Okay. Well, let's get at her. So welcome to our 10th Investor Morning. Weird, feels like the first was last year, but clearly, I guess that's the issue of getting older and it's time passing. My name is Ian Robertson.
I'm the Chief Executive Officer of Algonquin Power and Utilities Corp. Joining me on the stage for at least the first session is Chris Jarrett, one of my co founders of Algonquin Pioneer and Utilities Corp 30 years ago this year, who serves as our Vice Chair and David Bronycheski, who's been here for half, almost of Algonquin's existence and serves as our Chief Executive Officer. For the agenda for the next, I'll say, 2.5 or so hours, we've got kind of 3 segments for you. Firstly, Chris, David and myself, we're going to give you some thoughts on strategy, some financial insights. We're going to take a break.
And then we're going to come back and have 2 panels, 1 on our renewable energy business, which is going to be comprised of Jeff Norman and Brenda Marshall. And our regulated services business is going to be comprised of Johnny, Mary Ellen and Gerald. And let's say perhaps differing a little bit from previous years, we're going to get the panels hosted by our Chief Legal Officer, Jen Tindale, whose role is going to be to ask a few hopefully provocative questions to get some thoughts out of the panelists and maybe kind of get the creative juices going because as always, we'd like this to be as interactive as we can. I mean, the good news is that, I'll say it's a relatively small group, but we can certainly either pause for questions if you have them on the way through or there will be a formal opportunity for questions and answers at the end of each one of the panels, including the one that Chris and David and myself will be on this morning. If you want to put up your hand in the old fashioned way and I know this would be foreign to all the millennials in the crowd, you can actually ask the question verbally.
Or if you're more comfortable, we have this Slido app, which you see on the screen. So feel free to pull out your phones and comprise questions. Consistent with previous years and actually consistent with the way we do things at Algonquin, we start every meeting where there's more than 5 of us in the room with a pause for safety. And we call on somebody generally at random to give a vignette of safety, 30 seconds or so in terms of how safety has kind of influenced their life at home or at work. And the real purpose of it, of course, is to bring safety to front of mind and recognizing that it comes first in any other discussion around our business.
But today, I'm actually going to co op our safety moment to kind of give you a bit of a review of our safety stats for 2019. Safety is one of those things, so think of it as an objective that you can actually never achieve. And in fact, it's a process and a commitment that you can just never left never let up on. We are pleased that in our case, 2019 continues to demonstrate that people recognize and maybe are even adopting the philosophy we espouse, which is that every accident or every incident is actually preventable. And there is no such thing as one that through forethought and good planning that we can't prevent.
In 2018 to 2019, our record of incident rate, you can see on the screen, 2 things. 1 is, it's a year over year improvement and that's the way it obviously continues should be. But we are demonstrating performance, which is better than our industry peers. But I think on the more serious lost time incident rate, not only again are we better than our peers and better than last year, but we are below something called world class standards. And that's the way it should be.
And so we're, I'll say, proud of it and perhaps more proud of everybody who works for us who recognizes that safety just comes out to go to the first. Before we spend time looking forward in terms of what the next, I'll say, 5 years has in store, I thought it might be worthwhile to spend a couple of minutes on some rearview mirrors, looks into some milestone and achievements of the organization. And the first commentary that I think bears mentioning is the continuing growth of our regulated services business. And you're going to hear a story today about $6,700,000,000 of regulated utility growth that we have identified in a pipeline. And I think that compares favorably to the $5,300,000,000 pipeline of growth that this year this time last year, we were standing on the stage talking about.
But I think if there's a hidden theme to this milestone is that we're immensely proud of this organization's ability to identify and secure attractive M and A opportunities. Between completed and announced M and A activities in the utility space, We've got $1,500,000,000 of transactions printed or closed. And that represents close to 200,000 new customers joining the Liberty family. The second milestone or achievement or point of focus for 2019 was our commitment to building increased presence in the U. S.
With U. S. Investors. And the thesis was that perhaps by gaining greater name recognition in the U. S, we could start to close the apparent valuation gap that exists between utilities here in Canada and those in the U.
S. And specifically, I guess what's particularly, I don't want to say frustrating for us is that given that over 90% of our utility businesses in the U. S, and in fact, until we closed New Brunswick Gas, it was 100% in the U. S, it feels surprising that that value gap exists. But so perhaps to the disappointment of the Canadian investment bankers here today, we completed our 2019 equity raise exclusively in the U.
S. I will say successfully so. It was 3 times oversubscribed. We were pleased to welcome 20 2 new long lonely names to the Algonquin story. And 10% of the $310,000,000 equity offering was dedicated to retail.
And so well, the trading volumes of the Algonquin name on the NYSE more than doubled since the closing of the offering. I got to tell you, only time is going to tell whether this is actually going to serve to close that valuation gap between Canada and the U. S. But I think certainly it's not going to hurt. The 3rd achievement that I wanted to talk about is that we believe that the generation fleet is turning a nice shade of green, if you will.
We commissioned a 10 megawatt solar project in California for our California electric customers. And that together with the 50 megawatts of solar we commissioned a little over a year ago, we're now meeting close to 100% of the summer peak demand for our California customers with our own renewable energy, which I think is an interesting milestone. And then second of all, something you've actually heard from us for a couple of years now, our customer savings plan, this program where we're going to shut down a perfectly good coal plant that I always say my 12 year old daughter says, you can't say perfectly good coal plant because those words can't actually go together. We're shutting 1 down in favor of building 600 megawatts worth of new wind worth $1,000,000,000 but the whole focus of that is to save customers money. Construction started on 2 of the 3 projects with the third one starting early in the New Year.
And lastly, this year, I think we publicly reaffirmed our commitment to sustainability. I think it was all about making it clear that sustainability is not simply something that we do, but in fact something that we are. We published our 2019 Sustainability Report under the SASB framework and we held our 2019 Investor Morning just a month or so ago. And I hope that you were either able to attend in person or had the opportunity to kind of go through the recording on the website. So milestones, achievements, all nice, but really the question is, did we create value for our shareholders as a result of these activities?
The share price certainly continues to perform well, close to or at all time highs. The recent U. S. Equity offering was upsized due to strong interest. And we've now reached the size that recently, I'll say like a week or so ago, we are including the MSCI Canada Index, which obviously had some associated volume in the trading patterns for our stock.
But really the question is how have we done from a total shareholder return perspective. And I think this is one of my favorite charts because I think you can see that almost irrespective of timeframe and irrespective of metric, the Algonquin story has been a compelling one for our shareholders. And so I think the short answer is, do we actually do good? The short answer to that is clearly a solid yes. In terms of thematically, what you're going to hear over the course of today, I thought there was a couple of things that I want to spend a little bit of time on.
First is that the greening and the growing of our regulated services business, I think is going to be pretty clear. The execution on this $6,700,000,000 CapEx plan for our regulated business is actually going to take our utility business to over 72% of the Algonquin proposition over the 5 years. I mentioned earlier, dollars 1,500,000,000 of either announced or completed M and A. You've heard of St. Lawrence Gas, New Brunswick Gas, Belco and most recently New York buying America Water's New York jurisdictional assets.
I think all of that growth is consistent with our commitment to sustainability and in fact gives us an opportunity to capitalize on the tailwinds that the kind of the social commitment to decarbonization is providing for the Algonquin story. The second theme is that the organization I think, is well positioned to take advantage of global growth in renewable energy. Over the next 30 years, dollars 7,000,000,000,000 is going to be invested forecast to be invested in renewable energy. And I think those are going to $4,000,000,000 of the $9,200,000,000 $4,000,000,000 of the $9,200,000,000 committed to regulated and non regulated renewable energy over the coming 5 years. And I think we're now bringing a truly global focus to our commitment to renewable energy with active wind and solar development initiatives in Canada, the United States, in Bermuda, in Spain, in Colombia.
And so we are recognizing that this truly is a global business now. And lastly, I'm sure this will come as music to every analyst years who covers the story. We are focused on simplifying the Algonquin proposition going forward. And that's going to be accomplished from a focus on our primary role as a regulated utility, but one with specific expertise in renewable energy. The contemplated simplifications that you're going to hear and see going forward is a reduction in our structural complexity, including our relationships with Atlantica, a reduction in the dividend income that you're seeing on our income statement through full consolidation of opportunities like Delco And then lastly, management of the HLBV income, which is just a it's a byproduct, if you will, of investment in renewable energy in the U.
S. Through greater self monetization of tax credits as the PTCs phase out over the coming years. So those are the themes that I'm hoping that you're going to pick up and recognize in the conversations from the panel the subsequent panels. So I did want to take a moment and kind of give you kind of 4 sort of thoughts on strategic considerations that this organization faces. The first is about decarbonization.
The basic tenet of decarbonization is a belief that society and its underlying economy should kind of reorganize themselves to conduct their activities in a way that reduces carbon emissions. It's interesting, I always mentioned to Erin Engen that at investor events such as EEI and AGA, we are seeing both an accelerated and more intense interest of investors in our ESG and decarbonization efforts. So I think it's a thing that these are picking up this is picking up steam. But we are confident and comfortable that the Algonquin portfolio both in terms of composition and growth is well aligned with the objectives of decarbonization. As we've mentioned at our sustainability market, 75% of the electric energy that we're going to produce to deliver to our customers is going to be coming from renewable sources.
You also probably read about our commitment to build 2,000 megawatts worth of new renewable energy over the coming 5 years. And perhaps as I'll say a notable just given recent events, With the committed M and A that we have from a utility perspective, our customers are going to be basically basically divided equally between water, gas and electric at the end of our current CapEx plan. So at our sustainability morning, we outlined some of the investment opportunities, which are aligned with this commitment to decarbonization firstly, shutting down that operational coal plant in favor of $1,000,000,000 of new wind, but to save customers $300,000,000 over the life of those assets, which Chauni is going to speak more of when he gets on his panel. And second of all, building a $700,000,000 wind farm in Texas, which is actually supported by power purchase agreements from corporations, investment grade corporations, who are doing this in order to satisfy their own publicly stated ESG objectives. And Brenda is going to talk a little bit about more about Maverick Creek.
And both of those organizations, General Mills and Kimberly Clark, through the acquisition of energy from our Maverick Creek Wind Farm are going to be able to make the affirmative statement that 100% of the electrical energy needs of their respective business units are going to be satisfied by renewable energy. So I think the takeaway is this is a thing not just for individual organizations like us who are in the development game, but also for the constituents, the rest of the constituents of society. And lastly, I don't know if it's a sticky wicket or not, but the role of natural gas and natural gas LDCs in the decarbonization process going forward. We recently committed our own internal strategic review to understand the role that natural gas LDCs can play going forward. And I think we ultimately concluded that the high reliability distribution system, which is embodied in natural gas LDCs is going to have enduring value.
And in fact, can continue to be a contributor to a decarbonization as we think about ultimately getting to the promised land, if you want to think of it that way. Right now in most of our jurisdictions, continued penetration of natural gas is to customers who in the alternative are burning heating oil. And you can imagine the improvement from a decarbonization perspective of switching a customer away from heating oil to natural gas.
Talk a little
bit about climate change. We can have a debate. Well, people can have a debate. We actually don't have one about what's the source of climate change. It actually doesn't matter from our point of view.
We're dealing with the effects of climate change ourselves within our business. And within the regulated services business, we are certainly noticing that the frequency and intensity of storms that are that we're dealing with is increasing and therefore it's affecting our distribution networks. So maintaining reliable service to in the face of those storms is obviously increasing the demands on our operating staff. But perhaps the read through conclusion is that continued investment by this organization in the resilience of our distribution networks in grid modernization is actually going to pay off big time for our customers. And so that's obviously a win win for both of our perspectives.
In terms of how warming temperatures that are associated with climate change, it's clearly increasing the scarcity of water supplies. It's worsening the drought in many areas of the U. S. Through reduced rainfall, obviously higher heat and less snowpack. And even in areas that aren't actually affected by changes in precipitation rates, clearly climate change is causing higher demand through heat, more evaporation and it's putting greater stress on our water supplies.
And clearly, the again, the conclusion from our perspective is that in order to continue to meet the needs of our customers, I'll say notwithstanding our commitment to conservation, there's going to be more investment in sourcing water and in water reuse infrastructure would become increasingly important going forward. I don't think there's any question, well, certainly within the Algonquin team, that renewable energy is a huge element of this of the planet addressing climate change. And we're actually pleased that if you kind of look forward perhaps with respect to solar, lower precipitation rates may increase the radiation levels by less cloud cover. But unfortunately, rising temperatures isn't exactly constructive for the production from the solar facility. So we're going to have to kind of take that as it comes going forward.
Let's talk a little bit about the evolving competitive landscape that we have faced as an organization. I'm sure it doesn't come as a surprise to anybody in this room that an investment in a non regulated infrastructure asset presents a somewhat challenging investment profile. Depreciation, amortization of project debt has the net effect of back end loading, if you will, earnings and cash flows from those sorts of assets. And that's a problem in the public capital markets, which generally pay for what they can see in the near term. On the other hand, private capital appears to be able to take a longer and pass more patient view on the same asset.
And I think that's evidenced by recent transactions where private capital has been chasing hard assets. PSP and Alberta Teachers buying AltaGas Canada Inc. Or CPPIB buying Pattern Energy. I think though the read through conclusion on both of those transactions from our perspective is that there's likely unsurfaced value within our portfolio. And I think that's particularly true for our renewable energy assets, which we've talked about in the past, which I'll call it sort of cash rich earning poor in early years.
And the metrics for these recent transactions have definitely caused us to make sure that we include potential for asset recycling as a consideration as we think about meeting our capital needs going forward for this $9,200,000,000 pipeline of growth. And David is going to talk a little bit more about that in his segment. But before all the investment bankers run from the room to start building a pitch book for us on this, I tell you, we haven't even started our consideration on this, but we recognize that the valuation metrics are pretty compelling. Let's talk a little bit about Atlantica and our non consolidated, I'll call it, international holding company. There's no doubt about it, a non consolidated affiliate is and was or was and continues to be an important part of our international investment strategy.
And we purchased our interest in Atlantica Yield to perform 2 functions. Firstly, the investment in the existing Ay portfolio of assets was made to provide Algonquin with 3 things. First of all, immediate critical mass of international renewable energy assets. 2nd of all, to gain exposure to desired geographies. And the third was to provide reliable dividend income stream that gave us a healthy return on invested capital.
I will say that for all three of these purposes, Ay has performed admirably and we continue to love the investment. The second role that we wanted Ay to perform was that to be a joint investor in new infrastructure assets. And unfortunately, Ay's high cost of capital in the public capital markets in relation to the market value of international infrastructure assets has been a problem. And so consequently, this has caused us to think about and look to alternative partners for fulfilling our international growth aspirations. But and then lastly, perhaps from our vantage point, acknowledge to be outside of the room with respect to the strategic review process being undertaken by Atlantica.
It does appear to be dragging and the outcome is uncertain. But I will mention that in some respects, I guess, we're a little bit indifferent. And the reason being is, I think we feel we can always harvest the value in the Atlantica portfolio of assets through a strategy of minimizing costs and maximizing payout ratio to increase dividends for the benefit of all shareholders. And so there's some thoughts on Atlantica Yield. So now I'd like to spend a couple of minutes kind of setting the stage for the conversation that you're going to hear from our 2 panels.
In terms of our pipeline of growth, we are totally pleased that the pipeline has increased from $7,500,000,000 last year to 9.2 $1,000,000,000 this year. And you're going to hear lots from our panelists today about the individual initiatives that comprise that pipeline. But there's a couple of items I wanted to highlight in addition to the obvious increase in the size of the pipeline. Firstly, the regulated services CapEx of $6,700,000,000 is actually going to outpace the growth in our renewable energy business. And I think, as I mentioned earlier, this is going to result with close to more than 72% of our business actually coming from the renewable from the regulated services side.
And the second thing that the CAGR in our business of more than 10% is going to result in an organization that will have more than $17,000,000,000 in assets at the end of the execution of that. I will say, obviously, without a word of a lie, then Chris and I never kind of thought about this as being the objective we had in mind 30 years ago when we started this organization. I started my talk today with a commentary about this idea of simplifying our business. Fundamentally, at our heart, we see Algonquin as, I'll say, a regulated, I'm even going to say U. S.
Utility business. But candidly, a differentiated one whose entrepreneurial spirit, our expertise in the development and deployment of renewable energy, I think for sure creates value and it definitely aligns our business with our commitment to sustainability. As we look forward to the execution over the coming 5 years on this $9,200,000,000 CapEx plan, It's pretty clear that the complexion of this organization is going to be shifting. As I mentioned, close to 3 quarters of our business is going to come from the regulated services business. And actually, as you can see on the slide, we're going to be serving almost a 1000000 customers.
And so therefore, those of you who sort of recall and have our history, the march to a million milestone is finally in sight for the organization. And second of all, over the coming years, the story is and structure are going to be simplified. And they're going to be simplified through, as I mentioned earlier, commitment to reduce structural complexity, including managing the complexity of our relationships with Atlantica. Greater monetization, self monetization of tax benefits over the phase of period of PTCs is ultimately going to cause HOVV income to exit our income statement as those all roll off. And lastly, growth in, I'm going to use the word simple regulated business.
I'm sure Johnny and the rest of his team would incredibly insulted by the use of the word simple. But in terms of that's going to be part is going to be increasingly dominating the Algonquin story going forward. And lastly, I think we want everything that we do to kind of be viewed through a lens of our commitment to sustainability. And so we believe our why, the reason everybody and our team gets up and comes to work every day, this idea of sustaining energy and water for life is a concept that aligns our employees, it aligns our customers and ultimately it aligns our investors. So before I turn things over to Chris to walk through the M and A landscape and talk about a couple of the recent acquisitions.
I did want to give you a couple of thoughts on succession for our company since none of us, and I know it doesn't appear this way, are getting on the stage here, getting any younger. I will say that this year was a milestone birthday for me, 60. David wouldn't say it, but spoiler, David has his 60th birthday as well. But I hope that everyone concludes and recognizes. It's candidly through the efforts of the entire executive team that this organization with the CapEx in front of it, with the capacity and ability to continue to simplify the story by growing our regulated services business, both organically and through M and A.
I think it's I hope it's clear that over the past year, the organization has made significant progress in building a strong team comprised of incredibly talented individuals, Jeff and Johnny and Jen and George and David and Mary Ellen and our newest eTeam member, Kirsten Olson. Please avail yourself an opportunity to speak to Kirsten at the break. These individuals, supported by the Board's ongoing commitment to recruit and source new talent for our organization has ensured that there are strong leadership candidates ready to seamlessly step into Chris's and David and my shoes as the time for that is fast approaching. So with that, I'm going to turn things over to Chris. Chris?
Thanks, Ian. Ian mentioned that 30 years ago today, he didn't see where we would be today. I actually did. I remember it pretty clearly anyways. So I'm here to talk about the M and A landscape.
And we've historically seen, and everybody who follows our company knows that it's been a huge part of our growth. But it's a fact. There are some changes that are occurring in it. There are just fewer public companies that are in the market. Acquires are paying a higher premium and there are some new market participants, primarily financial market participants.
One of the tailwinds we do see is that there's an asset recycling theme among many of our peers. And so what that's doing and you can see from some of our acquisitions, recent ones, that it is creating opportunities. These are from some of our peers as well as some of the infrastructure funds, which are reaching their end of their lives. Notwithstanding this changing landscape and the perception of these and some of the headwinds, we have demonstrated a lot of success. Ian mentioned we recently closed St.
Lawrence Gas. We closed New Brunswick Gas. And most recently, we've announced 2 acquisitions, Bellco, which is the electric utility in Bermuda. It's currently before the regulator seeking approval. And as well, the one we just announced recently, the American Water assets in New York.
We probably don't do a very good job. I was just talking about some of our tuck in acquisitions that we do. And some of these are not inconsequential in size. For example, the City of Bolivar is a $25,000,000 acquisition and 10,000 water customers. So we've seen lots of growth in the M and A future.
We continue to believe that the our historic success will continue in the future. And what's worked for in the past is actually very relevant in the current market. In fact, these changes in the M and A landscape that I mentioned are kind of actually aligning completely with the strategy that we've implemented for years. And I think it starts with an entrepreneurial culture. We take pride in being entrepreneurs.
We've founded our roots as developers of infrastructure assets and we now have adopted a very, very strong customer focus. And we believe that this entrepreneurial culture applies not only to the organic how we surface organic growth, but it also applies to how we surface source M and A opportunities. We do have a competitive cost of capital and albeit it might not be the lowest out there, it's supplemented significantly by some powerful non financial metrics, which we bring to M and A. And I think these things are becoming more and more increasingly important in M and A. For example, we are respected operators and our local approach is valued and appreciated by customers, by regulators and even by employees.
We have a strong regulatory experience, which is due to our diverse asset base. And we have a proven track record of closing transactions, including some of those with more complex regulatory jurisdictions. I just want to talk about some of the 2 most recent acquisitions that we've announced. The first is the Bermuda Electric, which we call Bellco acquisition. Starting with Bermuda, it's a very highly rated jurisdiction.
It's one of the highest per capita incomes in the world. It's a very stable jurisdiction, strongly supported by S and P rating outlook. It pays in U. S. Currencies and it has an attractive modern updated regulatory framework.
From a purely financial perspective, we acquired this at a very attractive metric of 1.3x current rate base. And what this provides our company is about a 2% accretion to earnings per share and despite all despite being a modest $500,000,000 size. When you compare that to the size of the rest of the company, we're actually very happy with that. Couple of features about Bermuda that are worth mentioning. One, it's got significant growth in the rate base over the coming years and it kind of comes from 3 sources.
The existing assets are being upgraded. There is a pretty comprehensive grid modernization program in effect. As well, there is a move to renewable energy. And we will talk a little bit in that in one of the later panels. The other feature that we like about this opportunity is it's completely aligned with our committed strategy for decarbonization.
And we just believe that there will be a huge move to renewable energy in the country of Bermuda, as well as battery storage for the incoming renewable energy as well as their current generation fleet. And it's important to note that this greening of their fleet is completely aligned with the government's objectives. That's a government driven initiative and we're there to help them. It's also important that notwithstanding all this capital that's going in, it's being done on a way that saves customers money in exactly the same way we did down with our Empire acquisition. And as I mentioned, we're entrepreneurs, we're serial entrepreneurs and just can't stop ourselves from trying to find opportunities wherever we go.
And there are several opportunities in Bermuda. We want to be participants in the electric vehicle space in Bermuda. And if ever there was a space a place made for electric vehicles, it's Bermuda. It's 22.5 Square Miles and it kind of makes range anxiety a thing of the past there. Being 22.5 Square Miles, it has a couple of issues.
One of them is they have a potable water issue, which could impact their growth in the future. And water infrastructure is a core competency of ours and would love to be part of that part of the solution for them. Anyway, but Bermuda is just a good example of how these non financial metrics are strategic for us in being successful in M and A. The next one I want to talk about is the American Water New York acquisition. This is a pure play regulated water and speaking to a couple of people at breakfast, they mentioned how rare that is.
So I'm probably telling you something you already know that pure play sizable water acquisitions are very rare. This one with 125,000 customers, regulated customers fits into that. It's a meaningful expansion of our New York regulatory utilities. And we believe that we are successful in this acquisition because of some of these non core or non financial metrics. I mentioned we're proven operators of water utilities and that was that we believe that was a benefit for us.
Our batting average of 1,000 being able to successfully attain regulatory approval, we believe was a factor. And we acknowledge that American Water has had some issues with this utility over the years. But we're pretty confident that our core competencies are being a respected operator, adopting a local philosophy and being a great place to work will make us successful. From a financial perspective, we were able to acquire this utility at a rate base of between 1.31.5 depending on whether you include the tax attributes. And for a water utility, that's very attractive.
From a financial perspective, it's about 1% accretive to the rest of the company. And similar to TUBER NUTA, given the size of this acquisition, we're very happy with that. And while 1% accretion might not be eye popping from a pure numbers basis, we believe that these are high quality regulated earnings, which from a utility sector with absolutely no potential disruptors. And we think they're looked at very favorably by the all important rating agencies. Similar to Bermuda, we have entrepreneurial ideas for bringing renewable energy to the operations and this is something we've done at some of our other water utilities.
I also want to talk to you about some of the committed future growth initiatives. And probably 12 months ago, we would refer to these as contemplated initiatives. But we're actually seeing real progress in them and so we've changed the name to Committed. The first one I want to talk about is energy storage. It's an area where we currently have real opportunities and we have an expectation of opportunities for the next 5 years or longer.
And this is all based on the falling price of batteries and the valuable addition batteries can bring to renewable energy. It's a here and now for us. We've got about 15 projects underway in the existing portfolio, which total over $50,000,000 of capital. And it's also probably worth noting that the Bermuda acquisition, Bellco, it came it comes with a brand new 10 Megawatt battery storage project. And if you think about all the renewable energy that's going to be going into Bermuda, could be going in, then we just see lots more opportunities for battery storage.
A couple of the other ones we're going to talk about is related to natural gas and water infrastructure. Starting with natural gas, Ian mentioned that we completed a pretty comprehensive internal analysis just to figure out in our own minds and get comfortable with how natural gas fits into the theme of a decarbonized world. And the punch line for the whole exercise was that we believe that natural gas LDCs will be embedded into the energy supply for most North American markets. And we believe they play an important role in the decarbonization process and will for decades to come. People generally acknowledge that there's economic benefits associated with natural gas, but there's also numerous other benefits.
For example, reliability of service and that's predominantly because of buried infrastructure, customer appreciation of having diversification of energy sources and the ability to provide high quality heat for primarily industrial customers. What we see as the big initiative for us in the natural gas space is the something called renewable natural gas or RNG. And RNG is a substitute for of natural gas, which is sourced from carbon neutral sources such as landfill gas and anaerobic digestion. Other thing that we're looking at is and this is early days, but the implementation of hydrogen into natural gas. Existing infrastructure can usually handle up to 15% hydrogen with that in itself is a significant decarbonization opportunity, which is aligned with our strategy.
If you think about it, we don't own the commodity in our natural gas utilities. And if we're able to participate in providing 15% of the fuel, that is a massive growth opportunity for us. Last one I want to talk about is water infrastructure. And we believe that is a big area for growth in the globe as well as in North America. Right today, there's 300,000,000 people on the planet who drink desalinated water and that number is growing at well over 10% a year.
Water infrastructure, it's a core competency of ours. And in addition to our existing 300,000 customers in the water and wastewater sector, we also have exposure to desalination plants and water transmission projects through our investment in Atlantica portfolio.
And with that, I'm going
to turn it over to David to talk about some financing considerations. Great.
Thanks, Chris. Good morning, everybody. It's great to see people here for our 10th Annual Investor Day. Good to see familiar faces and always good to see new faces here as well. So I'd like to talk about 4 things primarily.
First of
all, Ian touched on the capital plan that we have. So I'd like to touch on the visibility of that plan. And I like to say, I think we've got one of the most visible capital plans in our space. Then I'd just like to talk about how we go about financing that capital plan, how we manage our credit metrics, what our balance sheet looks like. I'll then touch a bit on our the U.
S. Renewables incentives. We get a lot of questions on that from investors from time to time. So I'm going to try to demystify, if I can, a little bit of that and see how that rolls through our income statement. And then finally, just touch on our EPS growth and dividend growth over the next 5 years and what we see for that.
So here is our $9,200,000,000 investment program over the next 5 years. So a couple of things I'd like to highlight on this plan. It's certainly up from the $7,500,000,000 plan that we had last year, and that's after spending about $1,000,000,000 this year. So a nice improvement in size. The other thing I'd like to point out is the mix again.
So similar to last year and maybe not too surprising, about 70% of the capital that we're investing over the next 5 years is actually going to be in our regulated services business, with 30% being in the renewable energy business. The other thing on this slide, we got a little bit more information this year than last year. People wanted us to, I'll say, handicap that capital plan and how certain do we see the capital plan over the next 5 years. And so what we've done is we've provided our view as to the certainty with respect to the various investments that are taking place in that capital plan. So the darkest shades, either the blue on the renewable side or the darkest green on the renewable side or the darkest blue on the regulated services side, are those investments that we believe are highly certain.
And actually, as you'll hear in the case of renewable energy, these are things that are actually in construction. So you can't get more certain than that. And then obviously, the lightest that still falls into the more likely than not category, but they tend to be further out in time is the lightest chase that you'll see there. And you'll hear more about that going forward. So all in all, we do believe that this is a high quality capital program for the next 5 years.
And even it was the 10th Investor Day that we've had. And just for old times' sake, I look back to the very first Investor Day that we put on 10 years ago. Back then, we were talking about one acquisition of $100,000,000 and a 5 year capital plan of about $300,000,000 So we've, I think, really come a long way with that plan. So how do we go about financing it? Well, our secret all along has been it's not that much of a secret.
It's really to just please don't look at it. It's continually expanding our sources of capital whereas right from the time back 10 years ago, we were announcing we were setting up separate balance sheets for our renewables business, utility business. We set up our separate bond platforms in the U. S, bonds for our utility business up here in Canada, our public bonds for our renewable energy business. And then we introduced tax equity when we first invested in that and we did our best at the time to educate the Canadian market.
We introduced tax equity and the whole concept of HOBV income to the Canadian market for the first time back when we purchased 3 windfirms from Damesa. Last year, we did the subordinated notes. You'll see the place of that place in our capital structure. This year, the ATM program and as Ian said, a very successful marketed U. S.
Equity offering. And then as we look forward to next year, one of the things we're certainly looking at is introducing U. S. Mandatory convertible debt as a security that we can issue. You get 100 percent equity credit for that.
It ultimately converts to equity. And so that's certainly something that we're looking at filling in. And then finally, asset recycling. I think we're at the point now where we see valuations have risen to the point where, I mean, it makes it really hard to look away. The thing is we've built scale in the Renewable Services business.
And so because of that, I'll say previously as we were trying to build scale, we're always reluctant to see how do you shrink your way to greatness. And so we're thinking with the plan that we have in front of you today to add yet another $2,500,000,000 And as Jeff will say, doubling the size pretty much of that end of our business that now is really the time to look at recycling some of that capital. So how do we manage our credit metrics? Well, we're highly committed to our BBB flat credit metrics going back, even take this further back, but we've really had a strong focus on this. As I like to point out, kind of for us, the boundary line between BBB Flat and BBB Low is around that 14% FFO to debt mark.
And we always like to have a little bit of a buffer in our credit metrics so that we do maintain that BBB profile. And you can see here, even as we went to acquire Empire, we did stretch our balance sheet in order to make that acquisition. It was a really worthwhile acquisition, a accretive for us. Certainly, we're stretching, but we didn't break our balance sheet. Unlike there are, I think, examples out there where people have broken their balance sheet to reach to do something.
We never did that. And then we quickly look to delever. So we're always mindful of our credit metrics. And so what does that turn into when we think of our balance sheet? We've got about 48% equity thickness on our balance sheet today.
Our long term debt, those 2 debt platforms I talked about, one thing I will point out that on the renewable energy business, our senior unsecured bond platform, we really do believe is a strategic advantage for us. Most people in the sector, they use individual project finance. And so as we look at what that landscape is going to look like over the next 5 years, it's going to get harder and harder to find those long term power purchase agreements that you could then take to a Lifeco and get that 20 year amortizing loan. And so having a platform that's supported by right now 40 individual generating stations, pretty soon it's going to be 50 generating stations. You've got that diversification that supports that bond platform and that's a really powerful financing tool in the toolbox going forward.
The other thing, as I mentioned, too, we're filling in the mid level of our capital stack with what I call their hybrid securities. Up here in Canada, we've issued preferred shares. So they're there. What we've since found since we're now dual listed on the NYSE is we have the ability to issue subordinated notes in the U. S.
And you get in both of these cases, you get a 50% equity credit for that. And so that starts to fill in that mid level slice of the capital stack. We can actually take that up to about 15% of our total capital stack. So that translates into some $700,000,000 to $900,000,000 of more securities that could be issued into there. So again, lots of flexibility for that.
So how are we going to finance this $9,200,000,000 capital plan over the next 5 years? Well, certainly, starting with the uses. Again, you can see, 3 quarters of it is certainly in the regulated services business. And the other thing is almost 80% would be, in our view, capital that's highly certain of being invested over the next 5 years. As you look at how we finance that plant, it should be a very familiar pie chart to people.
Maybe the proportions are slightly different, but still it's underpinned in the first instance by a large chunk coming from our free cash flow. We don't pay out all of our cash as a dividend, so we retain a significant amount. In this case, you can see $2,300,000,000 over the next 5 years to reinvest in that. The debt program we've talked about and then the 3 components of our, what we call, the equity third of the pie. One is the our DRIP program and the ATM program that we introduced, where we've got about 25% of our shareholders enrolled in the DRIP.
We're relatively modest users of the ATM program, but we do like to have that flexibility there. Tax equity, because of all the renewables that we're building out, we're going to be tapping into them for a good chunk of that. Not all of it because as you'll see in a second, we're going to be self monetizing some of that ourselves as well. And then finally, that last darkest wedge that you see there in the green, last year, we would have labeled that just as common equity. But this year, to fill that in, we're looking at asset recycling, those mandatory converts that I talked about.
And yes, we'll probably be issuing some common equity over the next 5 years as well in order to round out that financing plan. So let's talk a little bit now about these U. S. Renewables incentives. And so down in the U.
S, they have incentives for renewable energy. It comes in the form of production tax credits, primarily for wind projects, and they have investment tax credits that come for solar projects. And we've used both of those Because we're growing and investing so much, we can't monetize all of them ourselves. So we do partner with tax equity folks. And what's a tax equity partner other than just a really highly profitable company in the U.
S. That sees at least 10 years of taxability horizon before them. And so they're looking to see what they can do to minimize that, What fits that criteria more than banks? So banks pick up a good chunk of that tax equity market, and we've got good relationships with all of the major players in that. So our access to the tax equity market is quite strong even after tax reform, which has perhaps shrunk the market somewhat.
So now let's talk a bit about how these tax incentives work from an income statement point of view. But there's really 2 components. The first component that you can see here, this is the PTCs, the production tax credits, which is a direct tax credit that's based on per megawatt hour of production. And so you can see here, not surprising, this is happens to be our Sugar Creek wind farm that's under development, So we've it's a relatively steady profile, as you would expect, over that 10 year period. It does creep up slightly over time because those production tax credits are inflation adjusted.
But other than that, fairly straight profile for that over the 10 years. Then you overlay onto that. It's not all she wrote, there's the tax depreciation that comes. And in the U. S, they have an accelerated tax depreciation regime that then front end loads that tax depreciation for the project.
And so for a project that we would be self monetizing ourselves, that actually is the tax profile that you would see going through the income statement. And it would be seen there through your tax provision. Now for us, a portion is obviously monetized by somebody else on our behalf, the banks. And so what that does is banks will take that profile, they'll do a net present value of that and they'll cut you a check on day 1 for it. And so then the question then is how will that now roll through your income statement?
And so for us, over the next 5 years, as our net income continues to rise. You'll see there our build out through the end of 2020 and into 2021 of quite a few projects. And so the HOBV income will go up to about 20% of our overall total net income and then be fairly steady as a percent of net income after that. And so this gets to what Ian said is we're trying our best to modulate the amount of HOBV income that's kind of rolling through our income statement and our ability to do that really rests with the fact that we're now able to start monetizing these tax benefits ourselves. We do have a question too from time to time.
Okay. What happens at the end of 10 years? And am I to expect a big drop off in the earnings from these projects that you're building off. And what we like to say is if you take a look at the forward energy curve, and this happens to be the Wood Mackenzie forward curve there, they're all upward sloping to the right. So for the 1st 10 years of the we call it the initial contracted period, like we've entered into a fixed price for the energy on that project.
But look what's happening in the industry itself. The energy over that period of time is gradually rising. And that actually makes sense because energy prices can't stay at this level forever because then no new generation would ever get built because you I mean even to build a new wind project and it's the cheapest form of generation today, you do need about $40 or $45 a megawatt hour. So it's logical to assume as these PTCs and incentives are phased out that we will start to see the energy curve rise. So then at the end of that initial contracted period, certainly, our expectation is that the rising cost of energy will have made up for some, if not all, of the HLBV income that is falling off at that period of time.
So as it comes to self monetizing some of these tax attributes, you can see the effects that it shows in our effective tax rate is, of course, through the income statement. Certainly, solar IDCs, now those are monetized, I think, fairly aggressively in the 1st couple of years of a project. And so it does manage to give us the benefit of a fairly attractive effective tax rate through 2020, 2021. And then we'll start to monetize some wind tax attributes, the PTCs and the makers, ultimately leveling off at around that 14% to 16%. And just a footnote that this does exclude our dividend income because as everybody knows, the dividend income is already tax paid.
And so when it flows into our income statement, there's actually no tax that needs to be accrued on those dividends. So what does our EPS look like for the next 5 years? Well, if you go back to 2018, 2018 was the 1st year of the U. S. Tax reform where there was a fairly dramatic lowering of the corporate tax rate.
And as a result of that, there was a one time effect of tax reform that rolled through our income statement. So if you just set that aside and just kind of look at our underlying base business, you can see from 2018 to 2019, a 9% growth in our EPS. As you look now from 2019 to 2020, we're expecting a 10% increase in the dividend into 2020. And the appendix in the materials that we handed out actually has the EPS expectations for our business laid out on a quarterly basis. And then over the next 5 years, how does it look?
We build out $9,200,000,000 I think you're saying, I hope that does good things, that it does. We've continued to enjoy a 9%. If we do all those things, that gets us to the 9% on a CAGR for our EPS over that period of time. And I think it's fair to say that we would fully expect over the next 5 years that we would actually find new things to do, to build, to buy and invest in over that period of time. And if we're able to do that, I think our expectation is we could probably get that growth in the EPS up to the 11% mark.
So now when it comes to the dividend, what can we expect? Well, we've publicly committed to an increase of the dividend, 10% per year through to 2021. There's no reason for us to second guess that, and we're going to certainly have that 10% increase this year. We're going to have it going into 2020 and then one more time going into 2021. Now beyond that, I think the question our Board is asking themselves is the growth in the EPS certainly will support continue to grow the dividend by 10%.
But just given the amount of capital that's needing to be invested, I think the Board rightly is saying to themselves is that the value maximizing proposition to continue increasing the dividend? Or should we, like a number of U. S. Utilities, look to have a dividend payout ratio slightly lower than what we have today. And so that's the sort of range that you see before you there.
So I think the top part of this line is if we continue with the payout ratio that we basically have today. And I think there's a reasonable range within which I think the Board could consider to have that dividend come in at. And so with that, I think I'll now pass it over to Ian.
Perfect. Thanks, David. So, as promised, opportunity for insightful, probing, challenging questions. Good with none. Robert Hope.
Just wait for the microphone. We're going
to have
somebody move the mic because we do have a worldwide audience today.
Well, at least my mom's watching. So
it's Robert.
Robert, I got it right here. Hi, Rob Hope, Scotiabank. I was hoping you could provide some additional color on your thoughts about simplifying the business. Sure. I would say specifically, it does seem like Atlantica as a JV would be here to stay, but we haven't heard anything about Aegis.
That's an interesting thought. And you know that candidly Aegis is its role in life is to be a development team. And so I think it has a participation in the early years of structuring a project. But ultimately, after an opportunity gets built, a transmission line in Peru, a wind farm in Uruguay, that project needs to be needs to sit somewhere for the next 25 years. And so if it's not Asia or if it's not Atlantica and it's done through another private partnership, in some respects, I think we're a little bit indifferent.
So and so maybe where I'm I'll say I'm going with your question is that Aegis plays such a limited timeframe role. In summary, I think in Somerset, we think of it not dissimilar to some of the partnerships that we create for some of our domestic wind projects. You know that construction financing that is held on balance sheet is obviously a challenge from a rating agency perspective because there is no FFO associated with it, but there is 100% debt. So we have found it effective to take in partners. So for instance, in the case of Maverick Creek, res is our partner in that, meaning that that construction financing is does not get consolidated during the construction period.
So I think we would think of AAGES in the same way, but perhaps with an international backdrop to it, Rob. I don't know if that's kind of giving you the sense for where we're going with AAGES. Yes, that makes sense. But then just in broader kind of strokes about the simplification of the business, will you still look to hold JV assets and on off balance sheet financing for some of the renewable stuff? I think in general, the simplification commitment means that the that unless there's a compelling reason and international might bring a compelling reason, obviously, country risk, currency risk, those might be things where, but with sort of transparency on holding them, that might there might be prudent to hold, I'll say, off balance sheet.
But in general, I think the commitment is to simplify the balance sheet by as much consolidation as we possibly can. It just gives greater look through for guys like yourself trying to figure out kind of what are the various elements of the income statement.
The one thing I will point out is certainly as people have seen the one of the paradigms that we have certainly is standard into JVs for a number of projects during the construction period. And I think it would be our intention to continue to look to those arrangements. But I think as Ian said, those are very limited in time just really to the construction period.
Right. Thank you.
Sean? Thanks, Ram. Sean Stewart from T.
E. Capital Recycling. Wondering if you can give us some context around the
types of assets you're thinking about and potential scale. Well, let me start by saying early days. I'll tell you, we look at the transaction multiples of things like CPP and Pattern and we look at PSP and ACI. I think so maybe I what I can say is intuitively as we think about growing our regulated services business, it doesn't feel like selling any recycling capital in a regulated services business feels like that feels antithetical. But how exactly we would even start to think about our renewable energy business, I'd say it's pretty early days.
I will mention what is just an interesting observation. We think there's massive fundamental value in that bond platform that exists within our renewable energy business. That idea of having an investment grade bond platform to support both shorter term PPAs, hedge agreements for incredibly valuable. And we have seen other of the participants in the renewable energy business because of the struggle to find long term investment grade 25 year PPAs, struggling to find out how to kind of crack that nut. And I think we're super pleased that that's a very valuable and powerful tool.
So I don't know if that factors into the thinking.
So just to pick up on that, I mean, I think what that means is, like, there's 2 ways you could do asset recycling. I mean, within that portfolio, you can go in and you can pull out an individual asset and you can sell that individual asset out. The other way to do it is you can take a vertical slice, say 10%, 5%, however much of that whole portfolio of that we have within the renewable energy business. That could be another way. Again, these are all the things that we're thinking about.
So we're certainly locked into one idea of what asset recycling looks like.
Arguably, we haven't even started. So it's hard to be locked in. All right, Sean. Doctor. Jarvi.
Thanks. Mark Jarvi, CIBC. While we're on the topic of asset recycling, just curious, I mean, valuations have been robust for a while now. How much of this contemplation comes about from the fact that maybe Atlantica doesn't have the cost of capital you want as well as from simplification? And VXL BB and something like that come into thinking about what type of assets you think about neuropsychic capital?
Well, there's no doubt about it. Dollars 9,200,000,000 causes us to think about asset recycling. To finance that going forward, I think we need to be mindful and on all opportunities. So asset recycling is but one consideration, those mandatory converts of which David spoke to. It's not an unfair observation.
It's even an accusation that Atlantica's cost of capital is challenged. And so we think about we really would like to have a non impecunious partner for some for international growth going forward. But I'm not sure that that necessarily drives our thinking about asset recycling. I guess maybe the phenomenon of private capital chasing hard assets, like you can't look away from that right now. I mean that's just and maybe arguably we shouldn't look away from it.
I think that's what you're hearing from the management team, but early days, early days.
And then maybe, Dave, you can comment anything in terms of earnings profile that informs how you guys think about which assets?
Well, for sure, I think there's an opportunity and we have mentioned this and so I didn't mean to David. For sure, we have said that there is a cost of assets in our portfolio that are long on cash and maybe short on earnings. And to the extent that is a regulated utility business, we are kind of measured from an earnings perspective. And that there are parties out there who value the cash, those would be natural assets to be thinking about. UB could be surfacing value on an accretive, accretive basis for the party who's buying it, but also for us given the asymmetry and valuation metrics.
So for sure, that we think about things that aren't being fully valued in our portfolio.
And then you brought up this concept of other international partners. Maybe you can just kind of give us some color in terms of how far out that is? Is that something we could see happen in the next year or so? And when you think about a partner, what is it that you look for? You are calling it a partner and not just a financial
player here.
Yes.
So first of all, again, early stage. But second of all, I don't think it comes as maybe a surprise, maybe even disappointment to everybody in this room that Atlantica's strategic review process hasn't borne fruit before now. It just feels weird. So but that's not going to stop obviously. We have aspirations that need to be satisfied.
And so but you're absolutely right. This isn't just about, oh, could we just find somebody who's got a low cost of capital, clearly one of the objectives or somebody who has a continued appetite for continued investment. That would be one of them. Maybe a third who has a global reach and a global perspective on the value of these assets, what a transmission line in Peru is worth. And so I maybe I've just kind of given you a description of the people.
It's not just simply somebody who that it's we really would be creating a partnership relationship to continue to explore these things going forward. Obviously, we want that partner to be competitive with us in the businesses that we're in. And so as we've thought about it, there are obviously lots of names that bubble to the top of the list. So, Nelson, you had a thought?
It's Nelson Ng from RBC Capital Markets. Could you just give a bit more color on the American Water or the New York Water acquisition in terms of if you've had any initial feedback from various stakeholders? Yes. Like, obviously, there's, I guess, some discussion of condemnation or getting the public to acquire the assets. And I know when you bought the Mountain Water acquisition, there was
a lot of Park Water. Yes, Park Water, which include the Montana. Is that what you're speaking of?
Yes, that's right.
Yes, there was a lot of pushback. So just seeing if you're hearing or seeing the same kind of opposition.
Yes. Let me give you here's the color behind the problem that I'll say the customers of American Water suffer from. There is a very disproportionate taxation environment that is being imposed on customers of private investor owned water, natural gas and electric utilities in the state of New York. And what the result is, is that a customer of American Water, between a third 60 percent of your bill can be going to special use franchise taxes to local districts or municipalities. And you can imagine like, oh, that's upsetting from a customer's perspective, because the bills are very high.
And in fact, if across the street was a municipalized customer, the thought would be, oh, gosh, look at their bills are so much lower. So this must be all the fault of the regulated utility. And American Water recognized that. And last year, they actually had a bill in front of the New York State Congress to fix, if you want to use that word, that disproportionate taxation authority. I've spoken to a number of the stakeholders, particularly ones who are advocates for kind of well, this condemnation will solve it all.
The short answer, it doesn't the taxes don't go away because it happens to be owned by a municipal system. This is going to be spread over, spread over, I'll say, they'll come in different forms in different bills. And so I think we're optimistic. Is that while the bill died in the House in the Senate actually in New York that there is a move to actually fix this problem. So let me start by saying this, I think there's a structural fix to the problem that has been causing condemnation.
I kind of talk of condemnation, which I actually think is misguided. I think that the condemnation is not going to be the solution to this problem. The solution to the problem is fixing the taxes. And we've had a constructive conversation with a couple of the senators who have been, I'll say, both advocates and maybe protagonists in the story with American Water. We've spoken to American Water employees.
I'm going to meet with the head of the district, Nassau County District on Monday, we are reaching out to have a conversation. And candidly, I actually think they've been fairly measured in kind of looking at our view coming in. As Chris had mentioned, I think the solution to American Water, unfortunately, I'm absolutely convinced that and you've covered our story for a long time. I think if we have a core competencies about going in and building relationships with the communities we serve in terms of fixing, I'll say, challenged relationships, National Grid's relationship in New Hampshire, as you can imagine, was a challenged one. I actually just don't see condemnation as, let's say, the solution for it.
But if at the end of the day it is, you know, it's just an irritant because we'll have gone through all this work. We'll get to our bunny all over ourselves as salve for that irritant. I know that's a weird mental image. But that's kind of the way the condemnation process works. Sorry.
Oh, Rupert?
Thank you. Rupert Merer, National Bank. Looking at your earnings growth forecast in the next 5 years, I know a key assumption is your CapEx plan. Can you talk about the other assumptions behind those forecasts, maybe looking at your ROE or the direction of bond yields and power prices? Yes.
So I mean
as far as power prices over the next 5 years, that doesn't enter into the too much because we're largely contracted. We've got about 15% of our energy that might be exposed to that. So that's not a particularly big consideration. You'll hear from our utilities folks today about our ability to actually earn our regulatory return. And so I think that's a key part of the assumption going forward.
And obviously, as far as the income goes, I mean, we're trying to modulate that HOBV income, kind of keep it at a constant percentage of our net income over that. So that won't be the biggest driver. I think the biggest driver is really going to be just chopping all the wood and getting all that work done.
So the view is that the ROE should stay fairly constant from where we are today?
Well, without giving you a spoiler for Gerald's talk, he's going to give you a specific CHOP Talk on ROEs and where we think they're going, going forward. All
right, perfect. And then on the HLBV, you've got a couple of contracts that will roll off, I think, in 2023. You'll backfill that with additional growth. Is that up to you?
Well, I think that's the net effect. There is still some we're focused on maximizing the value of those incentives that are being provided by the U. S. Treasury right now. But those are going to be rolling off themselves.
As you know, 800 becomes 80 becomes 60 becomes 40 going forward. And so I think in any event, I'll say 10 years from now, I guess, arguably 13 years from now, we won't have any more HLBV in our system at all. And you'll see increasingly less of it as we self monetize our own tax credits going forward because it doesn't flow in as HLBV, it just flows into the tax expense. It is one
of the reasons why there's a partial leveling up because I think it was 2012 or 2013 we actually bought, maybe it was 2012, the Ganesa Wind projects, I believe. And so those PTCs are coming near the end. And so they'll be kind of rolling off at the same time other projects are coming on. And so that kind of keeps that HLBV income fairly flat through that period. Great.
Thank you. Well,
because I don't for the West Coast.
He came all the way I know.
He came all the way from Vancouver, you get to ask a question. It's just the way we are. I would say get a millennial over here to help you with the microphone, but for God's sake, you are millennials.
Thank you. David from Raymond James. Just a quick question, I guess, on the topic of building renewables in your regulated rate base. How you see those opportunities evolving when
you think you'll get clarity on
them, I guess, as the customer savings plan gets completed?
Well, again, without being a spoiler for 1 of the next panels, we have 2 programs underway, something we call C100, California 100%, which is which you're going to hear more from Johnny and his team and something we've now called B100 or Bermuda 100%. I'll say the good news is there is regulatory and I'll say legislative or governmental support for both of those programs. And so I actually think the good news is there is clarity today as to where that road is going. I think the challenge we have in front of us, and I'm not even sure that the bar is that high, is how do we get under the cost of alternatives with renewables. And the good news is with the price of renewables today that isn't even seem very hard.
So I'd actually maybe answer your question by saying we're seeing the certainty that we need at least in some of the jurisdictions California and Bermuda per se already like it's all that we could there's clarity to that right now. Great. Thank you. Thanks, David. Okay.
Just mindful of the time here and we are going to take maybe we can keep it to 10 or 15 minutes and I appreciate. But if we all come back here in 15 minutes and we'll pick it up promptly on our Renewable Energy and Regulatory Services business. So thanks. So let's take our 15 minutes break, grab yourself a coffee and come on back in. We're going to kick it off with our renewable energy panel as I promised.
Jen Tindale is going to host it and she's going to, I guess, introduce the 2 panelists. But take her away, Jen.
Okay. Thank you, Ian. As Ian said, my name is Jen Tindale. I'm the Chief Legal Officer at Algonquin, and I have the pleasure of moderating 2 panels that we've put together today. The first is going to focus on our Renewable Energy business and the second is going to focus on our regulated services business.
And in putting these panels together, we have tried to consider feedback that we've received from many of you in the room about topics of interest. And hopefully, we've done a decent job of that. But if I don't elicit from these 2 the information that you're hoping for with my questions, then there will be an opportunity for you to chime in with your own questions at the end of the panel discussion. So just before we get underway, I've got Jeff and Brenda here with me, who will be our Renewable Energy panelist, and I'll invite them to say a few words to introduce themselves.
Sure. Good morning. Jeff Norman and Chief Development Officer. As Chief Development Officer, my team and I are responsible for corporate strategy and for corporate growth. And I have 27 years of experience in the general corporate industry, 16 years focused on renewables at Algonquin.
Prior to that, I had positions within the private equity world. And prior to that, KPMG.
Hi, Brenda Marshall. I'm the Senior Vice President for Wind Development at Algonquin. And just been at Algonquin for exactly 1 year and one day as of today. So very excited to be here talking to you this morning. But I have been in the space for about 23 years in different parts of the power industry.
So leading groups that are focused on customers and also a lot of time spent on development and it's really interactions of plants with markets. All right. Well, Brenda's happy 1 year anniversary gift that we invited her to join on the path. Jeff, maybe just to set the stage a little bit, you could start by providing a little bit of insight of what you're seeing in the renewables markets, both in North America and internationally, hopefully with a little bit of insight on what it excites you and what you're seeing.
Absolutely. And what we've seen is the same key drivers that have been driving the business since we did our 1st Investor Day 10 years ago are still there. And that's the decarbonization benefits of renewables combined with the economic price point or the price point for renewable energy. And both of those drivers just continue to get better each year. And if you think of it from an economics perspective, wasn't that long ago or it doesn't feel like it was that long ago, maybe it's more accurate, that we were looking at the price difference between what it took to make a renewable energy project work and what the price point was for natural gas or coal fired generation.
Clearly, that has disappeared. We don't even pull up the LCOE chart by generation mode anymore. Renewables are just the lowest form per kilowatt hour in most markets where there's a strong resource. But we're also now seeing credible organizations like the Rocky Mountain Institute that have come out and said, renewables combined with storage are now competitive with natural gas for base load generation in some markets, and they see that continuing through 2023 where there will be a significant overlap between the 2. And so the economics behind renewables are extremely powerful and decarbonization just keeps getting more momentum.
We've all lived through the media world of the last 18 months and seen us move from climate change to a climate emergency. And there is no more powerful tool than renewable energy to combat climate change and the decarbonization of our economy. And I think from a policy perspective, and I've thrown up a few items on the chart here, but from a policy perspective, whether it's the comment there for the EU or South America or the U. S, there's just widespread acceptance of renewables. And in the U.
S, seeing 13 states that have targets for 100% renewable energy and that requires a complete political process behind that. And so think of the momentum that it takes to get 100% renewables as a target for a state, it really is quite incredible. And that's now coupled with the movement for sustainability from a corporate perspective and ESG being so important and most organizations looking to decarbonize their footprint directly. And we've got quotes from Google and General Mills, but they're just a few. And Ian and Chris and David made mention of the corporates that we've signed PPAs with this year.
And we really see that between the general movement on the government side and the policy side and the corporate movement that there's just a great atmosphere not only for renewable energy, but starting to see things like renewable natural gas and hydrogen to offset other forms of carbon. So that being said, we've got 20 years of solid growth, both within the U. S. Market and with the global market. And these charts are really just looking at gigawatts installed capacity in the U.
S. On the left and internationally on the right. And what's happening is there's a little bit of low growth, but mainly this is renewables coming in and replacing thermal and nuclear generation. And that's giving a nice steady increase over the next 20 years in both of those markets, which is very exciting. And so what does that mean for us?
Well, we've worked hard to advance our portfolio and go from those small projects that we were talking about 10 years ago to having now a portfolio between what we own and operate directly, which is the majority of the 2,100 megawatts in our current portfolio, but also our proportionate interest in some of the indirect investments. And that portfolio was diversified across mode of generation, wind and solar hydro, it's diversified by region and importantly, it's diversified by offtake counterparty that's made the long term commitments. And so it gives us a nice solid recurring and reliable revenue stream and cash flow, which is what's driving value. But I think what everyone's more excited to talk about today is the 1400 megawatts that's in the pipeline, and we're here to share some information on that. You can see at a general level, it's 1200 megawatts of wind and 140 megawatts of solar, and it's going to take us to over 43 facilities and 3,500 megawatts of generating capacity.
And so we're hoping to answer all your questions on that.
All right. Thanks, Jeff. So it looks like we've got diversity rather by both geography and modality. Brenda, maybe you can jump in and talk to us about how across that diverse landscape, where the customers and our customer expectations or requirements changing? Yes, absolutely.
So traditionally our customers in the renewable energy space have mostly been traditional utilities. But over the last number of years, we've seen that evolve significantly. So first with the banks and through kind of hedging products as opposed to those traditional utility contracts. But today, we're seeing an increased involvement from the commercial and industrial customers or the C and I customers in the space. And our two customers for our new Maverick Creek facility, General Mills and Kimberly Clark are really great examples of that.
We're also seeing a lot more sophisticated customer strategies as they go ahead and purchase renewables. So we've talked about Algonquin having a more holistic approach to sustainability and we're seeing that certainly from our customers as well. So it used to be that customers were looking for the most renewable energy credits at the lowest cost and that was kind of been a check the box for them. But what we're seeing now is folks having a lot more interest in what the social benefits are that these projects are bringing to their communities. So I think about last week when we were down at our Maverick Creek wind breaking or sorry, groundbreaking ceremony.
And so we had there not only our commercial customers, but we also had the President of the local Board. We had the Mayor of the community that we're going to be serving and also the Head of School District. So wind projects don't just bring renewable energy credits, they bring a lot of extra benefits to the into the communities. We're also seeing our customers look at a wider variety of commodities as well. So they're now thinking about what how their sustainability focus is going to affect their gas and their water portfolios as well.
And seeing folks who are interested in specific technologies, so things like solar energy. Right, Understood. And what's been the impact on customer contract duration? Yes. Well, so as David mentioned, customer contract life is definitely decreasing.
So compared to the 20 or 25 year utility contracts that we used to see, we're now looking at things that are more in terms of the 10 to 15 year timeframe for the initial contracts. And so what that means to us as a business is that we're focusing a lot more on the fundamentals of the markets that we're actually locating those projects in things like basis, things like supply and demand over time. We're looking very seriously at what our capital payback profile is and making sure that that's occurring within the contracted term. And then we're also looking at strategies for maintaining that contracted length portfolio over time as those initial contracts roll off. So it sounds like there's been an evolution and there continues to be an evolution in customers and customer requirements.
Are you seeing the same sort of evolution in the opportunity set? Yes, for sure. So we're definitely seeing it was our customers' needs get more specific and more diverse. We're seeing that lead to a more diverse opportunity set as well. So that's across geographies, across facility types and across all stages of the development game.
So we're seeing things from very initial stages until almost construction ready. And so from El Alba's perspective, we really still continue to focus on the greenfield space. And by greenfield, I really mean new project from the ground up. We feel that that's kind of the best place that we can add value in terms of leveraging And in terms of that, maintaining that focus, And in terms of that maintaining that focus and building those relationships in terms of communities that we want to site in and also with customers is really key. And then in terms of technologies, we continue to be very interested in the wind and the solar space with an increasing focus on solar.
But also when we think about serving that sustainable water and energy future, we're expanding the set that we're looking into from that perspective as well. So desalination plants, storage, transmission and renewable natural gas. Great. A few words about the geography? Yes.
So North America continues to be a focus for the majority of our portfolio. And within North America, we're really looking for places that have liquid markets. So a lot of multiple customers that we can look to, to off take from our facilities, as well as taking a real long term perspective on those markets. So is this the place that we want to be over the next 30 to 40 years? And being within North America really gives us a great opportunity to leverage off our broad footprint.
When we think more internationally, and the map here is expanded so that you can see some of the places in the world where we have a footprint already, we look at the size of the investment potential for those various markets. We look at our ability to manage risk within those markets and also ensuring that we've got a good capital repatriation strategy. So that's a really diverse set of opportunities that you've been talking about. Can we about how within the organization things are evolving to keep pace with all of this change and to be sort of prepared to seize those opportunities and be opportunistic? For sure.
So within our development team, one of the things that we're really focusing on is maintaining our agility. So I said how we're seeing more diverse sets of opportunities. And so as those opportunities come across our plate, we really want to be able to take advantage of whatever it is that we're seeing. And so the human side of that is obviously a really big component and we've been working very hard over the last year to increase the size and broadening the expertise of the team. So I mentioned that I came on almost exactly a year ago.
We also have Mike Dilworth, who's in our audience today, who came in to head up our solar activities. And we're also relying on broad expertise throughout the organization. So we work quite heavily with our operational teams, the financing teams and the energy marketing folks who are the ones who are actually out there in the markets looking to hedge off our facilities. We're also applying technology to the development space as never before, and I think Algonquin is actually pretty cutting edge in terms of what we're doing there. So a lot of, as you can see here, type software that's really allowing us to go in and do a pretty thorough job of screening projects before we actually spend too much money on any one facility or get too emotionally attached and spend get the dollars flowing out the door.
And I think the real secret sauce in terms of Algonquin and maintaining our development efforts is really maintaining that entrepreneurial spirit. From the Corporation as a whole, we're really looking to the Corporation for that financial strength and the balance sheet that we have to support the development efforts. And also as I mentioned previously that broad footprint that really helps us put our ears to the ground in many different jurisdictions. And I think it's also really important to mention that as we do development, risk management is a focus for us really throughout the development life cycle. So right from when a project is a twinkle in our eyes, we start maintaining a risk register where we're really looking at what are the major risks for this facility and how are we mitigating or managing those risks to a point where we get to approval from our Board.
And in that case, we go through an extensive risk vetting process before the Board actually makes its approval decision. Thanks, Brenda. Jeff, hoping you could maybe round out this discussion on evolving opportunities and development focus with a bit of commentary on how the phase out of the production tax credits and the investment tax credits impacts market perception go forward? For sure. Well, the production tax credit and
the investment tax credit have resulted in a very large build out of renewables within the U. S. Market. And currently, combined with the economics of renewables and the full PTC and ITC still available, we're seeing extreme growth in renewables and 2020 is going to be a massive year for build out of wind. But there's lots of room for as those phase out over time for prices of renewables to come up a little bit and demand is going to drop a little bit, but we still see robust growth as per the earlier chart that I outlined, a robust growth that we will be able to participate in and that will help us hit our objectives combined with our international growth objectives.
I think the charts here outline the PTC and ITC phase out, and I just wanted to spend a couple of minutes on those. On the production tax credit side, David went through how it's a 10 year program. It's based on production starting at $24 a megawatt hour if you qualify for 100%, dropping to 80% and then 60% and 40%. What's a couple of important things. 1, at 40%, it's still $10 per megawatt hour and that is an after tax benefit.
So it's still material even at the 40% level. And secondly, these dates are kind of there for convenience. The dates actually start at the beginning of construction is what's critical to the IRS. And so if you started in 2016 and finished by 2020, you qualify for 100%. If you just came out today and built a 2020 project, you would not qualify for the 100%.
And if people will remember back in 2016, we procured turbine components to start construction for the IRS guidance on a number of projects. And our objective was to build 600 megawatts of 100 percent PTC qualified projects. We actually have 696 megawatts of PTC, 100 percent qualified projects under construction. And we have the customer savings plan with another 600 megawatts. So we'll have close to 1300 megawatts ourselves across the corporation of 100% PTC qualified.
Just flip down to the ITC. The ITC phases out at 30% than 26% than 22% unless once again you commence construction in 2019. So the chart there where you can see 30% across from 2020 to 2023 is actually assuming the safe harboring is taking place in 2019. And we have worked with both Liberty Utilities and Liberty Power to identify projects and buy transformers, which will lock up somewhere between 700 megawatts of full ITC eligible projects as we move forward. So that's part of our transition plan as we work through the phase out of ITC and PTC.
The last item and I apologize there's a long answer to your question, but the last item is the ITC. There's a bill before the House right now to actually extend the ITC. And the important point is the momentum behind that bill is using it to accelerate or continue to accelerate renewables for the climate benefits and the decarbonization benefits. Obviously, renewables can stand on their own now. They don't need the ITC or the PTC.
But if you continue the sale price, obviously, the demand will stay high.
All right. Well, thank you. Maybe now we could turn to the capital growth program. I'm hoping that you could highlight for us changes since last year.
Yes, for sure.
And so I'll start with 2018, and maybe I'll pop out of my chair for a second just so you can see that we have $2,200,000,000 where we had last year $2,200,000,000 in growth, diversified across a bunch of projects in various regions. And what we have done is we've grown that to should come out $2,500,000,000 And we as David pointed out, on the left side of the chart are where most of the projects that are already under construction. And so you can see Maverick Creek under construction and Great Bay, Zolar 2 and a bunch of others that are dark green. And so that 2.5 is after taking into consideration that we've obviously deployed capital to get those projects up and moving. So the net increase is $300,000,000 And you can see that the projects go from the dark green and eventually work their way to lighter green.
So the medium shade is late stage development projects like Blue Hill, and the early stage projects are things that are like Walker Ridge. I would point out a few changes. On the solar side, Alta Vista is an 80 megawatt solar project and the community solar is a new initiative where we hope to get near retail rates for smaller scale solar projects. So those are both things that Mike Dilworth, who's heading our solar group, has brought to the table this year with his team. And then obviously, Maverick Creek, which Ian mentioned, is a very big project and that's Brenda and her team have introduced that one to our pipeline.
Okay. Well, I think it would be helpful if we might hear a little bit more about a handful of the projects that are expected to be important contributors to this growth. So maybe, Brenda, you could take us through 2 or 3 of the wind opportunities? Yes, absolutely. So I'll first talk to you about the Maverick Creek wind facility.
So this is our newest and largest wind project. It's going to be 4 92 Megawatts in Texas. And there's a couple of things that we're really excited about with this project. So the first is its location within the Texas market. So we like Texas because of its liquidity, but one of the things you really have to be very careful of when you're playing in the Texas market is what we call basis.
And so folks may have heard issues about the Panhandle, which is really kind of to the Northwest area of Texas where folks have had problems getting their power out to market. And so the thing that we really like about the location of this facility is it's basically snap dab right in the middle of the state and we're connected into the 345 KV system. So we feel quite good about our ability to get this power to market. The second thing that we really like about this facility are the 2 anchor tenants that we have in Kimberly Clark and General Mills. So both great A rated counterparties.
And the contracts that we have with them are what are called unit contingent power purchase agreements. And what that means is that they're taking a percentage of the output of the facility at any given time, so that we don't have a worry with these contracts that the facility isn't producing power in any given hour and that we have to make that up versus a market price that can have quite a bit of volatility in Texas. Couple of other things to point out about this, we have announced this project is in partnership with our construction partner, RES. And as Ian and David both mentioned, that's basically a partnership and we do have an option to buy res out of that partnership at the end of that time period. And then David also talked about self monetization of some of the tax credits.
And in the case of Maverick Creek, we're currently anticipating about monetizing about 25% of those within Algonquin's portfolio. I see you there at the groundbreaking. It was a groundbreaking, yes, it was quite a ceremony. The next facility is our Sugar Creek facility and that's in Illinois. And you can see here the picture is of 1 of the first concrete of one of the foundations at that facility.
And like Maverick Creek, we really are excited about the location of this facility. So it's in Illinois and that's a market that's been quite good to us. It's within the MISO footprint, although it's really a lot of the energy from that area is going to certain PJM market and it's rated just adjacent to a very liquid hub. So in this particular instance, our contracting strategy is that we have a 10 year financial hedge with an A rated financial counterparty and then a 15 year deal for the renewable energy credits with the Illinois Power Agency. But because it's such a liquid market, we feel very good about our ability to recontract this asset as that 10 year hedge starts to roll off.
And then I'll also talk just briefly about the Blue Hills facility. So this is 177 megawatt facility that we have under development in Saskatchewan that many of you will have heard about in previous years. We've done a lot of work to advance this project over the last year. It's got all of the permits in place now that it's going to need before we begin construction. The turbines have been selected for the project.
And so all it's really waiting for at this point is for SaskPower to finish building the transmission line to the facility. And so we anticipate that to occur in about 2021. All right. Well, thank you. I think there's at least one fairly recently added addition to the growth opportunities on the solar side, Alta Vista.
So Jeff, few minutes about that one, please.
Yes, for sure. And so the Alta Vista project, as I mentioned, is an 80 megawatt AC solar project located in Virginia. This will be the largest solar project in our fleet. And to put that in perspective, by the time you do setbacks and other spacing between the panels, you're looking at about 800 acres in terms of footprint. As you can see from the picture, the property is well situated for that.
We don't have too much in the way of clearing to do, and construction should be relatively simple. And like the wind projects, this project passes the same filter test in terms of its point of interconnection. It's very favorable compared to where it will be selling the energies. So we expect 0 or nominal basis. And the Virginia is actually known as a data center hub.
And so there's a large group of data centers there that are very demanding of energy, and there's a great pressure on the companies that own them to take and have them move to decarbonize renewable energy. And as a result of that, 1, this is one of the states that has set 100% renewable target and 2, we've been able to negotiate a 12 year PPA that's once again unit contingent with Facebook for the offtake on this facility, and we're very optimistic about recontracting thereafter. And so it's a great long term asset.
Okay. So once we've implemented the growth plans that have been outlined here today, the ones you've taken us through and the ones back on that bubble chart that you presented, what should we expect the North American portfolio to be looking like?
Yes. And so these charts, I like them because their divisional operating profit are effectively cash flow by the projects by region. And so when we're looking at adding to the fleet or the portfolio, we want to take and see what that diversification looks like. And you can see in 2019, there's probably 2 things that kind of stand out there. You can see one Texas at 8% is relatively lightweight and MISO at 38%.
This fairly heavyweight or appears to be heavyweight. We fast forward to 2024, once we've built out the 1400 megawatts that we're looking to build, we see MISO dropping to 33%, which is still heavy when you look at it in a simplistic way. But as Brenda pointed out, a number of the projects we have in MISO are actually on very strong transmission connections, allowing us to sell the energy outside of MISO into PJM. So we actually look at the combination of PJM and MISO together and feel that we've got good diversification. The other one, people might have thought, well, you're adding 4 92 megawatts to Texas, are you not going overweight Texas?
And you can see that, that project, despite its scale, actually brings us only to 15% Texas once we have this other growth. And so we're actually seeing that we're still technically a little underweight in Texas, but we're very comfortable with that allocation between the Maverick project and our existing Senate project that we bought back in 2012.
All right. Thank you. Well, just before we wrap up this panel discussion and open it up for Q and A, maybe you could just give us a couple of comments about the compound annual growth rate that we can expect see from the investments highlighted here. Yes.
Now this one's fairly simple and I'll be quick. The 3 year compound annual growth rate as we build out this 1400 megawatts is 14%, which is good. If you look at that over a 5 year period, it is 10%. And the reason for the drop is 23% 24%. And as you if you remember that bubble chart, David saying, as we put items on there, we want them to be more likely than not or we don't put them on the chart.
And so we don't have much in the forecast for 'twenty three and 'twenty four that's more likely than not. But we have safe harbor components. We have a bunch of greenfield projects, and we fully expect to keep building out through 'twenty three and 'twenty four given the strong macro drivers. And I think if you go back to we spoke a lot about the diversified portfolio and the strength of that portfolio. I think the most exciting thing is how strong the supporting industry trends are in terms of technology just keeps getting better and the pressure for decarbonization and what we can do to assist with renewables is extremely powerful.
And so combined with our spirit to make sure this happens and helped by Brenda and Michael and others on the team, we just see that we're going to be able to keep growing that 3 year CAGR beyond 3 years.
All right. Thanks very much. Okay. With that, we will open it up to questions. I see Ian creeping back up to the stage.
I'm not sure. We did the plan. At any rate, if you can just signal up your hands and we'll bring a mic to you so that everyone can hear both
It's Nelson from RBC Capital Markets. Could you just talk about expected returns, whether it's levered or unlevered and what you're seeing on the wind and solar side.
And I presume returns have been they've been pressured lower, but I just want to see what your experience is. Yes. It's interesting that the 1400 megawatts that we're laying out here today, obviously, solar is lower than wind, but we're actually seeing a range from 7% to 9.5%, 10% on the ULAX for those projects, which we don't see as much of a decline. We actually haven't experienced the decline. There's obviously lots of pressure, lots of building going on, but we feel that we've been able to capitalize on although there's slightly shorter contract plays.
But when we're able to look at that and take advantage of the full PTCs and monetization the project returns are holding.
And then my next question is you mentioned that contracts are getting shorter. Would you look and previous charts, we've seen how the expected merchant price is going to be drifting above the contract price. Given the shorter term contracts, have you thought of just directly taking merchants rather than long term taking merchants?
I hear Ian making noise.
Well, because I think it's well, it might not be the value maximizing thesis to seek revenue certainty. I think that's really more consistent with the proposition we're offering to shareholders, this idea of certainty in terms of earnings and cash flows. There is a bit of a breakpoint candidly even with the rating agencies. Over 5 years, they consider a contract and under 5 years they consider a merchant and they think differently about merchant than they do think about a contract. And so for all of those considerations, I think, well, some level of merchant is just comes with the territory.
I think it would represent a fairly major philosophic shift to say, let's just go build a significant merchant energy. We have merchant energy in our portfolio, but it's probably just as happenstance rather than that's the value maximized thesis. Because as you mentioned, the price is probably higher than what we're contracting with. That's the cost of certainty.
Is our tax equity providers requiring contracted
prices? Yes. Generally, look, so for our wind project with a 10 year horizon on the PTCs and somewhere between an 8.5 and a 10 year flip, they will want to ensure revenues certainly during that time period. We actually haven't pushed them very much on it because we haven't wanted to go shorter than the 10 years on our contracts, and we have found good appetite with the corporate customers
to do that. And maybe just one, and I don't know if the point was made last time, but
a plug
for our structure is that with our off balance our on balance sheet, I'll say senior unsecured bond platform, we can actually accommodate a 10 year contract, whereas you know that's very difficult if you're just trying to use project financing, because it's very difficult for a lender to lend against, I'll say, years 11 through 25, whereas with a portfolio of 50 projects, which has a sort of a continuing revenue certainty horizon that is actually a valid proposition for bondholders. And so I think that's a huge benefit that we have.
Thanks, Roberto. You've mentioned RNG a couple of times, but I don't see anything in the pipeline. Somewhat likely to be a regulated opportunity in the near term?
We actually see it on
both sides. And so we we're in the process of setting 2020 objectives. We feel that there will be regulatory support within the utility and to move to kind of 5% renewables in the gas mix. And as Chris pointed out, if we're able to actually own that, it gives a great investment opportunity. But we do see that there is almost like the beginning of renewables where you saw RPSs by different states to take and see the decarbonization of the electric grid that we're actually thinking that we're just seeing the beginning of And there's like the province of Quebec has set a renewable standard for natural gas as well as California and BC.
And so we're seeing almost the same players as on the electric side 10 years ago on the gas side. I think it might be a little while before we have something that's more likely than not in the development pipeline, but we are starting to spend time on it.
Mark Jarvi from CIBC. If you had an asset that was able to go either into rate base or be done as unregulated, say, California Solar or something like that, maybe just describe what would be the tipping point of where you decide to put that and sort of the merits of 1 versus the other?
Well, you can appreciate it's a different risk profile for customers. Every dollar of renewable energy asset that goes into rate base is the summer starts as fungible with every other dollar in the rate base. And so as we think about it from the utilities perspective, obviously, we don't distinguish. But now the question is, you're saying is, if we could build something non regulated or build something or put it into rate base, I think from a simplicity point of view, it's hard to look away from the regulated utility model because there is a even with a contracted asset, there is residual life risk. From a shareholders point of view, which it can be a plus or it can be a minus, but in some respects, that's borne by our customers.
And while obviously we don't want to we're mindful of our customers, there's a cleanliness to the relationship of having it in rate base. I think that's how we think of the how we think of that relationship. So I'm not sure it would be, oh gosh, if the thing had a super great return, which would keep it outside of rate base. Generally, when we're building something within our utility, it really is about creating it for the benefit of the customers. Like there was no thought ever about the customer savings plan being non regulated and us having an affiliate relationship with our customers.
That's all very challenged when you can imagine there between that's exactly what regulators are sensitive to, affiliate relationships. And so in general, if it's a right if it's conceived as a regulated asset, that's where it's going to end up. Okay. Without cutting off all right, Jeremy, last one, you snuck it in. Sorry.
No worries. Sorry to keep
in mind of it. Just, Jeff, question on repowering. It's something that we see other power producers very involved with. So has Algonquin looked at the opportunity to repower some of the older, let's say, wind turbines or assets that are in the portfolio? And then maybe just on a separate note, have you looked at other portfolios or other assets that are available in the market that might be good opportunities for repowering?
And is that an opportunity for Algonquin to acquire those assets, think about repowering, etcetera? Just talk about that. Absolutely, Jeremy. So we've definitely looked at it. We've looked at it both in terms of portfolio.
The oldest wind assets we have in the U. S. Are the 3 Ganesos sites, which are 2012. So they still have some time to run and it would to repower before you run the whole gamut of the PTCs would be difficult or you can't justify economically. We've also found when we looked at individual projects in terms of repowering that they're difficult.
Sometimes it actually just feels if there's a good site that you can build new from beginning. And in the U. S. Market where you're getting the production tax credits that it's easier to build. I do see as our projects age out that it will make sense to take advantage of the existing infrastructure, but that will be in a post PTC world.
Okay. With the in the interest of getting everybody out here on time, we're going to thank Jeff and Brenda for their contribution to Renewal Energy Panel and we'll get the regulated services panel to the stage, please. Thank you. Let me just move here. So with that, welcoming Gerald and Mary Ellen and Johnny.
Jen, take it away.
All right. So we're going to move on now to our regulated services panel. And I'll start by inviting Johnny, Mariel and Gerald to provide a couple of words of introduction, and we'll get underway.
Yes. Good morning. My name is John Johnson. I'm the Chief Operating Officer, so accountable for operations on both regulated and unregulated sides of the business. I joined Algonquin back in January with over 20 years of experience in the regulated energy industry split between the U.
K. And North America.
I'm Mary Ellen Parablos. I'm Chief Compliance and Risk Officer for the enterprise. I have 25 years of experience in the energy industry across operations and regulatory and compliance experience, and I am in year 2 of being here with Algonquin.
And I'm Gerald Trembley. I'm the Senior Vice President of Operations. I've been with the company for about 20 days now. Just kidding. I've been with it for about 20 years.
And I've had several roles within the company and it's within finance, regulatory and now operations.
All right. Your jokes get worse after you've been here for 20 years. John, let's start things off to you. Could you kick us off perhaps by providing an overview of this regulated services business, Johnny? We'll get to you, Gerald.
This is the simple bit of our business, I think, Ian said this morning, which I think really pays testament to the role that Gerald and his leadership team does in terms of making this business look simple and swim like a swan. But the reality is there's 2,000 people paddling away furiously below the surface serving our customers and making sure that it looks as simple as it is. So our regulated service business made up of electricity, gas and water utilities very much spread across the U. S, as you can see on the charts behind us here. The dark blue dots represent the utilities themselves.
The light blue dots represent our rate based generation assets and the yellow stars, the acquisitions that we heard about earlier on today. In total, it's 43 utilities across 13 U. S. States, 1 Canadian province, New Brunswick and soon to be, Bermuda. We all know within our organizations that diversity is a real strength, and I think that's also true of our assets across the utility business here.
There's a real natural derisking of the portfolio by having this diversity geographically, but it also gives us some great opportunities to leverage best practices within our various electric, gas and water utilities to share information between the different regulatory regimes that we operate in. And interestingly, also to be able to share information or best practices between the different modality types. And so you'll hear today how we're deploying solar and smart grid technology into our water utilities to help us reduce our environmental impact but also save on our operating costs. And as we move into the numbers, we already heard how really we're looking to grow to nearly 1,000,000 customers through the next 5 year period, split pretty evenly between gas, electric and water. We run each of these utilities very much locally, driving that entrepreneurial spirit and looking for opportunities to serve customer needs at a local level.
That really then drives the conversations with our regulators to get fair rate case outcomes, but also to be able to deploy the capital that we're talking about today, which ultimately you can see here is looking to more than double our rate base through the next 5 year period going from $3,500,000,000 today up to $7,400,000,000 by the end of the 5 years. You can see on the rate base side that electricity for sure has a greater proportion compared to customer count, really driven by the generation assets that are part of our regulated asset base. So that gives a quick overview of our regulated services business. Hopefully, you can see it's well balanced, diversified and growing.
All right. Well, Mary Ellen, perhaps you can take that portfolio description from Johnny and overlay a description of the regulatory environment.
Can you, Jen? So I'll say just for starters that in all of our jurisdictions, we are we find them to be a favorable place to be. We're able to operate effectively within each of them. We've put up some benchmarking for the audience on this graph here where you'll see our jurisdictions mapped against where S and P Global would rate them in terms of favorability from an investor perspective. And you can see that the bulk of them are in the average and above average frame and that sort of matches where we are.
Kansas looks like a bit of a straggler there, but I'll say in practice that our results in Kansas have followed very similarly to that of Missouri. So in total, our portfolio is quite favorable. There's a number of key regulatory factors that we think of when we think about being in and operating within a jurisdiction. 1 is a favorable rate of return on investment. Also the ability to earn on that return.
Having effective rate mechanisms allow us to actually earn that allowed ROE and I'll get into those in just a minute. And also we think a lot about the regulators' view of the future and what their vision is, if they are receptive to green investments or even supporting or driving those green investments. So for instance, most of our jurisdictions have renewable portfolio standards. California has an aggressive 100 percent clean energy target by 2,045. Our newer jurisdiction to be Bermuda aggressive 85 percent renewable energy by 2,035.
And so these types of forward looking visions really support our perspective of green investments, but also investments that help to transition to that low carbon economies as well.
All right. Well, you mentioned the ability to earn the authorized return. Can I take you back to that comment perhaps so you can explain to us how rate mechanisms impact that ability?
Can do. And so I show you a chart here. And I list out on the left some of the mechanism types that can help us to earn our allowed ROE, things like revenue assurance, which is decoupling, accelerated recovery, post test year recovery as well. And you'll see on this chart, this is what our jurisdictions look like in 2013. And you can see that with check marks is where we have these types of what we consider effective rate mechanisms in place in 2013.
And I show you this because if we fast forward to 2019, you can see that we filled out the matrix a bit. The blue check marks indicate additional rate mechanisms that have more recently come into play. You see we've added the columns to the right of New York and New Brunswick to for our newer jurisdictions. And in general, all of these check marks actually take quite a bit of work to implement, propose, operationalize and they're all very important tools in our toolbox to be able to actually earn that authorized ROE. Give you a few examples.
Revenue assurance or example of this is decoupling. In New Hampshire, we have a decoupling mechanism in our Energy North gas utility. We have proposed one for our Granite State Electric Utility. In Missouri, we have worked with other utilities to enact legislation that provides for an additional decoupling mechanism. And so we expect to be able to achieve that in Missouri with our existing rate case where we proposed it.
Our new New York new to be New York water utility also has a decoupling mechanism. And in fact across this line once we have accomplished what we're looking to in Missouri and New Hampshire, 88% of our revenues will be decoupled. And so that's good. Accelerated recovery, you can see we have available in all the jurisdictions. California and New Brunswick both have forward looking test years.
Bermuda and New York use multi rate forward looking terms, as well as in Massachusetts, we have a tracker, if you will, for our Massachusetts leak prone pipe gas replacement program and also post test year ROE. ROE.
Well, the flags certainly highlight that there are numerous jurisdictions at play here. Have you found that there are actually any benefits to operating in so many jurisdictions?
And Johnny has touched on them with the distributed aspect and you'll still hear that theme a lot today. Because you see so many check marks across jurisdictions for one dimension, the rate mechanisms I showed you, also that you can imagine that our test years and our rate plans are actually also staggered out in time. So there's a lot to look at when we analyze where are the best places to deploy our capital to give good customer results and good shareholder results too. And by doing so, that kind of approach really allows to reduce regulatory lag or the lag in time by which we will get compensation for our investments. The bar charts on the slides you can see show our the blue bar is our average regulatory lag of less than 6 months, which is considerably shorter than the average for the utilities.
And so therefore, we are in a good position to be able to kind of capitalize on that regulatory lag and improve our returns. Another benefit I'll point out to folks is our local model, whereas we have and keep local teams, be it customer service, operations, regulatory staff, geographically close to our customers and geographically close to our regulators. And what we have found that that lets us achieve are really those meaningful interactions and conversations and really to be able to gain the understanding of what drives our customers, what impacts them, what are their preferences, so that we can propose the kinds of programs, investments or services that we think are meaningful to each of our jurisdictions.
All right. Well, thank you, Mary Ellen. Gerald, we're going to turn it over to you now, hoping that we can talk a bit about return on equity in the context of the industry, what's authorized and what's actually achieved.
Sure. And Rupert, if you pay particular attention to this slide here. But what you can see on the right hand side, you take a look at the chart there. The blue line really signifies the average industry awarded return on equity over the past 5 year timeframe. So you can see it's relatively stable over timeframe.
In 2015, it was at about 9.8% and right now at 2019, industry average is coming in at around that 9.7%. And that's relatively, you can say, in line with the green line, which is the return on equity treasury spread rate. So whether as that changes, the returns change slightly. The interesting point on there is the star that's on there and that's our regulated business, some service groups authorized weighted average return on equity number. And ours is coming in at 9.7%.
So we're bang on right in line to industry average. What you could take away from this is, given that it's been relatively stable over the last 5 years that on a go forward basis in the next few years going forward, you could probably expect that those authorized return on equity numbers will probably fall somewhere within that 9% 10% range. A few just to put this into reality, a few of our recent outcomes that we received back in late 2018, our Litchfield Park water wastewater utility up in Arizona received an authorized 9.7% rate. Our Downey Apple Valley water utilities up in California received a 9.4%. And utility out there with its annual GRAM currently still earns its 10.5% ROE.
So you can see we're still within that 9.7 range just overall from a weighted average just on our last three recent outcomes that we received. So if you move forward and say, okay, how did we actually do against that authorized $9,700,000 that we're allowed to earn? Well, we're forecasting right now for 2019 to come in at about 9.7% or actuals come in at 9.7%. So you can see we're hanging on to that 9.7% that we've been authorized at. We like to think that as Mary Ellen pointed out earlier, we got a few key initiatives that allow us to always strive towards that allowed return on equity number.
The first one is we're always focusing with our local regulatory groups to go in and speak to regulators and always look for incremental mechanisms to reduce that regulatory lag that most of the industry faces today. The second component revolves around being that we're well diversified, not only by modality, as Johnny pointed out earlier, but by facility right across North America and soon to be Bermuda. We could take advantage of that, move some cash around, so optimize our capital for some utilities that are in rate cases that invest to help out our customers for those particular utilities and improve the quality of service that we give to those customers. And the last one, we have strict guidelines that our facilities need to manage their operating costs to be within the last approved rate filing. So you can see when we put those three initiatives into place that we're always striving to maximize towards our authorized return on equity number.
All right. Well, thank you, Gerald. There's no denying the track record looks good. But in this regulatory environment, can you give us a bit of look ahead what's coming over the next 5 years?
Sure, Jack. You can see from this, I could tell you that we're going to be busy. With diversification in all of our facilities across North America, that means we're in a lot of jurisdictions. So we're going to be filing a lot of rate cases over the next 5 years. And we like to think that with our local initiative, with our local teams in place, local regulatory groups with finance and operations, they all work together to ensure that they're efficiently and effectively managing towards processing all of these rate filings.
So you could see over the next 5 years, we estimate that the increase in gross margin revenues associated with these rate filings will be around that $470,000,000
All right. Let's turn it back to Mary Ellen now, and I'd like to invite Mary Ellen to speak to us a little bit about how the company proactively manages risk and how that risk management impacts operations? Thanks, Jen.
I'll start by saying that we view risk management as really a competitive differentiator. And so the way that and how well a company identifies its risks, manages its risks, really can translate to how well a company creates and captures opportunities, but also how well it can preserve its business proposition and its reputation as well. So we do this through our enterprise risk management framework and we think that we approach risk management in our framework in a few different ways than maybe others. And I'd like to highlight a few of them for you. Firstly, we have a Board Risk Committee that oversees and really sort of helps us to own the program.
So right off the bat, we set the tone at the top that this is a strategic priority for the company. We have quite a bit of operational risk management experience actually on the board as well as our senior leadership team. We feel like this positions us well to be able to execute on this framework. Additionally, I can say that our enterprise risk management program does not just sort of sit in the central office at the enterprise level. It is truly embedded across the jurisdictions that we have where we have local business owners accountable for their business risks, but they are also supported by a trained risk advisor network to help them really execute risk management analysis in a quality way.
We do have a central dedicated team, which really provides that sustainable muscle and continuous improvement to the program. And so we all of this helps us to identify like what we like to call actionable insights, which helps us to actually take actions to manage the upsides and the downsides to risk. Our risk analysis informs our capital program deployment and Johnny will give a couple of examples of that. We actually received an award from the Governance Professionals of Canada last year for our enterprise risk management program for best practices. So that's something that we're proud of and motivates us to continue to do more.
All right.
Well, I think that's a good outline of the framework. I want to ask you maybe for a quick example, because I think we're trying to make up a little bit of time here, of how risk really is managed and permeates through the organization, maybe with a view to reliability and safety. I have
an operational example for folks around risk management and something that's actually been in the news a lot this year and that's around California wildfires. Wildfire risk is obviously a risk to people and property. It's also a risk to
service to customers in order
to mitigate the wildfire risk. Service to customers in order to mitigate the wildfire risk. For us, wildfire risk can show up as we proactively manage this risk in our Tahoe or Calqueco service territory that you'll see on the East Coast of the sorry, the East Border of California. And I'll say right off the bat that the temperature and the climate between the East border and the West part of the California state is very different. To give you an example, a couple of weeks ago, a day in November, while PG and E was notifying its customers that it will be shutting off power or may be shutting off power, the temperatures there were 10 to 20 degrees higher than normal, so 70s or 80s, so quite warm, gusty winds, the fuel moisture was low.
All of these things elevate wildfire risk. Same day in Tahoe, we had snow in the forecast. There's actually snow on the ground. Our temperatures were in the 20s 30s degrees Fahrenheit. Our fuel moisture levels were high.
And so very different. And I'll also say that about 94% of our service territory in CalPeco is outside of that Tier 3 threat level, which is, yes, the extreme wildfire risk. That all being said, wildfire risk still shows up as an operational risk that we actively manage. And so this drives things like our investment in our facilities, so hardening electric system, things like replacing wood poles with steel, installing covered conductor, installing sectionalizers, which are essentially switches that allow us to, should we need to preemptively shut off service, isolate the area and not sort of shut everyone off if we don't need to. Veg management, you can imagine is vegetation management is a pretty important tool in our toolbox.
It's something that actually is our 2nd highest expense in our Calfico utility for which we have a tracker. So that's good. And not just for Calfico and our California entities, but really for every facility we have. The emergency management plans and business continuity plans that we have in place ensure that we have planned for what essentially are unplanned events.
All right. Useful example. Thank you. Wildfires certainly have been top of mind. Another top of mind risk management issue of late is cybersecurity risk.
And wondering if you can just hit the very most important highlight on how at Algonquin we manage cyber risk.
So our risk framework applies to cyber risk as well. So these are things like security of customer information, security of the networks by which we operate our energy and water systems. We manage these cyber risks through a cybersecurity framework that's actually used by governments and other operators of critical infrastructure called the NIST Cybersecurity Framework. And we also employ our own firewalls that are industry grade, anti malware solutions and go beyond just our IT departments. We see all of our employees as a critical line of defense in the way they behave, their the way that they approach their work.
And so we do a lot of time training them to be so that they're aware of their personal accountability and their capabilities of helping us protect our assets. One more thing just about cyber risks as it will relate, it also informs our investment as well as we upgrade our IT systems to support the types of programs and projects that Gerald and Johnny are talking about.
Well, I'm sure and I've been exposed to this as risk management does inform our investment and in many cases actually demands investments. Johnny, maybe I'll pass it over to you to talk about what actually is the most important driver of our investment and maybe you can get to get on to a presentation of our investment plan.
Yes, absolutely, Jen. So I mean the biggest driver of our investment plan is customer needs. And so whilst risk helps us to prioritize that really it's what do are our customers looking for that's driving the $6,700,000,000 And maybe just picking up the wildfire example, clearly, we can mitigate some of that risk by turning off supply at key risk periods. But if you think about what our customers are wanting, they're wanting safe and reliable service. And so us investing in things like covered conductors, non wooden poles allows us to maintain that service whilst also mitigating the risks.
So really looking at things from a customer lens. This next slide shows, I guess, zoomed in the information that David showed earlier. And so in time, I'm just going to whistle stop through these because we're going to go through each of these investments in a little bit more detail. But you can add up the numbers in terms of what's tied into customer driven organic, our Greening the Fleet initiatives and acquisitions. But before we move forward, maybe I'll just pick up a couple of highlights or changes from last year.
As a reminder, it's $5,300,000,000 Nearly $500,000,000 of that was tied to investments that we're making this year. So this shows nearly a $2,000,000,000 increment in growth year on year. On the left hand side, you can see our new acquisitions. I mentioned this morning, Bellco and New York Water. Tied into that is our Bellco greening the fleet vision.
And then the items along the bottom, the customer driven organic, they were there last year, but we've highlighted them because they've grown by nearly 20% or $600,000,000 driven predominantly by the new acquisitions but also by us looking at further opportunities to invest to meet customer needs. Maybe the other item highlighted on there is Granite Bridge, which we talked about last year. As a reminder, this is our New Hampshire project to put a gas transmission and LNG facility into our New Hampshire gas business. DRIP designed to allow more customers to move from heating their homes fuel oil to cleaner and cheaper natural gas and the LNG storage to allow us to bring in cheaper gas in the summer, providing it to our customers through the winter and helping them, therefore, to save money. We filed this with the New Hampshire Commission earlier this year.
Those of you that are following it closely will have seen that the commission has put that hearing on pause to allow us to answer some more of the good questions that they have around alternatives and making sure that we've got the best solution for customers and for us to demonstrate those merits. But certainly, as we've gone through this process, it's clear that the stakeholder process is going to take a little bit longer than we had projected last year. And so we have moved the project out to the right. And there was two elements to the project, the pipeline and the tank. The pipeline has now moved just beyond our 5 year model, which is why you can't see it on the chart here.
All right. Well, Johnny, maybe we can start with the focus on the customer driven organic investment that you've got across each of the years there. Could you just explain to us what components are included in that?
Yes. Simply, there's 3 main elements. The first is safety and reliability, dollars 2,400,000,000 Really, this is the core replacement of aging assets maintain safe and reliable service. The second area is really looking at customer solutions to invest around quality, efficiency and choice of service. So really modernizing both our assets and the services that we provide to our customers.
And the third and final area is really around customer growth either in or around our existing utilities of €300,000,000 And Gerald will be able to take us through each of these in a bit more detail.
Okay. Perfect. Gerald, maybe you could start with the stake in reliability piece, which appears to be the largest by far and comment on the importance of that to customers.
Sure, Jen. As you may or may not know, we survey our customers every year through an external consultant, J. D. Power. And what's coming out loud and clear from our customers is they want and expect from us as their number one priority is they want increased safety and reliability in the product and service that we provide to them.
So it's for this reason that we plan to invest about $2,400,000,000 over the next 5 years to do that. And really it revolves around just the replacement of the day to day of our aging infrastructure. So a few examples of that is within our gas modalities, specifically out in the Northeast region, our cast iron, bare steel replacement program there And within our water and electric facilities, we're replacing mains, storage, reservoirs, lines and poles. But we're also looking at how do we improve the existing infrastructure also. And we do that through these few examples that I'll say here, it is looking at all of our substations and within our electric fleet, our generation and transmission assets that we'll be investing in.
So if you look at the chart on the right, you can see that $2,400,000,000 really breaks down into the largest component, electric, as Johnny pointed out earlier. With New York Water coming on, even though our customer counts will be relatively in line now between all three modalities, but from an investment perspective, electric is the largest driver simply because of them being vertically integrated with generation and transmission also included over and above the distribution business.
I think the second component was related to the change in customer expectations and that often involves the incorporation of some technology solutions. Can you tell us a little bit about that?
Sure, Jen. You could say that customer expectations within the call it this industry is changing. It's been changing over the years and it's going to continue to change over the future years to come. And this industry needs to move with that and needs to accommodate for these changes. So the old way of doing things, this industry has been around for a long time.
And it's moving away from kind of an analog, you could look at the scale driven centralized and standardized model now to more of a personalized model, digital and call it distributed model going forward, which are what customers are expecting from the industry nowadays. So if customers can have it their way, they would want 0 outages now, whether it be gas, electric or water. But if there are outages, customers are saying to the industry, they want those outages to be minimized from a customer perspective. They also want it to be the outage time to be reduced significantly and they want to be up and running as fast as possible. So they're asking for investments in more resiliency within the distribution system.
They're also looking for increased sustainability. So they're looking for more renewables in their portfolio mix. And finally, they're looking for more technology at their fingertips in order to provide them and allow them to have their own choice in decision making. And if you think about what other industries are not utility based, but the Googles and the Amazons, these customers are seeing what's out there. And frankly, the industry that we're in right now is just starting to dabble in it and hasn't really moved with it.
But now what I could tell you is the time is here for that to happen because not only is the technology available in order to accommodate for these customers' expectations how they're changing, but the cost associated with initiating and installing this new technology has been reducing drastically over the years. This new technology, really energy storage and micro grids, which are really centered around as close as possible to the customer and in fact even behind their meter for battery storage. But a key component here an example of the reduction in cost. Back in 2010, the cost to produce and manufacture a battery was about $1,000 a kilowatt hour. 10 years later, now, in fact, within another year, they're forecasting it to be at about $87 a kilowatt hour.
It's over a 90% cost reduction. Electric vehicles, they're on the rise. EEI is saying that right now, there's 1,200,000 electric vehicles on the U. S. Roads today.
10 years from now, they're saying that's just underneath 19,000,000 vehicles. And finally, customer driven systems. This industry has been around for a long time. And the systems they had, they really built them from the ground up. They had to do that in order to produce a bill and take calls from their customers.
But nowadays, there's more off the shelf solutions that are available to meet their ever changing customer expectations, and they need to move with that going forward.
Well, clearly, there's a lot of disruption in the industry, Gerald. The next 20 years at Algonquin are going to be really exciting. I'm wondering if we could talk about specifically at the company, what are we doing to deal with all of this and how is it going to impact customers?
Okay, Jen. So with ever changing customer expectations, we look at this as it's not a threat. This is really an opportunity for us. And really, we need to embrace this. And we've developed a complete strategy.
We call it our customer solution strategy, where we're going to invest about $1,100,000,000 over the next 5 years for our ever changing customer expectations. We've put a team in place. We call them the innovation team. They've been around for about 2 years now, comprising of engineers, finance, regulatory folks, and they've been tasked with identifying the opportunities that we need to do to manage towards these ever changing customer expectations. This team broke it out into 4 broad components.
I'll go through them very quickly here. The first one, they said grid modernization, we need to improve this. It's $500,000,000 really focused around more distributed automation within our systems and understanding our systems with increased clarity. This allows us not only to reduce the number of customers that are out, but also reduce the amount of time that they're out for. And even for us to become now as we understand our systems better and better, become more proactive and actually maybe even alleviate a potential outage and get there ahead of time before the outage actually happens.
The second component is microgrids, it's $300,000,000 and that's really around looking at, you could say, battery storage and solar to be put in place around as close as possible to our customers. And this microgrid technology is there. What it does is it reduces our fossil fuel intake, increases the renewable content for what our customers are expecting and now allows for more peak shaving because we could store energy at night, really sit during the day and maybe not have to build a big nuclear plant sometime down the road. Key example for that is you take a picture of take a look at the pictures on the right there, and that's a true example of a microgrid that we put in at our Palm Valley wastewater treatment plant out in Arizona. So you got solar, you got battery storage, gives our customers the resiliency they want, provides our customers with more renewables.
And guess what? We're simply moving away from a commodity cost that we get from the utility provider and replacing it with capital investment with no incremental cost to our customers. The third one is electric vehicles. We see about $100,000,000 here. We said that electric vehicles are going up are on the rise now.
We're educating our customers. We're educating, call it, car dealerships that we're here to help out with bring on more vehicles. And we're here too. If a customer of ours wants to buy a vehicle, we're there to install their, call it, plug in stations within their house, make it as seamlessly as possible. So you could see our key I guess our key component here that we want to do is we want to promote sustainability for our customers and we want to ease the whole transition to more and more electric vehicles on the road.
And finally, the last component is our customer first initiative. We introduced this to you last year. It's about $200,000,000 of investment, really focused on enhancing the overall customer experience. This is what's providing them the choice that they want. They should be able to choose their own electrons that they want.
They should be able to sell the excess energy that they have in their own battery storage unit in their house. And by the way, if there is an outage gas, electric or water, we should be the ones telling them about it, not them phoning us. And they should be able to see on a handheld device where that technician is, the time that they're coming in order to be fixed and get up and running as fast as possible.
All right. Thanks, Gerald. Well, referencing back to that pie chart that you had with the 3 components of organic growth, I think there's one component left and that's the customer growth component. Can you comment on where that comes from and how significant that is?
Sure. I look at this as you can say a hidden gem within our business. It's about $300,000,000 of investment that we're currently doing on a day to day basis. And it's just growing our business with more customers coming on. We break this out into 2 broad categories.
First of all, there's $200,000,000 set aside for day to day customers that are on our current distribution system and we just need to bring them on, attach them on to our distribution system. That's about 10,000 new customers a year and we're currently doing that anyways. The second component is our tuck in initiative that we have underway that's been underway for about 7 years now. But this is really looking at since we're well diversified across North America, we have several facilities out there. But around our facilities, we like to call them, there's mom and pops out there.
And they have smaller facilities. We're knocking on their doors. We're trying to bring them on, purchase them and simply tuck them into our existing facilities. You can see the chart on the right there that over the past 4 years, we've brought on about 20,000 new customers here at $50,000,000 of incremental rate base just from these tuck ins. So we look at this as from a tuck in strategy, the water side of the business highly fragmented in the U.
S. Industry and there's a lot of tuck in opportunities there. So bottom line, the key takeaway here is it's $300,000,000 of investments that we do on a day to day basis anyways. And this comes with very little to no rate based premium associated with it.
All right. Thanks, Jill. I'd like to turn it back to Johnny and spend a couple of minutes talking about the Greening the Fleet initiatives that you saw up on the bubble chart. Johnny, maybe you can tell us what makes up those Greening the Fleet initiatives? What's in there?
And how is our progress coming along?
Absolutely, Jen. So as a reminder for folks, our Greening the Fleet initiatives really are major projects to deliver a step change in solving the energy trilemma for our customers. That is reliability, affordability and sustainability. And so our engineers are looking at projects that absolutely maintain, if not enhance, that safe and reliable service that Gerald told us is so important to our customers that are looking to deliver a step change in terms of sustainability. We talked a bit about this at our Sustainability Day around reducing our impact on the environment, but also deploying more renewables generation into our business.
And then importantly, on the affordability front, how can we ultimately bring down the total cost of our customer bills, often by deploying cheaper renewable infrastructure that displaces the ongoing cost of fossil fuels? So 3 of our projects: customer savings plan, Calpico renewables and also how we are thinking about moving this thesis into Bermuda. Customer savings plan, as a quick reminder, you certainly heard from Ian earlier, dollars 1,100,000,000 to deploy 600 megawatts of wind to support our Missouri Electric business. As part of this, we're planning to close our 200 megawatt Asbury coal facility that's scheduled for March of next year. And then through the life of these assets, anticipating on an NPV basis, saving our customers 3 $100,000,000 We received the certificates of convenience and necessity earlier this year, which gave us green light to move into construction, which as you can see in the picture here is now well underway and on track to be completed by the end of 2020.
And we're anticipating our capital recovery to begin in the middle of 2021 subject to the regulatory process. Calpico Renewables, we've been making good progress here. We have our 15 Megawatt Looning Facility up and running. Turquoise, which you can see in the picture here, was just commissioned a couple of weeks ago in November, another 10 megawatts. Those two facilities combined, when you look at the whole energy that we use through the year, accounts for about 30% of our total demand in Calpico.
So roughly 30% towards the California's goal of 100% renewables by 2,045. We're now moving to the next phase of development, which is going to be more renewables, battery storage and microgrid technology. And we're finalizing those plans with stakeholders and the regulators, but anticipating deploy a further $200,000,000 in Calpico. In terms of Bermuda, you, of course, would expect us to be taking what we've learned in Missouri and California and seeing where there's an opportunity for us to further that opportunity in supporting the ambitions of the Bermudian government. Earlier this year, they released the Integrated Resource Plan or IRP, which set out an ambition to transform the energy system in Bermuda to deliver up to 85% of their electricity from renewables whilst also maintaining a reliable system and bringing down the cost of customer bills.
Does it sound familiar in terms of the opportunity for a greening the fleet opportunity for us? You'll have seen on the bubble chart, we have this as the lightest color. And really, that's driven by the fact that we're still going through the approvals process, and we've not had the opportunity to sit down and discuss this project in detail with the regulatory authority or the government. So it'd be very presumptuous of us to have it as anything other than light green at this point. But we do see, as we've done our homework, that there's an opportunity to deploy low cost offshore wind, solar and battery storage in the region of $200,000,000 worth that would deliver a step change in renewables delivery to the island as well as a meaningful reduction in customer bills for Permianics.
We're super excited about the opportunity here. We think our experience, the cost of capital that we bring, brings a great opportunity for Bermuda to not only deliver but accelerate their ambitions for renewables. And we're very hopeful that with our credentials, we'll have the opportunity to play a material part in being able to deliver.
Hope so. Mariel, I think I'll turn it back to you. Johnny made some comments in the context of specific projects, but hoping to get a little bit more enlightenment on the impact of significant initiatives such as these on customer rates.
And so I hope that you have heard that we take a lot of thought in providing for projects that have customer value. But we also think about the other side of the equation, which is the effects on customer rates as well. And so the value creation around renewable energy or reliability or resiliency or other services, we've talked about here on the chart. The blue bar is the anticipated customer rates growth and the green line is the rate base growth. So hopefully, the first thing that probably pops out at you is that these lines are very different.
The slopes are very different. The upshot on the customer rates growth is that over the next 5 years for all of our customer aggregated 3.5 percent annual growth rate is what we're expecting. The reason and how we're able to manage that slope to a moderated level versus the kind of slope that you see for the investment opportunities through a number of things. You've heard some of these trends today. 1 is displacing operating expense that otherwise would be with actually capital projects that provide value such as automated meter reading or the smart grid example that Gerald took us through.
Customer growth where you have more numbers in the denominator will help to keep rates at a moderated level. And also the greening the fleet type examples where we're replacing fossil fuel costs with investment in lower cost renewables. So I'll also highlight that in total about 85% of the investments represented by that green bar have that kind of net reduction or net neutral impact on customers' rates. And so therefore, we feel really confident that we're putting forth a really good portfolio of value in driving projects for customers.
All right. Thank you, Mary Ellen. I mean, these are big commitments. There's a lot of money. It sounds like it might not be as simple as Ian introduced it.
Gerald, are we confident that Algonquin can deliver on all these segments?
Sure. I've been with this company for quite some time now, and I think you all know we're very dynamic and entrepreneurial. When we come to with you with a commitment of 6 $700,000,000 that we plan to deliver on it. And if you take a look at this chart here, here's an example of real live example of what we've done. When we were up here in call it our 2014 Investor Day, we committed to you that we would spend about $1,100,000,000 in providing a better quality service product to our customers.
And guess what, we delivered on that and we invested just over $1,300,000,000 over that same time frame. So the actuals were slightly higher than what we committed to. What's happened here is this doesn't even take into account large scale transactions, something that's part of our DNA that we have a team in place and we're constantly looking for large scale transactions to come in. And there's an offshoot to those large scale transactions. 5 years ago, we weren't the size we are today.
We're much larger and we get a lot of benefits for that. Think about the talent that now we have, we're investing in, our processes, the technology that now we're putting in place, all of that allows us and gets us set to actually take advantage of achieving that $6,700,000,000 over the next 5 years. So what I hope you're taking away from this slide is that when we commit to something, being the company we are, that we're going to deliver on this.
All right. Thanks. I'll spend a lot of time on the opportunities here. What I'm hoping for now, Johnny, is that we can talk about for Algonquin the results that we can expect to see as all of this gets implemented.
Absolutely. So we talk about our investments in our regulated services business about being win win win. How do they provide benefits for our customers, benefits to the environment and then ultimately benefits for our investors. And it's good news to share that, that $6,700,000,000 investment combined with careful cost control is looking to grow our operating profit from just over $500,000,000 today to nearly $1,200,000,000 by 2024 On a compounded average growth rate basis, that's between 15% 17%, so really healthy growth in our operating profit from these investments and ongoing careful management.
All right. Very good. Maybe just a couple of concluding remarks. I'd like to get it opened up for Q and A.
So just before we jump into the Q and A, hopefully, you are as excited about the value of our regulated services business as I am. And that portfolio, combined with our local approach, the greening the fleet initiatives and our acquisitions deploying us giving us the opportunity to deploy $6,700,000,000 But maybe the more skeptical one's view may have had 2 questions at that point. One is, well, can you custom support it? And 2, can you deliver it? And hopefully, you've heard today that we've been very careful in terms of selecting those investments to have a careful impact on customer bills and that we've got a strong track record of delivery that should give you the confidence in our ability to pull this growth off.
All right. Very good. I appreciate that we are a little bit over time. So I do want to open it up though for questions from those of you that have them. Sure.
I was talking to Ben.
Ben, you were talking to Ben. Ben, go ahead. Ben.
Thank you.
I'm
just wondering, I know you mentioned 15%, 17% expected growth. What do you think about in terms of net rate base growth?
So the net rate base is going to more than double from $3,500,000,000 today to $7,400,000,000
Okay. So debt of depreciation.
Okay. So it's around the similar growth rates as your EBITDA growth then? Yes. Okay. And maybe Ian, I wanted to bug you in on the capital recycling.
Are you do you think about maybe something more dramatic in terms of recycling where you're offloading big portions? Because these buyers aren't necessarily looking at one asset, they're buying Canadian portfolios or U. S. Portfolios. Is there something drastic there that you would
Probably, Ben, probably early days for, I think, And maybe this is just the natural way of it. You mentioned asset recycling and like it kind of takes on a life of its own. And I think we're really just playing back to what we're seeing. And I know Mark brought up the question of we're seeing transaction multiples. We're seeing ourselves having a phenomenal growth plan.
It's just hard to look away from that as a consideration. But I don't think we're in a position to be able to say this asset or let's do something transformational. That hasn't been our history. We've done things that are strategic for us, even though they may be relatively small. We love all of our kids.
But in terms of but I'm just not so sure that we have this burning need or rationale to go out and do something massively transformational. I think this organization has got had such a phenomenal history of delivering year over year on growth, which is industry leading without actually doing anything transformational. I don't know, Ben, I know it's probably not a very satisfying answer
to your question. That's great. And just to clarify, just to make sure my notes are right, the 9.5% to 10% on the
power return, that was unlevered? Unlevered. So we always think of the power side of unlevered after tax IRR. Jeff referred to it as you ladder. And the reason being is leverage is for the benefit of our shareholders, whereas as you can appreciate the regulated services business, leverage is for the benefit of the customers.
And so on the customer side, all of those numbers were ROEs, returns on equity. Go ahead, Nelson.
Just quickly on the customer savings plan, in terms of those dots, in terms of timing, it looks like it's coming in, in early 'twenty one to late 'twenty one, whereas I think like based on
Well, let's put this way, they're all forecast to be complete before December 31, 2020, Cinderella and all from a tax equity perspective. But the recovery actually just because of post year test year CapEx would start mid-twenty 21. That's kind of the big picture plan for it. They're all targeting 2020 completion. So artistic license in the slide.
Is that one over here, David?
Oh, sorry. Yes. So somebody asked a question via Slido. Guys, millennials should be embarrassed that there's only one came in by Slido. But somebody asked a question about as we think about our CAGR, do we think about that CAGR off of the guidance of last year or the guidance of this year in terms of EPS.
And as I said, actually, I'm not sure there's much of a difference. The bottom end of the range, as David had mentioned, is about a 9% CAGR over the 5 years. It was about a 9% CAGR over the 5 years last year. And so obviously, it would only matter at the very last end of the piece in terms of whether the CAGR is 9 to 13 or 9 to 11. But just to reiterate what David said, if we just do what we have in the plan and sort of send Jeff on vacation for the last couple of 3 years of the plan, that's the 9% CAGR.
We certainly don't intend to send Jeff on vacation. And so sorry, Jeff. That's why as we've always looked forward, we've always been able to do more as we get into the 5 year spend groups is a very long time as we all know. And it's hard to but I think they have great line of sight today. If we can have line of sight or more probable than not for $9,200,000,000 for 5 years, boy that feels pretty good.
So there's the answer to the question on slide there.
The accretion on Bellco.
Sure. Yes. And the question was this 1% to 2% accretion on Bellco. I should have mentioned that those accretion numbers are on the current forecast as we look forward on the 9% to 11%. We always so.
Okay. If that's it, we're going to be hanging around. So if you have further questions, feel free to hit any of us up. So look, thanks for coming out. I appreciate we've indulged 15 minutes more of your time than we had promised.
I'm hoping that thematically these messages resonated or came through in terms of what we spoke of. This idea of continuing to green and grow our regulated services business, dollars 6,700,000,000 I'm hoping you recognize that they're all more they're all kind of a dark shade of blue in general. It's going to take our regulated services business to over 70% and probably headed towards 75%, which is a big that's a complexion change for the company. The $4,000,000,000 of our pipeline that we have dedicated to regulated and non regulated renewable energy Feels like we're in the right place at the right time from a growth perspective. And lastly, and I appreciate we spent a little bit time as a group during the break talking about the simplification of our business.
We very much are committed as this organization grows and gets scale in its utility as a regulated services business, we kind of want to look and feel like our peers. And looking and feeling like our peers is probably a simpler story than we have right now. So you're going to see that going forward in terms of continued growth in regulated services, this concept of reducing our structural complexity going forward. And then ultimately, seeing HOBB income ultimately exit our business as we both self monetize and finding washes out of the business. And so I'm hoping that plays for everybody in terms of where this organization and how we're positioning it going forward for the coming 5 years.
We feel very fortunate that the company continues, as I said, to fire on all cylinders. And without a doubt, that is attributed to the strength of the entire executive team. And so I thank them all for participating today. And I trust that today was informative from your perspective. And to the extent that you have thoughts or comments or questions in terms of this, we don't stand proud on these sort of things.
And so we look forward to you providing feedback because I can't give you the 3 hours of your life back, but I can prevent taking next year's 3 hours in a way that you don't find maximally informative. And so please,