Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2020-Q3

[Operator]

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

[Karine Vachon, Senior Director – Communications]

Thank you. Hello, everyone, and thank you for joining us today. I'd like to specify that this conference will be held in English. Members of the media are invited to ask their questions by phone after this call. A presentation supporting today's discussion is available as we speak on the home page of our website at www.innergex.com.This call contains forward-looking statements within the meaning of applicable securities laws. Although the corporation believes that the expectations and assumptions on which forward-looking statements are based are reasonable under the current circumstances, listeners are cautioned not to rely unduly on these forward-looking statements as no assurance can be given that it will prove to be correct. Forward-looking information contained herein is made as of the date of this call, and the corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of events or circumstances occurring after the date hereof, unless so required by law.During this call, we will refer to financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the non-IFRS measures section of the MD&A for more information.Our speakers today will be Mr. Jean-François Neault, Chief Financial Officer, who will present Q3 results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our operational highlights.I now turn the conference over to Mr. Neault.

[Jean-François Neault]

Thank you, Karine. Good morning, everyone. Our third quarter results posted growth over the same period last year, mainly due to the commissioning of the Phoebe solar project and the Foard City wind project last year and to the contribution of the Salvador and Mountain Air acquisitions completed in May and July this year.Production and revenues in the quarter were up 21% and 14%, respectively, compared to the same period last year. Adjusted EBITDA was up 1%, while revenues proportionate and adjusted EBITDA proportionate were up by 14% and 6%, respectively. Before going further, I would like to stress that the comparable period in 2019 is still reported on a continued operations basis, which excludes HS Orka results.Production for the 3-month period ended September 30, 2020, was 21% higher due mainly to the factors mentioned previously and to higher production from the Quebec hydro facilities and the hydro facilities in BC that were not affected by the curtailment. These items were partly offset by the curtailment imposed in BC Hydro for 5 hydro facilities.On Page 9. Revenues were up 14%, mainly explained by higher revenue from the Quebec hydro facilities, the contribution of Foard City and Phoebe and the acquisition of Mountain Air and Salvador. These items were partly offset by lower revenues from France and the facilities in BC due to a combination of BC Hydro curtailment and lower average selling price.On the next page. Adjusted EBITDA increased by 1% due to the contribution of the recent acquisition in wind and the commissioning of Phoebe and Foard City as well as to higher contribution from the Quebec wind and hydro facilities due to higher revenues. These items were partly offset by a lower contribution from the hydro facilities in BC and lower contribution from the wind facilities in France due to lower revenues and higher operational expenses.The 6% increase in adjusted EBITDA proportionate is mainly due to the PTCs generated by the Foard City wind farm following its commissioning, higher revenues and lower operating costs at the Shannon and Flat Top facilities and higher revenue at the Dokie and Toba Montrose facilities. These items were partly offset by a lower contribution from the facilities in Chile and the Jimmie Creek facility due to lower revenue, partly caused by the curtailment in BC Hydro.Continuing on Page 12. The $42 million increase in long-term debt is mainly due to the $171 million Hillcrest construction loan and tax equity bridge loan, the $172 million long-term loan facilities assumed in the Mountain Air acquisition and the strengthening of the U.S. and euro against the Canadian dollars. These items were partly offset by the net repayment of $238 million of the corporate credit facilities from the proceeds of the investment made by Hydro-Québec and scheduled principal repayment on long-term debt as well as tax attribute allocation.On the next page. Changes in the total assets came mainly from the increase in property, plant and equipment due to Hillcrest and the Salvador and Mountain Air acquisition; the increase in investment tax credit recoverable relating to Hillcrest; the increase from the construction activities related to the Griffin Trail wind project; and the strengthening of the U.S. and euro against the Canadian dollars.Change in total liabilities stem mostly from the increase in long-term debt. The change in shareholder equity is explained by the private placement of 34.6 million shares from Hydro-Québec and an increase in noncontrolling interest stemming from the Mountain Air acquisition. These items were partially offset by dividend declared on common and preferred share. As shown on the next slide, the free cash flow has decreased by $5 million on a trailing 12-month basis. The unfavorable variance in free cash flow is mainly due to the commencement of the repayment period on certain project financing, which were not in full effect in the comparative period; an unfavorable impact of the adjusted EBITDA proportionate stemming from the BC Hydro imposed curtailment during 2020; a decrease in free cash flow attributable to discontinued operation, including the recovery of maintenance CapEx expenditures following the sale of HS Orka in the second quarter of 2019 and lower generation due to unfavorable weather conditions. These items were partly offset by the timing of certain project loan interest payments, which resulted in the corporation having made 5 quarterly payments during the comparative period, and the free cash flow contribution of the recently acquired commission project and lower interest payment from the corporate revolving facilities concurrent with the Hydro-Québec private placement.Innergex does not consider the $96 million to represent the current cash-generating capacity of its operation. When normalizing its free cash flow with the nonrecurring curtailment imposed by BC Hydro, the increase in the quarterly dividend following the Hydro-Québec private placement, offset by the decrease in corporate revolving interest payment following the Hydro-Québec placement, we would have reached a free cash flow of around $100 million.For the trailing 12-month ended September 30, 2020, the payout ratio amounted to 124% of free cash flow compared with 93% for the corresponding period last year. When normalizing with the item mentioned before, the corporation estimate its payout ratio to be closer to 100%. On a forward-looking basis, we are confident to remain around or little above 100% over the next 12-month period.Finally, on the next page, we are proud to announce that we have closed a $93 million construction and long-term credit agreement for the Innavik hydroelectric project. The construction term loan bear interest at 3.95%. Following completion of construction, the remaining balance of the aforementioned loan will be converted into a long-term loan bearing the same fixed interest rate and maturing 4 years after the facility reach COD, which is scheduled in December 2022.On that note, I will give the floor to Michel for the operational review of the past.

[Michel Letellier, President, CEO & Director]

Well, thank you, Jean-François, and welcome, everybody. First and foremost, I'd like to make a good thank you to all our employees and also our business partner that have helped us through their dedication and adaptability during this pandemic to keep our plant operating and our construction and pipeline of development going. We've been innovative in our approach. And also, we have been successful to keep our working space being safe. So thank you to all, and tip my hat to all our leadership team to have been able to keep this business going the way we have in this challenging time. And our thought also goes to others that are a little bit more unfortunate in their businesses.So on that aspect, we also have, given the fact that we have seen the second wave being strong, listened to the government guidelines, and we have kept our working-from-home policy until next spring. And we'll monitor, of course, the evolution of the pandemic. Glad to see that the vaccine evolution are going well. But of course, we have to be patient while this vaccine will be distributed. And hence, our safety comes first. So we will be on the forefront of the new policy or government policy. So thank you all for being so dedicated, and I'm very proud of all the team and see how we have been able to advance.We -- in the same thought, we have been also [ active ] in our construction, our [ pipeline of ] development. I'll talk about it. But we also have been able to close on acquisition. I'd like to report that we have done 2 so far this year, remember, Salvador in Chile and most recently, Mountain Air wind farm in Idaho, U.S.A. Those 2 transactions are the type of M&A that Innergex is aiming at. As we said in the past, I think that M&A will be a great tool for us to rebalance our portfolio of activities and plan to basically rebalance the cash-on-cash that -- you know that we have our payout ratio that is a little bit of a challenge. We want to make sure that this payout ratio becomes less comfortable. We have said that we're looking to have a payout ratio below 100%. And we want to continue developing also. So M&A will be a good tool to rebalance the equilibrium between our own development greenfield project, especially the one that have tax equity, as you know, a little bit more cash-on-cash towards the -- a little bit longer term. So if we can find M&A to rebalance this cash-on-cash in the early years, this is our strategy. And I think that we have started to deploy it, and we are still focused on doing this. So I think that on the long run, we'll have a better approach on our cash-on-cash and development of projects. So pretty happy on this. And the team -- the M&A team is focused to find other transaction in that type.In terms of construction, we've been pretty busy also this year. As you know, we are working in Hillcrest, getting very close to the closing. Very happy to report also that we have made the first funding on tax equity. For people that knows tax equity, the [indiscernible] thorough in their approach, and the team has been able to answer all the questions from the different stakeholder in this approach. So pretty happy on that aspect. So it's behind us.And we are continuing putting section of our power plant in service. We have 8 blocks that we have to complete. So far, 1 is done, meaning interconnected and fully operational. And roughly, we'll have 1 every 2 weeks or so. So theoretically, we should be very close to have 6 or 7 blocks by the end of the year and the remaining at the beginning of 2021. So we will be selling electricity in the next couple of weeks, and it will be a gradual COD in phase as we interconnect those blocks.Innavik project is going very well. As you know, we have been able to go back this year even if the COVID was in place and happy to report that everything has been going very well on Innavik. And as Jean-François has mentioned, we have now finalized the construction financing and long-term financing. You will see in the future that this financing is a little bit different. It's something that we'll be looking into somehow of reverse mortgage for the first 5, 6 years. The ability of the project to support the debt is really high. So we were able to restructure a little bit this financing. And hence, this will generate or free almost 100% of the EBITDA to be distributed to partner in the first 5 to 6 years. So this is a fairly innovative financing that we're putting in place as well to promote the availability of cash-on-cash for the partners.The Yonne project in France, that's the extension of an existing park. As we know, it's not a big project. But as I said before, this is the first project from the team in France from greenfield to construction. So hopefully, it's not the last. As you know, we have a very aggressive development in France for the -- for our pipeline. I'll talk about it just a little later. So we are still counting on a COD by the first -- Q1 of 2021. Although we might be surprised to see, but depending on the pandemic and the restriction in France, that's why we are cautious and call it for the first quarter of 2021.Griffin Trail project has been going very well. This project, as you know, has been developed very, very, very fast. And we have been able to secure the EPC contractor and the GE supply for the wind turbines. This is the same team that has done Foard City, and they work very well together. Blattner is a very professional contractor in the U.S. They have a lot of experience in building a wind farm. So far, we're very pleased on how they're approaching the project and very confident to have this plan being in commission by the third quarter of 2021. Also, we have been able to secure the interconnection to be before the blackout period in the ERCOT so as the wind farm will be erected, we will be able to sell electricity to the market as early as June probably. So that covers the construction.Now the development activities have been also quite active. Even though we are facing this pandemic, our team has found ways to make public meeting -- virtual public meeting and being very creative in their approach to engage with all the government agency in order to advance our permitting.So very happy to report that things are going well in Hawaii. We have been also -- been able to sign 2 PPA. And this, as you know, is a vector of growth that we think Innergex will be successful in. Producing renewable energy, matching it with batteries is definitely a sector of our industry that will see a big growth in the future. So these projects are very good example, and it provides us with a lot of experience on how to deal with the utility and how do we -- are integrating batteries in this utility.That being said, we are also counting on our joint venture with Hydro-Québec to further develop this sector given the fact that Hydro-Québec has a lot of experience and good people in order to help us understand the need of utility and hence, being able to deploy this strategy going forward.In terms of general development, as you know, we are putting a lot of effort in the U.S. maybe, I guess, that I can have a word regarding the U.S. election, not that I want to get into politics at all. But given the preliminary result, we think that the Democrat or Joe Biden will be -- well, don't want -- again, don't want to do politics, but it seems that we will have a Democrat President in the United States. So therefore, we are pleased given the fact that their program are very pro renewable energy. And therefore, we think that our strategy to get into the U.S. was a good one. Even though we have had some success with the prior administration, we think that Mr. Biden has, I would say, more views on putting a growth in renewable energy in the United States. So therefore, we are glad to have our team on the ground and our policy -- not policy, but our strategy to grow solar project in the States. Remember that we have a target of around 600 megawatts by 2023, is on track. We want to diversify it also outside ERCOT. So we're very present in PJM and in the Northwest as well in order -- in the United States in order to deploy the panel that we have secured. Remember that we have a little bit over 100-megawatt of solar panels that are grandfather for a full ITC grant. So this is going very well. We're still on track to have that target by 2023.France, as I mentioned early on, is doing good in a sense that our pipeline is growing. Now it's over 350 megawatts. Of course, these pipelines are staggered in their maturity of development. But the idea there is to have 1 or 2 projects by 2021 or 2022 to be able to put forward for future RFP. As you know, France has announced very aggressive future RFP for wind and solar in the coming years. So we want to make sure that we have a pipeline that can match these future RFP. And we have grown also the team of development in France so that our people can come up with new projects for the future.The Chile -- the Chilean market is also very interesting in a sense that even though we're seeing a slowdown in the demand in Chile because of the COVID -- Chile has been hurt pretty bad with the COVID. But one of the strength of the economy of Chile is ability to export raw material and mainly copper. And if you have seen the price of copper lately, given the fact that China seems to be doing very well in terms of recovery, the copper pricing has been going up. And it's one of -- well, I would say, getting to a range where it's very profitable to produce copper in South America. So we're seeing a lot of activities over there in the mining that are promising.And one thing that is interesting in Chile, the Lower House of the government, Chile has voted to have a regulation to cancel any coal plant by 2025. Mind you that, that law has to go through Senate, which might have been -- which might be tempered a little bit. But the movement to cancel coal in Chile is growing. And remember that Chile has about 30% of its energy coming from coal. So we think that we will see some opportunity in Chile in the next few years in order to replace the coal that will be shut down.So on that note, I would open up the question period.

[Operator]

[Operator Instructions] Your first question comes from Nelson Ng of RBC Capital Markets.

[Nelson Ng, Analyst]

My first question relates to Griffin Trail. Can you just talk about the -- like how should we think about the project cost to EBITDA multiple and the expected returns for that project?

[Michel Letellier, President, CEO & Director]

Yes. As you know, Griffin Trail, for the time being, has been developed as a merchant plant. That doesn't mean that we would not be looking to have a long-term contract with a potential offtaker if the price makes sense.On that aspect, we have now a small team with a team of specialists in, well, I would say, in trading and marketing energy in the U.S.A. So I think we will be better equipped also to reach out for customer on that basis. But that might come in the future.We're still, I would say, positive about the future market in ERCOT. One thing I was happily surprised to see is the price of natural gas that is coming up in the United States. Even though we are in the shoulder season, we've seen natural gas coming from their bottom of maybe $1.50, $1.60 per gigajoule to now close to $3 and it -- last week, it went up to $3.50, $3.40. So this is giving a little bit of a hope also on the minimal cost to produce electricity in a merchant plant scheme in U.S.A.I think that one of the aspect of the pandemic has, to some degree, slow down the fracking for oil. And as you know, natural gas is sometimes a by-product of that activity. And we have seen less activities, of course, for fracking for oil, so potentially less really cheap natural gas being deployed in the marketplace. So that gives us a little bit of a relief. But I would say that our long-term forecast, we are looking at some curves that are not taking into account carbon pricing. And so therefore, something around in the $20 range is probably conservative.Mind you that we have also the PTC. So if you take the PTC at $25 index plus something around in the range of $20 on average, you still have a decent total revenue for that type of a project, Nelson. So as far as the total return of the project, it will definitely depend on the evolution of that curve. But we're hoping to do a type of project -- this type of project, we -- we're aiming to be high single digit and possibly double digit, depending on how fast the curve will evolve. And if Biden gets in and put some more pressure on pricing for carbon, then this type of project may see some benefit from those policy. Mr. Biden said that he will rejoin the Paris [indiscernible] So in order to follow through this, somehow, somewhere, a price on carbon will have to be established in the U.S.A., and this type of project will benefit from it.

[Nelson Ng, Analyst]

Okay. So you mentioned that the -- yes, it looks like your EBITDA assumption or your underlying assumption for EBITDA forecast for Griffin Trail is about $20. Like if you were to contract or enter into a hedge for that project, where is the market price today? It's -- I presume it's a little bit below $20, like similar to Foard?

[Michel Letellier, President, CEO & Director]

Yes. It's a little bit below. It's anywhere between $13 to $18. It depends on the location. It depends on the expectation of the market. But that's why we said that we better take a chance to be merchant. That aspect is a little bit unusual for us. And I'm not saying that we'll do this every -- for every project. But given the, I would say, the disconnect between PPA and merchant pricing, I think that it's a good bet to stay floating for the time being and see how things are going to be. But like I said, with Biden coming in as a new leadership, I think we'll see a little bit potential on carbon pricing. And therefore, we think we're a little bit more optimistic these days than 6 months ago on that aspect.

[Nelson Ng, Analyst]

Okay. Got it.

[Jean-François Neault]

And Nelson, just to clarify also, if you're trying to make an EBITDA multiple on that project, Griffin Trail, I remind you to use our proportionate figure, which includes the PTCs. That is very important. I want to remain -- to remind you that PTC surge to pay down the tax equity investments. So in fairness, in order to have a proper multiple on that project, you need to add back the PTC value, which is around CAD 28 million.

[Michel Letellier, President, CEO & Director]

And because we now, as you know -- Jean-François, maybe you can explain that a little bit better for our crowd, is that we do now book that as a debt. The tax equity is almost a project debt for us. So with the PTC revenue, we are offsetting that liability in our balance sheet. So it's -- definitely, we see that as a total revenue, PTC plus the revenue on the market. And those revenue helped decrease the [ tax ] equity over time.

[Nelson Ng, Analyst]

Okay, got it. And then just moving over to France. It looks like the temporary shutdowns at 2 facilities continued on from Q2. Can you give some color as to probably what those shutdowns relate to? And will they carry on into Q4?

[Michel Letellier, President, CEO & Director]

Well, we had 2 events of wind blade failure. And those 2 blades happened on one wind facility, but we have the same technology with the wind farm just beside it. And the agency in France being very, I would say, conservative have asked us to shut down both plants until we could see a long-term plan or a long-term solution provided by Vestas. Now we have had the possibility to restart those wind farm with some curtailment process, meaning that we wanted to go progressively. That was the plan accepted by the France government agencies. But so far, it has been proven that the -- I would say, the new strategy has worked. And since mid-August or so, the plant now are free to operate, except in a couple of special occasion where wind speed and direction would happen. But this is temporary because theoretically, we are going to implement a upgrades or repair in the blades to reinforce them. So it shouldn't be that way for the long term until we have the upgrade on the blade, perhaps until probably next year, but the lost revenue will be fairly low considering that it's only a few occasions where we will have to apply this curtailment.

[Operator]

Your next question comes from David Quezada of Raymond James.

[David Quezada, Equity Analyst]

My first question here, just on your solar business and development goals in the U.S. I'm wondering how -- with the new government coming in, how could changes or I guess reduction on the solar panel tariffs affect that business? And do you see potential for a change or extension or modification of the tax credit? And is that something that you're starting to plan for?

[Michel Letellier, President, CEO & Director]

Difficult to know because as you -- well, we'll know by, I guess, mid-January, if the Senate is -- has gone into a majority of Democrats. But in general, PTC and ITC has been supported by both parties. As you remember, the PTC were to be, well, decreased by 2020 and ITC by 2022. So I think that the new administration might revisit that, might make some extension on those, we don't know, but that's one possibility. In terms of duty on solar panel coming from China, we'll see how Biden's strategy will be. If we get relief on those, it's only good for the industry in the sense that if it lowers the price of those panels, our industry will benefit from it. So that might be positive. But on the other hand, the market in the U.S. had somehow adapted to those duty, and either way, we're comfortable with it. We did bought some panel, of course, but it's only 115, 120-megawatt worth of panel that would secure roughly 600-megawatt worth of project if we apply certain ratio. So if we get to have some benefit in seeing some panel being reduced, we'll benefit from the balance of those 600-megawatt panel supply. So either way, we would be happy with the solution. But I think that the Biden administration will put more pressure on carbon pricing, which ultimately could help also seeing some green credit revenue on those type of project.

[David Quezada, Equity Analyst]

Great. And then maybe just one more in the U.S. I understand that New York -- the State of New York has signaled increased openness to renewable energy imports. I'm curious if you have any development stage projects in Québec that can maybe move forward to satisfy that potential demand or if you can maybe get involved in some kind of a project with Hydro-Québec, if that were to be a possibility.

[Michel Letellier, President, CEO & Director]

Sure. That's one possibility. We do -- as other developer, we do have some projects in Québec that could be useful to export. And we also have some project in New Brunswick, some greenfield project in New Brunswick that we could directly build for export as well. So this is definitely something that we are looking into. And Hydro-Québec has, in the past, been open to make some kind of a -- I wouldn't say joint venture, but provide the wind project with the support of a big hydro in order to be firm energy being sold in the U.S. That's also something that we could undertake as well. But all that is good news, actually. The more energy we could export from Québec to U.S. would free up some room in Québec or future development.

[Operator]

Your next question comes from Sean Steuart of TD Securities.

[Sean Steuart, Research Analyst]

A question on the Frontera project. I know it's been under review for some time now. Any update you can give on advancing that project? I see you've taken it off the schedule. Any update on Frontera specifically?

[Michel Letellier, President, CEO & Director]

That's a good question. Working on one strategy to have Frontera being secured in terms of permitting deadline. We are advanced to a point where, by definition, this project could have been seen or could be seen by government agency to be already under construction and, hence, would not be subject to time frame for the duration of all the permits. So this is a -- it's one way that local management are working on. And if successful, that takes a little bit of the pressure for us to start -- well, to continue the construction because theoretically, the construction could have been defined as a start. So that gives us a little bit more time to negotiate financing and to look for an off-taker. And some discussion have been initiated to find potentially an off-taker/partner in the project to develop it. And in the meantime, we, as you might have remembered, we have another project a few kilometers upstream called San Carlos. And San Carlos was a project on Ayala, and some water rights which is also owned by [Callon], a local utility, and we bought those water right. So now San Carlos could basically merge these 2 water rights and have a project in around 150 megawatt that have more pounding capacity. So storage would be around 5 to 6 hours and this project is a little bit more cost efficient than Frontera. And so looking into those 2 as a potential, I would say, portfolio to attract local partner/off-taker in this project. So it's not done, far from it, but it seems that those 2 together are a better proposal -- economic proposal than Frontera by itself.

[Sean Steuart, Research Analyst]

Second question, the 2 25-year PPAs you signed in Hawaii recently, can you give us some idea of what those terms might look like?

[Michel Letellier, President, CEO & Director]

What do you, mean the price or the -- as you remember, those PPA in Hawaii are more of, I would say, a capacity payment. We are translating it into a price per megawatt. But ultimately, what we get is an annual payment -- well, a monthly payment for availability of the total installation. But the pricing, have we published the pricing or -- Eco has, right? Eco has made the pricing. So there's one that is a little bit below $0.10, the equivalent of megawatt power hour. And the other one is a little bit higher than $0.10. So a little bit -- overall, I would say, if you want me to comment, given the fact that Hawaii is quite costly to build, these are fairly competitive pricing when you consider the size of those projects. And this is giving me a lot of confidence that these type of projects can be done on the main island or in United States or in Chile and become very competitive down the road as we see battery also price being -- reduced in the next few years. So all in all, I think that these projects are interesting in a sign, but they're not big. But what we like is that we get to have a 25 years PPA. And that gives us the chance to work this new field and to understand also the interaction with the need of the utility on how to manage the solar, how to manage the battery and how it works together. So that's roughly it. It's a little bit below $0.10 and a little bit higher than $0.10.

[Sean Steuart, Research Analyst]

Okay. But think of it like a capacity payment structure?

[Jean-François Neault]

Yes, it's implied calculation.

[Operator]

Your next question comes from Rupert Merer of National Bank.

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

Can you tell me how are you thinking about the dividend and the payout ratio right now? You mentioned that could be close to 100% for the next 12 months. Is that with a typical dividend increase? And then looking at your longer-term forecast, how long before you can bring that down to a more comfortable level, given your pace of development?

[Michel Letellier, President, CEO & Director]

Yes. Well, I will not comment on the dividend increase for next year. It's a Board prerogative. But basically, like when I said, Rupert, at the beginning, we want to grow. And of course, there's a lot of activities going on. And whenever we invest in a greenfield project with construction and then permitting period and depending on the type of project we get, they're not necessarily cash-friendly in the sense that cash-on-cash on those greenfield projects are a little bit back-ended. Not necessarily really bad in a sense that when they are in operation. But when you develop them, you have to build them, so you're putting a little bit of capital upfront, of course. And it takes at least 2 to 3 years before you get to have some capital back. So our strategy of mixing M&A with our own development is going to help. And depending on how we have success, and I think we've shown that our M&A team is very capable by the 2 acquisitions we did last year, Salvador and...

[Jean-François Neault]

Mountain Air.

[Michel Letellier, President, CEO & Director]

Mountain Air, thank you, we think that we can do that every year, at least, 1 or 2 type of transaction like that. If we're successful in this, our P&L ratio will be declining pretty fast. And as the project, the greenfield project that we're developing are getting in COD. So we're confident in the next 2, 3 years, we'll manage our payout ratio in a range where we will be a little bit more comfortable. And we will continue that strategy, because I think that both works pretty well. And we don't want to reduce the development expenses. We have seen some very good advancement in our portfolio of greenfield project. There's tremendous opportunity in France and also in the U.S. And therefore, we think we're creating long-term value. But given the fact that we have been committed to pay our dividend and increasing it in the past, we want to make sure that we have the cash profile to do so. And I think our strategy is sound, and we have the mean to deploy it.

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

Okay, great. And then looking at the cash profile of some of those projects, you mentioned the cash is typically back-end loaded in these U.S. projects. And you've talked about a couple of potential stimulus mechanisms in the U.S. market, carbon credits and tax equity. Can you talk to me about which you would prefer and maybe which one the wind industry would prefer if the wind industry is lobbying one way or another? It seemed to me that maybe carbon credits would offer more revenue streams for your existing assets, maybe provide better terminal value. How are you thinking about the U.S. market and stimulus?

[Michel Letellier, President, CEO & Director]

It's a complex question, Rupert. Do we like the tax equity? Do we like the PTC? Yes. Is it complicated? Very, very, very complicated. So if there is a system where we would not have to rely on tax equity provider, i.e., if there's a carbon credit -- attributable carbon credit a little bit like what we had in the past here in Canada, the Ecoenergy, if you remember, Rupert, that would be freeing the structure of tax equity and it would make lawyers probably sad because lawyers and bankers are making a lot of money with the tax equity these days. But yes, if there's a transparent and long-term commitment on having some kind of a carbon incentive paying directly to the project, that would be probably the best. One other aspect that the wind industry is lobbying is the cash grant. We've seen that in the past. It's a system where the PTC is -- well, it looks more like the ITC at the end of the day because it's a direct cash grant given to the project instead of going through a tax equity provider that could deduct this tax deduction on its own income tax payment. So that would also be a little bit more flexible and friendly to the developer. But we can live and we have learned to live with the PTC and the ITC as we know them right now. Like I said, a lot of work, a lot of fees around these structure. But on the other end, this is very friendly to our industry. We're getting to have USD 0.025 indexed on these projects. So it's more than half of the total revenue needed to develop a project in the United States. So one has to be happy also to have that, although it's complicated. I think it's very, very positive for the industry at the end of the day.

[Operator]

Our next question comes from Mark Jarvi of CIBC Capital Markets.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

First question is just on the debt side of things. I'm just wondering if there's any opportunity to refinance or repay any higher interest rate debt out there, maybe use surplus cash or capacity on the credit facility to meet some of that interest expense.

[Michel Letellier, President, CEO & Director]

Yes. That's a good point. I think Jean-François has mentioned it last time. We have one easy target, which is, we call it the A&P loan. We have postponed this reimbursement given the COVID crisis last spring. It was planned to be repaid out of the proceeds of Hydro-Québec. But given the opportunity to start Griffin Trail and just wanted to be a little bit more conservative depending on how the pandemic would have evolved, we had postponed this repayment. But for 2021, it's definitely a target easy -- that's an easy, I would say, fruit to pick. And always looking into how we can refinance some of our assets, but there's not a ton of opportunity there.

[Jean-François Neault]

The next one could be Mountain Air that we could look at, but we're not at this stage for now. So...

[Michel Letellier, President, CEO & Director]

And remember that we still have -- we have now 16 or 17 assets -- uncumbered assets in our basket. So given the fact that we have also been renewing PPA with some of these assets, especially in Québec, hydro in Québec, and so we might see some opportunity there with potentially a green bond as well to replace some of our corporate facility. So we're looking into those. Given the fact that the market seems to be hungry also for this type of product, we might be opportunistic down the road to look into those.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then my second question is just around renewable energy credits. And just wondering when you see a project like Hillcrest, just your sort of view again on where pricing can go. And as you think about more solar projects, either PJM or ERCOT, how much do you guys assume that there's upward pressure on pricing? And can you remind us again whether or not you guys keep all that benefit or do you share any with your off-taker?

[Michel Letellier, President, CEO & Director]

In the case of Hillcrest, we were sharing it with our off-taker. In Griffin Trail, then -- I don't have -- I can't remember exactly how we share it with forward Griffin Trail. Of course, we have 100% of it. And in the future development that we're doing in solar market in the U.S., like I said, we'll see how Biden new policy will drive those markets. But I think they will be under pressure in these markets. If we -- if U.S. joined the [Foreign Language] the Paris [Foreign Language] in French it's said. It's a little bit easier for me, we'll see some pressure on those prices for sure.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

And real differences in pricing does happen in the U.S. market. Does that inform your views of where you want to do more solar in the U.S. market, given that optionality? Or can you just rather going with just better initial contract terms?

[Michel Letellier, President, CEO & Director]

Well, if we have the opportunity, and I don't want to disclose, but we have been successful now to negotiate the PPA -- a term sheet for a PPA for a little bit over 100 megawatt in the States. It's conditional, of course, of all the permitting, and it's in a very early stage. But I think that we'll see also that will come with the same thing. If there's a pressure on renewable credits, there will also be pressure on off-taker to secure long-term PPA that could include those. And I think that we've seen a lot of pressure on pricing over the -- on the downside over the last few years in the States for PPA and off-taker. But somehow, I think that trend might change a little bit. And of course, in big markets, like ERCOT, where it's probably easier to develop project that might not be the case or the pressure on the upper side might be a little bit lower. But in place like PGM, Ohio, Illinois and stuff like that, where it's not that easy to develop project, and so we think that the available project might not be that plenty considering the potential need for off-taker to secure long-term PPA. So I think I'm starting to be more positive about pricing, especially on solar in the United States going forward.

[Operator]

Your next question comes from Ben Pham of BMO.

[Benjamin Pham, Analyst]

I wanted to touch base on the -- some of the scope reshaping at the Innavik debt. And I'm wondering -- I know you pay down debt each year on your hydro assets. But you look at the trends we're seeing with lenders, are you getting the sense that maybe you can reshape a lot of the debt in the years ahead, that you can keep leverage on a bit more than what you've expected in the past?

[Michel Letellier, President, CEO & Director]

That's very good. And that's a good question, Ben. It'd be difficult to do it on project finance business actually. But if we look at our corporate -- total corporate exposure, that strategy could be applied, Ben. Because in a sense, especially with our hydro portfolio, if we are repaying debt on a much faster pace than the life of the asset.

[Jean-François Neault]

Or the life of the PPA.

[Michel Letellier, President, CEO & Director]

Or the life of the PPA, one could think that there's some room to restructure some kind of a corporate loan. But it's too early to be firm on this, but we'll definitely be looking into this. And same goes with the tax equity structure. As you -- as we mentioned, our tax equity is treated like a project debt in our books, and they're forecasted to be fully repaid in 10 years or so. And some of our assets will be lasting for 25, 30 years, 35 years perhaps in solar. So there's some -- definitely some room there where at the end of the year 10 or theoretically on a forecast basis, on year 10, you don't have any debt anymore. So there's potentially opportunities to restructure some kind of total leverage at the corporate level that represents a more regular type of refinancing or financing.

[Benjamin Pham, Analyst]

Okay. I was wondering if the Site C project, probably a low probability of that being canceled as they're still using about it in the press. Can you comment on it? Let's just say, it does get canceled, does BC need more power? And does your prospective portfolio position you for that?

[Michel Letellier, President, CEO & Director]

Well, that's a shame to see what's happening in Site C. The independent industry were cautious when the decision was put forward and had a proposal, an alternative proposal from small hydro to wind farm to biomass. That could have been probably a lot more competitive than what we know now about Site C. Now it's difficult to understand what will be the decision of both the government and BC Hydro. But my understanding of the geotech challenge over there is not an easy task and it will cost money. So we'll see how they will deal with it. But if ever they decide to cancel it, I think that this will be a good opportunity for IPP to come back and fill the gap. Now what I'm a little bit disappointed in BC is the lack of determination to switch from fuel heating -- well using fuel to heat the houses in BC towards going and electrify the BC houses. We have seen some willingness from the federal to help, but we have yet to see how BC Hydro will embrace those proposal. There's a tremendous opportunity to have more electricity being sold to individual in BC if they replace natural gas for heating. Same goes with the rest of Canada and Ontario. Québec has done that in the past successfully, and there's only a few percentage of the houses in Québec that are being heated by natural gas. So I think in a way for Canada to meet their future target, this is a very easy target is to switch from natural gas and put more e-pump in the system, and the federal government has been positive about this program. And I think, frankly, this is an easy solution for Canada.

[Operator]

[Operator Instructions] Your next question comes from Naji Baydoun of Industrial Alliance Securities.

[Naji Baydoun, Equity Research Analyst]

Just want to go back to a comment you made earlier about renewing PPAs in Québec. I think you have about now 100 megawatts total of hydro between Québec and Chile that are going to be coming off their PPAs by next year. Have you renewed the PPAs in Québec? And for the Chile facilities, are you comfortable running those on a merchant basis going forward?

[Michel Letellier, President, CEO & Director]

Yes, that's good. In Québec, we have renewed Chaudière, Saint-Paulin, Windsor. We have yet to renew Portneuf and SM-1. So those are -- Portneuf is only 26 megawatts and SM-1, the initial one is 7 megawatts. So it's not a huge exposure there. In Chile, we have -- when we bought Duqueco, there were some existing PPA in place, and they are going to end by 2022. But we are actively renegotiate PPA. There's an active market in Chile. Right now, the market for 5 to 7 years' PPA range anywhere between $43 to $47 per megawatt hour. And the big question in Chile, as I mentioned, is when are going to -- when are the coal plant will be shut down. Right now, like I said, the lower chamber has proposed a law to shut them down by 2025. I think it's a little bit aggressive because Chile would have to turn around very quickly to change their portfolio of how to produce electricity. So I think that customer are getting a little bit more nervous past 2025, 2026. So pricing that we're seeing up to 2025, '26 are in the range of mid-$40-ish fully indexed. And also, there's another component in Chile that we forget, but the Chilean operator of the system is providing capacity payment also. So Duqueco is benefiting from capacity payment in the range of 15% to 20% of its total revenue. So it's even though you could be merchant in Chile, you can have a certain portion of your total revenue that are based on capacity payment from government agencies. But like I said, we're aggressively looking for renewing PPA, and we do sign PPA. Those are sometimes smaller PPA, 50 gigawatt, 25 gigawatt, but they're adding up. And the -- right now, up to 2024, 5 we're fully booked at 80-ish percent PPA and still looking to top that.

[Naji Baydoun, Equity Research Analyst]

That's very helpful. Just one last question for me on Chile. I guess your development pipeline today in the country is more hydro-heavy. What's your strategy to sourcing more maybe wind or solar prospects to develop some maybe on-site projects for industrial customers?

[Michel Letellier, President, CEO & Director]

Yes. We -- in China, there's a lot of solar projects that have been developed or advanced to certain stages. So there's an active market there for M&A on very early stage project that we want to participate. And it's just a matter of matching the price of those versus developing our own. So the team over there is looking into this. We have, in the last year or so, been active in looking into existing facilities that were caught between, unfortunately, the price that went down in their banking facility. So there is an active M&A activities over there that is generated by banks that have reprocessed or in the midst of reprocessing some assets. So this is an active market in easy -- I wouldn't say easy, but a quicker access to solar, and that's what we've done in the case of Salvador. But we're active in bidding in some other facility. And I think we'll be successful in a few of those. But same with wind. We have a small portfolio of wind data side that we are also -- I would say, we also advanced. But the M&A market is very, very active in Chile because a lot of projects were financed when the price of electricity was in the range of $80, $90 per megawatt hour. And now with the range of $45-ish, of course, the economics are not favorable for these old projects or not that old project, the project that are 5, 6 years old are suffering right now. And I think there's a great opportunity for us to get there.

[Operator]

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

[Karine Vachon, Senior Director – Communications]

Thank you, and thank you, everyone, for joining us today. We'll talk to you at our next conference call in February.

[Michel Letellier, President, CEO & Director]

Thank you very much.

[Jean-François Neault]

Thank you.

[Operator]

Ladies and gentlemen, you may now disconnect your line.