Innergex Renewable Energy Inc

TSX:INE

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy's 2022 Fourth Quarter and Year-End Results Conference Call and Webcast. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.

I would now like to 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 under the 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 Trudel, Chief Financial Officer, who will present Q4 and year-end results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our provisional highlights. I'll now turn the conference over to Mr. Trudel.

[Jean Trudel, Chief Financial Officer]

Good morning, everyone. I may take a little bit more time than usual today because I'd like to discuss our, obviously, financial results, but also the debt structure and the 2025 targets. But first, I would like to start with a review of our actual performance versus our 2022 guidance. As you can see from the table, most of our 2022 targets were essentially met except for the production and the free cash flow per share target. The low production is mainly due to exceptionally low hydrology levels in British Columbia during Q4 2022, but also to lower-than-expected generation within our three segments compared to our long-term average for the fourth quarter but also for the year as a whole. In fact, only our solar facility in Ontario and our Quebec-based hydro and wind assets performed at or above expectations in Q4 and in 2022 as a whole. Revenues, adjusted EBITDA and adjusted EBITDA proportionate targets were essentially met thanks to the contribution of acquired assets in 2021 and 2022 and higher selling prices experienced mainly in Chile and at our Texas facilities. Next slide. As shown on Slide 6, even with a below expectation fourth quarter, our financial performance posted growth in 2022 compared to the normalized figures in 2021. Production was up 13% and revenues were up 26% at $871 million compared to the same period last year. This increase is mainly explained by the contribution of the 2021 and 2022 acquisitions, namely the remaining 50% interest in Energia Llaima and San Andres, Lican and Aela in Chile as well as Curtis Palmer in the U.S. The increase is also explained by the commissioning of the Griffin Trail and Hillcrest facilities, higher production from the facilities in Quebec, higher selling prices at the Phoebe solar facility and by the BC Hydro curtailment payments received in Q1 2022.

For the year ended, operating, general, administrative and prospective product expenses were up 29% at $286 million compared with 2021. This increase is mainly attributable to the 2021 and 2022 acquisitions and asset commissionings, as mentioned earlier, as well as higher maintenance costs at some of the hydro facilities in BC following the floods that occurred at the end of 2021 and the impact of the 2022 Supplementary Budget Act in France. So as a result, adjusted EBITDA for the year reached $585 million, which represents a 24% increase compared to the same period last year. For the year, production proportionate was up 10%. Revenues proportionate were up 22% at $996 million, almost $1 billion, and adjusted EBITDA proportionate reached $696 million, which represents a 20% increase. The corporation recorded a net loss of $91 million for the year compared with a net loss of $121 million in 2021 normalized. The variance was mainly due to the recognition of an aggregate $113 million share of impairment charges in the Flat Top and Shannon joint ventures located in Texas in 2021. These items were partly offset by the increases in depreciation and amortization and finance costs attributable to recent acquisitions and commissionings.

Continuing to the next slide. For the year 2022, the cash flows from operating activities totaled $430 million, which represents a $148 million increase compared to the normalized period last year. This increase was primarily explained by the incremental contribution from the acquisitions over the last two years in asset commissioning, the BC Hydro curtailment payments, as mentioned, the realized gains on financial instruments related to the issuance of green bonds for the Chilean facilities, and the closing of the French acquisition and the timing of interest payments for certain BC project debt in Q4 2022. And these items were partly offset by an increase in finance costs paid mainly related to the Griffin Trail and Hillcrest facilities commissioned in 2021, and to the issuance of the green bonds and the unfavorable settlement of the Phoebe power hedge during 2022. The $36.5 million increase in adjusted free cash flow versus the normalized period last year resulted in a significant improvement to our adjusted payout ratio, which amounted to 85% in 2022. When accounting for the $24.7 million investment into our Greenfield portfolio of prospective projects, the payout ratio reaches 100% in 2022.

So now I'd like to shed some light on our debt structure. Our key objective is to use an appropriate amount of leverage while keeping a comfortable capacity to service our debt from the cash flows generated by our asset base, very typical to the infrastructure and renewable industry and in order to maintain our investment-grade rating. So our debt structure reflects the high quality of our underlying assets and the high number of hydroelectric facilities that we own. It reflects also the long remaining weighted average life of our power purchase agreements, the fact that 90% of our cash flows are contracted on a long-term basis, and that our exposure to rising interest rate is minimal, with only 8% of consolidated debt at floating interest rates. If we start by looking at our total corporate debt, which stood at $1.3 billion at year-end, and this includes the revolving credit facility, the unsecured loan, the convertible debt and also the Alterra loans, so this debt is supported by the cash flows from the business, but also supported directly by 19 diversified facilities, all free of project debt. And these facilities have a remaining weighted average useful life of almost 35 years. 68% of corporate debts are fixed rate or benefiting from long-term interest hedging agreements, and we have no debt maturity over the next two years.

Now if we turn to the nonrecourse project loans, they stood at $4.5 billion at year-end, and it has essentially no exposure to rising interest rates, with 99% of these debt bearing fixed rate or fixed under long term hedging agreements. 100% is amortized over a weighted average life of 17 years and is supported by obviously high-quality and predictable cash flows. And the tax equity financing is amortized over the next seven years, mainly repaid via the generation of production tax credits. The repayment schedules of these nonrecourse project loans are quite aggressive and are presently entirely embedded in our payout ratio calculation. On a consolidated basis, corporate debt and the nonrecourse project loans, the weighted average debt maturity equals the weighted average PPA remaining life at approximately 13 years versus a weighted average useful life of 37 years for our assets. And when we talk about useful life, we use 75 years for our hydro assets from [COD], 35 years for the solar assets from COD and 30 years for the wind assets even if we know that, after this period of time, these assets still have a valuable market value. Now let's talk about our guidance. We are confident in achieving the growth targets of the strategic plan given our execution track record and the maturity of our existing development activities.

The free cash flow per share is a very key metric for us, and we, therefore, reiterate our target free cash flow per share of $1.01 per share on the 2025 run rate basis. So compared to 2022, we have to bridge a $0.29 per share gap. And how are we going to do this? I guess $0.24 per share is expected to come from a combination of 3 things - firstly, the recently announced M&A acquisition in Ontario, which is expected to close in the coming weeks; our base business growth, mainly from inflating power purchase agreements' selling price; and thirdly, the already identified and derisked projects under construction and under development. So we have 368 megawatts under construction as we speak. And on top of that, we have 85 megawatts of battery systems. All of these projects under constructions are meant to be in service by the end of 2024, and some actually in 2023. We also have 240 megawatts identified projects under development, so for a total of close to 610 megawatts that is either under construction or development. And then $0.05 accretion per share to come up with the $0.29 is expected to come from existing advanced stage Greenfield developments or new M&A activity. As concluding remarks, even though our fourth quarter and yearly results were lower than expected in terms of production, our fundamentals remain strong. It's important also to note that this guidance is taking into account all the debt, the tax equity and the equity funding required to grow the portfolio and bring the projects under construction and projects under development assets in service and does not rely on any potential rotation of capital initiatives that could help alleviate the per-share dilution even further. So on this, I will now give the floor to Michel for the quarterly and yearly operational and development review. Thank you.

[Michel Letellier, President and Chief Executive Officer]

Thank you, Jean. And just a funny note. I guess we'll take a raincheck on the next quarter for the hydrology. Very unusual to have seen such a bad hydrology and actually some weakness also across our portfolio. So I would think this is just a little bit of an anomaly on long-term forecast. We're still confident on our long-term forecast for the entire portfolio. As you know, our strategy is to diversify through geography, technology. And at the end of the day, we should have a very stable and predictable long-term forecast, and hence having secure cash flow coming from our portfolio. So let's hope that the last quarter was not the trend and that we are focusing on our long-term forecast as we always did. So thank you for covering the financial results. I'm here to just go back a little bit. We are at the end of the year. It's always interesting to have a quick look on what we have achieved in the last 12 months. Pretty busy in the sense that we have been acquiring facility, new facility. We have advanced a lot in our portfolio of prospective project. But we've been also very successful in closing some very good acquisitions that are going to contribute to the payout ratio, going forward. So we started the year with acquiring a 50-megawatt San Andres facility in Chile. Then we also initiated two battery project in Chile, one with our existing Salvador facility. And since we just bought the San Andres facility at the beginning of the year, we thought that the strategy to have battery there would be very interesting. And given the fact that we took the decision early on, we were able to secure a pretty competitive price for the battery.

And hence, it looks really good in terms of future contribution in terms of financial contribution for us. As you know, we've seen Jean mentioning that, in some cases, you're seeing some weak production in Chile in solar, but it's also some curtailment that happens when, of course, you're producing during the day. You all know that Chile is a very long and thin country. And given the fact that the Atacama Desert is probably one of the nicest place on earth to produce solar, and during the midday it's creating a little bit of a congestion on the distribution system; and hence, the idea of putting battery there. We think that before this will be minimized by a new line, [we'll] have a fairly good long fairway to amortize and make good business sense on those batteries. So very happy on that aspect. Also, we have conclude on Aela wind portfolio. Remember, that's a 332 megawatt, and that is completing our strategy on portfolio approach for Chile. Remember that we wanted to have the 3 technology, actually, the 4 technology now that we have initiated battery, as well. So for us, it's important in Chile to have this as kind of a small utility. We have now the ability to secure long-term contract and serve corporate contract in the future. We also have been very happy to commission the Tonnerre battery energy storage system in France. That technology, if you remember, coming from [Ablo], a division of Hydro-Quebec. So we were glad to be the first customer to put that new technology on service. And very proud of having been able to secure the PPA for Boswell Spring.

We'll talk about it. This is the biggest project for this year. It's a 320-megawatt net power purchase agreement because it's 330, but then we have about 10-megawatt loss on the line to our point of injection in the system. Very, very interesting project, and we are pretty confident also that, with the new rules regarding the PTC [adder], both on local content and community adder, we think that Boswell Spring will be able to benefit from those two. But it's too early to conclude and bank on those to upgrade. But if ever they appear, this is going to boost the return materially for Boswell Spring project. And then at the end of the year, we concluded on consolidating 2 portfolio, one in France. You know that we bought the 30% minority interest in France. That was for making a little bit of consolidation and giving us more flexibility to develop future initiative in France. And we did also the acquisition of the remaining 37% outstanding share in Montana Air Wind portfolio. We were really happy with the outcome of that performance of that portfolio in Idaho. And for us, it seems to be a logic to, I guess, simplify the structure and profit from the fairly good cash-on-cash on that portfolio. So a pretty busy year. Now if we switch on Page 13, you have a map there on our activities, construction and advance project. Our intention is, of course, to deliver on those advanced projects. Innavik construction will be finalized and construction should be done, and COD, I mean, should be done by July. Boswell Spring, we have started the construction, all the finalizing document and annex are being finalized for our balance of plant and EPC construction activities. Very bullish on this project, as I mentioned. It's going to be a fast construction. We're hoping to be in service by late next year.

We are planning for a Q4 COD, working for that for the moment. Everything seems to be greenlight on that date for us to be able to have Boswell in COD late next year. Palomino, as you know, we're working towards a COD date. We were hoping to be mid-2025, but it seems that, with the congestion on interconnection [queue] in PJM, they're having a hard time being able to interconnect us, so to a date that would be earlier than the end of 2025. So this, hence, our guidance for COD in 2025. But the demand for renewable energy in Ohio is still very strong. So very positive on securing a good outcome for our price of electricity for Palomino. So stay tuned, but we're heading towards the end of 2025 for Palomino. Now if I mentioned the battery storage in Salvador and San Andres, remember that Salvador battery storage has been included in the refinancing of our Chilean portfolio. So this will be fairly accretive to our cash-on-cash once these battery will be on service. Right now, we're heading towards something in August to be in service. And then San Andres will be in COD by the end of the year. So equipped with those 2 battery, we think we'll be making good money on the arbitrage. Just to give you a perspective in Chile these days, midday sometimes we are even curtail in the north of Chile. But in the rest of the day, the electricity run between $90 to sometimes $200 per megawatt hour.

So the arbitrage is huge. We have not made our decision on that widespread. But if that spread remain, these battery will be very, very profitable for us in the first few years until they are going to build a new line to basically minimize these curtailment. Frontera and -- Rucacura is a very small addition that we are going to probably start construction somewhere during this year or early next year, but it's a very small increment on our existing facility. But Frontera and San Carlos, if you remember, San Carlos is the same river as Frontera. The idea there is that I said, [meantime], we need to have a long-term PPA in order to take the decision to do those 2. Those are material projects. Together, they are over 250 megawatts. So we want to have a strong off-taker, I'm sorry, to take the decision to start the construction. But it makes sense. We advance also on the permitting of San Carlos. And remember that these would also have a 4 to 5 hours storage ability. So that would be very good in a market like Chile. Going to Hawaii, a busy quarter also on Hawaii. We've been actually happy to submitted, together with ECO, our price increase to the PUC just yesterday, material increased in line with what we've seen lately being accepted with the PUC.

We're expecting a decision in roughly 90 days for that. So construction is still slow until we have the green light. We're very hopeful that we'll have the green light. ECO has supported our demand. So this is a very good outcome, but we will have the final answer by the PUC in a matter of 90 days, hopefully. [Alico PIO], if you remember, we had a contested case there. So we're fighting that. An outcome, we're not sure. I think we're very positive on it. We have gone through the hearings and all the administrative activities that the system rely on, but we'll see on PIO the outcome will be. France is busy. As you know, Europe has had some great policy towards more and more renewable. But as you know, France is complicated in terms of getting all the permit, but we're working hard there. We're advancing quite a bit. We have had another 3 to five projects to our prospective pipeline. So France is still a very strong market. It's just it takes time, as you know, to develop project in France. But our initiative that started about 5 years ago are starting to create some great opportunity for us. But I guess that this is the actual advanced project and construction activities, but I'm very, very excited about the opportunity that lies in front of us. We are seeing a lot of RFPs activity and very happy to report that Quebec, as we said in the last call, is going to be super-active.

We are going to see a lot of new and future RFP for Quebec. So hence, our focus now is to create a lot of opportunity for us. We have had quite a bit of megawatt of perspective in the last quarter, and our intention is to show you also some more activities. We're working on four or five great opportunity to add to our prospective project right now. People are on the ground and working hard. Quebec is going to be a busy place for us in the next few years. Also, we have entered into a joint venture with Kruger Energy to submit some storage proposal in the Ontario RFP. We'll see. It's going to be a crowded market for that RFP, but I think we have a nice project to present. It's a little bit of over 100 megawatt of storage in the Chatham County in Ontario. Saskatchewan has announced also an RFP. As you know, we've been busy in Saskatchewan in the past, so we're recycling some of our project to submit future RFP in Saskatchewan. Also, New Brunswick has announced a 200-megawatt wind RFP. So we have some good projects also in New Brunswick. BC hasn't announced anything. But as you know, my view is that BC will wake up one day with a very big headache in order to decarbonize the economy. So sooner or later, BC will see some more activities. And of course, when we're going back to the U.S., we are seeing a ton of RFP activities. We are [answering] calls with our project in Colorado called Mile High. That's going to be 150-megawatt solar coupled with batteries as an option.

Very competitive, very crowded RFPs, but I think we will see more activities in Colorado. Also, we'll be submitting some proposal with Wuatoma to a potential client. Seattle Light & Power has also a request of interest, and we will be submitting Wuatoma in that project. Been also active in the Minnesota area, creating another potential project around 300-megawatt solar. So as you can see, our teams in all our country and market are very busy. We are seeing a lot of activities. And this is what makes me very positive towards the future. A lot of demand for renewable energy are going to be in front of us. And our teams are on the ground ready to answer and creating a lot of opportunity for us in the near future. So I guess that on final note, very happy to come back in acquisition in Canada. You've seen in our announcement on the Sault Ste. Marie solar portfolio. It's 60 megawatts with good PPA. Very happy to have had the opportunity to be successful in an acquisition in Canada. That's adding also on geography. Ontario, it's not a market that we're very present. We have some solar, as you know, and some hydro. So adding solar in Ontario is a good diversification on our portfolio.

So on that, I would open up the question.

[Operator]

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

[Rupert Merer, National Bank]

Jean, if I can start with you on debt structure and cash flow targets. With 68% corporate debt fixed rate, how much of a headwind are you seeing from higher interest rates this year on your CAFD per share? And can you talk about what's baked into your 2025 targets?

[Jean Trudel, Chief Financial Officer]

So we have about $400 million that's unhedged on the corporate facility. So right now, we're expecting rates, I mean, we've expected rates as we've seen them in, I guess, since November. So it hasn't moved much upward. But of course, if rates were to increase, while you can do the math like [rate], every 1% would be a $4 million headwind to us.

[Rupert Merer, National Bank]

What baked into your 2025 target as far as the interest rates go?

[Jean Trudel, Chief Financial Officer]

I can get back to you with the exact figure, Rupert

[Michel Letellier, President and Chief Executive Officer]

I think we have lowered a little bit the interest rate. Our expectation is short-term rate will ease past 2023 going into 2024, but we can't remember how much we [Indiscernible]. And overall, how much are you relying on hedges versus fixed rate? And can you give some color on the mechanics of the hedges and how maybe the settlements are feeding through to operating cash flow?

[Jean Trudel, Chief Financial Officer]

So when we have hedges on interest rates, it depends on the base rate for the underlying debt. So in some cases, it's LIBOR; or in some cases, it's [BA]. So we will swap and the payment is on a monthly basis, usually like selling on a monthly basis…

[Rupert Merer, National Bank]

And Michel, if I can ask about your battery systems in Chile. How much confidence you have that they will be in place by the timelines you gave us, I think, August for the first one? And give us a little more color on the market. Are you seeing many other batteries coming in close to you? Is there any chance that you're going to see enough storage capacity to move the market price or the arbitrage opportunity in the next few years?

[Michel Letellier, President and Chief Executive Officer]

Actually, we have inverter being already delivered on site. And the [best] container are coming starting mid-March. So very confident. It's Mitsubishi commitment. And actually, we were hoping to have them deliver at the beginning. It was supposed to come in November and December. And Mitsubishi is exposed to liquidity damages, not huge, but they will be liable for liquid damages. They have already acknowledged that. So they have this motivation to continue delivering the containers.But the first wave of container are due to come mid-March. So we're very confident that August, unless there's a bug on commissioning these battery, but we think that Mitsubishi has the experience to be efficient in the commissioning. So that's why we were aiming at August, but we might see earlier availability. And for San Andres, the container are scheduled to come later during the summertime. So COD by the end of the Q4 is still our target, and Mitsubishi hasn't give us any new date. So we think that this is this is fairly firm. That being said, you never know with project. We may be delayed a few weeks, but we're very confident on this. And to answer your question, well, there's a line that is supposed to be built from the north to get to Santiago, and this line is supposed to be commissioned 2028, 2029. But giving the difficulty is to build new lines in anywhere in the world, we think that this will not happen before 2030, 2031. But nonetheless, even if that line is built, I'm giving you some guidance on how profitable these battery can be in Chile, and we were the first to initiate these activities, and we had secured the price of the battery probably 20%, 25% lower than the price of today.

So there's not that many new announcement on battery in the north of Chile. But I would say that these batteries are not necessarily relying on a long-term basis on this arbitrage. We wanted to have a portfolio approach, as I mentioned, in Chile. And right now, the long-term price for electricity in Chile is going to average between $55 and $60 and being fully indexed. The idea is the build-out of that amount on average. You could probably produce solar around $25 to $30, win around $50, new hydro around $65 and then battery around $80. So if you mix all that, that you end up with a $55. So this is why we are talking about portfolio approach. So the battery is just another piece of the puzzle for us to be able to sign long-term contracts, but we will be taking advantage of the really high volatility that we're seeing right now. And then, if this volatility fade, we'll embed that the cost of the battery into our calculation to basically sign long-term contracts. This is how we think for Chile.

[Operator]

Your next question comes from Sean Stewart from TD Securities.

[Sean Steuart]

First question, this is typically the period where you guys would give 2023 guidance, and we see that that wasn't provided. Any context on maybe your reluctance to give guidance for 2023, or should we just think about this as the 2025 guidance is intact, and that's what we should orient our thinking around?

[Michel Letellier, President and Chief Executive Officer]

I'll let Jean answer, but you're right. I mean, our focus, and I don't want to sound like a famous politician in Ontario, a buck for a beer. Here, it's $1 per share. This is our target for 2025. I must say that you hear us talk about Boswell being a very strong contributor for our cash flow, and Boswell is going to come in 2024. The battery are coming late also in 2024. And this year, we don't have a lot of new COD. So basically, we'd like to make the bridge of this year towards 2025. And of course, the big increase in the cash flow per share is coming in late 2024 and in the run rate of 2025.So this is why we haven't put a lot of emphasis in 2023. If things are good and, in a sense, if we have an average year and we don't suffer any bad situation, we should do better in terms of payout ratio than 2022, slightly better as you've seen, because we have done also some acquisition. But our main target is really 2025. We want to provide you guidance on and build our strategy to have $1 per share by 2025. There's no hidden agenda in not providing guidance in 2023, just that it will not be materially very different than 2022 in a sense that we're hoping to improve on the payout ratio, but not super materially because, like I said, the big contributors are coming later.

[Sean Steuart]

Last quarter, you'd mentioned your thoughts around funding were evolving given pressure on the share price. And you'd mentioned that asset recycling is more front of mind in terms of raising capital, and you guys have sold off some currency hedges. Any broader thoughts on asset sale opportunities over the near- to mid-term to bolster your funding position?

[Michel Letellier, President and Chief Executive Officer]

Well, we said that, and I don't want to create a huge expectation, but we said that a transaction like one of our peers in France might be considered depending on the capital cost. We think that Europe, even though the cost of capital has gone up, is still lower than North America.So there's maybe a little bit of arbitrage to do there. You've seen that we have acquired the 30% on our minor interest in the portfolio in France. But the structure was a little bit complicated. It was through a corporation in Canada. So it was not super clean for potentially a European partner. So that was also part of the strategy to basically clean up the structure so that, if we are [considerating] an investment from a European base, it would be a lot cleaner. Multiple on portfolio on prospective project in Europe are multiple on value than what we are seeing in North America. So if we want to create a little bit of value added, this is probably where we would be heading.

[Jean Trudel, Chief Financial Officer]

Yes. And maybe if I can add, there's value added also to not only recycle one asset, but to recycle a participation in a platform. Big development platforms are very sought after, and that's something that we may entertain obviously in 2023.

[Operator]

Your next question comes from Nicolas Bock from Cormark Securities.

[Nicholas Boychuk]

A little bit of color on the M&A opportunity would be appreciated. Just interesting to hear that the Ontario acquisition was kind of to get you into new markets. Is that the strategy, moving forward? Is there a specific sort of shopping list of either markets or technologies that you'd be looking to enter?

[Michel Letellier, President and Chief Executive Officer]

Well, we'd love to. We've been successful in buying hydro. If you remember with Curtis Palmer, we'd love to be able to buy hydro, but it depends on the price and depends on the location. But it's always interesting. If there's some opportunity there, we are always very interested, especially if there's some, I guess, repair or upgrades on hydro. We've been pretty good in doing this over the years. So we could probably have the value added in those type of projects.But no, we're looking to opportunities that make sense. And as you know, we're using M&A more specifically to help us bridge the pressure on our payout ratio while having a decent return compared to the risk, and taking advantage of the diversification also on geography is always welcome. There's all kinds of opportunity in South America, as well. So we're mindful of our existing position. But as our portfolio grows and our COD are coming in, we may still have a little bit of room to look into South America as well.Europe is difficult, Nick, in terms of cost of capital. You just heard me saying that the cost of capital in Europe is probably a lot lower than what we can see in North America, and certainly a lot lower than what we can see in South America.

[Nicholas Boychuk]

And just on South America as a quick follow-up, would it be more expansion in Chile, or could that actually become almost a platform for you to leverage into other attractive regions?

[Michel Letellier, President and Chief Executive Officer]

I mean, we have now a strong presence in Chile with a very good team. We're getting stronger there. So yes, it could be a platform to look into other markets. That being said, we said that Peru has always been on our radar. But right now, it's a little bit busy in terms of political problems. So we would be very careful on that market.We said that also Uruguay might have some. It's a small market, but very, very stable, with good opportunity on long-term PPA. So that might also be an interesting market. But Argentina, Brazil, Colombia, we're not very comfortable with those markets. So Peru, Uruguay, might be some target. But like I said, Peru is a little bit complicated these days. But there's still opportunity in Chile that makes sense for us, we could act.

[Operator]

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

[Nelson Ng, RBC Capital Markets]

First question relates to the Ontario Solar acquisition. Could you just provide a bit of background on that acquisition? I presume it was a competitive process. Are you expecting to realize any synergies there? And I was just wondering what the strategic value to you is from those assets. Are there opportunities to add batteries there?

[Michel Letellier, President and Chief Executive Officer]

There's possibility to have batteries there, but this location is not rated very high for ISO, and therefore might not be as competitive. But down the road, it might change.Funny enough, that the region is really interesting in decarbonizing their economy. Sault Ste. Marie, actually, the city office to develop economic development reach out to us, and they have great initiative in the area. As you know, it's heavy industrial in this part of the world, so there's potentially some interesting development in the future in that area. But yes, we could probably also help a little bit on the operations side. We already have some activities in Ontario. But I guess that it's the quality of the cash flow that we were also looking in the diversification solar in this part of the country. We have no exposure. So both the quality of the cash flow upfront, the cash flow for at least 11 years was what we were interested in, and the diversification. And being present in that area, like I said, present a lot of opportunity to decarbonize the heavy industry. They will potentially talk about hydrogen in this neck of the wood. There is some, like I said, heavy industry that might benefit on the long-term. So it's diversification, having a present in that area of Ontario is something that potentially on the future development might help.

[Nelson Ng, RBC Capital Markets]

And then just moving on to Hawaii. So obviously, you started off with 4 projects, cost of increase for the projects you're moving ahead with, or you've submitted a new PPA price for one of the projects, Hale -- I don't know how to pronounce that.

[Michel Letellier, President and Chief Executive Officer]

I'm struggling with, Nelson, as well, Hale Kuawehi. It's not that easy to pronounce.

[Nelson Ng, RBC Capital Markets]

But you mentioned that you have canceled the contracts for two of the projects, right? So you're obviously looking to move ahead with two of them, and you've canceled the projects for the other two. And I think in your MD&A, you mentioned that you're canceling two of the projects because of higher costs, because of cost escalation. But can you just describe or give a bit of color as to, obviously, costs have increased for all four projects. Why are you sticking with two and canceling two?

[Michel Letellier, President and Chief Executive Officer]

It's a good point. [Alico-A] were more advanced, and we had initiated with ECO a renegotiation on the price, but it took a long time. And ECO is doing a great job in the sense that they cannot accept the price increase in the range of over 50% likely. So they're going through all our assumption from the day we were bidding towards what happened in the supply change and inflation. So they're working diligently, and it takes time. And then you have probably 90 days at the PUC.And then why we have decided, together with ECO, they basically agreed that we could cancel Kahana and Barbara's point in the view that RFP3 was coming. And we could not submitted these projects in RFP3 if we were still under the contract. So together with ECO, we decided to cancel the existing PPA because the likelihood that we would have been able to negotiate with them, going through PUC, and then if something was wrong, we would have missed the opportunity or the window to bid into the RFP3. So all the assumption, and even the PUC expectation on the price of RFP3, is much higher than the historical price RFP1 or RFP2. So we thought that we had a better chance to rebid actually these projects in the RFP3 to create a little bit more value for us. So that's the reason behind it.

[Jean Trudel, Chief Financial Officer]

And until you have the certainty on the repricing, your existing contract is still alive. So we would have been bound by the obligations of the existing contracts as well under Kahana and Barbers. So it was more interesting to terminate them without penalty and rebid then to incur potentially negative decision from the PUC and remain with these PPAs in place.

[Michel Letellier, President and Chief Executive Officer]

[NPI], why we have KPI, is that twice stakeholders have had the ability to challenge this in court, the PUC decision and on the EPA. So having that EPA, I think we can renegotiate down the road. The [PIO] location is very desirable for ECO, so they were willing to support the existing PPA and eventually some price increase through the PUC. But I would say that, if we win in court, then the EPA would be I guess protected a for future challenge. So that's why we also kept the PIO because we have invested in the permitting and the contests process in court. Those are the reasons.

[Nelson Ng, RBC Capital Markets]

And then just one last question, moving to Boswell. So can you just give a bit more color on how that project will be financed? Obviously tax equity is involved. Are you using some nonrecourse debt? And I think you mentioned that about $40 million of sponsor equity, or your equity has already been invested?

[Michel Letellier, President and Chief Executive Officer]

Yes. The total that make a very long story, but having the ability to have the back leverage because this is a 30-year PPA, we were happily surprised to see how banks have proposed us some structure? We could leverage it up to 88% to 90%, roughly. So hence, if you make the calculation, our equity contribution is just over $50 million on in this case, slightly over $50 million. So actually very surprising.

[Jean Trudel, Chief Financial Officer]

We've already committed and invested. It's already drawn under the revolving credit line, like for a large part of that, as we mentioned in the press release back in January.

[Michel Letellier, President and Chief Executive Officer]

So there's no more equity until the financing is due. So we're still investing a little bit of money through LNTP in advancing the construction stage. But as soon as the financing will be done, we'll be able to actually recapture our equity because we're going to have the ability to have the equity being contributed at the end.So actually, one of the first [drop] from the financing will enable us to recapture the equity that we already have put in in the range of over $60 million, I think, on the forecast.

[Jean Trudel, Chief Financial Officer]

And also, the interesting thing is that it does not include any potential upside from benefiting from a 10% [adder] to the PTC. So if we will see the ruling, it's still delayed in coming out. But if this works, it's going to be a great outcome also for Boswell.

[Nelson Ng, RBC Capital Markets]

What's the split between tax equity versus back leverage debt in that 88% to 90%?

[Michel Letellier, President and Chief Executive Officer]

So tax equity is roughly $290 million and back leverage $190 million, roughly a little bit over that. Back leverage will be close to $200 million.

[Operator]

Your next question comes from Ben Pham from BMO.

[Ben Pham, BMO]

I wanted to go back to your comments on 2023, and I wanted to clarify. When you say that you don't expect much change, I'm guessing you're referring to the free cash flow per share metric?

[Michel Letellier, President and Chief Executive Officer]

Yes. Of course, we'll have more EBITDA.

[Jean Trudel, Chief Financial Officer]

There is an increment, right, on free cash flow per share because of acquisitions. But as Michel mentioned, I guess the largest portion of the increment will come out of Boswell and the other [CBD] that we mentioned. So there's an improvement from 2022. But then, also, it depends on that last part of the plan. If the other M&A comes in earlier than later, then maybe the increment would come in also in 2023.

[Ben Pham, BMO]

I think you put out some at least directional benefits for cash flow into 2023 of acquisitions, all the [other] stuff you mentioned, and hydro conditions were well below. And that hope we should recover. What about maybe the headwinds then? Because I just I would just think your free cash flow should be up quite a bit in '23 with those two drivers. Is there maybe some headwinds that I'm not where thinking about more?

[Michel Letellier, President and Chief Executive Officer]

No. We don't want to create some uncertainty on this, Ben. It's just that we've been burned last year in having seen the bad hydrology that we've seen in BC. So we just want to be a little bit more conservative. And of course, when we're looking at quarters and quarters, it's difficult. There are so many variables, as you know. We didn't want to put ourselves too tight. There's some moving pieces also on the exchange rate, the U.S. exchange rate. It seems to improve. So we might see a little bit more improvement on that sense, too.But we'd love to see a good year in terms of long-term forecast. That would be very welcome. Last year was difficult. So that's why we're just a little bit more cautious on that aspect. But, I mean, 2023, if things are right, we should see an improvement, as you're mentioning.

[Ben Pham, BMO]

I don't know, maybe it's not an easy calculation, if you assume long-term average for 2022, what do you think your payout ratio would have been?

[Michel Letellier, President and Chief Executive Officer]

It will [Indiscernible] been good. We haven't done that calculation, but it would have been a lot better.

[Ben Pham, BMO]

And maybe my last one, maybe update on not necessarily equity needs, but you had that $0.5 billion at one Investor Day. And it sounds like Boswell, you can take on a bit more debt. You've monetized some items in there. So is that amount lower now, then, as you go forward?

[Michel Letellier, President and Chief Executive Officer]

Probably a little bit lower. And as Jean has alluded, we already have advance on the contribution from M&A. And so we might not have to be that -- I wouldn't say aggressive, but we might not need that much M&A to reach the dollar. But on the other hand, if the transaction makes sense and they are accretive on the long-term value as well, so we might.I know that we have had some pushback on this from investors and you guys on our forecast of saying that we will need equity to complete our program. But again, if you believe on this dollar, and perhaps going forward even more cash flow per share, that's a huge accretion in terms of cash flow per share. And I think that, if we are delivering on that path and go beyond 2025 on that same path, I think we're creating a lot of value. And it's a mix of good M&A and being also good on creating value on our pipeline of development and executing on this pipeline to create value, and then put project on COD. So it's a good mix. We always said that if we want to stay with the dividend, we have to be creative a little bit because we want to grow. We want to grow fast. And of course, if we grow and we invest in our pipeline of new projects -- now this year, in our budget, we're talking about $36 million of new money going towards our pipeline. So it's fairly aggressive in the sense that, if we're successful in this endeavor, we're creating, hopefully, a lot of value on the long-term and using very, very pointed acquisition that have a focus on good quality project. I think it's a good recipe. And hopefully, we'll be delivering on this. The [onerous] is on us to deliver on the plan and convince you and the investor that our plan is strong. And this is what we are going to focus.

[Jean Trudel, Chief Financial Officer]

Ben, I guess just approximately, like if we had like work to the long-term average, and using just a very rough average pricing range, obviously it depends on which area you produce, but we'd have probably something more in the $40 million to $50 million more revenues if we had hit the long-term average.

[Operator]

Your next question comes from Naji Baydoun from iA Capital Markets.

[Naji Baydoun, iA Capital Markets]

Just wanted to go back on the question of sort of financing. Liquidity is going to be a bit tighter now pro forma the Ontario acquisition. So just in terms of capital recycling, can you provide a bit more color on timing? And what do you think is more likely at this point, a development partner, just straight asset sell-downs or maybe a portfolio sell-down?

[Michel Letellier, President and Chief Executive Officer]

Well, like I said, these things can take time. Even if we wanted to do it right away, probably closing would be in Q3, most likely. And like I said, we wouldn't like to sell hydro, even though there's a great value in hydro. As you know, we love to have the diversification, and hydro is not easy to build. So hydro [wouldn't] be first on the line. Like I said, if you look at the cost of capital around the world, Europe is probably the lowest, and they're also very willing to pay for a premium for platforms. So I think that I said it enough. There's not that many portfolio that we have that fits those criteria.

[Naji Baydoun, iA Capital Markets]

And just talking about Quebec, Hydro-Quebec canceled the RFP that was supposed to be launched last year. And I think they mentioned that they're going to focus on maybe a new mechanism to add 3 to 4 gigawatts of new wind through the end of the decade. Can you provide any updates on some maybe negotiations you're having with them and if you think this development is good or bad for you?

[Michel Letellier, President and Chief Executive Officer]

No, I think it's great. It's a small setback, but I think the strategy is better. I think that Hydro-Quebec wants to make sure that they are providing guidance on where they can interconnect the new project at a reasonable cost and at a reasonable timing. So they're focused on trying to bring the first wave of project and being interconnected quickly. And then the second wave will take a little bit more time.In developing material project in Quebec, or anywhere in the world, especially in Quebec, you have winter. So it takes at least two years to build projects, and transmission line upgrades and new extension can take three, four, five years if you include the permitting. So that's why Hydro-Quebec, they need that energy quickly. They would love to have energy by 2026, 2027. So hence, they're refocused on saying and providing our industry to places where they want the energy. So we've been proactively thinking about this and trying to have our best estimate where Hydro-Quebec would be more interested in having new early interconnection, and that's how we have been focusing on our energy. The best estimate that we have is that they are going to produce this map of the area of interest, probably by the end of March, beginning of April. And from there, they are going to probably provide six to eight months, nine months for the industry to prepare bids. So that's my best guess. Of course, this is just my personal estimation, but it's probably the case. They may also want to have some RFP, but potentially also some direct negotiation with some potential partner. They've done that in the past. So we might benefit from that as well. We certainly are in a good position to take advantage of both strategy.

[Naji Baydoun, iA Capital Markets]

And maybe just a final question on this. So I guess the departure of Hydro-Quebec CEO doesn't really change anything for you in terms of your role and the growth of the market in the province. But based on what you're saying, maybe a FID on a project is probably delayed until next year, and COD won't be before 2027 or 2028.

[Michel Letellier, President and Chief Executive Officer]

Well, like I said, it's difficult to have new project. Maybe some might be able to be in service in 2026. But if you do the math, it takes two years to permit and two years to build. So very, very difficult to do something before four years. So if they provide the green light by, let's say, the end of this year, you had four years, [Indiscernible] 2027, end of 2026 is stretching, very stretching.

[Operator]

[Operator Instructions] Your next question comes from Mark Jarvi from CIBC Capital Markets.

[Mark Jarvi, CIBC Capital Markets]

Just on the $1 of free cash flow per share, which is the same number you [gave at] Investor Day; since then, you've announced some tuck-in deals that are accretive. Boswell financing looks a little bit better. Why would that not move? Were the transactions that you completed already kind of contemplated in the $1.01 in terms of M&A-driven growth? And anything change in terms of financing assumptions or…

[Michel Letellier, President and Chief Executive Officer]

Mark, give us a break. We started from roughly 50 two years ago, and now we're doubling that. Well, if we can do better, we'll do better, but I think it's 50% increase in less than three, four years is not bad as a growth on that aspect.

[Jean Trudel, Chief Financial Officer]

And you're right, Mark, right? Some M&A was in the plan. So we're doing the M&A that we were actually hoping to do. We're almost completed in that sense because we only need like $0.04, $0.05 more of M&A to complete the plan.And the other factor also that we need to think about is that when we did the plan, our share price was higher. So share price is a bit lower now, so we account for that as well. So there's a bit of a dilution effect also because of the share price. But we're trying to beat the plan. But as Michael said, I guess if we can track on it and get the buck share in 2025 run rate, that would be great. The good thing I think is, and I guess to paraphrase myself, but like we have less and less reliance on M&A to achieve the plan as we stand today compared to like a year ago or two years ago.

[Mark Jarvi, CIBC Capital Markets]

No, I understood. Obviously, it's a much better number than where we stand today or a couple of years ago. I'm just trying to understand whether or not the announced transactions were additive or kind of already contemplated. So it seems like they're sort of contemplated already.Last question from me. When you think about the proceeds from a potential asset sale, is it all the fund growth, or would there be some deleveraging? Are you comfortable with where debt stands right now? I'm just trying to understand what would be ultimate use of proceeds from potential asset sales?

[Michel Letellier, President and Chief Executive Officer]

Of course, we like to have a little bit more margin on the debt side. We're committed to keep fit. So that [sale] recycling could probably go towards lowering the ?

[Jean Trudel, Chief Financial Officer]

Well, you would sell funds from operations, right? So you get like a nice amount upfront, but you need to consider to keep the ratios in good check. So yes, there would be the application of some of that funding towards reducing the debt to the RCF.

[Michel Letellier, President and Chief Executive Officer]

And provide a little bit more flexibility. This revolver, as you know, Mark, is very flexible. So we're using it, and it's always nice to have a little bit of margin on that aspect. It helps when we can make small acquisitions, tuck it up and then park that financing there for a while. And we have also to look into we're re-signing some contract in BC and in Quebec. So like as Jean is saying, there's quite a bit of facility supporting that revolver that potentially could be put into a project finance. And depending on the price of -- not the price, but the yield on such a thing, we might consider flipping some of our assets into a nonrecourse. That aspect would help on Fitch because then they would not be recoursed on the corporate level. So that's another alternative for keeping a good rating for us.

[Operator]

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

[Michel Letellier, President and Chief Executive Officer]

So thank you very much, everybody, and we'll see you in a bit in May.

[Jean Trudel, Chief Financial Officer]

Yes. Thank you, everyone.

[Michel Letellier, President and Chief Executive Officer]

Thanks.

[Operator]

Ladies and gentlemen, you may now disconnect your lines.