Innergex Renewable Energy Inc. (OTCPK:INGXF) Q3 2022 Earnings Conference Call November 8, 2022 9:00 AM ET
Company Participants
Karine Vachon – Senior Director of Communications
Jean Trudel – CFO
Michel Letellier – President, CEO & Director
Conference Call Participants
David Quezada – Raymond James
Nelson Ng – RBC Capital Markets
Nicholas Boychuk – Cormark Securities
Rupert Merer – National Bank
Mark Jarvi – CIBC Capital Markets
Sean Steuart – TD Securities
Benjamin Pham – BMO Capital Markets
Andrew Kuske – Credit Suisse
Naji Baydoun – iA Capital Markets
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy’s 2022 Third Quarter Results Conference Call and Webcast.
[Foreign Language]
[Interpreted] At this time, all participants on the phone and internet are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for analyst and institutional investors and instructions will be provided at that time for your to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.
I will now turn the conference over to Karine Vachon, Senior Director of Communications. Please go ahead.
Karine Vachon
Thank you, and hello, everyone. I’d like to specify that this conference will be held in English. Members of the media are invited to answer question siphon after this call. A presentation supporting today’s discussion is available as we speak on the page of our website at treatable at innergex.com.
This call contains forward-looking information within the meaning of applicable securities laws. Although the corporation believes that the expectations and assumptions on which forward-looking statements are based are receivable under the current circumstances. This are our caution not to rely on duty on these forward-looking statements, as mentioned can be given that it will prove to be correct.
Forward-looking information contained herein is made as of the date of this call, and the corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of events or circumstances occurring after the date hereof unless required by law. Also during this call, we will refer to financial measures that are not recognized according to International Financial Reporting Standards. Please refer to the non-IFRS measures section of the MD&A for more information.
Our speakers today will be Mr. Jean Trudel, Chief Financial Officer, who will present Q3 results; and Mr. Michel Letellier, President and Chief Executive Officer, who will review our operational highlights.
I now turn over the conference to Mr. Trudel.
Jean Trudel
All right, Karine. Hello, everyone. So just to start with results, the corporation’s financial performance posted a very strong growth for the three months ended September 30, 2022, compared to the same period last year. Production was up 19% and revenues were up 40% at $258 million compared with the same period last year. So this increase is mainly explained by the contribution of our 2021 and 2022 acquisition, namely the 50% interest in Energia Llaima, for which results are not included in Innergex performance, the Curtis Palmer, Andres as well as the LA wind farms in Chile.
The commissioning of the Griffin Trail and the Hillcrest facilities and higher selling prices in the CB solar facility and also increased production in BC due to the temporary shutdown at Kwoiek Creek last year from wildfire damages as well as the new PPAs that we negotiated with higher selling prices at some of our French wind facilities. The items previously mentioned were partly offset by lower wind regimes and lower exchange rate at the French wind facilities as well as lower selling prices at the Salvador solar facility.
Operating G&A and prospective project expenses were up at 24%, we’re up 24% at $77.2 million. The increase is mainly attributable to the acquisitions, as mentioned above and decommissioning activities as well as higher maintenance costs at some of our BC hydro facility. As a result, adjusted EBITDA for the three month period reached $181 million, which represents a 48% increase compared to the same period last year.
Moving on to the next slide. Our proportionate financial performance also posted growth for the three month period ended September 30. The increase in proportionate is largely driven by variances explained by — in the previous points above. And also it’s partly offset by the decrease of PTC generated by the wind farms, and it’s mostly due to the lower production at our fourth city facility.
Continuing to the next slide on operating and free cash flows. For the trailing 12 months ended September 30, the corporation generated free cash flow of $159 million, which is up from $107 million on a normalized basis last year. This increase is explained by, obviously, the contributions of our acquisitions and the recent commissioning activities that we mentioned earlier. It’s partly offset by higher debt principal repayments from the Energia Llaima acquisition and the beginning of dementia repayments for the Upper Lillooet Boulder Creek and Hillcrest project loans.
An increase in free cash flows attributed to non-controlling interest, mainly from Credit Palmer acquisition and an unfavorable differences between the sales of the PB node and the purchases at the [Indiscernible]. So the increase in free cash flow versus 2021 resulted in a 30 percentage point improvement to our payout ratio, which amounted to 91% for the trailing 12 months for the quarter compared to 121% normalized last year. So when we exclude the prospective expense of $27 million, the adjusted free cash flow stood at $186 million versus $128 million. And so therefore, the adjusted payout ratio consequently reached 78% compared to 96% last year, which is, in our view, a great improvement for the corporation.
On the next slide, now some financial events, I guess. On October 4, we completed the acquisition of the remaining minority interest in the 16 wind assets in France — that we — I mean we — for, I guess, a total consideration of EUR96 million. And so this allows us much greater flexibility to optimize our platform in France. And in order to finance partly this acquisition, we monetized our Euro CAD or part of our Euro CAD foreign exchange forward contracts for a total gain of EUR43.5 million. And we confidently amended, I guess, the Euro CAD foreign exchange contracts. And now we have a total notional amount of $115 million amortizing until 2043 at a new fixed rate of 1.48 CAD per Euro.
As well also in France, it’s been quite active on October 10, we took advantage of the currently very favorable energy pricing environment in tend to enter into 2 TPAs for its [indiscernible] and Beaumont wind facility, which are to take effect on January 1, 2023, concurrently with the early termination of these PPAs. In addition, it’s important to note the new PPAs will effectively increase the contracted period of the facilities to December 2032.
And also on November 3, finally, the Canadian Government released its full economic statement. And finally, they include a major item related to the renewable energy industry. And I guess the key areas of interest for Innergex are obviously the investment tax credit for clean technology. So this is a refundable tax credit that will equal 30% of the capital cost of investments in electrical generation systems, such as PV solar, wind, run of the river hydro, among others.
And the ITC will also cover the batteries and pump storage. So companies that have also some that will adhere to certain labor conditions will be eligible to the full 30%. While those who don’t will be eligible for a credit of 20%, but we don’t believe this is a big constraint in the context of the Canadian contact to meet the 30%. And the credit will be available as of the day of the budget 2023 and will phase out until 2035. So this is a great answer to the American ITC that we have experienced over the last 20 years. So finally, in Canada, we have a similar program that will actually help the development of renewable energy within Canada.
And on top of that, there’s also an investment tax rate for clean hydrogen. So what we understand is that the Department of Finance will launch a consultation on how to best implement this credit based on the life cycle carbon intensity of the facilities. And with the lowest carbon intensity meaning, it would be eligible to up to 40% of ITC. So the proposed ITC will be refundable and available for investment made again, as of the day of the budget and the credit would be paid after 2030. So this helps bridge the gap like on two fronts, I guess, from a production of renewable energy and also on the capital expenditure for electrolysis system. So it’s certainly going to help bridge the gap between the green and the gray hydrogen in the coming years.
So as a concluding remark, we’re very pleased with the performance of the third quarter versus last year. In the past few months, we’re very fruitful with the execution and delivery of various initiatives. So we, therefore, reiterate our August 2022 guidance and growth targets as we disclosed previously.
I will now give the floor to Michel for the operational review of the past quarter. Thank you.
Michel Letellier
Thank you, Jean and I echo your comment on a great quarter. Very proud of what the team have achieved in the last three months, we are executing on this strategy. I’m very, very pleased to see that this is now paying out in terms of reducing our payout ratio as we said that that’s one of our priority while developing our pipeline of development. So very pleased to have that performance and thanks to the dedicated team that are always, always striving to execute on our strategy.
Talking about strategy. As you know, we want to develop the storage component or the storage sector of our industry. And pleased to report that finally, the toner facility were put in service in France, which is a little bit long, but one has to understand that this battery system is aimed to mitigate the fluctuation, the micro fluctuation in the grid. So therefore, this machine or this battery has to react very, very fast on anything that happens on the grid.
So I think that the team, our team and the Arlo team from Hydro-Quebec has done a great job in putting that in comminuting. We have learned. Both teams have learned a lot, and I think this is, this is a good investment in a sense that it’s going to be very useful for the very active market right now in France, but it’s giving us a lot of experience to do some more battery project in the future.
In terms of if I flip to the other page, construction activities. We’ve been active in Hawaii. As you know, we are trying to renegotiate the price. We have submitted three proposal to ECO regarding Hale Kuawehi, Barbers Point and Kohane, so we are negotiating. It’s a little bit hard to say a little bit too early to conclude on where we will be end up in terms of negotiating. But things are progressing well.
Hale Kuawehi as you know, advanced, we have slowed down the construction activities while maintaining the value of our asset and the investment that we have put there. Like I said, we still have a window of opportunity to deliver this project by Q3 2024. But before continuing and engaging with the construction activity at that full scale, we have to have an agreement with ECO.
Innergex is progressing well. We still have some critical window of opportunity to finalize the spillway before the winter. The team are still optimistic to do that this quarter and hence, being able to put the project in service late in Q1 2023.
Going back to battery. We have been advancing on Salvador battery pretty happy to have made that decision a little bit earlier last year because the battery price, as you know, have gone up. And volatility in the market in Chile is there, and it would create great opportunity to take, to have that battery in the system. I think it’s a very, very good complementary tools to our portfolio approach in Chile.
Our General Manager was sitting in some of the meetings with the industry and these two battery system, Salvador and San Andres are making our competitor a little bit jealous that we have been able to initiate that investment. So very pleased on that aspect. I think that this is a very, very good complementary for the portfolio, as we mentioned.
Chile is a good market in terms of renewable energy development, but it has some component of delivering firm energy. So hence, I think that our strategy is paying out and very pleased to have also San Andres if we flip to the development activity. San Andres will also be put in service by 2023 same supplier of battery. So we are going also for the dispatcher package to be in service by 2023.
But I think on the development activities, the big point that I want you to focus is the signature and the advancement of Boswell project in Wyoming, just making sure that people are not confusing the fact that we have not declared construction just yet. The team have made the switch between the development activities and construction activities.
There’s one thing that we still have to receive — two things that we still have to finalize with the PPA, but it’s very, I would say, technical PacifiCorp is waiting to have the written notice from the PUC to have their green light to go and build the South at gateway. They are actually under construction on the field. It’s just a matter of we don’t know why it takes so long to have the verbal bench decision to be written, maybe COVID, maybe some delay in all these administration offices.
But anyway, PacifiCorp is fully committed and already started the construction on the transmission line that is needed for Boswell to interconnect. So Boswell is going forward. We have all the contractor lined up and suppliers. So a pretty good project. We’re very, very proud of having been able to renegotiate a good price with PacifiCorp. And we’ll keep you appraised on the advancements of Boswell, but this is a big step forward in the United States for us.
Palomino is also advancing well. The prices are very strong in Ohio. The only challenge that we have, the only, but the biggest challenge we have with Palomino is the interconnection. Everybody knows that PJM in terms of interconnection is really, really busy. That’s a problem across the U.S. This is probably one of the limited factor to see more and more projects being built in the states is the ability to interconnect.
So Palomino is having a little bit of a challenge in terms of establishing a firm schedule for the interconnection. We’re still optimistic that 2025 COD date will be maintained. But it might slip a quarter or two depending on the schedule of the interconnection.
Going back to France, also, we’re developing and trying to advance our project in France. [Indiscernible] is still a 2025 project, although we are not certain exactly on the appeal. But I think that given the circumstances in France and the need for renewable energy, I think we’re very confident that this project will go forward. In L’Anse will be put in service by 2023.
If we go to prospective project, I’d like to maybe stress the fact that Hydro-Quebec has just deposit their long-term forecast for their demand or customer need. And pleased to report that for the next 10 years, Hydro-Quebec is forecasting a growth of their demand by 25 terawatt hour that’s 14% of their total capacity.
If you translate that into a wind facility or wind facility with 40% utilization factor, you would need more than 7,000 megawatts of new installed capacity in order to fulfill that demand gap. So I think that Quebec will be a tremendous market for us. We have all the intention to participate and take our full share of the market in Quebec. We are having a lot of new discussions with land owners and other stakeholders in order to expand our activities in Quebec.
The focus over the next few years will definitely be back to Quebec and be successful in meeting the need of Hydro-Quebec for new growth. I think that Canada with the new program, as Jean described, will certainly be a very busy place. I think that Ontario will eventually wake up, same with BC. We think also that the Eastern provinces could benefit from the federal willingness to increase the renewable energy portfolio in New Brunswick and Newfoundland, Nova Scotia.
I think that this one — this is one way for the east to capture some of the federal financing that will be available. You know that in the West, a lot of federal funding is going to be in the blue hydrogen aspect. So I think that the East can certainly benefit from the Eastern loop, where Ontario, Quebec, New Brunswick, Nova Scotia and Newfoundland would be a little bit more integrated and exchange renewal energy for basically New Brunswick and NovoScotia. So I think and eventually, Ontario. So I think that this will be a great opportunity in the East as well.
France, as you know, is definitely growing. I think that wind might have a little bit of difficulties in permitting as it’s always a little bit more complicated in France. But nonetheless, I think that the need of energy and they definitely are very aggressive on solar. So our strategy in France, a Tift a little bit. We’re still developing wind in France, but definitely looking more for solar project and initiative in France.
United States is still really busy. I just mentioned one of the issue is interconnection in the States. It’s true everywhere. But in the States, it’s definitely a little bit more present, I would say, but we — our teams are developing and making projects in a lot of States. Northwest is very active. As you know, we have Wautoma project in that area, which is a 400 megawatts solar. We have a lot of incoming calls for potential long-term PPA.
PacifiCorp will also be active in the future for future RFP. We have a nice win there that we have acquired while we were developing Boswell. It’s called wind answer, 400-megawatt wind in that area. So we’re getting equipped to be able to sustain the development also in the United States.
Chile always interesting to see, the market is still strong. Summertime will — their summertime, we’ll see perhaps a little bit of easing on pricing. They have the ability to receive some natural gas from Argentina in summertime. Argentina are not delivering natural gas in the winter. They needed to get their citizen. But in summer time, they have a little bit of a surplus. So that put a little bit more pressure on price to go down in Chile in summertime. But I think that the fall and the winter, we’ll see, again, very strong pricing in Chile.
So that would conclude my presentation. And just a big thank you to Karine and her team to have been able to produce a TCFD report that we are putting online. One of you has mentioned that we were the first renewable energy to do such, to publish such a report. I’m very proud to the team that’s done a great job. So it’s our first for us, and we’re happy to report on it.
We’re open to the questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. And your first question will be from David Quezada at Raymond James. Please go ahead.
David Quezada
Thanks. Good morning, everyone and congrats on a really strong quarter. My first question, maybe on the two facilities in France that were reconstructed. It looks like you got longer terms there than you’ve had in the past. Just curious if there’s any other detail you can share on those agreements.
Michel Letellier
Yes. Well, it’s a little bit — we don’t like to disclose it too much. It’s very competitive right now, those renewals. But let’s say that we have taken that strategy of extending the contract, but at a lower price than the ceiling, but yet at the very good premium from the existing contract. So we kind of mitigated or let go compromise a little bit on the short term in order to have a better long-term premium contract.
David Quezada
Okay. Excellent. That’s good color. And then maybe just on the topic of interconnection and challenges on that, specifically in the U.S. I’m wondering, Michel, is there any detail you can provide on how you stack up in terms of interconnection queue positioning across your advanced and I guess, maybe even mid-stage development projects? And maybe any comments you have around Wautoma and wind answer specifically, just in terms of what you see as the outlook for interconnection there?
Michel Letellier
Well, let me know, as you know, PJM has switched to have some cluster approach, which is going to change a lot of the queue. So the queue in PJM to some degree, will be reshuffled quite a bit with that approach. We are theoretically grandfather and our approach to be able to interconnect in Palomino. That’s why we’re still fairly optimistic, but we never know if we end up being catching this cluster approach. The team is still positive that we should be able to have our window of interconnection and still have a 2025 project window.
In terms of wind answers that’s a little bit of an interesting one because we actually acquired this facility because our transmission line from Boswell is going through that land. So theoretically, we would be able to interconnect on our online and PacifiCorp should have a lot of room in their new buildup of the gateway West. So that should that should not be a big issue.
And in Wautoma, interconnection will be a little bit of a challenge, but we have a few options there. The project is situated where we have a few options. So either we are going through the Mesgi’g or PG Sound indirectly in the West. So there’s some room. So I think we’re fairly in good shape. And then Colorado is preparing an RFP for beginning of next year. And then we have a project called Mylease there that is being ready for answering that question.
But in general, we’re not that bad. We also have advanced in the North of Minnesota, a place where perhaps a little bit less wind and solar capacity, but more room for interconnection. So we’re trying to be smart and perhaps having less resources in terms of gross capacity of those projects, but perhaps a better interconnection opportunity. So it’s difficult to answer more dividend on those assets because it’s moving so fast in the States.
David Quezada
No, that’s good color. Michel, appreciate those comments. I’ll get back in the queue. Thank you.
Michel Letellier
Thanks.
Operator
Thank you. Next question will be from Nelson Ng at RBC Capital Markets. Please go ahead.
Nelson Ng
Great. Thanks and good morning, everyone. I — my first question is I just want to get a bit more color on your liquidity position. So you ended the quarter with, I think, $217 million of cash. You bought the rest of your French business for $96 million, and then you had the FX gain. But can you just give some color as to like where you stand in terms of cash availability at the corporate level? And then also, can you talk about your Chilean battery project is that fully funded through that refinancing?
Michel Letellier
Yeah. So yeah, the children project is actually financed with the refi that we did in Chile. So the Salvador best project is included in that financing. So we will draw further on that private statement to fund entirely the project. And at the corporate level, we have a revolver availability that’s quite substantial right now. So we were able to finance the acquisition of the French asset, as you mentioned, partly with the reprising of the hedge and then the usage on the revolver line of credit.
So right now, our situation is good and looking to 2023. We also have availability to conduct our development. Of course, we may look into — if we’re very successful, obviously, in our development, then we may have to look for. And as I mentioned actually in the IR Day as well, like we’ll look for some ways to finance our activities. And it could be in the form of Quasi equity or disposal of certain assets that we have or part of assets that we have.
So we’re looking into this right now as well, always looking into the waterfall of ways to finance our activities and the last remaining option would be to do a stock issuance. But we have different options. I think we have different ways to, I guess, rotate some of our capital that we have on our books. So we’ll try to optimize our structure.
Nelson Ng
Thanks. And just to clarify, so for Chile, does your facility also fund the San Andres battery storage project?
Michel Letellier
No. Not the San Andres. So it finances the Sadara best. So San Andres in 2023, that’s one that we’re looking at adding into the U.S. private placement right now or to have a financing on its own for the San Andres. So that’s something that we’re working on actually to have like a financing option by end of Q1 2023.
Nelson Ng
Okay. And then so I guess, looking forward near term, it sounds like Boswell Springs will start construction possibly later this year or early next year. So would that be the next, I guess, big project that you’re looking to finance?
Michel Letellier
Yeah. That’s one of the — that we’re actually now looking at it like to commence with tax equity partners and also with a term loan. And that’s that one. And the other one — the other piece that we are actively looking at to finance the CDPQ to debt at the Holdco facility. So that comes due in February 2023. So it’s something that we’re actively looking at refinancing right now.
Jean Trudel
And Nelson, most of the equity is already spent in Boswell. There’s a little bit more to put, but then when financing will be put in place probably in Q1 or very early Q2, we wouldn’t have to contribute more equity to the project. As a matter of fact — we might receive some — some bag depending on the success of the financing.
Nelson Ng
Can you just clarify that? Because obviously, construction hasn’t started, but you’re saying your net equity needs after tax equity and after a term loan might be negative already fully filled?
Michel Letellier
Yes. It’s already — there’s only maybe $10 million, $15 million that we have to continue funding until the financing. We have already ordered and put deposits on turbine — then a big portion of the engineering we had had, if you remember, continuing with construction on Boswell to maintain its qualification for the PTC. So there’s not much equity left to put in Boswell. And when it’s in construction, actually, we have purchased the turbine.
Like I said, the initial payment has been paid from the road so have been done, some foundation of turbine has been digged. So just a matter of — this quarter, the construction is — the contractors are getting mobilized, finalizing the contract of the contractor for all the balance of plant. Contractor for transmission on has been secured and engineering has already started on that. Purchasing of component has been done as well transformer and stuff. So it’s going forward.
Nelson Ng
Okay. Well, it sounds like it sounds a lot more advanced than I thought. So on the Boswell project, so I think the sticker price was about like $544 million. Like do you have a rough breakdown in terms of the capital structure in terms of tax equity term loan and sponsor equity?
Michel Letellier
Remember that Jean will answer that. But remember that we have a 30 years PPA, so there will be quite a bit of capacity for a back leverage financing as well over and above the tax equity. So the leverage will be fairly high in.
Jean Trudel
Yeah. In the 70 — 75, so I think tax equity — and I can take it offline as well, Nelson, but to be more precise, but I think it was 60, 65 tax equity portion and then another 10%, 15% of loan.
Nelson Ng
Okay, great. Thanks for the color.
Michel Letellier
Its 100 — maybe 20% of — Yes.
Nelson Ng
Excellent. And then just one last question on that. So before I get back in the queue. With interest rates heading higher, like has — the cost of tax equity and has the cost of debt essentially moved up one for one with the 10 year — with the higher 10 year rates or how should we think about the cost of tax equity and debt?
Jean Trudel
Good question. And Nelson, I don’t think it’s one for one. The bond yield has gone up 150, maybe tax equity has gone up 100-ish.
Michel Letellier
Yes.
Nelson Ng
Okay. And I presume that’s obviously close to one for one.
Jean Trudel
Well, that is yes. But we’re not in a big rush to fix right now that portion. We — as you know, most of our debt is already fixed. I think that interest — short-term interest rate is going up, as we all know. But then the long end with the inversion of the curve and the talks about the recession coming, not sure that the 10 years and plus have a lot of room to go up.
Nelson Ng
Yeah. I agree with that. Okay, thanks for the color. I get back, thank you.
Michel Letellier
Thanks Nelson.
Operator
Thank you. Next question will be from Nick Boychuk at Cormark Securities. Please go ahead.
Nicholas Boychuk
Thanks. Good morning. With the power prices in Texas spiking to pretty high levels this quarter. Can you please walk us through what your thoughts are on securing PPAs in that market compared with remaining merchants?
Jean Trudel
That market is crazy, as you know. So we don’t want to get fixed. And we like being exposed to the merchant in Texas. We’ve learned it from the hard way, PPA or Quasi PPA where you have to be firm with one asset is nothing that we like about that. So no, not looking to be very aggressive on fixing pricing firm pricing in Texas.
Nicholas Boychuk
And Michel, does that include going with a corporate PPA that could an opportunity arise where a corporation could come and maybe partner in that way?
Michel Letellier
Sure. But we like being floating in Texas. It brings a lot of volatility, but at least you don’t hope your harm and a leg to somebody if things are not going your way. Yes. Unless it has produced and it’s a good price, but we will never ever, ever again, do the silly power hedges never, never again.
Nicholas Boychuk
Okay. That’s good. Thanks. There’s also a comment in the MD&A that the Salvador battery storage asset could have a delayed COD delivery, but that you’d receive compensation by liquidated damages. Can you please just walk us through what that means and how that will be structured?
Michel Letellier
Well, it’s a cost per day. I can’t remember exactly how much is the quantum per day, but it covers our interest and it would not be totally linked to the lost revenue because that was difficult for the supplier to accept. But it’s a fair compensation. That being said, we’re talking about maybe a month, 45 days-ish that the Mitsubishi would need to be in COD. And to come back maybe on your view of fixing pricing in ERCOT, we’re not too hot on this issue because we don’t see very good long-term pricing power in Texas, but this is very different in Chile. Chile, we’re starting to see big demand for long-term PPA directly with players that have already long-term contract obligation in Chile.
I think that a lot of people were caught in thinking that building new facility would be fairly cheap. So we’re seeing and we’re starting to think that the time has come to maybe fix more PPA. We have term sheet on the table and prices are around $60, $60-ish, there’s new scope coming in next year where you are going to see price around the $60 range with full inflation. So at that level, we are starting to think that it’s becoming a good bet to start signing a long-term PPA in Chile.
Nicholas Boychuk
Okay. So sorry, just to clarify, like that could be San Andres solar, for example, that’s currently merchant, you could potentially get a PPA of 60 with an inflation factor?
Michel Letellier
Yeah. Well, what we are not going to dedicate an asset. We have a portfolio in Chile. So we have the ability — we’re actually becoming a small utility with a portfolio where we can in Chile, it’s a financial transaction as well. So we can use any of our facility to supply the obligation, the contractual obligation that we would enter into. So Chile, the best battery system would contribute to our ability to supply energy to a third party in Chile.
Nicholas Boychuk
Yeah. Understood.
Jean Trudel
I think it’s important to know, it’s very different from what we lived through in ERCOT because what Michel you can service these off take agreements from many different point of interconnection to agree from all our assets. It’s — and we have the ability to store at some assets. And with the battery system, it’s going to be even more fixable.
Nicholas Boychuk
Thanks.
Michel Letellier
Yes. And we can build new projects, around $60 with full inflation, project like Frontera or San Calos are starting to make sense. And we’re — like we said, we’re — we will be very focused on seizing the opportunity if the opportunity arises that our project becomes profitable, we’ll start construction. But we don’t want to start construction without having a strong price coming out.
Nicholas Boychuk
Got it. That’s really good color. Thank you. And just last for me. Can you just walk us through any inflationary effects you’re seeing on the cost of maintaining the existing asset base?
Michel Letellier
Well, labor and some component, but as we said, every percentage of inflation higher than our 2% or 2.5% initial forecast is cash positive on a portfolio basis to about $1.5 million, right about that level. So yes, we have some inflation in our operation, but it’s well compensated by our inflation indexed PPAs.
Nicholas Boychuk
Awesome, thanks a lot, guys.
Operator
Thank you. Next question will be from Rupert Merer at National Bank. Please go ahead.
Rupert Merer
Good morning, great quarter.
Michel Letellier
Hi, Rupert. Thanks.
Rupert Merer
So you’ve seen from your comments to be more open to consider asset sell-downs given the market conditions. And I do think the market would like that. Would you consider a sell down of a stake in development projects like Boswell as you move to financial close?
Michel Letellier
It would depend on the price. It could. We could. But Boswell will have — and probably Boswell is not the right one because when you all understand the matrix, the financial metrics of Boswell will you understand, it’s a very cash-accretive project, especially in the first 10 years where we have the full benefit of the PPC and the PTC inflation as well. So that would not probably the one that we would be willing to divest first.
But contrary to, I guess, the past, we are consideration some assets that we own, some small ones that are creating a little bit of, I would say, stressed on management and not a big contributor. So that could also be on our strategy just to clean up our portfolio and making sure that our people are available to put their energy on more profitable project or more aligned in developing some other activities. France might look to — in some ways, we might benefit from a partnership — a financial partnership from a European based. You know that we just acquired the 30% of France.
But on the other hand, we have created value by resigning PPA. So there’s maybe some opportunity to partner with some financial institution in France. Market is still very, very strong for portfolio and platform. We’re going to look into a project that also are not necessarily generating a lot of cash flow for us, and we’ll take our decision. But of course, we will have to replace these by also very good and long-term value of the asset.
Rupert Merer
Great. Thanks for the color. And talking about another partnership, we saw Hydro-Quebec make a fairly large acquisition in the U.S. recently. Did you look at that deal? And do you see potential for involvement with Hydro-Quebec in future deals and in the Quebec RFP?
Michel Letellier
Yeah. I mean Jean worked with Hydro-Quebec and our team has worked with to Quebec on the early days of that deal. We decided on the common ground that this asset was a little bit big for us. Given also the weak market condition for us, it was a little bit of a challenge. But I think that one of the issue was also the fact that Hydro-Quebec wanted that asset, it’s very strategic for them. They — as you know, they have long-term contract to supply New York. They think that this asset has a very long term value for them as well.
You just heard me in saying that they are looking for 25 watt hour of new energy. So if they could supply their commitment in the state by the United States asset, I think it’s a good thing for them. But it was on the common ground that we decided to let them go alone on that transaction. A little bit also on the fact that it would have been difficult to establish a strong governance on how would we value the electricity on that asset, given the fact that Hydro-Quebec has this long-term commitment to sell a prostate in New York.
So I mean we’re all front on that transaction. We’re very happy for them that they were a winner of that asset. As Sophie said, I think that they paid a good price but an expensive price. But I think they see that asset as a long-term hold for them. So I guess that doesn’t change any fundamental to our long-term relationship and our way to try to look at other potential acquisition in the Northeast with them.
Jean Trudel
No. And maybe if I can add, like with the two partners are looking into extending that partnership now because there was a three year window originally for the commitment from Hydro-Quebec. So we’re looking at extending this further in time. And we will obviously adjust the partnership. Now we know how each other works. We know what’s of interest, we know each other much better. We understand each other much better. So strategically, we’ll position that extension of the alliance with more granularity, I guess, in the coming — for the coming years.
Michel Letellier
And I think since we have worked well with them, I mentioned the Eastern loop. I think there’s great opportunity for us to participate with Hydro-Quebec in New Brunswick, Ontario and definitely in Quebec also to be partnered with First Nation and potentially Hydro-Quebec as well on Greenfield projects. So the alliance is very alive for us. We would have loved to be able in being a position to take a — position in this transaction. But like I said, it was fairly big as well. 25% of that transaction and the financing, the project finance was in place, very difficult to prepay and the equity ticket would have been huge for us.
Rupert Merer
Great. Thanks for the color.
Operator
Thank you. Next question will be from Mark Jarvi at CIBC Capital Markets. Please go ahead.
Mark Jarvi
Thanks. Good morning, everyone. Jean, maybe you can clarify just the comments around equity needs for next year. It seems like San Andreas or — sorry, San Salvador and Boswell, there was no more additional equity required. So what would be there in terms of spending for next year? Would that be San Andreas and the Boswell and be the sort of bigger ticket items next year potentially for equity requirements?
Jean Trudel
Well, it’s really — if we have more success, I guess, in our development pipeline, and there’s a fairly good amount of prospective projects that are advancing as well in our business. So things are moving fast. If we do further acquisitions, then we may need to access the market, of course. So we’ve done the defense acquisitions and — so I’m just — I think we have the bandwidth now we have the flexibility to conduct our development, but I’m conscious that we are advancing quite fast in many fronts.
So we’re preparing ourselves to see, okay, where — how we could give ourselves more flexibility. And that’s why what Michelle mentioned in the — when we revisited our assets, our asset base and we look at potentially divesting from a portion of our assets or reconfiguring some of our assets. I think it’s in view of that, that we just want to be positioned to have that flexibility, I guess, in the coming year.
Mark Jarvi
Okay. And then when it comes to the other projects in Hawaii, it talks about you guys are trying to work with the utility here and amend the PPA. Can you comment on how that’s progressing or if you can’t come to an agreement, is a plan then to rebid in future RFPs or maybe just kind of what’s the path forward and options in Hawaii?
Jean Trudel
Yeah. The Hale Kuawehi — yeah, we could see that Hale Kuawehi in the RFP 3. That’s always a position that’s always a possibility. I think that the PUC has let know that their pricing for expectation for the RFP3 is anywhere between $150 to $170 per megawatt hour as a blend for battery and solar. And that’s an area where we could compete, certainly. I think that ECO has some motivation to come and finalize the negotiation with us perhaps a little bit below that threshold.
So I think that there’s definitely some willingness from their part to sit down and — but it’s difficult for them to agree on renegotiating a price without necessarily having an RFP .They have to justify that in front of the PUC. So they’re demanding a lot of question about how come this project has gone up in price. So we have to supply our original bid and updated bid. So as you know, it’s moving part, right, because the inflation has gone up fast. And the delivery of item can be also delayed if we are not taking some decision right away. So we’re having a good discussion.
And also they are avoiding cost of producing electricity is high. They’re burning diesel and their cost to burn that diesel is over $200 per megawatt hour. So every month that we’re not in service, it’s costing them more money. So I think we have a path forward. It’s just that it takes a little bit more time and they have to justify their decision in front of the PUC.
Mark Jarvi
And then Michel, could you outline sort of the expected time line for resolution on that? And then given where we stand now and you’re hopeful as the result is maybe next year, what’s a reasonable time line for CODs for those projects?
Michel Letellier
Hale Kuawehi, as I mentioned, we still have a path towards Q3 2024. I think we can maintain that. We have a little bit of a buffer as long as we can have a decision from the PUC in the early Q1 2023.
Mark Jarvi
And the other ones like Barber’s Point?
Michel Letellier
Barber’s Point is another story. That’s one of the smaller ones. We may elect to bid it in the RFP3 that one. We’re still in negotiation, but that one might be a little bit tougher to come to an agreement. We may select to go for our P3 on Barber’s point.
Mark Jarvi
And the time lines for the RFP3?
Michel Letellier
They’re supposed to announce it next year and COD day would be 2026 or ’27.
Mark Jarvi
Okay. And then my last question is just on CB. It seems like you guys looked like you booked higher revenues, but then there’s the realized loss on the hedges, sort of net-net, what is the cash flow profile coming off of CB now? And is it above plan or below plan at this moment?
Michel Letellier
It’s probably not great.
Jean Trudel
It would be positive last quarter. It was slightly positive last quarter.
Michel Letellier
But if you’re asking us since — when we took the decision to invest in CB or…
Mark Jarvi
Or even at the beginning of the year, maybe like when you guys set your sort of free cash flow per share guidance and things like that.
Michel Letellier
It’s a little bit neutral from what we had expected at the beginning of the year. But it’s always challenging the basis in Texas for CB. The demand is starting to grow in — around CB. More rigs are being drawn to the area. So that should help one of the issue is that the demand had crashed around CB. The rig has been decommissioned or no more rig or installed during the COVID. But given the price of oil being fairly strong, we’re seeing more activities in rig around CB it’s terrible for me to wish to have more rig — as you know, we’re a renewable energy, but that’s the fact the demand around CB is mainly oil-related activities.
Mark Jarvi
And would CB one of the assets you’re kind of alluding to that’s maybe a bit more challenged and something that takes up too much time that you guys would think about selling?
Michel Letellier
I think your conclusion might be right.
Mark Jarvi
Okay. All right. Thanks, Jean, Thanks, Michel.
Operator
Thank you. Next question will be from Sean Steuart at TD Securities. Please go ahead.
Sean Steuart
Thanks. Good morning. Just one follow-up for me, guys. A follow-up on France. Do these two contracts you’ve signed exhaust all your reconstructing opportunities there? And can you give us a sense — is this a new contract with EDF or is it corporate off takers that you’re signing these deals with?
Michel Letellier
It’s a small co-op utility in France, which has the ability to recharge is fees to their customer base. So we like that credit. It’s a good off taker. very nimble. We had only a few weeks to renegotiate that contract given the window of opportunity and how fast things are going in France. But we were very pleased to have that new customer to be adding up that customer in France.
Jean Trudel
The previous ones shown were with corporate. That one was with this smaller distribution company.
Michel Letellier
And we still have one — well, we have long value that it’s still fully merchant and that is going to benefit from this month without having the ceiling at EUR180. And we have Bomo and other Bomo it’s 25 megawatts more, right. [Multiple Speakers] Yes. So still have, but we’re going to be careful given the noise around potentially capturing the surplus profit. There’s a lot of noise in France regarding the ability of the government to impose special taxes and stuff like that. So we’re taking our time, we we’re examining still our option, but EON is still one that we can get out of the contract without penalties.
Sean Steuart
Understood. The rest of my questions have been asked. Thanks very much guys.
Michel Letellier
Thank you, Sean.
Operator
Thank you. Next question will be from Ben Pham of BMO Capital Markets. Please go ahead.
Michel Letellier
Hello, Ben.
Benjamin Pham
Hi. Good morning, everybody. You mentioned your cost of capital has gone up. I wanted to confirm, has that changed how you — the capital structure of how you’re going to be financing your projects going forward?
Michel Letellier
I guess that our cost of capital has gone up, everybody have seen their cost of capital go up. I think that we’ve been finished a little bit more than our peers on our price of share. Hopefully, that by delivering good quarter-over-quarter-over-quarter, people will get back to buying our stock. But we’re reacting as everybody else, knowing that our total cost of capital, i.e., project finance, our equity. Everything has gone up by 200 bases point-ish.
So we’re trying to adapt and any acquisition that we are seeking take back in consideration, even if we’re doing acquisitions with our price of stock, we always take the current price of our stock to calculate the potential accretion of the transaction. So always kept in mind that we have a certain cost of equity and average cost of capital and try to adjust in our target return when we acquire or when we develop projects.
Benjamin Pham
Okay. And then I know you also mentioned selling assets is still attractive. Has that return on asset sales or I guess, whatever you want to call, has that — the difference between that and your cost of capital, has that narrowed or you’re seeing a more the sales before?
Michel Letellier
Well, it’s funny. Sometimes — well, for certainly very good asset with long-term PPA. There’s still a lot of cash or equity that is committed to this type of in structure fund that love those assets. So we think that it’s always a little bit lagging in terms of adjustment in terms of expected return on these assets versus public companies, our price gets adjusted very quickly. So there’s a disconnect between the public market and the private transaction, always lagging in some ways, I would say. How much is difficult to say. But if we go up by 150 basis points to 200 basis points in our cost of equity, typically translate to 50 basis points, 75 basis points in the private transaction.
Benjamin Pham
Okay. And then one last more detailed one. The news flow and the BC droughts, are you generally immune to that based on where assets are located?
Michel Letellier
No. You’ve seen that our quarter was not that great coming from BC. That’s the reaction. Although when you have very warm summer, some of our water basin have some melting snow and some melting glacier. So that kind of mitigated a little bit the — our production versus the drop itself. But no, unfortunately, BC has been hit by this dry condition. It could turn around. As you’ve seen in the last years, BC is a little bit more volatile than in Quebec. You have very, very good quarters, I think sometimes followed by fairly bad quarter and then ripe well is due for a good wet year going forward.
Benjamin Pham
Okay. That’s helpful. Thank you.
Operator
Thank you. Next question will be from Andrew Kuske at Credit Suisse. Please go ahead.
Andrew Kuske
Thank you. Good morning. Over the years, you managed to build out a nice business in France, and that jurisdiction historically has been challenging for permitting smaller land parcels and just in general, tougher regulatory processes. How are you navigating the current environment and are you seeing any change where there could be a potential acceleration of activities in France and just maybe easier processes around development?
Michel Letellier
You’re right, Andrew, there’s some, I would say, some legal — not legal, political desire to streamline the process, especially for solar. Solar we’ll get some acceleration proposal, I think, in some permitting issue. Wind (ph) is still difficult to permit in France and the willingness of the politician to standby wind is not so strong.
So I think that we’ll still be able to develop win in France, but solar will be a lot easier to do low. And then eventually, solar and batteries might also become very useful for the French market. Like I said, wind will still continue to develop wind. — but there’s definitely more pushback for wind acceleration proposal in the legislation than for solar, for sure.
Andrew Kuske
Okay. That’s helpful. Thank you. And then maybe just a follow-up. Given what we’ve seen with your FX hedges earlier on and just the current levels of some FX spot rates, are you more inclined to put capital into France and maybe your broadly, if you find sufficient returns of opportunities just on a reversion to mean kind of trade, you actually wind up with a pretty meaningful lift on just FX alone.
Jean Trudel
That was — I guess that was a lot — not a lot. I mean, we hedged ourselves and having this huge plus value sitting on the hedge and our ability to actually re-contract that edge at around 140 — 148 coming from 172 — 173 — we thought versus the spot. It was kind of an easy call, right? I mean, we decided that we 148 is still a strong level. And we took advantage of that. That was quite a bit of money to be $43 million — $43 million of value that’s just there.
But I don’t think we are focusing too much on FX. It just happened to be very profitable to do on that trade. That doesn’t really change our strategy to invest in France. The return — we’re trying to calculate the return based on its own merit in France. We always need some money to continue developing in France. So repatriating cash from France sometimes can be challenged. So if we have the ability to recycle some of that capital we were willing to do so.
Also looking, as I mentioned, there’s a lot of willingness also from financial partner in France to commit a fairly aggressive cost of capital to continue developing projects in France and Europe. So that could also be, like we said, an alternative for us to increase our presence in the development in France by having a potential partner in Europe.
Andrew Kuske
Okay. Appreciate the time. Thank you.
Operator
Thank you. [Operator Instructions] And your next question will be from Naji Baydoun at iA Capital Markets. Please go ahead.
Jean Trudel
Hello, Naji.
Naji Baydoun
Hi. Good morning. Congrats on the good quarter. Just wanted to start off with a clarification question. You didn’t increase the guidance for this year despite the good results. That’s not sort of relaying any expectations about Q4?
Michel Letellier
Well, we did — I mean, we didn’t — we, I guess, republished guidance because the guidance that we provided in Q2 and during the IR day are still added. Sorry, this quarter, there’s a bit of some timing also on the debt repayments. And so the guidance, we felt that we were comfortable with what it was in August. I mean we’ll see how the quarter — the next quarter goes in terms of production and revenues. But we felt just comfortable staying as is not.
Jean Trudel
Yeah. I mean the East is doing great in production. BC, as you know, October was still dry, but it’s picking up now in November. So always difficult to call on one quarter…
Michel Letellier
It depends also the level of pricing that we experienced. I mean we’ve benefited from it, and it’s softening a little bit in Chile. So our forecast still today. So that’s good. But yes, so the plan is to issue guidance at the beginning of the year and then midyear to issue an update. And then unless something material was to happen, obviously.
Naji Baydoun
Okay. Got it. Just wanted to go back to the topic of partnerships and asset sales. But just starting with Hydro-Quebec, when do you think — what would be the time line to maybe move forward on the project with Hydro-Quebec in the province outside of the RFPs that they’re looking to do?
Michel Letellier
Well, sooner than later, but it’s difficult in Quebec to put — go through all the permitting and the interconnection delay, construction, depending where you develop that, you — it’s difficult in crack to build in wintertime. So putting projects in service before 2026 is a little bit of a challenge. Some can be done, but then it’s definitely more ’27, ‘28 to see COD.
Jean Trudel
And that’s the time line that Hydro-Quebec is looking for, right, to add new capacity, it’s going to be post 2026. And right now, like what they see is 2030 all the way to 2032 or about. So we’re positioning ourselves really like to insert that low debt requirement. And in time, I guess, whenever Hydro-Quebec feels ready like to come in and join us, I mean, we’ll be happy to entertain a partnership at the project level as well with them.
Michel Letellier
Because typically, a project that has been developed in the North. It takes two years to permit in Quebec going through the BAP both dense public. And then usually, it takes two years to build is. So four years starting in 2023 puts you at the best at 2026 and early 2027.
Naji Baydoun
Okay. That’s it. So I mean, based on those time lines, it sounds like you could FID on something next year?
Michel Letellier
Definitely, we’re working very intensely to secure some project in Quebec. 7,000 megawatts is doubling the total installed capacity in Quebec in terms of win that took 20 years to build — so we will be busy in Quebec.
Naji Baydoun
Not an easy feat, but definitely an exciting opportunity. And just on asset sales. I mean, you just did the French portfolio consolidation, that helped kind of simplify the structure a bit. I guess its two questions. One, do you see other opportunities to maybe consolidate the ownership in assets, I’m thinking some of the wind farms or hydro facilities in North America? And then how do you think about the trade-off between partial asset sales and maybe, like you said, partnerships in France should maybe just make the structure more complex again.
Michel Letellier
No, I agree with you. The complexity of our financial statement is something that we heard investors saying that sometimes our financial statement are a little bit complicated, i.e., because we have a joint venture. We have some — also some consolidation, and we have PTC. We’re pleased to have been able to consolidate our French asset. But it’s always a compromise, if we would rather keep it. But if we think that the arbitrage between the cap rate of Europe and our ability to deploy our capital at a higher rate somewhere else, that’s the compromise that we will have to do.
Jean Trudel
And in front, it was important to strategically position ourselves to be in control of the operating assets. So we had a partner on operating assets, but not on development assets. So the idea would be to eventually if it’s — and to a point we shall cap rates are good, investors are looking at that type of platform. So now we have something different to offer if we want to partner with someone. And so it would — you’re right, it would bring a partner. So sometimes it looks like it’s more complicated. But if it’s a partner for the overall platform, it really simplifies our ability to grow the platform because we’re aligned on operations, but also on development in both sides.
Michel Letellier
And so we did the same thing in Alima, right? We bought back our partner to gain control over assets, and then it was putting us in our best position to acquire further assets and to have a full complete platform. So in some cases, it’s really strategically driven, I guess, to buy out a partner. And in some cases, it’s just to simplify the structure…
Jean Trudel
Yes. And in this case, we had a willing sellers that for all kinds of reason, was probably happier to dispose of their investment in France to deploy it somewhere else. So we took advantage of that alternative and also easier for us being the sole owner to take the decision on resigning PPA, renegotiating our portfolio in some cases than having a partner to share the decision. So — but once everything would be settled and we would know more about our strategy regarding the re-contracting activities, we might consider looking for a partner in France.
Naji Baydoun
That’s very helpful. And just to be clear, I guess, there aren’t any other major opportunities today to consolidate other ownerships within the portfolio.
Michel Letellier
Yes. I think you mentioned — still, if you look in our statement, you see that we have some minority positions in our business. So we’re looking at when it might not be feasible in some cases. In some cases, it might be. So I think it’s important for us to just take a good look at it and see if something can be done.
And then France, just to add up to France, I mean it was a great opportunity, I think, at the EBITDA level that we bought back our minority. I think it was a great deal for us because deploying [indiscernible] on acquisitions in France, it’s much harder in a process like environment. But in the bilateral fashion like we did now, I think it was a great opportunity as well.
So we’ll look at what we have, and we’ll try to find ways to conclude. But sometimes you have minority partners that are net sellers as well. So we can’t force — we cannot necessarily force them out.
Naji Baydoun
Okay. Appreciate all details looking forward to more updates soon. Thank you.
Michel Letellier
Thank you.
Operator
Thank you. And at this time, Mr. Michel there are no further questions.
Michel Letellier
Well, I thank you very much, everybody, for your time. And I always appreciate your support. Thank you very much.
Jean Trudel
Thanks, everyone.
Karine Vachon
Thank you.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
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