Good morning, ladies and gentlemen, and welcome to Boralex Third Quarter of 2023 Financial Results Conference Call. Note that all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session in which financial analysts, shareholders, and investors will be invited to ask their questions. To ask a question during the session, you will need to press star one and 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, Public Affairs and External Communications at Boralex. Her contact information is provided at the end of the quarterly press release. I would like to turn the conference over to Stéphane Milot, Vice President, 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, our Executive Vice President and Chief Financial Officer, and other members of our management and, finance team. Before we start, with the review, Patrick Decostre, would like to make a special comment this morning. Go ahead, Patrick.
Good morning, everyone. It is with great sadness that we learn of the passing of Boralex founder, Bernard Lemaire, this morning. On behalf of all Boralex employees and my colleagues of the executive committee, we offer our sincere condolences to Mr. Lemaire's family and loved ones. Bernard was a passionate entrepreneur who had the vision to enter the renewable energy sector in 1990. He went on to become a pioneer in the development of wind power in Quebec and France. Today, we pay tribute to his remarkable legacy for Boralex, to his strong values that remain at the heart of the company business practice, and to his admirable contribution to Quebec entrepreneurial landscape. Bernard has continually reinvented himself to advance his groundbreaking vision and shape Boralex in his own way, the way that pushes us to always aim higher and further together.
It is an honor for us to be able to carry this legacy forward throughout the company and beyond. Thank you for everything, Bernard.
Thank you, Patrick, and thank you, Bernard. You've been such an inspiration. So, we'll get back to the quarter now. So, 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 on our different filings with securities regulators, which can materially change our estimated results. These documents are all available for consultation at sedarplus.ca. In our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis.
When talking about the results, we generally refer to combined numbers, and when referring to cash flow and balance sheet, we generally refer to consolidated numbers. Please note that the combined is a non-GAAP financial measure and does not have standardized meaning under IFRS. Accordingly, combined may not be comparable to similarly named measures used by other companies. For more details, see the non-IFRS and other financial measures section in the MD&A. The press release, the MD&A, the consolidated financial statement, 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, so please go ahead, Patrick.
Thank you, Stéphane. It is a pleasure for me to present our results and achievement for the third quarter of 2023. Despite a hectic environment, this quarter was another quarter showing strong progress towards our growth, diversification, optimization, and customer strategic directions as we continued to focus on the disciplined execution of our plan to reach our 2025 objectives. As we will highlight on this call, we expect our projects in construction and in secured phases to generate high-level returns, driven by PPA prices that now better reflect the current supply situation and higher financing costs. Going back to the highlights. In this quarter, we continued to perform well, generating strong financial results. Total combined production increased by 31% in the third quarter compared to 2022.
The integration of wind farms we acquired in the U.S., the commissioning of assets, and the good performance of comparable wind farms in France more than compensated the impact of particularly unfavorable wind conditions in Canada, thus illustrating the strengths of our diversification strategy by region and technology. EBITDA for the third quarter was CAD 113 million, up CAD 50 million over 2022, or up CAD 22 million after adjusting for a CAD 28 million revenue reversal for certain feed-in premium contracts in France, accounted for in the third quarter, 2022. The contribution from the U.S. acquisition and the commissioning of assets in France more than offset the pressure on earnings from the lower production of our Canadian wind farms. Our balance sheet is strong, with nearly CAD 400 million in cash resources and authorized financing facilities, providing significant flexibility to fund our growth.
Our teams continued to make significant progress in our growth strategy, with 509 MW of projects added to the early and mid stages of our pipeline in the quarter, now representing close to 6.4 GW in capacity. Our projects in construction and ready to build are progressing well. This quarter, we completed the financing of Apuiat Wind Farm in Quebec for roughly CAD 600 million. Work is currently underway and the commissioning is planned for the end of 2024. We also secured a contract for difference for our Limekiln Wind Farm in Scotland. The level of the strike price reflects the current market conditions and allow us to achieve a very good expected return. We are currently finalizing the financing that should be completed in the beginning of 2024. Finally, our battery projects in Ontario are also progressing well.
Budget is in line with our expectations, and we are in the final phases of negotiation with our preferred battery supplier. Commissioning is expected for the second half of 2025. I won't go into all the details of market conditions, but in general, I would say that in all our core markets, the demand for renewable energy remains high, with strong commitments from the government to reduce their carbon footprint, leading to investments in renewable energy sources. Favorable programs are being discussed or put in place, in particular, the ITC investment tax credit in Canada. It is expected that the proposed legislation will be part of the Fall Economic Statement to be presented in November. After that, the law will have to go through the regular process to get final approval sometime in the first half of 2024.
The programs in Ontario and in Quebec are particularly strong, with very important potentials. As you know, we are well positioned in these two markets. We are particularly positive about the recent announcement by Hydro-Québec to triple the wind capacity by 2035, and massively invest in transmission grid. I will now rapidly review the main variances in our portfolio of projects and growth paths. The increase in the early stage was mainly due to two factors. First, the addition of six new solar projects and one storage project in North America, as well as two solar projects in Europe for an additional 244 MW. Then, the transition to the midstage phase of one wind project in North America, as well as four wind projects and one solar project in Europe, for a total reduction of 142 MW.
The change in the mid stage was mainly due to the addition of a new wind project in North America for an additional 265 MW. A 400 MW wind project in North America is expected to be replaced with a project under review of approximately 200 MW at another site in the same region. The transition to the advanced phase of one wind project in North America, as well as one wind project and one storage project in Europe, for a total reduction of 236 MW. In October 2023, the Public Service Commission in New York State decided not to add a price adjustment clause or project selected under RFP in the recent year. In parallel, NYSERDA announced an expedited RFP process for which the criteria are being defined.
Following this decision, we are evaluating the possibility of resubmitting our 200 MW solar project in New York and has therefore moved them back to the advanced stage. In total, our pipeline now comprise project totaling 5.6 GW of wind, solar and storage project. In the growth path, the secured stage now representing 454 MW, a decrease of 200 MW related to the New York project I just mentioned. I won't cover in detail the progress made in our growth and diversification strategic direction, as I've already talked about the major highlights. On the customer strategic direction, we see that in all geographies we operate, corporate PPA market are accelerating and start structuring. Particularly in France, we continue to have discussion with numerous corporations as the demand for renewable energy contracted at attractive price remain high. This completes my part.
I will now let Bruno cover the financial portion in more detail, and we 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 2025 corporate objectives. As mentioned earlier by Patrick, our balance sheet remains solid, with nearly CAD 400 million available in cash and undrawn financing, 25% higher than in the previous quarter. We continue to make good progress on the EBITDA and AFFO. The reinvestment ratio is in line with our target at 59%. About our CSR strategy, we continued our efforts on the environmental, social, and governance fronts, and as presented on slide 16. For more detailed information, including data on CO2 emissions and work done in relation to climate change and the TCFD initiative, I invite you to read our third CSR report, which was published in February. I will now cover the financial results for the third quarter, starting with production.
Overall, total Wind production for the quarter, combining Canada, U.S., and France, was 38% higher than last year, but 9% lower than anticipated, due to highly unfavorable wind conditions in Canada. Total production for the Hydro sector was 23% higher than last year and 15% higher than anticipated. Very favorable weather conditions in the U.S. more than offset the unfavorable conditions in Canada. Finally, production from Solar assets was 2% higher than the same quarter last year, but 15% lower than anticipated. In summary, total production for the quarter was 31% higher than last year and 7% lower than anticipated. Third quarter combined revenues increased by 67% compared to last year, mostly due to the integration of our acquisition in the U.S., the commissioning of assets, and the better wind conditions in France.
Combined, EBITDA increased by CAD 50 million in the third quarter, and the operating income was up CAD 54 million. As mentioned by Patrick, the third quarter of 2022 included a CAD 28 million revenue reversal for certain feed-in premium contracts in France. The AFFO for the third quarter was CAD 21 million, compared to CAD 1 million in the same quarter last year. Our financial position is solid, with our net debt to total market capital ratio of 45%. In conclusion, a good third quarter as we continue the disciplined execution of our strategic plan. We made good progress along our four strategic orientations. We continued to grow and diversify by adding more than 500 MW of wind and solar projects to our pipeline, which reach close to 6.5 GW of capacity.
The market environment continued to be favorable to development activities, with several requests for proposals ongoing in our markets. EBITDA and operating income increased compared to the third quarter of 2022. Thank you for your attention. We are now ready to take your questions.
Thank you. If you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star one and one again. That's star one and one for questions. We'll now take our first question. This is from the line of Nick Boychuk from Cormark Securities. Please go ahead.
Thanks. Bruno, just going back to the 2025 strategic goals you mentioned, it sounds like the organic growth opportunities in your pipeline are robust and abundant. You're getting attractive returns on capital. How comfortable are you guys with reaching that medium-term goal of 4.4 GW of operating capacity by year-end 2025?
Thank you, Nick. While we're confident to reach our targets-
... Not at any cost, but certainly, we have different opportunities to continue to optimize both our execution of our projects, a combination of M&A and making sure that we control our costs appropriately. So, for now, we're more than ever focused on the disciplined execution of the plan, the strategic plan for 2025.
Okay, thank you. And as it relates to the, the capital that you have on hand right now, the CAD 400 million, is that sufficient to fund the organic near-term growth? And if you do have to continue to use the debt markets, how deep and constructive are those parties right now? And how flexible are the terms that they're giving to you? Are you comfortable that you'll be able to get decently priced capital to fund that entire growth path?
Yeah, we're confident our balance sheet... As I mentioned, our balance sheet is strong. We continue to work on different initiatives to optimize our financing, including increasing our credit facilities, discussing partnerships. We don't see a need to issue equity in the near term, or in 2024. And, as mentioned, on our credit front, we're not highly leveraged, so we have room to increase on that front. Continue to generate good cash flows, and we'll look at sell down of assets if and when it makes sense, as we've done in the past.
Okay, excellent. Thank you, gentlemen.
Thank you, Nick.
Thank you. We'll now take our next question. This is from the line of Rupert.
Hi, uh-
Hello.
Good morning, everybody. Hello? Hi, sorry for your loss. Question on New York, a long question here. You've got 740 MW, I believe, that you're looking to rebid. Can you give us more color on when the opportunity to rebid comes? And maybe some color on how much the cost will be up relative to the first time you bid these projects. And with that, any thoughts on whether or not you can be as competitive with the same sites as you were last time around? Sorry, I know that's a long question.
No, thank you. I will, I will try to make a, a clear answer, Rupert. First point is, NYSERDA has no issued a RFI or request for information. So, so, so the ask is, in, in the industry, what is our view to make the RFP the most efficient in order to deliver the project and be able to, to, to, to respect finally the 70% target in 2030, that has been reconfirmed by the Governor Hochul. So that's the first, that's the first point. And so this is underway. We have already replied our position last week, and, and so we expect that there would be the RFP really issued in December, and then to get a, an awarding date in the first half, I would say, of 2024. I don't know exactly.
It depends many times. You know, the response of NYSERDA is not always the same, so I think that first half of 2024 is something reasonable. So that's for the when. For how much, the cost or the price that we would be would be higher, I will. My view is, generally speaking, what we see in markets in Quebec, in France, in the U.K., is roughly 40%-45% higher. I'm not saying that that's what, where we will bid. My understanding is that when you compare to the awarded offshore project in New York, they have been awarded with an average price of $143 per MWh. So, definitely, solar would be really more competitive for the New York taxpayer.
But there is a room of improvement from the price we bid in 2019 and 2021. So that's where we are. The second point is, I don't know exactly what will be the rules of the tender and how there will be price points, and how much there will be non-price points, to make a difference between projects which are where the land is already secured, where the connection is already secured with a delay, and where local communities consultation is already advanced, or the projects sometimes are already environmentally fully permitted. So, obviously, we think that if they want to to...
Achieve their goal in 2030, they need to have many non-price points to be sure that the project which are advanced will be selected. So I think I hope that answer your long question by a long answer.
Yes. Maybe a quick follow-up to that. Assuming that you do get an award in the first half of 2024, how quickly could you bring those to COD, and could they end up being part of your 4.4 GW by 2025, or, or maybe they follow soon after?
Yeah, that's also a good question. And essentially, what I'm discussing with my development and purchasing team is, there is interesting signal of cost of panels going down in the U.S. also, and not only, outside of the U.S., because the U.S. is completely different, market, and potentially also other costs, say, being less under pressure. And so I think it will really depend of an optimization of being quick in term of, purchasing the things and building them, or optimizing them a little bit more and waiting a little bit.
I have no answer on this today, but typically, we can do something in 18 months, but it could be preferable to do it in, I don't know, 2024 to even a little bit more, depending on the price pressure at the time of the award. And we will definitely look at the present value and the best return for Boralex at that time.
Great. Thank you.
I can add also, Rupert, a point on the RFP that, as you know, Patrick was referring to the expedited RFP process, and, we'll wait for the rules, as you mentioned, Patrick, to bid on, to select the projects we'll bid. But don't forget that there's also a regular RFP program, so there's gonna be a 2024 RFP. So those, you know, so we are and we will, that's the work we're doing right now, and that we'll do in coming weeks and months to determine, you know, what will be bid in the expedite and what will be bid in the next regular RFP. So, just wanted to mention that, so don't forget that, there's a regular program also.
Yes. Thank you. I'll leave it there.
Thank you. We'll now take our next question. This is from David Quezada, from Raymond James. Please go ahead.
Yeah, thanks, guys. Maybe just turning to Quebec, and the news there. I'm just wondering if you could provide us an update on, you know, sort of what your bidding strategy will be for the multiple RFPs there. I know you've got some going already. And maybe on Hydro specifically, I noticed that they included the expectation of some hydro. Wondering if you have any development stage Hydro projects in the province that could fit that.
But generally speaking, if I understand correctly, your question is our bidding strategy from, you know, we restart beginning of this year, we have increased our expected returns. That's the first point. And then, on the project we bid here in Quebec, we have a 265 MW project, which is 100% Boralex and another 100 MW project, which is a 50/50 partnership with the local electricity distributor. There is still some exception in Quebec on that. Both projects are... What I think is very interesting is they have no competition on the grid connection locally, because you have seen that there is almost a little bit more than 3 GW that has been offered on this RFP.
But when you check on some nodes, there is three projects competing for the same grid connection. On some other nodes, there is two projects competing, and specifically on the nodes where we have developed our project, and this is one of the reasons we have done that, there is no competition. So I think this is interesting. And generally speaking, the announcement of Hydro-Québec last week, of on top of what is installed already, what is under construction, meaning the 1.4 GW, we have contracted with Hydro-Québec and the last tender, there is still 6 GW that have to be built before 2035 in Quebec. So definitely we are working hard to be able to bid on this project.
We're working hard with communities, and we are working hard with First Nations also to be ready to bid on this project. I would say aggressively, not meaning with a low return, but aggressively in term of volume of what we would be able to bid.
Excellent. Appreciate that color. Thanks, Patrick. And then maybe just going back to the comments around potential M&A, and maybe just if you could touch on, you know, if there is any jurisdiction that looks particularly interesting and, you know, just thoughts on how valuations have trended and, if possible, you know, what kind of size you might look at.
Yeah, the first point on M&A is, there is no rush. We need to see where the M&A market is going, because the cost of capital is as such, public companies as private fund and many investors also or could be stressed in the future. So, we will look only in the jurisdiction where we are operating assets. We will, as much as possible, look for something where there is assets in operation and development. The value of development has gone down, but I think it's too low today probably, and so there is opportunity, considering the global environment and the need of renewable energy, to create value for us, to acquire also a development team and project.
Again, it will not be done at any cost, as Bruno mentioned.
Excellent. Thanks for that, Patrick. I'll turn it over.
Thank you.
Thank you. We'll now take the next question. This is from Mark Jarvi, from CIBC. Please go ahead.
Thanks. Well, condolences to the Lemaire family and, and the broader Boralex team on the passing of Bernard. So just coming back to the potential expedited RFP in, in New York, do you have any sense of whether or not it's just the 200 MW, which were secured a couple of years ago, or any of the other projects from the subsequent RFPs that didn't get the adjustment would be potentially eligible, in the upcoming RFP?
I think it's very difficult to say today. We have worked hard to answer and give our comments. I cannot tell you before having the rules of the RFP, how many projects we will be able to bid us and others. So we will have more clear view of that probably mid-December, if they issue the expedited RFP at that time. Where I am confident is that all our projects are, you know, well advanced in terms of development, so able to be delivered in the time frame that is needed to meet the 2030 target of the governor. So I think we can leverage on that, hopefully.
Okay. And Bruno, you mentioned partnerships. Is that exclusively for larger M&A? Is that something that could be done on other sort of larger greenfield aspirations, whether it's bigger RFPs and opportunities in New York or Quebec? Just maybe sort of how you view partnerships as an option right now.
Yeah, in general, we, we develop, by, by ourselves. So on, on Greenfield, it's mostly, it's mostly us. So partnerships are more either with, on, on larger M&A, which could include, as Patrick mentioned, operating in pipeline, but also potentially in the future as well, on, partnerships on existing operating assets, as we've done in France. So to either on new assets or existing assets, but, but not at this time, considered on pure greenfield.
Okay. And then I think there was a comment earlier on about the strength of the corporate PPA market. Can you just comment right now, how you see things, particularly in France, where I think you've done both options of bidding into the RFP with EDF and then corporate market. Where are you seeing clearing prices between those two options, duration of contracts on the corporate market, and ultimately returns from those two options to go corporate versus the utility-backed PPA?
Generally speaking, my view is that the corporate PPA market for long-term contract and new assets is a little bit higher than utility-backed PPA or CFD contract with EDF, which is normal because the counterparty is not, at the end, the French state. It's another counterparty, but it's so it's interesting, and it's an opportunity for us. On the shorter-term market for existing asset, there is also lots of demand. We are in a well-advanced negotiation to renew two contract in France with significantly higher price with an existing customers, and there is a reason for that.
It's because, you know, the forward price for the next three years are higher, and the customer does want to secure its procurement in renewable energy and guarantee of origin. So I think it's a very good option. And on top of all this, like in North America, specifically, it's in Quebec and Ontario, there is a lot of demand for new project, typically, battery production facility, PV panel, green steel, and hydrogen. And so there is also a market which is moving on this side a lot, so which is, I think, also a great opportunity for us, not only in France.
And then if you just think about, as you look ahead in the coming quarters, is signing corporate PPAs in France for greenfield development something that you think is likely, or do you think for now, for new greenfield long-term contracts, the EDF RFPs are the most likely path forward?
No, we will—we are chasing both, and it's, I would say it's very likely that we will sign something on corporate PPA, and we will continue to bid because there is tender from EDF, from the CRE, the Commission de Régulation de l'Énergie , that will come and where we will be, we will be bidding. But, we're looking to both options all the time.
Okay. All right. Thanks for the time.
Maybe, Mark, just to add on to my previous answer on the development and the partnerships, because we do have partnerships with, for example, with First Nations and so on, on new assets. So I wanted to clarify. I was talking mostly about as we lead those developments, but we do have partnerships there as well. So I didn't want to exclude those types of partnerships with local municipalities and First Nations, for examples.
No, I understood that. I, I was thinking more developers and/or financials, so but thanks for clarifying.
Thank you.
Thank you. We'll now take our next question. This is from Sean Steuart, from TD Securities. Please go ahead.
Thank you. Good morning. A couple of questions. Wondering if you can give some broader comments around the capital recycling opportunity right now. Boralex has been an astute seller of assets historically. Have valuations contracted enough that those types of initiatives are off the table for now? I'm just thinking in terms of the broader funding platform. It sounds like you've got opportunities to add leverage, but broader comments on capital recycling opportunities for the company.
Hi, Sean. So as I mentioned, this is an opportunity that we continue to monitor. And we believe we have, clearly, good assets. We've demonstrated in the near past that there is, and we believe there continues to be a discrepancy between private asset valuation and the valuation assigned by public markets, which is a different view on timing and risk. So, if and when it makes sense, we'll continue to have those types of discussions, but it's not something that we'll do every day.
But when we believe there is a significant value to add a partner in some of our existing assets, it's a possibility, and we do continue to believe there is a value creation on that front, that's potential.
Okay. Thanks for that detail, Bruno. A follow-up question on the corporate PPA environment. You gave lots of good detail to a previous question. I'm just wondering of your sense, we've seen sort of unconstrained growth in terms of price terms in both North America and Europe for corporate PPAs for the last several years, despite volatility in wholesale power markets. Any sense of any deceleration in those price terms at this point? You referenced accelerating growth. I assume that referred to interest in terms of megawatts corporates are looking to sign. But any further comments on price terms and sustainability of upward momentum there?
Yeah, my view and of what we see presently is the demand is really there. The many corporate-- In terms of price, you know, if you look on long term and you build new assets, it's interesting to see that the prices are a little bit higher than utility prices contract. But it secured the purchaser, the energy buyer for the long term, and many big purchasers who want to secure them on green electricity are more looking, not at any price, obviously, there is competition, but to secure their energy, and in Europe, specifically to also secure the guarantee of origin of the electricity. So I think that that's great. There is some big announcement. There was Northvolt here in Quebec.
There's another announcement in France. I understand that there would be a big announcement tomorrow with a hydrogen production in Quebec that would be fed with renewable energy. Hydro-Québec, specifically, new renewable and a Hydro-Québec balancing contract. This is in the newspaper this morning. And this means more pressure on the corporate PPA and on the utility also to provide energy in the future. So I think this—it's not cooling down so much presently. Obviously, it's not the price that was that was last year in France, but the long-term price has never gone to crazy price. But yeah, that's where we are, I think.
Thanks for that, Patrick. That's great detail. I'll add my condolences to the team on Mr. Lemaire's passing. Thanks for your time.
Thank you.
Thank you. There are no further questions at the moment. As a reminder, if you would like to ask a question, you can press star one and one on your keypad. There are no further questions coming through at the moment, so I will hand back to the speakers. Thank you.
Well, thanks, everyone, for your attention, and if you have additional questions, please don't hesitate to give me a call, 514-213-1045. I'll make sure we quickly answer your questions. Our next call to announce fourth quarter results will be on Friday, March 1st, 2024, at 11:00 A.M. Have a nice day, everyone. Thank you.
Thank you.
Thank you.
Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.