Boralex Inc

TSX:BLX

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Boralex Third Quarter of 2022 Financial Results Conference Call. [Operator Instructions] Also note that the call is being recorded. [Operator Instructions]

I would now like to turn the conference over to Mr. Stephane Milot, Senior Director, Investor Relations for Boralex. Please go ahead.

[Stéphane Milot, executive]

Thank you, operator, and good morning, everyone. So welcome to Boralex Third Quarter Results Conference Call. Joining me today on the call, Patrick Decostre, President and Chief Executive Officer; Bruno Guilmette, our Vice President and Chief Financial Officer; and other members of our management and finance teams. So Mr. Decostre will begin with comments about market conditions and the highlights of the quarter. Afterwards, Mr. Guilmette will carry on with financial highlights, and then we'll be available to answer your questions.

As you know, during this call, we will discuss historical as well as forward-looking information. So when talking about the future, there are a variety of risk factors that have been listed in our different filings with securities regulators, which can materially change our estimated results. So these documents are available for consultation at sedar.com. In our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis. Unless otherwise stated, all comments made in this presentation will refer to combined basis figures. So please note that combined is non-GAAP financial measure and does not have standardized meaning under IFRS. Accordingly, combined may not be comparable to similarly named measures used by other companies. So for more details, see the Non-IFRS and Other Financial Measures sections in the MD&A.

The press release, the MD&A, the consolidated financial statements and a copy of today's presentations are all posted on the Boralex website at boralex.com, under the Investors section. So if you wish to receive a copy of these documents, please contact me.

So Mr. Decostre will now start with his comments. Please go ahead, Patrick.

[Patrick Decostre, executive]

Thank you, Stephane, and good morning, everyone. It's a pleasure for me to present our results and achievements for this third quarter. As you have noticed, we continue to vigorously execute on our growth and diversification strategy during the quarter. 600 megawatts of storage projects in preparation for the upcoming request for proposals next January in Ontario and 111 megawatt of wind and solar project in France were added to our pipeline.

139 megawatts of projects, including our Limekiln wind project in Scotland, transitioned into the construction, or ready-to-build phase, of our growth path with commissioning expected for 2024. This proves we have invested at the right time in the expansion of our development teams. With recent and expected changes in regulations to further accelerate the development of renewable project, we are expecting to continue delivering strong gross additions to our pipeline and growth path.

Please note that our third quarter results include a provision relating to the adoption on August 16 of the new 2022 Supplementary Budget Act in France regarding additional revenues recognized for certain feed-in premium contracts since the start of the fiscal year. The provision was therefore recorded, of which $28 million relates to revenue generated in the first half of 2022. This provision largely explain the decrease of our quarterly EBITDA. However, for the 9 months period ending September 30, our EBITDA grew slightly reaching $379 million compared to $372 million in the same period last year.

Production in the quarter was down compared to last year and to anticipated production, mainly due to difficult wind conditions in France as well as unfavorable conditions in hydro and solar in the U.S. Looking ahead, we are in a very solid position to pursue our growth with over $900 million in available cash and authorized financing. We will also benefit from new contract signed to optimize our revenue starting in the fourth quarter this year.

Market conditions continued to rapidly evolve by region during the quarter. In August, the United States announced its most ambitious climate bill, putting the country on track to achieve a 40% reduction in emissions by the end of the decade. The bill includes $370 billion in grants and tax incentives and aims to increase investments in renewable energy, electrification of the economy and clean energy generation in the United States to help reduce inflationary pressures.

In Canada, the federal government announced that the Department of Finance would engage with experts to establish an investment tax credit of up to 30% for investments in clean technologies with the focus on net zero technologies, battery storage solution and clean hydrogen. The credit would be available as of the day of Budget 2023 and no longer in effect at the start of 2035, subject to a phaseout starting in 2032. The full economic statement is an affirmative response to the United States IRA, specifically the decision to make the 30% credit refundable. The adoption of these provisions will increase interest in renewable and storage across Canada.

The credits would likely have a significant impact on our project already under contract, SBx, [ Denash and Atwic ], while also increasing the opportunity for other projects like Ontario Storage, corporate PPAs as province and large consumers realize the credit will reduce the cost of renewable energy.

In Quebec, Premier Legault was reelected on October 3, 2022. His party has committed itself to adding 3 gigawatts of wind power on top of the RFP of 300 megawatt underway and on the 1 gigawatt announced recently. In Ontario, the independent electricity system operator, IESO will be called upon to develop procurement mechanisms to meet the new needs for power confirmed for the years from 2025 onwards. RFPs are expected to be launched too.

In France, we are waiting to get the latest details of the various measures to accelerate renewable energy development. The information we have at this point are the following: First, concerning the cap on merchant electricity price, France is looking at a cap of EUR 180 per megawatt hour as was proposed by the EU with the possibility to establish different caps by technology. It is not clear at this point how this cap would apply and which type of contract it would cover. We should get more clarity in the coming weeks. For the moment, the proposed legislation indicates this cap would apply starting from December 1, 2022, until the end of 2023.

Second, we are still waiting to get the price threshold on which revenue sharing will apply for the feed-in premium contract. As you have noticed in our financial results, as the price threshold is not known, we had to estimate it as well as the implementation guidance of the new law. Finally, we are also waiting to get more information on the application of the 18-month period before activating a contract after the commissioning of a new plant.

In the United Kingdom, the policy of decarbonizing the electricity mix by 2035 and the desire to resolve the energy crisis, particularly by increasing energy production, are favorable to the development of renewable energy, mainly solar power in England and onshore wind power in Scotland.

I will now rapidly review the main variances in our portfolio of projects and growth path. The 47 megawatts in the early stage came from the addition of a new wind project and 4 new solar projects totaling 111 megawatts in Europe. The increase of the expected capacity of 2 wind projects and 5 solar projects in Europe for a total of 71 megawatt. These increases were partly offset by the discontinuation of certain projects and the transition of project to the mid-stage phase.

Project in the mid and advanced stages continue to progress with some adjustments between phases and no material changes to report. In total, our pipeline now comprise projects totaling 3.9 gigawatts of wind and solar project and 792 megawatts of storage projects, including the addition of 600 of storage project in the third quarter.

Let's review changes to the growth path now. 3 projects from the secured stage transition to the ready-to-build phase. These projects are 13 megawatt solar project of Cruis and the 20 megawatt wind project of Helfaut in France, as well as the 106 megawatt wind project Limekiln in Scotland. These 3 projects will benefit from long-term corporate contracts with commercial counterparties. The first 2 projects are expected to be commissioned in the first half of 2024, while Limekiln is expected to be commissioned in the second half of 2024.

Finally, the Bougainville powering project was commissioned during the quarter, bringing our total installed capacity to 2.5 gigawatts. I won't cover in detail the progress made in our 4 strategic directions as I have already talked about the major points. But please note, we continue to optimize maintenance during the quarter.

This completes my part. I will now let Bruno cover the financial portion in more detail, and we'll be back later for the question period. Bruno?

[Bruno Guilmette, executive]

Thank you, Patrick. Good morning, everyone. I will start with a review of the progress made in light of our 2025 corporate objectives. Progress made on our EBITDA and AFFO was affected this quarter by the recognition of the provision on French revenues mentioned earlier by Patrick. Our progress should resume next quarter. Our reinvestment ratio stands at 54%, which is in line with our 50% to 70% target.

About our CSR strategy, we continued to make good progress on the environment, social and governance fronts as presented on Slide 15. Our balance sheet is very solid with more than $900 million in available cash and authorized financing facilities to continue implementing our plan for growth. I will now cover the financial results for the quarter starting with production.

Wind production in Canada was slightly lower than anticipated, but 4% higher than in the same quarter last year. In France, where wind conditions were particularly difficult this quarter given the important heat wave, wind production was 21% lower than anticipated and 6% lower than the same quarter last year. Overall, total wind production for the quarter, combining Canada and France, was 11% lower than the anticipated, but in line with last year.

Turning to hydro now. Canadian hydros production was 5% higher than anticipated and 20% higher than last year. In the U.S., production was 16% lower than anticipated and 58% lower than the same quarter last year. Hydro conditions were particularly difficult this quarter compared to very strong conditions in the same quarter last year. Total production for the hydro sector was 2% lower than anticipated and 22% lower than last year. Finally, production from solar assets was 13% lower than anticipated, but 4% higher than the same quarter last year. In summary, total production for the quarter was 10% lower than anticipated and 6% lower than last year.

Third quarter combined revenues were down 17% compared to last year, mostly due to the recognition of a $28 million provision on French revenues regarding the first 6 months of the fiscal year and to lower production levels. The reduction in revenues resulted in a $38 million decrease in operating income and $30 million decrease in EBITDA. Please note that the increase in corporate costs is related to the growth of the workforce and higher external advisers cost to support our development.

On a consolidated basis, we have generated $90 million of consolidated net cash flows related to operating activities compared to $47 million in the third quarter last year. Cash flows from operations was $40 million in the third quarter, a $26 million decrease over the same quarter last year. AFFO was $1 million compared to $21 million in the same quarter last year. This decrease is due to the recognition of the provision for the feed-in premium contracts mentioned earlier. Our financial position is very solid with our net debt to total market capital ratio of 35% on September 30, 2022 compared to 48% on December 31, 2021.

In conclusion, the decrease in the third quarter EBITDA is attributable to the provision recorded following the key adoption of the 2022 Supplementary Budget Act in France. We continued to make constant progress in the project pipeline and to transition projects in the ready-to-build phase. We have significantly accelerated our development in the energy storage, and we are in a strong financial position to finance our disciplined growth. Finally, the evolution of our finance management model will allow us to be even more agile and closer to our key markets.

Thank you for your attention. We are now ready to take your questions.

[Operator]

[Operator Instructions] We are now going to proceed with our first question, and it's from the line of Nelson Ng from RBC Capital Markets.

[Nelson Ng, analyst]

My first question relates to France. Can you just run us through, again, the various buckets of exposure to the merchant power price? Like obviously, the big uncertainty you have now is that 200 megawatts or 201 megawatts. And then, I think, starting in October, you have -- is it close to 300 megawatts of projects you've canceled, and then you also have projects that you'll be completing this year, but can you just run us through some of those buckets?

[Patrick Decostre, executive]

Yes. The first one, as you mentioned, is 201. This is CFD contract, and this is the one that will be affected and for which we have taken the provision -- the mentioned provision. Then we have 326 megawatts, which is early termination of contract for which we have signed a contract with a utility to sell the electricity at higher price for Q4 next year and 2024, not 100%, but something like 90% and 60% or -- 80%, sorry, for 2024. So this is contracted, and the remaining is purely merchant. And then, we evaluate that today the purely merchant due to project under commissioning is roughly 5% of total installed capacity of Boralex. So... 123 megawatt total merchant. So that's our exposure to the market.

[Nelson Ng, analyst]

So 201, it's the 126, and then is that 123 part of the 126 or 123 is a [indiscernible]

[Patrick Decostre, executive]

Three buckets, the 201, 326 and 123. And within the 326, there is roughly a 10% going to a 20%, which is merchant exposed yet today. And there is a 90 -- respectively 80% for 2024, which is already contracted with a counterparty at a higher price, then we contracted that during -- when we received the confirmation later during the summer.

[Bruno Guilmette, executive]

Nelson, if I may, I just want to add a comment on that, just to make sure we are good. For the 201, okay, this is the volume for which we took the provision in Q3, so you should expect that in Q4, we'll do the same as we did in Q3. So meaning that we will register the revenues, but we will reverse it immediately after, unless we get the threshold published by the French government. So there is no upside there.

For the 326, this is, as Patrick mentioned, volume we exited for and we re-contracted. Just to be clear on that, right now, there is a law in France, proposed law suggesting that this would be capped at EUR 180 per megawatt hour with the possibility to modify the EUR 180 up or down by technology, up to EUR 80 up or EUR 80 down, okay? This will start according, again, to the proposed law on December 1.

And then, the third bucket, the 123 megawatts, this is pure merchant volume that we have. It's a combination -- it's mainly in France for the recently commissioned asset, but also a small portion of U.S. hydro. Good?

[Nelson Ng, analyst]

Okay. Good. And then, just on that 326 megawatts where it looks -- you mentioned that it's 80% to 90% contracted. So like are you contracting at rates that are above the EUR 180, so you'll get capped out? Or are you trying to lend and extend and trying to kind of reduce the power price but extend the term?

[Patrick Decostre, executive]

Today, it's contracted at higher price than EUR 180.

[Nelson Ng, analyst]

Okay. So it's higher price for short-term?

[Patrick Decostre, executive]

Yes. For the next 5 quarters, it's higher price.

[Bruno Guilmette, executive]

That's why I mentioned, Nelson, that this volume starts like in 1st of October. But the law, the proposed law in France is EUR 180 cap starting December 1, up to the end of 2023. So that's what's proposed. So before that, it should be good. And this law is currently in revision by the Senate, and we're waiting to hear more from that.

[Patrick Decostre, executive]

Yes. Could be quick, because just, again, it's very specific that the government -- the French government used at the [indiscernible] the fast track system. This fast track doesn't exist for the Senate. So it's under review by the Senate Commission. Then by the Senate, then if there is difference, there will be a mixed commission between Senate and Assemblee Nationale, so like -- I don't know, 3, 4 weeks maximum.

[Nelson Ng, analyst]

Okay. And then, just one last question here. So is there any -- is there a risk that -- like is there any overlap between the 201 megawatts revenue sharing versus the price cap? Like, could those 201 megawatts be potentially hit by the price cap starting in December and then also be subject to some additional sharing with the government?

[Patrick Decostre, executive]

No. No, I don't think so. I don't see any possibility that there is a double risk on this.

[Operator]

The next question come from the line of David Quezada from Raymond James.

[David Quezada, analyst]

Maybe I can start just with 1 quick confirmation. I believe you said, of the 326 megawatts in the early termination bucket, the contract that you signed starts effective October 1, '23, so Q4 '23 and extends for 5 quarters to the end of 2024, and that was 90% of that 326 for the contractors.

[Patrick Decostre, executive]

On 1st October 2022, it already started. And when I was saying the 5 quarters, it's including Q4 2022. We have signed -- we have also defined 80% -- defined the price for 80% of the expected production in 2024, but it's under the EUR 180 cap -- potential cap. And can I remind you, it's pay as produce contract. That's also important.

[David Quezada, analyst]

Excellent. Okay. Great. And then, maybe just on the provision, and I guess the potential threshold price. Is it fair to say you basically took kind of the most conservative stance you could with reversing basically all of the excess revenues or taking provision for all of the excess revenues? And how much variability do you see in the potential threshold price? Like do you think that there's a chance that some of that provision would get taken out eventually?

[Bruno Guilmette, executive]

So David, thank you for the question. Yes, we have been -- we have taken or reversed all the revenues for that bucket, the 201 megawatt that Patrick mentioned. So we've taken the most conservative approach. We don't think there's a lot of upside related to that position given this was presented by the government. It's sort of going back to the intent of the contract or the initial contract. So we believe that we're conservative, but at the same point, also not far from -- even though there's -- we're still waiting to hear what this additional price adjustment price will be.

[David Quezada, analyst]

Okay. Fair enough. And maybe just one last one for me on France. When you think about potential improvements or, I guess, acceleration of the permitting process, and I realize maybe you don't have all the details yet, but I'm just curious like what would you be hoping for? How much quicker could projects start to be permitted compared to where they are now?

[Patrick Decostre, executive]

Typically, there are not yet a decree or something paper, but there was what they call a silky layer. So a letter from the environmental -- the Minister of Environment through the preferred people were issuing to say that all the administration should be quicker and take that into account. There was also a new decreasing that putting some limit in terms of the delay of instruction by the Court when there is a recourse. They also suppressed in the past, there was 2 potential recourse at the beginning. You have 2 months to make a recourse directly to the preferred and 2 months to go through the Court. No, you have to go to the Court directly. So this is eliminating a 2 months delay, which was used by every opponent to file at the last day of the period. So what I expect is, they really need energy very quickly. So they really need to accelerate.

There was also a letter last Friday from the Minister to see if we can reduce curtailment of production due to noise or any other curtailment, we should do it during the winter because we really need power. So it shows you how much friends is needing energy. So I cannot say you a precise delay reduction. But for sure, all the civil servant would be aligned and understand that they will serve the country by accelerating the things. And on the other side, the value for the end customer in France is really important because the contribution of wind evaluated for next year is minus EUR 13 billion reduction cost for the end customer of his invoice, and almost EUR 3 billion -- EUR 2.75 billion from solar. So this is a real clear tipping point also in the mind of the people in the street, and politicians should follow that.

[Operator]

We are now going to take our next question from the line of Nicholas Boychuk from Cormark Securities.

[Nicholas Boychuk, analyst]

Just first on France, a little bit of additional clarification. The 25% of PPAs that you early canceled this quarter, does that now represent all of the contracts that are exposed to the FIP dynamic or are there other existing projects that might have this play through in their Q4 results?

[Bruno Guilmette, executive]

So to clarify, the 25% you're referring is 25% of production -- French production, that's what you're referring to. So that's 326 megawatts of capacity.

[Nicholas Boychuk, analyst]

Yes, the ones that you early terminated for this quarter, does that represent all of the contracts you have?

[Patrick Decostre, executive]

Yes, okay. 326?

[Bruno Guilmette, executive]

Yes. Okay. We're talking about the same thing. I just want to make sure we're talking about the same.

[Patrick Decostre, executive]

And contracts are -- we have when we received the termination confirmation from EDF, which was the main counterpart, between beginning of August and September, we have taken like a position, but it's not exactly positioned because, as I mentioned, it's not volume guarantee, but we have fixed the price for 90% of the expected production in Q4 this year and next year. So this is no more exposed to the variation of the market today, but this has taken the benefit of the high price of the forward market in end of August and September.

[Bruno Guilmette, executive]

And this is assumed to have all the volume that we were expecting to terminate early if there's no additional volume at this point.

[Nicholas Boychuk, analyst]

Okay. Perfect. That's helpful. The additional measures that were announced by the French government as well regarding the 18-month window for selling power at spot rates after signing new PPAs, inflation protectors and then also the ability to potentially increase capacity by 40%. Can you please walk through what those might imply for your near-term French developments? What could be read through on additional capacity or improvements to contracts for those?

[Patrick Decostre, executive]

Yes. Essentially, the first, which is not -- again, it's a confirmation by the Minister, but it's not yet in any law, but it will come is the 18 months. This is the very quick impact because we have built and put in service during the last months, [indiscernible], Louville, Bougainville. This was a different project. We are building Moulins du Lohan, Mont de Bezard, Pays D'othe, Bassigny, Caumont, and all these projects will benefit from these 18 months. So this is what will be exposed in the future months through the market. And we do not -- what is discussed presently is that these 18 months will be an exception to the EUR 180 per megawatt hour cap.

Because the idea, the philosophy of the French government is to say, okay, we don't want that the existing assets are benefiting too much from the market. You have to do your business plan from what you expect when you take your investment decision. But for future projects, they are really incentivizes to accelerate the installation and further the development of projects. Typically, we have work with Vestas to accelerate Moulins du Lohan and Mont de Bezard. It will be a question of potentially 1 quarter of acceleration. But 1 quarter with the high price and if it's not capped, will be a lot of money on this project. And this is a way to partner with the supplier and have a little bit more exposure when is the right time to have merchant exposure.

[Nicholas Boychuk, analyst]

Excellent. That makes sense. And the potential to increase the capacity by 40%, am I right to think that you could?

[Patrick Decostre, executive]

Yes, that's a more tricky one because you have to take into account the potential technology increasing. We have -- and then, you have to take into account the environmental impact assessment because in France, it's not possible, for example, to put plates which are 5 meters longer without -- or if it's significant, I don't know if 5 meter is probably not the right example. But if you need to typically increase the tip height of the turbine or make something which is significant, it's not easy. So we are -- for this precisely, we are waiting from the government details of the new regulation that they will put in place. But they will -- I think they will do something. And I think, my point on that and my intuition on that is the letter sent last Friday from the Minister to EDF to say, please, try to decurtail any potential wind turbine in France because we really need energy and power for the winter, which is coming.

[Nicholas Boychuk, analyst]

Okay. Understood. And switching gears to Ontario. Can we please get a little bit extra color on the battery energy storage opportunity, specifically how you source those 600 megawatts, what the plan is to develop them and roughly what your expectations are in terms of production revenue, contract type, et cetera?

[Patrick Decostre, executive]

Yes. Actually, we restart development in Ontario 18 months to 2 years ago, because we were expecting that one day or another, there would be a need of power, and there will be, in the near future, a need of energy too. So we start working around the project we have and in the municipality we already know and with the indigenous community, we already know in Ontario. So we have -- the point is, we have identified the place in the Ontario system grid where storage is the most needed. And then, I published a list to say to the competitors, the contenders, this is the place where we need to be. And Boralex was -- I have to say that our people has done the right word before because we have the right land to bid. This is 20-plus years contract. It's not yet totally defined, could be from '22, '23 years with the ISO essentially capacity payment. So a very stable contract.

And there will be some merchant value also but I will not go into these details because this is potentially a little bit too commercially sensitive if I give you figures. Competition will be high, but the good point is that we have the right land next to really next to the right substation. So this is one point. We can do point with municipality support. We can do point with indigenous community. And on top of this, I think -- and the information from the federal government, and we have to think how we will take that into account because the bid is due for end of January from the information I have today. So we will have to think about the way the 30% tax credit will apply today's project.

[Operator]

We are now going to proceed with our next question and it's from the line of Rupert Merer from National Bank.

[Rupert Merer, analyst]

Following up with another question on Canada. You mentioned the Apuiat project there, and it could benefit from the Canadian tax credits. Can you give us a sense on how that project is progressing? What do the economics look like with inflation and interest rate increases? And maybe how the tax credits could help and how soon you might be able to move this to construction?

[Patrick Decostre, executive]

Yes. So the project is progressing well. We have still good returns on the project. We are advancing in our discussions and contractual negotiations with different suppliers. And yes, clearly, there has been inflation since we first talked about and started the project, but we have been able, given our agreement with [indiscernible].

So given our agreement with HQ and our turbine supplier, we've been able to increase the size of the turbines and increased production, so maintaining healthy returns on that. We don't have enough details on the 30% to-date to know exactly how it could benefit on this project, but we're hopeful it will. But at this time, I think we'll just hold our calculations until we have more details from the government.

[Rupert Merer, analyst]

Great. And then, secondly, back to France, I realize there's more information coming soon on the French government policy. But what do you think we could see on upcoming RFPs for wind and solar in terms of the size of those RFPs and where pricing could land relative to the last few calls?

[Patrick Decostre, executive]

Yes. That's a very good question. And that's one of the reasons I mentioned in my speech that 2 of the projects that will go to the growth, we are moving to ready-to-build, Cruis and Helfaut or contract with a corporate PPA. I think we have to see the RFP -- governmental RFP as -- I don't know if it's the worst case, but something like this because there is so much demand from commercial counterparty for long-term PPA at higher price than what is the case. So we are switching some projects to the corporate PPA.

And the main question in France is not the size of the RFP, it's the number of project authorized. So this is really where the government will really implement an acceleration of the process of authorization coming back to the David question, I think, and this is where they can accelerate development and the price will not go back to $60 for a long period. That's my guess due to inflation due to also the demand -- supply and demand balance or unbalanced between the number of new projects ready-to-build and the demand from corporation. Because corporations are ready to sign because they have like a big wake-up call with the present situation. And they say, we don't want to have this -- when the new fossil fuel crisis will come in, I don't know, many years. We don't want to be exposed to that, and then we want to sign a contract with renewable. So that's typically where we are in France and in the U.K. presently.

[Rupert Merer, analyst]

So permitting still the, let's say, the main hurdles of getting projects built, how about the supply chain? Is that easing up now? Are you getting access to the equipment that you need?

[Patrick Decostre, executive]

Yes. Presently it does not change really from the last quarters. As I mentioned, we have to take our investment -- when we take our investment decision, we have to go quickly. What we are doing is typically when we are signing a contract with a turbine supplier, we put like a 10% down-payment at risk before finalizing some other points. In the past, we were waiting the financial close of everything. No, we are taking a little bit more risk, but I think it's the right way to go for Boralex. It's not a big risk. And then we are able to freeze the price and the delay specifically. So we have some contracts under negotiation to close them quickly in November or December and not be exposed to any new change. So the investment basis for the project will not change.

[Operator]

We are now going to proceed with our next question, and the question comes from the line of Mark Jarvi from CIBC.

[Mark Jarvi, analyst]

Just on the feed-in premium contracts, the 201 megawatts, that supplementary Budget Act, is that for the whole duration of the contract? Or does it have a finite time where the -- I guess, the pricing sharing cap expires?

[Bruno Guilmette, executive]

No. There is no limit, that's for the duration of the contract.

[Mark Jarvi, analyst]

Got it. And then, coming back to the Apuiat project and the projects you plan to do with Hydro-Quebec and Energir, and just I know it's early days on the tax credit. But given you've already got some ideas on the contract price and probably debt capacity, is it possible that the equity contribution for Boralex would be very minimal and the returns would even be higher here with these tax credits?

[Bruno Guilmette, executive]

If it's applicable to these projects, it will certainly help the return, that I can say for sure.

[Mark Jarvi, analyst]

Is there anything in the contracts that would...?

[Patrick Decostre, executive]

Yes. Go ahead, Bruno.

[Bruno Guilmette, executive]

Go ahead.

[Mark Jarvi, analyst]

I was just going to say, is there anything in the contracts where you would have to share that or there be a price adjustment in the PPA term given the sort of tax credit benefits to you?

[Patrick Decostre, executive]

No, there's no such provision.

[Mark Jarvi, analyst]

Okay. And then, just now with the Inflation Reduction Act passed in the U.S. here, just updated views on the New York solar projects in terms of how those are shaping up, domestic content requirements and your eligibility here to capture all the ITC and expectations for returns on those projects?

[Patrick Decostre, executive]

Yes. We're clearly -- we continue to optimize this project, and there is a clear conversation not only from us, but from all the awarded parties for a modification of the offtake price with NYSERDA. It's clearly easier with corporations than with the government body in terms of moving ahead quickly. But the conversation is with -- we're speaking about gigawatt we're discussing with NYSERDA. So I think Boralex would be in this. And so we are discussing with panel suppliers to be sure that we -- when the price will be adapted on the offtaker side, we are able to close on the other side. And we are waiting for the final -- so the implementation of the IRA also. This is an important subject to finalize this project.

Confident that we will finalize them one day or another, but we need the new -- the implementation of the IRA and we need something from NYSERDA, the good news is that the governor is reelected in New York, so that's also something important.

[Mark Jarvi, analyst]

And with the expectation that, that would be sorted out next year and therefore a number of those projects would come into the secured project list in 2023, not for commissioning, but just...

[Patrick Decostre, executive]

The answer is yes. The investment decisions, I expect that we will take them in the next 12 months.

[Operator]

We are now going to proceed with the next question, and the questions come from the line of Sean Steuart from TD Securities.

[Sean Steuart, analyst]

A couple of follow-up questions. With respect to the Ontario storage opportunity, is the intent to bid all 600 megawatts into this January RFP or do you have visibility on how future RFPs are going to unfold? Any context you can give us on the bidding strategy there? And where you envision returns for these projects with an ITC hitting versus your traditional renewable return opportunities?

[Patrick Decostre, executive]

Yes. What they call the expedited RFP is for, there is 2 points. There is a 600-megawatt nonbattery storage and a 900-megawatt battery storage, plus anything left from the first 600, okay? So it's a little bit complex. And today, there is a maximum of 600 megawatt awarded by any proponent. This is the reason why we limit our pipeline to 602 because I don't want to. But the answer is yes, there will certainly be other RFP for storage in Ontario in the future, there would be also RFP for energy that would be needed.

In terms of the detail of our bidding strategy, I will not give more details today, but we are working seriously on this project on every point of the rules to make it.

[Sean Steuart, analyst]

Okay. And back to France. On the 326 megawatts with early termination, you're opting for this shorter duration solution with the midsize price turns. What's the thinking on the longer-term approach there once the shorter-term approach you've taken expires? Do you look at locking in longer-term economics as this unfolds? Do you wait for this contract to expire? How's the thinking evolve there?

[Patrick Decostre, executive]

Yes. We have -- one day, first period will end up, and we have the possibility within our contract to be protected for 2025 and 2026. We have not defined high percentage or fixed high percentage because the curve of the electricity price was in backwardation too much from our view. So we will remain exposed for this project, but we have different options. We can sell them to the same counterparty. We can also sign a long-term PPA with any corporation that will come to us, and we have many demands, as I mentioned. And we can keep also a little bit more market exposure. So this will be really looking to the global Boralex portfolio. And also some of these projects have repowering opportunity too. This is not put on the back burner too much.

We are continuing to have the possibility to repower, to really increase the size of this plant. And I think that will be also an interesting opportunity if we can. We have one site where we have 39 megawatts, and we have applied for 80 megawatt. This is just an example. But on some project, repowering can be really significant. And I think in the context of France, which is really needing -- requesting a lot of power for the next 10 to 15 years, and there is no possibility that nuclear will bring that. So I think the easement of the rules of authorization will help us also for repairing. So different options.

[Bruno Guilmette, executive]

Maybe I'll -- just as a reminder, the contracts of the 326 megawatts we're talking about, just a reminder that these were 4 years or less maturities in those contracts. These are the only ones we terminated. We still have a number of contracts out there. What this demonstrates is the ability for us to have options in terms of -- depending on the outcome of different amendments so that the government is putting forward, we'll see in the future whether we have other contracts that we could also decide to terminate or not. But the point is, we have flexibility and options and we have other contracts where we could see if it makes sense. And the only ones we terminated were those coming to maturity in the next 3, 4 years.

[Operator]

The next questions come from the line of Ben Pham from BMO.

[Benjamin Pham, analyst]

Back to 326 megawatts. Did you have to pay down the project debt in Q4? Or has it been pushed out given the new 1-year contract?

[Patrick Decostre, executive]

So your question relates to the contracts terminated?

[Benjamin Pham, analyst]

That's right.

[Patrick Decostre, executive]

No. So we essentially are sharing some of the economics with the lenders when we finalize those economics, so sharing in terms of additional payments or reducing the debt. So it's not -- it's going to be depending on the outcome, and it's going to be a portion of that's going to be reducing the leverage.

[Benjamin Pham, analyst]

Okay. Got it. And then, in your presentation, you also have the corporate credit rating still in progress. Anything notable to last quarter on that progress?

[Bruno Guilmette, executive]

We're still working towards that. As we mentioned, it's a 2025 objective. We have, as I mentioned, a strong financial position. We're looking at also opportunities on the M&A front, and we have large projects that are coming, as we mentioned. So we're putting all of this in the context of today's world and deciding where the best opportunities. But we're confident that we'll be able to reach that investment-grade rating. And as I mentioned in the past, not to the detriment of our growth, but we're confident we can achieve both growth and the investment-grade rating.

[Operator]

We are now going to proceed with our next question. The questions come from the line of Naji Baydoun from iA Capital Markets.

[Naji Baydoun, analyst]

Just on the yet-to-be-determined price threshold in France. Maybe you can just help us a bit more there. I know you said there might not be a lot of upside and unlikely that you reversed these provisions. But what was the realized pricing, i.e., year-to-date basis, so that eases? And then, how do you compare that maybe to the price cap or where you expect the threshold to be?

[Patrick Decostre, executive]

Not sure. Just the philosophy of the French government behind this is to say, when you have taken your investment decision, you probably -- and as you probably expect that the price curve will not go over the strike price of the contract for difference for a long period, okay? So that was -- that's true, okay? And so they say, as I mentioned, they want to incentivize new projects, and they don't want to give windfall profit to existing projects. And so that's the reason why when we read that in detail, we say, okay, we cannot expect to have EUR 150 or EUR 200 per megawatt hour threshold. We will potentially have something which will may be higher than the contract price, but not so much. So this is where the upside is not so important, and this is the reason why we have taken this prudent position to -- and maybe Bruno, you want to add something on that?

[Bruno Guilmette, executive]

Yes. We essentially rolled back to a very close, if not at the contract price, in our assumption, based on Patrick's comments.

[Patrick Decostre, executive]

Maybe just a point to add also on that is that we made some sensitivity analysis. And if, for example, the price or the threshold is slightly higher, let's say, below the 100, the variance is not that big either. So you should not expect a big amount there if there is one.

[Naji Baydoun, analyst]

Okay. Okay. Got it. Just wanted to ask on Limekiln. So I guess, you've taken FID on the project that's positive this year. I'm just wondering if you can give us a bit more detail on the contracts that have allowed you to move forward with Limekiln. Any details on counterparties or tenure or anything that what would be helpful.

[Patrick Decostre, executive]

Yes. It's utility PPA, it's not really a corporate PPA. So it means that it's with a big company. I would not give you -- there is a part of the price, which is -- the majority of the price, 3/4 of the price would be fixed and that would possibly have a merchant part, and we have options to fix it. So this will also open possibility to make upside but also protect us if we want. And it's a company with the credit rating, which is easy to finance the project after that. So that's the reason why we go ahead. And the site is, every planning condition has been the word used in the U.K. is discharge. Connection is underway to be available in 2024, which is very important for a project in the [indiscernible] of Scotland. And we are finalizing the last conversation with the different turbine suppliers who have acceptable offers on this site, and we will be also protected from inflation because we want to close that in the next weeks.

[Naji Baydoun, analyst]

Okay. That's great to hear. Well, look forward to more details on that. So just one last question for me. If you can give us a bit more update on the outlook for M&A. As you've said, you've got the capacity to make acquisitions and you'd be looking at some deals. Maybe just an update on how many deals we've looked at, what's come across through this, and what's most interesting for you today? And just very, very briefly, you still expect to announce FID on the [indiscernible] projects in Quebec next year?

[Bruno Guilmette, executive]

So I'll start with the first question on M&A, and I'll let Patrick answer on the NASH. So on M&A, we're seeing a good number of opportunities, both in North America and Europe. We're looking at a few serious ones on both sides, maintaining our return and expectations that we've given in the past. It's actually -- I mean, this volatile environment is creating more opportunities, I think, and valuations are starting to be a bit more reasonable. So I think it bodes well given our cash position for us to make accretive acquisitions and also to look at development portfolios in the near future.

[Patrick Decostre, executive]

And on the NASH, maybe some information, the work with turbine suppliers is progressing. It's the project which create a lot of interest from turbine suppliers, which is a good news. We are trying also to work to create value on the project because, as you know, it's a very windy site, but it's a very icy site some time, but we know the site very well. So we are working to optimize the right turbine for every place within the site.

The work also with Hydro-Quebec as a counterparty as the offtaker of electricity is also going well. So that's also -- they are really highly motivated to buy the electricity and to continue. And within that, the consultation of the different stakeholders, including indigenous community in this area, municipalities are progressing in the right way too. So it's also something which is going well. A lot of work, but it's going well.

[Operator]

We are now going to proceed with our next question. It's from the line of Nelson Ng from RBC Capital Markets.

[Nelson Ng, analyst]

I just had a quick follow-up on the question that Mark Jarvi asked. In terms of the discussions with NYSERDA on some of the solar projects, can you just clarify, does this relate to the 180 or 200 megawatts of solar that you have in the secured projects? And are you essentially looking for some type of an upward adjustment to the contract price next year before you can hit FID and move forward with those projects?

[Patrick Decostre, executive]

Yes, the answer is yes. A lot of -- many players are discussing with NYSERDA because due to inflation and the constraint on panels, also projects are less -- they are not uneconomic, but they are not reaching the right threshold today. And so we need 2 things is the implementation of the IRA and on the other side is that NYSERDA take into account an increase of an adaptation due to inflation potentially between the bid time or the award time and to date. So that's where they want to go. There was an election yesterday. So nothing was really possible before that. The line is open. The conversation is not just with Boralex and so I'm also confident, as I mentioned to Mark question, that the investment decision would be taken next year.

[Nelson Ng, analyst]

Okay. And then just one last question, big picture, given that rates have moved up. Like when you bid these projects or bid on future projects, have you moved your, I guess, required return up by, call it, 2%, given the interest rate move higher? Or are you -- or like are you targeting -- I think in the past, you were looking at 8% or -- 8% or 9% ROE, but has that moved up in line with inflation or interest rates?

[Bruno Guilmette, executive]

Our general indication stays the same. It was 8% to 10% essentially. We believe we can maintain those returns. And we are adjusting our guidelines in terms of inflation. So we certainly are taking into account those additional costs, those additional interest costs, for example, and generally building costs in our modeling, but essentially are maintaining our equity returns the same, but the -- so we're not increasing the risk premium, but we're adjusting for costs.

[Operator]

We have no further questions at this time. I'll now hand back the conference to Mr. Stephane Milot for closing remarks.

[Stéphane Milot, executive]

Thank you, operator, and thanks, everyone, for all your good questions and for your attention. So if you have any additional questions, please call me at 514-213-1045, and I'll make sure to quickly answer your questions. So our next conference call will be on Thursday, February 23 of 2023 at 11:00 A.M. to announce full year results and fourth quarter results. Thank you. Have a nice day.

[Patrick Decostre, executive]

Thank you.

[Bruno Guilmette, executive]

Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.