Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2018 Third Quarter Results Conference Call. [Foreign Language] [Operator Instructions] I would like to remind everyone that this conference call is being recorded.I will now turn the call 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'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. 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. The Corporation does not undertake any obligation to update or revise any forward-looking information whether as a result of events or circumstances occurring after the date hereof unless so required by law.During this call, we will refer to financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the Non-IFRS Measures section of the quarterly report for more information.Our speakers today will be Mr. Michel Letellier, President and CEO; and Mr. Jean Perron, Chief Financial Officer, who's here with you for his last conference call as he's stepping down from his position today. We welcome also on the call Mr. Jean-François Neault. He's assuming his new Chief Financial Officer role since this morning.Please note that Mr. Letellier and Mr. Perron will be answering the questions today. I'll now turn over the conference to Mr. Perron.

[Jean Perron]

Thank you, Karine. Good morning, everybody. For the 3 months period ended September 30, 2018, production was 91% of the long-term average due to below-average water flows across Canada and below-average wind regimes and trends.Overall, production increased 25% compared to Q3 2017, due mainly to the condition of the geothermal facilities acquired in 2018 to higher production at the Mesgi'g Ugju's'n and Upper Lillooet River facilities, to better performance at the Quebec wind facilities and to the French wind facilities commissioned in 2017, partly offset by lower production at the hydro facilities.For the 9-month period ended September 30, production was 96% of the long-term average due to below-average water flows across Canada and below-average wind regimes and outages caused by maintenance activities in France. This was partially offset by above-average wind regimes in Québec.The production increased 37% compared with the same period last year due mainly to the commission of geothermal facilities acquired and the wind farm acquisition in France in 2017 to higher production Mesgi'g Ugju's'n and Upper Lillooet River facilities and to better performance at the Québec wind facilities.Revenues for the quarter were $32.5 million higher than in 2017. This 30% increase is due to the conversion of the geothermal facilities, higher production in Mesgi'g Ugju's'n and Upper Lillooet and through condition of facilities that were commission in 2017 in France, namely Theil-Rabier, Plan Fleury and Les Renardières.Revenues for the 9 months period were $115.9 million higher than in 2017. This 40% increase is also due to conversion of the wind facilities acquired in France in 2017.Adjusted EBITDA for the quarter was $9.8 million higher compared to Q3 2017 due to the increase in revenues explained before, partially offset by higher operating expense, mainly from HS Orka and general incident expense due to the higher number of facilities and to higher prospective expenses.Adjusted EBITDA for the 9-month period was $51.4 million higher compared to same period last year for the same reason as explained for the quarter.Adjusted EBITDA proportionate for the quarter was $34.5 million higher or 42% and for the 9-month period, $88.5 million, which is 39% higher than corresponding period of last year.The shared earnings of the joint venture and associates are higher by $14.9 million for quarter and $14.2 million for the 9-month period following the acquisition of Alterra, who owns 8 investment and joint ventures and associates that are not consolidated. And this quarter, there was also investment in Energia Llaima in Chile for 50% ownership.Our free cash flow trading for 12-month period ended September 30 reached $97.5 million compared to $88.9 million for the comparative period ended Q3 2017. Our payout ratio stood at 88% compared to 80% in 2017. This change results mainly for higher scheduled debt repayment, higher dividend payment as a result of the issuance of 24.3 million shares related to the Alterra acquisition. The increase requires dividend partially offset by the cash flow from the acquisition of Alterra and the recent commissioning of Mesgi'g Ugju's'n operated with the Boulder Creek facilities, which generated higher free cash flow this year. This concludes my review of the results. I'll be happy to answer any questions later on in the call. I'll now turn it to Michel.

[Michel Letellier, President, CEO & Director]

Well, first and foremost, Jean, I would like to thank you for all these years that you have helped us create value in Innergex. But I don't know if people know but you were involved in the early days, even before me, when you were a top [AMG] advising Innergex for tax purposes back in 1995. So actually, you're older than me in Innergex. But, Jean, I cannot thank you enough for all the years and effort that you have put in Innergex. I'm glad that we have found a way to keep you around even though I understand that you have a lot of traveling planning ahead. But in between, I will always welcome your guidance to keep the taxman waiting in the future. So thank you very much again, Jean, and we'll certainly have more occasion to thank you officially but I thought it was appropriate since you have worked with all these families over the years. So again, thank you. And now, Jean-François, can you say a few words to introduce yourself?

[Jean-François Neault]

Sure. Thank you, Michel, and good morning, everyone. It's a pleasure for me to join you on this call today. I've joined Innergex as I firmly believe in its potential of achieving strong financial results and delivering value to shareholders. I intend to perfect my knowledge of the corporation and the industry and work with the team in place to improve processes and support our growth strategy. I look forward to meet all of you in the following months and to be your main contact for all Innergex matters. Thank you. Michel?

[Michel Letellier, President, CEO & Director]

So thank you again. So back to the quarter highlights. As you heard Jean talk about the long-term average being a little bit of a challenge this quarter. We cannot do much about that. The weather, we still firmly believe that diversification of both geography and technology is the long-term solution to have constant production and firm long-term -- strong long-term production. In the meantime, what we can do, and that's what our operating -- our focusing all the time is make sure that the machines are available and we are glad to report that we had a great availability during the quarter. So the guys are focusing, making sure that when we have order or win, those machine can produce.Also glad that as you heard Jean saying that Upper Lillooet and Mesgi'g Ugju's'n project had a little bit of a challenge in the early months of operation last year. Our great team of operation and engineer find ways to mitigate these, and I think that those initial hiccups are behind us now, so quite positive on those for the future.Now if we go back to little bit of the construction, I'm glad to report that we have now a few project under construction. So this is good. Last year, we were without much of a project under construction. So we like to build stuff. So have we have started to build the project Phoebe that we have acquired early Q3. This is a 315 BC solar project in Texas. All the access and [grading] and now the contractor for solar is starting to put all the foundation in place. So things are settling and going in a good pace. So we are still hoping to have COD by Q3 next year. So it's quite fast and as you know, we can work in winter in Texas. Little bit different than here in Montréal, where we have a very nice minus 10 degrees with wind. So Texas the weather is a little bit more favorable for working in winter.We also have started the construction on 4 cities. This is a big project for us. It's a great project. It's a 350-megawatt project in Texas. We have initiated some work on the field. We have selected Blattner, the contractor for the balance of plant. Blattner has done the Flat Top construction so pretty confident that these guys can deliver, and we also have selected and initiated limited notice to proceed with GE, will be the supplier of the turbine. We are in final negotiation in putting the paper together with the tax equity and the bridge financing. We're hoping to close those in the next few weeks. So 4 city is getting on track for delivery in Q4 of 2019.Now also we've been quite active in acquisition. We also have acquired a project called Hillcrest. It's in the Midwest. We're quite happy with our ability to have a [PGM] project, and this project is shovel-ready, has all the interconnection study in paper to have the project interconnected. Negotiating, we want to have a good offtake on that project so we have a few opportunity to negotiate offtaker and we'll take advantage of also our great relationship with tax equity provider and banks in order to put together a great proposal for creating value with this project. If things turns out to be successful in our negotiation with the offtake for power, we think we can start the construction as early as 2020, and this project can be in service by late 2020 or 2021. So quite happy to work on that project and think we can create quite a bit of value and diversification also in a fairly liquid market [being PGM].Also quite active in Chile. As you know, we have concluded our partnership with Energia Llaima. You know that we have worked quite diligently to find a good partner in Chile or South America. So now it's done. Quite happy to start working with these guys and create some synergy. We, as you know, have acquired also early on in the year the complex of 2 hydro facilities called Duqueco for 140 megawatts. Now we have the keys of these 2 projects and our operational team has started to improve and create synergy. I must say that we think that we can create a little bit more value in this project. Definitely we can improve on water management. We will be investing a little bit in the power canal and also on the management of the upper reserve to manage better the peaking capacity of that plant. So we'll be looking into improving the total production and also the flexibility to produce that energy. I think this is a great advantage in Chile where there will be some solar project being built in the future so it has the ability to dispose of 4 or 5 hours of peaking capacity during the day or night is giving a great value to these assets. So we'll be focusing in the next few months, making sure that we're creating value on this and reduce the cost and create some synergy in -- without the team on the ground.Also for the future in Chile, we want to have an approach to create a portfolio with Hydro, some capacity eventually also some battery, solar project and wind. We have acquired a small portfolio of wind data and some project are quite advanced also in this area. It's not a big portfolio but it's a start, we want to have also wind in Chile and solar so that we can have a great proposal for offtaker in Chile, having the ability to be diversified both geographically and technology will give us some opportunity to sign long-term contract. So working towards establishing a good working relationship with our partner over there.Also quite happy, and this is for us a great victory for our development team to have 1 in a while. I just want to make sure that people understood that when we say we have been selected, it means that we have won in terms of the RFP pricing. We are now in a stage to negotiate with the utility the final wording on the PPA. Of course, it's a new PPA for them because it's a different style where we are proposing to build solar panel attached with 4 hours of full capacity of batteries. So this is a little bit new in terms of papering down the PPA, so working with them in order to create the first PPA of this approach in a while. We are looking for having a capacity payment, a monthly capacity payment with them so they will be managing the demand of the system so we'll be providing service and making sure that those will be available but we will be receiving a monthly payment. So we'll talk about it a little bit later when we will have finalized the PPA because it's always subject to finalizing and agree with all these clauses, but quite confident that this should be done by year-end. So quite happy to have this ability now to work and become a leader in this new and exciting segment of our industry, coupling, solar and battery to supply capacity in the future. Quite happy on this one. Now if we go back also on acquisition, we have now we were working hard on this over the years and it always has been on our radar screen, the acquisition of the 60% of Gaspé from TransCanada. So very happy to have now these projects being under one roof. We concluded this transaction in mid-October. I think that also a little bit of numbers have been going into our -- in our way, we had negotiated the price of $630 million back in June, but we were also owners of the cash flow during that period of initial transaction and closing and the project have generated something around $10 million over the period. Jean?

[Jean Perron]

$10 million is the 62% shares in the quarter.

[Michel Letellier, President, CEO & Director]

Yes, yes, yes, I agree with you. So what we have done since we didn't close, we have applied that $10 million against the purchase price. So now the purchase price stands to be $620 million, so that sale obviously to improve the total retainment of the project. Quite happy also on the fact that we are now quite advanced and the banking syndicate that are going to provide the term loan to finance this project or that acquisition are in final process of credit approval. I'm glad to report that the initial $400 million that was thought to be the target will be materially over that and also the price or the spread on the credit for that particular transaction is also better than what we had expected. So all in all, very happy to report on the advancements of this project finance that will be repaying the $400 million bridge that we have secured when we announced the acquisition. In terms of integration. As you know, we know the team we are taking 49 people. But 49 people seems high to operate these 5 wind farms, but one has to remember that we are self-operating in those. So self-operating is a good segment for us to have. It means that we know how much it costs to operate this facility. We have been focused on reducing costs and being efficient and being also available when the wind is blowing. So this is providing us a tool to make sure that whenever we're negotiating with turbine, a supplier for long-term contract to operate this facility, future facility in our portfolio, we have these people now in experience to help us making sure that we get good value for these long-term contracts. So it's very important for us we have to have this balance and know-how to how to operate the facility and making sure we can challenge turbine manufacturer in the future.But that being said, we also have a bridge to acquire the Cartier. Remember that we have the $400 million bridge for the acquisition that will be taken care with the banking syndicate, but we also have the $228 million bridge loan to acquisition that we said we would cover from some asset sales. Some of you have heard about a process in Iceland. Some minor shareholder in Iceland have gone into a process to sell their shares. So that has brought a lot of rumor about our ability or willingness to sell our majority stake in HS Orka. I must confirm that this asset is definitely part of our reflection on which asset we should be selling. Throughout this process from a third party, we have had a lot of incoming interests for this asset. It's a great asset and I think we think the commercial value of this asset is greater than what we carry on books. The operation over the year has improved a lot and we have some very good potential upside to grow the business in Iceland. So quite confident that this book value that we carry on the Iceland asset is somewhat below the market -- the fair market value of our assets. So I won't go further in this, I think you understand that we are looking to maximize the shareholder value. But obviously, it is something that we could consider.So thank you for your attention. As you can see, we have been very busy with amazing projects this quarter. I must say that I'm so proud of my team and always amazed on how much we can accomplish when we work together. So we're looking for greener and a bright future and I will be taking questions with Jean. Thank you very much, guys.

[Operator]

[Operator Instructions] Your first question comes from the line of Rupert Merer with National Bank.

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

So if I can start with potential for asset sale and capital recycling. So it sounds like you could look to sell HS Orka or any other assets. Is it possible that we'll see more than 1 activity here? Meaning, as I look at your development pipeline, your outstanding equity needs could go beyond just the sale of that 1 asset. Are you still looking at capital recycling initiatives or asset selldowns for some of your other assets?

[Michel Letellier, President, CEO & Director]

Well, there is the -- HS Orka could fetch a lot more than book value, like I said. So also the fact that we have now included [Caissee] it brings some direct cash flow into the credit facility that we held at the corporate level. As you remember, there's quite a bit of asset over there that doesn't have any project finance, so we have unencumbered assets that support this loan on a corporate level. But given the fact that new projects are coming in, that would free up also some ability to raise more cash on the corporate level. So all in all, I'm not too keen to sell too many assets. As you know, we like to own, operate and make sure that we create value for our shareholder. But in the future, perhaps we could be looking in partnering in places where we are growing fast. Texas could be an area where in future we could, once project are in operation, welcome a partner to take some of the equity, but that would be a minority holder. We said that we would -- we could also look into [Cartier] having minority holder in captive, but depending on how we will be finalizing the financing, we think we're creating a lot of value by utilizing the full leverage or capacity of these projects. So you'd be surprised in the future, I think at how much we can generate from our own leverage capacity and perhaps a sale of 1 particular asset.

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

Secondly, looking at the Chilean assets, so we have first look at the performance of these assets. You talked about some potential for synergy and cost-reduction there. So far, are the assets running close to your expectations? And can you give us a little more color into the SG&A run rate there? I think it was $7.8 million in the quarter. How much of that is a standard administrative cost versus development cost? And where should we expect that to shake out in the future?

[Michel Letellier, President, CEO & Director]

Yes. We're working on with them on the future development for 2019 and going out. So if you bear with us, we'll give you a little bit more guidance in the first quarter on how this will turn out. But of course, the Duqueco asset, I must say, I was quite surprised on how many employees there were there. All in all for 2 plants, there were close to 40 employees/contractor, and we intend to make that a lot more leaner. There's a culture in Chile to operate differently on that particular asset that I think we can turn around. Also, there were an incident way back, probably 5 years ago, that had some incident on the power canal that were fixed to be, I would say, on the short-term thinking. I think that we can fix this canal -- power canal to bring back some production with say 5%, 6%, 7% more production out of the old plant quite easily. And also, the upstream reserve has been underutilized and we think we can improve quite a bit on that. So quite positive that we will be improving on the Duqueco. And for your question on SG&A there, I think that all in all, with the reduction of Duqueco, I don't think we will see a big increase in terms of SG&A. But we'll be refocusing on area where we think we can have success in terms of putting forward project that are quite advanced. There's a segment that we're not talking too much in Chile that these guys have been working hard is selling hot water to mines, and there is [indiscernible] that is doing so. It's in the middle of a renegotiation contract that goes very well and will extend the life of that particular project. But there's 2 other project that are quite advanced in roughly the same size that can see the light of day in 2019, and those projects can be built quite fast. So there will be some good development opportunity in Chile, and we will be giving you a little bit more guidance. Bear with us, we just started the partnership over there and just taking a little bit of time to establishing ourselves and making sure that priorities are put together. And I'm going to Chile actually next week with Jean-François to overview the 2019 budget.

[Operator]

Your next question comes from the line of Sean Steuart with TD Securities.

[Sean Steuart, Research Analyst]

2 questions. The Frontera advanced development project, it looks like you're ready to go there. Can you give us an update on where you are with respect to an offtake agreement? How much of the output do you need contracted before you start construction there?

[Michel Letellier, President, CEO & Director]

Yes. Obviously, we are going to be cautious because it's a fairly big project, 110-megawatt of Hydro over there. So the project in terms of permitting and social acceptability, it's like what we were saying, shovel ready. But we are still working hard to find an offtaker. There's a little bit of a challenge in terms of timing because it could take 3 years to build. So it's a little bit more challenging to find an offtaker when the COD is in the future. But with the acquisition of the Duqueco, we could somehow find ways to attract a good offtaker. But I'd be cautious on how fast we can start the construction on Frontera, giving the size of the project and the lack of offtaker, but we are positive about the fact that Chile is improving in terms of economy, the mine. There's a lot of activities now in the mining sector. Manager in those organization are looking more and more to have green supply of electricity. So that's helping us quite a bit. If you remember, Chile has more than 1/3 of its production coming from coal and this is -- those are big international mining companies that have now more and more pressure from their board and shareholders to utilize greener energy in the future. So we're still positive, but I am cautious on giving you timing on Frontera construction start.

[Sean Steuart, Research Analyst]

Okay. Second question on Saskatchewan, the wind RFP there, you guys weren't successful. Do you have any takeaways you can provide with respect to, I guess, future procurements in that province and more generally across Canada on wind, how you're thinking about the [prospective] growth there?

[Michel Letellier, President, CEO & Director]

Okay. Well, we were disappointed in Saskatchewan. We had 3 projects. Actually, we were partnered with Kruger on [normal], and our project was called Yotin. The 3 proposals that we had submitted has both First Nation majority component that we were hoping could have been seen as the great benefit that was the signal that the government and SaskPower have provided. Unfortunately, we couldn't get a clear picture on how much point a good social project integrated with First Nation and local community would have fetched in terms of advantage versus a project -- a straight project. So a little bit of lessons learned on Saskatchewan. We now have a few other projects that were not ready last year to be submitted that are perhaps safer in their structure and perhaps more windy, and we intend to utilize those into a different strategy. So we'll have both social acceptable, very high penetration of local and First Nation and perhaps a project that SaskPower seems to prefer, a straight crown on crown land, and very windy project that could be quite competitive. So we'll have those 2 strategies for the SaskPower future RFP. Other than that, I guess that Canada is -- has some opportunity in Alberta, but we've never been very focused on Alberta. Hoping that perhaps in BC, with the LNG being developed, it might be some opportunity to work in the north of BC with First Nation. So always prepared to make good proposal with First Nation in the north of BC.

[Operator]

And your next question comes from the line of Nelson Ng with RBC Capital Markets.

[Nelson Ng, Analyst]

Just a quick follow-up from Sean's question on Saskatchewan and SaskPower. In terms of the power price being something well below $42 per megawatt hour. Are you guys generally competitive within that range?

[Michel Letellier, President, CEO & Director]

We were below that even with First Nation. So I'm not so discouraged. I'm a little bit frustrated because we didn't have any clear answer on what was the price adder. Remember that in Ontario, when you had First Nation participation, they were a matter of $1.015 adder for First Nation. So knowing or having advertised that this was very important for them and not knowing what type of adder they had put together on how with these First Nation for social acceptability criteria, it's difficult to tell you how much more competitive we would have been if we would not have had some First Nation participation. But even with the proposal, we think we were, well, first of all, we were below that 42. So and we don't know the real price of the winner. So it's a little bit difficult to rule a bit further but I'm not discouraged because like I said, there's other places where we have land that are windier and perhaps, we could propose something a little bit more simpler in terms of cost structure that could be competitive in the future. So what is difficult is when you don't have clarity, and this is probably where my frustration with Saskatchewan is coming from.

[Nelson Ng, Analyst]

And then in terms of, I guess the competitive tension or bidding tension, how -- do you see it -- has it changed at all with long-term interest rates rising? And is that -- like are bidders looking to kind of improve their development returns in light of higher interest rates? And then can you also talk about the, I guess, competitive tension on the turbine manufacturing side?

[Michel Letellier, President, CEO & Director]

That's a good question, Nelson. We strive as an investor to make sure that you stay competitive with the type of cap rate that you're utilizing to bid the government project or even acquisition. There's always a little bit of a lag in private transactions versus the public companies. We as a public company get arbitrage quite fast with the movement of interest rate. It takes a little bit more time, I guess, to filter down through the private transactions. So we're seeing, especially in North America, I think, a little bit more discipline from potential buyers. It's not yet reflected in Europe. So we might be slowing down in terms of acquiring existing asset in Europe. As you know, the euro rate has still been low compared to what we've seen in North America on treasury bills and Canadian bond. So we're playing safe in Europe in terms of acquisition because of -- I'd say the cap rate are still probably historical low in Europe and we're seeing little bit more improvement in terms of cap rate in North America. South America is probably seeing also some pressure in terms of rate adjustment as well.

[Nelson Ng, Analyst]

And then just moving on to France. The wind resources being pretty weak this past quarter. I think that's been weak like all year -- I mean even last year. Like, are you guys looking to -- do you think that it's just normal variations in wind? Or are you guys looking to kind of change the way change your definition of long-term average? And also finally, can you just talk about wind in October? Was that a little weak as well?

[Michel Letellier, President, CEO & Director]

Well, it's a good question. Always concerned about long-term trend. When you look at the trend of the last years in France, we have seen some movement up and down, obviously. But we're getting into a third year of, I must say, lower regimes in France. And that's always a concern, obviously for us. Whenever we are looking into acquiring or establishing long-term forecast, we are integrating the last years and perhaps putting a little bit more weight into these weak past years. So we're concerned. We're digging in with our technical team. Of course, we also are on the lookout with these long-term forecast now that seems to be getting better and better in terms of predicting what could be happening in climate change. So we still feel that climate change will take quite a bit of time to establish itself and it's not necessarily so easy to predict the effect on wind patterns or ideology. But I must say that our team is very tuned to these long-term trends. I'm not so concerned about France. But as you know, France is known to have places where low-wind regimes are in place even in our long-term and a small difference in the wind peak in effect to some degree has a greater effect on production. So that's probably what we're seeing. This is small decrease is having a little bit more effect on total production. But I would say that I'm still very confident on the long-term trend and on the long-term average that our technical team has done. You've seen what we have been tracking over the years. We are proud of our ability to have been able to lead the long-term forecast. So the same thing, same conservatives apply. So not worry too much and of course, to answer your question, October was okay. November seems to be pretty good in France. So looking forward to having a better winter. That will be very welcome. And I think I kind of forgot what the rest of your question, Nelson.

[Nelson Ng, Analyst]

No, you answered the full question. Can I just quickly touch on Ford city? So you've essentially started construction to a limited degree. Are all of the costs essentially locked out and the final hurdle is really to close tax equity and financing? And then on those costs, I think earlier this year you mentioned that the total cost will be below USD 400 million. Is that still the case?

[Michel Letellier, President, CEO & Director]

Yes, it's still the case. We have finalized everything, quite happy with the final negotiation. The reason why we have yet to provide the full knowledge and is obviously we were trying to have the tax equity and the bridge financing construction financing in place. We still are waiting for the final FAA. It's the Federal American Aviation Administration. We have all the initial winter -- wind location agreed. Now we have improved a little bit on the layout in order to maximize the production and we're yet to have the final approval on these small changes. Nothing that seems with our contractor to attract any big problems. And if we would have to move some turbines, we have now a lot more room and land under option to move future bond here and there if there's any problem. We're told that it takes what it takes with the military base in Texas. It seems that they have their way of dealing with wind and [indiscernible]. So nothing to be a big concern, but obviously we're cautious until we get the full clearing on the FAA.

[Operator]

Your next question comes from the line of [ Yanik Frings ] with the Socially Responsible Investment Club of Québec.

[Unknown Analyst]

First off, I'd like to congratulate Jean on his career at Innergex and take a small moment to thank Michel and Karine for allowing our charitable fund to be part of this call, which to my knowledge is an international first. So I thank you for that. So I have 2 very short question. First, I was wondering if Jean could maybe shed some light on the company's current exposure to green bonds and maybe tell us a little more or let us know whether the company have, of course, the green bond at the current moment. And if he could shed some light also on some of the financial advantages and disadvantages of such financial tool for a company like Innergex compared to traditional obligation. And secondly, my question goes to Michel. It's more with regards to present CSR risk, basically in term of local population and environmental risk. If you could also shed some light on some of the biggest challenges that Innergex is facing at the present time, that would be appreciated.

[Michel Letellier, President, CEO & Director]

Okay. I'll answer also the bond side, I've been inquiring a little bit more. It's an interesting concept this green bond. I think in the future as they get known better, we'll potentially see a benefit for us to take these tools as a way to finance future project. So far, we haven't seen in North America a financial benefit in terms of pricing. From what I gather in Europe, it's starting to -- you're starting to see a little bit of price advantage of using bonds. So this definitely something that we'll be looking in the future to develop. Of course, for us, it's pretty easy to establish that these bonds will be green because they will be financing social acceptable renewable energy project. So definitely, if they're becoming a price -- if we can find a price advantage, even if it takes a little bit more administrative or due diligence or paperwork to establish their green attributes, we would definitely take a closer look at it. And thank you for your question about social or environmental challenges that we are facing. As you know, Innergex has been on the forefront of those frontier of having project to be socially acceptable and also being partnered with local community. Of course, we have a lot of experience in Canada. We have had great success. We have -- our team have obviously worked hard, especially in British Columbia. I think that British Columbia is known to be quite of a challenge to get permitting over there, and we have raised to the occasion in many times in British Columbia. And I think that this is helping us in ways that make some difference in certain area, especially in Hawaii, this is a good example. Of course, Hawaii is new for us but we have had some public open house and reach out for community, and the feedback we had from these community is that it's a breath of fresh air for them to see a company that is so proactive with local community and being so open in discussing impact with their project. So I think that from the experience we have had in Canada and British Columbia, these type of community in Hawaii, which are very focused on governmental impact and social acceptability, is giving us at the end of the day a good hedge for us to implement project, and it's obviously always a challenge to learn the new culture in a new area. But I think our team is very well equipped to do this. France is also a place where obviously project can take a lot of time for permitting. We're working hard now in our culture on developing project responsibility in accordance with social guidelines is helping us developing and having a very good contact with France. I would say that in terms of environmental impact, the biggest challenge we're having in wind is the bat population. So the bat is, in many places, a species of concern and they have been known to have some difficulties with wind turbines. So this is the industry. It's not just Innergex. The industry is facing that challenge, and I think that we are working hard with a lot of local government agency to find long-term solution to have a good coexistence between wind and bat population. So this is an industry challenge and, of course, Innergex is really interested and working very hard to, with local agency, to find long-term solutions to minimize the bat impact on wind. So that -- those are probably the biggest challenge we are facing at [this point].

[Operator]

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

[Mark Thomas Jarvi, Director of Institutional Equity Research]

I just want to touch on the Cartier. I think when it was announced, you guys talked about it and you sounded pretty confident with your sale down on minority stake. Now it seems like you're debating that. Is that just a function of getting more project finance on that and less need to sell down interests to cover the bridge facility? Or maybe just explain what's changed the last couple months?

[Michel Letellier, President, CEO & Director]

It's a good question. Well first, you're right. If we are more flexible to create a structure where the leverage can be maximized, obviously the leverage is always the cheapest cost of capital and hence, our team is focusing on that. And we were, like I said, happily surprised to see how much leverage we could put on Cartier asset restructuring as a whole. So our 38 and the 62 can be put together and free some, I would say, some leverage that were locked in the past. So this is probably the reason why we're waiting and being less inclined to transact on captive assets. On the other hand, like you heard me talking about Iceland. So we were happily surprised obviously to see incoming, nonsolicited interest during the summertime, and that made us perhaps reconsider what we would be doing in terms of asset sale. Like I said, I think that we have marketable value on those assets that is beyond what we are carrying in the books.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay, that's good color. And then I just wanted to touch base on some of the assets apart from Alterra. Just wondering what you guys are thinking in terms of the cash distribution levels you've gotten from the tax equity projects thus far in Jimmie Creek, where it doesn't seem like you got any distributions this year. Maybe just tell us about how distribution is coming back to Innergex as a trend, so far?

[Michel Letellier, President, CEO & Director]

Yes, Jean, do you have...

[Jean Perron]

Well, that's why tax equity is kind of senior to any distributions that are made to the sponsor. So in some situation like in the tax equity, they are reaching and they're entitled to a certain level of return. And if the results or the production at some point in time, there is some triggering event that it takes then it might be receiving a temporary higher portion of the cash flows on projects. So if this is what's happening right now, eventually it will normalize and it will be very soon then we can be in a situation where we would be able to receive all our share of distribution. So it's only I think something that we'll rule out and over time in a detailed project, company project where you cannot have their predictable production that will not vary quarter to quarter. So it might happen that, sometimes [times] it would take, which would be the case right now. But eventually it will reverse out. So it's not something anomalous or something that we should be alarmed of. It will only be something temporary.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And Jimmie Creek, when do you guys think you'll get distributions from that facility?

[Jean Perron]

It is very hard to tell because it's all dependent on what we get [from] production next quarter or the quarter after. So it's always that you might have a good quarter and then it will reverse very quickly. And if your quarter are just okay, might take a longer period. So it's not -- I can't give a definite answer that it will be back to normal in the 1, 2, 3, 4 quarter. It will be dependent on production at that time.

[Michel Letellier, President, CEO & Director]

Yes. Remember that the BC production, which we own in Jimmie Creek, so that's one of the issue. And also in Texas, the wind was also below the long-term average. So that access survey, the tax equity effect may prefer the payment to the tax equity first. So I think that what Jean is saying, as soon as the wind or water would be coming back to long-term averages or higher, obviously we will see a lot more distribution from those assets.

[Operator]

Your next question comes from the line of Ben Pham with BML.

[Benjamin Pham, Analyst]

Before I forget, [also best wishes to you Jean], and welcome Jean-François. A question going back to HS Orka. Can you help me, and also let's try to quantify the book value on your balance sheet? I mean, maybe just point us how to think about it. Because I think there's some hold-co debt and then Blue Lagoon, I'm not sure that's booked in the assets of the HS Orka. Maybe just kind of walk through whether it's -- how to calculate or if you know what the book value is. I'm sure you know what it is, but can you share what it is?

[Jean Perron]

Well, the book value is disclosed in the notice financial statement, where we're showing the worldwide investment in the entities that have minority interests. So I would like to look at which note it is exactly, but you're going to see it. And basically it shows that the purchase price we have allocated to HS Orka, which includes a 30% participation into Blue Lagoon, is about $350 million roughly.

[Benjamin Pham, Analyst]

Okay. So the net is $350 million then on it?

[Jean Perron]

Yes. So the total of these 2 investments, HS Orka, including the participation into Blue Lagoon.

[Benjamin Pham, Analyst]

Okay. All right. That's kind of what I was generally getting. And then the Hawaii situation, was that part of the Alterra portfolio at all?

[Michel Letellier, President, CEO & Director]

No, no, no. That was a greenfield initiated by our team in Vancouver directly. So one of the reasons why we've been, I would say, successful is that we had created a land location close to [equity] interconnection. So guys have been able to secure a big landowner called Parker Ranch on Big Island. And that was one of the reasons why I think we were very competitive in that particular RFP. And also, we were talking with Tesla that the potential provider of the battery pack and a long-term service agreement for us. They were very competitive and I think that both our team and this proposal came to a very successful proposal to Hawaii utilities.

[Benjamin Pham, Analyst]

Okay. And then maybe can I switch to Chile, and you highlighted previously a very attractive opportunity for your long-term pricing and development. How do you guys think about the potential for a global recession occurring and impact on power prices and demand for copper overall? Does that just slow down in near-term accretion expectations in that asset?

[Michel Letellier, President, CEO & Director]

That's a good question, Ben. I thought we'd be an expert in global economy, I don't think I would be sitting here and I would only need a computer and trade on currency and -- but it's difficult to assess, but it's always a possibility. It's with trade wars and Mr. Trump creating perhaps some commercial challenges for China and so forth. But I think in general, the demand for copper seems to be strong based on the fact that a lot of the electricity cars and component will utilize copper. So my understanding is that copper demand for the future will be strong. And Peru and Chile are actually one of the lowest producer of copper. So I think they would survive any weakness. Those area are very competitive, cost competitive to compare to other places. And remember, Chile, why we like Chile in terms of pricing even in the last few years were the Chile economy was not very hot in terms of we're fairly -- I wouldn't say weak but neutral. The price of electricity spot was in the range of anywhere between $55 and $75 per megawatt hour, and this is driven in big part because Chile doesn't have natural gas. It has to be imported on the LNG and, of course, when you import LNG and then you have to distribute it again, that has quite a bit on the price of electricity. So even with very cheap gas in the last few years, the spot market in Chile have stayed quite robust. So this is why we think that when we forecast our project, we have this type of approach where if we're conservative and we pay something around $40-ish per megawatt hour and make our acquisition profitable, then we were quite optimistic going forward that this project can sustain even the weak economy in Chile.

[Benjamin Pham, Analyst]

Okay. And I just want to clarify that point. So it sounds like you built a very good downside protection to get a decent return. But you haven't necessarily factored in a global recession near term. And if that were to occur, I'm not saying it will, that maybe some development opportunities could slip into the future.

[Michel Letellier, President, CEO & Director]

Yes. Of course, we will be prudent in terms of deploying capital when -- if there is a high risk of global recession. So from my humble understanding, we're not necessarily on the brink of a global recession. But it's always a possibility, and then you know that we've been cautious in the past and that will not change.

[Operator]

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

[Karine Vachon, Director – Communications]

Thank you, everyone, for participating in this call. We look forward to speaking with you again at our next call in February.

[Michel Letellier, President, CEO & Director]

Thank you very much, everybody.

[Jean-François Neault]

Thank you.

[Jean Perron]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.