Innergex Renewable Energy Inc Q2 2020 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Just my first question relates to Griffin. So in terms of going merchant, like what's your -- like are you also assuming that your -- like obviously, you had to decide whether you want to hedge or go merchant and you have various kind of return expectations. From your perspective, what is the return premium for merchant versus hedging?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Okay. That's good color. And then in terms of raising tax equity, does tax equity typically require hedges for projects? Or do you think they've become more comfortable with unhedged?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Okay. And then just moving over to Mountain Air. You guys mentioned that you only bought the -- like 1 class of, I think, the Class B shares, like the equity rather than the tax equity. Given that the project is about 8 or 8.5 years old, is -- like when is the expected flip date for tax equity? And what -- and then (inaudible)?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Okay. Got it. So the -- so MetLife has already taken up most of the -- like the tax attributes has already been realized for that project is what you're saying?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Okay. And then 1 last question before I get back in the queue. In terms of the French energy storage or battery project, so you got a contract for differences for 7 years. So should we think of it as your EBITDA is going to be essentially fixed for 7 years and then it will be, I guess, somewhat merchant thereafter? And what should we think about how the merchant -- like what the cash flows are after 7 years? Like if today's market remains unchanged for 7 years, like how do the cash flows look after that 7-year contract?

Question: Benjamin Pham - BMO Capital Markets Equity Research - Analyst : I wanted to ask you -- thanks for the numbers on Griffin. I guess like when you did a quick math there, it's over $40 million EBITDA. So that's probably going to be about 5% of your EBITDA pro forma. So is your merchant appetite now more moving to under 10% now versus under 5%? Is that directionally where you are comfortable with going?

Question: Benjamin Pham - BMO Capital Markets Equity Research - Analyst : Oh, I was thinking more about -- I was thinking more about commodity exposure. Like you've always been almost like 0% commodity exposure. You've slowly gone to 5%, 5%, 5%. Or as the EBITDA...

Question: Benjamin Pham - BMO Capital Markets Equity Research - Analyst : Yes, yes. Just what you're comfortable with now. Like it seems it keeps going up over time.

Question: Benjamin Pham - BMO Capital Markets Equity Research - Analyst : Okay. And so really, like if Griffin is a 8% to 10% project, then does that mean like these other projects you have, Foard and Phoebe, is it -- directionally, it looks like it's more 5% to 6% project near term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2020 / 2:00PM, INE.TO - Q2 2020 Innergex Renewable Energy Inc Earnings Call

Question: Benjamin Pham - BMO Capital Markets Equity Research - Analyst : Okay. Can I ask you, lastly, I mean it sounds like 8% to 10%'s the sweet spot for you and whether it's merchant or contracted, that there's some upside in year 11 once tax equity comes off, although you are taking more merchant risk in year 11 at that point. So you got to make a call on that. But is it hard to get 8% to 10% outside of Texas or America in general? I mean is that why you're so enthusiastic or maybe moving more of your capital to Texas than maybe some other regions?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Great. I just had a quick follow-up question. Just on the Yonne wind projects. I'm not sure whether I'm reading it right, but I think -- like are you financing roughly 100% of the project with nonrecourse amortizing debt? I think the project cost is about EUR 11 million and you raised about EUR 11 million as well. Like is that typical?

Question: Nelson Ng - RBC Capital Markets, Research Division - Analyst : Okay. Got it. And then just a quick follow-up on Ben's question. In terms of expected returns, I think Michel mentioned in the past that you guys are generally looking at, I guess, 6% to 8% premium over the 10-year risk-free rates. Should we assume that Salvador is at the higher end of that rate, given some of it's merchant exposure; and Mountain Air, I presume, is on the lower end of that range, given that it's fully contracted and in the U.S.? Is it?