TSE:PIF Polaris Renewable Energy Q3 2024 Earnings Report C$11.85 +0.15 (+1.28%) As of 03:59 PM Eastern Earnings HistoryForecast Polaris Renewable Energy EPS ResultsActual EPSC$0.03Consensus EPS C$0.08Beat/MissMissed by -C$0.05One Year Ago EPSC$0.07Polaris Renewable Energy Revenue ResultsActual RevenueN/AExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/APolaris Renewable Energy Announcement DetailsQuarterQ3 2024Date10/31/2024TimeBefore Market OpensConference Call DateThursday, October 31, 2024Conference Call Time5:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptInterim ReportEarnings HistoryCompany ProfilePowered by Polaris Renewable Energy Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 31, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good morning, and welcome to the Polaris Renewable Energy Incorporated Third Quarter 2024 Conference Call. At this time, all participants are in a listen only mode, and we will open for questions following the presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Anton Jelic, CFO of Polaris Renewable Energy. The floor is yours. Speaker 100:00:32Thanks, Jenny. Good morning, everyone, and welcome to the 2024 3rd quarter earnings call for Polaris Renewable Energy. In addition to our press releases issued earlier today, you can find our financial statements and MD and A on both SEDAR Plus and on our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are in denominating U. S. Speaker 100:00:58Dollars. I'd like to remind everyone that comments made during this call may include forward looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy and its subsidiaries. These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2023. I'm joined this morning as always by Mark Murnaghan, CL of Polaris. Speaker 100:01:41At this time, I will walk you through our financial highlights. Power generation. During the 3 months ended September 30, power production was 168,639 Megawatt Hours compared to 178,753 Megawatt Hours in the 3 months ended September 30, 2023. For Nicaragua in the Q3 of 2024, production was 120,565 Megawatt Hours lower compared to the same period last year, which was 129, 475 Megawatt Hours. Consolidated production in Peru for the 3 months ended September 30 was also lower at 20,616 Megawatt Hours than the comparative period last year, which totaled 23,000 0.78 Megawatt Hours. Speaker 100:02:33At our Dominican Republic Canola 1 Solar Facility, we produced 16,476 Megawatt Hours in the 3 months ended September 30. This is higher than the Q3 last year, reflecting enhanced productivity from the newly installed panels. For Ecuador in the Q3 of 2024, average production of 6,000 535 Megawatt Hours was in line with production in the comparative period last year. And finally, in Panama, visiting Vista Jerimosa Solar Park production of 4,447 Megawatt Hours was also in line with management's expectations for the quarter. Revenue. Speaker 100:03:14Revenue was $17,700,000 during the 3 months ended September 30 compared to $18,800,000 in the same period in 2023. Net earnings. Net earnings attributable to owners was $480,000 for the quarter compared to $1,000,000 in net earnings for the same period last year. Adjusted EBITDA. Adjusted EBITDA increased to 12 point was $12,400,000 for the 3 months ended September 30 compared to $13,700,000 for the same period last year. Speaker 100:03:49Cash generation. Net cash from operating activities Speaker 200:03:53for the 3 months Speaker 100:03:53ended September 30 was lower than the compared periods in 2023, mainly due to lower cash received from Nicaragua as expected due to decline in production scheduled downtime for major maintenance of the facility during Q2 as well as recognition of unearned revenue in Peru. Net cash used in investing activities for the 3 9 months ended September 30th was lower when compared to the same periods in 2023. While the cash usage in the current year relates to Kanoa 1 optimization project with a budget of $5,000,000 and the major maintenance of the geothermal facility in Nicaragua, cash usage in investing activities in the same period last year related to disbursements linked to projects such as the construction of the binary unit in Nicaragua and the Vista Jerimosa Solar Park in Panama. Net cash used in financing activities for the 3 9 months ended September 30, 20242023 are comparable. And finally, dividends. Speaker 100:04:58I would like to highlight that we have already announced that we have announced that we will be paying a quarterly dividend again on November 22 of $0.15 per share to shareholders of record on November 11. With that, I'll turn the call over to Mark who will elaborate on quarterly results as well as current business matters. Thank you. Speaker 300:05:19Thanks, Santo. So I'll just dive into the different assets first. So San Jacinto was in line with our expectations. For the quarter, it was 54.6. I'll give you the actual monthly numbers. Speaker 300:05:34So for July, it was 54.9 megawatts net, 54.6 in August and 54.2 in September. So you can see that's very good stability in the wells. So we're quite happy with that. That was down from Q3 of last year, but it's actually the best quarter in the last four quarters, although given that maintenance was done in the 2nd quarter that you have to take that one out. But this quarter this year was higher than the Q1 this year, and it was higher than the Q4 last year. Speaker 300:06:08So and that is due to, call it, the how we're running the injection system and the wells. So yes, I would say the actions we've taken to promote stability worked very well in the quarter. So we're happy we're quite happy with that. In Peru, the numbers were lower. It is always the Q3 in Peru is always the lowest quarter. Speaker 300:06:39It is the dry season. It was just drier than normal, and there's not much we can do to that do about that. So the numbers were I think our budget for the quarter was around 23,000, 24,000 megawatt hours for the quarter for the 3 hydro plants in Peru, and it came in around 20. So that's not a huge impact, but it was lower given El Nino. We are we did see lower hydrology. Speaker 300:07:13Now I would say in October, obviously, it's only 1 month, but the rains have started again and we're close to what we were budgeting in October already. And even the last week, we've noticed a big pickup. So it's early in the quarter, but it looks to be close to on track for what we were budgeting in terms of hydrology. So that's good. I would say Ecuador is a similar story, but just much less pronounced than Peru. Speaker 300:07:47Doctor was Dominican. The solar plant, Kanoa, was above the same period last year, which was expected given the replacement program that we did there. It was finished 1st week of August, so we did not get the benefits of the whole quarter. We will see a full quarter the current quarter. When we adjust for that, I would say that we're getting about 80% to 90% of the estimated benefit. Speaker 300:08:17But we would expect to for Q1 of next year to be getting 100% of the benefit that we expected. So that's good. And Panama production in line in terms of the total megawatt hours. Pricing was around $81 a megawatt hour. And we subsequent to the quarter end have signed a contract for that plant for 100 percent of the production of the Vista Hermosa plant starting Jan 1, 2025. Speaker 300:08:54It is still subject to the local regulator approving it, which we expect to happen 1st week in December. We don't foresee that to be a problem. But the pricing on that is it starts at $80 a megawatt hour in 2025 and goes up to $82 a megawatt hour in the 5th year. So just a small indexation there, but we're quite happy about that. We do think that this is a good period to have that plant contracted because the entrance of the gas plant, which has happened in this quarter. Speaker 300:09:31So we think that will negatively impact the spot market prices. So I think we've timed it well in terms of having the first, call it, year and a half at spot, which was strong, and then the next 5 years fully contracted. I would also mention that, that takes us up to that was the only plant that we didn't that we weren't fully contracted. So with that, we will be at 100% fully contracted. So that's those are the operational plans. Speaker 300:10:03I will now talk a little bit more about the Punta Lima acquisition that we announced a few days ago. So it's as we mentioned in the press release, it's for 20,000,000 dollars That is an enterprise value. It is unlevered. It's an unlevered project at this point in time. Given our cash balance, which sits at $45,000,000 we have the cash on hand to close that. Speaker 300:10:31It is conditional upon the key condition really in there is that the offtaker, which is called PREPA, short form, they do need to approve the essentially a change of control. So we don't foresee that to be a problem. They already know about the transaction, obviously. And given that we're a power producer as opposed to a bank, we don't see that as an issue whatsoever. In terms of timing, that part is hard to predict. Speaker 300:11:05But I would say it could be anywhere from 60, 90, 120 days. I would say that's the range. So Q1 next year and hopefully earlier in the quarter than later, but I would guide people to Q1 in terms of getting approved by PREPA and then closed. It's 26 Megawatt wind farm. The history and what we think is the production should be between fixed 50,060,000 megawatt hours a year. Speaker 300:11:40It has a 20 year contract, which started on March of this year, March 2024 close to March of 2,044. It is a bit of a sculpted PPA, but it's $149 next year and it sorry, 2025 escalates at 1.3% until 2,034. And then it drops sort of after 10 years to around 129 escalates again up to 141. So it is sculpted, but it's a very good price. And I'll get into it should be promoting energy storage going forward as well. Speaker 300:12:24I would say given the jurisdiction you have we also either Vestas turbines I should mention. So there is a contract part of the O and M is done with Vestas. And given, I would say, insurance costs and even land costs in Puerto Rico are quite high, so this the costs are higher, call it, relative to revenues than other projects that we have. We think they run around $4,000,000 I wouldn't say that once we get in there, I think we can reduce those or at least keep them flat as opposed to, call it, escalating with the PPA price because I think there's some synergies. Also, there's just opportunities I think we're going to have to reduce that over time. Speaker 300:13:19It is a tax equity structure, which is a little complicated. But the way that it works is that for the first really for us, if we assume we close Q1 next year, it will be 1st 4 years, we will get 94% of the distributions with our tax equity partner Santander hitting the 6%. And then after that period is up, which is around 5 years actually from the first commercial operation date of March of this year, that we will have a $1,500,000 buyout option, which we would exercise to take us to 100%. So it's essentially for us will look like 94% for the 1st 4 years and then 100% after that. We as part of the PPA, there is a requirement to implement a battery energy storage system, which is scoped out at actually 13 megawatt hours, 1 megawatt times 13 hours. Speaker 300:14:25And the requirement will be to get that implemented within 2 years of closing. So we don't see that as a problem. And in fact, what we hope to do, given the power pricing, given that actually they've already announced that likely next year, there's going to be a standing offer for battery energy storage systems, kind of like feed in tariff. It should look like a dollar per kilowatt per month. They haven't published that number, but they have said that they will. Speaker 300:14:58So there should be a small revenue opportunity there. And we do hope that we could given the demands for more renewables on the island, the interest for more renewables, we will attempt to see if we can increase that and increase production on the site or nearby. So we think there's a we think this is a very financially attractive acquisition of an operating asset, and we also hope that it legs into more growth in that market. Financially, we are well positioned to do it given our cash position. So we don't need to raise equity for that. Speaker 300:15:46And also, we think that this given that it's unlevered, it's part of the story. We have discussed the potential to do a green bond before. We think now is good timing on the back of this. So we are looking to focus on this very quickly in the quarter here, P4 now. Also, the ability to actually repay our San Jacinto loan, which is our most expensive loan, is Q1 of next year. Speaker 300:16:20So that's very close. We think that's close enough. I think the market is strong, fixed income. So I think you can expect to see us look to do something very quickly here on the backs of the quarter and the acquisition news. And I think this is really important for us. Speaker 300:16:43If we can execute on this, we can significantly increase our cash flow per share without the need to raise equity and at the same time position ourselves to take advantage of both I would say development organic development as well as acquisitions that we have in the funnel right now, which I would suggest that our acquisition pipeline is and by that I mean over and above Punta Lima, but it's stronger than it has ever been. And that includes some operational acquisitions, some ready to build interesting projects as well as even some more late stage development, call it, brownfield opportunities that we're looking at. So all of the different stages. But so we have a very robust, call it, acquisition pipeline. I would suggest that the ready to build or late or mid stage development are I would really more characterize those as development. Speaker 300:17:54So if we do that, I would just reiterate that our developmentacquisition pipeline is as robust as ever. But given how sort of lowly levered we are, like we have been deleveraging for the last couple of years and given that we're 100% contracted, I think we really should be funding a good portion of that growth with debt as opposed to equity. So I think we can really change the and grow the EBITDA profile of this company in the next 12 to 24 months without having to raise any equity. So that's really the plan. And with that, I'll open it up to questions. Operator00:18:39Thank you very much. We are now opening the floor for questions. Thank you. Your first question is coming from Nick Woychuck of Cormark Securities. Nick, your line is live. Speaker 400:19:16Thanks. Good morning, Mark. Good morning. On the Puerto Rican acquisition, can you kind of give us a little bit more color on the timing of any expansion opportunities there and context around how much capital you'll have to deploy and given those power prices, maybe how attractive an organic brownfield opportunity that is? Speaker 300:19:32Yes. So we think of, let's say, February, March is, call it, closing. But this take March, we need to get PREPA approval. I would be the plan would be immediately after that to go look to get, call it, an amendment or approval. It's not really even an amendment actually, which is good. Speaker 300:19:59It's more of an approval to increase. We haven't scoped it out yet. I think our goal is really to and by that, I mean, the exact sort of sizing of the project. We have some ideas, but we really couldn't talk to them until we got this announced. So now that we've got it announced, the plan would be to speak to them before closing because we are going to be in a process of getting approval. Speaker 300:20:24So we think we can have a good conversation about it. And it might take several stages. I would say that the site itself and the transmission capacity on the site could support a significant increase in energy off the project, and that could include some extra wind turbines. It would more likely include some solar with storage. So and that I would see actually coming in likely 3 phases. Speaker 300:21:001 is a small, let's just say, 10 to 20 megawatts solar, which can be done quite quickly. And then I would say something bigger that would max out the contract. So the contract itself is a 26 megawatt contract. And it's actually, I would say, for wind resources, it's a reasonably low resource. But obviously, we're not, I would say, paying for that. Speaker 300:21:32We're paying a very good multiple. And so we're not giving credit for high resource. But what that does mean is that there's a lot more, call it, energy available. So it would be, call it, something smallish. By that, I mean, similar to what we might be doing at Kanoa quickly. Speaker 300:21:50And then the next would be doing something that where we could almost fill up as much as we can, the 26. And then after that, it would take a little obviously more time. But the nice thing is that there's well over 100 megawatts of transmission capacity there. So that would require, obviously, more time, but it could be that would be a huge opportunity if we can take advantage of it. But in terms of the how the timing, I would have to say it's almost 1, 2 3 year kind of thing in terms of getting those approved. Speaker 400:22:30Okay. That makes a lot of sense. And if you're thinking about that opportunity, as attractive as that sounds, how do you comp that against what you have available in the Dominican Republic, expanding solar and battery storage there versus these other acquisitions? How are you thinking about ranking these? And what are your kind of returns on capital required in order to pick 1 of the 2? Speaker 500:22:53I think here it's going to Speaker 300:22:56be just a little bit higher because of the VPA price is about 10% higher. So yes, I would say you would prioritize that. Not massively, they're both really close, right? So I would you're obviously going to prioritize the one that's 10% more than the other one. But I would really say practically speaking, we're going to be pushing both of those forward as fast as we can. Speaker 300:23:30With the only caveat is just that I mean, on the one hand, I would say the prices in Puerto Rico are a good I would say a signal. That's a good price signal to tell you that they want something combined with the fact that they think they're going to come out with the call it a standing offer. So I think that's really good. The only thing I would say is that we have not been in the market yet. We have been, as I said, waiting really to get the pressures set before we can talk to all the players because we don't have any operations there. Speaker 300:24:02So it's hard for me right now to benchmark how they would compare in terms of timing. That's all. But so practically speaking, we'll just be pushing both of them forward as much as we can because I think the economics are would look very attractive given where solar panels are going, given where battery prices are going. You're looking at plus or minus 5 times EBITDA build multiples. Speaker 200:24:31Okay. Speaker 300:24:31Got it. I are backed with U. S. Dollar with a lot of great contracts, right? Speaker 400:24:37Got it. And so to confirm, though, you would have between the cash on hand, free cash flow that will be generated over the next, call it, 2 to 3 years and this debt facility refi and capacity increase, enough non dilutive capital in order to take advantage of all three of those opportunities? Speaker 300:24:54Yes. Okay, perfect. Thank you. Operator00:24:58Thank you very much. Your next question is coming from Rupert Merer of National Bank. Rupert, your line is live. Speaker 600:25:08Hi, good morning, everyone. Speaker 300:25:09Good morning, Rupert. Speaker 600:25:11Just following up on Nick's question. If we look at the bond you're planning to issue, can you just give us an update on what that could look like in terms of the scale and perhaps the terms that you could get on that now given that you have seen some relief on rates? Speaker 300:25:29Sure. So I think it would be important to note also that we would look I did mention the Santa Cinto loan, which can come up for repayment. It's technically Feb 11 when the non call it's not a non call, it's just a make whole period is up. So we would want to repay that, which is at that time, it would be about $90,000,000 net. So that would be a use of proceeds, which is a reasonable one. Speaker 300:26:02So given that and given our growth, like we'd be looking at a low end, Rupert, I'd say 150 and at the high end 200 in terms of U. S, in terms of sizing. I think the fixed income market does want certain like a little bit of scale for it to get interested for a lot of the funds. So that would be the range. And I would suggest that I mean, interestingly, S and P did upgrade Nicaragua last week or 2 weeks ago. Speaker 300:26:34So actually, it was last week, which was a nice pleasant surprise. They did it because of 2 years of budget surpluses. So that's quite constructive. And so given that, I'd say there's limits for us, given still a reasonable percentage is Nicaragua, obviously. But I think something in the single but high single digits in terms of cost. Speaker 300:27:05And I think the big the other big thing is which we think is critically important is non amortizing bond, which I think really makes sense for us given, again, we would be exiting if we didn't do anything, we'd be exiting this year at around 2x, 2.2x net debt to EBITDA. It's just too low for our contract structure. And so one way is to raise a bit more debt, but I don't think it has to be just that. I think it's raising a bit more debt as well as putting on some non amortizing debt. I think that and the debt that we would look at keeping on the balance sheet would be the Canoa loan for sure, and it would also be the senior loans at the Peru Hydros. Speaker 300:27:55Those just make a lot of sense to keep there, but we would likely clean up the other. So it would be kind of a bit of a hybrid in terms of which projects would have loans and which wouldn't, which we also think. So you'd be getting some senior security on the bond offering on a reasonable percent of the portfolio, right, if that makes sense? Speaker 600:28:20Yes, yes. Interesting. So you're going to be raising a fairly substantial amount above and beyond what you need to repay the San Jacinto loan. And you did talk about the M and A market as being quite robust right now. Maybe if you could talk about which markets you're looking at? Speaker 600:28:40Are you looking at M and A in markets where you already have a presence? And what would be the timing on, do you think, on the next deal if things go well? Yes. Speaker 300:28:52The number one principle the nice thing is we've always said we have to stay in U. S. Dollars as a company. And obviously, Punta Lima satisfies that condition. And the other things we're looking at satisfy that. Speaker 300:29:08And the nice thing is, I would say, we have a combination of Rupert of existing markets as well as I would say there's 2 other markets that we are looking at and that are in the funnel and they are U. S. Dollars as well. So it's a mix of those 2, but always in U. S. Speaker 300:29:27Dollars. I would also say that it's important to note that as a company, when we build Panama, which is 10 megawatts, and that's a $1,000,000 $1,500,000 EBITDA type project, right? That should be our smallest project. And we are starting to move up. With Punta Lima in the 4 to 5 range, we are looking at things more in that and up, I would say, in terms of sizing, which I think is important, but I think we can't do too many more sort of $2,000,000 EBITDA projects as a company. Speaker 300:30:07So moving starting to trend the size back up to things closer to, for sure, Canoa and Peru, but even bigger. And timing, we think Q1 is quite reasonable for what we're looking at. So if I had my way, we would have some extra proceeds from a bond offering to provide essentially, call it, equity dollars for those acquisitions. Speaker 600:30:41Great. Just one quick follow-up. So you highlighted this, I suppose, 13 megawatt hour battery that you need to build at Punta Lima. Can we think of that as maybe about a sort of a $4,000,000 or $5,000,000 outlay? And does that have any revenue attached to it if you don't see success in an RFP, a storage RFP in Puerto Rico? Speaker 600:31:08Can you generate arbitrage revenue there or any other, let's say, capacity? Speaker 300:31:14So I think your CapEx might be a little bit high based on what we're seeing. But so let's just take it at the low end of your range. So as it sits today, there would be very like there would just be a tiny bit of arbitrage, but it would be noticeable, Rupert. But it's not really an RFP that they're that they've proposed. It's just a standing dollars per kilowatt per month. Speaker 300:31:46So it's just a capacity payment that has been proposed. It hasn't been put into sort of practice yet. So there would be a capacity payment associated with that at a minimum going forward if it stays if we keep that configuration. Speaker 600:32:06Okay. And they would dispatch that battery in any case, I imagine? Speaker 300:32:12Yes. Although it's really what they want is just they're really looking for you to have a battery such that if there's any frequency issues or trips or sags, that's really they just want you to be available for that. But I actually don't see them dispatching it from an energy perspective. That's why it's quite small. They really just want to make sure that with renewable projects, there's some great stability that's attached to them, at least at this part. Speaker 300:32:47For what you have to have and then obviously, as I said before, we want to obviously we have to satisfy that. I think it will pay with the standing offer, but then we want to see if we can't do more such that it becomes a capacity as well as an energy product. But that will take us a little bit of time to flush that out next year. Speaker 600:33:13Right. Very good. Thank you. I'll get back in the queue. Operator00:33:17Thank you very much. Your next question is coming from Seo Ganzibu of Raymond James. Seo, your line is live. Speaker 200:33:26Great. Thanks for taking my call today. Just following up on Rupert's the question there. You just mentioned that Punta Lima will generate about $4,000,000 to $5,000,000 in EBITDA, so probably like 5 times. Are these in line with your valuation expectations for future acquisitions in that region in Puerto Rico? Speaker 300:33:49Yes. It's going to be hard to do that on these other ones. But call it they're going to be somewhat above that, but they're also not 9 or 10x either. So kind of in between. It's hard to do that for sure in the next month. Speaker 200:34:05Okay, great. And I guess just wondering on any future expansion projects there. Will the tax credits be available for use in Puerto Rico as well? Speaker 300:34:16Yes. So that is it's an interesting question. And growth there, to the extent we're able to do that, yes, it would that's new for us, obviously, because it's technically U. S. Jurisdiction from that perspective. Speaker 300:34:32We would be able to participate in those, yes. Speaker 200:34:36Okay, great. And I guess just lastly for me, just if possible, a little bit just more color on can Speaker 300:34:43you just maybe give me Speaker 200:34:44a bit more color on the decision process on going the throughput at the binary unit? I understand it's to maintain the steam decline in the target range you guys have there. But are your expectations that you'll still see like the full 10 megawatt increase from the unit in 2025? Speaker 300:35:01No. I think that could be possible in 2026. But because we've been running it, really we have 2 wells that they just cycle a lot. And at the 10 megawatt miner unit, when we were running it, that's what caused us some issues November, December last year and January, which I would say we resolved. But those are the combination of those 2 wells is 11. Speaker 300:35:28So 93 is about a 4 or 5 Megawatt well and 6 2 is a 6, 7 megawatt well. So you got to put, let's just say, 10 megawatts there. So you're not going to sort of hurt 10 megawatts to try to max out at 10. It just makes more sense to do 8 megawatts to keep those other wells stable. Now there is part of the plan is to by doing that, the enthalpy of not just those wells, but of the other wells in the field should start to increase because what you're doing is you're just reducing the throughput into the binding unit, which means less a smaller percentage of the brine gets cooled down. Speaker 300:36:15And it's that cooling that we think impacted those 2 wells. So that's why we made the decision. It clearly enhanced the stability, which is why the quarter was quite stable from a production perspective. We are seeing benefits in enthalpy in some of the other wells, but we think it makes sense to just keep it more this way at least for 6 to 12 months. And then if enthalpy in the other wells, and that's just the ratio of sort of steam to brine, if that keeps improving, then I think we will have more room to start trying to move the binary up to 10 megawatts. Speaker 300:36:57But I would tell you that if that happens, we're going to get more from the steam field than 2 megawatts, right? So yes, we could probably get back to that. But that's really the goal is obviously the consolidated production. But so I the way that we're thinking of it for 2025 is as configured now, which is 8 megawatts binary. So call it this recent quarter is a good sort of barometer in terms of looking at 2025. Speaker 200:37:31Okay, great. Thanks for that. I'll hop back in the queue. Operator00:37:36Thank you very much. Your next question is coming from Patrick O'Donnell, who is a private investor. Patrick, your line is live. Speaker 500:37:46Great. Thanks for taking my call. Good morning. Speaker 300:37:50Good morning. Speaker 500:37:52Two questions I had. Just one on the Punta Lima acquisition. What how did you get comfortable with wind as a new technology in the portfolio, just given that it's quite different from what you've been operating in some regards. Just curious in terms of kind of the O and M and the optimization strategies that there may be a lot of new things to get up to speed on and try to figure out. Just wondering how you guys were thinking about that with the new technology. Speaker 300:38:28Yes. Good question. So first, Vestas, which is one of the larger turbine manufacturers in the world, they have a 5 year contract to provide operations and maintenance services, essentially everything that the turbine with relation to the turbines. And so and then anything the balance of plant will be up to us. But so this is different than the other plants in that the other plants we run everything, okay? Speaker 300:39:06And I would also mention that in both the hydro and crude, Sorry, but do you mind maybe muting because whoever's typing. So the hydros for the 1st 3 years, we actually outsourced the operations and then we absorbed them and they're all employees now. But we did have a learning process to get up to speed on the technology. It actually was the same thing at San Jacinto in Nicaragua, which was through when it was when it reached COD in 2013, it had a 3 year outsourced O and M contract. And then after 3 years, it was absorbed in. Speaker 300:39:48So I would suggest it's going to be something quite similar here because we have Vestas. It's actually 5 years, although it will be about 4 for us. Although I would suggest it's probably much less likely that we absorb that part of the contract, which is the big part of the O and M just because there Speaker 200:40:07is Speaker 300:40:07more it is more specialized. It's actually there's 13 turbines here, but each one is their own generator, right? So it is different, and I would say it's more industry standard to than the other technologies we're in to have somebody like Vestas do that part of it. So that's the first big part is we're not, I don't think, taking a big risk because we have Vestas doing sort of a bumper to bumper on the turbine. So that is the big part. Speaker 300:40:36So we and that's how we're going to manage, I would say, the risk. And whereas the balance of the plant, we do have experience in that. That part is much more similar to the rest of our plants. And yes, I think from that perspective, there's a risk to win, but I would suggest that I think we want to ground the portfolio as well. I think there's a benefit to having all of the generation types in our mix. Speaker 500:41:10Got it. Yes, helpful color. And I guess a follow on to what you mentioned about the Vestas contract. I mean, do you know enough about that to say if they are also sort of aligned with you all in terms of the performance optimization output in terms of the contract structure for them to provide those services Speaker 300:41:32to downtime. We had external consultants assess the contract to give it a look at the key eight clauses. Are these market or is something above market or is something below market? And so because we did acknowledge that again, it's one thing about the actual technology, but it's also to your point, there's a technology visavis the actual contracts. And that is not something we felt comfortable that we had the knowledge to do. Speaker 300:42:06So we did but we did have consultants that reviewed it. And in the end, the short answer is it's market in terms of what warranty is provided, etcetera, time to respond, all those things, so. Speaker 500:42:25Okay. Great. Thank you for that. And my second question is just around the share repurchases. We've seen those come through in the last couple of months. Speaker 500:42:37I guess what can you say about share repurchases as part of your capital allocation strategy? Speaker 300:42:44Yes. They're quite small. We have a whole new formula that we put in place. And then one of the things that does happen, just so you know, is once we go into blackout, which is the day after we end the quarter, so September 30, we have to give a broker instructions we can't do anything if the shares go up or down. We have to give them specific instructions, and we can't change those during the blackout period. Speaker 300:43:08So we had to just keep what we were doing at a very small level throughout the quarter. But one of the reasons that I think we kept it small is obviously we were close on this acquisition. And we need to make sure that we needed to make sure that even if we can't, for instance, get a bond deal done, that we can close this acquisition. So I would say until such time as we call it get a bond deal done, I would say the similar type strategy. We're not going to change much of that on the NCIB at all. Speaker 300:43:47And then I would say from a bigger picture, I would still be more on if we had excess cash flow compared to what we have today, would we buy back more stock? Would we grow the business more? Or would we increase dividends? I'm on the last 2 more so than the NCIB. I think we can use the NCIB a little bit, but I would prefer to get back to doing some dividend increases as a company. Speaker 300:44:16I think that's really good for us in the medium and long term as well as taking a portion of that extra cash flow and growing and accelerating the growth of the business because I think we really need to get so that people can see Nicaragua being lower than 50% of our EBITDA. Speaker 500:44:34Okay. Thank you for that. Operator00:44:37Thank you very much. Your next question is coming from Devin Schilling of Ventum Financial. Devin, your line is live. Speaker 400:44:47Hi, Mark. Sorry, just a modeling question for me. I missed the details on PPA in Panama. Can you please just go over the pricing again? Speaker 300:44:57Yes. So it's $80 a megawatt hour next year, 2025. It just started at Jan 1, like for the year, so it's full year and then it goes up $0.50 a year. So $0.80 that's it. Speaker 400:45:15Okay. Yes. No, that's good. That's helpful. All my other questions were answered. Speaker 400:45:20So yes, thanks for that. Speaker 300:45:21Okay. Great. Thanks, Tim. Operator00:45:24Thank you very much. And your next question is coming from Rupert Merer of National Bank. Rupert, your line is live. Speaker 600:45:40Thank you. Going back to the Punta Lima wind farms, the previous wind farm had some storm damage. Can you talk to us about the insurance that you have on the project and maybe any design changes that could make the more recent wind farm more robust? Speaker 300:46:00Yes. So the I would say that the turbines were newer models that had some design improvements, I would say. But the actual layout wasn't changed, and I don't think it would have really benefited it. The big thing really is the insurance, I would say, is full sort of fully insured, and that's in place. I would tell you that our view is it's actually somewhat over insured in those that cost number I gave you. Speaker 300:46:38That's what's insured is much more than what our acquisition cost is. So I don't think we need to over insure this going forward if we're the owners. So and I think we would actually look to include it a little bit more in a portfolio of each other of our other assets, so that we can, I think, at a minimum, keep the pricing where it is, but potentially even reduce the total amount to at least what our no more than what our investment is so that we can potentially even reduce it? But it's yes, it's fully insured, both sort of natural catastrophe as well as lost revenues, etcetera. I think what we will look at doing is potentially augmenting that with more spare parts. Speaker 300:47:38But that's not something that because it might make more sense from a capital or return of capital perspective, Rupert, to spend a little bit on some spare parts and potentially tweak your insurance coverage. But we just we'll look at that next year. Speaker 600:48:00Okay, great. And the final one on Punta Lima. So you have some tax equity. Can you talk to us about modeling considerations? I imagine you're consolidating this asset, so you'll have some non controlling interest tax equity liability. Speaker 600:48:17Can you talk to Speaker 300:48:18us about the scale of that? Yes, the question is we sorry, go ahead. Speaker 600:48:22And maybe what we're going to see as far as the impact on earnings or EBITDA if you account for those tax credits? Speaker 300:48:33So we won't be getting any tax credit accounting. It's just it would be pure revenue cost, which we will consolidate 100 percent of, even though for the 1st 4 years, we're only 94%, call it the economic distributions. So there would be a 6% minority interest. But that's going to be a pretty standard minority interest accounting. Speaker 600:49:02And you'll have a non controlling interest though? What's the scale of that? Yes. Sorry, yes, Speaker 300:49:07I said minority interest. Yes, exactly. So 100% consolidation from a revenue cost EBITDA perspective and then a non controlling interest of 6% backed out below. Okay. Speaker 100:49:22What is that going to Speaker 600:49:23look like on the balance sheet? Speaker 300:49:28In terms of the amount? Speaker 600:49:30Yes. Speaker 200:49:34I think I'm going to have Speaker 300:49:35to get back to you on the actual Okay. You mean the amount of the non controlling interest? Speaker 600:49:41Yes, that's correct. Speaker 300:49:43Yes. It will Speaker 100:49:43mimic Nat on here, it will mimic what we do in Equitaur. So we will have 100% of the revenue backing out the minority interest. Speaker 300:49:54Sorry for the balance sheet, though. So I think we just got to I'll have to get back to you with the number because with these tax equity deals, Rupert, the amounts don't net because it's also this partnership methodology of reporting for tax. So the dollar amounts can actually differ from the percentages, so which is why I'm a little bit reticent to give you what that 6% is going to look like on the balance sheet in terms of the numbers. So just let me come back to you on that. Speaker 600:50:28Okay. Very good. I'll leave it there. Thank you.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPolaris Renewable Energy Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsInterim report Polaris Renewable Energy Earnings HeadlinesPolaris Renewable Energy: A High-Yield Bargain For Value InvestorsMarch 23, 2025 | seekingalpha.comPolaris Renewable Energy: Growth Potential Offset By Operational RisksMarch 21, 2025 | seekingalpha.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. The reason why is a new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... but could soon have an enormous impact on your wealth.April 25, 2025 | Stansberry Research (Ad)Polaris Renewable Energy Inc.: Polaris Renewable Energy Announces Closing Of Acquisition In Puerto RicoMarch 4, 2025 | finanznachrichten.dePolaris Renewable Energy Inc.: Polaris Renewable Energy Announces Q4 And Annual 2024 ResultsFebruary 20, 2025 | finanznachrichten.dePolaris Renewable sets quarterly dividend at $0.15 per shareFebruary 5, 2025 | msn.comSee More Polaris Renewable Energy Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Polaris Renewable Energy? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Polaris Renewable Energy and other key companies, straight to your email. Email Address About Polaris Renewable EnergyPolaris Renewable Energy (TSE:PIF) engages in the acquisition, exploration, development, and operation of renewable energy projects in Latin America. It operates 82 megawatts (MW) net geothermal facility in Nicaragua; and 3 run-of-river hydroelectric facilities in Peru, with combined capacity of approximately 33 MW; a 25 MW solar plant facility in the Dominican Republic; a 6 MW run-of-river hydroelectric facility in Ecuador; and a 10 MW solar plant in Panama. The company was formerly known as Polaris Infrastructure Inc. and changed its name to Polaris Renewable Energy Inc. in July 2022. Polaris Renewable Energy Inc. was incorporated in 1984 and is headquartered in Toronto, Canada.View Polaris Renewable Energy ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 7 speakers on the call. Operator00:00:00Good morning, and welcome to the Polaris Renewable Energy Incorporated Third Quarter 2024 Conference Call. At this time, all participants are in a listen only mode, and we will open for questions following the presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Anton Jelic, CFO of Polaris Renewable Energy. The floor is yours. Speaker 100:00:32Thanks, Jenny. Good morning, everyone, and welcome to the 2024 3rd quarter earnings call for Polaris Renewable Energy. In addition to our press releases issued earlier today, you can find our financial statements and MD and A on both SEDAR Plus and on our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are in denominating U. S. Speaker 100:00:58Dollars. I'd like to remind everyone that comments made during this call may include forward looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy and its subsidiaries. These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2023. I'm joined this morning as always by Mark Murnaghan, CL of Polaris. Speaker 100:01:41At this time, I will walk you through our financial highlights. Power generation. During the 3 months ended September 30, power production was 168,639 Megawatt Hours compared to 178,753 Megawatt Hours in the 3 months ended September 30, 2023. For Nicaragua in the Q3 of 2024, production was 120,565 Megawatt Hours lower compared to the same period last year, which was 129, 475 Megawatt Hours. Consolidated production in Peru for the 3 months ended September 30 was also lower at 20,616 Megawatt Hours than the comparative period last year, which totaled 23,000 0.78 Megawatt Hours. Speaker 100:02:33At our Dominican Republic Canola 1 Solar Facility, we produced 16,476 Megawatt Hours in the 3 months ended September 30. This is higher than the Q3 last year, reflecting enhanced productivity from the newly installed panels. For Ecuador in the Q3 of 2024, average production of 6,000 535 Megawatt Hours was in line with production in the comparative period last year. And finally, in Panama, visiting Vista Jerimosa Solar Park production of 4,447 Megawatt Hours was also in line with management's expectations for the quarter. Revenue. Speaker 100:03:14Revenue was $17,700,000 during the 3 months ended September 30 compared to $18,800,000 in the same period in 2023. Net earnings. Net earnings attributable to owners was $480,000 for the quarter compared to $1,000,000 in net earnings for the same period last year. Adjusted EBITDA. Adjusted EBITDA increased to 12 point was $12,400,000 for the 3 months ended September 30 compared to $13,700,000 for the same period last year. Speaker 100:03:49Cash generation. Net cash from operating activities Speaker 200:03:53for the 3 months Speaker 100:03:53ended September 30 was lower than the compared periods in 2023, mainly due to lower cash received from Nicaragua as expected due to decline in production scheduled downtime for major maintenance of the facility during Q2 as well as recognition of unearned revenue in Peru. Net cash used in investing activities for the 3 9 months ended September 30th was lower when compared to the same periods in 2023. While the cash usage in the current year relates to Kanoa 1 optimization project with a budget of $5,000,000 and the major maintenance of the geothermal facility in Nicaragua, cash usage in investing activities in the same period last year related to disbursements linked to projects such as the construction of the binary unit in Nicaragua and the Vista Jerimosa Solar Park in Panama. Net cash used in financing activities for the 3 9 months ended September 30, 20242023 are comparable. And finally, dividends. Speaker 100:04:58I would like to highlight that we have already announced that we have announced that we will be paying a quarterly dividend again on November 22 of $0.15 per share to shareholders of record on November 11. With that, I'll turn the call over to Mark who will elaborate on quarterly results as well as current business matters. Thank you. Speaker 300:05:19Thanks, Santo. So I'll just dive into the different assets first. So San Jacinto was in line with our expectations. For the quarter, it was 54.6. I'll give you the actual monthly numbers. Speaker 300:05:34So for July, it was 54.9 megawatts net, 54.6 in August and 54.2 in September. So you can see that's very good stability in the wells. So we're quite happy with that. That was down from Q3 of last year, but it's actually the best quarter in the last four quarters, although given that maintenance was done in the 2nd quarter that you have to take that one out. But this quarter this year was higher than the Q1 this year, and it was higher than the Q4 last year. Speaker 300:06:08So and that is due to, call it, the how we're running the injection system and the wells. So yes, I would say the actions we've taken to promote stability worked very well in the quarter. So we're happy we're quite happy with that. In Peru, the numbers were lower. It is always the Q3 in Peru is always the lowest quarter. Speaker 300:06:39It is the dry season. It was just drier than normal, and there's not much we can do to that do about that. So the numbers were I think our budget for the quarter was around 23,000, 24,000 megawatt hours for the quarter for the 3 hydro plants in Peru, and it came in around 20. So that's not a huge impact, but it was lower given El Nino. We are we did see lower hydrology. Speaker 300:07:13Now I would say in October, obviously, it's only 1 month, but the rains have started again and we're close to what we were budgeting in October already. And even the last week, we've noticed a big pickup. So it's early in the quarter, but it looks to be close to on track for what we were budgeting in terms of hydrology. So that's good. I would say Ecuador is a similar story, but just much less pronounced than Peru. Speaker 300:07:47Doctor was Dominican. The solar plant, Kanoa, was above the same period last year, which was expected given the replacement program that we did there. It was finished 1st week of August, so we did not get the benefits of the whole quarter. We will see a full quarter the current quarter. When we adjust for that, I would say that we're getting about 80% to 90% of the estimated benefit. Speaker 300:08:17But we would expect to for Q1 of next year to be getting 100% of the benefit that we expected. So that's good. And Panama production in line in terms of the total megawatt hours. Pricing was around $81 a megawatt hour. And we subsequent to the quarter end have signed a contract for that plant for 100 percent of the production of the Vista Hermosa plant starting Jan 1, 2025. Speaker 300:08:54It is still subject to the local regulator approving it, which we expect to happen 1st week in December. We don't foresee that to be a problem. But the pricing on that is it starts at $80 a megawatt hour in 2025 and goes up to $82 a megawatt hour in the 5th year. So just a small indexation there, but we're quite happy about that. We do think that this is a good period to have that plant contracted because the entrance of the gas plant, which has happened in this quarter. Speaker 300:09:31So we think that will negatively impact the spot market prices. So I think we've timed it well in terms of having the first, call it, year and a half at spot, which was strong, and then the next 5 years fully contracted. I would also mention that, that takes us up to that was the only plant that we didn't that we weren't fully contracted. So with that, we will be at 100% fully contracted. So that's those are the operational plans. Speaker 300:10:03I will now talk a little bit more about the Punta Lima acquisition that we announced a few days ago. So it's as we mentioned in the press release, it's for 20,000,000 dollars That is an enterprise value. It is unlevered. It's an unlevered project at this point in time. Given our cash balance, which sits at $45,000,000 we have the cash on hand to close that. Speaker 300:10:31It is conditional upon the key condition really in there is that the offtaker, which is called PREPA, short form, they do need to approve the essentially a change of control. So we don't foresee that to be a problem. They already know about the transaction, obviously. And given that we're a power producer as opposed to a bank, we don't see that as an issue whatsoever. In terms of timing, that part is hard to predict. Speaker 300:11:05But I would say it could be anywhere from 60, 90, 120 days. I would say that's the range. So Q1 next year and hopefully earlier in the quarter than later, but I would guide people to Q1 in terms of getting approved by PREPA and then closed. It's 26 Megawatt wind farm. The history and what we think is the production should be between fixed 50,060,000 megawatt hours a year. Speaker 300:11:40It has a 20 year contract, which started on March of this year, March 2024 close to March of 2,044. It is a bit of a sculpted PPA, but it's $149 next year and it sorry, 2025 escalates at 1.3% until 2,034. And then it drops sort of after 10 years to around 129 escalates again up to 141. So it is sculpted, but it's a very good price. And I'll get into it should be promoting energy storage going forward as well. Speaker 300:12:24I would say given the jurisdiction you have we also either Vestas turbines I should mention. So there is a contract part of the O and M is done with Vestas. And given, I would say, insurance costs and even land costs in Puerto Rico are quite high, so this the costs are higher, call it, relative to revenues than other projects that we have. We think they run around $4,000,000 I wouldn't say that once we get in there, I think we can reduce those or at least keep them flat as opposed to, call it, escalating with the PPA price because I think there's some synergies. Also, there's just opportunities I think we're going to have to reduce that over time. Speaker 300:13:19It is a tax equity structure, which is a little complicated. But the way that it works is that for the first really for us, if we assume we close Q1 next year, it will be 1st 4 years, we will get 94% of the distributions with our tax equity partner Santander hitting the 6%. And then after that period is up, which is around 5 years actually from the first commercial operation date of March of this year, that we will have a $1,500,000 buyout option, which we would exercise to take us to 100%. So it's essentially for us will look like 94% for the 1st 4 years and then 100% after that. We as part of the PPA, there is a requirement to implement a battery energy storage system, which is scoped out at actually 13 megawatt hours, 1 megawatt times 13 hours. Speaker 300:14:25And the requirement will be to get that implemented within 2 years of closing. So we don't see that as a problem. And in fact, what we hope to do, given the power pricing, given that actually they've already announced that likely next year, there's going to be a standing offer for battery energy storage systems, kind of like feed in tariff. It should look like a dollar per kilowatt per month. They haven't published that number, but they have said that they will. Speaker 300:14:58So there should be a small revenue opportunity there. And we do hope that we could given the demands for more renewables on the island, the interest for more renewables, we will attempt to see if we can increase that and increase production on the site or nearby. So we think there's a we think this is a very financially attractive acquisition of an operating asset, and we also hope that it legs into more growth in that market. Financially, we are well positioned to do it given our cash position. So we don't need to raise equity for that. Speaker 300:15:46And also, we think that this given that it's unlevered, it's part of the story. We have discussed the potential to do a green bond before. We think now is good timing on the back of this. So we are looking to focus on this very quickly in the quarter here, P4 now. Also, the ability to actually repay our San Jacinto loan, which is our most expensive loan, is Q1 of next year. Speaker 300:16:20So that's very close. We think that's close enough. I think the market is strong, fixed income. So I think you can expect to see us look to do something very quickly here on the backs of the quarter and the acquisition news. And I think this is really important for us. Speaker 300:16:43If we can execute on this, we can significantly increase our cash flow per share without the need to raise equity and at the same time position ourselves to take advantage of both I would say development organic development as well as acquisitions that we have in the funnel right now, which I would suggest that our acquisition pipeline is and by that I mean over and above Punta Lima, but it's stronger than it has ever been. And that includes some operational acquisitions, some ready to build interesting projects as well as even some more late stage development, call it, brownfield opportunities that we're looking at. So all of the different stages. But so we have a very robust, call it, acquisition pipeline. I would suggest that the ready to build or late or mid stage development are I would really more characterize those as development. Speaker 300:17:54So if we do that, I would just reiterate that our developmentacquisition pipeline is as robust as ever. But given how sort of lowly levered we are, like we have been deleveraging for the last couple of years and given that we're 100% contracted, I think we really should be funding a good portion of that growth with debt as opposed to equity. So I think we can really change the and grow the EBITDA profile of this company in the next 12 to 24 months without having to raise any equity. So that's really the plan. And with that, I'll open it up to questions. Operator00:18:39Thank you very much. We are now opening the floor for questions. Thank you. Your first question is coming from Nick Woychuck of Cormark Securities. Nick, your line is live. Speaker 400:19:16Thanks. Good morning, Mark. Good morning. On the Puerto Rican acquisition, can you kind of give us a little bit more color on the timing of any expansion opportunities there and context around how much capital you'll have to deploy and given those power prices, maybe how attractive an organic brownfield opportunity that is? Speaker 300:19:32Yes. So we think of, let's say, February, March is, call it, closing. But this take March, we need to get PREPA approval. I would be the plan would be immediately after that to go look to get, call it, an amendment or approval. It's not really even an amendment actually, which is good. Speaker 300:19:59It's more of an approval to increase. We haven't scoped it out yet. I think our goal is really to and by that, I mean, the exact sort of sizing of the project. We have some ideas, but we really couldn't talk to them until we got this announced. So now that we've got it announced, the plan would be to speak to them before closing because we are going to be in a process of getting approval. Speaker 300:20:24So we think we can have a good conversation about it. And it might take several stages. I would say that the site itself and the transmission capacity on the site could support a significant increase in energy off the project, and that could include some extra wind turbines. It would more likely include some solar with storage. So and that I would see actually coming in likely 3 phases. Speaker 300:21:001 is a small, let's just say, 10 to 20 megawatts solar, which can be done quite quickly. And then I would say something bigger that would max out the contract. So the contract itself is a 26 megawatt contract. And it's actually, I would say, for wind resources, it's a reasonably low resource. But obviously, we're not, I would say, paying for that. Speaker 300:21:32We're paying a very good multiple. And so we're not giving credit for high resource. But what that does mean is that there's a lot more, call it, energy available. So it would be, call it, something smallish. By that, I mean, similar to what we might be doing at Kanoa quickly. Speaker 300:21:50And then the next would be doing something that where we could almost fill up as much as we can, the 26. And then after that, it would take a little obviously more time. But the nice thing is that there's well over 100 megawatts of transmission capacity there. So that would require, obviously, more time, but it could be that would be a huge opportunity if we can take advantage of it. But in terms of the how the timing, I would have to say it's almost 1, 2 3 year kind of thing in terms of getting those approved. Speaker 400:22:30Okay. That makes a lot of sense. And if you're thinking about that opportunity, as attractive as that sounds, how do you comp that against what you have available in the Dominican Republic, expanding solar and battery storage there versus these other acquisitions? How are you thinking about ranking these? And what are your kind of returns on capital required in order to pick 1 of the 2? Speaker 500:22:53I think here it's going to Speaker 300:22:56be just a little bit higher because of the VPA price is about 10% higher. So yes, I would say you would prioritize that. Not massively, they're both really close, right? So I would you're obviously going to prioritize the one that's 10% more than the other one. But I would really say practically speaking, we're going to be pushing both of those forward as fast as we can. Speaker 300:23:30With the only caveat is just that I mean, on the one hand, I would say the prices in Puerto Rico are a good I would say a signal. That's a good price signal to tell you that they want something combined with the fact that they think they're going to come out with the call it a standing offer. So I think that's really good. The only thing I would say is that we have not been in the market yet. We have been, as I said, waiting really to get the pressures set before we can talk to all the players because we don't have any operations there. Speaker 300:24:02So it's hard for me right now to benchmark how they would compare in terms of timing. That's all. But so practically speaking, we'll just be pushing both of them forward as much as we can because I think the economics are would look very attractive given where solar panels are going, given where battery prices are going. You're looking at plus or minus 5 times EBITDA build multiples. Speaker 200:24:31Okay. Speaker 300:24:31Got it. I are backed with U. S. Dollar with a lot of great contracts, right? Speaker 400:24:37Got it. And so to confirm, though, you would have between the cash on hand, free cash flow that will be generated over the next, call it, 2 to 3 years and this debt facility refi and capacity increase, enough non dilutive capital in order to take advantage of all three of those opportunities? Speaker 300:24:54Yes. Okay, perfect. Thank you. Operator00:24:58Thank you very much. Your next question is coming from Rupert Merer of National Bank. Rupert, your line is live. Speaker 600:25:08Hi, good morning, everyone. Speaker 300:25:09Good morning, Rupert. Speaker 600:25:11Just following up on Nick's question. If we look at the bond you're planning to issue, can you just give us an update on what that could look like in terms of the scale and perhaps the terms that you could get on that now given that you have seen some relief on rates? Speaker 300:25:29Sure. So I think it would be important to note also that we would look I did mention the Santa Cinto loan, which can come up for repayment. It's technically Feb 11 when the non call it's not a non call, it's just a make whole period is up. So we would want to repay that, which is at that time, it would be about $90,000,000 net. So that would be a use of proceeds, which is a reasonable one. Speaker 300:26:02So given that and given our growth, like we'd be looking at a low end, Rupert, I'd say 150 and at the high end 200 in terms of U. S, in terms of sizing. I think the fixed income market does want certain like a little bit of scale for it to get interested for a lot of the funds. So that would be the range. And I would suggest that I mean, interestingly, S and P did upgrade Nicaragua last week or 2 weeks ago. Speaker 300:26:34So actually, it was last week, which was a nice pleasant surprise. They did it because of 2 years of budget surpluses. So that's quite constructive. And so given that, I'd say there's limits for us, given still a reasonable percentage is Nicaragua, obviously. But I think something in the single but high single digits in terms of cost. Speaker 300:27:05And I think the big the other big thing is which we think is critically important is non amortizing bond, which I think really makes sense for us given, again, we would be exiting if we didn't do anything, we'd be exiting this year at around 2x, 2.2x net debt to EBITDA. It's just too low for our contract structure. And so one way is to raise a bit more debt, but I don't think it has to be just that. I think it's raising a bit more debt as well as putting on some non amortizing debt. I think that and the debt that we would look at keeping on the balance sheet would be the Canoa loan for sure, and it would also be the senior loans at the Peru Hydros. Speaker 300:27:55Those just make a lot of sense to keep there, but we would likely clean up the other. So it would be kind of a bit of a hybrid in terms of which projects would have loans and which wouldn't, which we also think. So you'd be getting some senior security on the bond offering on a reasonable percent of the portfolio, right, if that makes sense? Speaker 600:28:20Yes, yes. Interesting. So you're going to be raising a fairly substantial amount above and beyond what you need to repay the San Jacinto loan. And you did talk about the M and A market as being quite robust right now. Maybe if you could talk about which markets you're looking at? Speaker 600:28:40Are you looking at M and A in markets where you already have a presence? And what would be the timing on, do you think, on the next deal if things go well? Yes. Speaker 300:28:52The number one principle the nice thing is we've always said we have to stay in U. S. Dollars as a company. And obviously, Punta Lima satisfies that condition. And the other things we're looking at satisfy that. Speaker 300:29:08And the nice thing is, I would say, we have a combination of Rupert of existing markets as well as I would say there's 2 other markets that we are looking at and that are in the funnel and they are U. S. Dollars as well. So it's a mix of those 2, but always in U. S. Speaker 300:29:27Dollars. I would also say that it's important to note that as a company, when we build Panama, which is 10 megawatts, and that's a $1,000,000 $1,500,000 EBITDA type project, right? That should be our smallest project. And we are starting to move up. With Punta Lima in the 4 to 5 range, we are looking at things more in that and up, I would say, in terms of sizing, which I think is important, but I think we can't do too many more sort of $2,000,000 EBITDA projects as a company. Speaker 300:30:07So moving starting to trend the size back up to things closer to, for sure, Canoa and Peru, but even bigger. And timing, we think Q1 is quite reasonable for what we're looking at. So if I had my way, we would have some extra proceeds from a bond offering to provide essentially, call it, equity dollars for those acquisitions. Speaker 600:30:41Great. Just one quick follow-up. So you highlighted this, I suppose, 13 megawatt hour battery that you need to build at Punta Lima. Can we think of that as maybe about a sort of a $4,000,000 or $5,000,000 outlay? And does that have any revenue attached to it if you don't see success in an RFP, a storage RFP in Puerto Rico? Speaker 600:31:08Can you generate arbitrage revenue there or any other, let's say, capacity? Speaker 300:31:14So I think your CapEx might be a little bit high based on what we're seeing. But so let's just take it at the low end of your range. So as it sits today, there would be very like there would just be a tiny bit of arbitrage, but it would be noticeable, Rupert. But it's not really an RFP that they're that they've proposed. It's just a standing dollars per kilowatt per month. Speaker 300:31:46So it's just a capacity payment that has been proposed. It hasn't been put into sort of practice yet. So there would be a capacity payment associated with that at a minimum going forward if it stays if we keep that configuration. Speaker 600:32:06Okay. And they would dispatch that battery in any case, I imagine? Speaker 300:32:12Yes. Although it's really what they want is just they're really looking for you to have a battery such that if there's any frequency issues or trips or sags, that's really they just want you to be available for that. But I actually don't see them dispatching it from an energy perspective. That's why it's quite small. They really just want to make sure that with renewable projects, there's some great stability that's attached to them, at least at this part. Speaker 300:32:47For what you have to have and then obviously, as I said before, we want to obviously we have to satisfy that. I think it will pay with the standing offer, but then we want to see if we can't do more such that it becomes a capacity as well as an energy product. But that will take us a little bit of time to flush that out next year. Speaker 600:33:13Right. Very good. Thank you. I'll get back in the queue. Operator00:33:17Thank you very much. Your next question is coming from Seo Ganzibu of Raymond James. Seo, your line is live. Speaker 200:33:26Great. Thanks for taking my call today. Just following up on Rupert's the question there. You just mentioned that Punta Lima will generate about $4,000,000 to $5,000,000 in EBITDA, so probably like 5 times. Are these in line with your valuation expectations for future acquisitions in that region in Puerto Rico? Speaker 300:33:49Yes. It's going to be hard to do that on these other ones. But call it they're going to be somewhat above that, but they're also not 9 or 10x either. So kind of in between. It's hard to do that for sure in the next month. Speaker 200:34:05Okay, great. And I guess just wondering on any future expansion projects there. Will the tax credits be available for use in Puerto Rico as well? Speaker 300:34:16Yes. So that is it's an interesting question. And growth there, to the extent we're able to do that, yes, it would that's new for us, obviously, because it's technically U. S. Jurisdiction from that perspective. Speaker 300:34:32We would be able to participate in those, yes. Speaker 200:34:36Okay, great. And I guess just lastly for me, just if possible, a little bit just more color on can Speaker 300:34:43you just maybe give me Speaker 200:34:44a bit more color on the decision process on going the throughput at the binary unit? I understand it's to maintain the steam decline in the target range you guys have there. But are your expectations that you'll still see like the full 10 megawatt increase from the unit in 2025? Speaker 300:35:01No. I think that could be possible in 2026. But because we've been running it, really we have 2 wells that they just cycle a lot. And at the 10 megawatt miner unit, when we were running it, that's what caused us some issues November, December last year and January, which I would say we resolved. But those are the combination of those 2 wells is 11. Speaker 300:35:28So 93 is about a 4 or 5 Megawatt well and 6 2 is a 6, 7 megawatt well. So you got to put, let's just say, 10 megawatts there. So you're not going to sort of hurt 10 megawatts to try to max out at 10. It just makes more sense to do 8 megawatts to keep those other wells stable. Now there is part of the plan is to by doing that, the enthalpy of not just those wells, but of the other wells in the field should start to increase because what you're doing is you're just reducing the throughput into the binding unit, which means less a smaller percentage of the brine gets cooled down. Speaker 300:36:15And it's that cooling that we think impacted those 2 wells. So that's why we made the decision. It clearly enhanced the stability, which is why the quarter was quite stable from a production perspective. We are seeing benefits in enthalpy in some of the other wells, but we think it makes sense to just keep it more this way at least for 6 to 12 months. And then if enthalpy in the other wells, and that's just the ratio of sort of steam to brine, if that keeps improving, then I think we will have more room to start trying to move the binary up to 10 megawatts. Speaker 300:36:57But I would tell you that if that happens, we're going to get more from the steam field than 2 megawatts, right? So yes, we could probably get back to that. But that's really the goal is obviously the consolidated production. But so I the way that we're thinking of it for 2025 is as configured now, which is 8 megawatts binary. So call it this recent quarter is a good sort of barometer in terms of looking at 2025. Speaker 200:37:31Okay, great. Thanks for that. I'll hop back in the queue. Operator00:37:36Thank you very much. Your next question is coming from Patrick O'Donnell, who is a private investor. Patrick, your line is live. Speaker 500:37:46Great. Thanks for taking my call. Good morning. Speaker 300:37:50Good morning. Speaker 500:37:52Two questions I had. Just one on the Punta Lima acquisition. What how did you get comfortable with wind as a new technology in the portfolio, just given that it's quite different from what you've been operating in some regards. Just curious in terms of kind of the O and M and the optimization strategies that there may be a lot of new things to get up to speed on and try to figure out. Just wondering how you guys were thinking about that with the new technology. Speaker 300:38:28Yes. Good question. So first, Vestas, which is one of the larger turbine manufacturers in the world, they have a 5 year contract to provide operations and maintenance services, essentially everything that the turbine with relation to the turbines. And so and then anything the balance of plant will be up to us. But so this is different than the other plants in that the other plants we run everything, okay? Speaker 300:39:06And I would also mention that in both the hydro and crude, Sorry, but do you mind maybe muting because whoever's typing. So the hydros for the 1st 3 years, we actually outsourced the operations and then we absorbed them and they're all employees now. But we did have a learning process to get up to speed on the technology. It actually was the same thing at San Jacinto in Nicaragua, which was through when it was when it reached COD in 2013, it had a 3 year outsourced O and M contract. And then after 3 years, it was absorbed in. Speaker 300:39:48So I would suggest it's going to be something quite similar here because we have Vestas. It's actually 5 years, although it will be about 4 for us. Although I would suggest it's probably much less likely that we absorb that part of the contract, which is the big part of the O and M just because there Speaker 200:40:07is Speaker 300:40:07more it is more specialized. It's actually there's 13 turbines here, but each one is their own generator, right? So it is different, and I would say it's more industry standard to than the other technologies we're in to have somebody like Vestas do that part of it. So that's the first big part is we're not, I don't think, taking a big risk because we have Vestas doing sort of a bumper to bumper on the turbine. So that is the big part. Speaker 300:40:36So we and that's how we're going to manage, I would say, the risk. And whereas the balance of the plant, we do have experience in that. That part is much more similar to the rest of our plants. And yes, I think from that perspective, there's a risk to win, but I would suggest that I think we want to ground the portfolio as well. I think there's a benefit to having all of the generation types in our mix. Speaker 500:41:10Got it. Yes, helpful color. And I guess a follow on to what you mentioned about the Vestas contract. I mean, do you know enough about that to say if they are also sort of aligned with you all in terms of the performance optimization output in terms of the contract structure for them to provide those services Speaker 300:41:32to downtime. We had external consultants assess the contract to give it a look at the key eight clauses. Are these market or is something above market or is something below market? And so because we did acknowledge that again, it's one thing about the actual technology, but it's also to your point, there's a technology visavis the actual contracts. And that is not something we felt comfortable that we had the knowledge to do. Speaker 300:42:06So we did but we did have consultants that reviewed it. And in the end, the short answer is it's market in terms of what warranty is provided, etcetera, time to respond, all those things, so. Speaker 500:42:25Okay. Great. Thank you for that. And my second question is just around the share repurchases. We've seen those come through in the last couple of months. Speaker 500:42:37I guess what can you say about share repurchases as part of your capital allocation strategy? Speaker 300:42:44Yes. They're quite small. We have a whole new formula that we put in place. And then one of the things that does happen, just so you know, is once we go into blackout, which is the day after we end the quarter, so September 30, we have to give a broker instructions we can't do anything if the shares go up or down. We have to give them specific instructions, and we can't change those during the blackout period. Speaker 300:43:08So we had to just keep what we were doing at a very small level throughout the quarter. But one of the reasons that I think we kept it small is obviously we were close on this acquisition. And we need to make sure that we needed to make sure that even if we can't, for instance, get a bond deal done, that we can close this acquisition. So I would say until such time as we call it get a bond deal done, I would say the similar type strategy. We're not going to change much of that on the NCIB at all. Speaker 300:43:47And then I would say from a bigger picture, I would still be more on if we had excess cash flow compared to what we have today, would we buy back more stock? Would we grow the business more? Or would we increase dividends? I'm on the last 2 more so than the NCIB. I think we can use the NCIB a little bit, but I would prefer to get back to doing some dividend increases as a company. Speaker 300:44:16I think that's really good for us in the medium and long term as well as taking a portion of that extra cash flow and growing and accelerating the growth of the business because I think we really need to get so that people can see Nicaragua being lower than 50% of our EBITDA. Speaker 500:44:34Okay. Thank you for that. Operator00:44:37Thank you very much. Your next question is coming from Devin Schilling of Ventum Financial. Devin, your line is live. Speaker 400:44:47Hi, Mark. Sorry, just a modeling question for me. I missed the details on PPA in Panama. Can you please just go over the pricing again? Speaker 300:44:57Yes. So it's $80 a megawatt hour next year, 2025. It just started at Jan 1, like for the year, so it's full year and then it goes up $0.50 a year. So $0.80 that's it. Speaker 400:45:15Okay. Yes. No, that's good. That's helpful. All my other questions were answered. Speaker 400:45:20So yes, thanks for that. Speaker 300:45:21Okay. Great. Thanks, Tim. Operator00:45:24Thank you very much. And your next question is coming from Rupert Merer of National Bank. Rupert, your line is live. Speaker 600:45:40Thank you. Going back to the Punta Lima wind farms, the previous wind farm had some storm damage. Can you talk to us about the insurance that you have on the project and maybe any design changes that could make the more recent wind farm more robust? Speaker 300:46:00Yes. So the I would say that the turbines were newer models that had some design improvements, I would say. But the actual layout wasn't changed, and I don't think it would have really benefited it. The big thing really is the insurance, I would say, is full sort of fully insured, and that's in place. I would tell you that our view is it's actually somewhat over insured in those that cost number I gave you. Speaker 300:46:38That's what's insured is much more than what our acquisition cost is. So I don't think we need to over insure this going forward if we're the owners. So and I think we would actually look to include it a little bit more in a portfolio of each other of our other assets, so that we can, I think, at a minimum, keep the pricing where it is, but potentially even reduce the total amount to at least what our no more than what our investment is so that we can potentially even reduce it? But it's yes, it's fully insured, both sort of natural catastrophe as well as lost revenues, etcetera. I think what we will look at doing is potentially augmenting that with more spare parts. Speaker 300:47:38But that's not something that because it might make more sense from a capital or return of capital perspective, Rupert, to spend a little bit on some spare parts and potentially tweak your insurance coverage. But we just we'll look at that next year. Speaker 600:48:00Okay, great. And the final one on Punta Lima. So you have some tax equity. Can you talk to us about modeling considerations? I imagine you're consolidating this asset, so you'll have some non controlling interest tax equity liability. Speaker 600:48:17Can you talk to Speaker 300:48:18us about the scale of that? Yes, the question is we sorry, go ahead. Speaker 600:48:22And maybe what we're going to see as far as the impact on earnings or EBITDA if you account for those tax credits? Speaker 300:48:33So we won't be getting any tax credit accounting. It's just it would be pure revenue cost, which we will consolidate 100 percent of, even though for the 1st 4 years, we're only 94%, call it the economic distributions. So there would be a 6% minority interest. But that's going to be a pretty standard minority interest accounting. Speaker 600:49:02And you'll have a non controlling interest though? What's the scale of that? Yes. Sorry, yes, Speaker 300:49:07I said minority interest. Yes, exactly. So 100% consolidation from a revenue cost EBITDA perspective and then a non controlling interest of 6% backed out below. Okay. Speaker 100:49:22What is that going to Speaker 600:49:23look like on the balance sheet? Speaker 300:49:28In terms of the amount? Speaker 600:49:30Yes. Speaker 200:49:34I think I'm going to have Speaker 300:49:35to get back to you on the actual Okay. You mean the amount of the non controlling interest? Speaker 600:49:41Yes, that's correct. Speaker 300:49:43Yes. It will Speaker 100:49:43mimic Nat on here, it will mimic what we do in Equitaur. So we will have 100% of the revenue backing out the minority interest. Speaker 300:49:54Sorry for the balance sheet, though. So I think we just got to I'll have to get back to you with the number because with these tax equity deals, Rupert, the amounts don't net because it's also this partnership methodology of reporting for tax. So the dollar amounts can actually differ from the percentages, so which is why I'm a little bit reticent to give you what that 6% is going to look like on the balance sheet in terms of the numbers. So just let me come back to you on that. Speaker 600:50:28Okay. Very good. I'll leave it there. Thank you.Read morePowered by