Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2019 Second 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, Director – Communications]

Thank you. Hello, everyone, and thank you for joining us today. I would like to specify that this conference will be held in English. Members of the media are invited to ask their questions by phone after this call. A presentation supporting today's discussion is available as we speak on the homepage of our website at www.innergex.com. This call may contain 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 as required by law. During this call, we will reference financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the non-IFRS measures section of [indiscernible] presentation for more information.Our speakers today will be Mr. Jean-François Neault, Chief Financial Officer, who will present Q2 results; and Mr. Michel Letellier, the President and Chief Executive Officer, who will review our Q2 operational highlights and our Q3 priorities.I'll now turn the conference over to Mr. Neault.

[Jean-François Neault]

Thank you, Karine. Hello, everyone. Again this quarter, we pursued our growth and posted increased results. Before going further, I'd like to stress that all 2018 amounts mentioned were restated to be comparable with 2019, given that we are reporting on continued operations basis, which excludes HS Orka results.In the second quarter, our Production Proportionate, which includes our share of joint ventures and associate, grew by 12%. Our Revenues Proportionate and Adjusted EBITDA Proportionate also posted strong growth at 18% and 15%, respectively. For the 6-month period, Production Proportionate, Revenues Proportionate and Adjusted EBITDA Proportionate increased by 26%, 24% and 21%, respectively.On Slide 8, production improved mainly due to the increase of 255 gigawatt hours in the wind segment caused by the acquisition of the remaining interest in the 5 Cartier Wind Farms. The hydro segment recorded lower production mainly due to the below-average water flows in BC, which couldn't be entirely compensated by the good results in Québec.Continuing to Slide 9. Quarterly revenues reached $144.7 million due mainly to the Cartier acquisition and higher revenues from the wind facilities in France. Now if we look at the adjusted EBITDA, we can see an increase of 15% over last year at $105.2 million, not only due to the Cartier acquisition but also to a better performance by the Mesgi'g Ugju's'n wind facility and a slight improvement in France.When adding our share of the joint ventures and associates on Slide 11, our Adjusted EBITDA Proportionate reached $120.8 million, a $15.8 million increase over the same quarter last year. Contribution of the investment in Energía Llaima and better performance of our wind facilities in Texas more than offset lower production at the Dokie and Viger-Denonville facility.On next page, changes in the financial position items stems mainly from the sale of HS Orka and the additional construction activities at Foard and Phoebe. As shown on the next slide, our free cash flow, which include HS Orka since we are reporting on a trailing 12-month basis, increased by almost $24 million to $115.7 million, mainly due to the higher adjusted EBITDA, which was mostly derived from the acquisition of Cartier. Our payout ratio improved at 79% compared to 88% a year ago.On Slide 14, we concluded the sale of HS Orka during the quarter. Proceeds, as previously mentioned, were used to repay the 1-year credit facility contracted at the time of the acquisition of the Cartier Wind Farms and to deleverage corporate facilities. You can also see that we have concluded financing activities for the Foard City and Phoebe projects. The Foard City construction loan was USD 290.9 million, which is backed by USD 275 million tax equity commitments and USD 23.3 million 7-year term loan facility with a 10-year amortization period to be provided upon the commercial operation date. Supplemental financial -- financing will be sought now that the project was granted additional turbines. As for the Phoebe solar project, the initial tax equity funding was approximately $37.1 million provided by Wells Fargo Central Pacific Holdings and was achieved on June 4.On that note, I will give the floor to Michel for the operational review of the past quarter.

[Michel Letellier, President, CEO & Director]

Thank you, Jean-François, and good morning, everybody. I'm especially -- you know that I'm always proud of my team, but I'm especially proud of the construction team that have been quite busy on the 2 U.S. projects. Phoebe is advancing as we have explained and Jean-François was mentioning. So the initial tax equity funding has been done. We have about 5 blocks out of 7 now producing electricity, and we are still confident that we'll be in final operation by the end of September, all that within budget. So pretty impressive. And just to remind you that so far, Phoebe will be the largest solar plant in Texas. So that's kind of an interesting for small Canadian company being that exposed to the U.S. in the solar, pretty proud of that aspect.Foard City. Foard City has had a good run in the last quarter. As you saw, we have had the permitting extended to include 9 new turbines. So we're back to over 350-megawatt project, so quite happy on that turnout and also on the execution of the team that has redefined the project to take into consideration the FAA limitation on the area. So quite satisfied on how both the construction and our contractor, Blattner, was able to be nimble and flexible, all that to basically rearrange the plant and still have the plant being in operation by the end of September as well. We had forecasted that it would need to be taken place in Q4. But if we're lucky, now all the turbines are erected and the substation has been energized, and GE is commissioning anywhere between 3 and 5 turbine per day, so all looking good. If weather permits, we should be finalized by the end of September as well. So quite impressed with all that execution.Just a little reminder also on Foard City. Foard City has the PTC, as you remember. The PTC is about $24 per megawatt hour. In this case, that will represent more than $30 million per year. So just a slight reminder, when we make the enterprise value ratio over EBITDA, in this case, our portion of the EBITDA, if we don't take into consideration the PTC, will be around $14 million. And if you're having more than $30 million as a PTC, you have the equivalent of about $45 million to $46 million worth of equivalent of an EBITDA. So if you take 400 -- just over $400 million enterprise value of that Foard City divided by this adjusted EBITDA to take into consideration the PTC contribution, then you're close to about 9x that multiple. So just a reminder that PTC component in those project is huge, and one has to take that into consideration when we're looking at the EV/EBITDA ratio.In terms of other developments now. I'm quite happy also on the signature of Innavik project. That's not a big project in terms of size, but given this remote location and the avoided cost to produce electricity in those remote area, this project will be quite interesting in terms of profitability, but it is also a great social project. We're partnered with the Inuit, and we're offsetting the diesel on this area by more than 90%. So quite interesting in terms of the 3P, as you know, people, the planet and profit. This is a very good example of the type of project we love to do. The project will be over $130 million worth roughly, and it should have an EBITDA close to about $10 million. The type of arrangement we have with Hydro-Québec is a capacity payment and availability payment. So we're not at risk in any way of the total consumption on the village. Hydro-Québec is still the one that distribute the energy, and they're giving us an annual payment paid monthly on capacity base. So this is really interesting, and it's also for 40 years.As Jean-François mentioned, we also divested HS Orka, so we wish all the good to the new and existing owner. Sad to leave Iceland in a way. It's a great place and it was interesting business, but I think that we have better expertise in other technology, and we feel a little bit more comfortable with the new market that we're developing. So we're refocusing and deployed this money into Canada and our main project. So quite happy on the execution as well on that side.In terms of new development as well, if we stay in the U.S., Hillcrest is our next focus. We just entered into an exclusivity agreement for a few weeks, almost a month, to finalize the discussion on the PPA with a big customer in the U.S. So getting very, very close to have an interesting PPA that would enable us to put all the tax equity and start construction on Hillcrest.Still in the U.S., but a little bit further in Hawaii. The smallest of the 2 project we won, the 15-megawatt Paeahu has been challenged by local residents that find the project to be close -- too close to their home. We're going to the evaluation with the authority over there, but we don't think it's going to create a big issue. It's typical, a little bit of a pushback because the land that we're using is a private land, it's a private ranch, and unfortunately, people have become to be accustomed to take advantage of that free -- with free access land, but it's a private land. So we think that things are going to be settled in the next few months, but still of a concern for the development team.Also in Hawaii, we made an announcement that a new call -- a new RFP will be released for renewable energy and storage. So we're getting prepared also to answer that call. We've been successful last time, so our hopes are high to take also some win in that particular call.Now if we go to France, of course -- well, I'm sorry, we're going to stick to the U.S. You've seen that we have been very busy in trying to develop solar project in the future. And one of the strategy was to secure about 150 megawatts of solar panel to help us be prequalify fully for the 100% ITC program. We are now in a position to, I guess, with the land acquisition, we still are working obviously towards the 750, but we are advancing very well. I think we can be comfortable to say that we have between 300 and 400 megawatt already secured, and it's just the beginning. So I'm very confident that we'll have some very good site to accommodate this 750 megawatt of new project in the U.S. The idea is to create value by developing our greenfield project. We've got the experience in building now in the U.S. and developing project. We have entered the market with some acquisition, with Phoebe as an example, and to some degree, with Hillcrest. It was a little bit less advanced, but the idea was to get to know how it works. And now that we think we have a much better handle on how this market works and how tax equity works, now it's time to create our own project and create greenfield development profit that will enable us to somehow have a bigger portfolio and give us some opportunity to welcome some financial investor with us in order to, I would say, crystallize some of the greenfield development that we are now creating.If we go to France, France is, as we know, as you know, a market that takes a lot of time to develop project. We're advancing a project. We're encouraged on the development that we're doing there, but we said that the project will be ready for perhaps start construction in 2021, 2022. So as we are advancing our project, we're hoping that we will have some very good project to be put into a few RFPs in the next 4 or 5 years. So working on building that portfolio of, again, greenfield project. We're definitely less active in the M&A in France. We're concentrating our effort in creating our own project in France.Chile is a market that is very active also in terms of M&A. We're looking at a few small acquisitions together with our partner in Chile, which is Energía Llaima. We're also very encouraged on the advancement that we are seeing in terms of financing Frontera. We have also been active in refinancing Duqueco. We have talked and worked with Fitch in order to see if Duqueco could be an investment-grade project given the, let's say, a reasonable leverage percentage in the project, and we have had the shadow rating being confirmed as an investment-grade product. So that is helping us thinking about and developing strategy to finance further projects in Chile. So all in all, quite happy on that aspect and firming out some assumption for a future decision in Frontera.So that would conclude my presentation. And I would be very happy, together with Jean-François, to answer to your questions. Thank you.

[Operator]

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

[Sean Steuart, Research Analyst]

Two questions. Michel, you referenced the 150 megawatts of solar panels you've safe harbored and potential leading to 750 megawatts, and you talked about hoping to have 300 to 400 megawatts secured beyond Hillcrest and Hawaii. Any context you can give us on where you're looking at those developments, economics in comparison to Hillcrest and the Hawaii projects? Any details you can provide there?

[Michel Letellier, President, CEO & Director]

Well, it's very early, but we -- as you know, we're active in Texas, so this is definitely a place where we think we are going to have a lot of success. And we're looking into PGM. Pennsylvania is a place, Ohio also. We have some, I would say, some leads in Ohio, given the Hillcrest Project over there. So the idea is to be in liquid market where we can create value, we can find long-term contract with customer or put some [partnership] together. And of course, it's difficult to be firm on return and stuff like that, but the idea is to go up the value chain and having our own project being developed by our own team. It's increasing, I would say, the profitability or potentially increasing the profitability. We've been -- like I said, we've been active in the M&A to understand the project. But of course, when you're doing M&A, if you're doing well, you're doing an okay return. But obviously, you're always paying a premium to the initial developer. So we are hoping to create value with our own team. And an example for that is Foard City. As you could see the numbers of Foard City, they're pretty, pretty healthy. That was an Alterra greenfield project that was brought, I mean, to the development stage of construction. So the idea is create value, and we think that even if solar is a little bit less, I would say, create a bit less value in terms of internal rate of return, the resale potential value of those projects, the cap rate that investors are looking in solar are less than wind. So even if your project is a little bit less profitable in terms of internal rate of return or cash-on-cash, the idea is that you're creating a lot of value because investors, especially financial investor likes solar, and there is a better discount rate applied to the project when they're in operation. So the idea is to create value and be able to recycle some of the capital that we're putting into these projects.

[Sean Steuart, Research Analyst]

Understood. And just a follow-up on Ohio specifically with respect to Hillcrest or prospective solar projects there. The state seems to have lowered its RPS hurdles. And I gather because you're contracting with commercial partners, so that's the intent, that's not an issue for your growth aspirations in that state.

[Michel Letellier, President, CEO & Director]

No. And funny enough, Hillcrest was already known to the authorities and have the -- made the step to interconnect in all aspects. So actually, we have been grandfathered on the old system over there, so we have been protected on the direct pricing. So that was a good news. Of course, this -- Ohio has been quite active with the new build that was put forward to protect and bail out the nuclear plant over there. But through the hearings, the -- I think there were 6 or 7 projects that were already listed and be part of the total system that were grandfathered, and the Hillcrest was part of that group.

[Operator]

Your next question comes from the line of David Quezada from Raymond James.

[David Quezada, Equity Analyst]

My first question here just on Phoebe and Foard City. As you get close to COD here, are you committed at this point to keeping 100% of those projects? Or would you still consider selling down a stake at COD?

[Michel Letellier, President, CEO & Director]

We're always considerating. We don't need necessarily the cash today. So I think that we're considerating. There's some good opportunity there, but we might want to grow the portfolio a little bit bigger before taking any decision on that aspect. And I would say that Foard City is generating some very good cash-on-cash also, so we're not in a hurry to sell Foard City. Solar projects are a little bit more, I would say, restrained in terms of cash-on-cash, so we might have a little bit more appetite to divest of solar assets a little bit quicker than a typical Foard City that generate good cash-on-cash.

[David Quezada, Equity Analyst]

Okay. That's good color. And then maybe just a question on the Texas market in general. Obviously that's an increasing part of your business, and we've seen higher prices there, it seems recently. Are you able to realize those prices as much on the portion of your wind assets that are not contracted? Or are prices typically lower when the wind is blowing strong?

[Michel Letellier, President, CEO & Director]

Well, it's a -- that's a little bit of the issue. But Flat Top is a little bit better, and Shannon has improved quite a bit. So we are not in a [indiscernible] hole where it's killing yourself when it's blowing, so it's a little bit less of an issue for us. But obviously, when it's -- everything is blowing, it's a little bit more difficult to obtain the full premium. But it's improving. In Shannon, it's definitely improving. And like I said in the previous call, the authority over there are working hard to basically invest in the transmission system and transportation system to ease any congestion. So they have work in Shannon and now it seems to -- the area seems to improve. On Foard City, we're expecting to have a little bit more because now the agreement that we have is based on -- the PPA that we have is based on about 300 megawatt. So we have 50 more megawatt here to sell or to play with the merchant market. So Foard City might see a little bit more upside on that aspect. And it's -- from the study that we have been given, Foard City should have a better access to the grid and should be -- it should benefit to a lower discount on the note. So looking good for Foard City on that aspect.

[Operator]

Your next question comes from the line of Mark Jarvi from CIBC.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Maybe just going down to Chile, El Canelo, there's some commentary in the MD&A about a decision. Do you guys see it as more likely to proceed? Or are there some barriers to move forward on that project right now?

[Michel Letellier, President, CEO & Director]

El Canelo is a smaller project. And when we enter, we wanted to change some design. It's -- the profitability of El Canelo might be marginal. So we still are looking at it, but we're getting a lot more excited about a project called San Carlos just upfront of Frontera. That's another 100 megawatt, and we have some possibility to increase the capacity to about 150 megawatt with some capacity to play with the upstream power and to get to have anywhere between 4 and 5 hours of storage. So that's why we are, perhaps, slowing down a little bit on El Canelo and refocusing on San Carlos, which is a bigger project and probably better profitability in San Carlos. So we'll give you more color in the next few quarters on San Carlos.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. Sounds good. And then -- and going back to Texas, obviously, recent prices are very strong. But looking at some of the documentation earlier, a few months ago on resource adequacy, there's talk about a lot more supply coming into market? Some question marks about what that's doing to the forward curve, do you think about adding more capacity in Texas? How concerned would you be about being overexposed to that marketing in case of pricing does soften? And how important is diversification into other regions of the U.S. right now?

[Michel Letellier, President, CEO & Director]

Well, you're saying all the right things. We'll be concerned. You always hear me talking about diversification. So of course, that's why we're saying, we think we can create value in greenfield solar. But at one point in time, divesting of a portion of this project will be -- will probably be one of our priority. Not that we don't like the market, and I think that eventually, the coal and many nuclear will have a very difficult time to maintain their profitability. So I guess that a portfolio of wind, solar and potentially some storage in Texas would be interesting. Of course, natural gas is always cheap in Texas. And hence, I think that the market will not go crazy high. It could obviously have some peaks. But I'm reasonably comfortable with the long-term view that pricing should stabilize anywhere between -- depending on, I would say, on an average year, anywhere between $30 and $35 in 10 years. So as you know, most of our output are sold under either hedge or contract for 10 to 12 years. So my concern is more likely at the end of those PPA. What would be the price in Texas? Natural gas price has been quite low lately and the price of electricity is fairly good. So my view is that in 10 years from now, and in terms of pricing, we're viewing the price anywhere between $30 and $40 per megawatt-hour. And on that basis, projects are pretty healthy financially. So that's our view.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then just maybe my last question will be on Phoebe and financing. Thoughts around incremental tax equity in that project. And then if you did think about selling down, does that influence or change at all the structure for financing on it -- for that project?

[Michel Letellier, President, CEO & Director]

No, no, no. I mean once the tax equity are in place, then the L.P. that we're using or the structure that we're using can be -- of course, we have to inform the tax equity folks who would be coming in. But there's not real limitation on our ability to sell a stake on -- in our own structure.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And when do you think timing-wise on any additional tax equity filing for Phoebe?

[Michel Letellier, President, CEO & Director]

Those are scheduled to be every blocks that we put in place, then we have tax equity. So it's cumbersome, I must say, it's a lot of paperwork, a lot of -- so some of our guys are almost full time in those tax equity tranches of investment. But all should be done by the middle of October, every -- all of the tax equity should have been drawn by mid-October.

[Operator]

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

[Nelson Ng, Analyst]

Just a quick question on the solar panel deposit. So you provided a LC, but in terms of cash out the door what eventually be $50 million later this year, is that how we should think about this?

[Jean-François Neault]

Yes.

[Michel Letellier, President, CEO & Director]

Yes. But we're working with a U.S. bank to have a loan on the -- a nonrecourse loan to interject but on the level of Alterra. That will be supporting 100% of that divestment by the end of this December. And like I said, it's nonrecourse against Innergex holding. Pricing are very competitive, and so that's probably what we are going to do, utilize this new line at the level of Alterra to basically pay down all that USD 50 million.

[Nelson Ng, Analyst]

Okay. And that might be in December, I guess right, given that you probably want to deploy it as late as possible?

[Michel Letellier, President, CEO & Director]

Yes.

[Nelson Ng, Analyst]

Okay. And then it's safe to say that you don't have any PTC-qualified wind turbines, right? So I was just wondering going forward in the U.S., obviously, you're pursuing solar, and you mentioned wind as well. So if you get any I guess near-term wind projects, would they be kind of post-PTC runoffs type of periods for the completion dates? Or how should we think about what the strategy is if you get awarded a wind RFP in the U.S.?

[Michel Letellier, President, CEO & Director]

That's a good point. We have a project in Texas, Griffin Trail, which is south of the Foard City that is very well advanced. We have all the land and the only missing piece is the final FAA permit. So that would be a 2021 project, and we would need some PTC-prequalified wind turbines. There is some out there as some developer also have. So perhaps it's a joint venture we could do or buy existing PTC wind turbine that needs a home or sell Griffin Trail as a project-ready NTP project for a promoter that would have those type of turbine. So in any case, we think we're creating also some value in Griffin Trail. Griffin Trail will be anywhere between 170 to 200 megawatt.

[Nelson Ng, Analyst]

Okay. And you're saying the main hurdle now is to get the FAA permit?

[Michel Letellier, President, CEO & Director]

Yes. Which we -- yes. You'd remember the Foard City, I would say agenda with FAA? So we're quite -- well we have a little bit more I would say experience with the FAA now and with the base. So we have designed or redesigned Griffin Trail to minimize any friction with the future base. But of course, it's always a little bit of an unknown. But given the information that we have from the 2 existing base that are active in that area, we think that the redesign of Griffin Trail would allow for FAA permits.

[Nelson Ng, Analyst]

Okay. And this is a greenfield project from the Alterra development pipeline?

[Michel Letellier, President, CEO & Director]

Yes. Yes.

[Nelson Ng, Analyst]

Okay. Got it. And then just switching gears, I might have missed it earlier. But in the commentary in the MD&A, you mentioned a higher OpEx in the BC Hydro facilities. Could you just clarify what some of the factors were?

[Jean-François Neault]

It's not -- one of the drivers was Upper Lillooet. Remember that we had made some changes in Upper Lillooet in last year with the sedimentation. One remaining strategy to increase the production and lower the opening cost was to change some of the components of the turbines. And we have now made some modifications during the wintertime when the water was lower. So I think we spent $1.6 million more than budgeted in Upper Lillooet. So that is typical and some -- also, some work has been done. We had rough -- last year, we had a few events of heavy rain, and we had a few repairs also in BC to be done during the winter period. So it should come back to a little bit more normalized spending in the near future. But last year, actually, we also had some CapEx because of the previous event that happened last year. So I think we should be coming back to a little bit more normalized, but it just happened that last winter and last quarter, we're a little bit more heavy on maintenance in BC.

[Nelson Ng, Analyst]

Okay. Perfect. And then just one last question, I can take it offline if you want. But I noticed that there was like $8.2 million line item. Regarding -- in terms of calculating the payout ratio, there's a recovery of maintenance CapEx and prospective project expenses. That's like $8.2 million. Can you just clarify what this reflects? And is your payout ratio now excluding development costs?

[Michel Letellier, President, CEO & Director]

No. No. This is the recovering -- the portion -- the cash portion that we were considering that in HS Orka was dedicated to these particular activities. And since we sold it, it was just good -- I would say, good business sense to recognize that during that 16-month period, we have invested in those CapEx and also in prospective project in Iceland, and we didn't get any dividend other than the Blue Lagoon dividend. So it was a way to show some of the profit that we've made from the sale in terms of recovery, the portion of the recovery of prospective and capital -- maintenance CapEx that have been done in HS Orka.

[Operator]

Your next question comes from Jeremy Rosenfield from Industrial Alliance.

[Jeremy Rosenfield, Equity Research Analyst]

Just a couple of clean-up questions. On Foard City and on Phoebe specifically, can you just sort of remind us, in terms of any revenue that's being generated prior to officially declaring sort of commercial operations, so that's all market revenue? Or is it some of the hedge actually active today already?

[Michel Letellier, President, CEO & Director]

In terms of Phoebe, the hedge started in -- with Shell started in the 1st of July, but the net of the activities are going into...

[Jean-François Neault]

Construction.

[Michel Letellier, President, CEO & Director]

Construction. As -- it's a little bit neutral because for the first month of July, we were not producing that much. So it'll be basically neutral, well, we'll see at the end of September. But yes, it'll go against the construction cost.

[Jean-François Neault]

Yes, and it was minimal, Jeremy, during the second quarter. I mean less than $0.5 million revenue were put against the construction cost.

[Michel Letellier, President, CEO & Director]

But if Phoebe is going to increase in July and August.

[Jean-François Neault]

Yes, July and August, obviously...

[Jeremy Rosenfield, Equity Research Analyst]

Yes. I was just thinking in terms of where prices in the market and if you're producing electricity today, for example, that's it.

[Michel Letellier, President, CEO & Director]

Yes. Yes. Yes.

[Jeremy Rosenfield, Equity Research Analyst]

And then -- sorry, go ahead?

[Michel Letellier, President, CEO & Director]

No, no. And in Foard City, we have not started producing electricity. We -- as of this week, the substation has been energized and their cost is finalizing all their security studies. We should be starting producing electricity probably next week in Foard City as well.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. And for Foard City, is the expectation to have the commercial operations for all of the turbines by the end of the year?

[Michel Letellier, President, CEO & Director]

Oh, yes. Oh, yes. It should be even -- well, I don't want to be too optimistic. It should be by the end of September, early October.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. Just coming back to the discussion of the solar opportunities in the U.S. Do you have a sense as to what the timeframe for some of the construction or some of the -- what you might be targeting, let's say, in terms of how quickly you would bring some of that capacity online if you could in a best-case scenario and sort of a range of construction and commercial operations timelines?

[Michel Letellier, President, CEO & Director]

Yes. We think that the first solar that we would be able to put forward would be in 2021, and that would probably between -- anywhere between 200 and 300 megawatts and then the remaining in 2022.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. Perfect. And just notionally, so if you contemplate selling down a minority stake in some of the assets that you would be developing, and you're mentioning solar as may be more interesting, what do you think you might be able to earn in terms of a pick up on -- let's say, on an IRR basis, for example, in terms of equity returns? Are you thinking like 200 basis points equity pick-up? Or something like that? I'm just curious. That's rough numbers.

[Michel Letellier, President, CEO & Director]

We are hoping at least that, especially from our own projects, at least that.

[Operator]

Your next question comes from Ben Pham from BMO.

[Benjamin Pham, Analyst]

Maybe just a couple follow-up questions. That Nelson Ng's question on the $8 million, I understand what's going on there. I'm just curious, when you guys set the 10% growth guidance, did you contemplate that having that in there?

[Jean-François Neault]

The recovery? The recovery?

[Benjamin Pham, Analyst]

Yes.

[Jean-François Neault]

No, no, no. Listen, that was -- not at the time. Listen, it's a view of -- we could have included some peers are including gain on transaction, which we're not doing here. So I think it's a fairly conservative view of recuperating what was expense as prospective and CapEx, which was a decision from the Board to continue to maintain the value and increase the value of HS Orka. So that's the view -- the conservative view, so we didn't include any gain either. And it was not included and factored in, in our guidance at the beginning of the year, no.

[Benjamin Pham, Analyst]

Okay. All right. And then when you think about the first half, I mean, productions generally in line, a bunch of moving parts, but it just shows diversification again. But I guess, like when [you talk about EBITDA, you mentioned BC. Are you kind of tracking in line of what you were thinking your budget first half EBITDA?

[Michel Letellier, President, CEO & Director]

On the first half? Well, like you're saying we're a little bit behind probably somewhere between 7% and 10%.

[Jean-François Neault]

Yes. Specifically in BC.

[Michel Letellier, President, CEO & Director]

And of course, France.

[Jean-François Neault]

France.

[Benjamin Pham, Analyst]

Okay. So it sounds like if second half's in line, you basically end the year a little bit soft but then when you booked the $8 million, I mean, it looks like you could be on track to hitting your guidance regardless?

[Michel Letellier, President, CEO & Director]

We're hoping. But it's always difficult to call on intra-year because as you know weather could change, weather can -- pattern can change, especially in BC. It's been a while we haven't had a very wet fall, so a big quarter in BC can make a big difference also at year-end. So it's a little bit difficult, and that's why I don't like to comment too much on the intra-year guidance, especially when it's weather-related.

[John Safrance, Senior Associate]

Okay. Yes. That makes a lot of sense. And then a lot of questions on, say, award and just with the in-service. And I'm just trying to make sure I'm following this a bit better because there's been a bunch of capacity changes the last 3 or 6 months. And so you're coming out with at least an EBITDA guidance in the table. You've always footnoted it in the footnotes. So in USD 14.1 million EBITDA, how should we think about the commodity component of that? Is it kind of like 80% of that's spot revenues and the balance of the contract?

[Michel Letellier, President, CEO & Director]

For Foard City?

[Benjamin Pham, Analyst]

Yes.

[Michel Letellier, President, CEO & Director]

Foard City is 300-megawatt out of 350, which is sold to -- as a PPA. So I would say exactly 75% fixed, and perhaps, 25% -- 20% to 25% exposure to the spot market for Foard City. That being said, we might have the opportunity to sell 20 megawatt or 25 megawatt into PPA as well. It's just that since we didn't have the full capacity, we were not too aggressive on signing PPA. And given the market condition on the spot market and the going rate on PPA, you know that the growing rate on PPA in Texas is below $20 per megawatt-hour and the spot market is much higher than that. So it's kind of difficult when you don't necessarily need to sign a PPA. Remember that those PPA or hedges are, I would say, an obligation made on the project by the tax equity. They want to have at least 10 years of fixed PPA. And hence, given the amount of development in Texas, big customer take advantage of that situation, and actually, I think that they are getting a very good deal on the electricity, and they're happy to sign actually PPA at $18, $19, $17 for 10 years. So having a little bit of exposure on the spot is not necessarily bad. If you have a good coverage of all your cost and your margins are protected with the existing PPA. So we'll see, we'll see. If we have a good offer, we might decide to sell a little bit more PPA for Foard City. But I personally, as I see it right now, it's -- I think it's a good mix.

[Benjamin Pham, Analyst]

Yes. I don't want to intend that it's a negative thing because its commodity exposure is pretty small, if you look at you guys overall. But I guess, I'm just -- I just wanted to clarify the $14 million EBITDA guidance, are you saying 25% of that is -- of EBITDA is spot revenues?

[Michel Letellier, President, CEO & Director]

Well, around 20%.

[Jean-François Neault]

Around 20%.

[Michel Letellier, President, CEO & Director]

Yes.

[Benjamin Pham, Analyst]

Okay. And then I guess like when -- sorry to get nitpicky here but like when you guys look at your guidance last quarter, it looks like you're only growing with the EBITDA just a little bit, but then your CapEx went up probably $15 million, your EBITDA is up $1 million, so that -- it looks like you guys are just probably being a bit conservative on the spot power price?

[Michel Letellier, President, CEO & Director]

Yes. And -- but I guess that when we changed the forecast, we might have gone a little bit conservative when we...

[Jean-François Neault]

I think that you should then look at it as Q4 reporting. So really, we are back to original forecast. So original forecast was $14.5 million EBITDA, now we're down $14.1 million, having 1 turbine less than original. So agree with you, Michel, probably in Q1 reporting, we were too much conservative...

[Michel Letellier, President, CEO & Director]

Yes. The guys were concerned about our ability to put the turbine in the FAA. And perhaps, land management also didn't necessarily have all the land option available to deploy the turbines. So they take some very conservative approach, if we would have had to squeeze them together, and hence, less production, perhaps, a little bit more maintenance because the project would have had too tight of -- the layout might have had too tight and may have increased the maintenance CapEx on the machine. So I guess the team were concerned at that time to -- because we didn't have all the land and FAA was still out there. Not necessarily, they didn't feel very strongly on how the layout would end up. But now everything has been cleared, and they're very confident now with the long-term forecast of the production of the farm.

[Benjamin Pham, Analyst]

Okay. That's just great. Yes. A couple of different changes there, just wanted to follow that. And then...

[Michel Letellier, President, CEO & Director]

No, no. fair enough.

[Benjamin Pham, Analyst]

My last question on just on the solar ITC, kind of makes a lot of sense for you guys. I'm just kind of looking at just your development backlog on the solar side, and I think it's like 500 megawatts or so. So are you basically thinking that your development pipeline is going to grow to the 7.7 gigawatts? Or is there some maybe opportunity to look at acquisitions or something to -- guys that may need this benefit?

[Michel Letellier, President, CEO & Director]

I think that I'm trying to be very clear on what we're trying to do and in the States, that 750 megawatts of solar is, in my mind, fairly real. If we look at the -- not so sure, I understood your question. If I look at our 7,000 megawatt of prospective project, in general, that number is always changing because it depends where we're focusing. Sometimes, we can have a lot of megawatt in secured land, but the market might be slow because of, as an example, Québec is not active to have new RFP, and we have bunch of good land option and wind measurement in Québec. But until Québec comes back to be active, this megawatt are a little bit on the back burner. So we always relook -- I mean revamping this number and refocusing depending on the activities in the different market. But like I said, I would say, the very short and real focus right now is the 750 megawatt in solar, this program of having the -- secure the panel is something that our folks are working on the ground and advancing very fast.

[Operator]

[Operator Instructions] Your next question comes from Hassaan Khan from Innergex.

[Hassaan Khan, Associate]

Actually, I'm from National and calling on behalf of Rupert. My question is a broader question. What benefits do you guys see from lower bond yields? Any opportunities for refinancing or accessing low cost of capital, maybe potentially sell downs maybe?

[Michel Letellier, President, CEO & Director]

That's a very, very good point. We have Stardale that have some room. We think we can refinance a piece of Stardale, SM-1, together with Desjardins, has an option to refinance a big portion. That's a good point. And Innavik, we haven't hedged the long-term bond. And initially, when we were finalizing the pricing with Hydro-Québec, at the time, the 30 years bond were at 2.18%. That was the base where we kind of froze in the negotiation with Hydro-Quebec, and now it's probably 1.45%, 1.50%. So there's good opportunity in our portfolio to relook. That's why we're also looking at Duqueco refinancing in Chile, and Frontera looks a little bit better because, obviously, long-term rate is going down. So no, it's a good point. It's crazy low these days, and you are going to have to ask yourself will we see negative bond yield as we've seen in Europe. I never thought I would have seen that in my life, but 30 years bond being at 1.50%, 1.40% is really low.

[Hassaan Khan, Associate]

Just one question from my end. We just wanted to ask about the EAB decision. Is the water then to reduce forward as well or it's just a one-off adjustment for 2011 and 2012?

[Michel Letellier, President, CEO & Director]

Only 2011 and 2012 that represents $3.2 million. We haven't booked it because the -- as you can see, they still have an appeal time, so we're waiting to see if they will still appeal. It would be a stretch because I think that going back in 2011 and '12 behind the 5 or 7 years delay, which is a stretch, but we haven't booked it yet.

[Jean-François Neault]

No.

[Operator]

Ms. Vachon, there are no further questions at this time.

[Karine Vachon, Director – Communications]

Thank you, and thanks, everyone, for your participation we look forward to Q3 in November.

[Michel Letellier, President, CEO & Director]

Thank you very much.

[Jean-François Neault]

Thank you.

[Operator]

Ladies and gentlemen, you may now disconnect your lines.