internally who have typically experienced in the Spanish market before. and we're part of the ENL team. So we have people internally, we have hired people from Engie, from also data scientists and data engineers, because it's a lot of data management and algorithms. And so we have built the right team in France for this part. We have also increased during the last three years, the commercial part, you know, selling electricity, going to a customer, listening to a customer. It's crazy, but we were not really listening to our customer. It was the utility was imposed contract. So now we're thinking about what energy solutions we can bring to them, how it works, if they have land to do something behind the meter and all those things. So we have real sales people working for us. And that's where we are specifically in France, because it's the situation of the market. And we are using and leveraging that in the UK for the moment, too. And we can do everything in Europe from the French platform, except, say, selling to a corporation, which is more specific. But all the market understanding is just managing data that we can do from the EU in France.

Okay, got it. And just wanted to get maybe your thoughts on the nationalization of EDF, how you think that could impact either your position in the country going forward or just the potential pace of new capacity build-out in the country.

Yeah, it's difficult to say because, you know, the nationalization is announced. but it will not solve the EDF problem, the problem on the nuclear side, because essentially the idea of the nationalization is to take to the taxpayer the problem of EDF on nuclear. Will it change anything? I don't think so. What it could be is that EDF make a spin-off of the whole or part of the EDF renewable big company like probably 15 billion euro value but it will not change our situation because this is already our competitors so I don't think it has real impact the main point is the fundamental of the market is the the system needs more electricity and the only way to to bring more electricity is renewable That's the only possibility to bring more electricity in Europe in the short term.

Appreciate it. Thank you.

Thanks a lot, Nagy. Thank you.

We have no further questions at this time. I hand back the conference to you for closing remarks.

Well, thanks a lot. Thanks a lot, everyone, for your attention and all the good questions. It's a 45-minute call. Not 45 minutes, an hour and 15 minutes call. Thanks for the question. So if you have additional questions, please call me at 514-213-1045. It will be a pleasure for me to answer your question quickly. Our next call to announce third quarter results will be on Thursday, November 10 at 11 a.m. So I hope you enjoy the rest of your summer. Have a nice day, everyone. Thank you.

Ladies and gentlemen, today's conference call, thank you for participating. You may now disconnect your lines.