Boralex Inc.

Q4 2022 Earnings Conference Call

2/24/2023

spk05: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Hello, ladies and gentlemen, and welcome to the telephone conference on the financial results of the 4th quarter and Alex's 2022 exercise. Please note that all lines are in listening mode only. À la fin de la présentation, il y aura une période de questions-réponses au cours de laquelle les analystes financiers, actionnaires et investisseurs seront invités à poser leurs questions en appuyant sur étoiles 1 et 1 sur votre téléphone. Faites également noter que cette conférence est enregistrée. 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. Good morning, ladies and gentlemen, and welcome to the Boralex fourth quarter of 2022 Financial Results Conference call. Please note that all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session in which the financial analysts, shareholders, and investors will be invited to ask their questions by pressing star one and one on their telephone keypad. Please also note that the conference is being recorded. For webcast participants, you may also ask questions during the conference, but they will be answered by email after the call. Finally, media representatives are invited to contact Camille Laverture from Boralex, and her contact information is provided at the end of the quarterly press release. And I would like to turn over the conference to Mr. Stéphane Milot, Senior Director, Investor Relations for Boralex. Please go ahead, sir.
spk15: Merci beaucoup. Thank you, operator. So, good morning, everyone. Welcome to Boralex's fourth quarter and year-end results conference call. So joining me today on the call is Patrick Dacoste, our President and Chief Executive Officer, Bruno Guilmette, our Executive Vice President and Chief Financial Officer, and other members of our management and finance teams. So Mr. Dacoste will begin with comments about the market conditions and the highlights of the quarter. Afterward, Mr. Guilmette will carry on with financial highlights, and then we will be available to answer your questions. As you know, during this call, we will discuss historical as well as forward-looking information. So, when talking about the future, there are 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 all 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. When talking about the results, we generally generally refer to combined numbers. And when referring to cash flow and balance sheet, we generally refer to consolidated numbers. So please note that combined is non-GAAP financial measures and does not have standardized meaning under IFRS. Accordingly, combined may not be comparable to similarly named measure used by other companies. So for more details, see the non-IFRS and other financial measures section in our MD&D. The press release, the MD&A and the consolidated financial statement, as well as the annual report and a copy of today's presentations are all posted on our website at boralex.com under the investor section, as well as our CSR report, which has been also published today. So if you wish to receive a copy of these documents, please contact me. Mr. Lacoste will now start with his comments. So please go ahead, Patrick.
spk00: Thank you, Stéphane. Good morning, everyone. It's a pleasure for me to present our results and achievements for the fourth quarter and fiscal year 2022. 2022 has been a very active year for Boralex. I'm very proud to say we surpassed the three gigawatts of production capacity this year, while growing our AFFO by 34% in the fourth quarter and 27% in fiscal year 2022. we ended the year with an AFFO per share of $1.63, a 27% increase over 2021. Our dividend payout ratio was 41%, meaning we reinvested 59% of our AFFO into growth projects. At the very end of the year, we closed a significant transaction in the U.S., adding 447 megawatts to our capacity, but also bringing promising upside for Boralex while diversifying our wind resources. Our teams showed agility, innovation and vision in the extraordinary market conditions associated with the energy crisis in Europe, as well as inflation and global supply chain pressure. As a result, we succeeded in optimizing revenues by the early termination of the short remaining term contract, allowing us to benefit from higher selling prices. We also commissioned certain assets earlier than expected and negotiated a number of contracts with electricity-consuming companies, allowing us to optimize our revenues, projects and operating assets. These actions resulted in 15 million addition to discretionary cash flows generated in 2022, a 9% increase over 2021. We also continue to add project to our pipeline in the four quarters with the addition of solar and wind project totaling 137 megawatt to the preliminary phase of our pipeline. Looking ahead, We are in a very solid position to pursue our growth with close to $500 million available in available cash flow and authorized financing in the ratio of net debt to total capitalization of 40%. We also have a very solid pipeline of projects in development and construction, which now stands at 5.5 gigawatts. This is 2.5 gigawatts higher and an increase of 81% over fiscal year 2020, the reference year for our 2025 strategic plan. Before covering market condition, I would like to highlight our achievement in the past four years for some key metrics. First, our installed capacity went from 1.9 gigawatts in 2018 to 3 GW at the end of 2022, a 12% CAGR. As mentioned before, our pipeline of projects increased significantly and more than doubled in the past four 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 30%, and 22% respectively during this 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. As you can see, your efforts really paid off. I won't go in all the details of the market's condition, but in general, I would say that for all markets in which we operate, and developed favorable programs are being discussed or put in place similar to the IRA in the US. In Canada, discussions are ongoing about an investment tax credit of up to 30% for investment in clean technologies with a focus on net zero technologies, battery storage solutions, and clean hydrogen. In France, The law to accelerate the development of renewable energy has been reviewed by the Senate and the Parliament and should be approved in the coming weeks. This will be followed this year with the publication of the pre-annual plan setting the rules and RFP requests for the coming years, the famous PPE. In the UK, England focused mostly on solar energy a new outlook for onshore wind farms. Scotland focused mostly on onshore wind power. It has released an onshore wind policy statement at the end of 2022 in which the Scottish government sets on an offshore wind capacity target of at least 20 gigawatts by 2030. This will represent an additional 11 gigawatts of capacity by the end of the decade, as Scotland currently has about 9 GW of operational onshore wind. I will now rapidly review the main variances in our portfolio of projects and growth paths. The 8 MW decrease in the early stage was due to the addition of new wind and solar projects totaling 137 MW in Europe. change to the expected capacity of nine wind projects and six solar projects in Europe for 18 megawatt favorable impact. These increases were offset by the progression of four wind and four solar power projects in Europe to the mid-stage phase, totaling 163 megawatt. The 37 megawatt increase in the advanced stage resulted from the progression in Europe of three wind projects from the mid to the advanced stage. In total, our pipeline now comprises projects totaling 4.1 gigawatts of wind and solar projects and 820 megawatts of storage projects. In storage, we submitted our bid for 380 megawatts in the Ontario RFP on February 16. Let's review the change to the growth path now. No project progressed to the secured stage, but three projects from the secured stage transitioned to the ready-to-build phase. These projects are the 100 megawatt net wind project of APWIT in Quebec, the 29 megawatt wind project Moulin Blanc, and the 21 megawatt wind project Boissin-Taubert in France. These projects totaling 150 megawatts are expected to be commissioned in 2024. 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 financial position in more detail, and we'll be back later for the question period. Bruno?
spk09: 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, we made good progress on the installed capacity by surpassing the 3 gigawatt mark. The EBITDA and reinvestment ratio are progressing according to plan, while we had a strong EFFO increase of 27% in 2022. About our CSR strategy, we continued to make good progress on the environment, social and governance fronts as presented on slide 16. In 2022, we updated and published our environmental mission. We surpassed our 2022 target of women in management position and increased the target for female representation on the board of directors from 30% to 40%. Currently, women represent 45% of our board members. Finally, we created the position of Senior Vice President, Enterprise Risk Management and Corporate Social Responsibility with the goal of integrating ESG with risk management. For more detailed information, including data on CO2 emissions and work done in relation to the climate changes and the TCFD initiative, I invite you to read our 2022 CSR report, which has been published earlier this morning. Lastly, on our corporate objectives, our balance sheet remains very solid with close to $500 million in available cash and authorized financing facilities to continue implementing our growth plan. Our net debt to total cap ratio stands at 40% down from 48% last year. 90% of our debt is project debt with no recourse on Varelex and fixed interest rates. I will now cover the financial results for the quarter starting with production. Overall, total wind production for the quarter combining Canada and France was in line with the anticipated production and 16% higher than last year. Total production for the hydro sector was 12% lower than anticipated and 21% lower than last year. The decrease is mainly attributable to U.S. hydro due to unfavorable weather conditions. Finally, production from solar assets was 3% lower than anticipated but 10% higher than the same quarter last year. In summary, total production for the quarter was only slightly lower at 2% than anticipated, but 9% higher than last year. Fourth quarter combined revenues were up 63% compared to last year, mostly due to high electricity prices in France, for which a large portion had to be put aside as a reserve to reimburse revenues above the price gap. Combined EBITDA increased by 6% in the fourth quarter and operating income decreased by 68 million or 82% due to the recognition of a non-cash asset impairment charge on our U.S. solar assets, a charge relating only to increased interest rates in our annual depreciation test. Please note that the $12 million increase in corporate expenses is related to increase in the workforce related to the growth of the corporation and non-recurring costs in regards to the management model update. On a consolidated basis, we have generated $189 million of consolidated net cash flows related to operating activities compared to $81 million in the fourth quarter last year. Cash flows from operations was $141 million in the fourth quarter, a $25 million increase over the same quarter last year. The FFO was $77 million compared to $58 million in the same quarter last year. The increase comes from the EBITDA increase, the decrease in interest paid and early repayment of project debt in recent quarters. Our financial position is very solid. with our net debt to total market cap ratio of 40%. I would like to briefly cover one last element before the conclusion. When looking at our fourth quarter results, please note that three elements affected some of our financial measures without having a material impact on our EBITDA and cash flows. The first element is an impairment of assets for our U.S. solar operations. Given sudden significant increase in discount rates, when performing our year-end impairment test. This element affected our operating income but had no impact on our cash flow. The second element was the announcement of the threshold for the feed-in premium contracts. As expected, when we released our third quarter results, this level was not higher than our contract price. Hence, we did not have to take additional retroactive charges relating to this on top of the third quarter charge. Our prudent approach served us well. Finally, the market price cap of €100 plus 10% of the difference between selling price and €100 became official in France at year-end. As expected, we accounted for an operating charge during the quarter, which largely offset revenues generated by the assets affected by the cap. In conclusion, fiscal year 2022 and the fourth quarter were strong periods in which we pursued a disciplined execution of our plan. We increased production capacity by 21%, surpassing the 3 gigawatt mark. We added 137 megawatts to the preliminary phase of the project pipeline in the fourth quarter. Our pipeline of projects and development and construction now stands at 5.5 gigawatts. We generated discretionary cash flows of 167 million for the year end, December 2022, a 27% increase over 2021. And we continue to have a strong financial position. Thank you for your attention. We are now ready to take your questions.
spk05: Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, it's star 1 and 1. If you have any questions or comments, then wait for your name to be announced.
spk06: We are now going to proceed with our first question. And the questions come from the line of David Quisada from Roman James. Please ask your question.
spk05: Your line is opened.
spk12: Thanks. Morning, everyone. Maybe if I could just start in France and just on the topic of a potential accelerated permitting timeline. Is there any color you can provide on how that could benefit the projects in your pipeline or what the benefit could be for you there?
spk00: Yeah, good morning, David. The law has gone through the Senate and the Parliament and the Commission on January 10 and the final adoption will be in the next weeks in the French process. I cannot give a clear direction to say how much it will accelerate. Definitely, France needs more renewables and wants to have less red tape. That's the take, and I think the PPE, the programmation pluriannuelle de l'énergie will be an important step because it will define exactly the pace and the volume of the RFP for the next years. But I think what we already see clearly and uh is that uh local administration are more diligent than ever in france when we have to see adapt something uh on on the project so i i think and this is this is the most important point it's good to have a low but it's important that on the ground it's accelerating and we already see some signal like this and we will push hard to that it impacts the significant project that we have in our pipeline.
spk12: Excellent. Thanks for that, Patrick. And then maybe just one more for me. When you look across your footprint, and maybe specifically if we could touch on Lime Kiln, do you see any changes to the budget for any project or anything that you would point to as being affected by higher costs?
spk00: by higher cost. Yeah, the point is you have seen that lime kiln was in our growth path since I think 2020. And so we had to adapt ourselves to different points. We obtained the extension agreement, we obtained larger turbine, you know, bigger rotor agreement. And so we have not taken any two-stretch assumptions. So we have taken our final investment decision and we are very comfortable with the return, which is on the high side of the 8 to 10 person expected return. So that's the thing. And it's the same on the APWIT project in Quebec. we have been able to negotiate a contract with a turbine supplier for the BOP, and it's actual cost, but we had room to optimize the project between the time beginning of 2021 when we signed the contract with Hydro-Québec and today, and so we are also on the high side of this return frame.
spk12: That's great, Collin. I appreciate it. I'll turn it over.
spk01: Thank you.
spk05: We're now going to proceed with our next question. And the questions come from the line of Rupert Merav from NBC.
spk07: Please answer your question. Hello, Rupert. Rupert, are you there?
spk15: We can go with the next one. Oh, you're there?
spk14: Yeah, sorry about that. I'm a rookie, apparently. Looking at your US pipeline, you took some write downs in the quarter in New York. And I know you've got some opportunities for perhaps repricing some of those projects. Can you give us some color on how that process is evolving?
spk09: Just to mention, Rupert, so we did not take write downs in New York. write down the depreciation is only on our US solar acquisition done in 21 because on the annual test we are using higher interest rates and that's the only reason it's not performance related and it's only on US solar acquisition completed in 21 so California and some other states yeah and on the New York project specifically we are
spk00: We are making good progress on the cost and site optimization. We are, like the whole industry, in discussion with NYSERDA, and I am confident that this will be positive because they will have, in one way or another, taken into account the inflation. The RFP with NYSERDA is on, you know, we have to bid on April 16 for the 2022 RFP that has been postponed in 2023. But after opening all the offer, they will have a clear view of what is a fair price for a project today with today's cost, including IRA and all those things. So at that time, I presume they will act to help all the industry to take final investment decision and start building.
spk15: This is Stéphane. I just wanted to add on the impairment question. There's also another thing to consider is that because We have a limited amount of assets in the U.S., so the parameter to do the testing, because there's not a lot of assets, is quite small. So that also triggers, like when you get a high, like Bruno mentioned, sudden increase in interest rates, it has no impact on future cash flow we were looking at for this business. This is strictly an accounting measure. No cash impact either. And if ever the rates are going down, this accounting charge could go down also. Thank you.
spk14: Okay, great. Thank you. And Bruno, on your liquidity, you mentioned you have $500 million. forecasting your growth out the next few years, how long is your runway now to be able to fund investments before you need more equity? And are you still looking at M&A, which, of course, may shorten that runway somewhat?
spk09: Yeah, we're always... Rupert, thank you for the question. We're always looking at M&A opportunities, whether it is... In in Europe and and or the US as per our. Our strategic plan. So in in the regions that that we've talked about in the past, so this is certainly a volatile environment which can be good for potentially for for many value valuations are moving around. So hopefully yes, it's going to create opportunities. So, Putting aside unknown M&A for your question on runway and the cash, I mean, we believe that certainly for this year we're pretty well financed. We have a few large projects that are going to begin construction over the course of the year, but that's taken into account in our projection. And we'll see what happens on the M&E side.
spk07: Great, thanks for the call. I'll leave it there.
spk06: We are now going to proceed with our next question.
spk05: And the questions come from the line of Sean Stewart from TD Securities. Please ask your question.
spk04: Thank you. Good morning. Just following up on the last question, Bruno. Any broader thoughts on asset recycling opportunities? You timed the sell-down in France a year ago very well. Is there still strong interest from private buyers enough that you might consider additional asset sell-downs to bolster the funding position?
spk09: Thank you, Sean. There's always good interest for the types of assets that we own and the team, the people that we have to operate and develop these assets. So it's really our decision to look at where we believe we've created value and where we believe that we could share some of the future potential upside and at the right price at the right time. We try to essentially look at the portfolio and once we see potential for that to happen, we're going to look at the possibilities in the portfolio. Essentially, we want to develop value and then have us joined by our minority financial investors, as we've done in France. We believe there are other places in the portfolio we could do that, but it's not for the immediate future.
spk04: Thanks for that detail. Patrick, a question for you with respect to Quebec. Beyond the three projects with Energier and Hydro-Québec, can you comment on your longer term pipeline in the province and I guess the timeline for those projects coming to fruition and if the turnover at the top of Hydro-Québec has any bearing on that timeline.
spk00: We start by the end. The strategic plan of Hydro-Québec has not changed by the change at the top and clearly the the vision of Quebec government is very strong and positive on the wind development. Remind you that Quebec needs to add 100 terawatt hour before 2050, which means a 50% increase, 5-0 increase of the present production. Last Tuesday, the energy minister, Pierre Fitzgibbon, announced that in the coming years, the capacity, his intention was to double the capacity in Quebec from 4 gigawatts to 8 gigawatts and to quadruple to 16 gigawatts by 2040, 2050. So it's clear that the government will, say, order Hydro-Québec to start new RFP in the next months. And it's also clear that on our pipeline, we have, from our experience of APWIT project and Seigneurie de Beaupré project and, say, contract negotiation in the last two years, we have restarted strongly to make greenfield development in Quebec, and that we will be ready to bid in these RFPs.
spk04: Okay, thanks very much for that detail. That's all I have.
spk01: Thank you, Sean.
spk05: We are now going to proceed with our next question. And the questions come from the line of Mark Jarvie from CIBC. Please answer your question.
spk10: Morning, everyone. Just coming back to the New York solar projects and following up on your comments, Patrick, once you get a revised price with NYSERDA, how soon can you move to construction? Are those projects nearly fully permitted, and are you close enough on procurement that you can move to construction in a pretty timely fashion?
spk00: The team is working very hard to optimize the existing 200 megawatt project, so we have optimized layout we have optimized inverter we have optimized everything we can at the same time we are working on the development and optimization of the 540 megawatt and we're working hard on building new projects so we are we have a quite clear view of uh uh the the the cost of construction today and and the speed of construction and how to optimize that so i think What I hope is that NYSERDA will do that at the same time, then the federal government will implement the real tax credit rules, the IRS rules, and then we will be able to take our decision very quickly.
spk15: Maybe, Marc, also to add on that, for the 200 megawatt, we have all authorization to go, so. It's really a question of getting the right economics to start.
spk10: Okay. All right. So it's up to your decision once you have some price certainty and you guys get to declare FID, you can move pretty quickly to construction. Yes. Okay. Coming back to the projects with Energear and Hydro-Quebec, I'll see Hydro-Quebec's doing sort of a pause on the procurement to think about planning and siting. Does that change at all those projects which have been done on a bilateral basis? Does it change the timelines at all, or do you still feel like those projects can move ahead in a timely fashion? Maybe you can update us in terms of where you are on negotiations of a PPA price.
spk00: This project has been fully negotiated. It's a 300-400 megawatt project. We are working hard to obtain the the environmental authorization and we're working hard on Local consultation and everything to be approved. We are also working hard with in the in the in the follow-up of up with the order of Turbines and and BOP. We are working hard to optimize cost of the project. So the intention of Hydro-Québec to sign days three contract was specifically to say correctly to accelerate their the energy supply to them without having to wait for RFP and the government so it's clear that they need energy quicker than 2027 which will be probably the date for the next RFP to put in line for the next RFP that will come So no delay on this project. Sorry, the critical path is obtaining authorization finally.
spk10: And so when do you think you'll get environmental authorization and when could you make the final investment decision on those projects?
spk00: Yeah, and that's why we are already working hard to negotiate the costs. uh working hard to optimize the cost because it's a big project so optimize roads platform everything it's a it's an important optimization and and the team is did it on the first three four phases of senorita project so we know the the place but the critical pass is really today the the the environmental authorization and is that expected to be completed by the end of this year Yes and no. Yes, if everything goes perfectly well. No, it could be beginning of next year if it's a little bit more difficult. I do not expect that, but we're working hard to make our decision this year, but I cannot promise this to you today.
spk10: No, I understand. And then the last question for me is just, obviously there's been price caps in France, power prices have come down a little bit. I'm just curious to see you know, where the corporate PPA market is now relative to what maybe six months ago or 12 months ago, sort of updated you in terms of what pricing might be able to clear for 10 years or longer.
spk00: Yeah. It's PPA market really depend off the duration of the PPA. We have typically extend one of the PPA we signed some years ago with a, with a company at a price which is over €100 MWh. But this is a three-year extension. If you want to go to longer term, I would say the price today, the negotiation is over €80 to €90 MWh for 10 years. And this is things we are negotiating presently. for specifically new assets. So that's one thing. And yeah, there is a lot of demand and we have choices because really companies who have a vision of the supply and demand of the power market in Europe, they clearly understand that the price will not go down and so they want to secure their electricity and they know that There is not so much project today which are able to sell their electricity because they are all contracted.
spk10: Okay, thanks for answering.
spk06: We are now going to proceed with our next question.
spk05: And the questions come from the line of Nelson Ning from RBC Capital Markets. Please ask your question.
spk02: Great, thanks. I just have a few quick questions. You obviously have a lot of developments in France over the next few years. And I just want to clarify in terms of project costs and inflation, are you seeing costs flatten out or come down in the later years as you kind of look to cost up these projects or are project costs Or is inflation just normalizing or is it coming down? Can you just comment on like if you build something in 23, 24 versus 25?
spk00: Yeah, maybe one thing is inflation in France, you have two things in a project. You have the turbine themselves and this is affected by the global international market. So presently, the cost of turbine are still still really acceptable because the IRA is not yet in place. So this will definitely put a pressure on the cost of turbine for the future. But for the balance of plant, I don't see so much difference than years ago in France because the French economy is going okay, but it's not going like North America economy. and the pressure on service and workforce is not the same. The inflation in Europe is specifically due to energy costs and not salaries and workforce. So it's completely different. It's also, I think, a different situation when you compare to what happened in offshore because the risk that we have taken in typically contingencies in our budget are really in line with what happens. So we have many projects that have been put in service or still in construction in France and we are on time and on budget on all these projects. And this year we will put in service 56 megawatts in France and I do not expect to have a big any risk on the budget because construction are going well and it's going the right direction. Great news.
spk02: So just to clarify, receiving 18 months of merchant power price once projects are completed, how far does that go in terms of like if you have projects completed in 2024, do they also get the 18-month exposure? or upside?
spk00: It's a very good question. Presently, this 18 months is an exception, is an exemption, sorry, on the finance law for 2023, which put a price gap. Okay. So if a project is started in 2022 or 2023 and affected by the price gap, it is no exempted by the law. This is what we accept six months ago, and this is in the law of December 30. So what it means is that if there is no extension of the price cap in 2024 and further, the exemption will stay and will remain and we will have this possibility. So that's one thing. And just to take the opportunity of your question, on the 1st of January, we have 163 megawatts, which will be in this 18 months for 2023 and some part of 2024, six months in 2024, typically for 90 of these 160 megawatts, 63. And we will put in service 12 megawatts in S1 and 44 megawatts in S2. And this will also benefit from the high price. So I think this is important because price in Europe is still, in France is still between 150, around 150 euro megawatt hour. And price for next year, when you look to forward price for 2024, it's quoted 170 euro megawatt hour. So the market is not seeing the price going down in 2024, which is normal when you look to nuclear refurbishment in France, nuclear important work, and even the gas situation at north of 50 euro megawatt hour in gas.
spk02: Okay, thanks for the color. And just one last quick question. In terms of the secured projects, the French projects in the secured bucket, are those more likely going into 2024 or more likely into 2025 in terms of the completion date?
spk00: Yeah, it depends project by project, and it will, because on some of these projects, no, on all of these projects, I'm sorry, we have already the authorization, but these authorizations are challenged in front of the court. We won all our trials during the last year. five ten years probably so so I'm quite confident I don't like to say that but I'm quite confident that we will win also this project that's why we put them in this and and again the French courts are aware that they have also to accelerate their work on authorizing wind or solar project due to the energy crisis. Even if they remain independent from the government, they are not crazy and they understand that it's the interest of society and France to accelerate this.
spk02: Okay, so some of those projects were just kind of held up in the court process.
spk00: Yeah, it really depends. And I don't have the date in mind, so I cannot answer directly, but we can come back to you if you want. But if we have the audience in S1, we will be able to connect in 2024. And if we have the audience in S2, probably it will go and sleep to 2025, but it will not sleep further than that. Okay, thanks for that.
spk07: I'll leave it there. We are now going to proceed with our next question.
spk06: And the questions come from the line of Ben Pham from BMO. Please ask a question.
spk11: Hi, thanks. Good morning. I wanted to ask on your recent U.S. acquisition, some assets that you picked up in Texas and surrounding areas, what is your near-term and maybe longer-term goals of that acquisition?
spk01: Yeah.
spk00: The first point is it accelerates our exposure in the U.S. market, like we mentioned in our strategic plan. So the very near term, it's good cash flow, a very reasonable valuation. I think we negotiate for more than one year, 15 months with EDF on this project. These projects are in very good shape also technically. So that's the near-term goal. And the second part is we have not started, and I will not announce that today, that we started organic development in Texas and New Mexico. But it's a strong market with interesting demographic and demand growth. So potentially it could be something where on the long term, so not today, we will decide to build up around this project or continue to like to have this exposure. One thing which was not part of the goal but which is a good bilateral benefit of the project is that we are partner with Axiom in this project and Axiom is sometimes or many times competitor to buy assets so we have also conversation with them to be say sometime partner of other M&A and leverage their cost of capital, private cost of capital and our operational excellence and skills. So there are different aspects. And last but not least, to enter the U.S. market, you know, when you go to a tax equity provider, the first question is, are you a 10 gig guy? And so today we are north of one gig guy. So we start having a conversation with these people. When we had just 200 megawatts in operation, it was, we were less interesting to these people. So I think this is also an important bilateral benefits of this project.
spk11: Okay, thanks. And can you remind me, does this, your targets, I know you mentioned diversification and percentages for the U.S., this transaction, does that get you closer or it seems like there's more to go in the U.S.? ?
spk15: On the long term, as we said in our strategic plan, is to make the U.S. our number one market. So this is part of the plan.
spk09: Quite a way to go still in our growth to the U.S., both in wind and solar.
spk00: Yeah, the target, I think, for 2030 is 45% of our installed capacity in the U.S., but 45% of 10 gigawatts. So it means we need to quadruple our exposure in the U.S. in the next eight years, and we'll work on that.
spk11: Okay, got it. And maybe in France, a lot of changes with price caps and rules and whatnot, that may come off, that may not come off. But if you just kind of see what happened in the last six months or so with pricing, would you have done what you've done with early retirement if you knew what you knew today on how the price caps materialized?
spk00: Yeah, sure. There is two things. Yes, the answer is yes. And if I knew the price cap at that time, we have maybe in the contract we signed with the other counterparty, we could have, say, do something, an improvement. But we're still very happy with the situation because the project, the 326 megawatts, on which we send early termination, the average price was 95 euro a megawatt hour. Okay? 95 euro a megawatt hour due to inflation and because it sold assets. In Q4, we were selling this electricity north of 500 euro a megawatt hour. It means that after price cap, 10% of 400 plus 100 means 140 euro megawatt hour, which is still a very good price, despite all my frustration. And for this year, it's north of 120 euro after price cap, the blended price for this 326 megawatt. So I'm still happy with what I did and what the team did. Could have been really different. And yes, I think it shows the agility of our team and how we were prepared to different scenarios because we start to have a trading aggregating team. I started that with a single guy in, I think, 2017. And we were prepared to do this big move, which has created a lot of value and will create a lot of value for this year and next year. And again, I think it was a Nelson question. We don't know today if there will be a price cap or not in 2024 and further. So that's also something which is interesting. And also another thing that we have done is we have accelerated by roughly five months Moulin de Loan project, 65 megawatt, and by two, three months, I think, Mont de Bézard project, which is 25 megawatt. So on this part, we have been also agile to be exposed to the 18 months, which is different things. But it shows how much we are on the ball on these things.
spk11: Okay, that's great. Thank you. Thank you.
spk05: We are now going to proceed with our next question. And the questions come from the line of Andrew Kask from Credit Suisse. Please ask your question.
spk08: Thanks. Good morning. I guess the question is for Patrick. And it's really where are you seeing the greatest pressure points in developing projects? Is it on the OEM side for getting equipment and the pricing of that equipment, EPC and companies actually building it? Or is it on the regulatory side with land approvals and transmission interconnections? I guess, what are your biggest concerns at this point?
spk00: I think on the very... I will answer, Stéphane. On the very short term, he wants to take my job.
spk15: No, I was just saying that it's a different market too.
spk00: Yeah, but I think on the short term, on the very short term, what is important for it existing project is the question of the cost. And it's working on that. And I also already comment on this. I think we have room of optimization and we have taken, say, it's net, it's 100 megawatt up with, but it's 200 megawatt final investment decision last quarter. We have taken Lincoln decision and we're building another 56 megawatts in France. So I'm quite confident we are on the right side. We have to leverage also the 1.2 gigawatt project we have in Quebec to negotiate the cost. So very short term, the cost is something. I think on the medium term, and this depends from one market to the other, is the grid connection, you know, transmission. And this will affect every market one day or another. The margin... on the grid and on the transmission system in almost every market in the world, or at least the Western world, are at their limits. So the government has to invest lots of money on this. And when I say lots of money, it's probably billions, but it's the only way to make the energy transition. So it doesn't rely on Boralex. What rely on our side is to find the place where there is still capacity to connect project or to find a place and lobby to have new capacity somewhere and be ready to connect the project in 2027, 2028, where the capacity will be in at that time.
spk08: Okay, I appreciate that. And then the second question, Patrick, you mentioned earlier on just the importance of having a certain scale to deal with certain players in the tax equity market from a counterparty basis. And you've had very explicit megawatt targets in the market of what you want to achieve, and you're well underway with that. When do you anticipate that megawatt target shifting into maybe return targets, whether it be ROE, ROKI, some other capital metric? And maybe that's a question for you, Patrick, and also for Bruno.
spk09: Andrew, could you repeat the question? When do we expect
spk08: to transition from megawatt targets to maybe return targets, like hitting a target return on your whole project portfolio and being more explicit about the return expectations?
spk09: Well, we have in a way return targets because we're putting not only megawatt targets on our 2025 plan, but also a FFO. So to us, it is a return target. It's firstly a return target. I mean, we won't do, as we've said in the past, we won't do megawatts just to do megawatts. We want to make sure that we continue our disciplined approach and growing profitably. So I know, I mean, we've talked about our return target by projects, which continues to be 8% to 10%. on a levered basis, and clearly we're seeing that we're competitive, but in the right way. We win some projects and we lose some other projects. So we continue to be in the market, but from different types of targets, I mean, for now, we believe that we're focused on the right numbers.
spk00: Yeah, and just maybe a comment, which is important, and I know that we discussed that with investors. I'm not sure that we discussed that with analysts, but the 50% of the short-term incentives of every employee in Boralex is to beat the highest incentives free cash flow per share that has been achieved in the past. So that's what we have done for the last 20 years, I think. It's to go the right direction. So it gives a lot of discipline to us when it's time to take an investment decision. We're not looking to megawatt. We're not looking to EBDA. We're looking to AFFO and AFFO per share. And this is on what we are incentivized. So I think it gives a lot of discipline to the team.
spk08: That's great. Appreciate the callers. Thank you.
spk01: Thank you.
spk05: We are now going to take our next question. And the questions come from the line of Najib Beydin from RE Capital Markets. Please ask your question.
spk13: Hi, good morning. Just wanted to ask a few questions on lime kilns. I think you signed the turbine agreements already and projects expected to be commissioned sometime late next year. Can you just give us an update on the timing to sign and announce the corporate BPA and get the financing completed?
spk00: Yeah, next quarter is what we are planning that's our target to sign both. We need to say sign both at the same time because it's important to be safe back to back on the negotiation of these two contracts. So that's what we are planning.
spk13: Okay, that's great. And just on, you mentioned Limekin and Apouyat, obviously two different projects in different markets, but those would be kind of at the higher end of your return targets, where do you see, in what markets today do you also see the opportunities to kind of get better returns? Is it more on bilaterally negotiated projects in Quebec? Is it more on corporate PPAs in France? Just wanted to see if you can comment on where kind of you see the best risk reward on organic growth today.
spk00: What I can tell you is that we have this list. But since we have a counterparty on the other side, I will not, sorry, comment on where it is. I think we're really, say, all the projects that we do are, say, we do it with the same discipline. And, yeah, and it's too sensitive information. Sorry.
spk13: Okay, so just even directionally, what types of markets or regions can provide any more color?
spk09: We've said in the past, I mean, supply and demand in France, I mean, still offers good potential because it's difficult to develop a project in France. So we've said in the past that we can still enjoy good returns. So it's an important market for us and
spk13: it's not it's just a question of supply and demand and I mean there's we're certainly looking to different regions and different types of opportunities like that and just on the last note you mentioned still being active on a maze the focus though in the short term more more US scale or is it new European markets
spk00: Essentially, what we're looking is the US is certainly a market we are looking because of the size of transactions. And it depends on the generation of AFFO because I don't want to do, we prefer to do, say, two or one or two transactions and not. and not four or five. So that's one thing. So the U.S. is interesting on this side. Typically, France is not. You know, the market where we are already, like France and Quebec and Ontario, is not the things where we are targeting and actively looking to that. There could be some diversification in Europe within strategic plan, but it really depends off. What is it? also really important it's not it's it's to really clearly understand the market if we are entering a new market so so so that's also an important criteria on my side to to go for any M&A transaction okay thank you thank you we're not going to take our last question
spk05: And the questions come from the line of Nicola Boychuk from Comax Securities. Please go ahead.
spk03: Thank you. Good morning. I'm just going to quickly come back to the French power dynamic right now. I just want to understand, Mike, if I have this correct. If you're selling power on the merchant market at 500 euros per megawatt hour, do you immediately receive that revenue and then immediately distribute the 90% of 400 euros back to the regulator? I'm just trying to understand the mechanics.
spk00: Yeah, the way the price cap is functioning in France is that, yes, we get the price from the counterpart. The counterpart could be a utility PPA like we have or selling to the market. And then we have to make the calculation of we have a kind of We take out the 100 euro, then we calculate the difference between the 100 euro and the price at which we're selling the electricity. We take 10% of that, we can keep that, and the 90% we give it indeed through... It's collected through an existing tax in France, which is called the added value tax, which is an existing one. and it's just another part of this tax because it's temporary so so that's the reason why it is in our turnover but it's already uh uh deducted from our abda yeah okay it goes into accounts accounts payable okay
spk03: Perfect. That makes sense. Thanks. And just very quickly on the Ontario battery energy storage opportunity, is there any update on the 600 megawatts that was bid?
spk00: Yeah, we bid 380 on February 16, which was the expedite date. uh rfp there would be another rfp i don't know if we know already exactly the time frame but there would be another one we have been able to qualify ourselves to this rfp so we bid our say the most major project that we have there with some some some because there is a price and points and there is some non-price points like First Nations support, municipal support, the place of the system itself. So we make our evaluation and these non-price points are creating a discount on the price for the price merit order. So we evaluate and we bid to project in the process. But to your question, we are still pursuing the development of a larger portfolio in ontario for the next rfp because the need of power not energy power is 2.5 gigawatts from the ontario system and they need that very quickly so it's it's an interesting opportunity for us okay thank you for the color thank you
spk05: We have no further questions at this time. I hand back the conference to you for closing remarks.
spk15: Well, thanks, everyone, for your attention. If you have any additional questions, please call me at 514-213-1045. I'll make sure we quickly answer your questions. So our next conference call to announce first quarter results will be on Wednesday, May 10 at 10 a.m., and it will be followed by our annual general meeting, which will be held the same day at 11 a.m. Thanks, everyone. Have a nice day. Thank you.
spk05: This concludes today's conference call. Thank you for participating. You may now disconnect your lines.
spk06: Thank you.
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