Boralex Inc. (OTCPK:BRLXF) Q2 2022 Earnings Conference Call August 3, 2022 11:00 AM ET
Company Participants
Stephane Milot – Senior Director-IR
Patrick Decostre – President and CEO
Bruno Guilmette – VP and CFO
Conference Call Participants
Sean Steuart – TD Securities
David Quezada – Raymond James
Rupert Merer – NBC
Nelson Ng – RBC Capital Markets
Nick Boychuk – Cormark Securities
Ben Pham – BMO
Justin Strong – Scotiabank
Andrew Kuske – Credit Suisse
Naji Baydoun – IA Capital Markets
Operator
[Foreign Language]
Good morning, ladies and gentlemen, and welcome to Boralex Second Quarter of 2022 Financial Results Conference Call. [Operator instructions] Please also note that this conference is being recorded. [Operator Instructions] And I would now like to turn the conference over to Mr. Stephane Milot, Senior Director, Investor Relations from Boralex. Please go ahead.
Stephane Milot
Well, thank you, operator, and good morning, everyone. So welcome to Boralex Second Quarter Results Conference Call. Joining me today on the call Patrick Decostre, President and Chief Executive Officer; Bruno Guilmette, our Vice President and Chief Financial Officer; and other members of our management and finance teams. 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 securities regulators, which can materially change our estimated results. These documents are 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 a non-GAAP financial measure and do 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 statements and a copy of today’s presentations are all posted on the Boralex website at boralex.com, under the Investors section. If you wish to receive a copy of this document, please contact me.
So, Mr. Decostre will now start with his comments. Please go ahead, Patrick.
Patrick Decostre
Thank you, Stephane. Good morning, everyone. It’s a pleasure for me to present our results and achievements for the second quarter. As you have noticed, we continued to vigorously execute our growth and diversification strategy during the quarter.
177 megawatts of wind and solar projects as well as 26 megawatts of storage projects were added to our pipeline. We are also selected for 540 megawatts of solar project and 77 megawatts of storage in the latest New York area. We grew consolidated operating earnings by 89%, 61% on a combined basis and EBITDA by 15%, 14% on a combined basis, even despite lower production than last year. The main drivers of this growth were the effect of high market prices in France and to a lesser degree in the U.S.
We continued to optimize our operations and our capital structure during the quarter. The reduction of our debt level will have a favorable annualized effect of $19 million on AFFO. Finally, we got confirmation at the end of July for early termination of three power purchase agreements, representing a total of 58 megawatts in France, the termination will be effective on October 1, 2022. The electricity will be sold from the market from the effective date of termination.
Market conditions continue to evolve rapidly by region during the quarter. In the U.S., positive news came last week with regard to measures potentially harmful to the realization of project in particular, solar. Indeed, the Senate majority leader, Chuck Schumer and Joe Manchin, both senators, announced an agreement on a package, including roughly $370 billion in energy and climate spending. If approved by the U.S. Senate and the House over the next weeks, the bill would restore federal ITC tax credit to the full rate for renewable energy projects completed in 2022 or later. It would remain at this level for at least the next 10 years.
In Canada, the Canadian government has planned new investment of around $9 billion and specific measure for electrification and decarbonization of electricity and the transition to renewable energies and storage, including an investment tax credit specific to battery storage.
In Ontario, new power needs confirmed as early as 2025 and in the years that follow are prompting the independent electricity system operator, IESO, to develop supply mechanisms to meet them. Tenders are expected shortly.
Turning to Europe now. The geopolitical conflict continue to reinforce the need to ensure security of energy supply and sovereignty. In France, problems with nuclear reactors causing historically low level of production are still going on and are pushing electricity price at a very high level. France lacks local production and has become a net importer of electricity during the energy crisis.
On July 28, the Minister of Energy Transition in France published a press release, indicating a first set of emergency measures that favor the acceleration of renewable energy development. The following measures should positively impact our development in the short and midterm. The first measure is a low renewable energy project to sell their electricity on the market during 18 months before the start of their feed-in premium contract. Second measure is integrate inflation in cost of materials between awards and start of construction for all future renewable energy projects. And the final measure is although all renewable project already selected in RFPs to increase their capacity by up to 40% before the end of construction.
We will provide more info on our next call regarding these measures as the criteria are not yet precise enough to give us an idea of the expected effect on our development and the positive financial impact.
Please note also that the legislative project is under discussion in the parliament in France to share the revenue generated beyond the contract price on certain feed-in premium contract, for which we recorded additional revenues since the beginning of the year. As a result, we may be required to repay a portion of the amounts collected in 2022 if the legislation is passed and is effective on January 1, 2022.
I will now rapidly review the main variances in our portfolio of project and growth path. The 307 megawatt increase in the early stage came from the addition of 2 wind projects and the solar project totaling 66 megawatt in Europe, following the acquisition of Infinergy. The addition of two new wind project and 3 new solar project totaling 71 megawatt in Europe, and the change in the expected capacity of the solar project in Europe and twoolar projects in North America for a total of 176 megawatt.
Project in the mid and advanced stages continue to progress with no material changes to report. In total, our pipeline now comprises project totaling 3.9 gigawatt, up 298 megawatt from the end of the first quarter of 2022. The wind project segment is totaling 2.3 gigawatt, up 49 megawatt from the previous quarter. The solar power segments pipeline includes project totaling 1.6 gigawatt, up 249 megawatt from the previous quarter.
Let’s review the change to the growth path now. As shown on Slide 11, we had assets in operation with 2.5 gigawatt of installed capacity as at June 30, 2022, down 14 megawatt from March 31, 2022 following the disposal of 2 small power station in April 2022 and the commissioning of 3 facilities in May and June 2022. Commissioning of secured facilities and project under construction is expected to bring our capacity to 3.2 gigawatt.
As you can see on Slide 12, we are pursuing the execution of our strategic plan and are making good progress on all 4 strategic orientation. I won’t cover in detail our progress as I already highlighted our main achievement.
One last point from my part, as alluded earlier in my comment, we have contracts maturing in the next 5 years for which we have been doing analysis on optimal strategies. Given the highly favorable pricing environment in France, we are being very agile and looking to all possibility to create maximum value.
As mentioned earlier, we received confirmation of early termination for some contract, and we are expecting additional answers in the coming quarter. We are also continuing to evaluate potential repowering where it makes sense. In the past 3 years, we have put important efforts to create our expert team to commercialize electricity. We knew this trend was to accelerate and are very happy to have this team helping us to take the most optimal decision in the current situation.
To conclude, as mentioned in the previous quarter, solar and onshore wind farms can be commissioned quickly and at low cost. We’re increasing our efforts and discussion with the various levels of government to accelerate our development and offer sustainable renewable energy supply solutions in the region affected by the energy crisis, and those targeted for our growth in Europe. However, this acceleration must be done in a win-win setting for the countries and producer who invest while inflationary conditions result in higher level overall risk.
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?
Bruno Guilmette
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 by Patrick, capacity decreased slightly following the sale of two small plants. Total capacity now stands at 2.5 gigawatt of a 100% renewable energy. Our last 12 months EBITDA and AFFO increased due to strong results reported earlier today for the second quarter. Our reinvestment ratio stands at 60%, which is in line with our 50% to 70% target.
About our CSR strategy, we continued to make good progress on the environmental, social, and governance fronts. We improved our ranking with EcoVadis from silver last year to gold this year and made good progress on the assessment of physical impacts of climate changes. Following the closing of our partnership in France with EIP, our balance sheet is very solid with more than $900 million in available cash and authorized financing facilities to continue implementing our growth plan.
Taking a look at our debt objective now. Our corporate debt to total debt ratio decreased compared to the previous quarter due to early repayment of project debt and a significant reduction of the amount drawn on our corporate credit facility. We are pursuing the work toward our objective to obtain an investment grade rating and increase the proportion of corporate debt in due time.
I will now cover the financial results for the quarter, starting with production. Second quarter wind conditions were good in Canada but weak in France. Wind production in Canada was in line with anticipated production and equal to the same quarter last year. In France, wind production was 13% lower than anticipated and 12% lower than in the same quarter last year. Overall, total wind production for the quarter combining Canada and France was 5% lower than anticipated production and 5% lower than last year.
Turning to hydro production now. In the U.S. production was 11% lower than anticipated production, but 28% higher than in the same quarter last year. Canadian hydro had production 5% lower than anticipated, but 15% higher than last year. Total production for the hydro sector was 8% lower than anticipated, but 20% higher than last year. Finally, production from solar assets was 4% lower than anticipated, but equal to the same quarter last year with the commissioning of solar assets in France.
In summary, total production for the quarter was 6% lower than anticipated and 2% lower than last year.
Second quarter revenues were up 12% compared to last year, mostly due to the high pricing level in France and to the increase in hydro production. For the second quarter of 2022 on a combined basis, operating income was up 61% and EBITDA at $133 million compared to $117 million for the same quarter of 2021, a 14% increase.
Please note that the $5 million increase in administrative costs is mainly related to an increase in the number of employees and market adjustments in the administrative functions to support our development and an adjustment for performance share units due to the good performance of our stock price.
On a consolidated basis, we generated $97 million of consolidated net cash flows related to operating activities compared to $84 million in the second quarter last year. Cash flows from operations was $86 million in the second quarter, a $20 million or 32% increase over the same quarter last year. AFFO was $13 million, compared to negative $7 million in the same quarter last year.
Our financial position is very solid with our net debt to total market capital ratio of 35% on June 30th compared to 48% on December 31, 2021.
In conclusion, we continue to generate strong results. The increase is mainly attributable to high electricity sales prices on certain feed-in premium contracts in France for which a legislative project to share with the French state the revenues generated beyond the contract prices is under discussion in parliament. Several initiatives were implemented with respect to the growth and diversification orientations of the 2025 strategic plan. We have favorable conditions for project development and acquisitions in our target markets. The optimization of the capital structure and the transaction with the EIP puts us in an excellent financial position to pursue growth. And finally, we have successfully promoted employees and recruited new talents in development and administrative support functions.
Thank you very much for your attention. We are now ready to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question come from the line of Sean Steuart from TD Securities. Please ask your questions.
Sean Steuart
Thank you. Good morning everyone. I want to start with France. Can you give us an indication of how much strong merchant power prices there contributed to either Q2 adjusted EBITDA or AFFO? Any context you can provide there?
Bruno Guilmette
Do you want me to go or — yes, the upside from the price is CAD 15 million for Q2 and CAD 15 million for Q1, for a total of CAD 30 million.
Sean Steuart
Okay. And just so I understand the process going forward, so all of the assets that have the contract structure that allows you to participate in the upside at least until potential legislative changes, that’s all going to be merchant power prices. But for the contracts that are expiring, is the intent to sell to establish corporate PPAs for all of that capacity or will it be a hybrid merchant exposure and corporate PPA exposure for those assets?
Patrick Decostre
Yes, good morning, Sean. Yes, the intent is to have a global portfolio with a part of merchant, a part of utility PPA, which are not EDF PPA, corporate PPA and then the EDF classical PPA or contract for different feed-in premium contract. So we will be flexible on that depending of the market condition, and be sure that we take the opportunity when the market is high to fixed contract and keep a merchant exposure.
Sean Steuart
Okay, thanks a lot Patrick. Last question from me. It doesn’t look like you participated in the Quebec RFP where there were some intent for closures. Can you give us a sense of the strategy there? Are you content with the Seigneurie de Beaupre projects you already have with Energir and Hydro-Quebec? Any context on what — it doesn’t appear you participated in the RFP. Can you give us some details there?
Patrick Decostre
Yes, indeed, we are very happy with our three project of 400 megawatt with Energir and Hydro-Quebec for sure. This tender, we expect — we were expecting it will be especially competitive because the volume was smaller. There is another tender that will come for 1,000 megawatt of wind and 1,300 megawatt of capacity from renewable resource by the end of the year. And we will look for to get some project in this tender. And we have — we are always also looking to any alternative idea of selling the electricity.
Sean Steuart
Okay, that’s all I have for now. Thank you very much.
Patrick Decostre
Thank you.
Operator
We are going to proceed with our next question. Our next question comes from the line of David Quezada from Raymond James. Please ask your question.
David Quezada
Yes, thanks. Good morning everyone. Maybe a question from me on New York. I understand there is some updates to NYSERDA’s rec procurements. Just curious how you see those changes affecting your strategy for upcoming RFPs?
Patrick Decostre
You’re speaking about the legislation that will come from former Build Back Better idea on tax credit, David?
David Quezada
My understanding was that there was some, I guess, some buy American provisions and some heightened standards environmentally from NYSERDA, specifically.
Patrick Decostre
Yes, but there is also — it’s a general trend to have to try to reassure production. There is also provision in the agreement between the Manchin and Schumer of last week. So what we need to — what I can say today is that we have still to evaluate these things. And we have still to be sure how the market will react and what will be the cost of panel produced in the U.S. compared to other options. And since the decision — since the agreement was announced last week, and it’s not yet in full force, because it has to go through the Senate back to the House and then confirm, I cannot tell you exactly what is the impact today. But we are, again we are looking to all the potential options. And what is important is, we have time in front of us in our contract because we have no short-term cliff date.
David Quezada
Okay. Excellent. Thank you for that. And maybe just one more from me. Moving back over to France. I’m just curious how your discussions with corporate buyers of renewable power have been developing just given the potential legislation and the revenue sharing that could come into place in France? Or do you get the sense that buyers of corporate PPAs are waiting to gauge any changes there before moving forward?
Patrick Decostre
No, not really because it’s different contract. The change in legislation we mentioned would affect the feed-in premium contract, which are the contract we put in service and in force since 2019. So it’s young contract. We are more discussing on corporate PPA where there is a lot of demand, a strong demand coming from corporation for the contract we are terminating or the contract which are under corporate PPA and will come to an end, typically by the end of next year. And finally, also for new project, we are discussing some greenfield project like we have done with Metro, because there is a strong interest beyond ESG view to have a stable price of electricity for the long-term. And so, we are discussing with different corporation when it’s interesting alternative to go through a tender.
David Quezada
Excellent. Thank you for that, now I will turn it over.
Patrick Decostre
Thank you.
Operator
We will proceed with the next question. Our next question comes from the line of Rupert Merer from NBC. Please ask your question.
Rupert Merer
Hi, goo morning everyone. Patrick, you’ve terminated contracts of 58 megawatts of wind in France. But it sounds like you’re looking to terminate more — may need some approvals for the termination. Can you walk us through that process and what limits your ability to terminate contracts?
Patrick Decostre
Yes, Rupert. Yes, we have — we are expecting other answers by the end of the quarter on remaining contracts we send a notice of termination. There is no reason that it’s not terminate, but to be just purely factual, it’s not — we don’t have the acknowledgement of acceptance. We have the acknowledgment of receipts, but not the actual — but not acceptance from the counterparty. And so, we’re just monitoring that and will inform you next time about this.
Rupert Merer
Okay. And then typically you would have a — you said about a three months lag from the acknowledgment to the actual termination of the contract?
Patrick Decostre
No, it’s three months from the notice we sent. And then so we are not losing time because we have done the work in June and have the acceptance of the lenders also on these project. But we are in the middle of the summer and we need to have the counterparty sending us back the letter.
Rupert Merer
I see. And do you anticipate any penalties for the contract terminations?
Patrick Decostre
No, there is no penalties in the contract we sent notice.
Rupert Merer
Alright. So what could be the total megawatt of termination, let’s say, how many have you submitted?
Patrick Decostre
Yes. As you have seen we have more than 400 megawatt where that will come to — where the contract will come to an end before 2026. So significant part of them we have gone through this process, specifically the contract where there is no penalty.
Rupert Merer
Okay. All right, very good. And then just one other question. Bruno, I think you touched on this briefly, you have or had more than $700 million cash on the balance sheet at the end of the quarter. And I understand a little bit has gone to debt reduction and you’re saving some cash for growth. But give us some more color if you can on what you plan to do with the cash on the balance sheet. How long will it sit there?
Bruno Guilmette
Yes. So thank you Rupert. So we are clearly monitoring, as I mentioned, M&A opportunities. We continue to do that. And funding our pipeline, our growth are the two key priorities. We’ve used some of our cash approximately just above $130 million to reimburse some project finance debt that was more expensive. The rest of it will be mostly for growth.
Rupert Merer
Excellent. Thanks very much. I will get back in the queue.
Operator
We are going to proceed with the next question. The next question comes from the line of Ollie Primak from CIBC. Please ask your question. Ollie Primak, your line is open. Hello Ollie your line is open. You may ask your question.
Unidentified Analyst
Hi, this is Mark. Sorry about that confusion here on the titles here. Yes, so I wanted to come back to the proposed legislation. Just clarify that the profit sharing is only on the feed-in premium, the sort of contracts that you have with EDF and not would apply to any of your merchant or corporate PPA agreements you might put in place?
Patrick Decostre
Yes, Mark. Exactly, the point is the following, is — we are coming back close to the business model of the project when we build them, okay, this is the idea. And the French administration at the time of signing the contract was not expecting the price we’re seeing today. And so, we are in a different situation and that’s all needed things. They’re not cutting our price. They’re changing a clause which were very interesting to us, and that’s where we think they’re going. But it does not affect, it’s not a windfall tax. It’s not something like this, it’s just on the specific contract.
Unidentified Analyst
And then can you clarify then, you talked about a threshold price. So relative to the strike on the contract for difference, is that higher? At what point do you start to share, is it 50:50 on any of the excess profits?
Patrick Decostre
No, it’s — I don’t have factual figures today. This will go through potentially a process with the regulator that will give its advice to minister and then the minister will say. But it will not be 50:50 to my expectations. It will be less for us than that.
Unidentified Analyst
Okay. And then around these early terminations and some of the projects that you will have opportunity to either do a corporate PPA or go spot or even repower. Given where power prices are right now, would it make sense to defer repowering, and just make sure the assets are operating and you’re capturing this really higher spot prices that you have at least in the near-term? Like — so I guess the question is, given the spot price dynamic, what’s your sort of updated views on timelines for repowering?
Patrick Decostre
Yes, that’s exactly what we are doing for the moment. We are looking to the different flexibility we have. So one of the flexibility is to continue to operate at the present price. Another flexibility is due to the measure I mentioned, it’s very important, it’s not yet a decree from the minister, but it was announced through a press release last week, and it depends on the ministry itself, the fact that we can be merchants 18 months before starting the contract for 20 years is an important point.
In the past, there was like a rule to say, okay, three months is a maximum time of commissioning. And since the price was low, we were trying to reduce this period as much as possible. And then there was confirmation, discussion with the government to increase it. And the reason why the government bring that, it’s an incentive for us to accelerate construction. So we are also looking to accelerate construction, to start as early as possible the merchant exposure for the 18 months.
So we are looking to everything and trying to adapt to the situation of the market. And for the contract, which are early terminated, we are also, as I mentioned, looking to — we have not — we would not sell everything day one to say, okay, we sell the electricity for the next two years at the price of today. We think there is a strategy for the end of this year, a strategy which is similar, but with different metrics for next year for 2024, for 2025 and 2026 because the market curve price is in backwardation. So it means it’s very high today, but it’s going down in 2025-2026. And so, we are managing everything every day. So that’s why we need experts internally and we have these experts internally.
Unidentified Analyst
Okay. That’s great. And then Bruno mentioned the fact he had some cash there for growth, but also M&A. Maybe you can just give us an update in terms of what you’re seeing out there in the market? Others have said that transactions and the prices are becoming a bit more rational. Just in terms of the core markets you’re looking, is the priority more development pipelines, a mix of operating development, and just maybe sort of updated views on how you see the M&A market right now?
Bruno Guilmette
Yes, Mark. Thank you. So we are continuously analyzing different types of opportunities, certainly more so in the U.S. and Europe as we mentioned in terms of our expansion markets, so key targets. So we continue to look for a combination of good cash flows, but also development pipeline. So it’s really on a case by case basis whether the opportunity makes sense from a financial perspective, but also from a strategic perspective where we can add value. So if it’s an operating asset we’re going to look to assets where we can clearly add value and create additional opportunities there. And we’re looking to some more sizable opportunities given the amount of money that we currently have on the balance sheet.
Unidentified Analyst
And can we infer the fact that you didn’t retire any more debt right now and you’re keeping the cash that you’re quite active in something you could transact at some point this year?
Bruno Guilmette
Opportunities are hard to qualify in this market, changing conditions and so on. But as I mentioned, we are certainly active looking at things. Whether we can close something this year remains to be seen due to changing market conditions. But certainly, we’re in a good position, changing market conditions certainly have affected some other players in the industry. So relatively speaking, I think it’s better for us, these changing conditions today puts us in a better position than some of our counterparties.
Unidentified Analyst
All right. Thanks Bruno, thanks Patrick.
Patrick Decostre
Thank you.
Operator
And then to proceed with the next question. Our next question comes from the line of Nelson Ng from RBC Capital Markets. Please ask your question.
Nelson Ng
Great. Thanks and good morning everyone. Just one follow-up question on France. Can you just remind us how many megawatts currently have merchant exposure today and how you expect that to change over the coming, I guess or what do you expect it to be by the end of this year and next year?
Patrick Decostre
Yes, there is — again there is different thing. There is the feed-in premium contract with the market exposure and it’s 208 megawatt, if I remind correctly. Then we have a small exposure of long-term contract in wind, that have come naturally to an end during the last years, and this is roughly 20 megawatt. Then we have an exposure, which is due the delayed start of contracts with EDF, because we have anticipated the 18 months I mentioned earlier to bring it to three months or more with some idea of our team. So typically, we have some assets, which are presently, for example, we just re-powered Louisville and put in service Bois Des Fontaines. This is fully merchant. So this is the 52 megawatt we have put in service. So all in all, you have these different kind of things, okay.
And to your question, by the end of the year, come back to my answer to Rupert, we have sent for a significant part of the contract that will come naturally to an end before 2026. Today we have obtained 58. So by end of the year, you would have to add this 58 today, and more to come waiting for the acceptance of termination by EDF.
Bruno Guilmette
Just on this, if I may add, Nelson, is that this will be applying starting in Q4. So for that 58.
Nelson Ng
Okay. So just to summarize, like as of today, it’s the 208 plus the 20 plus the 52. And then next, in Q4, it’s another 58 plus you’re trying to terminate additional projects, which would increase that amount. In terms of the 208 megawatts, the FIP contracts, I think last quarter you guys mentioned how if your — if the market price is high enough and you don’t receive any — it takes time for some of the 208 megawatts to be effective in terms of the merchant exposure because there is the timing difference in terms of subsidies received from the government versus subsidies paid to the government. Is all of the 208 merchants like do you benefit from the merchant price today or does some of that benefit kick in later in the year.
Patrick Decostre
No, it’s — and I’m sorry it’s 201 megawatt, and it’s completely we have, say, pass through the break-even point of the contract for 201 megawatt.
Nelson Ng
Okay. And then just to clarify that revenue sharing applies to the — that 201 plus the delayed start projects and not the expired projects, right? And then also — and then the projects that you are terminating —
Patrick Decostre
Sorry — the revenue sharing apply only on the 201 megawatt because it’s the modification of the specific contract to come back to the idea of the close that the government has in 2018. But it will not apply to the 18 months. From what the minister has released last week, the 18 months there is no sharing. And the idea is the following is, if we have the benefit of the 18 months, we are really incentivized when you look to the present price in France and specifically the price for Q4, which are north of EUR 800 a megawatt hour to accelerate construction as much as possible when it’s possible to be online for the next winter, and not say, at the end of the spring. So we are working on that too. But there is no revenue sharing on this contract.
Nelson Ng
Okay. And then there is no revenue sharing on the terminated contracts as well, right?
Patrick Decostre
No.
Nelson Ng
Okay. And then assuming you get more terminated contracts, will you try to lock-in some of that upside through hedges? Like, obviously this, I think — price in this sector is very high.
Patrick Decostre
Yes. No classical hedges with commitment of volume. But yes, lock price, but with no commitment of volume. This is very important. We have a counterpart without commitment of volume.
Bruno Guilmette
So we maintain our structure of pay as produce.
Patrick Decostre
Yes, the risk is similar. We remain pay as produce, but within a more interesting price.
Nelson Ng
Okay, got it. And then just one last question on France. In terms of those projects you’re trying to terminate, like they are — obviously, there are all the kind of older projects. Does that imply that some of the newer contracts that you can terminate or you’re just making a decision to terminate older contracts from a risk perspective?
Patrick Decostre
Yes, exactly. We don’t want to terminate older contracts because the younger the contract is, the more it’s bearing debt. So we need also to have the approval of the lenders through the project finance, and that’s what we got. And we think in term of risk, it’s not the time to go 100% merchants. And so, I think in portfolio management is very reasonable way to benefit from these upsides without taking too much risk for the contract.
Nelson Ng
Okay. That’s great, that makes sense. I will leave it there.
Patrick Decostre
Thank you Nelson.
Operator
We are going to proceed with the next question. Our next question come from the line of Nick Boychuk from Cormark Securities. Please ask your question, your line is open.
Nick Boychuk
Thank you. Good morning. I was wondering if you could give an update on the timing of some of the U.S. solar projects under development. Basically 200 megawatts of solar in New York that you were previously pushing for 2023, COD to 2024 last quarter. Are you seeing any change in the ability to get those developed maybe bit faster?
Patrick Decostre
It’s a very good question. The good news is, with the new agreement of last week, and I understand that this agreement could come into force in the next say, three weeks to six weeks depending of the Senate availability and House availability. And as I mentioned, we need to really see how the market of the suppliers will settle down, and what will be the impact of this on the electricity price, on the financing price because there is some interesting points — not the direct pay, but there is an interesting point to say that we can sell your advantage to somebody, so avoiding tax equity financing. So we need to see where the model is. And then if the planets are aligned, our project are well advanced to go ahead. And there is no cliff date for us in front of us which are dangerous to keep our contract here.
Nick Boychuk
Okay, understood. Thanks. And just looking at the pipeline and backlog, I’m wondering if you can clarify for me please, the 540 megawatt that you just recently were awarded in the New York RFP, where do those sit? And when do you think we get a time line as to when they could be operational?
Patrick Decostre
We are on this site, as I mentioned, earlier in other call, when we are bidding in the RFP, we have the best price on the more major project, most advanced projects. So the different projects are at different stage of advancements with the 800 megawatt, and we won 540. So this 540, we are working to continue development. And it’s interesting because we will have a bigger volume of project to attract suppliers and find some economies of scale. So we will come back with I think in potentially six months to nine months we will have a better view of when these project would be able to be in service.
Bruno Guilmette
Also on that front, we normally don’t move the project in the pipeline before they are signed. So we’ve been selected for these contracts, but the contracts have not been signed yet. So we wait for the signature or the official signature before moving them into the pipeline.
Nick Boychuk
Okay, understood. Thank you. And getting back to an earlier comment about the corporate PPAs and the strength in the French market, the MD&A also seem to mention that you might be looking at corporate PPAs in the U.K. So I’m wondering if you could please expand on the dynamics that you’re seeing in that market and how that might be impacting your growth strategies in new markets? Like, could that potentially expedite your entrance to new market since we no longer have to wait for government regulated auction?
Patrick Decostre
Yes. The answer is, yes. The U.K. market was typically importing 2 gigawatts from France since almost ever since the ’80s. And now the flux is in the opposite fence, feeding France because of the lack of production in France. There is, as you have seen, some announced delay by EDF on the construction of Hinkley Point C. And so all this is putting pressure on the electricity price and, for example, tomorrow the price is north to GBP 250 a megawatt hour. So typically there is the same trend of people saying, I want to buy long-term electricity from somebody who has a real project. And the good news is we have obtained the extension of the Limekiln projects, six new turbine, and we have obtained also the increase of the size of the blades in the turbines on the Limekiln project too, the extension is also the same size, a big size.
So the LCOE, the cost of production is reduced on our site, everything equal. And then we are in negotiation of corporate PPA and we have the strong demand on that in U.K. too.
And I think this is also an advantage. It will not change drastically the way we are developing the company. But the fact that we have built this team in France and that we have already signed a 5 corporate PPA, we have some bit of discussion, we have already, when you sign a corporate PPA, you have to — the different clauses are specific. So we have this expertise also on the legal side of our — people of the legal team. And I think we have an opportunity to commercialize our electricity in another way then in the past, which is a good option for us. And not all the company are [Technical Difficulty].
Okay, I was saying that we have — I think I finished. I was saying that it’s good to have the team internally being able to negotiate the corporate PPA, and for sure there is demand. And we will continue to work on this, because it’s — nobody knows how long the crisis will last, but there is no good sign of — when you look to the future, there is no good news on the nuclear side in France, there is no good news on the nuclear side in U.K. There is a lot of — Germany will be struggling in the next months with the situation with the gas from Russia. So there is a lot of clients, customers who are thinking it’s good to sign for a significant part of their demand to have the bulk of their electricity from renewable on an economical basis instead of just the ESG and the CSR basis.
Nick Boychuk
Excellent. Thank you. And the last from me. Bruno, you mentioned that the administrative costs kind of cut up a little bit to fund some of the development team. But the part of it was related to the performance share unit, I’m wondering if you could please kind of give us a sense of what the run rate administrative and corporate G&A costs are now and whether or not you need to continue to invest in that further?
Bruno Guilmette
I think we’ve made a significant push on that side. So I think that the impact is certainly mostly reflected. We’ll see a similar, relatively speaking similar increase for the rest of the year. So relatively speaking the same percentage increase. And I’m just not sure if it answers all your question.
Nick Boychuk
Yes. That’s okay. Thank you. Thank you for your time.
Patrick Decostre
Thank you.
Operator
We are going to proceed with the next question. The next question comes from the line of Ben Pham from BMO. Please ask your question.
Ben Pham
Hi, thanks, good morning. I wanted to go back to some of your commentary around the merchant side of things in France and looking to add-on contracts or keep the mix merchant. And I’m wondering when you do decide on that mix of contracted versus merchants, are you comparing it to the current forward price or are you looking at your models pre-COVID and presumably you would have had a post contract price in there to see where the relative differences are?
Patrick Decostre
Yes, I would — the idea is the following is, if we look to the next — end of 2022 then 2023 to 2026 cash flow for single project, and with the contracts, I would say, okay, if we terminate the contract, we can be exposed to the price. And as I mentioned, since we have the right counterparty, we can fix in a pay as produce contract, we can fix our price for the next quarter at the end of the year or the next years when there is fluctuation in the market.
When we look to this, we say okay, when — is it interesting to sign for example, 100% and 600% with the forward curve of today from 2022 to 2026? The answer is no, because if you look to 2025 and 2026, we think that the market is a little bit optimistic of the solutions that we bring in Europe for nuclear and the German fossil fuel exposure. And then we think, it’s good to have certain amount fixed in 2023, a lesser amount in 2024, and maybe nothing fixed today in 2025 and just wait that the market will come with a reasonable price of electricity, which will be higher than what is today.
And when we do this calculation, we are sure — we want to be sure we are north of the expected contracted cash flow from the existing contract. And then we have like a free option to make more money. And then we have a middle case, base case and then a upside case and then another case where we say, okay, we can, if the price is going down for any reason, we don’t know today, and that’s not my view, but if the price is going down, we can fix at that time. And yes, it would be lower than today, but it would be higher than the contract that we have today.
So in any case, this is a move that will create value for the company. And we think that the best ways to be not 100% contracted over next four years today. As close as we will be from 2025, we will fix price with the counterparty when it will be interesting and on an opportunistic basis.
Ben Pham
Okay, that’s great. Looks like you have a lot of detailed models looking at. Maybe to also ask, what do you think is a sweet spot for you? What are you taking, let’s say, 2025 mix of contracted versus merchant where you think you maximize cost of capital and you got the credit rating initiation, feedback from project lenders? What is the mix there that you think is ideal?
Stephane Milot
It’s Stephane, Ben. I don’t think we have a specific target for that where we’re not losing all the options that are out there with the kind of a portfolio analysis view. And we tried to optimize as much as we can. And taking risk, but not too much because we want to remain contracted. So think, it’s very difficult to give you a number at this point. We remain focused.
Patrick Decostre
Ben — sorry, an important point, this will move in the time. If you look to — if you say, okay 2025 today, we can be a little bit more exposed than in 2023 for 2025 and 2024 for 2025. We will not be exposed — a lot exposed there. We have different products in the market. We can buy your baseloads, we can buy peak — we can sell baseload, we can sell peak loads, we can sell quarterly, monthly, weekly. So we get all this and we have the analysis. So it’s very difficult as Stephane mentioned to see. But we don’t want to take a risk to be too much exposed to the merchants on the day-ahead basis. And we are thinking that the market is a little bit looking to the 2025, 2026 with think glasses.
Ben Pham
Okay. It’s very helpful thank you.
Operator
We are going to proceed with the next question. So the next question come from the line of Justin Strong from Scotiabank. Please ask your question.
Justin Strong
Hi guys. Thanks for taking my call. Just firstly — just quickly the 58 megawatts of early contract termination that goes into effect beginning of Q4, is that part of the 201 megawatt that you guys have been speaking about with EDF?
Patrick Decostre
No, the 201 are the contract we commissioned the assets from 2019 to date, okay. Not exactly today, but okay. So it’s young contract with long remaining duration. The contract, we are terminating is the contract with a small tail from some months to four years. And so, less debt attached to this contract in the lenders model because when we had in our refinancing three years ago, in 2019, there is a debt — cash flow attached to each contract. So we have worked around this and negotiate with our lenders too to have the best risk/reward approach.
Justin Strong
Okay, great. Yes, that makes sense. And then just on a little bit more on that the — so these are revenue shares — of the 201 megawatts, revenue share above a certain premium, but French government is kind of looking at those and not exactly sure what that will be. Is that right?
Bruno Guilmette
I can take that one, Patrick, if you want. Just want to clarify on this that these are — the contracts are different, the 201 and the sharing. We don’t know exactly what will be the formula that will be used in the future like. But it’s sharing the upside between the market price and the price of the contract. But it’s — we cannot tell you at this point what will be the exact number because we don’t know where will be the bar, what will be the cap or the price where we’ll give the extra above this specific price to the state and where we will keep the risk. So that we’ll clarify in the future.
Justin Strong
Perfect. Yes. Great thank you. And then just quickly on, with the reconciliation bill in the U.S., how do you see that impacting competition and more importantly your development strategy in the U.S., like where do you land net-net? And now that the ITCs and PTCs are back in full force, can you maybe just give us some color on how that impacts your kind of return profile?
Patrick Decostre
Essentially in term of strategy, we’re still looking to the same market, means market where we are creating value when developing projects. So again, when it’s not so easy to develop projects, New York, Illinois, Pennsylvania, that’s the targeted market in the U.S. for greenfield developments. The energy crisis, which is specifically European, but which is for the world is something which confirm to us that the fundamental have not changed. And if we develop the right project in the right place, we will make a correct return for the company and its shareholder. So that’s the point. And it doesn’t change the level of return expectations from the project on our side.
Justin Strong
Okay. Does it change your kind of priorities at all in terms of capital allocation?
Bruno Guilmette
I’m sorry. Could you just repeat that question? No, it doesn’t change, it doesn’t change our strategy on capital allocation. We’ve always believed in the U.S. market. We’ve continued to win nice projects, and we’ll continue to grow there.
Justin Strong
Thanks for taking my call.
Bruno Guilmette
Thank you Justin.
Patrick Decostre
Thank you Justin.
Operator
We are going to proceed with the next question. The next question come from the line of Andrew Kuske from Credit Suisse. Please ask your question.
Andrew Kuske
Thanks. Good morning. I guess if you sort of step back and look at the big picture, you’ve got pretty ambitious goals, but very achievable. And the market for renewables continues to grow at an accelerated fashion. So I guess the question really is, what are the challenges you see yourself facing on potentially accelerating some of the development activities that you can do? I guess what are the roadblocks or just internally or externally what are the main challenges that you’re facing at this stage in time?
Patrick Decostre
The challenge are different from one market to the other. But it’s essentially in Europe, it’s obtaining authorization for project. Generally speaking, in France or the U.K., the markets where we are active, the limitation is the delay of authorization. The good news is that considering the present situation, the government really need — the system really needs more power. And so, there is — and this is the REPowerEU EU plan, and this is the French plan to accelerate and to incentivize us to accelerate and also to say to the administration, because if you look to France, in the last years, the financing to wind was — in 2015, it was EUR 1 billion. In 2020, it was almost EUR 2 billion. That was financing the subsidy to wind. In 2023, it’s minus EUR 3.3 million, EUR 3.5 billion. So economically it’s changed completely. So the government is now incentivizing. The man in street is understanding that renewable is reducing the bill and not increasing the bill. So that’s one thing.
In the U.S., the situation, which is limiting for the moment is the unknown around the ITC, the solar panel. But we are, as I mentioned, we are pursuing, developing project in the right market because we think, it’s good. And I think we have shown that with the tender in New York. We went from 200 to 540, and we will be able to bid up the project for the next quarter. So the team is working hard on this. And in Canada, we are organizing this, also in Quebec it has restarted, in Ontario it will restart. So we are organizing us to play in these specific markets where we are good. And if we can use a little bit of the extra money that we will make through the good situation in Europe and the good EBITDA in the next months to accelerate the organic development, we will do it in a reasonable way, okay. I mean, there is — we have a budget every year of greenfield development, and we think we have to look to that to keep it reasonable also for the company.
Bruno Guilmette
I just wanted to say, if I may add one point on that, is that I think in the current context that is changing so rapidly, keeping our agility and being able to size opportunities, having our balance sheet so strong will be key, and I think it’s a very important competitive edge that we have right now. So just my two cents.
Andrew Kuske
Well, maybe more than two cents worth. But when you think about the value of the euro now, does that give you this dynamic of maybe pushing farther ahead in your European exposure. But there is an interesting duality that you may be able to invest on a value basis given where the euro is. But do you worry a little bit about just the FX risks on the front end with the devaluation of the euro on the cash flows coming out of euros into your business?
Bruno Guilmette
Yes, and we’ve integrated that risk in our hedging strategy on the euro.
Andrew Kuske
Okay, I appreciate the time. Thank you.
Patrick Decostre
Thank you.
Operator
We are going to take the next question. We have our next questions coming from the line of Naji Baydoun from IA Capital Markets. Please ask your question.
Naji Baydoun
Hi, good morning. You’ve been more active in the corporate PPA market in Europe now for some time. Now that you’re seeing this evolving power price dynamic and maybe taking a more dynamic approach to sort of balancing merchant versus contract exposure, do you think you have the right talent or the right team in place or do you need to build out a broader power marketing group in Europe?
Patrick Decostre
Yes, thank you, Naji. No, we started working on this in 2017, 2018 really with very good people internally who have typically experience in the Spanish market before and were part of the NL team. So we have people internally, we have hired people from NG, from also data scientist and data engineer because it’s a lot of data management and algorithm.
And so, we have built the right team in France for this part. We have also increased during the last three years the commercial power, selling electricity, going to a customer, listening to a customer. It’s crazy, but we were not really listening to our customer where the utility was in post-contract. So nowhere thinking about what energy solutions we can bring to them, how it works, if they have land to do something behind the meter, and all those things.
So we have real sales people working for us. And that’s where we are specifically in France because it’s the situation of the market. And we are using and leveraging that in the U.K. for the moment too.
And we can do everything in Europe from the French platform, except say selling to a corporation, but which is more specific. But all the market understanding, it’s just managing data that we can do from [indiscernible] in France.
Naji Baydoun
Okay, got it. And just wanted to get maybe your thoughts on the nationalization of EDF. How you think that could impact either your position in the country going forward or just the potential pace of new capacity build-out in the country?
Patrick Decostre
Yes, it’s difficult to say because the nationalization is announced. But it will not solve the EDF problem. The problem on the nuclear side because essentially the idea of the nationalization is to take through the taxpayer, the problem of EDF on nuclear. Will it change anything? I don’t think so. What it could be is that EDF make a spin-off of the whole or part of the EDF renewable, big company like probably EUR 15 billion value. But it will not change our situation because this is already our competitor. So I don’t think it has real impact. The main point is the fundamental of the market is the system needs more electricity. And the only way to bring more electricity is renewable. That’s the only possibility to bring more electricity in Europe in the short term.
Naji Baydoun
Appreciate it. Thank you.
Operator
We have no further questions at this time. I hand back the conference to you for closing remarks.
Stephane Milot
Well, thanks a lot, everyone, for your attention and all the good questions. It’s a 45 minutes call, this was not 45 minutes, an hour and 15 minutes call. So thanks for the question. So if you have additional questions, please call me at 514-213-1045. It will be a pleasure for me to answer your question quickly.
Our next call to announce third quarter results will be on Thursday, November 10 at 11:00 AM. So I hope you enjoy the rest of your summer. Have a nice day, everyone.
Patrick Decostre
Thank you.
End of Q&A
Operator
Ladies and gentlemen this ends conference call. Thank you for participating. You may now disconnect your lines.
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