Good morning, ladies and gentlemen, and welcome to the Boralex third quarter of 2022 financial results conference call. Please note that all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session in which the financial analyst, shareholders and investors will be invited to ask their questions. To ask a question, please slowly press star one and then one on your telephone. Also note that the call is being recorded. For webcast participants, you can also ask questions during the conference, but they will be answered by email after the call. Finally, media representatives are invited to contact Camille Laventure, Advisor , External Communications. Her contact information is provided at the end of the quarterly press release. I would now like to turn the conference over to Mr. Stéphane Milot, Senior Director, Investor Relations for Boralex. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to Boralex third quarter results conference call. Joining me today on the call, Patrick Decostre, our President and Chief Executive Officer, Bruno Guilmette, Executive Vice President and Chief Financial Officer, and other members of our management and finance team. Mr. Decostre will begin with comments about market conditions and the highlights of the quarter. Afterwards, Mr. Guilmette will carry on with financial highlights, and then we'll 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 security regulators, which can materially change our estimated results. These documents are all available for consultation at sedar.com.
In our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis. Unless otherwise stated, all comments made in this presentation will refer to combined basis figures. Please note that combined is non-GAAP financial measure and does not have standardized meaning under IFRS. Accordingly, combined may not be comparable to similarly named measure used by other companies. For more details, see the non-IFRS and other financial measure sections in the MD&A. For the press release, the MD&A, the consolidated financial statements, and a copy of today's presentation are all posted on our Boralex website at boralex.com under the Investor 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, and good morning, everyone. It's a pleasure for me to present our results and achievement for the third quarter. As you have noticed, we continue to vigorously execute on our growth and diversification strategy during the quarter. 600 MW of storage project in preparation for the upcoming request for proposals next January in Ontario and 111 MW of wind and solar project in France were added to our pipeline. 139 MW of project, including our Limekiln Wind project in Scotland, transitioned into the construction or ready to build phase of our growth path, with commissioning expected for 2024. This proves we have invested at the right time in the expansion of our development teams.
With recent and expected changes in regulations to further accelerate the development of renewable project, we are expecting to continue delivering strong growth additions to our pipeline and growth path. Please note that our third quarter results include a provision relating to the adoption on August 16 of a new 2022 Supplementary Budget Act in France regarding additional revenues recognized for certain feed-in premium contracts since the start of the fiscal year. A provision was therefore recorded, of which CAD 28 million relates to revenue generated in the first half of 2022. This provision largely explained the decrease of our quarterly EBITDA. However, for the nine months period ending September 30, our EBITDA grew slightly, reaching CAD 379 million, compared to CAD 372 million in the same period last year.
Production in the quarter was down compared to last year and to anticipated production, mainly due to difficult wind conditions in France, as well as unfavorable conditions in hydro and solar in the U.S. Looking ahead, we are in a very solid position to pursue our growth, with over CAD 900 million in available cash and authorized financing. We will also benefit from new contract signed to optimize our revenue starting in the fourth quarter this year. Market conditions continued to rapidly evolve by region during the quarter. In August, the United States announced its most ambitious climate bill, putting the country on track to achieve a 40% reduction in emissions by the end of the decade.
The bill includes $370 billion in grants and tax incentives and aims to increase investments in renewable energy, electrification of the economy, and clean energy generation in the United States to help reduce inflationary pressures. In Canada, the federal government announced that the Department of Finance would engage with experts to establish an investment tax credit of up to 30% for investment in clean technologies, with a focus on net zero technologies, battery storage solution and clean hydrogen. The credit would be available as of the day of Budget 2023 and no longer in effect at the start of 2035, subject to a phase out starting in 2032. The Fall Economic Statement is an affirmative response to the United States IRA, specifically the decision to make the 30% credit refundable.
The adoption of these provisions will increase interest in renewable and storage across Canada. The credits would likely have a significant impact on our project already under contract. SBX, Des Neiges and Apuiat will also increase the opportunity as for other project like Ontario storage, corporate PPAs as province and large consumers realize the credit will reduce the cost of renewable energy. In Quebec, Premier Legault was re-elected on October 3, 2022. His party has committed itself to adding 3 GW of wind power on top of the RSP of 300 MW on the way and on the 1 GW announced recently. In Ontario, the Independent Electricity System Operator, IESO, will be called upon to develop procurement mechanism to meet the new needs for power confirmed for the years from 2025 onwards. RFPs are expected to be launched soon.
In France, we are waiting to get the latest details of the various measures to accelerate renewable energy development. The information we have at this point are the following. First, concerning the cap on merchant electricity price, France is looking at a cap of EUR 180 per megawatt hour, as was proposed by the EU, with the possibility to establish different caps by technology. It is not clear at this point how this cap would apply and which type of contract it would cover. We should get more clarity in the coming weeks. For the moment, the proposed legislation indicates this cap would apply starting from December 1st, 2022 until the end of 2023. Second, we are still waiting to get the price threshold on which revenue sharing will apply for the feed-in premium contract.
As you have noticed in our financial results, as the price threshold is not known, we had to estimate it as well as the implementation guidance of the new law. Finally, we are also waiting to get more information on the application of the 18 months period before activating a contract after the commissioning of a new plant. In the United Kingdom, the policy of decarbonizing the electricity mix by 2035 and the desire to resolve the energy crisis, particularly by increasing energy production, are favorable to the development of renewable energy, mainly solar power in England and onshore wind power in Scotland. I will now rapidly review the main variances in our portfolio of project and growth paths. The 47 MW in the early stage came from the addition of a new wind project and four new solar projects totaling 111 MW in Europe.
The increase of the expected capacity of two wind projects and five solar projects in Europe for a total of 71 MW. The increases were partly offset by the discontinuation of certain projects and the transition of project to the mid-stage phase. Project in the mid and advanced stages continue to progress with some adjustment between phases and no material changes to report. In total, our pipeline now comprise project totaling 3.9 GW of wind and solar project and 792 MW of storage project, including the addition of 600 MW of storage project in the third quarter. Let's review changes to the growth paths now. Three projects from the secured stage transition to the ready-to-build phase.
These projects are 13-MW solar project of Cruis and the 20-MW wind project of Helfaut in France, as well as the 106-MW wind project, Limekiln in Scotland. These three projects will benefit from long-term corporate contract with commercial counterparties. The first two projects are expected to be commissioned in the first half of 2024, while Limekiln is expected to be commissioned in the second half of 2024. Finally, the Bougainville Repowering project was commissioned during the quarter, bringing our total installed capacity to 2.5 GW. I won't cover in detail the progress made in our four strategic directions, as I have already talked about the major points, but please note we continue to optimize maintenance during the quarter. This completes my part. I will now let Bruno cover the financial portion in more detail, and we'll 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 2025 corporate objectives. Progress made on our EBITDA and AFFO was affected this quarter by the recognition of the provision on French revenues mentioned earlier by Patrick. Our progress should resume next quarter. Our reinvestment ratio stands at 54%, which is in line with our 50%-70% target. About our CSR strategy, we continued to make good progress on the environment, social and governance fronts, as presented on Slide 15. Our balance sheet is very solid, with more than CAD 900 million in available cash and authorized financing facilities to continue implementing our plan for growth. I will now cover the financial results for the quarter, starting with production.
Wind production in Canada was slightly lower than anticipated, but 4% higher than in the same quarter last year. In France, where wind conditions were particularly difficult this quarter, given the important heat wave, wind production was 21% lower than anticipated and 6% lower than the same quarter last year. Overall, total wind production for the quarter, combining Canada and France, was 11% lower than anticipated, but in line with last year. Turning to hydro now. Canadian hydro's production was 5% higher than anticipated and 20% higher than last year. In the U.S., production was 16% lower than anticipated and 58% lower than the same quarter last year. Hydro conditions were particularly difficult this quarter compared to very strong condition in the same quarter last year.
Total production for the hydro sector was 2% lower than anticipated and 22% lower than last year. Finally, production from solar asset was 13% lower than anticipated, but 4% higher than the same quarter last year. In summary, total production for the quarter was 10% lower than anticipated and 6% lower than last year. Third quarter combined revenues were down 17% compared to last year, mostly due to the recognition of a CAD 28 million provision on French revenues regarding the first six months of the fiscal year and to lower production levels. The reduction in revenues resulted in a CAD 38 million decrease in operating income and CAD 30 million decrease in EBITDA. Please note that the increase in corporate costs is related to the growth of the workforce and higher external advisors costs to support our development.
On a consolidated basis, we have generated CAD 90 million of consolidated net cash flows related to operating activities, compared to CAD 47 million in the third quarter last year. Cash flows from operations was CAD 40 million in the third quarter, a CAD 26 million decrease over the same quarter last year. AFFO was CAD 1 million compared to CAD 21 million in the same quarter last year. This decrease is due to the recognition of the provision for the feed-in premium contracts mentioned earlier. Our financial position is very solid, with our net debt to total market capital ratio of 35% on September 30th, 2022, compared to 48% on December 31st, 2021. In conclusion, the decrease in the third quarter EBITDA is attributable to the provision recorded following the adoption of the 2022 Supplementary Budget Act in France.
We continued to make constant progress in the project pipeline and to transition projects in the ready-to-build phase. We have significantly accelerated our development in the energy storage, and we are in a strong financial position to finance our disciplined growth. Finally, the evolution of our finance management model will allow us to be even more agile and closer to our key markets. Thank you for your attention. We are now ready to take your questions.
Thank you. As a reminder, to ask a question, you will need to slowly press star one and then one on your telephone and wait for your name to be announced. Once again, it's star one and then one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. We are now going to proceed with our first question. It's from the line of Nelson Ng from RBC Capital Markets. Please ask your question. Your line is open.
Great. Thanks, and good morning, everyone. My first question relates to France. Can you just run us through, again, the various buckets of exposure to the merchant power price? The big uncertainty you have now is that 200 MW or 201 MW. I think starting in October, you have, is it close to 300 MW of projects you've canceled? You also have projects that you'll be completing this year. Can you just run us through some of those buckets?
Yeah. Good morning, Nelson. The first one, as you mentioned, is 201. This is CFD contract, and this is the one that will be affected and for which we have taken the provision, the mentioned provision. Then we have 326 MW, which is an early termination of contract for which we have signed a contract with a utility to sell the electricity at higher price for Q4 next year and 2024, not 100%, but something like 90% and 60% or you know 80%, sorry, for 2024. This is contracted, and the remaining is purely merchant. We evaluate that today, the purely merchant due to a project under commissioning is roughly 5% of total installed capacity of Boralex.
Uh, so-
123 -
123 MW
MW. Total merchant.
That's our exposure to the mar-
It's the 201, it's the 126. Is that 123 part of the 126? 123 is in addition to the one-
No. 326 MW.
3.6.
There are three buckets.
Okay.
The three buckets. The 201 MW, 326 MW and 123 MW.
Within the 326 MW, there is roughly a 10% going to a 20%, which is merchant exposed yet today. There is a 90%, respectively, an 80% for 2024, which is already contracted with a counterparty at a higher price than we contracted that during. When we received the confirmation letter during the summer and November.
Okay.
And-
Okay.
Nelson, if I may add?
Yeah.
I just want to add a comment on that, just to make sure we are good. For the 201 MW, okay, this is the volume for which we took the provision in Q3. You should expect that in Q4, we'll do the same as we did in Q3. Meaning that we will register the revenues, but we will reverse it immediately after. Unless we get the threshold, you know, published by the French government. There's no upside there. For the 326 MW, this is, as Patrick mentioned, volume we exited for and we recontracted.
Just to be clear on that, right now there's a law in France, a proposed law suggesting that this would be capped at EUR 180 per megawatt hour, with the possibility to modify the EUR 180 up or down by technology up to EUR 80 up or EUR 80 down. This will start according again to the proposed law on December 1st. The third bucket, the 123-MW, this is pure merchant volume that we have. It's a combination, it's mainly in France for the recently commissioned asset, but also a small portion of U.S. hydro. Good?
Okay, good. Just on that 326 MW, where it looks, you mentioned that it's 80%-90% contracted. Like, are you contracting it at rates that are above the EUR 180, so you'll get capped out? Or are you trying to like lend and extend and trying to kind of reduce the power price but extend the term?
Today, it's contracted at higher price than EUR 180.
Okay. It's higher price for short term.
Yeah. For the next five quarters, it's higher prices.
Okay. Got it.
Including you.
That's why I mentioned, Nelson, that this volume starts, you know, like, in first of October. The law, the proposed law in France is at EUR 180 cap starting December 1st, up to the end of 2023. That's what's proposed. Before that, should be good. We
Okay.
This law is currently in revision by the Senate.
Senate.
We're waiting to hear more from that.
Yeah. Could be.
Okay.
Could be quick because just again, it's very specific, but the government, the French government used at the Assemblée Nationale the fast-track system. This fast track doesn't exist for the Senate, so it's under review by the Senate commission, then by the Senate. Then if there is difference, there would be a mixed commission between Senate and Assemblée Nationale. Like, I don't know, three, four weeks maximum.
Okay. Just one last question here. So is there a risk that like is there any overlap between the 201 MW revenue sharing versus the price cap? Like could those 201 MW be potentially hit by the price cap starting in December and then also be subject to some additional sharing with the government?
No, no. No, I don't think so. I don't see any possibility that there is a double risk on this.
Okay, got it. I've taken up a lot of your time. I still have a number of questions, but I'll get back in the queue. Thank you.
Thank you.
Thank you, Nelson.
Thanks, Nelson.
We are now going to proceed with our next question. The next question comes from the line of David Quezada from Raymond James. Please ask your question. Your line is open.
Thanks. Morning, everyone. Maybe I can start just with one quick confirmation. I believe you said of the 326 MW in the early termination bucket, the contract that you signed starts effective October 1st, 2023, so Q4 2023, and extends for five quarters to the end of 2024, and that was 90% of that 326 MW contract?
No, no. First of October 2022. It already start.
I see.
When I was saying the five quarters, it's including Q4 2022. We have signed. We have also defined the price for 80% of the expected production in 2024, but it's under the EUR 180 cap, potential cap.
Oh, okay.
I remind you, it's pay as produced contract. That's also important.
Excellent. Okay, great. Thanks for that confirmation. Maybe just on the provision and I guess the potential threshold price, is it fair to say you basically took kind of the most conservative stance you could with reversing basically all of the excess revenues or taking provision for all of the excess revenues, and how much variability do you see in the potential threshold price? Like, do you think that there's a chance that some of that provision would get taken out eventually?
David, thank you for the question. Yes, we have taken a reserve all the revenues for that bucket, the 201 MW that Patrick mentioned. We've taken the most conservative approach. We don't think there's a lot of upside related to that position, given this was presented by the government. It's sort of going back to the intent of the contract or the initial contract. We believe that we're conservative, but at the same point, also not far from. Even though we're still waiting to hear what this additional price adjustment price will be.
Okay, fair enough. Thank you for that. Maybe just one last one for me, on France. When you think about potential improvements or I guess acceleration of the permitting process, and I realize maybe you don't have all the details yet, but I'm just curious, like what would you be hoping for? What? How much quicker could projects start to be permitted compared to where they are now?
Typically, there are not yet decree or something paper, but there was what they call a circulaire, so a letter from the environmental minister of environment through the préfet, the people who are issuing, to say that all the administration should be quicker and take that into account. There was also a new decree saying that we're putting some limit in term of the delay of instruction by the court when there is a recourse. They also suppress. In the past, there was two potential recourse at the beginning. You have two months to make a recourse directly to the préfet and two months to go through the court.
No, you have to go to the court directly, so this is eliminating a two months delay, which was used by every opponent to file at the last day of the period. What I expect is, you know, they really need energy very quickly, you know, so they really need to accelerate. There was also a letter last Friday from the minister to say if we can reduce curtailment of production due to noise or any other curtailment, we should do it during the winter because we really need power. It show you how much France is needing energy. I cannot say you a precise delay reduction, but for sure, all the civil servant will be aligned and understand that they will serve the country by accelerating the things.
On the other side, you know, the value for the end customer in France is really important because the contribution of wind evaluated for next year is - EUR 13 billion reduction cost for the end customer of his invoice, and EUR 2.75 billion from solar. This is a real clear tipping point also in the mind of the people in the street, and politicians should follow that.
That's great color. Thanks, Patrick. I'll turn it over.
We are now going to take our next question. It's from the line of Nicholas Boychuk from Cormark Securities. Please ask your question.
Thank you. Just first on France, a little bit of additional clarification. The 25% of PPAs that you early canceled this quarter, does that now represent all of the contracts that are exposed to the FIP dynamic, or are there other existing projects that might have this play through in the Q4 results?
To clarify, Nicholas, the 25% you're referring is 25% of production, of French production, is that what you're referring to? The 326 MW of capacity?
Yeah, the ones that you early terminated for this quarter. Does that represent all of the contracts?
Yeah. Okay, 326 MW.
Yeah, okay, we're talking about the same thing. Just wanted to make sure we're talking about the same thing.
And, and these-
Yeah, sorry.
These contracts are, we have when we receive the termination confirmation from EDF, which was the main counterparty, between beginning of August and September, we have taken a lock position, but it's not exactly position because as I mentioned, it's not volume guarantee, but we have fixed the price for 90% of the expected production in Q4 this year and next year. This is no more exposed to the variation of the market today, but this has taken the benefit of the high price of the forward market at the end of August and September.
This is also all the volume that we were expecting.
Yeah.
To terminate early.
Yeah. Yeah.
There's no additional volume at this point.
No.
Okay. Perfect. That's, that's helpful. Thank you. The additional measures that were announced by the French government as well, regarding the 18-month window for selling power at spot rates after signing new PPAs, inflation protectors, and then also the ability to potentially increase capacity by 40%. Can you please walk through what those might imply for your near-term French developments? What could we read through on additional capacity or improvements to contracts for those?
Essentially the first, which is not a confirmation by the minister, but it's not yet in any law, but it will come, is the 18 months. This is the very quick impact because we have built and put in service during the last months La Clé des Champs, Louville, Bougainville,, this was a different project. We are building Moulins du Lohan, Mont de Bézard, Préveranges, Marcilly, and Caumont, and all these projects will benefit from these 18 months. This is what will be exposed in the future months through the market. What is discussed presently is that these 18 months will be an exception to the EUR 180 per megawatt hour cap.
Because the idea, you know, the philosophy of the French government is to say, "Okay, we don't want that the existing assets are benefiting too much from the market. You have to do your business plan from what you expect when you take your investment decision." For future project, they are really incentivize us to accelerate the installation and further the development of project. Typically, we have worked with Vestas to accelerate Moulins du Lohan and Mont de Bézard. It will be a question of potentially one quarter of acceleration.
One quarter with the high price, and if it's not capped, will be a lot of money on this project. This is a way to partner with the supplier and have a little bit more exposure when is the right time to have merchant exposure.
Excellent. That makes sense. The potential to increase the capacity by 40%. Am I right to think that you could?
Yeah. That's a more tricky one.
Either increase-
That's a more tricky one because you have to take into account the potential technology increasing. You know and then you have to take into account the environmental impact assessment, because in France, it's not possible, for example, to put blades which are five meters longer without, you know, if it's significant. I don't know if five meters is probably not the right example, but if you need to typically increase the tip height of the turbine or make something which is significant, it's not easy. For this precisely, we are waiting for the government details of the new regulation that they will put in place.
They will do something. I think my point on that and my intuition on that is the letter sent last Friday from the minister to EDF to say please, try to decurtail any potential wind turbine in France because we really need energy and power for the winter, which is coming.
Okay. Understood. Switching gears to Ontario, can we please get a little bit extra color on the battery energy storage opportunity, specifically how you source those 600 MW, what the plan is to develop them, and roughly what your expectations are in terms of production revenue, contract type, et cetera?
Actually, we restart development in Ontario 18 months to two years ago because we were expecting that one day or another there would be a need of power and there will be in the near future a need of energy too. We start working around the project we have and in the municipality we already know and with the Indigenous community we already know in Ontario. The point is we have identified the place in the Ontario system grid where storage is the most needed. Then, IESO published a list to say to the competitors, the contenders, this is the place where we need to be.
Boralex was, I have to say that, our people has done the right work before, because we have the right land to bid. This is 20-year, 20+ years contract. It's not yet totally defined. Could be from 20- 23 years with the IESO essentially capacity payment. A very stable contract. There would be some merchant value also, but I will not go into these details because this is potentially a little bit too commercially sensitive if I give you figures. Competition will be high, but the good point is that we have the right land next to, really next to the right substation. This is one point.
We can do points with municipalities support, we can do points with Indigenous community. On top of this, I think the information from the federal government, and we'll have to think how we will take that into account because the bid is due for end of January from the information I have today. We'll have to think about the way the 30% tax credit will apply to this project.
Excellent. That's very helpful. Thanks, Patrick.
Okay.
We are now going to proceed with our next question, and it's from the line of Rupert Merer from National Bank Financial. Please ask your question.
Hi, good morning. Following up with another question on Canada. You mentioned the Apuiat project there, and it could benefit from the Canadian tax credits. Can you give us a sense on how that project is progressing? What do the economics look like with inflation and interest rate increases? Maybe how the tax credits could help and how soon you might be able to move this to construction?
Yes. The project is progressing well. We have still good returns on the project. We are advancing in our discussions and contractual negotiations with different suppliers. Yes, clearly there's been inflation since we first talked about and started the project. We have been able, given our agreement with Hydro-Québec. Sorry. Sorry, Rupert. Given our agreement with HQ and our turbine supplier, we've been able to increase the size of the turbines and increased production, maintaining healthy returns on that.
We don't have enough details on the 30% to date to know exactly how it could benefit on this project, but we're hopeful it will. At this time, I think we'll just hold our calculations until we have more details from the government.
All right, great. Thanks. Then, secondly, back to France. I realize there's more information coming soon on the French government policy. What do you think we could see on upcoming RFPs for wind and solar in terms of the size of those RFPs and where pricing could land relative to the last few calls?
Yeah. That's a very good question. That's one of the reason I mentioned in my speech that two of the projects that would go to FID, we are moving to ready to build, Cruis and Helfaut, are contract with a corporate PPA. I think we have to see the RFP, governmental RFP as I don't know if it's the worst case, but something like this, because there is so much demand from commercial counterparty for long-term PPA at higher price than what is the case. We are switching some project to the corporate PPA. The main question in France is not the size of the RFP, is the number of project authorized.
This is really where the government will really implement an acceleration of the process of authorization. Coming back to the David question, I think this is where they can accelerate development. The price will not go back to EUR 60 for a long period. That's my guess, due to inflation, due to also the supply and demand imbalance between the number of new projects ready to build and the demand from corporations, because corporations are ready to sign because they have like a big wake-up call with this, the present situation.
They say, we don't want to have this when the new fossil fuel crisis will come in, I don't know how many years, we don't want to be exposed to that. Then we want to sign a contract with renewable. That's typically where we are in France and in the U.K. presently.
Permitting is still the, let's say, the main hurdle to getting projects built. How about supply chain? Is that easing up now? Are you getting access to the equipment that you need?
Yeah. Presently it does not change really from the last quarters. As I mentioned, when we take our investment decision, we have to go quickly. What we are doing is typically when we are signing a contract with a turbine supplier, we, you know, put like a 10% down payment at risk before finalizing some other points. In the past, we were waiting the financial close of everything. Now we are taking a little bit more risk, but I think it's the right way to go for Boralex, it's not a big risk. Then we are able to freeze the price and the delay specifically.
We have some contract under negotiation to close them quickly in November or December and not be exposed to any new change. The investment thesis for the project will not change.
Great. Thanks for the color.
Pleasure.
We are now going to proceed with our next question, and the question comes from the line of Mark Jarvi from CIBC. Please ask your question.
Thanks. Good morning, everyone. Just on the feed-in premium contract, the 201 MW, that Supplementary Budget, is that for the whole duration of the contract, or does it have a finite time where the, I guess, the pricing sharing cap expires?
No, there is no limit. That's for the duration of the contract.
Got it. Coming back to the Apuiat project and the projects you plan to do with Hydro-Québec and Énergir, just I know it's early days on the tax credit, but given you've already got some ideas on the contract price and probably debt capacity, is it possible that the equity contribution for Boralex would be very minimal and the returns would even be higher here with these tax credits?
If it's applicable to these projects, it will certainly help the return that I can say for sure.
Is there anything in the contracts that would?
And then in terms of-
Yes, sorry. Go ahead, Bruno.
Go ahead.
I was just gonna say, is there anything in the contracts where you would have to share that or there'd be a price adjustment in the PPA term, given the sort of tax credit benefits to you?
No, there's no such provision.
Okay. You know, just now with the Inflation Reduction Act, you know, passed in the U.S., your just updated views on the New York solar projects in terms of how those are shaping up, domestic content requirements and your eligibility here to capture, you know, all the ITC and expectations for returns on those projects?
Yeah. We're clearly continue to optimize this project. There is a clear conversation, not only from us, but from all the awarded parties, for a modification of the offtake price with NYSERDA. It's clearly easier with corporations than with the government body in terms of moving ahead quickly. The conversation is with, we're speaking about gigawatt we're discussing with NYSERDA. I think Boralex would be in this. We're discussing with panel suppliers to be sure that we, when the price will be adapted for, on the off-taker side, we are able to close on the other side. We are waiting for the final.
The implementation of the IRA also this is an important subject to finalize this project. I am very-
Is that something?
Confident that we will finalize them one way or another. We need the new implementation of the IRA, and we need something from NYSERDA. The good news is that the governor is reelected in New York, so that's also something important.
With the expectation that that would be sorted out next year, and therefore a number of those projects would come into the secured project list in 2023?
Yeah.
Not for commissioning, but just. Yeah. Yeah.
Yeah. The answer is yes. You know, the investment decisions, I expect that we would take them in the next 12 months.
Got it. Thanks, Patrick. Thanks, Bruno.
Thank you.
Thank you, Mark.
We are now going to proceed with the next question, and the question come from the line of Sean Steuart from TD Securities. Please ask your question.
Thank you. Good morning. A couple of follow-up questions. With respect to the Ontario storage opportunity, is the intent to bid all 600 MW into this January RFP, or do you have visibility on how future RFPs are gonna unfold? Any context you can give us on the bidding strategy there and where you envision returns for these projects with an ITC fitting versus your traditional renewable return opportunities?
What they call the expedited RFP is for two point. There is a 600 MW non-battery storage and a 900 MW battery storage, plus anything left from the first 600 MW. Okay. So it's a little bit complex. Today, there is a maximum of 600 MW awarded by any proponent. This is the reason why we limit our pipeline to 602 MW, because I don't want to. But the answer is yes, there will certainly be other RFP for storage in Ontario in the future. There will be also RFP for energy that would be needed.
In terms of the details of our bidding strategy, I will not give more details today, but we are working seriously on this project on every point of the rules to make it.
Okay, thanks for that detail. Back to France. On the 326 MW with early termination, you're opting for this shorter duration solution with some outside price term. What's the thinking on the longer term approach there once the shorter term approach you've taken expires? Do you look at locking in longer term economics as this unfolds? Do you wait for this contract to expire? How has the thinking evolved there?
Yeah. We have. When this first period will end up and we have the possibility within our contract to be protected for 2025 and 2026. We have not defined hedge percentage or fixed hedge percentage because the curve of the electricity price was in backwardation too much from our review. We will remain exposed for this project, but we have different options. We can sell them to the same counterparty. We can also, you know, sign a long-term PPA with any corporation that will come to us, and we have many demands, as I mentioned. We can keep also a little bit more market exposure.
This will be really looking to the global Boralex portfolio. Also some of these projects have repowering opportunity too. This is not put on the back burner too much. We are continuing to have the possibility to repower, to really increase the size of this plant. I think that will be also an interesting opportunity if we can. We have one site where we have 39 MW, and we have applied for 80 MW. This is just an example, but on some projects, repowering can be really significant.
I think in the context of France, which is really requesting a lot of power for the next 10-15 years. There is no possibility that nuclear will bring that. I think the easing of the rules of authorization will help us also for repowering. Different options.
Maybe I'll just as a reminder, the contracts of the 326 MW we're talking about, just a reminder that these were four years or less maturities in those contracts. These are the only ones we terminated. We still have a number of contracts out there. What this demonstrates is the ability for us to have options in terms of depending on the outcome of different amendments so that the government is putting forward. We'll see in the future whether we have other contracts that we could also decide to terminate or not. The point is, we have flexibility and options and we have other contracts where we could see if it makes sense.
The only ones we terminated were those coming to maturity in the next three, four years.
That's great detail. Thanks very much, Bruno and Patrick. That's all I have.
We are now going to proceed with our next question. The next question comes from the line of Ben Pham from BMO. Please ask your question.
Hi. Thanks. Back to that 326 MW, did you have to pay down the project debt in Q4, or has it been pushed out given the new one-year contract?
Your question relates to the contracts terminated?
That's right.
No. We essentially are sharing some of the economics with the lenders when we finalize those economics. Sharing in terms of additional payments or reducing the debt. It's not, it's gonna be depending on the outcome, and it's gonna be a portion of. It's gonna be reducing the leverage.
Okay. Got it. In your presentation, you also have the corporate credit rating still in progress. Anything notable the last quarter on that progress?
We're still working towards that. As we mentioned, it's a 2025 objective. We have, as I mentioned, a strong financial position. We're looking at also opportunities on the M&A front, and we have large projects that are coming, as we mentioned. We're putting all of this in the context of today's world and deciding where are the best opportunities. We're confident that we'll be able to reach that investment-grade rating. As I mentioned in the past, not to the detriment of our growth, we're confident we can achieve both growth and the investment-grade rating.
Great. Thank you, Bruno.
We are now going to proceed with our next question. The question's come from the line of Naji Baydoun from iA Capital Markets. Please ask your question.
Hi. Good morning. Just on the yet to be determined price threshold in France, maybe you can just help us a bit more there. I know you said there might not be a lot of upside and unlikely that you reverse these provisions, but what was the realized pricing on a, you know, year-to-date basis if that's easiest? Then how do you compare that maybe to the price cap or what you expect the threshold to be?
Not sure.
So the-
Go ahead.
Just the philosophy of the French government behind this is to say, when you have taken your investment decision, you probably, and I say probably, expect that the price curve will not go over the strike price of the contract for difference for a long period, okay? That was true, okay? They say, as I mentioned, they want to incentivize new project and they don't want to give windfall profit to existing project. That's the reason why when we read that in detail, we say, okay, we cannot expect to have EUR 150 or EUR 200 per megawatt hour threshold. We will potentially have something which may be higher than the contract price, but not so much.
This is where the upside is not so important, and this is the reason why we have taken this prudent position to. Maybe Bruno, you want to add something on that?
Yeah. We essentially rolled back to very close, if not at the contract price, in our assumption.
Okay.
Based on Patrick's comment.
Maybe just a point to add also on that is that we made some sensitivity analysis and if, for example, the price or the threshold is, you know, slightly higher, let's say below the 100, the variance is not that big either, so you should not expect a big amount there, if there is one.
I guess you've taken a FID on the project. It's positive to see. I'm just wondering if you can give us a bit more details on the contracts that have allowed you to move forward with Limekiln, and any details on counterparties or you know, tenor or anything of that sort would be helpful.
Yeah. It's a utility PPA. It's not really a corporate PPA, so it means that it's with a big company. I will not give you more details today when it will be finally signed, but we have signed something which is enough to go ahead for us. It's a contract which is pay as produced, long-term, so it will be possible to finance the project through this contract. There is a part of the price which is the majority of the price, three quarter of the price will be fixed, and there will possibly to have a merchant part, and we have options to fix it. So this will also open possibility to make upside but also protect us if we want.
It's a company with the credit rating which is easy to finance the project after that. That's the reason why we go ahead. The site is every planning condition has been discharged. The word used in the U.K. is discharge. Connection is on the way to be available in 2024, which is very important for the project in the north of Scotland. We are finalizing the last conversation with the different turbine suppliers. We have acceptable offers on this site, and we will be also protected from inflation because we want to close that in the next weeks.
Yeah. Okay. That's great to hear. We'll look forward to more details on that. Just one last question from me. If you can give us a bit more update on the outlook for M&A. As you've said, you know, you have capacity to make acquisitions and you've been looking at some deals. Maybe just an update on how many deals you've looked at. What's come across your desk? What's most interesting for you today? And just very briefly, you still expect to announce FID on the Des Neiges projects in Quebec next year? Thanks.
Des Neiges. I'll start with the first question on M&A, and I'll let Patrick answer on Des Neiges. On M&A, we're seeing a good number of opportunities both in North America and Europe. We're looking at a few serious ones on both sides, maintaining our return expectations that we've given in the past. It's actually I mean, this volatile environment is creating more opportunities I think, and valuations are starting to be a bit more reasonable. I think it bodes well, given our cash position for us to make accretive acquisitions and also to look at development portfolios in the near future.
On Des Neiges, maybe some information. The work with turbine suppliers is progressing. It's a project which creates a lot of interest from turbine suppliers, which is good news. We are trying also to work to create value on the project because, as you know, it's a very windy site, but it's a very icy site, so sometimes. We know the site very well, so we are working to optimize the right turbine for every place within the site. The work also with Hydro-Québec as a counterparty, as the offtaker of electricity, is also going well. So that's also, they are really highly motivated to buy the electricity and to continue.
Within that, the consultation of the different stakeholders, including indigenous community in this area, municipalities, are progressing in the right way too. It's also something which is going well. A lot of work, but it's going well.
Yeah. Thank you very much. Appreciate that detail.
Thank you.
We are now going to proceed with our next question. It's from the line of Nelson Ng from RBC Capital Markets. Please go ahead.
Great. Thanks. Just had a quick follow-up on the question that Mark Jarvi asked. In terms of the discussions with NYSERDA on some of these solar projects, can you just clarify, like, does this relate to the 180 MW or 200 MW of solar that you have in the secured projects? And are you essentially looking for some type of a upward adjustment to the contract price next year before you can hit FID and move forward with those projects?
Yeah, the answer is yes. Many players are discussing with NYSERDA because due to inflation and the constraint on panels also, projects are less, they're not economic, but they are not reaching the right threshold today. We need two things, is the implementation of the IRA. On the other side is that NYSERDA take into account an increase of an adaptation due to inflation, potentially between the bid time or the award time and today. That's where they want to go. You know, there was an election yesterday, so nothing was really possible before that. The line is open.
The conversation is not just with Boralex, and so I'm also confident, as I mentioned to Mark's question, that the investment decision would be taken next year.
Okay. Then just one last question, big picture, given that rates have moved up. Like, when you bid these projects or bid on future projects, have you moved your, I guess, required return up by, call it 2%, given the interest rate move higher? Or are you, or like, are you targeting. I think in the past, you were looking at 8% or 9% ROE, but has that moved up in line with inflation or interest rates?
Our general indication stays the same. It was 8%-10%, essentially. I mean, we believe we can maintain those returns. We are adjusting our guidelines in terms of inflation. We certainly are taking into account those additional costs, those additional interest costs, for example, and generally building costs in our modeling, but essentially are maintaining our equity returns the same. We're not increasing the risk premium, but we're adjusting for costs.
Okay. Got it. Thanks. I'll leave it there.
We have no further questions at this time. I'll now hand back the conference to Mr. Stéphane Milot for closing remarks.
Thank you, operator. Thanks everyone for all your good questions and for your attention. If you have any additional questions, please call me at 514-213-1045, and I'll make sure to quickly answer your questions. Our next conference call will be on Thursday, February 23, 2023 at 11:00 A.M. to announce full year results and fourth quarter results. Thank you. Have a nice day.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.