Polaris Infrastructure Inc

TSX:PIF

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and welcome to the Polaris Renewable Energy, Inc. Third Quarter 2024 Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Anton Jelic, CFO of Polaris Renewable Energy. The floor is yours.

[Anton Jelic, executive]

Thanks, Jenny. Good morning, everyone, and welcome to the 2024 Third Quarter Earnings Call for Polaris Renewable Energy. In addition to our press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR+ and on our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are in denominating U.S. dollars. I'd like to remind everyone that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy and its subsidiaries. These statements are current expectations and as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2023. I'm joined this morning, as always, by Marc Murnaghan, CEO of Polaris. At this time, I will walk you through our financial highlights.



Power generation. During the 3 months ended September 30, power production was 168,639 megawatt hours compared to 178,753 megawatt hours in the 3 months ended September 30, 2023. For Nicaragua in the third quarter of 2024, production was 120,565 megawatt hours, lower compared to the same period last year, which was 129,475 megawatt hours. Consolidated production in Peru for the 3 months ended September 30 was also lower at 20,616 megawatt hours than the comparative period last year, which totaled 23,078 megawatt hours. At our Dominican Republic Canoa 1 solar facility, we produced 16,476 megawatt hours in the 3 months ended September 30. This is higher than the third quarter last year, reflecting enhanced productivity from the newly installed panels.



For Ecuador, in the third quarter of 2024, average production of 6,535 megawatt hours was in line with production in the comparative period last year. And finally, in Panama, visiting Vista Hermosa Solar Park production of 4,447 megawatt hours was also in line with management's expectations for the quarter. Revenue. Revenue was $17.7 million during the 3 months ended September 30 compared to $18.8 million in the same period in 2023. Net earnings. Net earnings attributable to owners was $480,000 for the quarter compared to $1 million in net earnings for the same period last year. Adjusted EBITDA. Adjusted EBITDA increased to -- was $12.4 million for the 3 months ended September 30 compared to $13.7 million for the same period last year. Cash generation. Net cash from operating activities for the 3 months ended September 30 was lower than the comparative periods in '23, mainly due to lower cash received from Nicaragua as expected due to decline in production and scheduled downtime for major maintenance of the facility during Q2 as well as recognition of unearned revenue in Peru.



Net cash used in investing activities for the 3 and 9 months ended September 30 was lower when compared to the same periods in 2023. While the cash usage in the current year relates to Canoa 1 optimization project with a budget of $5 million and the major maintenance of the geothermal facility in Nicaragua, cash usage in investing activities in the same period last year related to disbursements linked to projects such as the construction of the binary unit in Nicaragua and the Vista Hermosa Solar Park in Panama. Net cash used in financing activities for the 3 and 9 months ended September 30, 2024 and 2023 are comparable. And finally, dividends. I would like to highlight that we have already announced -- that we have announced that we will be paying a quarterly dividend again on November 22 of $0.15 per share to shareholders of record on November 11. With that, I'll turn the call over to Marc, who will elaborate on quarterly results as well as current business matters. Thank you.

[Marc Murnaghan, executive]

Thanks, Anton. So, I'll just dive into the different assets first. So, San Jacinto was in line with our expectations. For the quarter, it was 54.6. I'll give you the actual monthly numbers. So, for July, it was 54.9 megawatts net, 54.6 in August and 54.2 in September. So, you can see that very good stability in the wells. So, we're quite happy with that. That was down from Q3 of last year, but it's actually the best quarter in the last 4 quarters, although given that maintenance was done in the second quarter that you have to take that one out. But this quarter -- this year was higher than the first quarter, this year and it was higher than the fourth quarter last year. And that is due to, call it, how we're running the injection system and the wells. So yes, I would say the actions we've taken to promote stability worked very well in the quarter. So, we're quite happy with that.



In Peru, the numbers were lower. The third quarter in Peru is always the lowest quarter. It is the dry season. It was just drier than normal, and there's not much we can do to that. So, the numbers were -- I think our budget for the quarter was around 23,000, 24,000 megawatt hours for the quarter for the 3 hydro plants in Peru, and it came in around 20. So that's not a huge impact, but it was lower given El Nino. We did see lower hydrology. Now I would say in October, obviously, it's only 1 month, but the rains have started again, and we're close to what we were budgeting in October already. And even the last week, we've noticed a big pickup. So, it's early in the quarter, but it looks to be close to on track for what we were budgeting in terms of hydrology. So that's good.



I would say Ecuador is a similar story, but just much less pronounced than Peru. DR was Dominican. The solar plant Canoa was above the same period last year, which was expected given the replacement program that we did there. It was finished first week of August. So, we did not get the benefits of the whole quarter. We will see a full quarter in the current quarter. When we adjust for that, I would say that we're getting about 80% to 90% of the estimated benefit, but we would expect to, for Q1 of next year to be getting 100% of the benefit that we expected. So that's good. And Panama production in line in terms of the total megawatt hours. Pricing was around $81 a megawatt hour. And we, subsequent to the quarter end, have signed a contract for that plant for 100% of the production of the Vista Hermosa plant starting Jan 1 of 2025. It is still subject to the local regulator approving it, which we expect to happen first week in December. We don't foresee that to be a problem. But the pricing on that is -- starts at $80 a megawatt hour in 2025 and goes up to $82 a megawatt hour in the fifth year.



So, just a small indexation there, but we're quite happy about that. We do think that this is a good period to have that plant contracted because the entrance of the gas plant, which has happened in this quarter. So, we think that will negatively impact the spot market prices. So, I think we've timed it well in terms of having the first, call it, 1.5 years at spot, which was strong and then the next 5 years fully contracted. I would also mention that that takes us up to -- that was the only plant that we didn't -- that we weren't fully contracted. So, with that, we will be at 100% fully contracted. So those are the operational plans. I will now talk a little bit more about the Punt Lima acquisition that we announced a few days ago. So, as we mentioned in the press release, it's for $20 million. That is an enterprise value. It is unlevered. It's an unlevered project at this point in time. Given our cash balance, which sits at $45 million, we have the cash on hand to close that. It is conditional upon the key condition really in there is that the off-taker, which is called PREPA, short form, they do need to approve essentially a change of control. So, we don't foresee that to be a problem. They already know about the transaction, obviously.



And given that we're a power producer as opposed to a bank, we don't see that as an issue whatsoever. In terms of timing, that part is hard to predict, but I would say it could be anywhere from 60, 90, 120 days. I would say that's the range. So Q1 next year, and hopefully early in the quarter than later. But I would guide people to Q1 in terms of getting approved by PREPA and then closed. It's 26-megawatt wind farm. The history and what we think is the production should be between 50,000 and 60,000 megawatt hours a year. It has a 20-year contract, which started in March of this year, March 2024, close to March of 2044. It is a bit of a sculpted PPA, but it's $149 next year and -- sorry, 2025 escalates at 1.3% until 2034.



And then it drops sort of after 10 years to around 129, escalates again up to 141. So, it is sculpted, but it's a very good price, and I'll get into it should be promoting energy storage going forward as well. I would say, given the jurisdiction, either Vestas turbines, I should mention. So, there is a contract, part of the O&M is done with Vestas. And given, I would say, insurance costs and even land costs in Puerto Rico are quite high. So, the costs are higher, call it, relative to revenues than other projects that we have. There we think they run around $4 million. I would say that once we get in there, I think we can reduce those or at least keep them flat as opposed to, call it, escalating with the PPA price because I think there's some synergies, also there's just opportunities, I think we're going to have to reduce that over time. It is a tax equity structure, which is a little complicated, but the way that it works is that for the first really for us, if we assume we close Q1 next year, it will be the first 4 years, we will get 94% of the distributions. With our tax equity partner, Santander, getting the 6%. And then after that period is up, which is around 5 years actually from the first commercial operation date of March of this year, that we will have a $1.5 million buyout option, which we would exercise to take us to 100%. So, it's essentially for us, will look like 94% for the first 4 years and then 100% after that.



As part of the PPA, there is a requirement to implement a battery energy storage system, which is scoped out at actually 13-megawatt hours, 1 megawatt times 13 hours. And the requirement will be to get that implemented within 2 years of closing. So, we don't see that as a problem. And in fact, what we hope to do, given the power pricing, given that actually they've already announced that likely next year, there's going to be a standing offer for battery energy storage systems, kind of like feed-in tariff, it should look like $1 per kilowatt per month. They haven't published that number, but they have said that they will. So, there should be a small revenue opportunity there. And we do hope that we could be given the demand for more renewables on the island, the interest for more renewables, we will attempt to see if we can increase that and increase production on the site or nearby. So, we think this is a very financially attractive acquisition of an operating asset. And we also hope that it legs into more growth in that market.



Financially, we are well-positioned to do it given our cash position. So, we don't need to raise equity for that. And also, we think that this -- given that it's unlevered, it's part of the story. We have discussed the potential to do a green bond before. We think now is good timing on the back of this. So, we are looking to focus on this very quickly in the quarter here, Q4 now. Also, the ability to actually repay our San Jacinto loan, which is our most expensive loan is Q1 of next year. So that's very close. We think that's close enough. I think the market is strong for fixed income. So, I think you can expect to see us look to do something very quickly here on the backs of the quarter and the acquisition news.



And I think this is really important for us if we can execute on this, we can significantly increase our cash flow per share without the need to raise equity and at the same time, position ourselves to take advantage of both, I would say, development, organic development as well as acquisitions that we have in the funnel right now, which I would suggest that our acquisition pipeline is, and by that, I mean, over and above Punta Lima, but it's stronger than it has ever been. And that includes some operational acquisitions, some ready-to-build interesting projects, as well as even some more late-stage development, call it, brownfield opportunities that we're looking at. So, all of the different stages. But so, we have a very robust, call it, acquisition pipeline. I would suggest that the ready to build or late or mid stage development, I would really more characterize those as development. So, if we do that, I would just reiterate that our development/acquisition pipeline is as robust as ever.



But given how sort of lowly levered we are, like we have been deleveraging for the last couple of years. And given that we're 100% contracted, I think we really should be funding a good portion of that growth with debt as opposed to equity. So, I think we can really change and grow the EBITDA profile of this company in the next 12 to 24 months without having to raise any equity. So that's really the plan. And with that, I'll open it up to questions.

[Operator]

[Operator Instructions]. Your first question is coming from Nicholas Boychuk of Cormark Securities.

[Nicholas Boychuk, analyst]

On the Puerto Rican acquisition, can you kind of give us a little bit more color on the timing of any expansion opportunities there in context around how much capital you'll have to deploy and given those power prices, maybe how attractive an organic brownfield opportunity that is?

[Marc Murnaghan, executive]

Yes. So, we think, let's say, February, March, call it, closing. Let's just take March. We need to get PREPA approval. The plan would be immediately after that to go to get, call it, an amendment or approval. It's not really an amendment actually, which is good. It's more of an approval to increase. We haven't scoped it out yet. I think our goal is really to, and by that, I mean, the exact sort of sizing of the project. We have some ideas, but we really couldn't talk to them until we got this announced. So now that we've got announced, the plan would be to speak to them before closing because we are going to be in a process of getting their approval. So, we think we can have a good conversation about it. And it might take several stages.



I would say that the site itself and the transmission capacity on the site could support a significant increase in energy off the project, and that could include some extra wind turbines. It would more likely include some solar with storage. So, and that, I would see actually coming in, likely 3 phases. One is a small, let's just say, 10 to 20 megawatts solar, which can be done quite quickly. And then I would say something bigger that would max out the contract. So, the contract itself is a 26-megawatt contract. And it's actually, I would say, for wind resources, it's a reasonably low resource. But obviously, we're not, I would say, paying for that. We're paying a very good multiple. And so, we're not giving credit for a high resource, but what that does mean is that there's a lot more, call it, energy available. So it would be, call it, something smallish. And by that, I mean, similar to what we might be doing at Canoa quickly. And then the next would be doing something that where we could almost fill up as much as we can, the '26.



And then after that, it would take a little -- obviously, more time. But the nice thing is that there's well over 100 megawatts of transmission capacity there. So that would require obviously more time, but it could be -- that would be a huge opportunity if we can take advantage of it. But in terms of how the timing, I would have to say it's almost 1, 2 and 3-year kind of thing, in terms of getting those approved.

[Nicholas Boychuk, analyst]

Okay. That makes a lot of sense. And if you're thinking about that opportunity as attractive as that sounds, how do you comp that against what you have available in the Dominican Republic, expanding solar and battery storage there versus these other acquisitions? How are you thinking about ranking these? And what are your kind of returns on capital required in order to pick 1 of the 2?

[Marc Murnaghan, executive]

I think here, it's going to be just a little bit higher because of the PPA price is about 10% higher. So yes, I would say you would prioritize that, not massively, but they're both really close, right? So, I would -- you're obviously going to prioritize the one at 10% more than the other one. But I would really say, practically speaking, we're going to be pushing both of those forward as fast as we can. With the only caveat is just that -- I mean, on the one hand, I would say the prices in Puerto Rico are a good, I would say, a signal, that's a good price signal to tell you that they want something combined with the fact that they're going to come out with, call it, a standing offer. So, I think that's really good. The only thing I would say is that we have not been in the market yet. We have been, as I said, waiting really to get the press out before we can talk to all the players because we don't have any operations there. So, it's hard for me right now to benchmark how they would compare in terms of timing. That's all.



So practically speaking, we would just be pushing both of them forward as much as we can because I think the economics would look very attractive given where solar panels are going, given where battery prices are going. You're looking at plus or minus 5x EBITDA build multiples. High IRR backed with U.S. dollar longed with a lot of great contracts, right?

[Nicholas Boychuk, analyst]

Got it. And so, to confirm, though, you would have between the cash on hand, free cash flow that will be generated over the next, call it, 2 to 3 years and this debt facility refi and capacity increase, enough nondilutive capital in order to take advantage of all 3 of those opportunities?

[Operator]

Your next question is coming from Rupert Merer of National Bank.

[Rupert Merer, analyst]

Just following up on Nick's question. If we look at the bond that you're planning to issue, can you just give us an update on what that could look like in terms of the scale and perhaps the terms that you could get on that now given that we have seen some relief on rates?

[Marc Murnaghan, executive]

Sure. So, I think it would be important to note also that we would look -- I did mention the San Jacinto loan, which can come up for repayment technically Feb 11 when it's not a non-call, it's just a make-whole period is up. So, we would want to repay that, which is at that time, it would be about $90 million net. So that would be a use of proceeds, which is a reasonable one. So given that and given our growth, like we'd be looking at on the low-end, Rupert, I'd say 150 million, and at the high-end, USD 200 million in terms of in terms of sizing. I think the fixed income market does want certain -- a little bit of scale for it to get interested for a lot of the funds. So that would be the range. And I would suggest -- I mean, interestingly, S&P did upgrade Nicaragua last week or 2 weeks ago. So, actually, it was last week, which was a nice pleasant surprise. They did it because of 2 years of budget surpluses. So that's quite constructive. And so given that, I'd say there's limits for us, given still a reasonable percentage is Nicaragua, obviously, but I think something in the single but high-single digits in terms of cost.



And I think the other big thing is, which we think is critically important is non-amortizing bond, which I think really makes sense for us, given, again, we would be exiting -- if we didn't do anything, we'd be exiting this year at around 2x, 2.2x net debt to EBITDA. It's just too low for our contract structure. And so, one way is to raise a bit more debt, but I don't think it has to be just that. I think it's raising a bit more debt as well as putting on some non-amortizing debt. I think -- and the debt that we would look at keeping on the balance sheet would be the Canoa loan for sure, and it would also be the senior loans at the Peru hydros. Those just make a lot of sense to keep there, but we would likely clean up the other. So, it would be kind of a bit of a hybrid in terms of which projects would have loans and which wouldn't, which we also think so you'd be getting some "senior security" on the bond offering on a reasonable percentage of the portfolio, right, if that makes sense.

[Rupert Merer, analyst]

Yes. Interesting. So, you're going to be raising a fairly substantial amount above and beyond what you need to repay the San Jacinto loan. And you did talk about the M&A market as being quite robust right now. Maybe you could talk about which markets you're looking at? Or are you looking at M&A in markets where you already have a presence? And what would be the timing you think on the next deal if things go well?

[Marc Murnaghan, executive]

The #1 principle, the nice thing is we've always said we have to stay in U.S. dollars as a company. And obviously, Punta Lima satisfies that condition. And the other things we're looking at satisfy that. And the nice thing is, I would say we have a combination, Rupert, of existing markets as well as, I would say there's 2 other markets that we are looking at and that are in the funnel, and they are U.S. dollars as well. So, it's a mix of those 2, but always in U.S. dollars. I would also say that it's important to note that as a company, when we built Panama, which is 10 megawatts, and that's a $1 million, $1.5 million EBITDA type project, right? That should be our smallest project. And we are starting to move up with Punta Lima in the 4 and 5 range. We are looking at things more in that and up, I would say, in terms of sizing, which I think is important. I think we can't do too many more sort of $2 million EBITDA projects as a company. So, starting to trend the size back up to things closer to, for sure, Canoa and Peru, but even bigger. And timing, we think Q1 is quite reasonable for what we're looking at. So, if I had my way, we would have some extra proceeds from a bond offering to provide essentially, call it, equity dollars for those acquisitions.

[Rupert Merer, analyst]

Great. Just one quick follow-up. So, you highlighted this, I suppose, 13-megawatt hour battery that you need to build at Punta Lima. Can we think of that as maybe about a sort of a $4 million or $5 million outlay? And does that have any revenue attached to it if you don't see success in an RFP, a storage RFP in Puerto Rico? Can you generate arbitrage revenue there or any other, let say, capacity?

[Marc Murnaghan, executive]

So, I think your CapEx might be a little bit high based on what we're seeing. But let's just take it at the low-end of your range. As it sits today, there will be very -- there would just be a tiny to arbitrage, but it wouldn't be noticeable, Rupert. But it's not really an RFP that they've proposed. It's just a standing dollars per kilowatt per month. So, it's just a capacity payment that's been proposed. It hasn't been put into sort of practice yet. So, there would be a capacity payment associated with that at a minimum going forward if we keep that configuration.

[Rupert Merer, analyst]

Okay. And they would dispatch that battery in any case, I imagine?

[Marc Murnaghan, executive]

Yes. Although it's really what they want is just they're really looking for you to have a battery such that if there's any frequency issues or trips or sags, that's really -- they just want you to be available for that, but I actually don't see them dispatching it from an energy perspective. That's why it's quite small. They really just want to -- they really want to make sure that with renewable projects, there's some grid stability that's attached to them, at least at this part for what you have to have. And then obviously, as I said before, we want to obviously -- we have to satisfy that. I think it'll pay with the expanding offer, but then we want to see if we can't do more such that it becomes a capacity as well as an energy product. But that will take us a little bit of time to flesh that out next year.

[Operator]

Your next question is coming from Theo Genzebu of Raymond James.

[Theo Genzebu, analyst]

Just following up on Rupert's question there. You just mentioned that Punta Lima will generate about $4 million to $5 million in EBITDA, so call it like 5x. Are these in line with your valuation expectations for future acquisitions in that region, in Puerto Rico?

[Marc Murnaghan, executive]

It's going to be hard to do that on these other ones, but call it, they're going to be somewhat above that, but they're also not 9x or 10x either. So, kind of in between. It's hard to do that for sure on the next one.

[Theo Genzebu, analyst]

Okay. Great. And just I guess just wondering on any future expansion projects there. Would the tax credits be available for use in Puerto Rico as well?

[Marc Murnaghan, executive]

Yes. So that's an interesting question. And growth there to the extent we're able to do that, yes, it would -- that's new for us, obviously, because it's technically a U.S. jurisdiction from that perspective. So, we would be able to participate in those, yes.

[Theo Genzebu, analyst]

Okay. Great. And I guess just lastly for me, just if possible, a little just more color on, can you just maybe give me a bit more color on the decision process on lowering the throughput at the binary unit? I understand it's to maintain the steam declines in the target range you guys have there. But are your expectations that you'll still see like the full 10-megawatt increase from the unit in 2025?

[Marc Murnaghan, executive]

No. I think Theo, that could be possible in 2026. But because we've been running it, really, we have two wells that they just cycle a lot. And at the 10-megawatt binary unit when we're running it, that's what caused us some issues in November, December last year and January, which I would say we've resolved. But those are -- the combination of those two wells is one. So, nine, three is about a 4 or 5-megawatt well and six, two is a 6, 7-megawatt well. So, you got -- let's just say, 10 megawatts there. So, you're not going to sort of hurt 10 megawatts to try to max out at 10, it just makes more sense to do 8 megawatts to keep those other wells stable. Now there is, part of the plan is to, by doing that, the enthalpy of not just those wells, but of the other wells in the field should start to increase because what you're doing is you're just reducing the throughput into the binary unit, which means less -- a smaller percentage of the brine gets cooled down. And it's that cooling that we think impacted those two wells. So that's why we made the decision. It clearly enhanced the stability, which is why the quarter was quite stable from a production perspective.



We are seeing benefits in enthalpy in some of the other wells, but we think it makes sense to just keep it more this way, at least for 6 to 12 months. And then if enthalpy in the other wells, and that's just a ratio of sort of steam to brine. If that keeps improving, then I think we will have more room to start trying to move the binary up to 10 megawatts. But I would tell you that if that happens, we're going to get more from the steam field than 2 megawatts. Right? So yes, we could probably get back to that. But that's really -- the goal is obviously the consolidated production. But the way that we're thinking of it for 2025 is as configured now, which is 8 megawatts binary. So, call it, this recent quarter is a good sort of barometer in terms of looking at 2025.

[Operator]

Your next question is coming from Patrick O'Donnell, who's a Private Investor.

[Patrick O'Donnell, analyst]

Two questions I had. I guess one on the Punta Lima acquisition. How did you get comfortable with wind as a new technology in the portfolio, just given that it's quite different from what you've been operating in some regards? Just curious in terms of kind of the O&M and the optimization strategies that there may be a lot of new things to get up to speed on and try to figure out? Just wondering how you guys were thinking about that with the new technology.

[Marc Murnaghan, executive]

Yes. Good question. So first, Vestas, which is one of the larger turbine manufacturers in the world, they have a 5-year contract to provide operations and maintenance services on essentially everything that the turbine, with relation to the turbines. And so, and then anything -- the balance of plant will be up to us. But so this -- it's different than the other plants in that the other plants we run everything, okay? And I would also mention that in both the hydros and Peru -- sorry, but do you mind maybe muting whoever is typing. So, the hydros, for the first 3 years, we actually outsourced the operations, and then we absorb them and they're all employees now. But we did have a learning process to get up to speed on the technology.



It actually was the same thing at San Jacinto in Nicaragua, which was when it reached COD in 2013, it had a 3-year outsourced O&M contract. And then after 3 years, it was absorbed in. So, I would suggest it's going to be something quite similar here because we have Vestas, it's actually 5 years, although it will be about 4 for us. Although I would suggest it's probably much less likely that we absorb that part of the contract, which is the big part of the O&M. Just because there is more, it is more specialized. It's actually, there's 13 turbines here, but each one is their own generator. Right? So, it is different and I would say it's more industry standard than the other technologies we're in to have somebody like Vestas do that part of it. So, the first big part is we're not, I don't think taking a big risk because we have Vestas doing sort of a bumper to bumper on the turbine. So that is the big part. And that's how we're going to manage, I would say the risk. And whereas the ball of the plant, we do have experience in that it's. That part is much more similar to the rest of our plants. And yeah, I think from that perspective, there's a risk to win. But I would suggest that I think we want to round the portfolio out as well. I think there's a benefit to having all of the generation types in our mix.

[Patrick O'Donnell, analyst]

Got it. Yes, helpful color. And I guess a follow-on to what you mentioned about the Vestas contract. I mean, do you know enough about that to say if they are also sort of aligned with you all in terms of the performance optimization output, in terms of the contract structure for them to provide those services?

[Marc Murnaghan, executive]

We had external consultants assess the contract to give it a look at the key 8 clauses. Are these markets or something above market or something below market. And so, because we did acknowledge that again, it's one thing about the actual technology, but it's also, to your point, there's a "technology vis-a-vis the actual contracts". And that is not something we felt comfortable that we have the knowledge to do? But we did have consultants that reviewed it and in the end, the short answer is it's market in terms of what warranties provided, et cetera. Time to respond, all those things.

[Patrick O'Donnell, analyst]

Okay. Great. And my second question is just around the share repurchases. We've seen those come through in the last couple of months. I guess what can you say about share repurchases as part of your capital allocation strategy?

[Marc Murnaghan, executive]

Yes. I mean, they're quite small. We have, call it a formula that we put in place. And then one of the things that does happen just so you know is once we go into blackout, which is the day after we end the quarter, so September 30, we have to give a broker instructions. We can't do anything if the shares go up or down. We have to give them specific instructions and we can't change those during the blackout period. So, we had to just keep what we were doing at a very small level throughout the quarter. But one of the reasons that I think we kept it small is, obviously, we were close on this acquisition. And we needed to make sure that -- we needed to make sure that even if we can't, for instance, get a bond deal done that we can close on this acquisition. So, I would say until such time as we call it, get a bond deal done, I would say similar type strategy. We're not going to change much that on the NCIB at all.



And then I would say from a bigger picture, I would still be more on -- if we had excess cash flow compared to what we have today, would we buy back more stock? Would we grow the business more or would we increase dividends? I'm on the last 2 more so than the NCIB. I think we can use the NCIB a little bit, but I would prefer to get back to doing some dividend increases as a company. I think that's really good for us in the medium and long-term, as well as taking a portion of that extra cash flow and accelerating the growth of the business, because I think we really need to get so that people can see Nicaragua being lower than 50% of our EBITDA.

[Operator]

Your next question is coming from Devin Schilling of Ventum Financial.

[Devin Schilling, analyst]

Marc, sorry, just a modeling question for me. I missed the details on the PPA in Panama. Can you please just go over the pricing again?

[Marc Murnaghan, executive]

Yes. So, it's $80 a megawatt hour next year, 2025. It just started on Jan 1, like for the year, so the full year. And then it goes up $0.50 a year. So it's a five year deal.

[Operator]

[Operator Instructions]. And your next question is coming from Rupert Merer of National Bank.

[Rupert Merer, analyst]

Going back to the Punta Lima Wind Farm. The previous wind farm had some storm damage. Can you talk to us about the insurance that you have on the project and maybe any design changes that could make the more recent wind farm more robust?

[Marc Murnaghan, executive]

Yes. I would say that the turbines have newer models that have some design improvements, I would say. But the actual layout wasn't changed, and I don't think it would have really benefited it. The big thing really is the insurance, I would say, is it's sort of fully-insured, and that's in place. I would tell you that our view is it's actually somewhat overinsured in those -- that cost number I gave you. That's what's insured is much more than what our acquisition cost is. So, I don't think we need to over-insure this going forward if we're the owners. And I think we would actually look to include it a little bit more in a portfolio of our other assets so that we can, I think, at a minimum, keep the pricing where it is, but potentially, even reduce the total amount to at least what our -- no more than what our investment is so that we can potentially even reduce it. But yes, it's fully insured, both sort of natural catastrophe as well as lost revenues, et cetera. I think what we'll look at doing is potentially augmenting that with more spare parts, but that's not something that -- because it might make more sense from a capital or return of capital perspective, Rupert, to spend a little bit on some spare parts and potentially tweak your insurance coverage. But we'll look at that next year.

[Rupert Merer, analyst]

Okay. Great. And the final one on Punta Lima. So, you have some tax equity, can you talk to us about modeling considerations? I imagine you're consolidating this asset, so you'll have some noncontrolling interest tax equity liability. Can you talk to us about the scale of that, and maybe what we're going to see as far as the impact on earnings or EBITDA if you account for those tax credits?

[Marc Murnaghan, executive]

So, we won't be getting any tax credit accounting. It will be pure revenue cost, which we will consolidate 100% off even though for the first 4 years, we're only 94%, call it, the economic distributions. So, there would be a 6% minority interest. But that's going to be pretty standard minority interest accounting.

[Rupert Merer, analyst]

And you'll have a noncontrolling interest though? What's the scale of that?

[Marc Murnaghan, executive]

Sorry, yes, I said whatever. Yes, exactly. So, 100% consolidation from a revenue cost, EBITDA perspective and then a noncontrolling interest of just 5% or 6% backed out below.

[Rupert Merer, analyst]

What is that going to look like on the balance sheet?

[Marc Murnaghan, executive]

In terms of the amount?

[Rupert Merer, analyst]

Yes.

[Marc Murnaghan, executive]

I think I'm going to have to get back to you on the actual -- do you mean the amount of the noncontrolling interest?

[Rupert Merer, analyst]

Yes, that's correct.

[Anton Jelic, executive]

Yes. It's Anthon here. It will mimic what we do in Ecuador. So, we will have 100% of the revenue with backing out the minority interest.

[Marc Murnaghan, executive]

Talking on the balance sheet, though. So, I think we just got to -- I'll have to get back to you with the number because with these tax equity deals, Rupert. The amounts don't -- because it's also this partnership methodology of reporting for tax. So, the dollar amount can actually differ from the percentages, so which is why I'm a little bit reticent to give you what that 6% is going to look like on the balance sheet in terms of the number. So just let me come back to you on that.

[Operator]

Thank you very much. Well, that does conclude the end of our question-and-answer session, and also the end of the conference. You may now disconnect your phone lines at this time, and have a wonderful day. Thank you so much for your participation.