Good morning, ladies and gentlemen, and welcome to Boralex third quarter 2021 results conference call. Note that all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded Friday, November 12, 2021. I would like to turn the conference over to Stéphane Milot. Please go ahead.
Thank you, operator. Good morning, everyone. Welcome to Boralex third quarter results conference call. Joining me today from our head office here in Montreal, I have Patrick Decostre, our President and Chief Executive Officer. I have Bruno Guilmette, Vice President and Chief Financial Officer, and other members of our management and finance team. Mr. Decostre will begin with comments about the highlights of the quarter. Afterwards, Mr. Guilmette will carry on with financials, and then we will be available to answer your questions. As you know, during this call, we will discuss historical as well as forward-looking information. When talking about the future, there are a variety of risk factors that have been listed in our different filings with securities regulators, which can materially change our estimated results. These documents are all available for consultation at sedar.com.
In our webcast presentation, the disclosed results are presented both on their IFRS basis, which we now call consolidated, and on a combined basis. Unless otherwise stated, all comments made in this presentation will refer to combined basis figures. The press release, the MD&A, and the consolidated financial statements, and a copy of today's presentation are all posted on the Boralex website at boralex.com under the Investors section. If you wish to receive a copy of these documents, please contact me. Mr. Decostre will now start with his comments. Please go ahead, Patrick.
Thank you, Stéphane. Good morning, everyone. I am pleased to present you our third quarter results today. One of the highlights of the quarter was the continued growth in operating income and EBITDA, in spite of the lower-than-expected wind conditions. The submission of solar projects totaling 800 MW in the Tier 1 New York State RFP and the addition of one hundred and three megawatts to the preliminary phase of our pipeline are also important elements of the quarter. One last highlight of the quarter was the closing of our first sustainable financing through the renewal and extension of our corporate credit facility and letter of credit facility totaling CAD 525 million. In terms of market conditions in Canada and the U.S., for sure, the proposed U.S. energy infrastructure plan was followed very closely by the industry.
This plan was finally approved by Senate and will be an important driver of future growth of the renewable industry in the U.S. In the coming months, we are expecting results from the Tier 1 RFP in New York State and more information on the 300-MW wind RFP and 450 renewable energy RFP in Québec. The selection of Hydro-Québec export line to New York City in the Tier 4 RFP should also be positive for the overall renewable energy development in Québec in the coming years. Moving to France now. Notwithstanding the political debate, RTE, the French transmission system operator, recently issued six different production mix scenario for 2050, and all of them are highly promising for renewable energy.
The most conservative scenario with the highest nuclear capacity projection refers to a solar production 7 x higher than today and onshore wind production 2.5 x higher. The 100% renewable and most ambitious scenario indicates a solar production 21 x higher than today and onshore wind production 4 x higher. Final point for France, we are planning to submit our bid in the next request for proposal in the coming weeks. I'll now review the main variants in our portfolio of projects. We added four wind projects and two solar projects in France to the preliminary phase, representing a total of 103.3 MW, including the optimization of wind projects. Projects in the pipeline continue to progress with 45 MW of projects moving to mid-stage and 680 MW of projects moving to advanced stage.
In total, we are now developing a portfolio of wind and solar projects of 3.1 GW and 193 MW of storage projects. Let's review changes to the growth path now. Two wind projects in France move to the secured phase, adding 34 MW to the growth path, including the optimization of the Éparmonts repowering project. Projects under construction are progressing well, with three projects totaling 30 MW to be commissioned as planned in the four quarters of this year. We have now 664 MW in the growth path, 521 MW in the secured stage, and 143 MW in the under construction and ready-to-build phase. In total, when adding the growth path to our existing production capacity, potential capacity is 3.1 GW.
In conclusion, as you can see on the slide 12, we are pursuing the execution of our strategic plan and are making good progress on all four strategic orientations. This completes my part. I will now let Bruno cover the financial portion in more detail, and will be back later for the question period. Bruno.
Thank you, Patrick. Good morning, everyone. I will start with a review of the progress made in light of our new 2025 corporate objectives. Total capacity increased slightly in the third quarter with the commissioning of our wind farm extension Plaine d'Escrebieux on August 1st, 2021, and now reaches 2.5 GW. Our last 12 months EBITDA continued to increase thanks to our acquisitions and commissionings, but the AFFO slightly decreased due to the increase in project debt repayment and distributions to non-controlling shareholders. Our reinvestment ratio stands at 53% in line with our 50%-70% target. About our CSR strategy, we continue to make good progress on the environment, society, and governance aspects. We are finalizing the assessment of our carbon footprint.
We have reviewed our calculation methodology for CO2 avoided and are putting together a more formal plan for managing end-of-life assets. We also launched a training on indigenous culture with a participation rate of 97% so far. We set specific diversity targets as indicated on the slide, notably for the percentage of women in management positions and new hires. Finally, we have increased our participation in different referentials like S&P and CDP, and as mentioned by Patrick, we closed our first sustainable financing. Taking a look at our debt objective now. Our corporate debt to total debt ratio remains stable compared to the previous quarter. We are working towards our objective to obtain an investment-grade rating and increase the proportion of corporate debt. I will now cover the financial results for the quarter, starting with production.
Wind production in Canada was 6% lower than our anticipated production and 5% higher than in the same quarter last year, driven mainly by acquisition. Comparable production was 10% lower than last year as wind conditions were weaker in the second half of the quarter and compared to a strong third quarter in 2020. In France, wind production was 15% lower than anticipated and in line with the same quarter last year as growth coming from commissionings compensated for the decrease in comparable production. Wind conditions were also weaker in the second half of the quarter in France. Overall, total wind production for the quarter, combining Canada and France, was 10% lower than the anticipated production and 3% higher than last year. Turning to hydro now.
It was a very strong quarter for U.S. assets, with production 81% higher than anticipated production and almost 3 x the production generated in the same quarter last year. This more than compensated for the weakness in Canadian hydro and resulted in total production for the hydro sector at 21% higher than anticipated and 42% higher than in the same quarter last year. Finally, production from our U.S. solar acquisition was 10% below anticipated production, caused by a mix of less favorable sun conditions and some maintenance work. In summary, total production for the quarter was 7% lower than anticipated and 22% higher than last year. Third quarter revenues were up 8% compared to last year, mostly due to the increase coming from the hydro and solar segments. For the third quarter of 2021, operating income was up 7%.
EBITDA was CAD 93 million compared to CAD 83 million for the same quarter of 2020, a 12% increase. We generated CAD 47 million of net cash flows related to operating activities, compared to CAD 73 million in the same quarter last year. Cash flows from our operations was CAD 66 million in the third quarter, a CAD 3 million increase over the same quarter last year. The AFFO was CAD 21 million compared to CAD 26 million in the third quarter last year, due to the slight increase in debt repayment and distributions to non-controlling shareholders. Our financial position remains solid, with our net debt to total market capital ratio of 46% on September 30th, 2021, compared to 41% on December 31st, 2020. In conclusion, again, this quarter we reported strong growth in operating income and EBITDA in spite of unfavorable wind conditions.
We are making constant progress in the execution of our overall strategic orientations and 2025 corporate objectives. The results of the 800 MW solar project submitted in New York State request for proposals are expected by year-end. We are in an excellent financial position to pursue organic growth organically and through accretive M&A, and we are pursuing the work to optimize the capital structure and improve our financial flexibility. Thank you for your attention. We are now ready to take your questions.
Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, simply press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have any questions. Your first question will be from Nelson Ng at RBC. Please go ahead.
Great. Thanks, and good morning, everyone. My first question-
Good morning.
Good morning. My first question is related to cost escalation, which has been very typical, very topical recently. You obviously have about 200 MW of New York solar projects under advanced development. I believe the 200 MW needs to be completed around 2023. Can you just talk about pricing, how much or what portion of those projects in terms of the cost has been locked in, and just a general color on cost, labor, tightness, schedule and things like that?
Yeah. What I can tell you, Nelson, is specifically on this project, we have an update some weeks ago with the team about all the different variables that change and then the date of the global portfolio model, and we're still in an area where these projects are interesting for Boralex. The FID has not been taken already, but we are finalizing the things and looking to what happens. On one of these projects, there was a cliff date by the end of 2022, but we just got the extension. To your point, we're flexible and today we're still in the right waters.
Just to clarify, one of them had a end date of 2022, and you have gotten an extension, and then are the rest?
Yes.
At the end of 2023, and you could potentially get an extension on those ones as well if needed?
Yeah. The one we get an extension is a 20-MW project. I'm confident that we will find, you know, the time to settle the things and to take the FID in the next and in the timeline where it's possible to build and to do the project.
Okay, thanks for that. My next question just relates to France. Obviously, there's a pretty good pipeline in France and there's plans for a lot more wind and solar. Can you talk about, I think, last time you mentioned that you would roughly bid about 100 MW per year into RFPs in France. Is that still the case? The second part of the question is in terms of funding growth, I believe one potential option you're looking at is to sell a minority stake in the French business. Can you just touch on both questions?
Yeah. On the first question, this is indeed the short term, say, target is 100+ MW per year. That's the French target globally. On the second part, we are evaluating. We have started a process and it's an alternative to other financing globally. As a corporation, we have to look to the different alternative. We will decide on the partner on the basis of essentially three things. The first is the value, the second is the governance and the fit. The last one is the fit with the team to be sure that we will continue to be nimble and aligned on the long term and create value for Boralex on the long term.
Great. Thanks for the color. I'll get back in the queue.
Thank you. Your next question will be from David Quezada at Raymond James. Please go ahead.
Thanks. Morning, everyone. A question just, I believe at your Investor Day, you talked about potentially expanding and diversifying within Europe through M&A. Just curious, you know, in today's higher power price environment in Europe, how's your view of M&A in the regions that you mentioned elsewhere in Europe? How has that evolved since then?
Thank you, David, for the question. We're analyzing different opportunities, whether it be in Europe or North America. We also want to continue to be disciplined, as you mentioned, it's a competitive environment out there. We'll select according to our investment criteria. Plan has not changed. M&A is a complement to our internally generated growth or organic growth. We'll continue to be disciplined on that front. We're looking at different opportunities in France, and specifically in Europe, in France, and potentially some other countries.
Okay, great. Thank you for that. Maybe just one other one for me. Just with some of the PPA expires you have over 2023- 2024, and again, I guess referring to the higher power price environment we're seeing today, is there any potential to renegotiate those earlier?
No, we should wait for the expiration of the existing PPA. What is interesting is due to the present high price in Europe, there is a lot of interest from corporations to buy green electricity in the long term to protect them against the price. That's stronger than two years ago, and I think it will last for a certain period because now people understand that when you are exposed to gas and CO2 price, which is the marginal electricity cost drivers, you're not protected. That's very interesting. We have even now some demand for greenfield projects, PPA to sign for with new assets, with additionality, and we're discussing these kind of things too.
Which creates another alternative for us for the future.
Excellent. Thank you for that. I'll turn it over.
Thank you. Next question will be from Rupert Merer at National Bank. Please go ahead.
Hi. Good morning, everyone. Following up on the French market. Looking at your pipeline, it looks like you have about 133 MW advanced stage and 687 MW mid stage. I understand you're targeting about 100 MW per year. If you see an acceleration in the market, either through RFPs or through, say, potential greenfield development directly for corporate offtakes, how quickly can you accelerate those mid-stage assets and get them into construction?
Good morning, Rupert. Sorry. Essentially in France, as you know, what is limited is the number of authorizations to build and to operate. As you also know, we are, I think, quite successful on this in obtaining authorizations because we do the right process for consultation and when we apply. Yes, there is interest from the market in terms of economics. I don't know exactly how the global authorization process could be changed in the future because maybe the government, and they have already, you know, they have already done something. There was some declaration some weeks ago with Barbara Pompili, the Minister, to explain how she wants us as an industry to develop projects.
Nicolas was there because Nicolas, as you know, is the chair of the Wind Energy Association in France. We're really involved in this. I cannot promise that it will accelerate. I can tell you that we're working hard on that to have a constant flux of projects in France. What is good is with the RTE scenario, we have no long-term view after 2030 with very important projects and construction. That's my view.
Okay. Thank you. Thanks for the color. Following up on Nelson's question earlier about inflation, you gave us some good color on the first 200 MW of solar you have in New York and thoughts on the impact of inflation on those projects. What about the 800 MW that you bid into New York recently? Can you talk about your strategy in bidding those 800 MW and what contingencies you may have for the rising costs on those projects? Actually, what does the rest of the pipeline look like, your 500 MW, let's say, of ready-to-build projects?
Yeah. The point is, the risk today is not inflation, you know, the volatility of the price and not to be squeezed between the defined price and the costs of construction which change. In this situation, first of all, we have to take a quick, clear decision. When the planets align, you know, we don't have two months to take a decision today. We have. Generally two weeks and that's how we can do with existing projects. That's what was part of my answer to Nelson. We need to be sure that the planets are aligned for the 200 MW, and then we will take the decision and go full steam ahead at that time.
For the other project, the 800 MW, about the cost and some risk about this inflation risk. I think it's in the price that we bid. Generally speaking, we will not be taken by surprise, because it's already in the price that we bid.
All right. Very good. I'll leave it there. Thank you.
Just on the project, as I already mentioned, which is also our strategy in France, when we bid different projects in the bid, we have a ladder of the return and of the price. We don't want to be competitive on 100% or if we are competitive on the 100%, we should be very happy to be competitive. The last project has a return which is higher than the previous one. This is also creating a portfolio of projects in terms of return and in time.
Thank you. Good morning. Patrick, you touched on Quebec and the opportunities for future procurements and RFPs there. I wonder if you can comment on what your prospective pipeline beyond the Apuiat development looks like in the province and the scale that you might be able to bid into future RFPs in Quebec as we go ahead.
Yeah. The first point I didn't mention in the speech is the fact that 10 days ago or 11 days ago, the government HQ has filed the update of their electricity supply for the next for 2029. This has increased from what they provide two years ago by 6.5 TWh . This is due to the greening of the Québec industry. This is due to the will of the government and the action from the government to bring new economic sector here, like biofuel, hydrogen, battery factories, data center, blockchain and all those things which create demand. The fact that Québec wants also to switch vehicle to electric vehicles. Just that's the general situation.
On our side, we have all our projects even after 2018 and continue to work on their development. It's public information that on Seigneurie de Beaupré we are developing an 800-MW project. This is under the process of consultation locally. We have this project, and we have extensions of other projects. We have an interesting pipeline for the future in Quebec on our side.
Thanks for that detail. Second question. You've touched on France specifically and New York. Wondering if you can comment on the broader prospective pipeline in the U.S. I suppose California is the focus, and outside of France and Europe, any particular projects or areas that are more advanced relative to the rest, and how should we think about the prospective pipelines there?
Yeah. In California, we have applied for 100 MW storage. We have another part of storage in the pipeline, which is in New York State. This is greenfield development in these two states. In California, what I see for today and what we see is not an energy production greenfield development. It's an optimization of the project in place with storage. We are working on other states in the U.S. that I will not disclose today, which are similar to the state of New York two to three years ago, meaning thinking about changing their law and with important population and a need for green electricity. Essentially, to start greenfield development there also. That's what we are doing.
As Bruno mentioned, we are also evaluating different M&A opportunity and stay disciplined on that. If we find something which is interesting and good and accretive, we'll, like in the past, go ahead. If not, we will continue to hunt.
Understood. Okay. Thank you very much. That's all the questions I have.
Thank you. Your next question will come from Mark Jarvi at CIBC. Please go ahead.
Just a question on the RFP submissions in New York. Are you gonna kind of give us a sort of timeline for the earliest potential commissionings and then sort of like the timelines for the sort of longest dated commissions? Are these projects gonna be somewhere between 2024 and 2027, or sort of any other sort of bookends on the timing of those projects?
Essentially, Mark, good morning. Essentially, I think we have first of all to wait about the decision, which will be at the end of this year or beginning of next year. Yes, it will be probably 2026 or 2027, but I don't know. We should have an idea of the volume first, then we should and at that time, we will be able to be more specific about the year when we think this will be connected.
It couldn't be any sooner than that. Like, these aren't projects that could slide in in 2024 or 2025, you don't think?
No. No. That's the project we discussed earlier, the 200 MW. Essentially the date without changing, coming back to the Nelson question, without changing anything, the date are for one project is 2023, thanks to the extension, and the other project are 2024 without any extension. I think the fact that we get an extension on a small project, it shows that NYSERDA is willing to have the production one day or another and not to squeeze us between. We think, we all think that inflation is temporary, so we can manage that, and the counterparty is understanding this, so I think it's good.
Makes sense. Going back to the corporate PPA market in France, to date, you're contracted a bit shorter. You brought up the comment about maybe being able to go some interest on greenfield projects. Are you seeing enough that you think within the next couple of years, you could maybe do like a 15-year corporate PPA and bypass the RFP process?
Yeah, it depends on, I think, three things. The first is if a project meets the criteria of an RFP with EDF, the first priority is to bid the project in the RFP. If the competition is too important and taking into account that we don't have the same counterparty risk, generally speaking, you know, if you go for any corporation, the counterparty risk is generally higher than EDF, guaranteed by the French state. Then we need to have a higher return and a higher price for electricity. That's where we are. Yes, it could be an important alternative for us in the long term.
I think it's important to have you know one foot in each to be able to have alternative. Because if the market is closed for any reason, like we have seen in different market and for any reason in some years, the French state decide to temporarily stop RFP, then we have the alternative, and I think in term of risk management is the right way to go.
Makes sense. Bruno, for you, remaining steps, I guess, what are the remaining steps to get the investment-grade credit rating and timing on that? Second, if you do go to the path of longer term corporate PPAs, how does that fold in or how do your lenders, when you guys have that sort of portfolio financing approach in France, treat those contracts?
Well, first of all, good morning, Mark. Essentially on the credit rating, we're working hard on that front. As you know, it's a 2025 target. We certainly are hopeful to achieve it as soon as we can. We'll certainly disclose the progress at the right time on that. We're certainly getting organized to do that as soon as we can. On the corporate PPAs, we believe there's a financing market for the corporate in France, there's a financing market that is willing to consider those types of new customers, new offtakers.
I mean, we're having those kinds of discussions. As you know, we've signed corporate PPAs in the past. These were not for greenfield assets, but we certainly believe there and are entertaining discussions on financing those types of contracts, which would be fairly innovative in the market. But there are some existing, a small number, but there are some existing precedents.
Just to clarify, Bruno, under your existing agreements you have, could these projects fit into that, or would it have to be sort of outside that sort of larger, financing vehicle you've set up in France for greenfield development?
We would likely go with separate new financings for those corporate PPAs.
Got it. Okay. Thanks for your time, Bruno.
Does that answer your question?
Yeah, exactly. Yeah.
Thank you.
Perfect. Yep.
Thank you. Next question will be from Naji Baydoun at iA Capital Markets. Please go ahead.
Hi, good morning. I just wanted to start with New York. Maybe if you can give us some color on the expectations for your bidding strategy there. I guess I'm just trying to understand the trade-off between bidding the entire 800 MW all at once or you know, in different sort of stages or tranches throughout different processes.
Good morning, Naji. Essentially, as I mentioned, you know, there is project which are, let's see, really optimized. There is project which are in the optimization. There is project which are a little bit more earlier in this. It's good to bid. When you meet the criteria of bidding, I think it's a good discipline to do it. You do not, you know, if some project are not advanced and accepted or meet the clearing price, then you continue to optimize them and you bid them the year after. I think essentially it's that.
With the project which are less optimized today, we have an expected return, which is higher, and cover the difference. We can and we have more contingency everywhere, so we know that we will be happy if we are selected. This, the consequence of that is that what they call the levelized REC cost, which is the cost of the REC on top of the expected curve for electricity price that NYSERDA is taking is different. We know that the clearing levelized REC costs will be somewhere in between our project and our.
Okay. Understood. It's a sort of a diversification and risk spreading around the risk between the projects.
Mm-hmm.
Just on M&A as well, you talked in the past about structuring your activities differently and maybe taking a different approach to acquisitions. Can you maybe just talk about what initiatives you're undertaking to achieve this goal and maybe how that's affected the way you analyze or look at deals or approach your M&A strategy?
Morning, Naji. On the M&A front, we hope that we're always improving and getting more sophisticated. Really it's about a portfolio strategy. We know we have a fairly good view on our organic development on our pipeline, and we want to complement that with M&A, as I said previously. We look at different financial criteria, but we also look at the strategic factors, as mentioned, that could bring either into a new territory, having the appropriate team that complements our existing workforce, and so on and so forth. There's a few elements, a few criteria that we consider.
We believe that on some acquisitions we will be quite competitive also because of our strengths, where we can optimize some assets as we were doing in California, and we can add on to the strategy that the previous owner had. In terms of being more sophisticated, we also look at who the owner is, what type of partnerships we could have on that asset and so on and so forth.
Okay. Got it. Very helpful, Bruno. Thank you.
Thank you. Your next question will be from Andrew Kuske at Credit Suisse. Please go ahead.
Thank you. Good morning. I guess as a broad question, when you think about your pipeline of opportunities, which you continue to grow, do you feel you're at the stage where really what you're delivering at the end of the day are really high graded opportunities and you have a number of other things that you could do? They would provide sufficient returns, but you're balance sheet constrained or there's other constraints that, you know, effectively hold you back from doing those. So maybe if you could just sort of frame that to start.
I guess it's one way to look at it, Andrew. In terms of constraints for sure, balance sheet is one. Although we believe that we have different sources of financing. Our balance sheet is strong. We have different sources of financings. We've mentioned partnerships as one. On the debt front, we're working hard towards diversifying our toolbox on different types of financings. From an equity perspective, we try to be disciplined on issuing new equity. Certainly we do need to prioritize. We have opportunities in, I mean, at least three or four different countries.
So far, I can't say it's been a very serious constraint other than M&A. As I said, the key elements that we need to prioritize are the add-ons on the M&A front.
Okay, that's helpful. Then maybe just thinking about it at operational level, when whether you're thinking about just existing expansions of assets or opportunities or M&A, could you maybe just give us a bit of a refresh on, you know, how you approach your maintenance activities around a bunch of the units you have, whether it's relying on OEMs, internalization, where you're doing it yourself. How do you sort of think about that process and/or the opportunity set that could present in certain M&A?
We are agnostic about relying on OEM or internalizing. We are not agnostic on risk reward of the situation. Typically in Quebec, essentially in Quebec, not yet other because for contract maintenance contract constraint in Ontario and BC. In Quebec, we are presently internalizing with a lot of success the maintenance. When I say a lot of success is we are choosing the right people in Enercon to come with us. They are highly motivated. I make a round trip around all our site in Quebec during the last months, and I can tell you that our people on the field are really motivated to do it better and to optimize.
We are successful also on the costs part and the production part because it's not just because we are reducing the cost of the maintenance, it's also because we are increasing the production and the energy availability of the turbine. In France, we have just made the you know the opposite move in June by signing with Vestas a very interesting contract, long-term contract for maintenance, where they are taking more risk. When we make the evaluation of where we are and what they propose to us, it was really interesting to go the other side and externalize the maintenance again with Vestas.
I think the move we did in the past in starting in 2007, but many times in France to internalize was also something which pushed the turbine suppliers to organize themselves to propose something different to their customers. Just to say that when we externalize, the costs are interesting and the risk are also interesting. Having said that, on an acquisition, it really depend of our analysis during the due diligence on CRE. We didn't put money on the internalization or of the maintenance of the solar assets, but it was a potential upside, and we're still working on this because you know, the existing contract is interesting.
If we want to make a better entry in a new country, finally, it's a question we have to look into. I see some optimization again on CRE on energy availability. You know, how to do the maintenance, not just to reduce the cost and maintain the cost, but to have the right availability. This is a complex things, but we're analyzing, you know, every point of it.
That's very helpful color. I guess just in context, your ability to be either internalized or external, you've got this sort of duality that you have experience on the internal side, and that probably gets you better price tension from the external side. You have a bit of the best of both worlds, which then, you know, drives your return framework more than anything else.
Yeah. I think we're not an easy client for maintenance people, but we are a good partner to them because as you mentioned, our people have a lot of skills and IT, and then it makes things more interesting. I think that's good for us, and I think that's good for the OEM. For the moment with Enercon in Canada, it's clear that we're doing better on our side of doing it ourselves. It's the trend.
That should be good for shareholders too. I appreciate the time. Thank you.
Thank you.
Thank you.
Next question will be from Ben Pham at BMO. Please go ahead.
Hi. Thanks. Good morning. Following on some of your comments around non-core asset sales and moving through the process, I'm wondering what is the primary financial metric you guys are gonna look at in assessing success? Like, is it EBITDA? Is it free cash flow per share accretion? Is it NPV? Like, what are you looking at when you would do the relative analysis?
We're very much focused on free discretionary cash flows per share. It's an important criteria for us, but also the long-term value creation for our shareholders. It's cash flows, but certainly we do monitor long-term IRRs on each and every one of our opportunities.
Okay. Can I then add to that? Because I know Bruno, like in the past, you mentioned maybe not to focus on the EBITDA bull multiple as much for secured projects. Look at levered IRR. Is this really a situation where maybe you can sell an asset at 9x EBITDA, just to remember when you're building at 11x, like you would do that as long as it's free cash flow accretive on a levered basis.
Sorry, I don't think I got your question completely, Ben.
Yeah, sure. My question really is, let's say you're building assets at 10 x EBITDA or so, you know, like that CAD 5.5 billion or so. When you look at asset monetizations, like, are you willing to sell an asset below that number on an unlevered basis? I.e., you're selling at, say, 8x-9 x. I'm not saying that's a number. You're willing to do that. Like, the headline doesn't look great, but when you do it on a levered basis, just how you structured the debt, it's still accretive to your free cash. Like, would you be willing to do that?
I mean, essentially you're asking if we're willing to look at selling. Well, first of all of our partnerships are based on an accretive value. The issue with multiples is they're not taking into account, for example, duration of contracts. I mean, the way we look at selling our assets is long-term value creation to our shareholders, not on a multiple basis, because multiples don't tell the whole story. I guess that's probably what I said in the past.
Yeah.
It's really aimed at: are we gonna add value to our shareholders long term? I mean, when I look at all of our assets so far, the value today is certainly higher than what we've built it for. That issue hasn't arisen yet.
Okay. That's great. Maybe on French elections, the news headlines, are you considering maybe you need to, when you bid into the next couple of rounds, is there a political risk premium you need to consider in your bidding behavior?
Which market are you talking about, Ben?
This is in France.
Okay. Yeah. Sorry. I don't think we're taking any political risk. The point is, if you look to the French election situation, Macron has to play with 50% on renewable and 50% on nuclear. The nuclear has more challenge than renewable to be, you know, to restart the industry. I'm not speaking only about social acceptability, cost and delay. I'm also speaking about attracting people, talent to go back to the nuclear industry and to start studies and all those things. There is a lot of challenge on this side, and he has to play with that because there is a lot of people working in this business in France.
Yes, you have the extreme rights, which are always speaking more loudly than the others, and they are speaking against wind industry, but they will not make it at the end because they will not win the election. I'm confident about this. You know, it's, I think, my fifth or sixth presidential election in France since I start with Boralex. We are used to that, and that's also something which is important. You know, when I mentioned that Nicolas was Barbara Pompili, when she announced the ten measures for easing development and having an acceptable wind development, we are quite close in terms of the message we can bring to the majority and the PM and the PR about wind development.
Boralex is really, I think one of the, you know. Obviously there is EDF and Engie, which are partly or totally state-owned company, but we are the challenger since years now, and we are well positioned to understand what is behind. I'm not sure that all international investors are understanding that in France and how it'd be, because when you read the newspapers, it's not what you see.
That's very helpful, Color. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you do have any questions, you will need to please press star one on your touchtone phone. Your next question will be from Matt Taylor at Tudor, Pickering. Please go ahead.
Hey, good morning, guys. Thanks for squeezing me in here just before the top of the hour. I just wanted to follow on to Ben's questions on divestitures there. I wanted to hear your thoughts on your hydro portfolio. US side seems to be performing quite well. You know, I get that there's ebbs and flows there, but with no growth in the pipeline, what strategic value do those assets provide Boralex? And could they be viewed as non-core in trying to fund your 2025 growth plan?
Essentially, I think just to go back to Matt, to your question and to Ben's question, I think you know divesting is really something. Not just divesting, you know, portfolio management is something we have to which is more complex than a multiple or just a financial decision. Indeed, we have to take into account. If you look to, you know, should we have sold our U.S. assets the last quarter would have been totally different. So I think that when I'm speaking hydro U.S. assets. So I think the diversification is important in terms of revenue pattern.
Today, our hydro assets are really optimized, and I think it's not like the cogen in France or the biomass, which is completely different business than hydro, wind and solar. Hydro is managed remotely. So if we have an opportunity, it could be. Again, I'm agnostic about this, but we have to take into account different factors in the decision on the short-term and on the long-term, and I think that's how we do it.
Thanks, Patrick. Is there some strategic value there too? As you've mentioned, the Québec government is more supportive and looking at not just renewable power, but different technologies. Do those assets in Québec give you an opportunity to maybe be involved in customers that want hydrogen or various other pieces that we should be thinking about or the market should be thinking about in terms of you've mentioned some RFPs that are coming up in Québec. Is there some strategic value of these hydro assets?
Not specifically, I think. I think what comes from our assets in Quebec and our presence here, it's again the knowledge of, you know, the way the government is planning the next 10 years. Like I mentioned for France, we obviously understand it quite correctly, I think, in Quebec. And we have a good view of what is the plan, what everybody say to the media, and what will be somewhere the most realistic scenario. We're working around this on our greenfield development. The hydro asset sometimes is very good.
For example, when we start in the U.S. and New York State, we start really, if you look geographically, we start really the first project around the area where we have hydro assets. It was important in terms of reputation. We have now turned to larger projects in other parts of the state of New York. The first step was really built on our reputation as a good hydro player there and a good reputation. We have to take that into account too.
Okay, that's great. The last one I have, can you frame, you know, whether or not this export line to New York City gets built here, how that changes your view on what your cadence might look like in sanctioning or at least securing more renewable projects in Québec over time?
It's for sure. It was, you know, since four to five years, even before Sophie Brochu, the goal of Hydro-Québec was to use, it's what they call the, their available energy to export to different markets, the Atlantic, Massachusetts and New York City. Now they have signed the last, they have agreed the last, or be selected for the last block of this strategy. I think it's very good because this will create new need in Quebec. When you look to the balance between production and demand in Quebec, they need new electricity, new power, new energy and new power, which is good. They don't have any energy available. For example, if when they are another province or state need more electricity.
If, for example, Ontario needs some electricity for a period when they will stop Pickering and there is no more electricity available in Quebec. There was one year ago or even some months ago, but now it's dedicated to New York, so it means we need to build something either in Ontario or in Quebec, in my example. I think that's good for the whole industry.
Okay, that's helpful. Thanks for those comments, Patrick.
Pleasure, Matt.
Thanks, Matt.
Thank you. At this time, gentlemen, we have no further questions. Please proceed.
Well, thanks a lot, operator, and thanks, everyone for your attention. A lot of good questions on this call. We're past the hour already. If you have any additional questions, please call me at 514-213-1045. I'll make sure we quickly answer your questions. Our next call to announce fourth quarter and year-end results will be on Wednesday, February 23, 2022. Already there. I hope you all remain healthy. Have a great day and quality time with your families during the upcoming Christmas vacation. Yes, we're almost there. Ready for karaoke. Thank you. Bye.
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.