Good morning, ladies and gentlemen, and welcome to Polaris Infrastructure Inc.'s year-end 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Anton Jelic, CFO of Polaris Infrastructure. Sir, the floor is yours.
Thanks, Matthew. Good morning, everyone, and welcome to our earnings call for 2021. In addition to the press releases issued earlier today, you can find our financial statements, MD&A, annual information form, and annual ESG report on both SEDAR and on our company website at polarisinfrastructure.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd also like to take a moment to remind you that the comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Infrastructure and its subsidiaries. These statements are current expectations and as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations.
These risks and uncertainties include the factors discussed in their company's annual information form for the year ended December 31st, 2021. I'm joined also this morning, as always, by Marc Murnaghan, our CEO. At this time, I'll walk you through our financial results. Power generation. Consolidated power generation for the 12 months ending December 31st, 2021 and 2020 were 643,523 MWh and 662,893 MWh respectively. These production figures are net of all plant downtime, both planned and unplanned. With respect to Nicaragua, we saw total megawatt-hours of 113,395 MWh in the fourth quarter of 2021 versus 127,823 MWh in the same period in 2020.
In Peru, total megawatt-hours in the fourth quarter of 2021 were 49,148 MWh, up from 44,110 MWh in the same three-month period in 2020. Revenue was $14.9 million during the three months ended December 31st, compared to $18.5 million in the same period last year. Lower due to the amended PPA price at San Jacinto in Nicaragua, partly offset by higher production from 8 de Agosto and El Carmen in Peru. Revenue was $59.5 million during the twelve months ended December 31, 2021, compared to $74.7 million in the same period last year. Net earnings.
Earnings attributable to owners was $0.5 million for the 12 months ending December 31st, 2021, compared to $28.8 million in earnings for the same period last year. This decrease was attributed mainly to lower revenue, as discussed above, higher depreciation and an impairment reversal of $24.5 million recognized last year with no 2021 comparative figure. This decrease was partly offset by other gains resulting from the sale of certain investments, insurance proceeds, and the mark-to-market accounting adjustments on certain liabilities. Adjusted EBITDA, a non-GAAP measure used by the company, was $43.8 million for the 12 months ended December 31st, 2021, compared to $58.7 million for the same period last year. Cash generation.
Net cash from operating activities for the 12 months ended December 31st, 2021 of $41.1 million, higher than the $40.3 million for the same period in 2020, mainly due to a favorable change in non-cash working capital due to our improved accounts receivable collection during the period and lower interest paid, partly offset by lower revenue compared to the same period last year. Net cash used in investing activities for the 12 months ending 2021 was $10.1 million, compared to $2.9 million the same period last year, largely due to an increase in restricted cash and purchases related to the construction in progress, mainly of the binary project in Nicaragua.
Net cash from financing activities for the 12 months ended December 31st, 2021 of $6.9 million, compared to $10 million net cash used in financing activities reported last year. The increase was driven by higher net proceeds relating to common shares issued during the 12 months ended December 31st, 2021, partly offset by higher dividends paid and lower repayment of debt compared to last year. Finally, I'd like to highlight that we do intend on paying our 24th consecutive quarterly dividend on February 25th of $0.15 per share to shareholders of record on February 23rd. This continues the board and management's commitment to regular positive distributions to shareholders, coupled with an ongoing emphasis on attractively valued accretive acquisitions.
With that, I will turn the call over to Marc, who will elaborate on current business matters as well as on our quarter-end and year-end results. Thank you.
Thanks, Anton. So I'll go through my highlights. First, I do wanna highlight the call it refinancing, which we announced and closed. This is a very material event for us. We did publish in our MD&A on SEDAR now the revised principal schedule, which in my mind is really the big win here, which is that we now have effectively a 15-year loan, and based on the prior structure, it was coming due in 2028. More than doubled the remaining term. What that really means is that between now and 2027, we will be paying over just under sort of $50.9 million less in principal.
We're going to have around $50 million more in our jeans over the next five or six years because of that, which is very material for us as a company. That's the first highlight. When we finalized the renegotiation of the PPA just over a year ago, the thinking was we're gonna extend for 10 years, so we get a win in the term for sure. The way to make it a win, though, because it was a lower price, was we needed to get two things done. One was the refi, and the second is the binary unit. The update on the binary unit is that as of December 31, we had spent about $8 million.
We reported consolidated cash of $97 million. $8 million had been spent up to that point. That's about 1/3 of the budget. It is at this point on budget and we expect initial shipments of some of the equipment from Ormat starting in March, and groundworks have already been started on site. Very pleased with the progress there.
Going back to this renegotiation of the PPA, for us to make it a true win for us, we needed to execute on two things, which was the binary unit and the refi. I can say that of the two, the refinancing was the riskier of the two. In other words, I knew that we could get a binary unit going, but the refi truly was a more risky event. We closed it. I think getting that done and then with the binary unit going, we're truly gonna end up in a much better position with the San Jacinto asset. Now we have 10 years extra on the contract. Really happy with how that's all playing out.
What that which will enable us to do is have the extra cash flow to both increase the rate at which we diversify into other countries and other asset classes and also look at some dividend increases along the way. The goal would be to do both of those. A quick comment on Q4. Not a lot to mention about Peru for actually Q4. What I would say, Nicaragua was somewhat lower than we expected by a few megawatts, principally because of two wells, 93 MW and 60 MW, were more cyclical than normal. They are cyclical wells. We had changed injection strategy somewhat in October. And I would say that in short it didn't quite work. We had never done this test before, though, so we wanted the empirical evidence.
We have the empirical evidence. It looks like we need to go back to outfield and even do more outfield, which we actually are in the process of doing. We went back to the outfield strategy sometime in December, and we've noticed that we've gotten back to that. I would say this quarter to date, we're at 53 MW net as opposed to what we did in Q4. We've already seen an improvement, and we're hoping that that actually can continue based on the new strategy. There are some things that we think we can do to actually continue that trend. We'll be working on that over the next two or three quarters here.
The only thing I would mention about Peru is that we think we'll still have a bump up in production this year over last year principally in 8 de Agosto, although that was up because of better hydrology last year Agosto. There's still we think we can get probably an extra 10,000 MWh-15,000 MWh this year out of that one, whereas the other two are running as we would expect. And that we do anticipate a reasonable bump up in the PPA price starting May 1, because we have a U.S. CPI inflator and they'll get readjusted May 1. That could be a reasonable bump or should be a reasonable bump. At this point in time, it would be at least sort of 6%-7%.
We look forward to that, but not starting until May 1. That's for Peru. I think it's worth spending just a little bit of time on carbon credits. It took some time, but we have got San Jacinto truly verified and ready for sales. We thought we were gonna have that done in Q4, but there was some back and forth with the UN. We had announced some forward sales last year. We will, by all accounts, be able to close some of that in March of this year. I would expect to see call it revenue from carbon credits in Q1 this year and possibly Q2. This would be, I think it's quite a big milestone for the company.
It is something that is unique, I think, for us as a renewable company in that our assets are able, or have a greater chance of being certified for carbon credits than other, call it North American or European renewable power developers. This would not be what I would call financially material, at least this year, although I think it could be something like $500,000 bump in EBITDA for the year. We will be highlighting this more, continued with the fact that we're gonna be validating and verifying the Peru plants, but also plants that we are hoping to be acquiring in the short term here.
I think the carbon credit story should start to get a little bit more visibility here this year with the first, call it true sale, that then we'll make sure that that gets announced and highlighted a little bit more in our presentation. I think it's gonna be very interesting to see where that world goes in the next 12-24 months. Now to get to acquisitions, I did mention on the last call that we had two LOIs signed. The update on that is we have three now, and we are just in the final stretches expecting to have binding agreements in the next month. Where we expect to be on the back end of that is to be in call it five jurisdictions to add an asset class.
Right now we have geothermal and hydro. We would expect to add solar to that. We hope to come out of that in five jurisdictions, all of which would be in U.S. dollars, all of which I would say would be at least from a perception perspective, considered to be better than Nicaragua. Each one of those, including Peru, once we've done these, the goal would be to grow significantly in those other jurisdictions. We do see a lot of growth there, and we also see with this, these moves, we can then have a combination of acquisition growth and generic sort of pipeline growth. Because up till now, even Peru was an acquisition. These are gonna be acquisitions.
We will, I think, still have the ability to be acquiring assets at attractive valuations in the size range, in the jurisdictions we're working in. I would also see us layering in some of our own projects on the backs of these expected acquisitions. It's going to be a combination of those two, and I think that's a very important strategic step for the company. In addition to that, where this all moves us, I think is towards being able to, even though we just did a refinancing in San Jacinto, that was always sort of step one of what we see as a longer-term goal of doing a more corporate refinancing.
You know, I look at if where we are or where we should be, call it mid- to end of this year, is to have more spinning assets, more jurisdictions, more technologies, and still call it gross debt to EBITDA of 2.5x-3x , which is very low. With the pipeline and with all of the interest that, you know, I know that in the public markets you've seen some waning interest in the renewables, but I can tell you in terms of the debt side, the capital is still flowing. We still get interest, inbound interest. I think our ability in the medium term to do a more corporate level refi is going to go up, and that's absolutely where we're heading.
Just, you know, I don't think we're gonna be one of these companies that goes to 6x or 7x debt to EBITDA. At 2.5x-3x, I think there's for sure one turn of EBITDA to be done, if not 1.5x. You do the math on what we're looking at. I think my, you know, I have something in the range of $60 million-$65 million of EBITDA in 2023. One turn of that is, you know, another $60 million. We are an under-levered balance sheet even with everything we're doing. That truly is where we're heading.
I think that again, gives us the ability to look at both more diversification, but also making a big impact and even still reducing our total debt cost and debt service, which should lead to more dividend increases, in the long term. That's where we're heading. That's it for my comments, so we can open up for questions now.
Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from David Quezada from Raymond James. Your line is live.
Hi, David.
Hey, Marc. Good morning. I joined the call a bit late, so apologies if you already touched on this, but I'm just curious of the new jurisdictions that you intend to add, is it fair to assume that each of them have some kind of a framework for like a procurement of renewable power? I guess, as it relates to whatever development assets you'd also get. Or would you be looking at like demanding these regions from corporate buyers? Just any, maybe it's a bit early, but any color you have on the kind of regulatory backdrop in those jurisdictions.
It's interesting. I would say in almost all of them, the corporate buyers are there, but that wouldn't be our first priority, I don't think. It's mostly sort of, you know, whether it's a local, a state-owned distributor or one big state-owned distributor or transmission company. That truly would be the main way that we would look at in, call it, a few of the jurisdictions. The other one we have talked about Panama. That one is unique. That one is you can get quite good contracts with the three distribution companies in the country. The issue there, though, is they're not take-or-pay.
They're almost more the contractual agreements where you agree to provide a certain amount of megawatt- hours through the year and, you know, you could contract for 100% of your production. Problem is if you don't deliver, you're on the hook, and you then would have to go. What we see is most sort of whether it's a hydro plant or solar, they tend to contract up to 40% or 50%, but it would be a bit risky to go to 100%. Panama is a little unique in that you're not likely gonna go to 100% contracted. Now, we think that that's actually interesting because we like the market dynamic there, and I don't think it hurts for us to have a little bit of spot exposure.
By that I mean, you know, we're talking well below 10% as a pro forma company. I think it's mostly government sort of contracted. Even you've got some bilateral. They're doing both bid processes, but we're seeing more bilateral, which I think is better than a bid process. I would say that's more of the what we're seeing. Panama is a bit of a unique animal in terms of most of these markets.
Okay, great. No, that's helpful. Thank you. Then maybe a follow-up then, just the comments on Panama. Is there any context you can provide on just how power prices in the country have trended over time, and if they've moved higher recently, I guess, with the trends we've seen globally?
They have recently moved higher quite strongly actually in sort of December, January, and months to date. Like, we're talking $120/MWh. I wouldn't expect that to continue. Conversely, they were quite low during the sort of heart of COVID. Like, I'm talking $60/MWh. Just but that, you know, truly was just a demand-driven result. If you go to pre-COVID, it was probably in the $80/MWh-$ 90MWh, right in between those two. You know, they do have some gas plants coming on. When we look at our projects to generate the returns that we think we need, we're assuming about a $70/MWh is what we think.
you know, right now we are seeing numbers higher than that. Hopeful that we get our returns at $70/MWh, but I would see some upside to that number.
Okay, great. No, that's great.
You could sort of just.
Color for you.
You could for sure contract higher than that today. As I said, there's a limit as to how much you would want to contract at, in terms of the percentage of your production.
Okay. Okay, great. Understood. Maybe just one more for me, and I'm not sure if you touched on this already, but just any update you can provide on the certification process of the carbon credits that you're working on and just you know, any detail that you can provide there.
Yeah. I'm gonna be adding a slide that provides a lot more detail to project status inventories. You know, I would say up until now, it still is a teeny bit of an opaque world, but you know, it's getting a lot better. Last year it was still in the super opaque category, I would say. We were expecting to have the credits for San Jacinto fully verified and issued so we could close. We had done a forward sale, which we did announce, and we were expecting to do in Q4, but because of, I call it just the bureaucracy plus COVID still restrictions, that's slipped into Q1. We do expect to do a sale this quarter. Not material.
I'm talking like $300,000-$400,000. Where we are moving is I would see that we should start to have some help on both the revenue and EBITDA line from carbon credits this year, which is quite unique to us. And that combined with what we're seeing in the end, you know, the interest, the inbound interest is higher than we've ever seen. I mean, if you go back just a year when we were still in the process of getting San Jacinto re-registered, we were talking to people at, you know, $0.25-$0.50 a tonne. Our call it average sale, we ended up in the summer selling forward some at about $1.42 on average. Much higher than, call it, where we were a year ago, but now that would be considered low.
At year's end for the kind that we have, you're seeing things in the $2-$5 range a tonne and seems to be heading north. With my round numbers, and I don't have this in front of me, but, between Canchayo, San Jacinto, and 8 de Agosto, which should be finished mid- to call it Q3 this year. You're looking at, I would say 250,000 credits a year. But that doesn't include any of our acquisitions. I would say, in " unsold inventory" of, maybe 4 million total credits, and trending higher because with the acquisitions we're looking at, we think there's different.
It may not even be the UN, but there's sort of four governing bodies that register these things, and we think that's all demand-driven. You know, we're gonna be able to look at potentially the expansions there, and register them. We're already spending time on that even though, you know, on other projects that we don't even currently own. We're working on that. The hope is we have a portfolio. We'll be kind of explaining to the markets just, you know, both what our annual, call it credit, generation is, but also our unsold inventory.
Okay. Fantastic. Thanks for that, Marc. That's it for me.
Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one on your phone at this time. Your next question is coming from Nick Boychuk from Cormark. Your line is live.
Thanks. Good morning, Marc.
Hey, Nick.
Hey. While we're talking about Panama, could you please give us an update on Chuspa? Just kinda development timelines, what you're seeing with the asset.
At this point, I wouldn't expect that to be our first move, possibly our second. The local promoter that we have the agreement with has been working with one of the government entities to make it basically a change in the design of the conduction channel so that it's because we felt that the route was, call it, risky from a social perspective. That's one of the reasons we held off, combined with this other thing came forward. The combination of having something else and looking at Chuspa saying, "Oh, this is a bit risky socially," we decided. We put our efforts into this other thing, which we haven't announced, but we're working on.
We haven't killed Chuspa, and in fact, we went back to the promoter and said, "Here's what we wanna do." Initially, he didn't think that the ministry of the environment would agree to it, but in the end, we're seen to be making very good progress on that. That would dramatically change sort of our interest in it, and I think we're gonna find out in the next month. Based on reading the tea leaves, it's heading in a positive direction. Then what I would say, if that's the case, we would be very interested in moving forward with it, because the combination of solar and hydro in Panama.
What I was saying to David before was you're sort of limited in terms of how much you would contract in that market if you've got either/or, but if you have both, it does give you a little bit more flexibility to increase that number because they're counter-seasonal. We would love to move forward with both the solar and the hydro in Panama. Hopefully we have some guidance on that, Nick, like in the next four to six weeks.
Okay. Fair to say, in its current setup, you would not be moving forward with it to have an operational by kinda H1 2023?
Correct. What I would say is that, you know, well, yeah, that's really when Chuspa would've been. From a 2023 perspective, our numbers wouldn't have changed and, you know, call it one's replacing the other. Chuspa would end up being an addition to that.
Gotcha. Okay. On the acquisitions.
As I said, you know, my numbers for 2023 haven't changed.
Okay. Understood. We better wait for that announcement then. On the acquisitions, what are you seeing from a valuation standpoint and whether or not any of the local promoters are coming to you with pipelines of organic project development?
From a valuation perspective, you know, you're still seeing, I think, it's a disconnect in terms of, given the size that we're looking at, you know, compared to, given, you know, the InterEnergy example of what they paid from Chile. Huge disconnect there. You know, the way I know everybody likes the EBITDA multiples, the way that we sort of look at it is we think that for operating projects, you know, with the contracts that are already up and running, we're looking at, call it a 10% equity IRR. This is for something that's built, I think that's very good.
That's what we're getting with that is an ability, we think, to do some development projects or expansions that would be, you know, 15%+ IRRs, which we think are very good. So we're sort of targeting the combination of those two. It's just easier to leg in to the 15% by buying sort of an operating asset at this time in our life cycle. But then we can probably shift a bit more to the development. I would say your second part of that question is absolutely what we're seeing, which is that there still is a disconnect in terms of the ability of a, call it midsize player, to provide capital to get development projects from the development stage to the COD stage. So we do get approached.
I think in a way, what we see is an oversupply of development projects and an undersupply of people that are interested in doing, like, a 10 MW-20 MW project. We do see that. I would say, really what we hope to be able to do is make some announcements. We're gonna be in some jurisdictions where I think we can double, triple, quadruple the size in those markets after we make these initial moves. That's gonna be a combination of talking to these developers that are kinda stuck, is maybe buying another operational one, but then also developing some of our own. We just don't see. Like in a lot of these markets, what you see is a government-owned power company, right? Maybe one or two really big companies like Enel or AES out of the U.S., Brookfield.
You know, you see some big companies, but we don't see any of what I would call mid-size companies that are looking to grow as a company as opposed to project-by-project developers.
Perfect. Okay, thanks. Just the last one from me. I am getting inbounds and a lot of questions on the dividend potential. Obviously you mentioned you're gonna have an extra $15 million over the next couple of years. Timeline on when you think you might make an announcement on that and any color on the magnitude potential increase.
What I have said to people is that we would likely wait until we just make sure that the binary unit is that there's not gonna be some serious cost overruns, particularly given the whole COVID environment and inflation and materials. I can tell you we're very happy with where we are today on that. We've locked in a few components just very recently at amounts that were in line with the original budget. Very happy with that. I've been saying it's likely a back half of this year event because we wanna make sure that there's no capital cost issues, which there isn't. The whole, I would say, dividend increase comes on the back of three things, which is the refi, the binary unit, and the diversification strategy.
You know, we're very close to having those pieces in place. If the binary unit continues to go as it is, then I'm very confident that it's, you know. Is it a Q3 or Q4? I don't wanna get too specific, but that's the high level timing that we're looking at. Like, my view is, you know, when we started dividends, we started them at $0.10. Then, you know, I think we did do a $0.02 increase per quarter once, and that was just to avoid $0.13. We did $0.11 and then $0.12, and then we jumped to $0.14 and $0.15. Like, I like the concept of having smaller but more sort of incremental increases. It's just from a screening perspective, you know.
I'd like to look back five years from now. I'd rather have more little ones than one big one.
Okay, perfect. Thank you, sir.
Thank you. There are no further questions in the queue. I will now hand the conference back to our host for closing remarks. Please go ahead.
We'd just like to thank everybody for attending today's conference call. We hope everyone has a great day. Thank you very much.
Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.