Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2020 First Quarter Results Conference Call and Webcast. [Foreign Language] [Operator Instructions] I would like to remind everyone that this conference call is being recorded.I will now turn the conference over to Karine Vachon, Communications Director. Please go ahead.

[Karine Vachon, Senior Director – Communications]

Thank you. 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 Home page of our website at www.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. Forward-looking information contained herein is made as of 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.Our speakers today will be Mr. Jean-François Neault, Chief Financial Officer, who will present Q1 results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our operational highlights and our Q2 priorities.I'll now turn the conference over to Mr. Neault.

[Jean-François Neault]

Thank you, Karine. Hello, everyone. The variation in our first quarter results over the same period last year stemmed mainly from the commissioning of the Phoebe solar project in November and the Foard City wind project in September. Production and revenues were up 28% and 5%, respectively. Adjusted EBITDA was down 3%, while production proportionate, revenues proportionate and adjusted EBITDA proportionate were up by 24%, 11% and 9%, respectively. Before going further, I'd like to stress that 2019 figures are reported on a continued operations basis, which excludes HS Orka.On Page 8, production for the 3-month period ended March 31, 2020, was 28% higher due mainly to the contribution of the Foard City wind farm and the Phoebe solar facility commissioned, respectively, on September 27, 2019, and November 19, 2019, and to higher production in France. These items were partly offset by lower production at Québec wind facilities. Contribution from Foard City and the France wind farms were offset by lower production at the Québec wind facilities. In hydro, lower average price and lower production at some Québec facilities more than offset higher revenues in BC.On next page, adjusted EBITDA decreased by 3% due to the lower contribution from the wind segment, where lower contribution from the Québec facilities entirely offset higher contribution from the France facilities and the Foard City project in Texas. This decrease was partly offset by the solar segment due to the commissioning of Phoebe project in Texas. The 9% increase in adjusted EBITDA proportionate comes almost exclusively from the 10.9 million PTCs generated by the Foard City wind farm following its commissioning. Here, let me remind you that production tax credits of USD 25 per megawatt hour generated by the project is recorded as other revenues under IFRS and are applied as a reduction of the long-term debt since the tax equity funding was characterized as such under IFRS instead of noncontrolling interest.Now continuing on Page 12. The $418 million decrease in long-term debt is mainly due to the net repayment of $466.1 million of the corporate credit facility from the proceeds of the investment by Hydro-Québec and Innergex common share, scheduled principal repayments on long-term debt and tax attributes allocation partly offset by unfavorable foreign exchange rate.On the next page, changes in the total assets stemmed mainly from the increase in property, plant and equipment due to Hillcrest, the weakening of Canadian dollar against the U.S. dollar and euro and the decrease in derivative financial instruments, mainly related to Phoebe power hedge and basis hedge. Change in total liabilities stemmed mainly from the decrease in long-term debt. The change in shareholder equity is explained by the private placement of 34.6 million shares from Hydro-Québec.As shown on the next slide, the free cash flow available for distribution has decreased by $27.6 million on a trailing 12-month basis. The adjusted EBITDA on a consolidated basis remained relatively flat despite the acquisition of Cartier and the commissioning of 2 new projects due to lower generation from unfavorable weather conditions. This fact, combined with the increased debt service payment in the trailing 12 months ended in first quarter 2020 compared with the trailing 12 months ended first quarter in 2019, in part due to a payment holiday in Q4 2018 on the new Cartier financing, contributed to the decrease. The decrease were partly offset by the decrease in free cash flow attributable to minority interest and by the onetime recovery of maintenance CapEx, both stemming from the HS Orka disposition.On next page, we are proud to announce that we have closed on May 7, 2020, the Hillcrest financing. The total construction costs are estimated that USD 279.5 million and will be partly financed through a USD 82 million construction term loan and a USD $109.8 million tax equity bridge loan provided by a group of lenders. Innergex will fund the remaining USD 87.7 million equity commitment. At commercial operation, a lender will provide the tax equity investment to be used to repay the tax equity bridge loan.On that note, I will give the floor to Michel for the operational review of the past year or the past quarter. Thank you.

[Michel Letellier, President, CEO & Director]

Thank you, Jean-François. Good morning, everybody. If you go to the Webex, we're going to start with the corporate development. Obviously, a busy first quarter, the first very positive aspect is our strategic alliance with Hydro-Québec. Very proud of being a partner with Hydro-Québec, and we'll talk a little bit later what would be the benefit. But it definitely helped in the precrisis to have this injection of capital. It put us into a very solid capital position, and we will be taking advantage of these favorable liquidity in order to take opportunity down the road. We'll come back to those. So thank you, again, for this great potential partnership, not potential, but the partnership with Hydro-Québec. I'm very, very happy.Of course, the first quarter was busy given the COVID-19. As you all know, we're in the middle of the crisis. We're very, very thankful that our industry has been put into essential services. So that means that all our plant have continued to produce the electricity. And I'm very thankful for all of our employees that have been very proactive and resilient in their ability to sustain our operation while this crisis was unfolding. We also had all our employees in the office working from home. And a big thanks to our IT teams that put together the system and provided all the equipment and the formation for these people to be able to be efficient at home.I must say that it changed the way I see the work from home. I was a little bit skeptical at the beginning, but boy, it shows that we could still be quite efficient. And again, we've been able to produce all the financial documentation and all the audited financial statement for all our subsidiary. So a big thanks again for the employees that have worked hard and given the circumstances, not so easy also working from home with the kids that are around. So I'm very thankful for all the employees being so dedicated, and we are looking forward to continue this situation for a while. Our policy is not necessarily to rush people to the office. We want to make sure that we're going to take our time and that when people are going to come back to the office, it will be safe and efficient to do so.Again, our electricity is sold under long-term PPA. So we have confidence that these PPA will be honored by all our customers. We are thankful for this situation as well. Now we're also very mindful of the distress that this crisis has created also in some area. We have initiated a campaign to support some of the initiatives that local community have brought forward. And we have also worked with our communication team to redirect some of our economic commitment that we have done in the past, but maybe having a little bit of a different angle to make sure that these money would serve to take care of the urgency that the crisis has created. So again, we're very, very thankful for being in the industry that we are, but we're also mindful that others are suffering, and we want to share and be a good corporate citizen.So if we switch the other page, the operational highlight. We have continued developing our 2 projects in Hawaii. And as you've seen yesterday, we're really pleased to be selected for final negotiation on the PPA. I just want to make sure that people understood it, the same system as the last RFP. So we have to sit down with the utility and finalize the language behind the PPA, but we have won the right to sign those PPAs. So typically, it took about 3 months last year to finalize the PPA. So I imagine this year will be similar.But given the fact that these -- the last RFP was the first of a new wave of PPA having solar and battery together. So it was a little bit the groundbreaking around these PPA which, I guess, negotiated last year. So I don't see a big issue this time. I think that the PPA we have negotiated or the industry or the player had negotiated last year should be the base to basically negotiate the one that -- the new ones.So pretty happy in the sense that we have said, and we'll reiterate that later on in the presentation that batteries' storage is very important for us in terms of strategy. And we have now 80 megawatts in development in Hawaii. And we also have a 9 megawatts in France that we have won with RTE. So it's -- we're getting very close to 100 megawatts of development for battery. So it's a beginning. I think that we are going to see a lot more activity in that sector in our industry.Also, we have finalized the documentation and the negotiation for the Yonne II extension. Not a big project, like I said yesterday, but it's the first one of, hopefully, a lot in many new projects in France. It was developed by our team in France. So it's a 3 turbine, basically that we are going to put into our existing Yonne facility. And also it's the same substation where we are going to install the 9-megawatt battery. So this is basically the first project that we could develop or have the opportunity to put into construction in France. We were planning to start a little bit earlier this spring, but given the COVID-19 crisis, we are expecting to break ground somewhere in June, and still hopeful that we could finalize by the end of 2020. But to be a little bit more conservative, we're calling COD for 2021.On construction side, we have been very active in Hillcrest. As Jean François mentioned, a big win is our ability to have finalized the financing. I must say that it was not an easy process, given the fact that we were doing it in the peak of the crisis. And of course, a lot of questions from the independent engineer came up on our ability to deliver the COD by the end of the year. But I'm very proud of our team, construction and engineering team followed the independent engineer question. And we were proactive also to secure some components that might have been put into a waiting list. So we have secured all the supply, the panel and all the other supply needed to finalize the construction. And we're very optimist to finalize this project by December this year.In Québec, the small project, the Innavik, the small project hydro facility in the North is a little bit more complicated in a sense that the area is very remote in terms of -- it's an area where people are isolated. And the government has closed this area so we don't know exactly when we will be able to start construction this summer. We might be able to go and start slowly by the end of the summer. But of course, we will be following the government guidelines in order to go and start being in that area in traveling. And of course, we want to make sure that the village stay healthy.If we've switch page, what are we going to focus on Q2, of course, Hillcrest will be at top of line. We -- there's a full crew over there. We have roughly 150 workers on site. At the peak, we are forecasting something close to 300 people. So it's going to be a busy construction site. And the -- our contractor and our team of construction are making sure that it will be also a safe working places, given the guidelines by authorities regarding construction, but we're very optimistic that we'll be able to be efficient. And like I said, deliver the COD by December. We'll also, like I just said, we're going to start construction on Yonne, and we are going to use Enercon as the full EPC contract. We're about to finalize the contract and they should, like I said, start mobilizing on-site by June.In terms of development, we are, of course, working on our project in Hawaii. And the new one will also be at top of the list to start initiating all the permitting and the community consulting. It might be a little bit of a challenge consulting community given the COVID-19, but we'll be creative. And I'm sure that our team will be able to reach out the communities. We will -- we also are working hard on solar project in the U.S. We are working in Texas, as you know, but we have also said that we wanted to be present in Pennsylvania and Ohio.And I'm glad to report that we have now secured at least enough land to produce 2 projects in that area and PJM of at least 100-megawatt each. So the team has been a little bit slowed because of the COVID-19, but they will be working hard during the summer to expand these lands to make these projects a little bit bigger and perhaps adding 2 more projects. So the goal is to have roughly at least 4 projects in that area.We want to continue developing in France, wind and storage. Storage, you've seen that we have initiated the strategy by participating in the RFP for capacity in 1 9-megawatt over there. But also pleased to report that our portfolio in France is now around 300 megawatts. So it's roughly 50-megawatt addition since last year. The idea is to have 1 or 2 project available for RFP. And basically, we want to have a continuous evolution of 1, 2, perhaps eventually 3 projects per year. France is a project -- not a project, an area that we want to spend a lot of energy. And the team is becoming more and more efficient. And we're hopeful that next year, we'll have 1 or 2 project to be permitted.Development opportunity in Chile. We want to develop and continue developing the hydro. The idea over there is to develop a portfolio, a mix of hydro, solar, wind and eventually also battery. I think Chile is a perfect place to install battery, given the fact that a lot of solar will be present in the future in Chile and solar/with battery, just like we're doing in Hawaii would be very -- I think would be competitive in Chile. So that -- this is also a big part of our development in Chile.I'd like to mention also the 2 acquisitions that we had mentioned when we announced the strategic alliance with Hydro-Québec has been put on hold while we were finalizing the financing with Hillcrest. We wanted to be prudent in making sure that the financing of Hillcrest would have been put together before expanding and spending the capital into new acquisitions. So we wanted to be prudent. Of course, when the crisis came out and some bad news regarding the economy with -- were basically announced, we just wanted to be cautious with our liquidity. I think now that the Fed and the Bank of Canada and the government are helping a lot with liquidity. I think that things have calmed down a little bit, and we have more clarity. So we have reengaged with the sellers, and we are quite advanced in our negotiation and due diligence. So we should be in a position to conclude these acquisitions in a very short period of time.If we go back to the strategy, the 2020 and 2025 strategic plan, we basically have had a consultation also with our employees. I think it was important to have them commit also and provide some ideas in our business. But the biggest conclusion is that we're not reinventing ourselves in a sense that we're still committed to be a renewable energy company. We want to stay into the same principle that have created the success of Innergex, but we want to evolve, and we want to embrace innovation. And I would say that storage and also the ability to communicate with corporate customer is very important, and it will be a big part of our future efforts for development. And when I say that, I say basically going into managing capacity storage for part of grids that might be weak or help stabilize some grids.And on that aspect, we're very, very fortunate to have Hydro-Québec huge expertise in that field. And we love to be able to take advantage of this expertise, where in the past, Innergex didn't have that knowledge of managing a grid or a smaller utility. So given the vast experience of Hydro-Québec, I think we will be able to be even better in that area, and also being able to help a big industrial customer to manage their energy by potentially having behind the meter some batteries and some software to manage their electricity might be also a very interesting and growing segment of our businesses.Of course, we want to grow, and we've been growing, but we want to do it responsibly. And we want also to continue to diversify our activity. So we want to have a portfolio of mixed technology. We love hydro, wind and solar and now batteries. And we want to make sure that we have a very well-balanced portfolio throughout diversification of both location and technology. And we want to embrace also innovation, but innovation is not only for R&D, innovation is also part of the day-to-day work in our operation. We want to entice our people to get more innovative in the way we are doing our businesses and the COVID-19 is a good example of being innovative and being able to create some work from home and being able to work with team and communicate efficiently. So these little things are eventually going to produce, I think, a better and a more efficient way to do business in the future.So on the -- and also in order to measure our success, we are changing a little bit the way we are going to give some guidance in our growth. Of course, megawatt will still be interesting and we'll report on the megawatt installed. But given the fact that we want also to have a lot of storage and batteries, then certainly some part of our business will no longer be measured by megawatts or megawatt hours in the same way. So of course, we want to grow our EBITDA, and we're maintaining a growth of about 10%. That 10% EBITDA will have to be translated also by cash flow and accretion of cash flow per share as well. And of course, the Board will be -- and the management will be focusing on that creation of value as well.We're still committed to create value in terms of total return for our investors. We always said that in our business, we want to create a spread over the Canadian bond or the U.S. bond, depending on how much proportion we would have in the U.S. So we're really mindful of that spread. And I always said that we want to create some value, some spread around 600 to 800 basis points, depending on the risk profile of our project and also on the market. As you've seen in the last few months, the spread on the corporate bond have moved from 200 basis points prior the crisis to a peak of 450 or close to 500. It's now back to 350 or something. So we're mindful of that, of course. It's giving us some ideas on where the market is in terms of potential return. So we always have that in mind as well.And in 2025, if we look back and we put ourselves in that position, I'd be happy if we would have developed a lot more storage capacity that we would have a few more good, long-term corporate customers. We would have expanded a little bit in market, in the neighborhood of where we are actually present, meaning Chile, we're in Chile, but love to be present also in Peru and perhaps Colombia and in Europe. We're very present in France, but that doesn't mean we can expand in Europe in a few neighboring countries.So basically, the same philosophy, long-term investment philosophy, also supported by our 3P philosophy as well as sustainable development and create value for our shareholders on a long-term basis and being a good corporate citizen.So on that, I would open the question period.

[Operator]

[Operator Instructions] Your first question comes from Sean Steuart from TD Securities.

[Sean Steuart, Research Analyst]

Question on storage as it becomes a larger piece of the overall strategy. Michel, can you comment on the economics and returns on storage investments versus traditional renewable development opportunities? And as you think ahead to 2025, what percentage of your overall mix do you think storage could be at that point?

[Michel Letellier, President, CEO & Director]

Well, it's storage, it will depend on different -- there's many opportunity in storage. You could try to do storage by taking risk on the volatility on the energy during the day period and the night. And so this part might be a little bit more, I would say, risky. And hence, returns should be higher. But what we want to also have is a mix of a long-term contract and long-term commitment. Like Hawaii, we get to have 25 years commitment from the utility. And they're paying us on capacity, basically. And so we have an annual payment that is obviously paid on a monthly basis. So those segments of the business will be very, I would say, very close to the business that we have been successful in the past in a sense that we're entering RFP, we're providing a service, and we're getting paid for it. Of course, for 25 years contract and having this security, return is going to be lower than the project that you would install a battery in a certain area, hoping to make the arbitrage between the daily volatility. So I don't see storage being very different in terms of return than the conventional business that we were in the past.And of course, we will have our partner, Hydro-Québec have a battery that they're developing, and I think that battery is very good and will be very useful. And we'll try to also take Hydro-Québec expertise, namely in the Northeast, that might be a good opportunity also. Hydro-Québec is being able to trade a lot in these areas and have a big and fine knowledge on the need to have battery in certain area in the Northeast. So these are type of opportunity we're looking.In Chile, it's just that in Chile, if we want to sign and be in a position to offer a long-term contract to corporate off-taker, we have to have the means in order to produce the electricity. And of course, solar will be a big, I would say, a big segment, a big growing segment in Chile. But what are you doing during the evening if you only have solar in your portfolio. So having a mix of hydro that has some storage capacity coupled with battery would provide us the tool to have a package being offered to corporate off-taker. And it'd be difficult to single out the return on the battery because it would be a portfolio approach. And each of the components would help provide the full services.But I don't think that we would be looking into different return. I always said that in our portfolio, if we're making an acquisition of a mature asset that is very well built and good long-term asset, the return -- the expectation of the return, except for special occasion or in the middle of a crisis, is supposed to be probably the lowest return. And theoretically, you would make the best return on your greenfield project that you're developing. So it's an -- we always see that as a mix. And the ultimate game is to provide this spread over the Canadian bond of 600 to 800 basis points.So your question is, I guess, it's a good one because it's beginning -- the storage is, I would say, is pretty new. And there's a few historical return and you guys are trying to figure out what is this profitability of that sector. But what I'm saying to you is that I don't think it will be very different from our businesses. Of course, some big utility might want to have a specific call for 1 battery and 1 location, and this is basically almost a call on supplying specific equipment. Those might be a lower type of return. Those might not be necessarily the one that we will be seeking. So we want to create value by bringing the storage, and we're not just selling a battery. We're trying to sell also a product that creates a little bit more value added to the electronics.

[Sean Steuart, Research Analyst]

That's great detail. Second question I have is, with respect to the solar in the U.S. beyond Hillcrest, the 200 megawatts a year you're targeting in Texas and PJM. It seems like tax equity access to that capital pool has not been compromised by COVID-19. Hoping you can provide a little bit of detail there. And just your thoughts on the general contracting environment for near-term solar development opportunities in the U.S., how that looks.

[Michel Letellier, President, CEO & Director]

Yes. That's -- well, it's difficult to make a long-term forecast for what the COVID-19 will have as full potential impact. But so far, you're right. We've had some very good relationship with the tax equity provider, and they've been supporting us through the financing of the Hillcrest. We're in direct contact with them in order to secure future commitment for other projects. So far, I think that there's maybe a few smaller players that will struggle to keep up the same pace as last year. So I think there will be perhaps a little bit of security in the tax or uncertainty in the next few months, I guess, before people get to have a better handle on the ultimate impact of this crisis. But so far, we're still confident. And of course, we have been able to provide a good project and good execution. And so I think it's important in the way people will be selecting project and promoter in the future.As far as the price, in Texas, we might see some softening on the price because of the demand might slow down a little bit. And hence, our desire also to be very active in PJM, where I think demand can be soft. But on the long run, I think that those area will be very favorable for renewable energy, and solar is very, very popular. So I'm still positive on the U.S. Like I said, we -- everybody, I think, is a little bit cautious on how fast the economy will recover, and hence, how fast the demand will recover. But remember that solar and renewable energy are more linked into switching from the coal or the nuclear also decommissioning. So even if the demand is low, in some cases, it may even accelerated the closure of non very efficient coal facility that might not even be able to compete anymore and hence, create a little bit more room for solar and wind to be present. So I know that I'm not answering exactly your question, but I'm trying to tell you that we're still confident. And we're seeing a lot of interest for these potential projects in the states.

[Operator]

Our next question comes from Nelson Ng from RBC Capital Markets.

[Nelson Ng, Analyst]

Just to follow up on -- can you hear me?

[Michel Letellier, President, CEO & Director]

Yes. Very well. Thank you.

[Nelson Ng, Analyst]

Okay. Great. Just to follow-up on Sean's question in terms of the developments in the U.S., could you just clarify, did you say there's 2 sites that are about 100 megawatts each for solar in Pennsylvania? Or were you saying they're kind of spread across Pennsylvania, Ohio and Texas?

[Michel Letellier, President, CEO & Director]

We have one in PJM and one in Ohio, and we have 3 in Texas. I think we've talked about Texas. So in Texas, we already have almost 600 megawatt worth of development. That doesn't mean that we will develop them all. But we were -- like I said, we were focusing on PJM, and PJM include Pennsylvania and Ohio because we want to be diversified. I'm mentioning it often. We like Texas in the sense that I think we have a good team there that can develop project and can -- we can build projects. But at some point in time, we want to have some limitation on exposure on different markets. And hence, if we develop this project, we might sell some that have been in advanced development or we can divest some of our existing ones by having a financial partner. So we like Texas, and I think we'll be successful in Texas in the sense that we already have enough project in our development pipeline. So we want to make sure that we also have other areas. Another area of interest in the states is the northwest part and potentially partnering with some first-nation entity in that area. So we want to make sure that we have other -- a good diversification also in the United States.

[Nelson Ng, Analyst]

Okay. And this is mainly solar and not wind, right? Or are you looking at both? I'm just wondering whether that potential 1-year extension to the safe harbor, would actually change anything for you.

[Michel Letellier, President, CEO & Director]

No, that's a good point. We have Griffin Trail, which if you remember, we were developing Griffin Trail at the same time as Foard City. And at some point in time, we decided to slow down on the development of Griffin Trail, but we had continued the development on Griffin Trail. It's a project that is a little bit south of Foard City, very close to Foard City. And we're pretty, pretty confident that the extension of the PTC for 1 year would apply for Griffin Trail. And we would be 100% PTC qualified. So certainly, Griffin Trail has revived in a way in our priority. And we're continuing developing it and trying to secure the tax equity and access to the grid. We would have to make some decision on interconnection investment by the middle of the summer. So Griffin Trail would benefit greatly from the PTC extension. And in the northwest, we might be looking also for wind. But in PJM in Ohio, we were more focusing on solar.

[Nelson Ng, Analyst]

Okay. And then in terms of your arrangement with Hydro-Québec, should we assume that most of these new developments would be on a 50-50 basis, like how should we think about the -- your net interest in a lot of these developments going forward?

[Michel Letellier, President, CEO & Director]

Well, as we mentioned, everything that we had under development prior to the strategic were not part of the partnership, but we have the option to welcome Hydro-Québec in those. So we will be trying to invite Hydro-Québec in most of our development. Obviously, it'd be nice if we consolidate some because, obviously, the proportionate EBITDA. We're thankful with you guys. You're doing a great job trying to figure out this distinction between project that where we can consolidate and some that we have on a pro rata basis. But of course, it's always easier if we can consolidate. So those are going to be discussed -- implied some discussion with Hydro-Québec. But yes, of course, we if we can partner with Hydro-Québec in future projects, we'll be very happy to have them in.

[Nelson Ng, Analyst]

Okay. And then just one last question. Just wanted to go back to battery storage. When you look at these projects that have a 25-year contract, like what's your assumed battery life in some of these projects? And I presume you're assuming lithium-ion rather than some other new technologies, as you mentioned, Hydro-Québec...

[Michel Letellier, President, CEO & Director]

Yes. But the initial one were built with Tesla technology, and Tesla had committed to supply the O&M and have a guaranteed of 25 years, not necessarily on each of the cell but in their total cost of O&M, they were replacing cell to have the project being able to deliver and face the obligation under the contract for 25 years. So it was part of the O&M contract to support this 25 years. So we will be discussing this same topic with Hydro-Québec, obviously, in -- for our future project that would have that long of a contract as well.

[Operator]

Your next question comes from David Quezada from Raymond James.

[David Quezada, Equity Analyst]

My first question here, just on -- I guess, switching over to France, I know they released their 2030 national plan recently. Wondering if you see any implications for your business there. And then maybe while we're on the topic, your thoughts on offshore wind in France?

[Michel Letellier, President, CEO & Director]

Well, I think that we are focusing right now on onshore. I think there's still a lot of potential in France on offshore -- onshore. It's, of course, complicated. We said it all along. A full process in France can take at least 5 years from first negotiation with land owner to full permitting, and then you have 1 year of potential claim that the proponent can have. So it's a long process, and the projects are not that big because just the land constraint in France is giving some restriction on having big project. So this is basically the -- I would say the less positive access in France is that it takes a long time to develop them, and they're not that big of a project. But we think that they are providing good margin and that you can have a certain certainty on the future demand for such a project over time. So we like France on that aspect.Offshore wind is something that is definitely going to be providing big volume for France and perhaps many places around the world. We have yet to be convinced that return versus the risk is appropriate. So we -- we're still on the side track for the time being. But we'll be discussing with Hydro-Québec and perhaps other players if a future joint venture to be exposed in the offshore might be possible in the next few years. But for the time being, it's not a priority.

[David Quezada, Equity Analyst]

Okay. That's a good detail. And then maybe switching back to U.S. given that a fair number of projects that you're advancing there. Do you have any thoughts on corporate PPA demand or just the availability of offtake or power hedge agreements, I guess, particularly in light of the current environment?

[Michel Letellier, President, CEO & Director]

Yes. We're still assessing these. Of course, we're also thinking of potentially having some of our own synthetic PPA in a sense that it could be a mix of hedge and perhaps some kind of a reserve, internal reserve to mimic a PPA because a lot of the tax equity requires to have hedge or corporate PPA. When you kind of have a good corporate PPA, that works, but sometimes it's a little bit more difficult in some areas. And when you're making the risk analysis, sometimes it's perhaps counterintuitive to fixing at very low price. The tax equity are basically looking to make sure that the plant has enough revenue to operate because they're making their return on the PTC.And the PTC, if we just go back, it's about $0.025 per kilowatt hours. And sometimes, the market, especially for wind in different area, can be as low as $0.015, $0.016 and even $0.014 per kilowatt hour, that basically is -- the goal is to cover the operating cost of the project to make sure that you're producing and hence, they get the $0.025. But when you're reconsidering the risk profile that force -- that basically this strategy or this obligation is forcing on the project, it's a little bit silly because most of the time, the merchant price are over $0.02. And yes, sometimes they can go as low as -- it can be turning negative. But if you look at the profile of -- and the probability of having a better price than $0.015 or $0.014, it's quite high.So we're initiating some discussion with tax equity and perhaps with our partner on how can we basically secure tax equity with enough reserve, internal reserve and perhaps being exposed to a little bit more merchant in those places, given the fact that $0.025 PTC represent more sometimes in 60%, 65% of the total revenue of the project. So we have a little bit of a reflection on those.

[Operator]

Your next question comes from Mark Jarvi from CIBC Capital Markets.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

On the storage, is that something that will be done all through organic development? Or do you see opportunity around some M&A to accelerate the efforts on storage?

[Michel Letellier, President, CEO & Director]

That's a good question, Mark. Of course, Hydro-Québec wants to deploy their battery. And so far, they're still advancing, and they're getting really close to have their commercial and manufacturing capabilities. So if we want to accelerate and have a meaningful investment, we might be looking to take advantage of a small team that would have developed some good opportunities. That can be a strategy as well.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then maybe a question for JF. The -- what's the cash flow profile look like for Hillcrest now that you had the financing in place? And just maybe clarify what repercussion there would be if for some reason, there's issue with -- because of COVID on getting the product done by year-end. What are sort of the repercussion back to any on that?

[Jean-François Neault]

So Mark, the cash flow profile is similar in any tax equity. So we would look at a more back-ended, again, cash-on-cash. So the cash flow profile we provided into the MD&A on an average for the first 5 years. We provided the figures on an average USD 10 million EBITDA, if I'm correct. So we -- I'll guide you to the right page, which on Page 13 of the MD&A. So we're providing some guidance on the average first 5 years of the project. So obviously, the cash payback is over a 10-year period, and that's because of the profile of the tax equity.Now your second question is part of the tax equity bridge loans. So I'm not sure I got your question correct, but everything with the bridge loan, tax equity financing and the -- has been put in place. So security in that regard has been put in place as well. So I'm not sure I'm getting your question right.

[Michel Letellier, President, CEO & Director]

If your question is that if we're delayed, I think the most important delay is to make sure that we have the first 20% ITC commitment and paydown for the first online of block 1, which is supposed to be online by July, August than we have until October as a kind of a more strict date for the tax equity to commit. So our exposure, it is more likely to be of something of very meaningful stoppage on the COVID-19 because as we are planning right now, I think that the block 1 should be in place by July. So we would have a 3-month buffer which seems to be very conservative, given the fact that the project is advancing very well right now in Ohio. Governor has reopened the states for construction. And we are also considered as an essential services even for construction. So I'm pretty confident that we don't -- we're not very exposed to that limitation or potential liability on tax equity.

[Operator]

Your next question comes from Rupert Merer from National Bank.

[Rupert M. Merer, Managing Director and Research Analyst]

With the 2 acquisitions that you're looking to close, are the deal terms the same as what you were looking at before the market downturn? Or have you seen any opportunities to improve economics, either through the asset cost or cost of financing?

[Michel Letellier, President, CEO & Director]

That's a good question. One, we did and the other one, we were not so -- well, a very small modification. We haven't seen the disparate seller just yet, Rupert. Of course, our business is fairly resilient and operating asset that have long-term PPA. I haven't seen yet some very depressed selling price. We'll see, I guess, down the road how things are going to evolve. So that's why we were prudent also in deploying the capital. So we want to still have some capital to deploy if things are getting more interesting in terms of total return on potential acquisition. And that's why also we might have slowed down the reimbursement of an existing loan, what we call the [ A&P ] loan. And we had also a penalty to pay for reimbursing a little bit in advance, and we decided to keep our liquidity just to be a little bit more flexible if a good opportunity is coming up instead of just reimbursing an existing loan.

[Rupert M. Merer, Managing Director and Research Analyst]

So what would you say is your liquidity position today?

[Michel Letellier, President, CEO & Director]

Right now, we have -- JF, we have -- well...

[Jean-François Neault]

Let me look at it.

[Michel Letellier, President, CEO & Director]

Almost as $500 million?

[Jean-François Neault]

$500 million of excess cash, yes.

[Michel Letellier, President, CEO & Director]

Over $500 million. And we have -- as of today, we have almost finalized the equity contribution on the Hillcrest. So Jean-François was referring to our investment of a little bit over $80 million of equity. And I think we have almost...

[Jean-François Neault]

$77 million of that has already been funded. And I mean the next $10 million will be funded by the end of May. So we have, Rupert, as at month of May about $0.5 billion under the revolver. And this is excluding, Michel, the cash on hand we have in U.S.

[Michel Letellier, President, CEO & Director]

So we have more than $600 million on hand available. So we're, pretty, pretty flexible right now.

[Rupert M. Merer, Managing Director and Research Analyst]

Okay. Great. And then secondly, I understand that you've seen very little impact from COVID and your assets are almost fully contracted. But we've seen some reports at BC Hydro is looking to deal with excess power because of low demand at this point. And they've highlighted that they plan to invoke some contract provisions with certain IPPs to reduce power purchases. Have they approached you? And are there any provisions in your contracts in BC or anywhere else where you may see the curtailment, either paid or unpaid?

[Michel Letellier, President, CEO & Director]

That's a very, very good question, Rupert. Yes, BC Hydro has been aggressively -- well, I would say, communicating this to the industry. But our internal legal department and also our external have reviewed our contract in BC, and we are in the opinion that even if it's a cost measure, the lack of demand is a specific exclusion in those contracts. So they have the ability to curtail us, and they did in the past in the [ first shot ]. But that curtailment, the electricity that we would have been producing is deemed available and therefore, being payable as well. So that's our position in BC.In Québec and the other places, it's less clear. But so far, Hydro-Québec has been hit probably less than BC hydro, Hydro-Québec was referring to something around 5% decrease in demand, where BC is claiming 10%. I don't know where these numbers stand for that lower demand in BC. But I think that from our legal opinion, we think we're protected. That doesn't mean that the BC Hydro might not try, but we intend to defend this point very strongly.

[Operator]

Our next question comes from Paul Dhaliwal from BMO Capital Markets.

[Paul Dhaliwal, Associate]

Just one question for me here. Just on the payout ratio, on the Q4 call, you had mentioned that with these 2 pending acquisitions with completion, it would take you to a range close to 90%, maybe below 90%. I was just wondering if the delayed acquisitions are playing into lowering the payout ratio. And just generally, if you could share any other comments on plans for bringing it lower.

[Michel Letellier, President, CEO & Director]

That's a very good point. When we announced Hydro-Québec, it's true that we said we would be in a position to have a payout ratio at the end of the year below 100%. Of course, that will be a little bit more challenging because the first quarter was not that great, of course. So that's not helping, but that's weather-related. So we don't know how the other 3 quarters will unfold. I'm encouraged that we see a beginning of May in BC being pretty strong. So that's -- and I'm happy given the fact that the first quarter in BC was very weak. The other thing is, of course, if we conclude the acquisition, hopefully, by June or something in that neighborhood, we would have less contribution to those 2 acquisitions.We also had said that with the [ A&P ] loan was quite accretive. We can still do it from June and on, we would not have the make-whole payment provision. But again, it's 2, 3 months less accretion. So -- but all in all, I think that if you're looking forward in the next 12 months, these acquisitions will have been also accretive and then 2021 will be easier to be in a better position in payout ratio. But nothing has changed in terms of our business. It's just the timing of those acquisitions might be -- proved to be a little bit more challenging in terms of reducing the payout ratio, given the fact that we had delayed them.

[Operator]

Your last question comes from Naji Baydoun from Industrial Alliance Securities.

[Naji Baydoun, Equity Research Analyst]

Wondering if you can give us an update on the Frontera project. What are the next milestones and the time lines for an FID on that?

[Michel Letellier, President, CEO & Director]

We said all along that financing was a little bit of a challenge. And given the fact that we're in the middle of COVID-19, it is not helping. We have the option to start the interconnection, which is, I would say, a very good asset because there's a lot of win also developer that would love to have access to that interconnection point that we have secured. And that would provide us the opportunity to delay the project for a full year and keep the permitting intact. So that might give us a little bit more flexibility.We are also taking the advantage of the slow economy in Chile to some degree in terms of construction to further negotiate the balance of plant construction. And we're having some success in terms of reducing the price. So it's really depending on the type of financing we can get. And I would say that the decision is pending in Q3 of this year if we go ahead at full construction or we try to maintain our permitting position and perhaps delay the decision by our next year.

[Naji Baydoun, Equity Research Analyst]

Yes. That's good. Maybe just going back to Hawaii. Are there more proposals that are due later this year for other islands? And are you participating in that process?

[Michel Letellier, President, CEO & Director]

Well, I'm not aware that this is the timing exactly, but we are definitely still working on securing other land. And we have also the ability to recycle the 2 projects that were not selected in the RFP. But I'm sorry, we couldn't provide you the exact timing for the next RFP. But there will be some future one. And that's why we like also Hawaii is that there's a repeat RFP that enable us to potentially refile or recycle project we would have partially developed to prior RFPs.

[Naji Baydoun, Equity Research Analyst]

Okay. That's helpful. Just maybe one last question. On the -- your strategic plan for 2025 and your financial targets. I just want to clarify 2 points. Is the adjusted EBITDA proportionate growth target of 10% a year, is that off of 2019 or 2020? And how much of that growth do you expect to come from organic developments versus M&A?

[Michel Letellier, President, CEO & Director]

That's a good -- that one is tough. We -- in the past, we've -- of course, acquisition is quicker. And -- but it can be a little bit more challenging in terms of return. My best guess would be, I'd be happier if we could develop more organically, let's say, 60% and 40% from acquisition. But it all depends, right? If the market suddenly becomes more attractive in terms of the return on existing assets, we might take advantage of that and being opportunistic in those. And -- but we -- like I said, we stick to our plan of creating value and like I said in the last few calls, I think that you should be giving us the benefit of the doubt. When we announced one particular transaction or 1 particular acquisition, we always try to see it as a whole and potentially as an addition to the portfolio. If I take Chile and we buy 1 asset, you could say, well, doesn't make a lot of sense, that particular asset. But if you couple it with potentially another asset that we have or we're developing, then certainly, as a whole, it makes a lot more sense. So -- but we'll still be opportunistic, and the idea is to create value.And sometimes, like I said, if we're developing, especially in the states, if we want to counter the effect of the PTC back-ended cash yield, perhaps making an acquisition that may have a little bit less return but a higher cash yield in the first few years. If you put them together, then suddenly, you have a better cash profile and that helps the payout ratio and stabilize the total cash flow to the company.So difficult to answer your question. We just want to make sure that we stay disciplined and we -- any transaction that we're making, we will be thinking about the total effect on the portfolio. And one of the goal is to reduce the payout ratio. We think that we have opportunity to reduce it. And -- but we want to still create long-term value. We don't want to be investing on a lot of projects that have short-lived and high payout ratio -- not high payout ratio, but cash yield at the beginning and no value, no future value. This is not what we want to do. We want to have a real balanced portfolio that is sustainable on a long-term basis.

[Operator]

We have no further questions. I'll turn the call back over to the presenters for closing remarks.

[Michel Letellier, President, CEO & Director]

All right. Well, thank you very much. And like I said, I thank you all. And I think all the analysts, you guys have produced your report late last night. So sorry for the late delay. And again, for all of our investors and employees, thank you for your support in this time of crisis. We need your support. So thank you very much, everybody. Have a good day.

[Jean-François Neault]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.