Innergex Renewable Energy Q3 2024 Earnings Report

Innergex Renewable Energy EPS Results

• Actual EPS: C$0.05
• Consensus EPS: C$0.03
• Beat/Miss: Beat by +C$0.02
• One Year Ago EPS: C$0.03

Innergex Renewable Energy Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Innergex Renewable Energy Announcement Details

• Quarter: Q3 2024
• Date: 11/6/2024
• Time: After Market Closes
• Conference Call Date: Thursday, November 7, 2024
• Conference Call Time: 9:00AM ET

For over 30 years, Innergex has believed in a world where abundant renewable energy promotes healthier communities and creates shared prosperity, which led to Innergex being recognized as Canada's best corporate citizens in 2023 by Corporate Knights. As an independent renewable power producer which develops, acquires, owns and operates hydroelectric facilities, wind farms, solar farms and energy storage facilities, Innergex is convinced that generating power from renewable sources will lead the way to a better world. Innergex conducts operations in Canada, the United States, France and Chile and manages a large portfolio of high-quality assets. Its approach to building shareholder value is to generate sustainable cash flows, provide an attractive risk-adjusted return on invested capital and to distribute a stable dividend.

Innergex Renewable Energy Q3 2024 Earnings Call Transcript

Key Takeaways

• Q3 production was 87% of long-term average due to weak wind, irradiance and water flows despite high asset availability, leading to lower adjusted EBITDA and free cash flow per share tracking toward the bottom of guidance.
• Boswell Spring Wind Farm and Halikoue solar-plus-storage are on track for commissioning in the coming months, on budget, and expected to deliver mid-teens returns augmented by tax equity PTC adders.
• Closed a $108 million refinancing on the Polneff hydro portfolio and sourced ~$300 million of low-cost capital from hydro asset financings, boosting liquidity to over $500 million for future growth.
• Submitted five projects to BC Hydro’s RFP with 51% First Nation ownership, exceeding the 400 MW bid target, and preparing for additional RFPs including a >1,000 GWh FortisBC call.
• Advancing 62 MW/5 h of battery projects in northern Chile to capture day/night price arbitrage and capacity payments, while integrating storage into long-term PPA strategies.

Presentation

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2024 third quarter conference call and webcast. Bienvenue à la conférence téléphonique et à la webdiffusion des résultats du troisième trimestre de l'exercice 2024 d'Innergex Énergies Renouvelables. At this time, all participants on the phone and the Internet are in listen-only mode. Following the presentation, we will conduct a question-and-answer session for analysts and institutional investors, and instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties here in the conference, please press star followed by zero for the operator. If you have operator assistance at any time, I would like to remind everyone that this conference call is being recorded. I'll now turn the conference over to Naji Baydoun, Director, Investor Relations. Please go ahead.

[Naji Baydoun, Director of Investor Relations at Innergex Renewable Energy]

Hello, everyone, and thank you for joining us today. I'd like to specify that this conference will be held in English. Members of the media are invited to ask their questions by phone after this call. A presentation supporting today's discussion is available as we speak on the homepage of our website at innergex.com. This call contains forward-looking statements within the meaning of applicable securities laws. Although the corporation believes that the expectations and assumptions on which forward-looking statements are based are reasonable under the current circumstances, listeners are cautioned not to rely unduly on these forward-looking statements, as no assurance can be given that it will prove to be correct.

[Naji Baydoun, Director of Investor Relations at Innergex Renewable Energy]

Forward-looking information contained herein is made as at the date of this call, and the corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of events or circumstances occurring after the date hereof, unless so required by law. During this call, we will refer to financial measures that are not recognized according to international financial reporting standards. Please refer to the non-IFRS measures section of the MD&A for more information. On today's call, we will discuss our highlights for the quarter, provide you an update on our growth and development initiatives, go through a review of our Q3 2024 financial results and updates, and provide you an update on our 2024 guidance and the financial outlook. Our speakers will be Michel Letellier, President and Chief Executive Officer, and Jean Trudel, Chief Financial Officer.

[Naji Baydoun, Director of Investor Relations at Innergex Renewable Energy]

I will now turn the conference over to Michel Letellier.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you, and good morning, everybody. Starting with the highlights of the last quarter, we've seen a little bit of a soft quarter, mainly driven by weak resources. The good news is that we had all our operating machinery or plant in good availability. So that is what we're focusing on, making sure that our machinery is ready to take the natural resources. In this case, the resources were a little bit weak. Nonetheless, we're happy with the general operation. We have submitted also a portfolio of projects in BC call. We'll talk a little bit later about it, but very proud of the team that managed to put 5 bids in this call. Continue to pursue also our diversified growth strategy with new project addition in Chile.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We are going to talk about an initiative to put more batteries in Chile, given the opportunity there in terms of payment of capacity and arbitrage in the marketplace. We also have executed on corporate priorities. We have financed one of our portfolio of hydropower facilities. Jean is going to talk about it later on, but proud of the team to have executed on this with a little bit higher outcome than we had expected at the beginning. If we switch on page seven, recent achievement in Chile, like I said, we have been focusing on applying new BESS projects. Remember that what we want to do and achieve with this is giving us the flexibility of capturing the low power price during the day in the north of Chile and basically taking advantage of the difference between the day and the night pricing.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Historically, we have seen quite a bit of good arbitrage there. Just to remind everybody, we have also payment of capacity from the grid operator, and we need roughly $45-$50 of arbitrage to make a decent return on these initiatives. So our strategy is to take advantage of the high arbitrage prices that are still happening in Chile, and we anticipate this to stay there for two, three, four years or so until the build-out of battery builds start to build, and perhaps that arbitrage will be less interesting. But our strategy is to participate in active PPA opportunity in Chile, and we want these batteries eventually to be part of our portfolio to basically help us provide good PPA price and 24/7 renewable power in our contract. So I don't want you to think that these batteries are only merchant opportunity.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

They're part of our portfolio to sustain our ability to sign long-term PPA in Chile. Also, we have bought a very small hydro facility. It's not necessarily our strategy in Chile, but this plant has been built by a turbine manufacturer, and they were looking to sell this asset. This asset is basically sitting on Duqueco River watershed. It's providing that some water is getting out of that facility just in front of our Mampil intake. So it's contributing to the Duqueco hydro facility, and we bought it for less than $1.5 million per megawatt. So we think that it was a good addition and a little bit of an opportunity for us to add some hydro in that place. We also are pretty proud to have now an Innavik hydro facility to be fully commissioned.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

This is an achievement because, as you remember, this hydro facility is replacing diesel. We think that we will be replacing more than 90% of all the diesel that was used in the community in the north, and this hydro has been in operation for more than one year now and has been producing steady electricity, and with some modification, we are now as good as generator, almost as good as generator to supply 100% renewable energy in the north, so very proud of the team to have achieved this milestone again, and Hydro-Québec was really happy to have the result of the latest test. Development and construction, very anxious to put the Boswell Springs wind farm in operation. As you remember, we're waiting for PAC to give us the access to their substation.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Latest date is third week of November, where we will be able to interconnect on the substation. This is giving us not a lot of time to finish by the year-end, but we are also commissioning some of the turbines with a load bank. It's giving us some flexibility. We have over 10 out of 97 turbines fully commissioned and adding some every week while we are waiting for the substation. Obviously, if we have access to the substation by the end of the month, I think we'll be able to get to the 31st of December. If not, it's going to be one or two weeks of delay. We're that close to be able to be in a full COD phase in Boswell.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Happy also to report that we're on budget, and also Jean will be talking about it, but we'll benefit from tax equity PTC added to this project. So the economics of this project still remain very strong in the mid-teen type of return. So quite happy on the team on this achievement. Hale Kuawehi is getting closer and closer also to being commissioned, although it'll be hard to be fully commissioned by the year-end. Commissioning has started, but as you know, it's a PV solar with batteries. So it takes a little bit of time for HECO to integrate all the control in their system. So hence, we have moved the COD date in the very early year 2025. So we think that by the end of the first quarter, all the tests and commissioning will have been completed.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We might be lucky to do it a little bit earlier, but we will be exchanging also some electrons earlier than that. It's just that all the tests are a little bit complicated to have all the tests being done with the batteries. They want to make sure that the battery and the PV solar work perfectly together and provide auxiliary system support to HECO. Also, we have been developing a lot of projects in our development activities. But like I mentioned, the biggest move is to have now 62 megawatts of battery with five hours of storage in Chile. Also happy to report on the final signature of the Palmer facility, and that has provided us the opportunity to put the long-term finance in place. Jean is going to talk about it, but we have exceeded the target of refinancing on that facility.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Now, if we move on page eight, the visible growth from our secured projects, just talked about Boswell and Alicoe. So these two will be finished in, I guess, in the next few weeks or few months altogether. So pretty happy on that aspect. Now we're going to concentrate ourselves to move our development. RACURA is an example. You've seen that project there for a long time. We're going to move that project next quarter, probably under construction. We have secured the main turbine supplier to finish this project. Not a big project, but again, it's sitting on Duqueco portfolio, not portfolio, but producing complex. And it's adding a little. We're doing a little thing to basically improve on our existing facility.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So this is a good example to take advantage of the water and structure that was left untouched to add on a little bit more efficiency on the complex. We've talked about the BESS two opportunities moving towards construction, most likely in the beginning of 2025. MU2 is in the final, final negotiation firm with the balance of plant. We have secured also the supplier of the wind, and we're waiting on the last permit to start construction. So this is going to be also coming in construction in 2025. Aubois-Renier, we're a little bit disappointed because we had one in the second appeal, and unfortunately, the opponent presented the project to go in, again, the last court request in France. We think that will still prevail, but that has probably delayed the project for 18 months. Palomino, on the other end, still waiting for the last interconnection piece.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We have been told that this is coming by the end of November, beginning of December. Can't wait, again, to start that construction. We hope to sign also a PPA. We have a few good leads there. The price of electricity in Ohio is strong for solar. A lot of demand for that product. There's not that many projects that have been able to interconnect and go through all the permitting. As you know, Palomino has all the permits. We only wait to have the final interconnection date to secure all the other contracts to start construction on Palomino. Hopefully, we'll be in a position to do that next year. Other places that we have advanced, obviously, Lotbinière and Piteshu are two big projects in Quebec. Starting all the environmental permitting and securing the different wind measurements are going to be finalized in place.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

[So], in a good spot to start the process to advance these two projects. Now, if we move on page nine, I think that this is very interesting. We have a strong and big development and diversified portfolio of prospective projects. Again, I think that Jean mentioned it in the past also, but it's important to understand that what we're doing in the early, mid, and advanced stage is making sure that whatever we're putting into these three categories are well-defined and that sometimes we're moving projects from early to mid or even canceling or retrograding some mid-project into early. I'm saying that because I just want to make sure that you understand that these portfolios are real. We have a lot of people working on these and thinking about the ability to eventually put these into RFP.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

The idea is making sure that we have a lot of opportunity and diversified our opportunity in the different market and also technology, so we're moving this and making sure that it's not just a slide idea. These projects have a sound development strategy behind them, and sometimes they can move in between categories, but the idea is to making sure that we have a lot of opportunity and being prepared to enter RFP. We're going to talk about some RFP in Canada that is coming in the next quarter or so. Also, as you see, we have more projects in Canada. We're working in other places. We're working to build also portfolio in the U.S. You'll see that we're going to line up also some good opportunity and project in the U.S. Still working in other places like France, always deploying our project development in France.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We have had some good success there too. But again, I think that Canada is the place where we can be more competitive. We have been very active in bidding in BC. I'll mention it later also. So we think that Canada is a place where we can grow faster and be profitable also. We think that First Nation partner is a very long, I would say, experience with Energex. We have had a lot of success with First Nation. We're welcoming those type of approach with RFPs. And I think that this is the place where we can make a little bit of a difference in the competition against others. So on this, I'll let Jean explain the financial result of the quarters, and I'll come back at the end to talk a little bit more about the opportunity that lays in front of us. All right.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

Thank you, Michel, and good morning, everyone, so for the quarter, the production was at 87% of long-term average, similar to results in Q3 2023. In the quarter, generation was primarily impacted by below-average wind regimes in most of our markets, as well as lower irradiance and economic curtailment in the U.S. and Chile, and lower water flows in Quebec. These elements were partially upset by strong hydro generation in Ontario and in the U.S., as well as higher solar production in Ontario. Importantly, we are pleased that our hydro facilities in BC are performing in line with their LTAs, and so compared with the last two years of drier conditions in BC, which disproportionately affected Energex, overall production in 2024 has been impacted by industry-wide issues, mainly in the wind segment.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

As a reminder, our BC hydro assets have historically performed in line with our long-term expectations, and we are pleased that their performance this year has reversed the anomalous generation patterns we experienced in 2022 and 2023. We reported adjusted EBITDA proportionate of $196 million in Q3 2024, approximately 3% lower year-over-year. Despite below LTA generation, our financial performance benefited from the commissioning of our new BESS projects in Chile, strong pricing, and cost discipline. Free cash flow during the quarter was $70.8 million or $0.35 per share, compared with $0.42 per share in Q3 2023. From a year-over-year perspective, free cash flow was negatively impacted by lower EBITDA, as well as the timing of principal and interest payments and higher free cash flows to non-controlling interest, partially offset by lower maintenance capital expenditures.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

We remain focused on what we can control, including maintaining high asset availability and efficiently running our operations. Our portfolio diversification strategy also remains important in helping us mitigate overall portfolio risks. As of the end of Q3, total debt amounted to $6.4 billion, which was stable quarter over quarter. In Q3 2024, we continued to spend the required CapEx to move our under-construction projects forward with no material changes to our CapEx program for the year. With full commissioning for Boswell and Alicoe expected in the coming months, we have a good line of sight on the finish line for these projects. Therefore, we're confident in their remaining CapEx spend and overall return expectations. Our liquidity remains healthy at over $500 million, supporting all our near-term growth funding needs.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

In Q3 2024, we repurchased $2.4 million worth of shares under our NCIB, and this brings our total year-to-date buyback activity to approximately $10 million at an average price just north of $8 a share. Overall, there are no material changes to our debt structure and our project financing strategy, as most of our debts remain self-amortizing in nature. We continue to see significant long-term recontracting and refinancing optionality in our portfolio from the long useful life of our assets, which extends well beyond our PPA terms. Following the signing of a 25-year full inflation-indexed PPA for the Palmer hydro portfolio, we completed the $108 million refinancing initiative for these assets in November. The project refinancing amount exceeded our initial expectations and demonstrates our continued execution on our corporate priorities for the year. We are pleased to have further strengthened our financial flexibility through active portfolio management.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

This second hydro portfolio refinancing not only optimizes our financial structure, but it also delivers incremental value for our shareholders from existing assets. To highlight this point, we wanted to take a moment and discuss how we have created value from our hydro fleet with our recent initiatives. In total, we have sourced approximately $300 million of low-cost capital from these financings. This will not only strengthen our financial flexibility, but will also help us self-fund future accretive growth. We see the potential to reinvest these proceeds at high rates of return, creating a virtuous cycle of free cash flows per share growth from strong reinvestment spreads. Another way to consider how valuable our hydro fleet is would be to consider the return of capital from these perpetual assets. Taking Portneuf as an example, the $108 million refinancing alone represents more than two times the book value of these assets.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

Overall, we are pleased to have been able to optimize the capital structure of these projects and crystallize value for our shareholders from our existing hydro fleet. We continue to see our large, unique portfolio of high-quality hydroelectric assets as a clear, sizable, and differentiated funding and value creation lever for Innergex. So, given our performance so far this year and the outlook for the last quarter of 2024, we are reaffirming our full-year guidance for 2024. To be clear, our year-to-date performance has been below our internal expectations, largely due to wind resource issues that are industry-wide and generalized. However, our portfolio diversification strategy, cost discipline, and pricing effects have supported our financial results. At this time, we are tracking towards the lower end of our guidance ranges.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

However, when considering the portfolio management activities completed this year, we expect to be able to potentially exceed our free cash flow per share target for the year. I would like to close with some comments on the overall outlook. At Energex, we remain focused on what we can control to execute on our priorities. By remaining disciplined with our capital allocation, we expect our growth strategy to deliver sustainable value for shareholders over time. We continue to see a robust environment for capital deployment, and the structural industry tailwinds for renewable energy have only accelerated in 2024. Rapidly increasing corporate demand for clean power, combined with the electrification of the global economy and decarbonization imperatives, are expected to provide us with significant opportunities to develop, own, and operate high-quality assets.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

We feel confident that we are very well positioned to benefit from these market trends and will leverage our competitive advantages and expertise to capitalize on attractive investments with high-return adjusted returns in our core markets. I will now turn the mic back to Michel for an update on our 2024 corporate priorities and closing remarks.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you, Jean. And I think it's important to come back on corporate priorities. We have provided you guys with some goals, and it's important every quarter to come back on making a point on what we have achieved on this construction. As you heard, we are pretty happy on what we're doing in Boswell and the advancement also on Alicoe's on construction. I think we're tailoring on what we had said we would. Development, we said that we would want to bid or win more than 400 megawatts in contracts.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We have exceeded our goal to bid more than 500 megawatts of projects across our different market. I think that BC has been a focus this year. Remember that the bid was issued in March. We submitted five projects in September. BC Hydro, I said that they had received about 9,000 gigawatts of proposal. They were seeking 3,000 gigawatts of proposal. So this 3:1 seems high, but in our industry, a 3:1 ratio is a pretty good odds for us to win, and we were surprised to see only 21 projects were submitted. Glad that our team were able to pull five projects with full First Nation support. All these projects had signed partnership agreements with First Nation, around 51% First Nation-owned. That provides also some points, good, I guess, addition points to BC Hydro's grid of evaluation.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So we feel very confident that we have been producing a good portfolio of potential winning projects in BC. Also, BC is going to see some more activities in the future. We know that BC Hydro has said that they would be coming back in every two years to basically have more need for long-term PPA. We also see FortisBC. For some of you who don't know FortisBC, but BC Hydro has roughly 90% of the, or a little bit less than 90%. They have about 13,000 megawatts of installed capacity on the grid, but FortisBC is having distribution rights in the southeast of BC, and they're looking for an RFP of a thousand, a little bit over a thousand gigawatts of energy, so a little bit over 400 megawatts of capacity. So that's interesting.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

That's the first time that we see FortisBC coming with an RFP for high PP. So this is giving us more opportunity even in BC. So we're getting prepared to answer that call as well. And this is going to be basically in place in 2025, and they need electricity as soon as 2030. So that's good news for us. Also, priorities, Jean has described what we've done in our portfolio of hydro, and we have also other priorities or other opportunities to enhance our flexibility in the next few quarters. So pretty happy on that aspect. So if we go on page 17, I just wanted to reiterate also great opportunity as a developer in Canada.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Mind you that we think that Canada is a place where we can be quite competitive, not only because we have great sites and a good team on the ground, but as we mentioned, most of these RFP opportunities are going to take into consideration adding First Nation partners. We feel good about this. We know that we have been a good partner. We're geared towards being a good partner and delivering value for all the stakeholders in these RFP. So we're happy also to. I was happy to read in the paper that Ford, not the company, but the premier is going electric. It was a little bit funny because we all know that Ford was not necessarily a big fan of high PP and wind and solar, but Ontario has now a program that is very strong in seeing solar, battery, and wind in Ontario.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We've seen some reports showing now that the expected need for electricity through 2050 has gone up by 75%. So that's over 110 terawatt-hours of energy to be submitted in the future. So this is giving us also some good hope that Ontario will be a good market. You heard me saying that Ontario is going to wake up eventually. Well, it's starting, and I'm very happy to know that our teams are already on the ground making sure that we are securing great opportunity to participate in these RFPs in the future. We think that they're going to come every second year, a little bit like BC Hydro has announced. So this is great because it's giving us also some view. It's not only one super big RFP. Those are coming every second year. So I think this is a smart way to do these RFPs.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

It provides the opportunity to develop the project. If you're not a winner, you have a chance to re-bid the project in the next wave of RFPs. So I like the future of possibility in Ontario for ourselves as well. Of course, you heard me talking about Chile. Chile is seeing a lot of opportunity. Codelco is coming back with an RFP this fall, and also BHP is looking for some RFPs, some renewable power. So all these things are very interesting and opportunity for us. Of course, the U.S., as I've seen the election of Trump, which for some that could be seen as potentially negative for our industry. We're still thinking that this is still a trend that in the U.S., we will see some growth in solar and wind and battery. I think that the utilities are embarked in this trend.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

I think that a lot of states have also some program to promote renewable energy. I'm not saying that the Trump is great news for our industry, the Trump administration, but I think that the U.S., as we've seen in the past, will survive these changes of politics because the policy behind this is also managed by states and also driven by the need from the customer, the corporate customer, wants also to have renewable energy. So I'm not too concerned about the U.S. As you know, we have a small footprint in the U.S. So our team are focused on some area where we think we will see some potential in the future. Nonetheless, that we have perhaps an administration that is not as supportive as the prior one. We still think that the U.S. will be a good market for us.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Before going into the Q&A, I'd like to talk about the transition of our chairman. First of all, I'd like to thank Daniel Lafrance for all these good years of support and dedication to Energex and management. Dan has been a great chairman for the last few years, and he has been a very great contribution as a director prior to that. So thank you, Daniel, for all these great years and support. I'd like to welcome Monique Mercier. Monique Mercier comes with a lot of experience also. She's been with us since 2015. She's been a very well-rounded manager over the years. She has also some great experience in boards of publicly traded companies. I'm welcoming Monique. We know Monique for, like I said, almost 10 years now. She knows Energex. She has Energex at heart as well.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

I'm sure that we'll see great opportunity under her leadership. She's the first woman being chair at Energex. So congrats on this new challenge, Monique. And we're going to be looking for a lot of great years in front of us under the leadership of Monique. So thank you all, and we're opening the Q&A questions. Albert, are we ready to take questions?

[Operator]

Thank you, ladies and gentlemen. If you have a question, please press the star followed by the one on your touch-tone phone. You'll hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the headset if you are using a speakerphone before pressing any keys. Your first question comes from the line of Rupert Merer with National Bank Financial. Please go ahead.

[Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial]

Hi. Good morning, everyone.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Good morning.

[Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial]

If I could start with the U.S. election, given how topical it is right now. So I understand you're not too concerned about potential changes in U.S. policy. But if we look at your development pipeline, there is that one project, Palomino, that has some promise for next year. Do you have any comments on how changes to tax credits or tariffs could impact that project in particular? And maybe any comments you might have on the impact of tax cuts broadly across your portfolio too.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

That's a good point, Rupert. First of all, we had already secured the panel from a local supplier for solar. So I don't think that this is going to be a big issue for us. Now, if they're reducing the corporate tax, obviously, it might reduce the appetite of PTC and ITC suppliers.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

But I think that the project is very well advanced, and it's well positioned in Ohio for being able to sign a long-term PPA. The good thing about it is that we haven't signed the PPA just yet. So it's a good opportunity for us to make sure that we would flow through any change that we foresee coming in the next quarter or so. So we have the flexibility of not necessarily having committed to a fixed price just yet. So it's giving us that flexibility to adjust ourselves to whatever the administration would decide in the next few quarters.

[Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial]

Okay. Great. And if I could turn to Chile, I'm wondering if you can remind us just broadly about your thesis on that market. How do you see competition building with competitors, batteries coming into that market? And what's the outlook for the decline in thermal generation there? I know the thermal generation is still quite significant compared to what we see coming from batteries off-peak.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yeah, you're right. You know that coal was well over 6,000 megawatts. Now, coal is getting around 5,000 megawatts still in operation in Chile. You have a little bit of natural gas also and diesel. Coal is definitely getting out of the equation sooner or later. So this is going to be needed. That capacity will have to be replaced. You know that coal is 5,000 megawatts of coal represent probably two to three times more renewable energy without batteries. So if you put batteries into them, you would probably need two to three thousand megawatts of battery being installed in Chile in the next four or five years. We're seeing a lot of application for battery being built.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Obviously, this is going to play a role in the price of arbitrage. Again, we think that we're going to receive something around 40%-50% capacity payment in terms of total revenue we need to have to finalize the battery. And we rely about on $50 per megawatt-hour of arbitrage to make those financial works. Right now, we still see $70-$100 of arbitrage. So there's plenty of room for making good returns on the battery for the short term. But the thesis behind it, again, Rupert, is to incorporate these batteries into our long-term portfolio. And we're going to bid again in Codelco's next opportunity. The bid is due by the end of November. BHP wants to have also some renewable energy long-term contract from the grid and also an opportunity to have two projects, solar and battery, behind the fence.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So those are also a target for us. Remember that we have a good experience in Codelco with Pampa Elvira, which is a solar thermal producing low-temperature water for their processes. I think that this is also an opportunity in the future to see some investment. We like the behind-the-fence because those are take-or-pay full-indexed contracts. So we're going to be active also on the BHP call for PV and BESS that is also coming at the end of this year. So there's a lot of activity. So that's why we like to have battery already in the development, advanced development, that would enable us to answer these calls and make sure that we can deliver electricity on 24/7.

[Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial]

Just a quick follow-up. If you do look to expand battery plans, what's the scale of the opportunity beyond 62 MW?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Well, we want to be prudent because I'm seeing a lot of activities also. Like I said, there's probably a couple of thousand megawatts of application for future battery being built. So we want to be cautious. We want to make sure that we have also the same pace of growing our long-term contract portfolio. So for the time being, having these batteries will match if we win another 350 megawatt-hours by this year-end. We could see to support that contract some small incremental battery and perhaps a little bit of a solar. But those are not huge. But we want to pace ourselves. And whenever we have some good opportunity and good pricing of contract, remember that we have been disciplined in the last RFPs of the DISCO. DISCO will also come back this year and next year.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So we have plenty of opportunity to price these RFPs at a decent price, making sure that the average price during the day, the evening, and the night are making a good return on our portfolio basis. So we don't want to rush. We don't want to be exposed too much in the battery and being merchant. That's not the strategy at the long term. We're opportunistic because we think that right now there's a good opportunity to make better than average return on merchant. But our long game is to have those batteries becoming incorporated in our portfolio to service long-term PPAs.

[Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial]

All right. Thanks for the call. I'll leave it there.Thanks.

[Operator]

The next question comes from the line of Nelson Ng with RBC Capital Markets. Please go ahead.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Thanks,Yeah. Great. Thank you, and good morning. Just a quick follow-up on the quick follow-up on the battery storage projects in Chile. I know the MD&A indicates that procurement contracts have been signed for the two projects.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yes.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Does that mean you've secured the battery supplies and locked in a large portion of the project costs already?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yes.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Okay. So when you compare, I'll call these ones phase two, but phase one that were completed last year versus these projects, can you just talk about what you're seeing in terms of, I guess, project costs? And then also just compare what you're seeing on the pricing arbitrage. I think you meant last year you want to finish those projects as quickly as possible because the pricing arb was pretty large. But can you just talk about the differences between, I guess, phase one versus phase two?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Well, phase two will be, well, we're conservative in our approach.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

I think that there will be a slight improvement on costs. We've seen battery costs being under pressure with all the lithium that is now available and China being, I guess, aggressive in trying to sell batteries. You remember that in Chile, we don't have to have any duty on China products. So I think that this is a good opportunity to have batteries being at a decent cost. Remember also that we have done and managed the balance of plant ourselves. So we are going to reuse the same contractor, and our employees are now well, I guess, versed in what it takes. And we have also taken the advantage of the first phase to be perhaps a little bit more efficient in the balance of plant. So I see a little bit of improvement on capital costs. And also, sorry.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Can I just interrupt you? Will they be at the same site or very close by so they could share any of the Same site.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Same site. It's just an expansion of the San Andrés and PV Salvador. We have basically maxed out now the substation capacity of those two sites. So that's why we have basically BESS San Andrés a little bit bigger because there were a little bit more room in the substation, and Salvador has been designed to basically be at the maximum substation. So we don't have any substation upgrade to do. We're going to take advantage of our operation already manpower in place. So we'll see a little bit of improvement in terms of total operation as well.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Okay. Got it, and like you said earlier, you're still seeing pretty strong arbitrage in terms of the pricing.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yeah. But again, I want to really stress this. We're opportunistic. There's the market right now. I don't think it will last forever. But we take this as an opportunity to be a fast mover when there's an opportunity. But they're going to be the long-term strategy. They're going to be embedded in our long-term supply of contract and portfolio approach in Chile. For us, it's very important. It's easy for us to build solar in the north. And whenever we're going to expand solar, we'll probably have batteries attached to it. So that's the north. And we are trying to develop and be ready to have some wind in the south. And as you know, we have Frontera and San Carlos hydro facility with some storage in the south that could be eventually built if we have enough long-term contract to support them.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Great. Thanks for that. And then my next question is a bit different. When you change your strategy, the focus has been on development rather than M&A. I know you had a particular situation in Chile where you found it pretty attractive to acquire a small hydro facility. Would you look at future M&A opportunities, whether it's hydro or other types of assets in North America?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We're not focusing on it. If it's something that we can create value, if it's a hydro that needs a lot of refurbishment and then we can think that we're creating value in doing this, we might. We definitely are not going into M&A activities as standard run-of-the-mill operations that are already built and being in operation. We're going to focus that if ever we're using M&A as highly accretive opportunity where we think we can create value, but with our own knowledge. We're not focusing on regular M&A at all.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

And then, like you said, this 2.7 MW, it's just that the supplier of equipment built it and wanted to sell it. It's just we're going to use our same operator. It's on the same site. We've paid $1.5 million. So it's a fraction of what it costs to build a hydro facility. It's brand new. It's bringing water into the Mampil water intakes. So don't take this acquisition as something that we would repeat. It's really a little bit of an add-on to the Duqueco. It was there. There was an opportunity. Our guys were able to do the operation without more cost, though.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

Okay. Yeah. That's a very attractive price. Now, I just know that there's obviously some hydro assets in Canada that are up for sale.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yeah.

[Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets]

I'll leave it there. Thanks.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you.

[Operator]

The next question comes from the line of Nicholas Boychuk with Cormark. Please go ahead.

[Nicholas Boychuk, Equity Research Analyst at Cormark Securities]

Thanks. Good morning, guys. Yeah.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Hello, Nicholas.

[Nicholas Boychuk, Equity Research Analyst at Cormark Securities]

Coming back to the dynamic in Chile, how are you thinking about capital allocation from a return perspective? Obviously, with resources not unlimited, if you're comparing this to the opportunity in BC, for example, what would the return profile look like on these batteries in a base case scenario? And how would that compare with something that's more traditional, like a BC wind project?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

The BC well, not the BC, but the BESS, we're looking at double-digit return and probably mid-range for the BESS. So I think it's a compelling opportunity for us. But you're right. I mean, capital is scarce these days. And all the different markets compete for our attention. But it's not necessarily also the same timing.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

These investments in Chile are quicker and are going to contribute quicker in terms of cash flow. So this is also being taken into consideration. We're not going to be shy of putting resources in BC, but these projects will be needed and interconnect after 2030. For us, we have time also to rethink on how to finance these opportunities. As John has mentioned, we have the opportunity to refinance some of our activities. We can recycle some projects down the road. So I think that we have that in mind. We have a program, and we've told you guys that we're not going to issue stock. We have that in mind, and we're planning all this with that having in mind. Of course, we want to be disciplined. We want to make sure that these projects are going to be accretive.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We need double-digit return to make accretion in our industry. So we have that in mind, and the development team has that in mind as well. I mean, John, myself, and others are reminding them that we just don't want to win MW. We want to win MW that can create value.

[Nicholas Boychuk, Equity Research Analyst at Cormark Securities]

Okay. Thank you. And sticking with battery energy storage for a second here, it was interesting to see in the development pipeline that a 100-MW project went straight to the mid-stage in the U.S. Can you give a little bit of color, please, on that project, the opportunity set, kind of how that came up, and why it went directly into the mid-stage?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Because we've been pre-selected for that project in the States as a bid. Yet we haven't had the final decision, but we're glad to have been pre-selected.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So that, I think, was warranted to be moved in the project ranking, I would say. We don't want to say too much more because it's a great, I think it's a great opportunity. We think that knowing what we can do in terms of battery, we have learned a lot from the first phase we've done in Chile and also in Hawaii and in France. So we have now gone through all the process of installing, commissioning also those batteries. So I think that our teams are getting pretty good in pricing batteries. And we were pre-selected, so that doesn't mean anything. But I mean, and placing them in the interconnection point, I think, was fundamental. So our experts really found a great spot to place that battery system and bid it, so. Yep.

[Nicholas Boychuk, Equity Research Analyst at Cormark Securities]

Okay. Appreciate the color, guys. Thank you very much.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you.

[Operator]

The next question comes from the line of Mark Jarvi with CIBC Capital Markets. Please go ahead.

[Mark Jarvi, Equity Research Analyst at CIBC Capital Markets]

Yeah. Thanks, Good morning, everyone. Just on the US projects, you talked about Palomino, but maybe the Wautoma solar project or this battery storage project, where would you be on safe harboring of equipment to ensure you can get as much tax credits in case there was some repeal or changes down the road?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yeah. You're right. On Wautoma, everything is open in the sense that we have applied for an interconnection study. We think that we might have a way of not spending too much money there. We're getting very close to have the permitting in Wautoma. But I guess the important thing is not committing to a price or fixed price if we're not sure on the outcome of the PTC and the supply chains.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

So for us, we're advancing the project to a point where we could have interconnection and also that we would have the permit. After that, we'll be cautious on submitting price to make sure that we could qualify for all the tax opportunity that we have. So I think that this is the lesson learned from the last cycle of inflation. The important thing is making sure that you stay flexible in your PPA terms to take into consideration anything that comes to light in terms of new regulation.

[Mark Jarvi, Equity Research Analyst at CIBC Capital Markets]

But is there no reason why you couldn't procure some transformers or something like that just to ensure that you could get safe-harbored? And then if you never use them in the U.S., you can move them to projects in Canada. There's not that flexibility?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We could. Those strategies have been sometimes backfiring on us in the past. We haven't done that with Wautoma. I think that the project that we are submitting for the BESS. I mean, the battery that we have selected would qualify. But again, we have not finalized the price with the offtaker just yet.

[Mark Jarvi, Equity Research Analyst at CIBC Capital Markets]

Okay. And then what are you seeing in terms of wind turbine pricing on imports into Canada for projects and then balance of plant? And specifically on the BC RFP, can you remind us again whether or not there's any protection on any sort of inflation pressures around equipment costs?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

No, there's no flow-through except from the CPI. So that's a little bit of something that we have taken into consideration and taking enough contingencies to hopefully have, at the end of the day, a great project. But this is a little bit of a challenge of our industry. We're bidding projects in 2024 to be delivered in 2029, 2030, 2031. So obviously, the team has to build some contingency in the pricing so that we hopefully have all the flexibility in our budget to complete the project at a reasonable cost to warrant a good return at the end of the day. But it is a little bit of a challenge, and the teams know it and try to make sure that we have enough contingency in the bid.

[Mark Jarvi, Equity Research Analyst at CIBC Capital Markets]

And then with the strengthening of the U.S. dollar, does that impact at all you're seeing in terms of actual build costs here in Canada?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Some supplier would use the U.S. dollars. We don't have too much exposure to that. And in some cases, we have some flexibility because, again, buying equipment for BC will not happen before 2027, 2028. So I think that there's plenty of time for the dollar to readjust. I share your thought. I don't think that the Canadian dollar will be super strong in the next few months or quarters. But like I said, we will not have to deploy that money in Canada until 2027-ish.

[Mark Jarvi, Equity Research Analyst at CIBC Capital Markets]

Okay. All right. Appreciate those comments, Michel.

[Operator]

The next question comes from the line of John Mould with TD Cowen. Please go ahead.

[John Mould, Wall Street Analyst at TD Cowen]

Hey.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Hi.

[John Mould, Wall Street Analyst at TD Cowen]

Good morning, everybody. Just a couple of things on your assets in Eastern Canada, I guess, or sorry, in the Eastern side of North America. On Curtis Palmer, I think PPAs there is volume space. So I think that's up in 2026 or maybe late next year, depending on performance. I was wondering what your recontracting options look like there in terms of corporate offtakers. I think when you made the acquisition, you highlighted the strength of Hydro-Québec's marketing franchise there. I'm just wondering how their involvement potentially factors into that process.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

That's a good question. We're talking to them. It's a little bit early before securing anything, but we're scouting now the market with their help. You're right that it's volume-based. Depending on the outcome, it will be late 2025 or early 2026. We're getting prepared. One good thing, I think, that especially in this area, if it's good news, Trump is not super supportive of offshore. I think that the Northeast was betting on fairly competitive offshore wind to help ease the renewable energy price. That, in a way, I think, is going away. This is probably positive for renewable energy in that area. We're not in a rush into signing just yet.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

If PTC also goes sideways in some instance, that could be supportive of existing assets for recontracting. So I think we're on a good spot there in terms of opportunity to have better pricing than what we had anticipated when we bought it. We know that it's already higher than when we bought it. But I think we're positive, and we're exploring our option there.

[John Mould, Wall Street Analyst at TD Cowen]

Okay. Those are all good points. Thanks for that. And maybe just on Quebec and the plans for procurement and development of larger wind projects there, it'd be great to get an update on your thoughts around where IPP partnerships in those larger projects are potentially going and when you're hoping to get a better sense of how that, whether it's an RFP process or however else it's going to be managed, is going to play out.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Yeah, first of all, this week or late last—no, early this week, we saw Hydro-Québec explaining their plan to upgrade their transmission system, high voltage 735 kV targeted there. There's been an announcement on the Appalachia area linking the south of Québec towards that northeast and the peninsula of Gaspésie for roughly 1,000 megawatts. There's also some area where they want to spend money just south of Manicouagan area, Baie-Comeau area. They want to spend quite a bit of money there to increase the capacity of moving electricity from the north towards the center. There's also some investment in, I would say, lower Laurentian area. We're seeing a lot of activities from Hydro-Québec getting prepared the transmission system to receive more megawatts in the coming years. That's good news because we always said that interconnection is mainly the bottleneck of many projects.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Seeing them being proactive in spending a lot of money in high voltage transmission line gives us some good hope that we will be able to either bid project in 2025 or 2026. They all said that Hydro-Québec has confirmed that they want to have an RFP in the next quarters, well, 2025 or 2026. Now, the biggest question is, how are they going to share the responsibility and challenge of building these big hydro, not hydro, wind projects? They mentioned that IPP will have a place up to about a third on these big projects. We don't know the full extent on that opportunity. I think that Hydro-Québec is waiting also for the Bill 69 here to be completed before being able to be more open in this. But obviously, we are in contact with First Nation partners that are potentially being targeted as being partners in this area.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

We hope, like I said, that we'll certainly be considered because what we have heard from the criteria that Hydro-Québec is going to be looking at is the experience of both being an operator and an experience to be a partner also with First Nation. So I think that we fit well in those criteria and will be there certainly participating in these RFP or contracts to basically be a partner with Hydro-Québec and First Nation and local community in these opportunities for sure. But I think we'll know a little bit more in early 2025 on how this will unfold for Hydro-Québec big projects.

[John Mould, Wall Street Analyst at TD Cowen]

Thanks very much for all that detail. I'll leave it there.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you.

[Naji Baydoun, Director of Investor Relations at Innergex Renewable Energy]

Operator. Next question, please.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

Operator. Hello. Hello. Okay. Operator, if there aren't any questions, can we conclude the conference call?

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Sorry, guys. We're trying to reach the operator. It seems we seem to have a technical issue. Yeah. Or he vanished. I don't know. I think we had some questions from Ben and Jessica still waiting on the queue. We'll wait a few minutes. And if not, very sorry, we'll be able to talk to Ben and Jessica directly. Yeah. Directly.

[Jean Trudel, Chief Financial Officer at Innergex Renewable Energy]

All right. Let's conclude here then. And we'll call you, Ben and Jessica, right after.

[Michel Letellier, President and Chief Executive Officer at Innergex Renewable Energy]

Thank you, everybody. And sorry for that technical glitch. Thank you. Thank you for joining us.

Participants

Executives

• Michel Letellier, President and Chief Executive Officer
• Naji Baydoun, Director of Investor Relations
• Jean Trudel, Chief Financial Officer

Analysts

• Mark Jarvi, Equity Research Analyst at CIBC Capital Markets
• John Mould, Wall Street Analyst at TD Cowen
• Rupert Merer, Sustainable Infrastructure and Cleantech at National Bank Financial
• Nelson Ng, Vice President, Equity Analyst at RBC Capital Markets
• Nicholas Boychuk, Equity Research Analyst at Cormark Securities