Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Innergex Renewable Energy's 2022 Second Quarter Results Conference Call and Webcast. [Operator Instructions] And I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to [ Adam Pelaacci ], Director Investor Relations, please go ahead, sir.

[Unknown Executive]

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 also available as we speak on the homepage for 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 or acquired below. Also, during this call, we will refer to financial measures that are not recognized according to the international financial reporting standards, so please refer to the non-IFRS measures section of the MD&A for more information. Our speakers today will be Mr. Jean Trudel, Chief Financial Officer, who will present Q2 results, and Mr. Michel Letellier, President and Chief Executive Officer, who will review our operational highlights. I now turn the conference over to Mr. Trudel.

[Jean Trudel, executive]

Good morning, everyone. Thank you, Adam. I'm very pleased to be here again for Q2. So just the financial highlights, the corporation's financial performance posted actually very strong growth for the 3 months ended June 30, 2022, compared to the same period last year. Production was up 19% at 2.8 terawatt hours and revenues were up 29% at $219.7 million compared with the same period last year. This increase was mainly explained by the contribution of the 2021 and 2022 acquisitions, namely the remaining 50% interest in Energía Llaima, for which results are now included in Innergex's consolidated performance, the Curtis Palmer hydro facility, the San Andrés solar facility as well as the Ala wind projects recently acquired.

The commissioning of the Griffin Trail and Hillcrest facilities also contributed as well as higher selling prices at the CB solar facility and higher production at the Québec wind facilities. These items previously mentioned were partly offset by lower revenues at the British Columbia hydro facilities stemming from lower water flows, basically due to a cooler season, so delaying the melting season to later on, and also lower wind regimes and lower exchange rate at the French wind facilities. Operating general, administrative and prospective project expenses were up 40% at $66.9 million.

The increase is mainly attributable to the 2021 and 2022 acquisitions and asset commissioning, as mentioned earlier, as well as higher maintenance costs at some of our BC Hydro facilities. As a result, adjusted EBITDA for the 3-month period ended June 30, 2022, reached $152.9 million, which represents a 25% increase compared to the same period last year. And although net income is not a measure typically in focus, it's important to note that this quarter, the net loss is mainly explained by a $45 million decrease in recovery of income tax related to the disposal of the Shannon and Satu facilities and a 35.6% unfavorable realized and unrealized changes in the fair market value of financial instruments. Our proportionate financial performance also posted growth for the 3-month period ended June 30, 2022, and the increase in proportionate metrics was largely driven by the variances explained in the previous slide, in addition to the PTC contribution from the commissioning of the Griffin Trail wind facilities. So continuing to the next slide.

For the trailing 12 months ended June 30, 2022, the corporation generated free cash flow of $149 million compared with $92.5 million for the corresponding period last year, normalized to exclude the impact of the February 2021 Texas events. This increase was primarily explained by the incremental contribution from the 2021 and 2022 acquisitions and asset commissioning activities, as mentioned earlier, and the BC Hydro curtailment payments that we received during the first quarter. So these items were partly offset by higher debt principal repayments stemming from the Energía Llaima acquisition, the beginning of debt repayments for the Upper Lillooet and Boulder Creek project loans, an increase in free cash flow attributed to the noncontrolling interest stemming mainly from the Curtis Palmer acquisition and unfavorable differences between sales at the CB node and purchases at the [indiscernible].

The increase in free cash flow versus 2021 resulted in a 40 percentage point improvement to our payout ratio, which amounted to 96% for the trailing 12 months ended June 30, 2022, compared with 136% for the same normalized period last year, which is, in my view, a great improvement, and we're very pleased about the turnaround in our payout ratio. When excluding prospective project expenses of $24.7 million, the adjusted free cash flow stood at $173.6 million versus $113.3 million for the same normalized period last year. So the adjusted payout ratio consequently reached 82% compared to 111% last year, again, a great improvement.

So next slide. I would like to remind everyone that the 2022 performance projections communicated at the beginning of the year, did not take into consideration the potential acquisitions that could be achieved in 2022. So we have since then revised our performance guidelines subsequent to the closing of the San Andrés and the Aela acquisitions. The projections were also revised to take into consideration the below average water flows, wind regimes and solar radiation at some of our facilities in the first 6-month period. Consequently, and compared to 2021, the normalized actual performance, the corporation is projecting a 22% increase in production year-over-year, a 25% increase in revenues, a 25% increase in adjusted EBITDA as well as a 21% increase in adjusted EBITDA proportionate. Also, we revised the free cash flow per share target, which is now projected at $0.75 per share, which represents a $0.2 per share increase versus the $0.73 per share target that we communicated at the beginning of the year. So on the next slide, subsequently to the first quarter period end on July 25, 2022, the corporation settled the interest rate swap which were intended to mitigate interest rate fluctuations in connection with its Chillán facilities, nonrecourse debt refinancing.

So basically, we ended a portion of our swaps that we had put in place to protect ourselves from interest rate movements at the time when we fixed actually the interest rate, the pricing of the debt that is going to be concluded imminently. The net settlement in our favor amounted to CAD 53 million, which was captured upfront. Also, on July 25, 2022, the corporation sent a notification of cancellation to long [indiscernible] PPA offtaker in France in order to take advantage of current favorable energy pricing environment. So this will become effective on November 1, and we hope to take advantage of the high pricing environment in France for this asset. The corporation will leave this facility merchant until such time where we deem appropriate to fix the rate for the future. So we're consistent with what we did at [indiscernible] where we actually did fix under a new purchase, a new power purchase agreement, the rate that took effect actually on August 1. So as concluding remarks, we're very pleased with the corporation's performance over the second quarter versus the same period last year and especially the reversal in our payout ratio profile. And the past few months, we're very fruitful with the execution of various initiatives, and I'm glad to give the floor now to Michel, who will go through the operational review and these initiatives that we've put forward.

[Michel Letellier, executive]

Thank you, Jean, and good morning, everybody. The last quarter was pretty busy finalizing the acquisition of Aela, and as mentioned by Jean, the refinancing, the team is working hard. We should announce imminently the closing of the transaction. As Jean mentioned, we did protect ourselves when we announced the transaction, the acquisition in the beginning of the year, so we were protected from the movement of the interest rate, which amount almost 200 basis points. So we were very I wouldn't say lucky, it was a good thing for us to put that edge in place. So Aela is adding to the portfolio in Chile as we mentioned, the strategy there is to build a portfolio with all the technology renewable, technology that is available in Chile, meaning hydro, wind, solar and also we're adding the battery system to 2 of our solar assets in Chile that will enable us to be flexible to deliver the electricity in the evening and during the night.

As we mentioned in the past, Chile has a fairly good system to compensate for capacity. And we think that the mix with capacity and arbitrage between the day and evening is very attractive to have battery in Chile. These will be the biggest battery in Chile for the time being, so we think it's a very good timing. We were able to secure the price of the battery early in the year. Since then, the price of battery went up materially. So I think we have a very competitive and compelling proposal with these 2 battery system in Chile.

Also, if we flip the page to construction activities, we have advanced the discussion with ECO regarding our activities in Hawaii. As you know, this is the challenge of the industry, people that had the long-term PPA already signed before what we have seen the result of the Covid, the rapid inflation and the difficulties to have access to components have made the industry searching for a solution in demanding increase in PPA. This is true for also our Boswell project, I'll talk about it. I think that we've seen in the ECO and the PUC in Hawaii, some willingness to enter into a fair negotiation to take into consideration these conditions for the market. I think that this is becoming an industry-wide challenge, that utility have recognized and have access to enter into fair negotiation to support these early project or early development stage project in terms of negotiation and coming to an acceptable price. So we haven't settled yet in Hawaii working towards presenting this demand. Innavik is going great in the sense that we have restarted the construction. We're still maintaining that the project will be in service next year, so a little bit of potential delay, but all in all, we're pretty happy in the advancement this summer.

The idea is to make sure that the power is finished before the winter, so we can continue commissioning the project inside the powerhouse. So far, this schedule is going to be met. I just talked about also the [indiscernible] battery storage construction has occurred, started mainly all the civil installation are on the way, and the production of the batteries are also on schedule. So, so far, this project is going well even if China had some closure this early summer, late spring, I think we'll be able to manage to have all the component we needed to finalize, Mitsubishi is working hard on the schedule. Development activities, we have, as we mentioned, the other project in Hawaii, we have Barbers Point, Kahana [indiscernible].

Same story here, we're gathering information and data to support the demand to increase the PPA price. Same here, I think we have a willing utility on the other side to understand that PPA price have to go up in order to have these projects to be built, so under negotiation there as well. San Andrés battery storage, I mentioned, is also in our development activities. As soon as Salvador is advanced, we will continue on San Andrés, the team that works on the civil will switch to San Andrés and we'll have delivery of the battery just shortly after that.

So I think these 2 projects will be a great success in terms of delivery and timing. As you know, Chile market is pretty hot these days, we are seeing a lot of high pricing, so I think that the battery will be very effective down the road. Continuing on Chile, we have the small Rakura project that we had delayed a little bit because of the supply change issues, now things are being settling, and we are reengaging with the supplier to have the equipment deliver probably next year. Frontera is still under negotiation with the potential offtake, just take a moment to talk about the last RFP of the [indiscernible] in Chile.

Very funny story there, I don't know, guys, if you have looked at it, but the disco are the different utility across Chile. Every now and then has to come and make an RFP for the retail customers that they are serving. So this RFP was looking for 5,000 gigawatt and they only awarded about just shy of 800 gigawatts. The reason is that we had established a ceiling around $41 per megawatt hour, which was way shorter of the offer. So it's a very good sign, actually. So that means that they would have to come back in December and add to the previous announced call of 2,000 megawatts, they would then have to add up the 4,000 megawatts that they haven't been able to fulfill. So the next call will be something around 6,000 gigawatts, and the average price that the producer submitted was closer to $50 per megawatt hour up from the $38 that was submitted last year. So there's definitely a good trend in Chile showing strong number for the electricity. As you know, we have been waiting for this to happen to advance Frontera and San Carlos and potentially signing also some of our electricity instead of being on the spot market. This Disco needs the electricity in 2027, so that would give us the time to build and to take advantage also on the high pricing right now in the merchant. So all looks good in terms of strong pricing in Chile.

Now if we come back to the U.S., we've been very active with Boswell. As you know, PacifiCorp is a very sophisticated utility. They are taking care of their supply very, very closely. We have been negotiating with them. We have come to a settlement. We cannot disclose the pricing. They're finalizing their presentation to their Board, and we're hoping to have the signing document of our PPA very soon. Things have been intense. But we are happy with the outcome. I think that it's in line with the industry demand these days. You've seen some price increase here and there across the United States that have ranged from 15% to 30% increase in pricing, so we'll take divulging any specific. We're happy with the numbers that we got. We're happy with the reengineering, as we mentioned early on with GE [indiscernible]. I think we have a very strong project now in looking to start the construction as early as this late fall, if things are being signed and go according to the plan. Palomino is the same thing. We have advanced and actually the development is going well. We have the Ohio Power sitting board that has recommended Palomino for obtaining their environmental certificate. We have engaged also with some potential offtaker.

As you know, we have 2 offtaker in line, but we have the ability also to have a check on the market. Price has gone up very strongly in that area. As you might know, Ohio doesn't have a lot of renewable energy, and in this area because of PGM constraint in interconnection, we're grandfather there to interconnect. So there's not a lot of offer of renewable energy in that part of the world. So I think we have a very good position to finalize a good price of our PPA for Palomino, still looking to start construction late next year and potentially [ delearing ] electricity before 2025 to meet the ITC. So very good news there. And Boswell Springs, I forgot to tell but Boswell has all its permitting even the line. So we're ready to go as soon as we have the final PPA documentation and the Board approval. So pretty good advancement actually on those 2.

And now if we go to France, as you know, Europe is really all these days, given the energy crisis, we're trying to accelerate what we can in France. You know that we have now [indiscernible] our first greenfield projects that have been advanced. We're trying to take advantage of the new legislation or proposed legislation that are aimed to speed up all the permitting in France, so we will be looking towards taking advantage of any of those and advancing also on project that we have. So hopefully, we'll be able to speed up some of our existing projects. If we flip to the prospective page, here, what is interesting is that you see that we've been moving projects towards the advancement stage and to the mid-stage, so we've been very active in Canada, actually, in the last quarter.

Some of you know that we have an RFP going on in Quebec. We have submitted the project. It's about 100-megawatt extension of our MU project. We intend also to advance a lot more projects, a lot more megawatts in the next year RFP, working on a pretty big project in West on the North Shore, but south of [indiscernible] with the Atikameg and potentially the Innu First Nation. So working hard on developing some very strong portfolio, also possibility of further expansion on MU. So a lot of megawatt will be available for the next RFP, and it will be a bigger, there will be some competition, but I think that those projects have very good resources and are very well positioned to interconnect as well.

In terms of solar and wind in the States, as you might have seen, the industry is quite interested to understand what will be the final package that Biden and Manson have negotiated. So far, it's not passed. So we don't want to get too excited about it. But if it's passed, I think it will be also very positive for the future development of United States. ITC and PTC will be extended. A little disappointment on the fact that we will not have a direct pay for high PP. Some direct pay will be available for Co-op and First Nation promoter. But nonetheless, I think that the package is promoting renewable energy all over, promoting also more electrification of transportation.

So all good in terms of promoting the consumption of electricity and green electricity in the States. Some ITC have been also updated for a battery storage package stand-alone, so that's a good thing, also, some provision for hydrogen, green hydrogen has been introduced as well. So all in all, very positive package. We don't know if it will pass or not. But nonetheless, if you remember, we have our strategy of honing solar panel that will qualify up to 600 megawatts or even a little bit more than 600 megawatts of solar. We have now a lot of good perspective, one I mentioned in the last call was Wuatoma, it's in the state of Washington, this project is actually advancing very well. We have a lot of attraction for corporate PPA for offtake in that area. So we think that this one will actually speed up pretty fast. Also, we understand that PacifiCorp will be looking for more RFP in the near future. Remember that we have also a project called Wind Denser that is just under the transmission line of Boswell. So that's a 400-megawatt wind farm that could be well positioned to be proposed in future RFP of PacifiCorp. So we're positioning ourselves to be in a position to answer future call in the West, working in New England for solar and battery option as well.

So all in all, I think that our development team have been very busy in advancing the advanced project and development project, but they also have been very well positioned to put more early-stage project in the advanced stage project in the pipeline so that the future goal will be strong for us. Subsecond event, we have finally put the Tonnerre battery in service, it was quite an achievement, it's the first fairly big battery in France to be able to add to the [indiscernible] system, not only the power and discharge but also helping on the micro site, the grid, so pretty good. I think that EVLO did a great job, took a little bit more time than we had expected, but we have a very strong system now. It's been in operation for a few weeks with no flaws, or we're very happy of this outcome and looking forward to do some more in France. I think that France will be looking for a little bit more of those in the near future. So on that, I guess that we can open up for the question period.

[Operator]

Thank you. [Operator Instructions] And your first question will be from Sean Steuart at TD Securities, please go ahead?

[Sean Steuart, analyst]

Two questions, the 2022 guidance ranges that you've given for the various metrics, can you give us a sense through the second half of the year, any base assumptions that are going into that, are you assuming LTA generation, are you adjusting that based on what you've seen so far, and third quarter, any context on some of the assumptions that are building up those growth rate targets?

[Jean Trudel, executive]

Yes, sure, I'll take it, and maybe Michel, if you want to add. So basically, we're taking the first 6 months as they came in and adding the next 6 months on an LTA basis. And what we didn't adjust is the pricing environment, so we took basically what we had foreseen in terms of pricing in Chile, for example, at Griffin Trail, so there's actually quite a bit of potential upside to that number. So we were, in a way, conservative, Sean. And we kept like the inflation outlook the same, we didn't change the inflation outlook for that, except for the new assets that were purchased like Aela, for example, where we [indiscernible] purchase in the year. But there's still probably pricing power upside on the Aela for the portion that is not contracted. So pretty comfortable with these assumptions. I mean, fairly conservative, I think. And it includes the Aela refinancing that is really imminent to close. So it does include the fact that through this financing, we financed entirely the [indiscernible] project, so that's also part of it. I don't know if it's clear or if you have other questions regarding that.

[Sean Steuart, analyst]

That helps. And maybe just following on that, and maybe we'll just wait for the announcement, it sounds like it's imminent. But the refinancing in Chile, can you give us some broader updates on dollar figures attached to that, how you affect that to flow through in terms of your available liquidity and your financing costs going forward as well?

[Jean Trudel, executive]

Yes. So it's a good question because you've seen on Q2 and end of quarter, the usage under the revolving line of credit is pretty high. So there's a fair amount of cash that comes back up, that will reduce the usage under the revolver. So the financing rate increase, but we hedge ourselves as we explained. Also we are replacing debt that will actually have a mark-to-market positive in our favor. So we have to look at it as a whole, I guess the financing that we put in place, which will be above USD 700 million. And it's very imminent, we would have liked to announce it today or yesterday, but we couldn't, so it's coming in very, very shortly. And so all in all, we're financing all the debts in Chile, we're also including a fair LC facility to help us in our operations.

We are financing the Salvador [indiscernible] project in its entirety, and we're going to flow back up roughly $150 million CAD upstream, and then we realized on the gains on the hedges that will total roughly, I think it's USD 60 million. So everything is unlocked, obviously soon, so we'll have the final numbers. So it's a rated green bond. So what's interesting is that it actually puts a lot of credibility on our investment thesis in Chile because it's been rated, it's investment grade. Lenders looked at it as a portfolio, obviously. And I think that's what we told the market for the last 3 years now that we're building a portfolio that is diversified and that can answer 24/7, that can actually attract interest from a power off-taker perspective. And with risk diversified in the way we produce revenues by the 3 different segments, but also with the battery systems being now included in 2023. So we're very pleased by that, I think it's a great outcome, and we'll build on it, and the idea is to keep building on this on that foundation.

[Sean Steuart, analyst]

That's great detail, Jean, I will get back in the queue and open it up.

[Operator]

Next question will be from Nelson Ng at RBC Capital Markets.

[Nelson Ng, analyst]

Thanks. So just a quick follow-up on Sean's question on the Chilean refi. So is there any flexibility on the refi for a future growth in terms of like upsizing debt at a later date or adding additional tranches?

[Jean Trudel, executive]

Yeah, there is, but it's a private placement, so as any other private placement, there is obviously an interest from the syndicate of lenders to increase their position if we need to make it in the construct that exists already, so we need to remain to remain BBB- or BBB investment grade, and we'll need to abide by the ratio that set the loan amount. But yes, there is a possibility of that. It's not e don't have to, but there is a possibility of that to add tranches to it. I think the lenders that are joining in actually was oversubscribed, and so we scaled down all the lenders. And so there was definitely a lot of interest to participate. So I would anticipate that if we were coming back with an additional tranche in the future, they would participate.

[Nelson Ng, analyst]

And then for Michel, in terms of the PPA discussions and settlements, so can you just confirm for Boswell Springs, you said that PPA is finalized and that's consistent within the industry range of that 15% to 30% improvement?

[Michel Letellier, executive]

Yes, that's what I said, it has to go to the Board of PacifiCorp and they're quite concerned because I think they still have some negotiations going on with other proponents. So we cannot talk about the price, but it's consistent with the activities that have been going on in the state. For us, we're happy with the result, it's a win-win, I think, for PacifiCorp and ourself. And we were very active with the pre-engineering with our team to select GE and GE did a lot of effort in putting their best proposal, both in terms of pricing and long-term operation of the site and also providing the right turbine to extract the maximum energy on that site. So we're very excited on the outcome, very proud of all the team that worked hard to develop the project and thus the engineering. We have also the balance of plant and contractor aligned. We have all the pricing in place. So we're ready going to go, ready to fire. Maybe I can add something, Nelson, just to give you a bit more color.

I mean it's 320 megawatts under long-term 30-year PPA, that is Boswell meaning no shape, no basis risk, and it's going to yield us like a mid-teen like IR levered return. So I mean it's a great turnaround story, like the Phoenix [indiscernible] from the [indiscernible] honestly, as you know, it was a difficult project back in the days, we had to take a small write-off at one point, but as Michel said, the team worked very hard, nice turnaround, and we got enough pricing power at the end to lock in, and we're just waiting for them to -- we package it up with other proponents, so we're waiting for that package to go through their approval process. But another thing that we would have liked to mention in greater details today, but maybe we'll be a couple of days short on weeks, I don't know how long still but yeah. [indiscernible] it's the final process of PacifiCorp, so we've done our job and waiting for their process to go through.

[Nelson Ng, analyst]

And then just moving to Palomino, from that perspective, the PPA discussions, I think you guys have given an offer to the current offtakers and they are still deciding on whether to accept a bid or has that all been accepted and sorted?

[Michel Letellier, executive]

No, they still have a first right of refusal at the end, but the market has moved a lot. And in this case, I think this cost a little bit more freely, and it depends if it's a bundle with the rec or just the electricity and then the rec separately. But as a bundle, if you take the rec and the electricity without the CapEx payment because the CapEx payment has been a little bit of a deception in PJM lately, but the price of the bundle both rec and electricity has gone up materially from the mid-30 to the low 50. So that's a big step. And that's the market today, and I think it can even be improved a little bit.

[Nelson Ng, analyst]

And then just one last question, switching over to France. So you've canceled a few contracts to get exposure to the strong merchant power prices. Are you in the process of reviewing additional projects to cancel contracts, and I presume if you are, you probably want to do that relatively soon, given that the winter prices in France are really high?

[Michel Letellier, executive]

Yes. We're looking into the fine print of those contracts and what are the intentions of the regulator regarding these contracts, but yes, we probably could. We're trying to assess if it's practical, if it makes sense. But we're surprised to see the forward pricing -- what we've seen for December is something close to EUR 800. We thought we had a great deal with the first 3 earlier this year, around 200, so that's why we're staying merchant on the last one. But if those pricing are still there for a fairly long period of time, I guess, any penalty can be absorbed fairly shortly with these pricing conditions. So yes, we're looking into it.

[Nelson Ng, analyst]

Thanks, I will [indiscernible] there.

[Operator]

Next question will be from Ben Pham at BMO.

[Benjamin Pham, analyst]

You mentioned the strong French spot prices, and I assume that [indiscernible] is also helping you guys as well. I'm wondering then, have you seen any change in how your lenders view spot pricing, are they more willing to give you more length in the debt or just take on more debt, is there been any change from their perspective?

[Michel Letellier, executive]

Well, we were able, that's the first say, the green bond in Chile was the first to have been rated with merchant exposure. So we have a mix of PPA and merchant and the lender has accepted to take those type of risks. So that's a little bit of an improvement on the side. But as you heard me talking about the timing to sign PPA, and for a while, Innergex would seem to be taking risk in being exposed in Chile in the merchant exposure. But what I said at that time, remember, guys, is that, we could have locked PPA, it's not a problem locking PPE at low pricing. The thing is that you want to make sure that there's a good price signal that makes sense on the long term, and then we would be willing to sign more PPA. It's just that we felt that the price was not strong enough. So to answer your question, I guess that the lenders might be more willing to take merchant price exposure, but merchants are volatile. I mean, everybody are really happy to see what's happening in France, but it takes a war to have these type of price.

So I mean, it's not necessarily the long-term view that this will last forever. So we want to be cautious, but we want to be also prudent and smart in firming up some PPA down the road. I guess that in Chile, we saw that the industry is becoming -- in the last RFP is becoming more disciplined, I like that. I've seen in the last few RFP in Chile, some people bidding ridiculous pricing. Canadian Solar did a 24-hour blocks at $13. I mean who can be that to -- I don't want to say that. But I mean, this is silly. This is really, really silly.

And this time, there were no such silly bid. All the guys that are serious went over $40, even $60 bids were in. So I think that it shows that the industry hopefully is starting to be a little bit more disciplined. We're seeing that also in Ohio. We've seen what's happening also in other corporate are willing to buy at a reasonable price, but at a decent price, we have to make good margin. And so I guess back to your question, yes, banks will probably be a little bit more flexible in terms of merchant exposures. It all depends on the type of long-term forecast you're using with those pricing. I think that we're prudent in our approach when we take the risk of merchant when we acquire some assets. It's just a matter of making sure that you're not too optimistic and you don't put too much leverage on something that can be volatile.

[Benjamin Pham, analyst]

And maybe a follow-up on your payout ratio. I'm wondering, can you remind me your adjusted payout ratio, what are the key adjustments, I know last year at the Texas storm in 2021 [indiscernible] what's driving the adjustment again?

[Michel Letellier, executive]

I'm not sure I understand your question.

[Jean Trudel, executive]

No, it's just between the adjusted payout, the adjusted payout is just we take out the prospective project expenses from the calculation. So we took the last trading 12 months perspective, I think it's about $24 million in trading. So when you take that out because it's really an independent decision from management to reinvest money -- so it brings down -- the actual payout ratio is 82%. And then we decide to invest in prospective, which once that was done, the final payout ratio was 96%.

[Michel Letellier, executive]

And also, Ben, as you can remember, our payout ratio include all our repayment of capital in all our projects. So I mean, it's a real, real, real cash flow availability that we're talking about.

[Operator]

Next question will be from Mark Jarvi at CIBC.

[Mark Jarvi, analyst]

Thanks. Jean, just going back to the free cash flow per share guidance of $0.75, you talked about some of the potential upside on spot, what is baked into that assumption around the refinancing, any interest rate savings, if at all, on the refinancing of in Chile?

[Jean Trudel, executive]

Yes, the refinancing is baked into this number. But the thing is that the refinancing in Chile there's a 3-year interest-only period, but the effect of that is not really seen in 2022 because most of the existing debt in Chile already did their scheduled principal payment because it's semiannual payments. So what we revised is the 2022 guidance, so at the Investor Day in September will bring a bit more color again like to our long-term forecast, and we'll then be in a better position to maybe guide you guys on the 2025 reforecast, if I can say it that way. And so at that time, we'll make other assumptions in terms of power prices, but also inflation is positive on us, so right now, it's pretty conservative because we've assumed just a 2% inflation typical. So once we revised that for the Investor Day, we will have a bit more color for the 2023 and beyond.

[Michel Letellier, executive]

And Mark, maybe there's something that will be a little bit hard for you guys to reengineer is the fact that, as Jean said, we hedge ourselves since the day we acquired the Aela and planned the financing. So we got an upfront cash flow of USD 60 million that could theoretically be amortized over the time of those loan against the interest rate. So you will not see an economy on the interest rate as the interest rate has gone up, but we've got $60 million upfront in the hedge strategy. So we kind of benefit from this, it's not an interest rate saving on the amortization period of this, we got it upfront.

[Mark Jarvi, analyst]

And then you talked about the high spot prices in Chile and maybe you choose to bid some of your existing capacity in RFP. But are there other mechanisms by which you can lock in prices or is the RFP is with the disposal, is there a hedge market down there or anything else you can use?

[Jean Trudel, executive]

No, there's not our hedge, but the Disco are only -- their monopoly on retail market, but then the market is completely open for small commercial and big industrial, and there's a strong market for commercial PPA. Mining is always looking for PPAs. As a matter of fact, they have a bunch of wave of future needs. The big mining companies will have to come back to RFP. They do their own RFP or very small RFP, its own invitation. But it's even bigger than the discos actually. So there's a big free market where you can find PPA. Historically, mine would agree to sign up to 10, sometimes 15 years PPA.

There's plenty of smaller commercial outfit that would sign 5 years PPA. But the big mines anywhere between 7% and 15% -- 7 and 15 years. So there's a lot of opportunity. And of course, the mining these days with ESG component or pressure are looking for renewable energy supply, which we are very well positioned. Guys, the strategy in Chile has been since the beginning to have a diversified portfolio to be able to be attractive for the industrial PPA. So we're very well positioned now with the wind, the hydro with some capacity -- storage capacity with our hydro, remember, and also the solar with the battery, we have now the ability to be firm, to be able to deliver firm energy to these clients.

[Mark Jarvi, analyst]

And Michel, maybe if there's recent transactions in the industrial PPA market, how would that compare to where you think pricing might clear on the Disco RFP?

[Michel Letellier, executive]

Well, there's pretty similar, actually. We have incoming calls in our office now to have other distributors that have already some contracts with mining industry that needs to fulfill that production, and they're floating $48 to $52. So the market seems to be for 10 years, 15 years right now around that price. And remember, those disco and all the PPA in Chile are usually signed with full flow-through on inflation, and it's U.S. dollars. And it's always U.S. dollar, both for the discos and for the commercial and industrial PPA.

[Mark Jarvi, analyst]

And my last question is just on suppliers, OEMs, wind turbine suppliers, we hear lots of them suffering from margin supply chains, I'm sure they'd like to pass through the cost to developers like yourselves. But my one question is, you see high spot prices in Europe, how does that flow through other geographies, is the pricing different. do they reverse engineer your IRRs in Europe versus North America versus South America, I'm just wondering their ability to try to pass through costs and across different markets you're looking at?

[Michel Letellier, executive]

Well, of course, they were caught like us, and that's why we had to go back in Hawaii and Boswell as an example, because they definitely needed to have some price adjustment. In the case of GE, remember that we had [indiscernible] as the preferred supplier for Boswell. And we used an RFP and then good negotiation to have a better price. And we let go [indiscernible] and we selected GE, GE had a better proposal, although it was probably higher than 2 years ago, the price. But the machine was better suited to Boswell, so we've got a good combination of reasonable increase in their price offer and higher output in terms of production. So we were able to make the pain on asking a price increase from our part to PacifiCorp to be reasonable. And I think that's why PacifiCorp has that, but we're willing to accept our price increase. But to your point, I don't know if they are that sophisticated in the sense that the supply change is a little bit different in the States than in Europe. The machine are not necessarily the same. GE has some specific machine for Europe and some specific machine that they prefer to deliver in the states. It would be hard for us to understand if they do this reverse engineering to ask more margin in Europe versus in the...

[Jean Trudel, executive]

There's too much competitive pressures in my view to do reverse engineering because of the pricing. I think they manage their cost structure because of the inflation pressure is the same as we would all do. But then they pitched their best price.

[Michel Letellier, executive]

And it's very different, the U.S. is volume oriented. Like Boswell, it's 300 megawatt, you're doing project in France in the range of 20, 30 megawatts, so it was 4, 5 machine, where in Boswell, you get to have 75, 80 machines. So not the same market, so I couldn't say how the...

[Mark Jarvi, analyst]

And the sort of main question here is just that when you look at where power prices and PPA prices are now being able to reset your cost on the supply chain, are you seeing returns hold steady or are you seeing opportunities to expand returns right now?

[Michel Letellier, executive]

It all depends, and I don't want to brag about it because, of course, our customer wouldn't be happy, but it depends. I mean in some cases, in the case of Boswell, I think that our team worked really, really hard and it's a combination of good engineering, good selection of the turbine that help us being a little bit more competitive and perhaps increase a little bit our position in terms of return. But obviously, the customer is willing to talk to you and agreed, but they don't want to be taken advantage of. So usually, they wanted you to be fair and say what's your real increase in cost. That's what why ECO is trying to establish with us. They want to see some evidence of the different increases, and we have to uncommented so that they can be comfortable that we're not trying to take advantage of this situation, we're just trying to pass through the increased cost.

[Jean Trudel, executive]

And maybe another way to say it also is that I think uptakers are -- they understand that the risk profile will be different in the future. Like the IPPs, like Energia, I think we are very mindful of future inflationary pressures, so to sign fixed rate, no CPI, no flow-through suddenly, like that discussion has opened up again with offtakers so that they are mindful that people will want to have a price that adjust over time. So I would say the expanding return, yes, I think in some cases, but also probably the risk profile of our offtake agreements might be different in the future as well because of what we've been through.

[Operator]

Next question will be from Andrew Kuske at Credit Suisse.

[Andrew Kuske, analyst]

I guess maybe just a big picture question, when you think about the success you've had in putting projects into the advanced stage of development on a prospective basis, when you look at the regions that you started to build up, Chile in particular and just what you've done in France more recently, do you feel you're at this tipping point in certain geographies where you could maybe accelerate growth even faster than what you've laid out in the past?

[Michel Letellier, executive]

That's a very good question, Andrew, and I think Canada will see a lot of growth. We have forgotten about Canada, and Canada is with the -- it's a waking. Quebec, we were to be -- I think I said it last time, we were surprised of how fast the surplus of energy in Quebec went and how fast Hydro-Quebec need new energy. I think that this is a great news for us. I think that the Maritime will also see some activities. I think the Fed in Canada will be trying to help the maritime reducing their carbon footprint and the maritime are not in a good shape. I mean they rely still on coal, they rely on the very heavy diesel need to do something. And I think that the Fed will try to equalize some payment that they're committing to the West by providing a lot of incentive for capturing carbon for oil and gas industry.

They have to be fair, and they have to share the economic support for decarbonization, the country. So I think the maritime will wake up as well. We're very well positioned in New Brunswick. We have about 1,000 megawatt of wind site secure. So we're hoping to be an A player there as well. Ontario, it's just a matter of time where this market will explode in terms of need for renewable energy. Industrial customers will need -- you know that Ontario is one of the most heavy province in terms of heavy industrial footprint, and they have not done that much yet, and still the grid rely a lot on natural gas. Ontario is poised to see a lot of growth. And BC is just a matter of time when BC Hydro will start waking up, their stock with their mindset of hiding the cost of [indiscernible] which is bit faster. Remember that site is a 1,000 megawatts was supposed to cost $8 billion.

The last number they gave with $16 billion, and that was before the effect of the COVID. I wouldn't be surprised to see that number going over $20 billion. I hope that's the time [indiscernible] the money of the taxpayer that way. And they have not even taken in consideration the comparization of the transportation and they're still eating the homes with natural gas. So I think that Canada will definitely see a big comeback. And the U.S., I mean, if the Biden proposal goes through, we'll see a lot of megawatts being built in the U.S., a lot of megawatt. France is a great place in Europe, it’s a great place as well, just it's difficult to develop the project. So unless France speeded up the permitting process, they'll have a hard time getting the [indiscernible] energy, the new project that they are seeking and rely upon in order to meet the electricity demand. Offshore will definitely be a big play in Europe. We're not necessarily a player in the offshore, so I think we'll definitely see our focus being perhaps a little bit more on solar in France. There seems to be some willingness to ease some rules to have solar on farmlands.

And so I think that we may see a little bit more activities in solar in France. And Chile is a nice place, but it's a small market. We have been very active in taking advantage of very good acquisition at a good pricing. We have 2 hydro facility that we can develop if we can secure the long-term PPA that makes sense. We have Frontera and San Carlos. San Carlos is even more interesting. It's now getting close to being advanced stage. We have finalized all the permitting process. It's just a matter of having the authority to go through and make their decision. But it's a 150 megawatt hydro facility with 4 or 5 hours of storage, that could be a very good tools to play in the market over there. But I'm very, very excited about the outcome not only for Innergex, I think for renewable energy as a whole, we haven't seen that many opportunity in the last decade. I mean in every jurisdiction, we'll see very nice growth. And I think that's why also we can hope to have some bargaining power in terms of pricing. I think that the market with all these opportunity will discipline itself, and we should see fair market and good returns in the deployment of these projects.

[Jean Trudel, executive]

And Andrew, if I may add, I mean, we've never been positioned that way in the past. So we've populated offices in each of these countries that Michel described with very talented people looking out for new projects, it was not like this 2 years, 3 years ago. So right now, it's poised for great growth everywhere. And at the same time, I mean, I think we're positioned with the underground offices with the right talent at the right place to do this. And that's true for wind, solar, hydro, more in Chile, but also battery systems or hydrogen. So I mean we've expanded also our reach in all these categories. So I think it's a great intersection point like for us at this moment, and we're building on this, so we're adding also to it.

[Andrew Kuske, analyst]

Are you at a point where you can either get better margins on some of the projects you can win in part because of the network effect and having the boots on the ground, as you just outlined, or is it more of a function of you have a higher probability to win RFPs and just win projects, so the margins might not be greater, but you just have a greater probability to say, higher percentage ball or is it a combination of both of those things?

[Jean Trudel, executive]

Well, we'll expose ourselves to more RFPs, where we were more inclined to participate in the Canadian RFPs in the past. For example, now we're exposed to many more RFPs and more corporate PPAs, RFPs, and so when you add a good site, that's where you can leverage it. For example, Palomino is in a great area of Ohio, it's very much in demand, and there aren't that many projects as advanced as this one at that specific place, so it attracts a lot of attention. So in that sense, you can get pricing power, but it's still a very competitive market, so we'll feel the competition in many of the other markets. When you enter a large RFP and it's very sought after, obviously, it's hard to differentiate your product, and so competitive pressures will still be there. But in some cases, we can position ourselves on the grid, like with grid interconnection points that are taken up. Like it's a game of interconnection points in many cases.

[Michel Letellier, executive]

It's true. I think that our industry, we used to be exposed to only a few RFP, and if you wouldn't be able to select the product, then you have to wait 2, 3 years. Now I think the industry is confident that if you don't win this one, next year will be another chance. So I think that the industry is becoming more patient in terms of pricing, and there will be just more and more opportunity. Of course, there's more competition, there's always been competition, but I think that the demand is so big these days that, our job has always been complicated, but the customer needs and wants green energy.

[Operator]

Next question is from Naji Baydoun at iA Capital Markets.

[Naji Baydoun, analyst]

Just wanted to come back on the same sort of line of thinking, particularly in the U.S., given all the good news that we've seen recently. Just conceptually, how quickly can you accelerate your development in that market, especially all of the projects that you mentioned already on this call, that's a good run rate that you think you can -- velocity that the development that you can hit?

[Michel Letellier, executive]

It's a good point. I think that the U.S. is designed to have some bigger projects, 200-megawatt, 300 megawatt type of project, even 400-megawatt solar project as Wautoma is. So at least one of those per year on a run rate would be an acceptable target for us. If we're lucky, maybe 1.5 or 2 of those. And then in France, we said we wanted to have 2 or 3 smaller projects, but on a recurring basis, that's the trend in the forecast that the team in France is building on. Chile, one project every now and then. So in Canada, Canada on the wind side, the project can be 100, 200, 300 megawatts in some cases. So if we can win one of those also, it's adding up to 500, 600 megawatt fairly easy. It is possible, I'm not saying that it's easy to achieve, but if we win one project in all of the places we're active per year, it can add up quickly.

[Naji Baydoun, analyst]

And just on Canada and Quebec more specifically, your development pipeline there continues to grow quite nicely. I think it went up by about 800 megawatts in 1 quarter. Is there a reason why you didn't necessarily bid more projects into the last RFP, and maybe you can give us some more color on how much you expect to be ready to bid into the next RFP?

[Michel Letellier, executive]

Yes. We were cut short a little bit, and I think the industry was caught short. Usually, Hydro-Quebec RFP are usually overfilled by 3x, 4x, and this time was only 1.5x. So I think that the industry was not necessarily ready for that quick of an RFP. I think Andrew, Quebec got the industry a little bit by surprise. We had some more projects that we could have submitted for all kinds of reasons, we decided not to, but we're getting really ready for the next few ones that are coming that will be bigger. Yes, I guess an interconnection was an issue, there were some strategy by some other players that had somehow complicated the interconnection process, so that made it a little bit more difficult to bid project. I think that we adapted our strategy to it, and we applied the same strategy. So I think that this time next year, we'll be in a much better position here...

[Jean Trudel, executive]

And there's also -- in Quebec, we've also put a lot of effort in the bilateral discussions with Hydro Quebec. And as you know, like they want to form a portfolio of 3,000 megawatts that was announced in their strategic plans, so I'm not making this happen. So we also provided that way forward, where we have a good proximity with hydro Quebec. We understand what their need is, and I think that's going to yield also great results that is not necessarily going through an RFP.

[Naji Baydoun, analyst]

Maybe just at a high level, if you can expand on that, in your view, what's the pros and the cons of the RFP versus the direct negotiations?

[Michel Letellier, executive]

The RFP, it depends which one, the RFP that the 300 megawatts as an example, has stringent obligation to have local content that could be a little bit of a challenge to meet. And bilateral negotiation with Hydro-Québec not have those rules, so that could somehow be a little bit more flexible. I think a good mix because the social license in Quebec on win rely also on the fact that a lot of economic benefit went to the local communities. So I think it's important also to have that in mind in Quebec and making sure that any project that would be developed would take into consideration either First Nation or local community in the mix.

[Jean Trudel, executive]

And on delivery also, in an RFP, there's a set delivery date, so you bid your projects for a certain date, in this case, it was 2026, so it made it may be a bit more difficult. So in the case of a bilateral, you can be more flexible, I guess, the uptake or the partner can be more flexible also in the way you procure the energy and the way you build out your phases and you bring the energy to the grid. So that's also another advantage.

[Naji Baydoun, analyst]

And just maybe one last quick question. You also talked a lot about merchant power pricing exposure. I'm just wondering if you can give us an updated thoughts on [indiscernible] just given what we've seen in Texas in the last few months or so, I think prices have almost more than doubled since last year, that change your view on maybe contracting a portion or all of [indiscernible] over the near term?

[Michel Letellier, executive]

Griffin Trail is the right tool for the crazy market of Texas. So we like the way it is set up. We're actually very happy this year on the volume of production and the price. For the time being, we like what we have in Griffin Trail. We have difference setup up in Fort City, which has suffered a little bit on the basis and could have been a better producer in the last quarter. So we like what we have, Texas is a very strange market. As you know, we've learned the hard way and certainly will never, never, never, never again be caught in being firm in Texas and exposed to basis. We've done that, been there, done that, done.

[Operator]

Your next question will be from [ Luca Nada ] at National Bank.

[Unknown Analyst]

So a quick follow-up on the Texas market. Are you seeing big impacts from congestion in the market or are you fully benefiting from the power prices?

[Michel Letellier, executive]

It depends with the structure, and that's what I'm referring to. PB is being plagued by congestion, it's a little bit of a sad story in the sense that just before the COVID, that region was actually needing a net importer of energy because the rig activities in that area was at their highest. And therefore, ERCOT managed to build line and interconnect the Northwest wind into that area of Odessa as an example. And since then, the rig activity has gone down. It's picking up now, but it takes a little bit of time to have the industry, oil and gas extraction being at full strength. Just to give you an example, before the COVID, there were 550 active rig in the Odessa area, and just at the height of the crisis of the COVID, that has gone down to 150. And now it's back to something close to 400. So by the time the demand is picking up, of course, the energy coming into the area is greater, and hence, sometimes we have economic curtailment and sometimes we have hard time and having a panel to deliver in the South Hub just as Jean has mentioned in the call.

So this is why I'm saying we don't want that anymore ever, ever again. Fort, to some degree, is less of an issue, it's just that a line around Fort City was down, took a bit of time to rebuild it, so I think that in the next few weeks, this will be settled. So the thing, if you want to play Texas, I think that Griffin is the right tool. We don't have any basis exposure, we don't have to produce if the price goes negative and we can take advantage of the high prices event that we have seen. And we'll be probably seeing in the next few weeks, Texas has seen some heat wave out of the ordinary. I don't know how many days, I was reading an article, I think it's 20 days over 40 degrees since the beginning of the summer, so it's terrible, and it's probably going to be like that in the next few years. The global warming is affecting a lot of weather pattern, and Griffin is the tool to take advantage of that. And to some degree, Fort has also some exposure, remember that we have 300 megawatts of PPA has produced and 50-megawatt merchant in Fort, so those 2 are great. PB is still a little bit of our sour point in Texas, and we'll be trying to look, like I said in the past, to fix that problem once and for all in the near future.

[Unknown Analyst]

And switching to Chile, there's demand for new generation from disco, so does this mean there could be changes to your forecasted delivery under the new [indiscernible] versus your initial forecast, I think you were hinting at 58% of the generation would be sold under PPA?

[Michel Letellier, executive]

That's a good point, the delivery on the discos are scheduled to be in 2027, if you remember in Aela, there were 2 components for the portion of our energy being sold under the PPA or the demand of the disco going up is that first the demand is scheduled to go up, but the biggest portion was the fact that all PPAs were getting kicked out of the portfolio, they were just getting close to their expiration date. So it's twofold, it's the retirement of the early PPA that was part of the portfolio of the disco and also the increase of the demand from the economic recovery post Covid.

So that's why we had that forecast from something around 60% going to something around 85%, 88% of the volume. What Jean was referring to is that it would seem to be, I would say, a slight negative aspect for Aela, having only 60% of this PPA volume being taken by the disco. But given the price of the market these days, the spot market is higher than the PPA price, so we actually don't suffer -- and as Jean said, we haven't taken that into consideration in our next 6 months forecast guidance. We kept the original price of electricity, which was probably around $45, $50, $55. And right now, the average price that we're seeing on 24 hours, 7 days a week is closer to 140.

[Unknown Analyst]

And one last one, if I may. We saw that new French incentives would allow you to earn merchant pricing on new generating assets for 18 months just before the feed-in premium contracts start. But I like to know if this would apply to the 2 new wind farms you're building?

[Michel Letellier, executive]

[indiscernible] yes, that's what we understand.

[Unknown Analyst]

But then it means you could accelerate the construction of those and try to get them to benefit from this for as long as possible?

[Michel Letellier, executive]

The pedal is touching medal on the development side. The team in France knows what they have to do, but even if you want to go faster in France, it's not always easy.

[Operator]

Thank you. And at this time, we have no further questions. Please proceed with closing remarks.

[Michel Letellier, executive]

Thank you very much, everybody. Thank you.

[Operator]

Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.