Innergex Renewable Energy Inc

TSX:INE

Earnings Call Analysis

Innergex Forecasts Steady Growth and Diversification

Innergex is pursuing growth across multiple markets, having submitted 400 MW worth of projects in the last RFP and awaiting results, and pushing new solar projects like the 200 MW Palomino, which is nearly ready to begin construction. The company is expanding solar operations in Colorado, advancing a 400 MW wind project in Wyoming, and proposing an 87 MW solar project in France, in partnership with local farmers. Innergex is navigating rising inflation with PPAs partially or fully indexed against inflation, ensuring revenue offsets increased operating expenses. They maintain a disciplined approach in project financing, targeting leveraged IRR of 11-12% over the Canadian 10-year bond yield. Financial strategies include deferring equity issuance as far as possible, focusing on nonrecourse long-term debt and increasing free cash flow per share.

Company's Geographical Expansion and Project Development

The company is actively pursuing expansion in the vast United States market, progressing with projects such as the 200-megawatt Palomino solar project which is nearing the final stages of interconnection agreements, and advancing new solar developments in Colorado. Moreover, initiatives are underway to develop a 400-megawatt wind project in Wyoming that leverages existing transmission line infrastructure to interconnect with regional power companies. In the international scene, France offers opportunities for project development with a 87-megawatt solar project aimed at enhancing revenue streams for local farmers through agrivoltaics, demonstrating the company's strategy to foster innovative and mutually beneficial partnerships.

Robust Financial Performance Despite Challenges

In the financial sphere, the company reported strong growth with revenues and production tax credits up by 9% at $292 million compared to the previous year. However, production was influenced by lower hydro and wind output due to unusual weather conditions in British Columbia and Quebec. Had production levels met long-term average expectations, revenues would have been higher by an estimated CAD 30.5 million for the quarter and CAD 60.3 million for the year-to-date period. Despite these production setbacks, recent acquisitions and consistent asset performance helped mitigate this impact to a substantial degree.

Strategic Financial Management and Growth Trajectory

The company maintains a strategic focus on liquidity management, investment-grade rating protection, and funding its growth effectively. Preserving a high proportion of long-term debt that is nonrecourse to the corporation is fundamental to their approach. Additionally, the company employs hedging strategies like fixed-rate long-term financing agreements to insulate its operations from the impact of rising interest rates, demonstrating prudent risk management. Reflecting a well-thought-out strategy to cope with inflation, assets with indexation clauses in PPAs are also an essential part of their portfolio, offsetting inflationary pressure on operating expenses. As the company encounters periods of resource variation, its diversified geographic and energy source portfolio ensures long-term stability in cash flows. Targeting an internal rate of return (IRR) that provides a healthy risk premium, the company ensures that new projects capture current market realities and contribute positively to shareholder value.

Future Focus: Delivering Accretive Free Cash Flow Per Share

The company's executive leadership is keenly aware of the importance of accretive free cash flow per share and values its shareholder's interests. Although production variability exists, as seen in weather-related impacts on hydro and wind assets, their focus remains steadfast on delivering sustainable and increasing cash flows to shareholders. Strategies such as rotating capital, prioritizing balance sheet strength, and mindful equity funding are all geared towards enhancing shareholder value and sustaining the company's financial health in the long run.

Market Perceptions and Stock Price Reflection

Acknowledging that their stock price is perceived to be undervalued and not reflective of the portfolio's intrinsic value, the company sees the current situation as a short-term concern. The executive team is concentrating efforts on securing long-term PPAs, which they view as a critical window of opportunity for ensuring a solid project pipeline and creating long-term value. They believe that utilizing their liquidity wisely, rather than engaging in stock buy-backs at a perceived low price, aligns with their long-term growth objectives and will ultimately reflect the true value of the company's portfolio.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2023 Third Quarter Results Conference Call and Webcast. [Foreign Language] At this time, all participants on the phone and Internet are in listen-only mode. Following the presentation, we will conduct a question-and-answer session for analysts and institutional investors and instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to Karine Vachon, Senior Director, Communications. Please go ahead. Thank you.

[Karine Vachon, executive]

Hello, everyone, and thank you for joining us. Members of the media are invited to ask their questions by phone after this call. A presentation starting today's discussion is available as we speak on the 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 on1 these forward-looking statements as no assurance can be given that it will prove to be direct. 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 year. During this call, we will refer to financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the IFRS measures section of the MD&A for more information. Our speakers today will be Mr. Michel Letellier, President and Chief Executive Officer, who will present our corporate development and growth opportunities; and Mr. Jean Trudel, Chief Financial Officer, who will discuss the execution of new initiatives and financial overview. I'll now turn over the conference to Mr. Letellier.

[Michel Letellier, executive]

Thank you, Karin, and good morning. We have a very nice weather in Montreal. It's snowing. Anyway. We will be going through our results, and I'll be talking about the major activities that we had during the last quarter. Starting with the commissioning of our Salvador battery storage I had the pleasure to host the Minister of Energy, while we were celebrating the COD of this facility. I think that the presence of the Minister of Energy in our opening sermon shows that this type of investment is very important for Chile. It will be enhancing the ability of taking the advantage of the great sun and solar resources in the north of Chile. For us, we're pretty happy. Things have been going on the fast track. If you remember, we are taking advantage of being an early adopter of this technology in Chile. At the beginning, like I said in the past, we will be taking advantage of the arbitrage between the day and the evening and during the night. These battery will benefit also from a very strong capacity payment that the coordinator in Chile has put together. It will represent between 45% and 50% of the expected revenue. So it's a strong base to support this type of investment. And based on very conservative forward curve, we think that we'll be capturing something around $50 to $60 per megawatt hour as arbitrage. That is fairly conservative, given the actual arbitrage we can and have been capturing lately. It's over $100. So what you're seeing here is $8.2 million is a run rate in terms of revenue, taking into consideration the capacity and a fairly conservative arbitrage. I told you also that our long-term view of this investment is to be basically embedding this battery in our portfolio strategy to make sure that we can serve our long-term contract on 24, 7 hours. So of course, we're going to take the advantage of the early years where we think we'll see a lot more volatility in the price during the days and the night, especially in the north of Chile. But the long-range business case in these investment in batteries is to have this as another tool, another technology in our portfolio. So they will be embedded in long-term contract commitment that we will be doing in Chile. If we go on the other page, some activities, construction and development activities highlights, starting with our Innavik small hydro facility in the north of Quebec have been delivering electricity. We are finalizing all the commissioning. One has to understand that this is the remote community, and the hydro has to deliver and make sure that the power is stable. So takes a little bit more time to commission than the regular hydro facility. But we're confident we'll be able to achieve our COD soon. Also still in Chile, the second project, San Andres, best storage initiative are advancing very well. Same principle as Salvador, I just said, same batteries, same system, same philosophy. We think we'll be able to start injecting in the grid beginning of December, and commissioning should be happening a few weeks later, maybe end of December, beginning of January for full commissioning.Boswell Spring is a big undertaking. It's a big project. We're happy to report that the construction is going very well. We're advancing the schedule. Remember that the COD is supposed to be happening on Q4 next year. So everything is aligned. All the foundation has been poured. The main transmission line is almost finished. So we're pretty happy on the speed of the speed of construction on that big project. Jean is going also to talk about the financing. We are happy to have concluded our financing on that project. Hale Kuawehi, if you remember, we had been successful in price increase. Our PPA have been accepted by the PUC. So even though we had limited activities of construction during the quarter, things have ramped up pretty fast on this quarter, and we're already putting solar panel on trackers. So things are still looking forward in COD date in October next year. Mesgi'g Ugju's'n #2, the project we won in the last RFP of Hydro-Quebec is getting all organized. We're negotiating construction agreement. And also, we're also working on environmental permitting. So things are going well on that front. In France, we have signed our interconnection for Auxy Bois Regnie. That's a 29 megawatt wind facility. The last thing we need is to have the conclusion of the legal challenge that some opponents have made. We're hopeful that we should get that in the next month or so, and that would be the only milestone left to go through before starting construction on this project. Switching to a more general discussion about the Hydro-Quebec Action Plan that was made public last week. Very, very positive. And I think that I'll take a few minutes to explain what it means for us, for Quebec, but also for the market in Canada, in general, the broader message to the -- well, to the stakeholder from Hydro-Quebec is that by 2050, they will need to double the size of Hydro-Quebec production. So basically, they're calling for doubling the use of the electricity, green electricity in Quebec. Why this is so important for us and I think for the opportunity in Canada, just to give you a broad vision in the pie of the total energy consumption in Quebec, about 42% of this is electricity. The rest is fossil fuel and [ BO Canada ]. Why I think this is a wakening for the rest of Canada is that if for Hydro-Quebec, 42% already clean energy, in order to take out all the other fossil energy, you would have to double the size of our electricity Imagine the rest of Canada, where this 42% already electricity consumption is probably less than 30% in many other markets in Canada. So if Hydro-Quebec has to double when they have 42%, I imagine the other one, the other market opportunity. So that's why we're so bullish also in Canada, being BC, Ontario, Saskatchewan and New Brunswick are our preferred market to play. But I think that this is providing you the size of the opportunity for Canada development in the next years. But to focus more on their more short-term vision of 2035. What does that mean for us? They're calling for tripling the capacity of the wind power installed capacity in Quebec. They're committing to add 10,000 megawatts of new facility by 2035. So obviously, our focus on Quebec will be mainly a win, but there will probably be also some opportunity in solar batteries and some small and medium hydro possibility might arise also in that plan. So pretty important for us. And of course, they will have to focus, and they are calling for a lot of investment in the transmission infrastructure. And I think this is the key also to be able to interconnect new facility. I think that other provinces should also look very carefully on that plan. And hopefully, they will also act accordingly, giving us opportunity on other markets in Canada. If we're switching progress in Canada, United States, I'll cover very briefly what we're doing in our 4 markets. But as mentioned, Canada, I think Canada is going to provide a lot of opportunity. We're getting ready to proposed project in the Saskatchewan RFP, we have 2 solar and 1 wind that has been prequalified. BC Hydro has also announced an RFP that will be updated, but date for depositing proposal will be August. So quickly coming. We are refocusing our team there in BC. Remember that we have a strong office in Vancouver, and we're ready to take the challenge to bring new project in BC. We are also, of course, like I said, Quebec is a huge market for us in the next year. So we will be accelerating and focusing our effort in order to grow our prospective project in Quebec in order to have many projects ready to submit in future RFP. We have been submitting 2 projects for totaling 400 megawatts in the last RFP. We're waiting for the results starting probably December. That could be extended in January, but Hydro-Quebec has said that they will try to give the winning project in December. United States is a huge market, I say. Don't get me wrong. I'm very pumped up on Canada, but United States is a huge market, and we have, of course, our team focused on trying to bring new projects as well. We have been submitting also our Palomino 200-megawatt solar project into the last step for obtaining our interconnection date. Very anxious to get it. All the teams are ready to start. We have our offtaker on the sideline waiting to finalize PPA. Same thing with contractor. We have all our environmental permit on hand. So very anxious to get our date so that we can start the construction on Palomino. We also work pretty hard on some new solar activities in Colorado. There will be some call in Colorado. So we're getting there. We're getting ready down there as well. But we also have initiated more development activities on 400 megawatt win in Wyoming, very close to Boswell. As you remember, we have this line, the transmission line that interconnect to PAC. And we have room on our right away to put another transmission line. So we're pretty optimistic that we could pull another big project in that part of the world in the next few RFP that [ PAC ] is planning. France is always a great opportunity. As you know, it takes time to develop a project in France, but we're getting there. As I mentioned, our project, Auxy, is getting very close to start construction. But we are also advancing new projects. The team is in place, and we have now the support of Credit Agricole to support the development in France, and we're hoping that having also a strong financial local partner may help us buying the social license in some area in France. One of our interesting project is the 87 megawatts solar. This is a big project in France. As you know, usually we can see smaller projects. But this is a very interesting concept. We are providing Agricole Voltaic opportunity to generate more revenue for not land owner, but how do you say, farmers. Thank you. That's an easy one. So I think that this new way of proposing partnership with local farmers to enhance their total revenue will be very well received in that region. I mentioned Chile also with the [indiscernible], but we also have quite a bit of interesting opportunity to sign long-term contract. Codelco just made a call last month. We submitted a proposal for 250 gigawatt a year. We are very careful in our bidding in Chile. We're putting very interesting price of PPA. If we win them, we'll be very happy. Other opportunity also is for the Disco PPA. This is the total regulated utility that comes every now and then to have long-term PPA this time. The PPAs are for 20 years, fully indexed PPA. So pretty interesting. We intend to submit and participate also in that RFP. And we also have acquired and the process to finalize the acquisition of 45% interest in Pampa Elvira. This is an interesting solar, low heat water to support Codelco. We have just renewed a 10-year extension on take firm delivery of hot water with Codelco. So this acquisition is giving us the opportunity also to develop future projects in Chile offering hot water coming from solar in industrial processes. This is a very interesting business. I think we have also some opportunity in the future in that technology. On that, I will pass the call over to Jean to give you some financial highlights, and I'll come back at the end, and of course, we'll be available for questions.

[Jean Trudel, executive]

Thank you. All right. Thanks, Michel, and good morning, everyone. So I guess we're very busy, as you can see, and it's important to note that we also added 587 megawatts of new prospective projects during the quarter. And we're, as Michel mentioned, we're actively working on several new opportunities as well. So I will go quickly over the financial highlights. And as shown on the slide here, the corporation's financial performance posted strong growth for the 3 months ended September 30, 2023, compared to the last period last year. In essence, production reached 2,600 gigawatt hours or 88% of long-term average, and revenues in production tax credits were up 9% at $292 million compared with the same period last year. And the results of the quarter can mainly be explained by 2 things. Lower production at the hydro facilities in BC that continued over the quarter and lower wind regimes at the Quebec facilities, which were both mainly impacted by very unusual weather conditions. So it's important to see that -- and when we isolate these 2 factors had production levels been equal to their long-term average for just these 2 specific items, revenues would have been higher by approximately CAD 30.5 million and CAD 60.3 million for the quarter and the year-to-date period, respectively. So these 2 items define really the quarter in itself. Obviously, the recent acquisition of 3 solar projects in Sault Ste. Marie in Ontario earlier this year and the overall performance of the other assets contributed to partly offset the effect of these unusual weather events. For the 3-month period, operating general and administrative and prospective expenses were up 12% at CAD 87 million compared with the same period last year. And this increase is mainly attributable to the Sault Ste. Marie acquisition. But in large part, also the impact of the France 2022 supplementary Budget Act expense from higher maintenance expense at several facilities in Quebec, wind facilities, mainly in high operating costs in the States. As a result, adjusted EBITDA for the quarter reached CAD 180 million, which represents a 7.5% increase compared to the same period last year. On a proportionate basis, revenues and production tax credit proportionate were up 7% at CAD 317 million, and adjusted EBITDA proportionate reached CAD 201 million, which represents a 5% increase compared to the same period last year. And the corporation recorded net earnings of CAD 4 million for the 3 months ended September 30 compared with net earnings of $21 million for the same period last year. On the next slide, for the trailing 12 months, the corporation generated free cash flow of CAD 121 million compared with CAD 186 million for the same period last year. And this decrease is mainly explained by a decrease in cash flows from operating activities, as I explained, an increase in interest paid stemming from mainly additional indebtedness to finance our acquisitions and the construction activities and an increase in maintenance CapEx on some projects. These items were partly offset by the incremental contribution from the 2022 and 2023 acquisition. The increase in merchant prices at certain U.S. and Chilean facilities and a decrease in free cash flow attributable to noncontrolling interest for the BC Hydro facilities. The decrease of CAD 65 million in free cash flow resulted in a payout ratio of 121% for the trailing 12-month period compared with 78% for the same period last year. So it's important to normalize this in our view. And so when we normalize and we assume 100% LTA, and we're very conservative in our normalization. We normalize also the project that benefited from higher pricing, for example. So when we normalize assuming 100% of LTE except for Chile, revenues and production tax credits and adjusted EBITDA would have reached CAD 310 million and CAD 199 million, respectively, in the third quarter or on a trailing 12-month basis with all previous 4 quarters normalized for 100% LTA, again, except Chile. The resulting payout ratio would have been in the range of 75% to 82%. I would like to take a few minutes to give an update on our funding initiatives that were mentioned previously. So I guess we have good announcements. First, on July 14, we announced the construction financial close of the Boswell Springs project. And more recently, we've announced also the tax equity commitment that was closed for CAD 442 million on October '19. So with the tax equity commitment completed, the financing activities for the Boswell Springs projects are all completed. Secondly, on August 7, we announced the signature of an agreement to form a long-term partnership with Credit Agricole Assurance for the sale of a minority interest in our French portfolio. And on October 26, we announced the completion of that partnership. And we receive the proceeds. So the proceeds were used to reduce Innergex revolving credit facilities, which will then be used to fund the corporation's development activities over the coming years. And last quarter, we also announced 2 phases of nonrecourse project financing initiatives for hydro assets in Canada. We are about to close the first phase of that refinancing with the first 3 Canadian hydro assets. It's expected very soon, and that should yield proceeds of about $170 million. And we have 3 additional hydro assets that are part of the second phase, which is expected to close somewhere in 2024, and that second process is targeting proceeds of about $80 million. So by financing our unencumbered assets, we're taking a proactive step to reduce our revolving credit facility. And by executing on that strategy, we increased liquidity, of course, we protect also the investment-grade rating that we have, and we stay on track for funding our growth. Now in addition to focusing on the execution of our funding initiatives, I would like to put an emphasis on the way we are -- the way we derisk our projects and protect our return and performance for our current portfolio of assets and operations. So we generally use a high proportion of long-term debt that is nonrecourse to the corporation to finance all the capital requirements of our facilities. We mitigate the risk of rising interest rates by entering into fixed rate long-term financing agreements and/or interest rate swap agreements. So higher interest rates are not impacting our capacity to generate cash flows from operations. We still have today a small floating rate exposure at the corporate level, mainly. But once the funding initiatives that I mentioned earlier are completed, we will have essentially no exposure to interest rate fluctuations. The segment in which Innergex operates has been impacted by rising inflationary pressures. Our operating facilities have shown resiliency towards inflation as most of our long-term PPAs contain partial or full indexation causes that annually adjust for the effect of inflation. So as such inflationary pressures on operating expenses are generally offset by higher revenues. And lastly, periods of above and below expected resource as we are living it now occurs obviously throughout the life of our assets. But our strategy is to always maintain and increase the diversification of our portfolio of assets, both in terms of geography and sources of energy to alleviate the seasonal and production variations, generating long-term stable cash flows and building high-quality projects is our focus, of course, and we continue to believe that diversification is really key to achieving these goals. Now I just spoke about the resiliency of our existing operating base, but I'd like to also highlight the disciplined approach that we take to maintain our target levered IRR or internal rate of return on future projects. So when we submit prospective projects to all the RFPs, request for proposals and the coming RFPs that mentioned -- Michel talked about earlier. We, of course, consider all aspects of recent cost increases, inflationary pressures and interest rates and et cetera. The intent that we always have, and we've always done it is to capture a spread of about 600 to 800 basis points over the Canadian 10-year bond yield. This translates today in about a target return of about 11%, 12% levered after-tax return. A couple of years ago, it was 8%, 9%. The importance of this is that we always need to capture a return that will give us sufficient return for the sufficient premium over the risk that we take. And this target return will, of course, [ titrate ]in time as market conditions evolve, but it's always been our approach to the RFPs. Consequently, our future project incorporates the new market reality and will provide a strong profitability and will be accretive to our shareholders. We will continue to be very careful in allocating capital to the right projects to not only building megawatts that are very valuable to communities and to the environment, but also a sustainable stream of cash flows with the goal of increasing free cash flow per share. So lastly, I guess, overall, our financial focus our financial forecast,, which are also our key drivers for future performance are to, firstly, execute on development and construction activities on time and on budget, secure equity funding for our existing projects to be commissioned over the coming years. So basically pushing away, pushing back as much as we can as far up as we can the need for equity issuance. We are focused on closing our hydro portfolio, nonrecourse project refinancing. We have a disciplined and selective rotation of capital and we will find the initiatives to strengthen our balance sheet, reduce risks and finance additional growth as required. And we have a sound management of our balance sheet according to the rating agency's requirements to protect our investment-grade rating. And lastly, all of this obviously is to deliver accretive free cash flow per share, value to our shareholders. So I will now turn the floor back to Michel for the closing remarks. Michel?

[Michel Letellier, executive]

Thank you. Thank you, Jean. And I would echo your comments on many things. But on the short term, we will be focusing on getting our financing of the unlevered facility, hydro facility, as Jean mentioned. This is going to bring some new liquidity in the short-term basis. Focusing on San Andres battery storage brokers in Chile is very well advanced. And I think this is going to contribute right away into the Q4 bottom line. Advanced construction on Boswell, as I mentioned, this is a big project. This is also going to be a great accretive project when it's going to get in service. Hale Kuawehi, same focus on starting to accelerate the construction, so we can deliver that project in [ October next week ]. France, as I mentioned, we're getting very close to have construction initiatives in France. We've been waiting for a long time for this, but it's starting to pay out. And as we've seen, the Credit Agricole has awarded us or give us the benefit of that growth over the years in the valuation of their 30% acquisition stake in our portfolio. So that was a great proxy on what we have been able to develop and create value over the years in France. And it's only the beginning. We have now good and strong presence in France. Just want to make sure also we are renewing our vow to create value on our development activities. As I mentioned, we are seeing so many possibility in the 4 markets that we are working. And so our focus will be to bring more and more prospect project so that we will eventually have more and more PPA signed and committed to develop these projects down the road. And as Jean is saying, we have taken into consideration all the new reality in terms of interest rate and construction cost and supply of the wind turbine or the solar panel. So we are updating all our bidding assumption in order to secure good return for accretion on our bottom line going forward. So thank you, and we'll be starting taking some questions.

[Operator]

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

[Rupert Merer, analyst]

Good morning, everyone. With the debt financing you're looking to raise on the unlevered hydro assets, can you give us a little more color on that, what rates do you think you can achieve on those? And what's the duration that you'll have on that financing?

[Jean Trudel, executive]

Well, it's pretty easy, Rupert. As you know, these type of bonds or financing -- project financing are based on bond, roughly the 15 years bonds are trading roughly at 375 these days. And then you have to have a spread that is anywhere between 225, 275 these days, the premium. So you would end up having a coupon just over 6% theoretically.But we are staging it in a sense that we're getting very close to close on the first phase. Given the -- I wouldn't predict it, but given the likelihood that interest rate pressure is starting to ease, we have decided to do it in 2 tranches. So we'll do the other tranche of $80 million to $90 million in the first quarter next year.

[Rupert Merer, analyst]

When you think about timing, there's potential rates are coming down, but what's the urgency on the need for capital. At this point, I think you highlighted you'll pay down your revolving credit line. But if you don't close our financing, are you hindered in any way in your ability to continue to invest in growth?

[Jean Trudel, executive]

No, we just are mindful that Fitch is looking into our exposure into the holding our line of credit. So this is basically the target there, and we just want to make sure that we maintain our rating with Fitch.

[Rupert Merer, analyst]

Great. And then secondly, if I could ask about Boswell. This is your biggest construction project today. Can you give us a little more color on the total cost and the schedule for that project? And any risks there may be to either of those items, the budget or the schedule and how you're managing those risks?

[Michel Letellier, executive]

Well, I think that we've been working hard in making sure that we have now all fixed price component with Morganson and the transmission line is basically done. So we have done it in the budget. And we have also secured the pricing for the turbine with GE. So we don't foresee much risk down there. There's always some possibility when we build, but we have now fixed all the price and the delivering of the major component.The only risk is given the erection of the turbine. Sometimes you have a little bit of weather constraint. If it's too windy, sometimes you can have some delays that are building. We have some contingency on that plan. But this is basically the last hurdle we could see that if we have more wind days that are delaying the installation, we may have some cost overrun on those aspects, but this is certainly not material. And we have all the delivery of GE secured for early spring so that we -- as soon as the snow is out, we are starting to erect the turbine and Morganson is all committed to have the crane and the crew to make sure that we get into operation in October, November next year.

[Operator]

Your next question comes from David Quezada with Raymond James.

[David Quezada, analyst]

Maybe turning over to Quebec and the RFP that you bid into there recently. Any color you can provide on how competitive you expect that will be? I know there are a lot of RFPs coming or maybe even any just color on your bidding strategy there.

[Michel Letellier, executive]

Of course, we will not tell our secret. But I think that we've been always been open, and I think we can be a great partner with First Nation. So we have been working with First Nation community in Quebec and in the rest of Canada to make sure that we have good support from local community, including the First Nation.So I think that this is something that you have to have in Quebec and certainly in BC as well. You want to make sure that you are welcome in the communities. And I think that Innergex has been on the forefront of being a good partner with local communities and First Nation. I think that this is something that we are good at. And I think this is a differentiator to the rest of the industry. I'm not saying that the other guys cannot do it. But I think that we have proven to be a very good long-term partner with First Nation.

[Jean Trudel, executive]

And maybe just to add, David, we secured the exclusivity also with Pacific First Nation in this particular RFP. So a large, well, I guess, all the territory, the claimed territory of the [ Besimit ] in exclusivity is a good thing, and we submitted one project with them. So that would become the question of price, of course. But I think we have a good differentiator there.

[Michel Letellier, executive]

And it was competitive but not that competitive. If you remember the area where interconnection was available came late in the process last year. And I think that although it was competitive, it was not that crazy competitive.

[Jean Trudel, executive]

Yes. When you look at the multiple of bids compared to the awards that are -- that we're waiting to see the 1,500 megawatts, like you see the number of bids. I think it's-

[Michel Letellier, executive]

It was close to 3,000, but we were competing against each other-

[Jean Trudel, executive]

That ratio is actually quite acceptable compared to recent RFPs that we've seen in other markets where the multiple of bids compared to the awards is much different, much higher.

[David Quezada, analyst]

Maybe just one sort of follow-up on -- I mean the -- certainly, it sounds very encouraging. The targets that Hydro-Quebec has in the province. So I'm just wondering if you could maybe just update us on any discussions you may have had with Hydro-Quebec with respect to your partnership there? What kind of opportunities do you see that providing going forward here?

[Michel Letellier, executive]

I think Hydro-Quebec is -- and I don't want to talk for them. But given the amount -- the sheer amount of work in Quebec, I think Hydro- Quebec will try to be creative in their approach in order to have the support of local community as well and accelerate the development. There has been in the past some opportunity where Hydro-Quebec has selected to go direct with a group of developers being also including some local communities.This might be one opportunity over and above some RFP that Hydro-Quebec is going to lead. So we'll be in touch. Definitely with Hydro-Quebec, we will try to be a great partner of choice for First Nation in that approach. And hopefully, we'll have success. We definitely have a target to have our fair share of that 10,000 megawatt going forward. Historically, we have had anywhere between 20% and 30% of these awards. And this is definitely a target that that would be -- I wouldn't be happy if we miss.

[Operator]

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

[Nelson Ng, analyst]

I just want to start off with more of a big picture question. So you have a number of wind developments that you're advancing. How do you think about turbine suppliers and do you have a preferred ride supplier? I'm just asking because we've heard about Siemens running into some trouble lately.

[Michel Letellier, executive]

That's a good point. We are hoping that for the sake of the industry that these turbine manufacturers get better financing, not financing, but get their act together. It's important for all of us. I think that as our industry is getting, I would say, more and more opportunity going forward, I'm hoping that the turbine manufacturer will get that we don't necessarily need every second year a new turbine. We need reliable efficient turbine that works.And I think they get it. I think that, that race to have new model every now and then is killing them. So I think that we have heard Siemens Gamesa problems. We don't have any Gamesa turbine in our fleet. So we're not. We have Siemens but not Gamesa. So we're free of this issue. We're not saying that we don't have issues with GE or Vestas. But I think that they're getting refocused and it's a good thing. And even if they raise the price -- if we know in advance, we are, as Jean is saying, updating our strategy to bid, taking into consideration these new price for turbine. The important thing is that we know in advance so that when we bid, we have these new prices. But what we are wishing is that this model will not have serial defects and all kinds of issues. This is basically something that I think now their Board and investors are telling them to just concentrate on delivering good turbines. The world needs a lot of wind down the road, and we certainly don't need 2 turbines that have not been tested before being sold to produce long-term electricity.

[Nelson Ng, analyst]

That's good color. And then just on that topic of just higher project costs, higher equipment costs. So you mentioned earlier that in Hawaii, the PPA price increase of about 56% was approved. I think you guys bid into that project like way back in 2018. Can you just give some color or just big picture as to like how costs have changed since then? Is it relatively consistent with that 50% or 60% increase in the PPA price?

[Michel Letellier, executive]

Yes. But probably a little bit more and interest rate has gone up. So even if it's a 50% price increase, it's bringing an okay return, but it's certainly not our most profitable project. But of course, it did help. But it shows you that in the lapse of time, price have gone up quite a bit in some of those facilities. But we're happy to have that price increase. This is supporting an okay return, but not a great return.

[Jean Trudel, executive]

I think what it demonstrates also is the willingness from public utilities to actually revisit the pricing even when they were bid to an RFP, where they don't necessarily have to do this, but they want these megawatts and they want to clean the grid and transition. So we are seeing that type of relief from HECO, but also from PAC] at Boswell. And it just shows, I think, it's something that we would have never seen before. But nowadays, utilities, I think, are listening in and they accept to revisit pricing because they understand that reality has changed for pretty much everyone, including themselves as well.

[Michel Letellier, executive]

And they need the electricity down the road. I think that what I mentioned the high opener for me and I hope for the rest of the industry and all the stakeholders is that if we're serious about decarbonizing our industries in the world, we need to start today, and we need to do it fast. And we need a lot, a lot, a lot of wind, solar and hydro going down that path.

[Nelson Ng, analyst]

And then I just have one last question. With the battery storage project in Chile almost completed or 1 of the 2 completed, have you -- I presume you've looked at North American battery storage opportunities. Like are there any good opportunities to add batteries to existing sites in North America? I'm thinking Texas specifically or even other areas that we haven't thought of.

[Michel Letellier, executive]

Well, Ontario is a good place with the RFP because they are committing to pay for capacity payment. We're not the big players yet in Ontario. We've looked at Texas, but the problem in Texas, they don't pay for capacity. So pretty difficult. We don't want to invest in batteries and playing just merchant. As I mentioned, it just happened that since we are early investor in Chile we will take advantage of the big swing until some other batteries will be built.But then the long-term strategy is to have them embedded in our technology. So they'll be supporting long-term PPA. This is what I think is smart investment in batteries, but we'll be on the outlook to have some project to answer a call when utility are willing to pay a fair price for the capacity. Because if you rely only on merchant, it's becoming quite challenging for establishing a stable long-term cash flow forecast on these investments. So we will be looking towards places where we can capture the majority of our revenue through capacity payment or embedding these batteries into a portfolio or to supplement solar into certain call. So this is where we're going to be focusing more. We will not be a big players of putting batteries for merchant exposure.

[Operator]

Your next question comes from Mark Jarvi with CIBC.

[Mark Jarvi, analyst]

Thanks for providing the normalized payout, and I like that you adjusted for the power prices as well as the generation. So if you look forward with those projections, is that the right proxy for where you think you would be next year just sort of other puts and takes in terms of the year-over-year is something around an 80% payout ratio, the target for 2024.

[Jean Trudel, executive]

Yes. Well, it's certainly a good proxy to use because it reflects our earnings power. That's the intent of the normalized feature. 2024 is a bit different than 2023. So I'll leave it at that because we don't -- we're not in a position yet to give guidance for 2024. But it's just, I think, just it helps the Street to just revisit the notion that weather is something and there's weather patterns that have snuck up on us, especially in BC. But when things normalize themselves and we believe in it, we believe that eventually, we'll revert back to the mean, especially because we have 85 assets. So the diversification effect should come back and help. So yes, I guess you can certainly put that in the mix and use it as a proxy for as a good concern.

[Mark Jarvi, analyst]

And when do you guys think you'll be in a position to update growth targets and provide the outlook for 2024 and beyond?

[Michel Letellier, executive]

That's a good question that I don't want to dodge that question. But given the great opportunity that we have in all our markets, especially in Quebec, we just want to be patient and absorb the -- our strategy to come back to you into a more in light or insight. We're going to be also sitting down, as I mentioned, with Hydro-Quebec trying to understand how we can help with certainly some of our First Nation partner into this endeavor that they just announced.So we'll take our time, guys and don't read into this that we don't know where we're going. We know where are going. It is that there's tremendous opportunity. We just want to make sure that we are updating our strategy in the right fashion and communicate it to you. I think that what Jean is saying yes, you can take the normalized and extend it to 2024, you won't be that wrong. I think that also just an update, I'm surprised that you haven't asked guys. But our four-quarter looks a lot better. It's still early in the quarter, but BC is back. The forecast for rain for November is great. We have had a good October month and November looks really good in terms of production of hydro in BC. I don't know about December. But so far, this quarter seems to be pretty good for BC hydro production. So I think that, as Jean is saying, what we didn't understand in the last few quarters is given our great diversification, we've been hit hard in some cases. We're still thinking that diversification of technology and geography is the right strategy in order to have less volatility in terms of production, and we'll certainly continue to deploy that strategy going forward. And be prudent also in establishing long-term forecasts and try to take into consideration all the new input that we can get in terms of potential weather pattern change going forward. But like I said, I think that the strategy of diversification is the way to go.

[Mark Jarvi, analyst]

And just last question for me. Jean, did I hear you say that you essentially have all your floating rate debt exposure put away once you're done with these financings? Is the expectation that your credit facility will be essentially fully repaid once you've done the debt financings and obviously with the Credit Agricole proceeds, paying the balance still.

[Jean Trudel, executive]

Not fully repaid, of course, but there will be a remaining balance, but that remaining balance, we have hedging products in place. So right now, the portion on the revolving facilities that is unhedged would essentially disappear.

[Mark Jarvi, analyst]

And on the hedge portion of the revolver credit facility, like what would be the effective interest rate today on that piece?

[Jean Trudel, executive]

That's a good question. It's probably around 4%, I would say, like the hedge portion. 4.5%.

[Operator]

Your next question comes from Ben Pham with BMO.

[Benjamin Pham, analyst]

I'm not sure if you mentioned this in the beginning because I missed the first few minutes. Can you talk about the dividend sustainability from your perspective? And is there any conditions that you may have to relook at the dividend?

[Michel Letellier, executive]

No, we haven't mentioned that, Ben. As you always -- again, I don't want to dodge that question, but I think that this is something that the Board has as a restriction on. We are looking in all our possibility of cost allocation. Dividend is not the first thing that we would look into to raise capital tomorrow.But obviously, we're seeing great opportunity going forward. As we mentioned, we have a lot of initiatives to reduce our need to go into issuing stock. We have been recycling assets. We have undergoing some refinancing activity. So we don't need to raise capital in the next 2, 3 years to fund our portfolio. So I would keep it in that. But like I said, we are always looking into cost allocation optimization. And we have, of course, a great opportunity going forward. So I would leave it that way. I think that Jean has shown you also that on a normalized basis, the dividend is well covered and be mindful also that in our calculation, our budget, we are putting about $40 million in the development activities, prospect activities. This is already built in, in our budget for next year. And we've been investing on the basis of close to 30% this year. So we can support both the dividend and our prospective activities. But I think that we always consider all the capital allocation available to us.

[Benjamin Pham, analyst]

And then maybe just a follow-up on that then. I know you talked about the payout ratio improving and it's up to 80%, and that's been close to your target 75%, I believe. Do you think that's the right payout ratio in this environment where it looks like you're still going to ramp up growth activities and interest rates are rising and you have to manage the volatility and resource conditions? Is 75% the right target to go to?

[Michel Letellier, executive]

Well, the 75% includes -- doesn't include our prospective expenses. So we can certainly try to improve on this. And you're right, there's great opportunities for us to deploy. I don't think interest rates will go higher, but that's my guess. So I think that we -- hopefully, we have seen the peak of interest rate movement, but things can be volatile in this world today. But I think that we've seen the worst.And again, I would like to think about creation of value for the shareholders. What is the best for creating value for our shareholders going forward. It will always depend on how successful we are also in securing a project. When you have a good project, getting the capital is not a big issue. Usually, there's all kinds of funds that are chasing good investment in green infrastructure like we are. So for the time being, we're focusing on creating value for our shareholders in our prospective activities, securing long-term PPA with good margins so that we can generate accretive cash flow per share to our shareholders.

[Benjamin Pham, analyst]

Can I sneak one more in? You mentioned capital allocation and you also mentioned some of the returns you're targeting used to be 8% to 9% and now it's 10 or above. With yield at 8%, though I don't recall your stock ever being this depressed for some time. Like isn't it better just to buy back stock meaningfully? Or is it more the Fitch rating you need to sell first before looking at that?

[Michel Letellier, executive]

Well, it could in the short term. Obviously, we think that the price of our stock is depressed and doesn't represent the value of the – intrinsic value of the portfolio. On the other hand, we want to create value in the long term and the opportunity and the window of opportunity to secure long-term PPA are now. If we want to make sure that we have a good long-term PPA pipeline in our portfolio for delivering projects in '27, '28, '29, we have to take that opportunity, and that's how we are going to focus.So I would love to be able to buy our stock at $9. But I think that on a long-term basis, we are going to use our liquidity wisely. The main focus, I repeat is to grow profitably from our own pipeline of development. And like I said, there's huge opportunities in the 4 markets that we're operating in.

[Operator]

Your next question comes from John Mould with TD Securities.

[John Mould, analyst]

Just one question. I wanted to ask about investment in Quebec in the context of your existing wind fleet. I think the first PPA, I think at Baie-des-Sables expires in about 3 years, and then L'Anse-a-Valleau follows the next one. What kind of recontracting process are you anticipating for your Quebec wind assets? And does this present a broader repowering opportunity or more of a short-term PPA extension?

[Michel Letellier, executive]

Well, that's a very good question. Given the amount of energy Hydro-Quebec needs, these projects are already embedded in the transmission system. We have initiated discussion with Hydro-Quebec. The goal that we have I guess, expressed, is to have a long, long-term vision on these sites. So how do we maximize the existing facility.Mind you that we are operating this facility ourselves. So we have very good knowledge and ability to maintain these wind farm. Just a small recall, we have a little bit over 400 units of 1.5G SLE on that fleet. We know them. We have been taking care of them. So there's a big bunch of those that can be extended beyond the initial 20 years. But we would love to be able to create value on a long-term basis with Hydro-Quebec having some kind of a hybrid system where we can take the existing facility or existing location and make the best of both world keeping some old machine running and then putting new technology, repowering some part of the portfolio to maximize the existing footprint and to create long-term sustainable forecast cash flow for us, having the ability to phase these repowering in sequences. And like I said, having the certainty of our output with Hydro-Quebec. But like I said, Hydro-Quebec needs these type of project to be renewed and repowered over time. Like I said, again, they want to have 10,000 megawatts of new facility by 2035. They don't need to shut down some existing plants. And to give you an appreciation repowering with the new technology today at some of these sites increases the power generated by 25%, 30%. So there's a great gain also for Hydro-Quebec in terms of the energy that they could provide to the grid from these assets. So I think we're in a good position to actually hold these discussions and get the best outcome for Hydro-Quebec.

[Operator]

[Operator Instructions] Your next question comes from Nick Boychuk with Cormark Securities.

[Nicholas Boychuk, analyst]

Now that you've secured the debt package and the tax equity financing for Boswell Springs and have gone through that whole process. Can you just speak to the general availability of capital? How competitive it was from all of the sources and how many options you have to evaluate. Is it getting harder to source capital or you still find it to be a fluid market?

[Jean Trudel, executive]

Yes. That's a good question, Nick. So the market is actually pretty thin in terms of the available pool of capital for tax equity, right? So they are -- so we ran a process. We had several players that were excited about a project like Boswell. I think it calls to strong sponsorship, strong PPA uptaker and good technology. And so an experienced sponsor in the sense that we've done tax equity often now. So that was recognized.But at the same time, I mean the pool is not that vast, right? And that's one of the constraints from the -- following the IRA. It brings a lot of projects, a lot of products. But at the end of the day, this is going to be one area to look into and as long as interconnection, as you know. So interconnection and tax equity pool of capital are 2 constraints. The goal is -- and here, we've also shown the market that we're bringing 2 new partners that didn't deal with us before. So that's great because it improves the capacity that we will have at Innergex to do this. So I think I'm confident that we can do it again. We have these relationships now, and we've proven that we can do it. And it's a significant amount of capital as well, as you can see. So it's not a concern for us, but for the industry and to get to the goals that the RA wants to achieve, it is a certain concern. The terms and conditions obviously are not easy. I mean, dealing with tax equity. I'm not going to say it's an easy thing. I mean it's an approach where they propose terms and conditions and you try to make it work with you more than a real true negotiated position. But there are some areas where they show flexibility and they've accepted some of our proposals, and so we moved on.

[Michel Letellier, executive]

I think also that an interesting development will be to see how the industry is coping with the transferability of these tax equity and PTC certificate. That may broad the market, and we're looking into this. We know that there's some brokers that are trying to pull some capital in order to answer the demand for future tax equity. That was an interesting twist in the new version of those PTC and ITC. We have yet to see how liquid and efficient this will translate.

[Jean Trudel, executive]

Well, it's just 1 year old, right? So the ROE -- I mean people are getting their act together and trying to get their head around that. But we see some transferability deals done. But for us, it was not the case yet as we didn't need it. But it's going to be interesting to see how it unfolds. And the good thing about the ROE is the visibility of tax equity for 10 years, right?So at least we are away from what it used to be like the couple of years, boom and bust in the PTC market. So now we have a visibility over 10 years. So that helps. So there's a few good elements, but still the pool of capital needs to increase a bit more.

[John Mould, analyst]

And does this same logic applied to the depth of the project finance market or any more players there?

[Jean Trudel, executive]

No, more players, more many players. It's a much more liquid market.

[Nicholas Boychuk, analyst]

And obviously, appreciate that growing projects organically is the priority. But have these challenges led into other earlier stage developers, maybe those who weren't as well capitalized? Are you seeing opportunities where you could potentially acquire either late-stage development assets in more effective terms now?

[Michel Letellier, executive]

This is the area where we might still transact in M&A if we can find affordable opportunity to speed up our development or construction activities. Yes, of course, there's a need here and there, and we'll be on the lookout, not necessarily a huge deal, but some transaction might be interesting in order to speed up some projects so that we could have COD in '26 or even late '25.

[Nicholas Boychuk, analyst]

And then just coming back to Nelson's question about the turbine supply. Are you guys finding that suppliers are changing any of the terms? Are they -- if they're trying to scale production, are they asking for deposits earlier in the process? Are they requiring longer lead times or giving preferential treatment to certain purchasers? Any change in their activity, would be interested to hear.

[Michel Letellier, executive]

There's certainly wiseing up hopefully in the type of pricing they're giving. We have one characteristic, if you remember also on -- there are some players that are more interested in staying in the O&M and versus the price they sell the turbine. We have some flexibility down there for us being able also to operate facilities. So we can play a little bit that game of some manufacturers are less exposed to North America, and it would rather put perhaps a price on the turbine. But let us operate and provide some supervision and some spare parts.So we have a little bit more flexibility than maybe some other players that would not consider doing their own operation. But like I said, we expect them to provide us some price that they can sustain. Same with O&M. Like I said, I think we are very particular in our approach on O&M. If they're committing to do something on O&M, we have very strong O&M agreement that we'd like to use. And if they don't want to do this, we can manage the operation by ourselves.

[Operator]

There are no further questions at this time.

[Karine Vachon, executive]

Thank you. Thank you, everyone. We'll be talking again in February. Have a nice day.

[Michel Letellier, executive]

Thank you all.

[Jean Trudel, executive]

Thank you very much everyone.

[Operator]

Thank you very much, everyone. Ladies and gentlemen, you may now disconnect your lines.