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Welcome to Innergex Renewable Energy's 2021 Third Quarter Results Conference Call and Webcast. [Foreign Language] [Operator Instructions] I would also like to remind everyone that this conference call is being recorded. And I would like to turn the conference over to Karine Vachon, Senior Director, Communications. Please go ahead.
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 on page of our website at the 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 itemized according to International Financial Reporting Standards. Please refer to the Non-IFRS Measures section of the MD&A for more information.Our speakers today will be Mr. Jean-Francois Neault, Chief Financial Officer, who will present the Q3 results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our operational highlights. I'll now turn the conference over to Mr. Neault.
Thank you, Karine, and good morning, everyone. Our third quarter result posted growth over the same quarter last year. Production, revenues and adjusted EBITDA were all up 13%. These increases can be mainly explained by the contribution of Hilcrest, which includes a USD 6.2 million compensation received from the EPC contractor for loss of revenues due to the delay in commissioning. Also by the consolidation of Energia Llaima resolved since July 9, 2021, and by the commissioning of the Griffin Trail facility. These items were partly offset by lower revenues at the wind and hydro facilities in Quebec and by higher operational expenses at the Quebec wind facility. Revenues proportionate and adjusted EBITDA proportionate were up by 4% and 3%, respectively.On Page 8, for the 3-month period ended September 30, 2021, the Hydroelectric Power segment generated $62.5 million in adjusted EBITDA, representing a 1% increase compared to the same quarter last year. This result is mainly explained by the consolidation of Energia Llaima results, which includes now 3 hydro assets, namely Duqueco, Guayacan and the recently acquired Lican facility. These factors were partly offset by the fire incident at the Kwoiek Creek facility and a lower contribution from the facilities in Quebec due to lower revenues.The Wind Power segment generated $45.6 million in adjusted EBITDA, representing a 6% decrease compared to the same period last year. This decrease is mainly due to lower revenues and higher operating expenses at the Quebec facilities and to lower revenues at the Foard City facility. This decrease was partly offset by the commissioning of the Griffin Trail wind facility and by a higher contribution from the facilities in France.The Solar Power segment generated $29.8 million in adjusted EBITDA. The increase is mainly explained by the contribution of a Hilcrest and by the higher contribution of the Salvador and Tampa Elvira facilities in Chile. This increase was partly offset by lower contribution from the 3B facility due to lower revenues.On Page 9. For the quarter ended September 30, the joint ventures and associates contributed to a $22.7 million to adjusted EBITDA proportionate compared with a contribution of $29.7 million in the same quarter last year. The decrease is due mainly to the consolidation of Energia Llaima result and due to a lower contribution from the Toba Montrose facility due to lower average selling prices. In addition, proportionate production tax credit contribution decreased from $13.2 million to $10.7 million, mainly attributable to the exclusion of the results from the Flat Top and Shannon joint ventures and to lower PTCs earned at the Foard City facilities due to lower generation. This decrease was partly offset by the production tax credit earned at the Griffin Trail facility following its commission.Continuing on Page 10. Compared to December 31, 2020, the increase in long-term debt is related largely to the debt assumed in the Energia Llaima and Lican acquisitions, the draw toward the construction of Hilcrest and Griffin Trail projects, the corporate loans repayment, partly offset by the proceeds received from the public offering of common share and the Hydro-Quebec private placement applied against the revolving credit facility.On Page 11, compared to December 31, change in the total asset resulted largely from the Energia Llaima and Lican acquisitions as well as to the Hillcrest and Griffin Trail commissioning. The total assets were also impacted by an impairment charge related to the 3B solar facility in Texas, reflecting an outlook of lower-than-expected congestion charges and by a decrease in investments in joint ventures and associates explained by the Shannon and Flat Top facility. Changes in total liabilities stem mainly from the increase in long-term loans and borrowings. The change in shareholder equity is mostly explained by the issuance of common share upon acquisitions, the public offering in Hydro-Quebec private placements as well as by the total comprehensive loss and the dividend declared on common and preferred share.As shown on the next page, the normalized free cash flow has increased by $11.4 million on a trailing 12-month basis. This increase in free cash flow was mainly due to the contribution from the recent acquisition achieved in 2020 and 2021 and from the commissioning of Hilcrest and Griffin Trail facilities; a decrease in interest payments on the corporate revolving and credit facility concurrent with the Hydro-Quebec Private Placements and a decrease in interest payments related to Alterra loans fully reimbursed in January 2021; an increase in revenues from the facilities affected by the BC Hydro curtailment, which impacted the second quarter of 2020 and an increase in distributions from joint ventures and associates, primarily due to a distribution received from Energia Llaima in the second quarter of 2021 prior to closing.These items were partly offset by an increase in debt principal payments coming from the Mountain Air and the Energia Llaima acquisition, an increase in free cash flow attributed to noncontrolling interest, stemming mainly from the Mountain Air acquisition, and a decrease in cash flow from the Phoebe facility due to an unfavorable basis differential this period compared to the same period last year.For the trailing 12 months ended September 30, the payout ratio amounted to 121% of normalized free cash flow compared with 124% for the corresponding period last year. As you already know, on September 3, 2021, Innergex has completed a $201 million Bought Deal equity financing and a private placement of $50 million with Hydro-Quebec to maintain its 19.9% ownership position. In total, 12.8 million common shares were issued. Net proceeds were used to fund the acquisition of Curtis Palmer and the remainder will be used for general corporate purpose.Before I conclude, I would like to add that the 2021 projections were revised to take into consideration the below-average water flows, wind regime and solar irradiation in most regions since the beginning of the year and the exclusion of the results from the Flat Top and Shannon joint ventures. The new projections were positively impacted by the acquisition of the remaining interest in Energia Llaima, of Lican and Curtis Palmer. We now expect our revenues and adjusted EBITDA to grow by 10% and adjusted EBITDA proportionate by 2% instead of 12% growth for all measures as previously disclosed.Also, we were very pleased to have held our first Investor Day in September, during which we provided an update on our 2020 to 2025 strategic plan. Despite lower financial projections for 2021, the target provided at the Investor Day remained unchanged and were already excluding the impact of Shannon and Flat Top. On that note, I will give the floor to Michel for the operational review of the past quarter. Michel?
Thank you, Jean-Francois. And good morning, everybody. As you've seen, it has been a quarter where the weather did cooperate so much with us, starting also in BC -- mainly in BC and some other places. And of course, the fire in Kwoiek helped neither. Nonetheless, we've been quite busy in that quarter, as you heard also from Jean-Francois. We've been busy in completing acquisitions and working also on our development and construction. So not so happy with the quarter results, but there's something we cannot do, weather is not something we can control.Just to give you a heads up, and I know the question will come later on but the beginning of October and November looks much better being the bigger contributor are BC. BC is doing very strong October and November and also a very strong win in the U.S. So, so far, the quarter is online on our long-term average in the fourth quarter should be -- well, still a month and a half to ago, but it's starting on a good foot.To come back to the initiative that we have done during the quarter, the growth and development initiatives on Page 15. Innergex has acquired the remaining interest of Energia Llaima, as Jean-Francois said. It's part of our strategy and then concurrently, we did announce also a smaller acquisition of 18 megawatt Lican. [Audio Gap]Storage. The idea of Chile, as we mentioned, is that we want to have a diversified portfolio, and we want to have some storage capability. We'll also be looking to put battery in Chile in the future. I think that what we have seen for people that have not looked into the market in Chile, this summer -- not this summer, but the winter for them. We've seen a spike in pricing in result -- direct result in the price of natural gas going up and also the fact that they are committing more and more commitment towards closing the coal.So we've seen a big improvement in terms of pricing. And I think that we'll see overall, in the near future, a discrepancy between solar hours during the day and evening and night. So we think that battery will have to play a good role. And definitely, small hydro with the storage capability will also be very beneficial. So the idea over there is to have a diversified portfolio, like I said. And now owning 100% of the Llaima will be a lot easier for us to achieve this goal and also making sure that we could put, I would say, a better financing strategy behind this portfolio going in the future.Switching to -- on Page 16. Also very happy with the acquisition of Curtis Palmer. We announced that during the month of August. We just concluded the transaction a few weeks ago. Very happy to have these projects in the portfolio. Of course, very, very proud and happy to have been successful in this acquisition with Hydro-Quebec. I think that together will be a good team in order to put value into these portfolio in the long term. In the meantime, we're seeing very good cash-on-cash from this acquisition, given the fact that we still have some PPA remaining in these 2 assets. So the idea, as you know, for our M&A is to focus more on the early cash-on-cash. Of course, we want to have long-term value associated also with these acquisitions. But if we can find acquisition that also contribute on our cash-on-cash for the next few years, as you know, this is part of our strategy to help our payout ratio while we're still developed and creating value in the prospective and development activities.Talking about development activities, very happy also to conclude the commissioning of Griffin Trail. That project was, I guess, put on a fast track last year when we saw the opportunity to apply for the PTC extension rule. So very happy to have been able to conclude the development and the construction in time and in a little bit under budget on that one. As Jean-Francois alluded, this was a good contributor during the quarter. We're happy to see a little bit firm -- well, better pricing in Texas also.And we don't have a power hedge on this thing. It's -- the production is exposed to merchant, as you -- Jean-Francois mentioned. But remember that we have also PTC in these projects. And the PTC are fully indexed for the next 20 years. They're representing a roughly $25 per megawatt hour. So it's roughly half of the revenue or the contribution -- financial contribution to these assets. So it's not fair to talk about a project in Texas with PTC being fully merchant. We have, like I said, at least 50% of our revenue are based on PTC and potentially also rec sell on the long term.Continuing also on the activities, construction on Tonnere and Innavik are progressing well. Innavik construction was advancing well. Mind you with COVID and a shortage of skilled worker has put a little bit of pressure on many construction sites in Quebec, especially the ones that are far way like Innavik. But nonetheless, construction has advanced very well. We are still confident to reach the COD in Q4 next year. Tonnere has a little bit of the same thing, a little bit of logistic to have all the equipment being delivered to the site. Now we have all the equipment in place, the transformer has been delivered to site.Commissioning activities have been initiated. So we're hopeful to still meet the end of this year as a COD. It might slip into January, but the team are busy trying to reach the end of the year as COD. So this, again, is an interesting project because as we said before, this is the first commercial battery sale with the Hydro-Quebec EVLO division. We're working very closely with them trying to find other area or market so that we can deploy that technology. We're very confident on the great value of this technology, very safe. And I think that Hydro-Quebec is committed with top-notch engineering behind this product. So we are very enthusiastic to see how it is going to be performing in the next few years.Continuing on the development activities have been busy in Hawaii by finalizing a lot of permitting, finalizing also equipment. I know that the buzzword in our industry right now is how much inflation are we facing in our construction cost and also -- and directly the logistics to deliver equipment. It's a challenge like everybody in our industry are facing. But we were lucky to be -- to have been very proactive in negotiating in advance the battery with Tesla, the best system has been negotiated a few years -- well, not few years but before. So we don't have any inflation built in, in these.We had also secured supply agreement with solar panel. But we do have a little bit of headwinds in terms of logistic delivery and some inflation in the balance of plan. But as an example, in Hale Kuawehi, we have perhaps $2 million to $3 million. So that's 2% to 3% challenge still in potential inflation in our projects. So it's not super material. It's there, and the team are working. Paeahu, it's maybe a little bit more, maybe between $3 million and $4 million potential exposure depending on the cost of deliveries of equipment and what have you. But I think it's manageable.We're working hard also in continuing our development in Kahana and Barbers Point. We will be -- we'll have a little bit more time to negotiate pricing and to see potentially easing pressure on logistic and delivery cost. Just to give you an idea, container a few years ago, well, not few years ago, 1.5 years ago to go to Hawaii was costing around $3,000. Now we have seen quote as high as $16,000. We have also pre-negotiated some delivery of around $12,000 per container. So those are built in, in our cost. But interesting to show you that there's a potential also to see these pricing to come down in the next 1.5 years or so. So we're hopeful that the effort from different government and other agencies to ease that cost pressure on transportation should translate to potentially a little bit of a relief on those 2 last project in Kahana and Barbers Point.On other development activities, we have Frontera. As you know, Frontera is an interesting project. We need to have a little bit more clarity on finding a buyer -- still long-term buyers for that project. But I alluded a few times ago on -- a few times about San Carlos, which is on the same river, but just a little bit a few kilometers upstream. We like San Carlos a little bit better. The cost to build San Carlos is lower in terms of megawatt power produced. And San Carlos will have also the capacity to basically store 4 to 5 hours of energy. And that project could -- or that storage could benefit Frontera. So we're working also in advancing San Carlos permitting in the meantime. And like I said, looking forward to potentially find an offtaker for both projects, which then would -- I would say, give us the opportunity to have a good financing and start construction.Rucacura is a very small 3-megawatt in Chile. We did put that there. It's just we're going to take advantage of the existing infrastructure in Duqueco. There is a second dam that are releasing water into the river, and we're going to take advantage of that released water at the bottom of the existing dam. So it's not a big project, but it's a profitable one and an interesting -- a small addition to the Duqueco facility. First, also Lazenay, 9 megawatt plant, we only own 25% of that project. But nonetheless, it's going to be a very interesting project. We're going to be going forward with that one into potentially construction next year. So still waiting for interconnection service agreement. But hopefully, we'll have the opportunity to start that construction sooner than later.Going a little bit fast on project -- prospective projects. As you know, we're working hard towards developing more projects in United States, France and in South America. Canada is also right now -- or Quebec is come back to a, I would say, an active market with the RFP in Quebec for wind. It's a 300-megawatt RFP for wind. But also, Hydro-Quebec has said or released their forecast for 2030, and it's encouraging. The consumption of electricity in Quebec is going up. So that's a great news for us in future opportunity to submit further project in Quebec. And eventually, I guess, that Canada will also see a lot more activity, especially if the price on carbon that was discussed with the liberal government. If this is inactive and implemented.I think that this will also help the rest of Canada to move forward with future RFP. But our main market right now for growth is France and the United States. Some effort has been put, if you know in Boswell. We are, of course, advancing negotiation with PacifiCorp. We have also the opportunity to discuss inflation on project costs. So it's a good thing that the project -- the PPA were not completely finalized. So we will have some opportunity to discuss with PacifiCorp. Remember that this is a 300-megawatt with under 25-years PPA.We also have Palomino. As you know, it's a 200-megawatt solar project in Ohio, and it's advancing well. We always have some challenge in development of the project. But I think that our team has done a great job in meeting local community, and the project is advancing pretty well on that aspect. We still have to finalize the interconnection activities. And we have also opportunity to discuss with our 2 offtakers, the potential inflation in pricing. That being said, I think that the price of electricity in United States, especially for renewable energy, have firmed up quite a bit and a lot more corporate offtakers are very interested in signing long-term contracts to secure their supply of green power. You've seen natural price -- natural gas price going up. So obviously, that has also firm up quite a bit some of the price target in United States. Even mid sea has been quite strong this year. As a matter of fact, we have one project in BC that can benefit from the mid sea and mid sea has been very strong so far all the years.So we're seeing a lot more activities, a lot more demand for corporate PPAs. And our intention is to develop further project, as you know, solar and wind. We've been very active in the Northwest and Midwest, again, we're advancing. And hopefully, in the next few quarters, you will see more projects coming into the active development project coming. And those will be big ticket project as you know, in the states, especially in the Northwest, 200, 300-megawatt project can be easily developed. So quite happy with our effort in the prospective project. And again, also France is advancing quite well. We have some lead also on solar. We have initiated some development in solar that seems to be promising also in France.All in all, I guess that -- little word also on the COP26, we've seen a lot of articles lately in the last couple of weeks, a lot of attention has been put on initiatives around the world to curb the global warming. So I'm very pleased to see that a lot of articles and a lot of attention are now being put in front of the public and a lot of financial institution also have been committing more focused on ESG. [Technical Difficulty]Okay. I'm sorry, I'm sorry, we had a communication issue. So I was saying that I've been critic about the ESG or the green washing, and I'm pleased to see that I'm not the only one that was upset by the way sometimes some ESG criteria or some green investment or even green bond has been marketed around the world. So like we said so many times, we think that we have a great business. We're committed to only produce renewable energy and utilizing also storage to enhance the penetration of green energy in many markets and eventually green hydrogen as well. So pretty pleased to see that the focus now seems to be having more scrutiny around these criteria and Innergex is very pleased to see that new fact. And of course, we're committed to fully have more and more disclosure on our ESG and Karine and her team are working hard in putting good documentation in order to help you assess our ESG rating.Also one thing that I'm very, very, very pleased. Some people that knows me know that I was quite focused on the methane seepage emission. It's great to see the world now focusing on this. I think that natural gas guys and industry have gone without much of a criticism on that aspect. And I guess, on marketing aspect, calling natural gas, what it is, it's methane. More than 80% of natural gas is methane. And I think that people should understand that natural gas is a fossil fuel and methane emission will contribute to warming the planet. So natural gas is not so clean. It's potentially cleaner than coal, but it's certainly not clean as a renewable energy. And I think it's about time that the world is waking up to that fact. So on this, we would open up the floor for questions.
[Operator Instructions] And your first question will be from Sean Steuart at TD Securities.
Michel, you touched on the -- some changes to the prospective development pipeline. And there was mentioned in the MD&A of some wind projects in France and Chile moving to early stage from mid stage. Can you give us some context on what's happening with those projects and why they've moved seemingly backwards in the queue?
Yes. Well, in Chile, we had a small one, a 9 megawatts that we -- was not very material. We had a hard this right a few years ago, but we're focusing more on bigger projects. So I don't think it's very material. And in France, I don't have all the specifics, but it was unfortunate that some opposition, local opposition has filed a, I would say -- in a position to that particular project and hence it was kind of reassessed in terms of advancement. Not big project again. But yes, it's not positive when some of the projects that we thought were going forward have some setback. But Sean, I think the team in France are not discouraged. They are going to work even harder on trying to develop potentially other projects or find ways to assess ways to further develop the project that has been re-classed, but I can't remember exactly the name, Sean on this, but we can certainly give you a little bit more color on it.
That's useful. We're still encouraged to see overall additions to the pipeline even since September. The second question I have is, you touched on the 300-megawatt Quebec wind RFP. Can you give us an update on the expected timing of that process? And as we look ahead to more growth, more procurement over the next decade in Quebec, your perspective on the scale of the opportunity size and timing of future RFPs to come in Quebec? Any thoughts there?
It will be only my opinion, right? In the sense that Hydro-Quebec has its own priorities. But I think that what they have given the market perspective is that Quebec is a place where Hydro-Quebec and [indiscernible] Quebec is open for business. Do you have new companies, green hydrogen, good database infrastructure that will need electricity and bring in electricity. There's a lot of talk about greening also the aluminum industry, and Quebec is certainly well positioned to take advantage of that.So I think that the story here is that Hydro-Quebec has been good in commercializing and being, I would say, a good on ambassador to Quebec in the sense that the Quebec and Hydro-Quebec has been willing to utilize Hydro-Quebec as a tool to develop the economy in Quebec. And I think that the green economy in Quebec is top priority. And I think it's only the beginning to see some very nice growth and good economy news in the sense to see more and more companies coming to Quebec to have access to renewable green energy.And so I think that the first 300-megawatt is a good start. How much more megawatt we will have seen in the near future, it will depend also on the ability of Hydro-Quebec to finalize their interconnection with the Massachusetts. There's still quite a bit of energy there that was committed to be exported to Massachusetts. But nonetheless, I think that the fundamental of seeing Hydro-Quebec being on the forefront of welcoming industry that needs green energy, I think, is paramount. And we'll see some good news announcement in the next few years, and I'm quite positive about that.So 300 megawatts in 2026, this is what they have announced. Hydro-Quebec is going to give all the details later this year or beginning of January. And I would be expecting bid due probably at this time next year or first quarter of 2023 for being able -- for us to complete the development period and be able to put these projects in 2026. So that's my two cents on what we'll happen with that 300-megawatt.
Next question will be from Nelson Ng at RBC Capital Markets.
I just want to start with a few questions on Hillcrest Solar. So I think the budget has been kind of creeping up in the last 2 quarters. Can you just give a bit of color as to what's causing the cost increase and delay?
Well, it's finalized now. We have settled with PCL. It was -- I just want to be politically correct here. But I think that this project, unfortunately, didn't received from the PCL part, the 18 that we were expecting to receive. And a lot of people have worked -- if you remember, we mentioned that at the height of the job, we had more than 900 people working on site, a lot of rotation, and unfortunately, not necessarily skill workers were selected. And that has brought a lot of repairs that have to be done during summertime. Now I don't want to get into too much detail in our contract agreement with PCL.But we thought that we had a very strong case to push back on some demand from PCL. On the other hand, we wanted to grow this project. As you know, tax equity is committed to this project, and we wanted to close tax equity, and we wanted to finalize all the agreement as soon as possible. So we think that there's -- we think that there is merit to finalize it. Now you will not see more cost increase. We have settled it. The -- what we have put in the MD&A is the final numbers. Through those numbers, as Jean-Francois said, we also were compensated for some liquidity damage in terms of delay.So no more cost will be seen in Hilcrest. It's done. Project finance will be repaid. The closure or the financial closure for tax equity is scheduled before the end of November. So the -- all the, I would say, the cost and the potential delay on financial growth are now behind us. All the independent engineering report has been done and are now being submitted to tax equity for their review. So we are confident that this is the final number.Again, I think that it was a little bit unfortunate that, that project was built in the middle of the COVID. PCL is a Canadian developer and their subcontract -- they are main subcontractor electrical one is also a Canadian one. So that had complicated a little bit their ability to, I would say, to service that project. So all in all, we're happy with the end result. Now the project is producing what it should be producing. And we will be done with the tax equity financial close by the end of November, and we'll have a nice project now in Ohio producing 200 megawatts.
Okay. Could you just repeat what was the liquidated damages received? And will there be anything recognized in Q4?
I think that...
U.S. -- it's USD 6.2 million and no more liquidity damage. So this is part of the final settlement with the EPC.
So we're done. We have recorded it in the Q3. Now the project has been fully operational since then. And there's no more liquidity damage related to the nonperforming assets.
Okay. My next question relates to Curtis Palmer. I think there was roughly an earn-out provision that has a cap of about $30 million. And I think it relates to the New York ISO market pricing in 2023, 2024. But I believe the PPA at Curtis Palmers goes out to 2026. Can you just give a bit of color as to what the earn-out provision relates to and under what circumstances would you need to pay some earn out?
I don't want to go too much in the detail there. We'll disclose it when we will settle. But is the fact that there is some carbon initiatives that are being discussed. And if they are implemented that means that the market will, I would say -- I wouldn't say permanently, but will be affected for the long term. So that's the idea behind it that if those initiatives are implemented, we will be in a position with Hydro-Quebec to kind of secure our vision on the long-term pricing in the area, and there's a formula agreed with the center where we would be able to agree on a, I would say, on the long-term trend for pricing. So that's the idea, even though it's not necessarily aligned with the end of the PPA, it's just that the initiative around carbon pricing should be implemented by that date, and they should have a permanent influence on long-term pricing in the area.
Okay. And then just one last question. You mentioned power prices are higher. You have some merchant power press exposure in Chile, Texas and I think other regions. Is this -- like do you see an opportunity to lock in higher prices by entering into contracts? Or do you want to keep benefiting short-term from some of the high merchant prices? You did mention that you want to add batteries in Chile. And obviously, that's -- that would give you some flexibility to take advantage of price differences during the day. But can you just comment on whether this is a good environment to lock in prices?
Sure. I'll start with Texas. Texas is a place where it's very volatile as we've seen and believe me, I've been burned, and it won't happen again. So the beauty of being a merchant is that you don't have any obligation to deliver. The nice thing about other PPA, technically, just like the one we have with Ford, is that we would be also, if we can -- the PPA that we'd like to have is as produced, right? We don't want to get in Texas again with firm obligation to deliver and being forced to buy on the market when the volatility can be so high.So unless we find an as-produced PPA that makes sense for Griffin Trail, we will not commit to the same type of project -- of commitment that we have in Shannon or in Flat Top or in Foard City. So we're happy now with what we're seeing. The last quarter, on average, we reached something around $30 for Griffin Trail. And this is net cost basis. We're delivering on the note. So we don't have any obligation to deliver on the hop somewhere else. So we don't have basis exposure. And for the time being, we're happy with it. It's higher than we had expected. And we're not in a rush unless we can find and mass produce PPAs.Now for Chile is a little bit of a different story. Chile price has been coming up. There's a lot of curve in the -- what we have given you as guidance for Lican, as an example, or even for Llaima portfolio are based on, I would say, a mix of a curve that are showing reduced price starting next year for a couple of years. The idea behind this is that all PPA has been signed a few years ago and their COD are supposed to be in those 2 years. Now that being said, those PPAs were signed at very low pricing, hoping that solar and battery price would have come down even more than what we have seen lately.So my view is that this won't happen. And there will be an acceleration also on the reincarnation of the economy in Chile. And I think that next year, we'll probably see even better opportunity to lock a long term PPA. For the time being, we've seen some pricing during summertime in evening and night at $110, $120 per megawatt hour. So it's not a bad deal to be merchant these days in Chile. Natural price -- gas of natural price -- natural gas price has come up, as you know, Chile doesn't have any.So they have to import it in LNG. They'll be competing against Europe and many other countries that needs natural gas these days. So I don't see any weakness in the natural gas price going forward in the next few months. So we're not in a rush to sign. We have a lot of incoming calls to sign PPA in Chile. Price have increased for 4, 5, 10 years PPA. If we're patient, I think that we will have opportunity to lock price at even better condition.
That's great news for Chile.
Next question will be from Mark Jarvi at CIBC Capital Markets.
Michel, I want to come back to your comments about Palomino and Boswell. You said you're trying to manage inflation pressures and maybe see if you can get some offsite price adjustments. Would that be easier if Palomino was a bilateral negotiation versus Boswell as an RFP? Just curious in terms of what capability you have at Boswell to try to adjust the price?
You're right. Palomino, we have a path forward with the 2 buyers that are really clear. In terms of PacifiCorp is a little bit more murky as you can imagine. But we were -- as you've seen the numbers, we were one of the lowest contender pricing in that bid. Everybody in that group must be facing the same issues. It's an industry-wide issue. So you're right. There is not necessarily an easy process in PacifiCorp RSP. But again, I think that we will be able to find a way. We didn't need huge increase in our PPA price. We need a little bit of adjustment, not so big. We also have been proactive to reach out to potentially other turbine manufacturer.Vistas was perceived to be the preferred supplier at that time. We have now reached out to others, and we have been shown some interesting alternatives that are mitigating the potential increase in cost that we had seen previously. So we have also means to mitigate this inflation by having different model of turbine that could somehow be more suitable for the site in terms of total generation. So I'm hopeful that we'll find a way. We don't need a huge increase. And I think that PacifiCorp need an energy and are seeing also that the market that they want to serve with those contracts are seeing also some increase. So it's a win-win. It's not like PacifiCorp would have to swallow a big increase in their supply and not being able to flow through it to their other customers. So I'm pretty positive that we'll find a solution.
And just in terms of timing for those solutions, is it like one -- sort of the earliest we could see a contract at Palomino and move that into the firm development pipeline, the same thing for Boswell?
Well, we have to measure customer sign for Palomino. We had a window of, I would say, opportunity to show them an increase. That was a few weeks ago, we did show them an increase. They have selected -- they have another option to wait another 6 months to see if inflation prices are still there or get reduced. And then they have the option to walk out. And then we would be free to negotiate with somebody else. But to be really frank, their option will not be better. I mean the price of corporate PPA have gone up, and that's a fact. And it's not only us trying to be opportunistic here. I think the oil industry is seeing some inflation, and the interest rate has gone up. So the cost to produce electricity has gone up as well. So I don't think that the -- and we're fair, we're open book. So I think we'll find a way there, too, to continue and make the adjustment that makes both parties happy.
So just take a little comment and clarity in -- the green light to proceed on those would probably not happen until mid or late next year.
Well, for us, Palomino is a green light. I mean, we will find it. There is plenty of corporate offtaker in that area. So for us, it's only getting the permits finalized.
And then just coming back to M&A. You made the comments and you have for a while now that cash-on-cash yield is important, but also volume maximization. With the big accretion that came with Curtis Palmer, does that change at all the types of deals you're looking maybe a little less focused on high cash, cash or cash-on-cash accretion, more about an IRR maximization and maybe a little lower accretion? Just your thoughts in terms of M&A, I guess, the deal flow you're seeing and just priorities in terms of what you're looking for on an operating asset right now?
Well, the idea here is that it's always a balance. Of course, we're focused on cash-on -cash, but we want to acquire some good assets. We don't want to only have the cash-on-cash in our goal to acquire assets. But I think that it's still a good proposal if we can acquire existing assets that are generating cash-on-cash. So that can give us more flexibility for us to continue investing in our pipeline of development. As you know, development pipeline can take 2, 3, 4 years to develop. Some areas are faster than others. But obviously, putting money upfront with these projects are putting a little bit of pressure on our payout ratio.So I think that this focus of using M&A as a tool to help us mitigate the pressure on our payout ratio because we want to do development because we're being more active also. We have bigger teams on the ground, and we're seeing great opportunities. As you know, I alluded to COP26, but there are so many state initiatives and corporate initiatives around the world that -- and especially in the markets that we're active, that we are seeing a lot of opportunity. So we don't want to slow down on the development. And 1 tools to help us not slowing down on the development is making sure that our M&A comes into help -- to give us a little bit of a help on the short-term cash flow. So we're open to look at other type of acquisition, if they're really good. But of course, the cash-on-cash will still be a priority when we would be deploying capital in M&A.
And just based on the development you're seeing, could the total amount of acquisitions in terms of dollars invested be comparable to what you did this year if we think forward to next year in 2022?
Well, it's always volatile. It depends, and we've looked at a lot of transaction last year. Our team were really busy in looking at many and being in touch and due diligence. So it's a competitive world. So it always depends on the type of opportunity and the players that are also selected. But I imagine that what we have deployed in terms of capital this year can be replicated next year, but it's -- there's no guarantee, of course.
Next question will be from Rupert Merer at National Bank.
I'd like to ask about development in France. If I look at your advanced stage pipeline, I think you have 161 megawatts there. What are the opportunities for bidding into France and the latest RFP? What's the outlook for Innergex there?
To be honest, Rupert, Jean has better a vision on that. We can get back to you or to the team maybe by giving a little bit more guidance. But the idea is that by 2025, we were hoping to have 4 or 5 projects being ready to build and having been successfully participating in RFP. We're hopeful that one project might be finished by next year. And then it's, hopefully, like we said, 1 or 2 projects per year starting in 2023 that could be ready for -- but again, it's always a little bit volatile there, too. I don't want to get too much detail on those because we've seen that we were hopeful on one, and we had a setback. So one has to be cautious in France.I think that wind are becoming also in France, wind projects are under more and more opposition in France -- local opposition and organized opposition has always been the case. But lately, we've seen a little bit of a pushback there. Solar, on the other hand, seems to have also some promising and might be more acceptable to some degree. And that's why we have also focused some of our team and hire new colleague to develop order in France. We a 60-megawatt that is not yet in the advanced pipeline, that seem to be very promising. So we're working hard, but it's long. In France, the project will be more profitable to some degree, but it's a long haul. It's not easy to develop in France.
With the higher power prices in France, are there opportunities for building projects with corporate offtakes rather than the government-backed offtakes?
Yes. Well, that's a very good point, Rupert. I think that the price to some degree now in some corporate PPAs or potential PPAs are actually higher than existing contracts. So I think the industry in France is even looking to potentially cancel their utility type PPA to switch towards corporate, especially if those PPA are left only a few years in their contract. So I don't know how long it will last. But right now, there's a very strong corporate PPA demand recently.
So looking at that opportunity for corporate offtakes in France and in the U.S., how do you go about sourcing corporate buyers in your target markets? What does that business development function look like within Innergex today? And maybe, how might it evolve over the next few years?
Well, right now, we have 2 individuals that have a full-time job is to just engage and look into RFP. We have also 2 person in Chile doing that. So this is definitely, I would say, an area where we will have to have more skilled people in the field. So right now, we have a small department, but this is going to grow in the future. Of course, a lot of the business development people, folks have contacts with some corporation and what have you.So it's a team effort. But one has to be dedicated also to be on the lookout for all and every small RFP. There's some platform in the U.S. that are starting to be developed where it will be like an electronic match where we can participate. And then we see some corporate small RFP that are coming on a daily basis. And this is helping. And I think that this will be also developed in the States. I think that platform where corporate PPA would come and put their ask and IPP like us would be in a position to fulfill this demand. I think that this will become a trend in the U.S. We will see some broker like platform being developed so that this match of -- between customer and producer will become easier and easier in the future.
[Operator Instructions] And your next question will be from Andrew Kuske at Credit Suisse.
I think the question is probably starting off with Jean-Francois. And it really relates to just something inherent in this business where you have variability of production because the sun doesn't shine as much or shines more than you expected. I guess, how do you think about from a financial standpoint, dealing with the deviations from LTA? How do you forecast it? How quickly do you adjust your internal forecast? This was very clear on this call but your longer-term forecasts, everything is intact. And admittedly, this is just like one quarter blip. But how fast and how dynamic are you with changing things and just addressing? And fundamentally, how do you think about your production levels on a longer-term basis?
I'll answer quick, and I'm sure, Michel, you want to take this one. So we never had change our LTA view on our project historically. That has been perceived that the weather generation has some standard variation quarter-over-quarter, year-over-year. So historically, if you look at our investor deck, we present the last 5 and 10 years, it's unfortunate that recently, the weather was not on our side and -- but normally, close to 98% and 99% of our LTA over the last 5 to 10 years. So -- but the most recent years has been not good. And we thought that the diversification we show of jurisdiction and resource pipe would help and support to be closer to 100%, but we never did change. So when we forecast, we typically like to see our asset that the next quarter will be at 100%. Very difficult to predict. But Michel, I'm sure you have a lot to say on this. You want to...
Well, it's funny because we had our audit and Board yesterday -- the Board with us today. And of course, the Board members are also asking this same question with climate change, are we going to be affected? And then Innergex has initiated a review a few years ago, we're serious about this. We want to understand what's going on. I think that Innergex has been known to be fairly conservative in establishing long-term forecasts. Lately, we have been challenged in a few ways -- in a few areas.There's been a few projects that were not -- we're not producing to the standard that we had hoped, Shannon being one. I think that it's a matter of being conservative in the first place. Hydro, we've looked at BC, we've looked at Quebec, and we definitely looked at Curtis Palmer. Our conclusion is that on a yearly basis, BC, Quebec and New York will benefit from, I would say, climate change to some degree, meaning that winter should be warmer, and we should be receiving a little bit more rain during wintertime. So hence, less huge amount of snow accumulated during wintertime. Remember that for us, we're one of the rivers.So if we have a lot of snow and that snow melts fast, it's not good for us. For bigger hydro reservoir, they can mitigate this by being -- proactively managing their reservoir and capturing the spring runoff. But for us, since we're one of the river, having an\ earlier spring and a later winter coming. That means that total generation should be going up. Now the other aspect is that we will see drier and drier summertime. So July, August, September for our hydro facilities across North America, will be under pressure. But winter and fall revenue should go up, and our rate usually are better aligned with production in default and in winter time.So on that aspect, I'm pretty comfortable. Now wind is a little bit more tricky, a little bit more difficult to have clear answer where the wind will go. If we remember all a few years ago, France, we're seeing or experiencing quite drastic low production. And then things came back to a little bit more normal aspect. So it's a little bit hard, even with short-cycle to think that long-term forecast will be affected. But it's something that we are always looking. And whenever we're making an acquisition, we're taking that in consideration, and we're hoping by acquiring new facility in different areas, we will eventually also mitigated any future climate change influence on our long-term forecast, But it's something that we have on our top priority.
Yes. And then Drew, in terms of long-term planning and strategic plan forecast, of course, we do sensitivities on those, and we plan accordingly, and try to put some dollar buffer in order to be covered. In any case, we don't hit the 1%, 2%.
And maybe just an extension, and this is one of the mitigating factors on renewables and you think about the use of batteries as it relates to solar. I guess what we started to see is a greater bifurcation on some of the solar offerings in the market where some utilities want to do solar within rate base and have batteries associated with it and then PPAs they put into the market are really solar only with no battery element. How do you think Innergex fits into that mix at this stage?
Well, we -- Innergex is -- we're all -- I would say that if we have a good price for our solder on a PPA basis, we're fine. But the challenge that sometimes corporate or smaller corporate would need some kind of a capacity or 24 hours Energy contract. And this is where it's becoming a little bit more tricky if you want to serve one customer with one asset. Battery can help, but the battery can do so much for extending solar hours up to perhaps the evening.So that's why I'm talking so much about the portfolio approach in Chile. Because in Chile, the great opportunity that we will have in corporate PPA will be on a 24-hour basis. So solar is great because it's cheap production during the day. But then you have to have either hydro storage or a complementary wind or battery in order to be able to serve them on a 24-hour basis. So for us, I would say that we have also been quite proactive in looking into Hawaii, because Hawaii is a great opportunity for us, of course, to have long-term PPA, but it was also seen as an opportunity to really understand how to build and how to manage the relationship with the utility having solar and battery components.So I think that those are not big projects, but they're making us work hard. Our engineering team and construction team are working together with the developers so that we are learning a lot from our experience in Hawaii, and we'll be well positioned to answer future RFP type where utility would ask to have solar and battery together. So we -- I think we're being proactive, and these solar projects/battery storage in Hawaii is helping us being a better developer.
Next question will be from Naji Baydoun at IA Capital Markets.
Just wanted to follow-up on that last point on Hawaii. I think there was a competitor that actually decided to abandon a project in Hawaii, citing interconnection costs and supply chain issues. I'm just wondering if you can talk about how you think that might impact your projects? And if you would still want to participate in future RFPs in the state?
That's a good question. I read about that article, it's hard for me to comment on their prerogative and why they have decided to walk away from the PPA. The only thing I can reinforce is the fact that we were really proactive when we did bid to have a commitment price with Tesla when we bid. So we had the advantage of securing this. Some developer in the past have been more aggressive in hoping that battery price would go down. That's what I alluded also in Chile. Some developer, especially in Chile, the price of walking out from a project was very low. So they saw that as an option. And they were betting that the -- both the solar panel price and battery price would have gone even further down than what we have experienced.So I don't know about the strategy of that particular -- I think it's NG in the article you're referring to. So I have no idea what were their strategy behind their bid. And if they had secured their battery supply at the time of the bid, but we did. So yes, we are suffering a little bit in terms of delivery for other components and what have you. But the main cost was the battery component, and we had secured it when we did the bid. So to be honest, it's true that we are suffering a little bit on Hawaii, I mentioned it early on, but it's -- we still think that the projects are valid. And again, also, we're learning a lot in this project.And I think that a big portion of our growth in the future has as an intermittent via atomic diffuser will be our ability to be able to propose to customer a mix of source of green energy and storage. So we're still committed to develop this project in Hawaii. The team has done a great job also. Hawaii is a tough place to develop as well. We've talked about France. Hawaii is a place also where the opposition have a lot of rights and a lot of opportunity to oppose projects. And that is not helping developer to meet the scheduled date. So hopefully, the agencies in Hawaii, will wake up to that. And perhaps a few of those projects being canceled, may help us bring that message home in Hawaii and making sure that their processes of both permitting and perhaps Eco might also have to be a little bit more open to some flexibility in their EPA.
Good. I'm clear about what your strategy or your approach is in that market. If -- can you provide any color on the S&P credit rating? Why that was withdrawn recently?
Yes. Well, it's the fact that S&P has changed over the years, and they have selected some ways to calculate the flow of fund available. And one aspect that we really didn't like is that they were using a P90 approach on the total portfolio. So I was -- that was shocking to some degree because you can use a P90 on one project, but using P90 on a project-by-project basis, part of our portfolio was shocking to me. And it was not representing, I think the diversification of the portfolio of Innergex.So having the rating that we had with them and knowing their bias versus our approach -- or versus our portfolio approach, we didn't think it was useful to keep S&P. We have Fitch, and I think that we are sharing a little bit more a common philosophy on how to forecast our ability to serve our debt. And I think that we were perfectly fine with Fitch.
Okay. So not expecting to reengage with the S&P for now any time soon?
No, no.
Okay. Okay. Just my last question is if you had any updates on the Energia Llaima integration. And may be -- might be early days, but any optimizations that you want to do for the portfolio in showing?
Well, yes, I think that we have started to do a lot in Chile. I think I mentioned it before, but when we did the acquisition of Duqueco, together with subcontractor, they were 40 people working on Duqueco. With the automation and the approach that Innergex has and experience that we have with hydro, we have reduced these number of people to about 14 now. We still think there is little bit of efficiency to embedded there. Guayacan had 12 people, there will be only 4 by the end of next year.So there is room for us to work a little bit more in terms of being more efficient in Chile. Financing is also something that in Chile -- when you're looking at project by project, project finance, that doesn't work very well in Chile because if you don't have a PPA or if you want to have the PPA with a single asset, it's kind of complicated because typical PPA in Chile are firm energy delivery. So we think that by having now 100% of the portfolio, we will be looking into a refinancing or an approach of refinancing as a portfolio approach. So I think that we will see some improvement by some -- with some synergy, both in terms of operation and also financial ones.
Mrs. Vachon, we have no further questions at this time.
Thank you very much, Sylvie, and thank you, everyone. So we'll be talking to you in February with our financial year-end results.
Thank you.
Thank you.
Thank you. [Foreign Language] Ladies and gentlemen, you may now disconnect the line.