INNERGEX RENEWABLE ENERGY INC.
Longueuil Office: 1111 Saint-Charles Street West, East Tower, Suite 1255
Longueuil, Quebec, Canada J4K 5G4
Vancouver Office: 200 – 666 Burrard Street, Park Place
Vancouver, British Columbia, Canada V6C 2X8
innergex.com
info@innergex.com
FINANCIAL
REVIEW
INNERGEX RENEWABLE ENERGY INC.
AT DECEMBER 31, 2016
I
N
N
E
R
G
E
X
R
E
N
E
W
A
B
L
E
E
N
E
R
G
Y
I
N
C
.
/
F
I
N
A
N
C
I
A
L
R
E
V
I
E
W
A
T
D
E
C
E
M
B
E
R
3
1
,
2
0
1
6
TABLE OF CONTENTS
Management’s Discussion
and Analysis
P. 2
Responsibility for
Financial Reporting
P. 66
Independent Auditor’s Report
P. 67
Consolidated Financial
Statements
P. 68
Notes to the Consolidated
Financial Statements
P. 76
Information for Investors
P. 148
Innergex Renewable Energy Inc. is a leading Canadian
independent renewable power producer. Active since 1990,
the Corporation develops, owns and operates run-of-river
hydroelectric facilities, wind farms, and solar photovoltaic
farms and carries out its operations in Quebec, Ontario, British
Columbia, France and Idaho (USA). The Corporation’s shares are
listed on the Toronto Stock Exchange under the symbols INE,
INE.PR.A and INE.PR.C and its convertible debentures are listed
under the symbol INE.DB.A.
2016 HIGHLIGHTS
Innergex’s mission is to increase its production of renewable
energy by developing and operating high-quality facilities while
respecting the environment and balancing the best interests of
the host communities, its partners and its investors.
Innergex and the Cayoose
Creek Band completed the
acquisition of the 16 MW
Walden North hydroelectric
project in British Columbia
on February 25, 2016.
The Corporation realized
its first overseas
acquisition on April 15, 2016.
The acquisition was
comprised of seven wind
power facilities in France
with an installed capacity
of 86.8 MW.
On April 15, 2016, the
Corporation also
committed to acquire, upon
its commercial commis-
sioning, the 44 MW Yonne
wind power project under
construction in France. The
acquisition was completed
on February 21, 2017.
The Corporation began
commercial operation of
the 40.6 MW Big Silver Creek
run-of-river hydroelectric
facility located in British
Columbia on July 29, 2016.
On December 22, 2016,
Innergex completed
the acquisition of two wind
power facilities in Nouvelle-
Aquitaine, France, with an
installed capacity of 24 MW,
together with Desjardins
Group Pension Plan.
The Mesgi’g Ugju’s’n
wind power facility
located in the Gaspé
Peninsula in Quebec began
commercial operation on
December 30, 2016. This
150 MW wind farm is owned
by Innergex and the three
Mi’gmaq communities
of Quebec.
2016 FINANCIAL PERFORMANCE
Electricity
production increased
18% to
3,522 GWh and was
105% of the long-term
average
Revenues rose
19% to
$292.8 million
compared with last year
Free Cash Flow
generated reached
$75.7 M
Payout ratio was
91%
compared with
86% last year
Adjusted
EBITDA rose
18% to
$216.0 million
compared with
last year
On February 23, 2017, the Board of Directors announced an
increase of $0.02 in the annual dividend that the Corporation
intends to distribute to its shareholders of common shares.
This increase, raising the annual dividend from $0.64 to
$0.66, payable quarterly, reflects the execution of the
Corporation’s strategy for building shareholder value, which
is to develop or acquire high-quality renewable power
production facilities that generate sustainable cash flows and
provide an attractive risk-adjusted return on invested capital,
and to distribute a stable dividend.
REVENUES AND ADJUSTED EBITDA1
At December 31
($000s)
NET INSTALLED CAPACITY
At December 31
(MW)
2016
2015
2014
2013
2012
215,983
292,785
246,869
241,834
183,738
179,562
198,259
148,916
176,655
111,196
Revenues
Adjusted EBITDA
1 Prepared in accordance with IFRS – excluding joint ventures.
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
326
321
271
218
180
909
708
687
672
577
461
INFORMATION FOR INVESTORS
STOCK EXCHANGE LISTING
Innergex Renewable Energy Inc.’s securities are listed on the
Toronto Stock Exchange (TSX).
Common shares
Cumulative Rate Reset
Preferred Shares, Series A
(“Series A Preferred Shares”)
Cumulative Redeemable Fixed
Rate Preferred Shares, Series C
(“Series C Preferred Shares”)
4.25% Convertible Unsecured
Subordinated Debentures
(“Convertible debentures”)
TSX SYMBOL
INE
INE.PR.A
INE.PR.C
INE.DB.A
The Corporation is included in the following indices:
• S&P/TSX Composite Index
• S&P/TSX Composite Dividend Index
• S&P/TSX Composite High Dividend Index
• S&P/TSX Completion Index
• S&P/TSX Renewable Energy and Clean Technology Index
COMMON SHARES (TSX: INE)
Innergex Renewable Energy Inc. had 108,181,592 common
shares outstanding at December 31, 2016, with a closing price of
$14.03 per share. The Corporation’s shares are listed on the
Toronto Stock Exchange.
SERIES A PREFERRED SHARES (TSX: INE.PR.A)
Innergex Renewable Energy Inc. currently has 3,400,000 Series A
preferred shares outstanding, with a nominal value of $25 and a
fixed cumulative preferential annual cash dividend of $0.902 per
share, payable quarterly on the 15th day of January, April, July,
and October. Series A preferred shares are not redeemable by the
Corporation prior to January 15, 2021.
SERIES C PREFERRED SHARES (TSX: INE.PR.C)
Innergex Renewable Energy Inc. currently has 2,000,000 Series C
preferred shares outstanding, with a nominal value of $25 and a
fixed-rate cumulative preferential annual cash dividend of
$1.4375 per share, payable quarterly on the 15th day of January,
April, July, and October. Series C preferred shares are not
redeemable by the Corporation prior to January 15, 2018.
CONVERTIBLE DEBENTURES (TSX: INE.DB.A)
Innergex Renewable Energy Inc. currently has convertible
debentures outstanding for an aggregate principal amount of
$100.0 million, bearing interest at a rate of 4.25% per annum,
payable semi-annually on February 28 and August 31 of each
year, commencing on February 28, 2016. The debentures will be
convertible at the holder’s option into Innergex common shares
at a conversion price of $15.00 per share, representing a
conversion rate of 66.6667 common shares per each thousand
dollars of principal amount of debentures. The debentures will
mature on August 31, 2020 and will not be redeemable before
August 31, 2018, except in certain limited circumstances. The
convertible debentures are subordinated to all other
indebtedness of the Corporation.
CREDIT RATINGS
Innergex Renewable Energy Inc.
Series A Preferred Shares
Series C Preferred Shares
STANDARD
& POOR’S
BBB
P-3
P-3
TRANSFER AGENT AND REGISTRAR
For information concerning share certificates, dividend payments,
a change of address, or electronic delivery of shareholder
documents (such as quarterly and annual reports and proxy
circulars), please contact the Corporation’s transfer agent
and registrar:
Computershare Investor Services Inc.
1500 Robert-Bourassa Blvd, Suite 700
Montreal, Quebec, Canada H3A 3S8
Phone: 1 800 564-6253 or 514 982-7555
Email: service@computershare.com
Website: computershare.com
DIVIDEND REINVESTMENT PLAN (DRIP)
Innergex Renewable Energy Inc. offers a Dividend Reinvestment
Plan (DRIP) for its shareholders of common shares. This plan
enables eligible holders of common shares to acquire additional
common shares of the Corporation by reinvesting all or part of
their cash dividends. For more information about the
Corporation’s DRIP, please visit our website at innergex.com or
contact the DRIP administrator, Computershare Trust Corporation
of Canada. Please note that if you wish to enrol in the DRIP but
own your shares indirectly through a broker or financial
institution, you must contact this intermediary and ask them to
enrol in the DRIP on your behalf.
INDEPENDENT AUDITOR
Deloitte LLP
COMMON SHARE DIVIDEND POLICY AND
PAYMENT HISTORY
The Corporation distributed an annual dividend of $0.64 per
common share, payable quarterly1. The Corporation’s dividend
policy is determined by its Board of Directors and is based on the
Corporation’s results of operations, cash flows, financial
condition, debt covenants, long-term growth prospects, solvency
tests imposed under corporate law for the declaration of
dividends, and other relevant factors.
PAYMENT
HISTORY
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
$0.160
$0.160
$0.160
$0.160
$0.640
2015
$0.155
$0.155
$0.155
$0.155
$0.620
2014
$0.150
$0.150
$0.150
$0.150
$0.600
1 On February 23, 2017, the Board of Directors announced an increase of $0.02 in the annual
dividend that the Corporation intends to distribute to its shareholders of common shares,
raising it from $0.64 to $0.66 per common share, payable quarterly.
STOCK CHART:
JANUARY 1 - DECEMBER 31, 2016
HIGH - LOW OVER 52 WEEKS: $15.70 - $10.17
$
16.00
14.00
12.00
10.00
8.00
Jan
Feb Mar
Apr May
June
July
Au
Sep Oct Nov Dec
ANNUAL SHAREHOLDERS’ MEETING
The annual shareholders’ meeting will be held on
Tuesday, May 9, 2017, at 4:00 p.m. EDT
at the St. James’s Club
1145 Union Avenue, Montréal, Quebec H3B 3C2
Innergex Renewable Energy Inc.’s Notice of Annual Meeting
of Shareholders and Management Information Circular –
Solicitation of Proxies will be available no later than April 11,
2017, on the Investor page of our website. Hard copies will be
available upon request.
INVESTOR RELATIONS
To obtain additional financial information, corporate updates, or recent news
releases and investor presentations, please contact:
Karine Vachon
Director – Communications
Tel.: 450 928-2550, ext. 222, kvachon@innergex.com
Or visit innergex.com.
Ce document est disponible en français.
Pour la version numérique, visitez notre site web à innergex.com.
Pour la version papier, communiquez avec nous à info@innergex.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
INTRODUCTION
This Management's Discussion and Analysis (“MD&A”) is a discussion of the operating results, cash flows and financial position
of Innergex Renewable Energy Inc. (“Innergex” or the “Corporation”) for the year ended December 31, 2016, and reflects all
material events up to February 23, 2017, the date on which this MD&A was approved by the Corporation's Board of Directors.
The MD&A should be read in conjunction with the audited consolidated financial statements and the accompanying notes for
the year ended December 31, 2016.
The audited consolidated financial statements attached to this MD&A and the accompanying notes for the year ended
December 31, 2016, along with the 2015 comparative figures, have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). Some amounts included in this MD&A have been rounded to make reading easier, which may
affect some calculations.
TABLE OF CONTENTS
Establishment and Maintenance of DC&P and ICFR ......
Forward-Looking Information ..........................................
Non-IFRS Measures .......................................................
Additional Information and Updates ................................
Overview ........................................................................
Business Strategy ...........................................................
Market Trends ................................................................
Selected Annual Information ...........................................
Developments in 2016 ....................................................
Development Projects and Commissioning Activities......
Prospective Projects .......................................................
Operating Results ...........................................................
Liquidity and Capital Resources .....................................
3
3
5
6
6
7
10
12
14
16
18
19
25
Dividends ......................................................................
Financial Position ..........................................................
Free Cash Flow and Payout Ratio .................................
Projected Financial Performance ...................................
Segment Information .....................................................
Quarterly Financial Information ......................................
Fourth Quarter Results ..................................................
Investments in Joint Ventures ........................................
Non-wholly Owned Subsidiaries ....................................
Risks and Uncertainties .................................................
Critical Accounting Estimates ........................................
Accounting Changes .....................................................
Subsequent Events .......................................................
27
28
40
42
45
48
49
51
54
60
63
64
65
Innergex Renewable Energy Inc. – 2016 Financial Review – 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
ESTABLISHMENT AND MAINTENANCE OF DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROL OVER FINANCIAL REPORTING
The President and Chief Executive Officer and the Chief Financial Officer of the Corporation have designed, or caused to be
designed, under their supervision:
• Disclosure controls and procedures (“DC&P”) to provide reasonable assurance that: (i) material information relating
to the Corporation is accumulated and communicated by others to the President and Chief Executive Officer and the
Chief Financial Officer in a timely manner, particularly during the period in which the interim and annual filings are
being prepared; and (ii) the information required to be disclosed by the Corporation in its annual filings, interim filings
and other reports filed or submitted by it under applicable securities legislation is recorded, processed, summarized
and reported within the time periods specified in securities legislation.
•
Internal control over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS applicable to the
Corporation.
In accordance with Regulation 52-109 – Certification of Disclosure in Issuers' Annual and Interim Filings, the President and
Chief Executive Officer and the Chief Financial Officer of the Corporation have certified that: (a) there were no material
weaknesses relating to the DC&P and ICFR for the year ended December 31, 2016; (b) they have limited the scope of the
Corporation's design of DC&P and ICFR to exclude the controls policies and procedures of Energie Antoigné, Energie du
Porcien, Eoles Beaumont S.A.S., Energie des Cholletz, Eoliennes de Longueval, Energie Des Valottes, Société d'Exploitation
du Parc Éolien du Bois d'Anchat, Montjean Energies and Theil Rabier Energies (the "French Entities"); and (c) there was no
change to the ICFR that has materially affected, or is reasonably likely to materially affect, the Corporation's ICFR during the
year ended December 31, 2016. The design and evaluation of the operating effectiveness of the DC&P and ICFR for the French
Entities will be completed in the 12 months following the dates of acquisition. A summary of the financial information about the
French Entities is presented in the Non-wholly Owned Subsidiaries section of this MD&A.
FORWARD-LOOKING INFORMATION
To inform readers of the Corporation's future prospects, this MD&A contains forward-looking information within the meaning of
applicable securities laws (“Forward-Looking Information”). Forward-Looking Information can generally be identified by the use
of words such as “approximately”, “may”, “will”, "could", “believes", “expects", “intends”, "should", “plans”, “potential”, "project",
“anticipates”, “estimates”, “scheduled” or “forecasts”, or other comparable terminology that state that certain events will or will
not occur. It represents the projections and expectations of the Corporation relating to future events or results as of the date
of this MD&A.
Future-oriented financial information: Forward-Looking Information includes future-oriented financial information or financial
outlook within the meaning of securities laws, such as expected production, projected revenues, projected Adjusted EBITDA ,
projected Free Cash Flow and estimated project costs , to inform readers of the potential financial impact of expected results,
of the expected commissioning of Development Projects, of the potential financial impact of the acquisitions of the French
Entities, of the Corporation's ability to sustain current dividends and dividend increases and of its ability to fund its growth. Such
information may not be appropriate for other purposes.
Assumptions: Forward-Looking Information is based on certain key assumptions made by the Corporation, including those
concerning hydrology, wind regimes and solar irradiation, performance of operating facilities, financial market conditions and
the Corporation’s success in developing new facilities.
Risks and uncertainties: Forward-Looking Information involves risks and uncertainties that may cause actual results or
performance to be materially different from those expressed, implied or presented by the Forward-Looking Information. These
are referred to in the Corporation’s Annual Information Form in the “Risk Factors” section and include, without limitation: the
ability of the Corporation to execute its strategy for building shareholder value; its ability to raise additional capital and the state
of capital markets; liquidity risks related to derivative financial instruments ("Derivatives"); variability in hydrology, wind regimes
and solar irradiation; delays and cost overruns in the design and construction of projects; the ability to secure new power
purchase agreements or to renew any power purchase agreement; health, safety and environmental risks; uncertainties
surrounding the development of new facilities; obtainment of permits; equipment failure or unexpected operations and
maintenance activity; interest rate fluctuations and refinancing risk; financial leverage and restrictive covenants governing
current and future indebtedness; the possibility that the Corporation may not declare or pay a dividend; changes in governmental
support to increase electricity to be generated from renewable sources by independent power producers; variability of installation
performance and related penalties; the ability to attract new talent or to retain officers or key employees; litigation; performance
of major counterparties; social acceptance of renewable energy projects; relationships with stakeholders; equipment supply;
Innergex Renewable Energy Inc. – 2016 Financial Review – 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
the exposure to many different forms of taxation in various jurisdictions; changes in general economic conditions; regulatory
and political risks; the ability to secure appropriate land; reliance on power purchase agreements; availability and reliability of
transmission systems; foreign market growth and development risks; foreign exchange fluctuations; increases in water rental
cost or changes to regulations applicable to water use; assessment of water, wind and sun resources and associated electricity
production; dam failure; natural disasters and force majeure; cybersecurity; sufficiency of insurance coverage limits and
exclusions; a credit rating that may not reflect actual performance of the Corporation or a lowering (downgrade) of the credit
rating; potential undisclosed liabilities associated with acquisitions; integration of the facilities and projects acquired and to be
acquired; failure to realize the anticipated benefits of acquisitions; reliance on shared transmission and interconnection
infrastructure; and the fact that revenues from the Miller Creek facility will vary based on the spot price of electricity.
Although the Corporation believes that the expectations and assumptions on which Forward-Looking Information is based are
reasonable under the current circumstances, readers are cautioned not to rely unduly on this Forward-Looking Information as
no assurance can be given that it will prove to be correct. Forward-Looking Information contained herein is made as at the date
of this MD&A 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 so required by law.
Forward-Looking Information in this MD&A
The following table outlines the Forward-Looking Information contained in this MD&A, which the Corporation considers important
to better inform readers about its potential financial performance, together with the principal assumptions used to derive this
information and the principal risks and uncertainties that could cause actual results to differ materially from this information.
Principal Assumptions
Principal Risks and Uncertainties
Expected production
For each facility, the Corporation determines a long-term average annual level of electricity
production ("LTA") over the expected life of the facility, based on engineers’ studies that take
into consideration a number of important factors: for hydroelectricity, the historically observed
flows of the river, the operating head, the technology employed and the reserved aesthetic
and ecological flows; for wind energy, the historical wind and meteorological conditions and
turbine technology; and for solar energy, the historical solar irradiation conditions, panel
technology and expected solar panel degradation. Other factors taken into account include,
without limitation, site topography, installed capacity, energy losses, operational features and
maintenance. Although production will fluctuate from year to year, over an extended period
it should approach the estimated long-term average. On a consolidated basis, the Corporation
estimates the LTA by adding together the expected LTA of all the facilities in operation that
it consolidates (excludes Umbata Falls and Viger-Denonville, which are accounted for using
the equity method).
Projected revenues
For each facility, expected annual revenues are estimated by multiplying the LTA by a price
for electricity stipulated in the power purchase agreement secured with a public utility or other
creditworthy counterparty. These agreements stipulate a base price and, in some cases, a
price adjustment depending on the month, day and hour of delivery, except for the Miller
Creek hydroelectric facility, which receives a price based on a formula using the Platts Mid-
C pricing indices, and the Horseshoe Bend hydroelectric facility, for which 85% of the price
is fixed and 15% is adjusted annually as determined by the Idaho Public Utility Commission.
In most cases, power purchase agreements also contain an annual inflation adjustment
based on a portion of the Consumer Price Index. On a consolidated basis, the Corporation
estimates annual revenues by adding together the projected revenues of all the facilities in
operation that it consolidates (excludes Umbata Falls and Viger-Denonville, which are
accounted for using the equity method).
Improper assessment of water, wind and sun
resources and associated electricity production
Variability in hydrology, wind regimes and solar
irradiation
Equipment failure or unexpected operations
and maintenance activity
Natural disaster
Production levels below the LTA caused mainly
by the risks and uncertainties mentioned above
Unexpected seasonal variability
the
production and delivery of electricity
Lower-than-expected inflation rate
in
Innergex Renewable Energy Inc. – 2016 Financial Review – 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Principal Assumptions
Principal Risks and Uncertainties
Projected Adjusted EBITDA
For each facility, the Corporation estimates annual operating earnings by subtracting from
the estimated revenues the budgeted annual operating costs, which consist primarily of
operators’ salaries, insurance premiums, operations and maintenance expenditures, property
taxes and royalties; these are predictable and relatively fixed, varying mainly with inflation
(except for maintenance expenditures). On a consolidated basis, the Company estimates
annual Adjusted EBITDA by adding together the projected operating earnings of all the
facilities in operation that it consolidates (excludes Umbata Falls and Viger-Denonville, which
are accounted for using the equity method), from which it subtracts budgeted general and
administrative expenses, comprised essentially of salaries and office expenses, and
budgeted prospective project expenses, which are determined based on the number of
prospective projects the Corporation chooses to develop and the resources required to do
so.
Estimated project costs, expected obtainment of permits, start of construction, work
conducted and start of commercial operation for Development Projects or Prospective
Projects
For each development project, the Corporation provides an estimate of project costs based
on its extensive experience as a developer, directly related incremental internal costs, site
acquisition costs and financing costs, which are eventually adjusted for the projected costs
provided by the engineering, procurement and construction ("EPC") contractor retained for
the project.
The Corporation provides indications regarding scheduling and construction progress for its
Development Projects and indications regarding its Prospective Projects, based on its
extensive experience as a developer.
Projected Free Cash Flow and intention to pay dividend quarterly
The Corporation estimates Free Cash Flow as projected cash flow from operations before
changes in non-cash operating working capital items, less estimated maintenance capital
expenditures net of proceeds from disposals, scheduled debt principal payments, preferred
share dividends and the portion of Free Cash Flow attributed to non-controlling interests,
plus cash receipts by the Harrison Hydro L.P. for the wheeling services to be provided to
other facilities owned by the Corporation over the course of their power purchase agreement.
It also adjusts for other elements, which represent cash inflows or outflows that are not
representative of the Corporation's long-term cash generating capacity, such as adding back
transaction costs related to realized acquisitions (which are financed at the time of the
acquisition), adding back realized losses or subtracting realized gains on derivative financial
instruments used to fix the interest rate on project-level debt or the exchange rate on
equipment purchases.
The Corporation estimates the annual dividend it intends to distribute based on the
Corporation operating results, cash flows, financial conditions, debt covenants, long term
growth prospects, solvency, test imposed under corporate law for declaration of dividends
and other relevant factors.
Variability of facility performance and related
penalties
Changes to water and land rental expenses
Unexpected maintenance expenditures
Changes in the purchase price of electricity
upon renewal of a PPA
Performance of counterparties, such as the
EPC contractors
Delays and cost overruns in the design and
construction of projects
Obtainment of permits
Equipment supply
Interest rate fluctuations and financing risk
Relationships with stakeholders
Regulatory and political risks
Higher-than-expected inflation
Natural disaster
Adjusted EBITDA below expectations caused
mainly by the risks and uncertainties mentioned
above and by higher prospective project
expenses
Project costs above expectations caused
mainly by the performance of counterparties
and delays and cost overruns in the design and
construction of projects
Regulatory and political risk
Interest rate fluctuations and financing risk
Financial leverage and restrictive covenants
governing current and future indebtedness
Unexpected maintenance capital expenditures
Possibility that the Corporation may not declare
or pay a dividend
Intention to submit projects under requests for proposals
The Corporation provides indications of its intention to submit projects under requests for
proposals based on the state of readiness of some of its Prospective Projects and their
compatibility with the announced terms of these requests for proposals.
Regulatory and political risks
Ability of the Corporation to execute its strategy
for building shareholder value
Ability to secure new PPAs
NON IFRS MEASURES
This MD&A has been prepared in accordance with IFRS. However, some measures referred to in this MD&A are not recognized
measures under IFRS and therefore may not be comparable to those presented by other issuers. Innergex believes that these
indicators are important, as they provide management and the reader with additional information about the Corporation's
production and cash generation capabilities, its ability to sustain current dividends and dividend increases and its ability to fund
its growth. These indicators also facilitate the comparison of results over different periods. Adjusted EBITDA, Adjusted Net
Earnings, Free Cash Flow and Payout Ratio are not measures recognized by IFRS and have no standardized meaning prescribed
by IFRS.
References in this document to “Adjusted EBITDA” are to revenues less operating expenses, general and administrative
expenses and prospective project expenses.
References to "Adjusted Net Earnings" are to net earnings of the Corporation, to which the following elements are added
(subtracted): unrealized net (gain) loss on financial instruments; realized (gain) loss on financial instruments; impairment of
Innergex Renewable Energy Inc. – 2016 Financial Review – 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
project development costs; income tax expense (recovery) related to the above items; and the share of unrealized net (gain)
loss on derivative financial instruments of joint ventures, net of related tax. Innergex uses derivative financial instruments to
hedge its exposure to various risks, such as interest rate and foreign exchange risks. Accounting for derivatives
under International Accounting Standards requires that all derivatives are marked-to-market with changes in the mark-to-market
of the derivatives for which hedge accounting is not applied being taken to the profit and loss account. The application of this
accounting standard results in a significant amount of profit and loss volatility arising from the use of derivatives that are not
designated for hedge accounting. The Adjusted Net Earnings of the Corporation aims to eliminate the impact of the mark-to-
market rules on derivatives and the effect of impairment of projects development costs on the profit and loss of the Corporation.
References to “Free Cash Flow” are to cash flows from operating activities before changes in non-cash operating working
capital items, less maintenance capital expenditures net of proceeds from disposals, scheduled debt principal payments,
preferred share dividends declared and the portion of Free Cash Flow attributed to non-controlling interests, plus cash receipts
by the Harrison Hydro Limited Partnership for the wheeling services to be provided to other facilities owned by the Corporation
over the course of their PPA, plus or minus other elements that are not representative of the Corporation's long-term cash
generating capacity, such as transaction costs related to realized acquisitions (which are financed at the time of the acquisition),
realized losses or gains on derivative financial instruments used to hedge the interest rate on project-level debt or the exchange
rate on equipment purchases.
References to “Payout Ratio” are to dividends declared on common shares divided by Free Cash Flow.
Readers are cautioned that Adjusted EBITDA and Adjusted Net Earnings should not be construed as an alternative to net
earnings and Free Cash Flow should not be construed as an alternative to cash flows from operating activities, as determined
in accordance with IFRS.
ADDITIONAL INFORMATION AND UPDATES
Additional information relating to Innergex, including its Annual Information Form, can be found on the Canadian Securities
Administrators' System for Electronic Document Analysis and Retrieval (“SEDAR”) at sedar.com or on the Corporation's website
at innergex.com. Information contained in or otherwise accessible through our website does not form part of this MD&A and is
not incorporated into the MD&A by reference.
OVERVIEW
The Corporation is a developer, owner and operator of renewable power-generating facilities with a focus on
hydroelectric, wind power and solar photovoltaic (“PV”) projects that benefit from low operating and management
costs and simple, proven technologies.
Portfolio of Assets
As at the date of this MD&A, the Corporation owns interests in three groups of power-generating projects:
•
•
47 facilities in commercial operation (the “Operating Facilities”). Commissioned between 1992 and January 2017, the
facilities have a weighted average age of approximately 8.5 years. They sell the generated power under long-term
Power Purchase Agreements (“PPA”) that have a weighted average remaining life of 18.8 years (based on gross long-
term average production);
Two projects scheduled to begin commercial operations in the first and second quarter of 2017 (all together the
“Development Projects”). Construction is ongoing at these two projects;
• Numerous projects that have secured land rights, for which an investigative permit application has been filed or for
which a proposal has either been or could be submitted under a Request for Proposal or a Standing Offer Program
(collectively the “Prospective Projects”). These projects are at various stages of development.
Innergex Renewable Energy Inc. – 2016 Financial Review – 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The following chart diagrams the Corporation's direct and indirect interests in the Operating Facilities, Development Projects
and Prospective Projects.
BUSINESS STRATEGY
The Corporation's strategy for building shareholder value is to develop or acquire high-quality renewable power
production facilities that generate sustainable cash flows and provide an attractive risk-adjusted return on invested
capital and to distribute a stable dividend.
Produce Only Renewable Energy
The Corporation is committed to producing electricity exclusively from renewable energy sources.
Develop Sustainably
In conducting its business, the Corporation strives to achieve a balance between economic, social and environmental
considerations and is committed to planning, deciding, managing, and operating through the lens of sustainability.
Maintain Diversification of Energy Sources
The amount of electricity generated by the Operating Facilities is generally dependent on the availability of water flows, wind
regimes and solar irradiation. Lower-than-expected water flows, wind regimes or solar irradiation in any given year could have
an impact on the Corporation's revenues and hence on its profitability. Innergex owns interests in 29 hydroelectric facilities,
which draw on 26 watersheds, 17 wind farms and 1 solar farm, providing significant diversification in terms of operating revenue
sources. Furthermore, the nature of hydroelectric, wind and solar power generation partially offsets any seasonal variations,
as illustrated in the following table:
Innergex Renewable Energy Inc. – 2016 Financial Review – 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Consolidated long-term average production1
In GWh and %
HYDRO
WIND
SOLAR
Total
Q1
Q2
Q3
Q4
357.9
486.9
7.2
852.0
15%
31%
19%
20%
919.6
324.9
12.4
1,256.8
35%
20%
33%
30%
789.8
299.1
12.5
1,101.4
30%
19%
33%
26%
523.4
471.9
5.7
1,001.1
20%
30%
15%
24%
Total
2,590.7
1,582.8
37.9
4,211.3
1. The consolidated long-term average production is the annualized LTA for the facilities in operation at February 23, 2017. The LTA is presented
in accordance with revenue recognition accounting rules under IFRS and excludes production from facilities that are accounted for using
the equity method, which is presented in the Investments in Joint Ventures section.
Develop Strategic Relationships
Strategic relationships and partnerships are an important component of the Corporation's business strategy. When the
Corporation teams up with a strategic or financial partner, the Corporation and the partner share ownership of the projects
concerned. Current strategic partners include TransCanada Energy Ltd. (owner of 62% of the Baie-des-Sables, L'Anse-à-
Valleau, Carleton, Montagne Sèche and Gros-Morne wind farms), the Ojibways of the Pic River First Nations (owner of 51%
of the Umbata Falls facility), the Kanaka Bar Indian Band (owner of 50% of the Kwoiek Creek facility), the Rivière-du-Loup
Regional County Municipality (owner of 50% of the Viger-Denonville community wind farm), Ledcor Power Group Ltd. (owner
of 331/3% of the Fitzsimmons Creek facility, the Boulder Creek and Upper Lillooet River Development Projects as well as other
Creek Power Inc. Prospective Projects), the Mi'gmawei Mawiomi (or the Mi'gmaq First Nations of Quebec) (owner of 50% of
the Mesgi'g Ugju's'n wind farm) and the Minganie Regional County Municipality (owner of 0.001% of the common units and
30% of the voting units of the Magpie hydroelectric facility). Current financial partners include CC&L Harrison Hydro Project
Limited Partnership and LPF (Surfside) Development L.P. (owners of 34.99% and 15.00% of Harrison Hydro Limited Partnership
respectively) as well as the Desjardins Group Pension Plan ("Desjardins") (owner of 49.99% of the Sainte-Marguerite
hydroelectric facility and of 30.45% of the French Entities).
Pursue Opportunities for Renewable Energy Growth
Growing awareness and concern over issues such as climate change, access to clean energy, energy security, energy efficiency
and the environmental impacts of conventional fossil fuels are leading governments around the world to increase their demand
for and commitments to the development of renewable energy supply. Consequently, the Corporation believes that the outlook
for the renewable energy industry is promising.
Key Growth Factors
The Corporation's future growth will be affected by the following key factors:
• Demand for renewable energy;
Innergex Renewable Energy Inc. – 2016 Financial Review – 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
• Stable and long-term government policies for the procurement of new renewable energy capacity, whether through
requests for proposals or other mechanisms;
• Its capacity to evaluate and secure the best prospective sites for the development of new projects in cooperation with
local communities;
• Its ability to enter into attractive PPAs and obtain the required environmental and other permits;
• Its ability to adequately forecast total construction costs, expected revenues and expected expenses for each project;
• Its ability to make accretive acquisitions; and
• Its ability to finance its growth.
Key Geographic Markets
In Canada, the Corporation continues to seek potential opportunities and to participate in request for proposals when available.
The Federal Government, through the Pan-Canadian Framework on Clean Growth and Climate Change is advancing a suit of
new policies that will likely increase the market for renewable electricity. While there are no current requests for proposal (RFP)
in Quebec, Ontario and British Columbia, the Corporation is well positioned to take advantage of longer term opportunities due
to our operational presence. Also, new markets present greater opportunities for growth such as Alberta, Saskatchewan and
New Brunswick. All three provinces have set aggressive targets for generating electricity from renewable sources by 2030.
To replenish its sources of long-term growth, the Corporation has also identified a number of target markets internationally in
which it expects to gain a foothold in the coming years.
In 2016, the Corporation established its presence in France with the acquisition of nine wind farms and in 2017, it deployed a
local development team to secure projects that could be submitted for feed-in-tariff contracts and continues to assess a number
of other renewable energy opportunities. Since 2007, France has put in place a strategy for developing renewable energies
within its territory. The French onshore wind market is very active with the objective, announced in October 2016, of reaching
22,000 to 26,000 MW wind capacity in 2023 from about 12,000 MW in 2016. The feed-in-tariff contract structure will be changed
to a premium system under which wind farms of up to six turbines will sell their electricity directly to the market and receive a
premium under a 20-year premium contract. The new base is to be finalized in the first quarter of 2017.
In the United States, the Corporation will continue to selectively assess potential opportunities in light of the existence of
renewable portfolio standards (RPS) in several states and the increasing procurement of renewable energy. According to the
US Energy Information Association, electricity generation from renewable energy is expected to rise from 13% in 2013 to 18%
by 2040, with nearly 70 GW of new wind and solar PV capacity expected to be added from 2017-2021, encouraged by declining
capital costs and the availability of tax credits. In many markets across the US, wind and solar energy are already among the
least costly new generation sources, even compared with currently low-cost natural gas.
In developing economies in Latin America, demand for electricity remains strong and governments are seeking to increase the
production of renewable energy, of which they have an ample supply. More economically mature countries in Europe have
adopted ambitious GHG emissions reduction targets and governments are seeking to reduce their dependency on conventional
forms of generation, both of which developments require a greater proportion of renewable energy in these countries' energy
portfolios. There are a number of markets to which the Corporation believes it can largely transpose its business model for
developing and operating renewable energy assets.
Pursue Growth Opportunities Through Acquisitions
Acquisitions are an important component of the Corporation's business strategy. More specifically, the Corporation will seek
acquisitions that will enable it to gain a foothold and develop a critical mass in identified target markets internationally. It will
also seek acquisitions in order to consolidate its leadership position in the Canadian renewable energy industry. As it has done
in the past, Innergex will continue to focus on hydroelectric, wind and solar power generation assets. The Corporation could
also grow through expansion into other forms of renewable energy production if profitable opportunities arise.
Maintain Capacity for Delivering Results
The Corporation does business in a competitive sector. The experience and dedication of its management team constitute its
strongest asset. Through careful management, it has established a track record of completing projects by the commercial
operation start date specified in their PPA while adhering to the established construction budgets. The Corporation's employees
possess the specialized knowledge and skills necessary to carry out its business. The Corporation can also rely on a network
of technical, financial and legal partners and has proved its ability to complement its internal capabilities with efficient use of
external consultants when required. In addition, the Corporation retains the services of several engineering firms to assist with
Innergex Renewable Energy Inc. – 2016 Financial Review – 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
the feasibility analysis of its projects. As at December 31, 2016, the Corporation employed a total of 202 persons (including
Cartier Wind Energy employees).
Use Key Performance Indicators
The Corporation measures its performance using key performance indicators that include or could include comparing power
generated in megawatt-hours (“MWh”) and gigawatt-hours (“GWh”) with a long-term average, Adjusted EBITDA and Adjusted
EBITDA Margin, Free Cash Flow, Adjusted Net Earnings and Payout Ratio. These indicators are not recognized measures
under IFRS, have no standardized meaning prescribed by IFRS and therefore may not be comparable with those presented
by other issuers. The Corporation believes that these indicators are important, as they provide management and the reader
with additional information about the Corporation's production and cash generating capabilities, its ability to sustain current
dividends and dividend increases and its ability to fund its growth. These indicators also facilitate the comparison of results
over different periods. Please refer to the "Non-IFRS Measures" section for more information.
Dividend Policy
The Corporation intends to distribute an annual dividend of $0.66 per common share, payable quarterly.
The Corporation’s dividend policy is determined by its Board of Directors and is based on the Corporation’s operating results,
cash flows, financial condition, debt covenants, long-term growth prospects, solvency tests imposed under corporate law for
the declaration of dividends and other relevant factors.
MARKET TRENDS
Renewable power producers are involved in the generation of electricity from renewable energy sources including hydro, wind,
solar, landfill gas and geothermal sources.
While traditional regulated utilities continue to dominate electricity generation markets, the growing importance of the role played
by independent power producers in meeting future electricity needs is now acknowledged and the benefits of their power output
have increasingly been recognized by government authorities and policymakers in recent years.
There are several factors that explain the growing role played by independent power producers in supplying renewable power,
including: the growing demand for energy; increasing awareness of the benefits of renewable energy in addressing the impacts
of climate change; the increase in government-sponsored incentives to develop renewable energy capacity; the availability of
long-term renewable energy purchase contracts with highly creditworthy counterparties, allowing independent power producers
to develop new projects in a low-risk environment with the expectation of stable long-term contractual cash flows; the
implementation of non-discriminatory access to transmission systems, providing independent power producers with access to
regional electricity markets; and the rapidly improving cost-competitiveness of renewable energy and efficiency of independent
power producers. While the plentiful supply of natural gas in recent years has resulted in low market prices that have increased
the attractiveness of this source of energy for producing electricity in many parts of the world, technological improvements and
economies of scale have significantly reduced the costs of renewable energy procurement, in particular wind and solar power.
In many markets, electricity produced from these sources is cost-competitive with energy produced from natural gas and its
cost is much more stable over the long run because it is not subject to fluctuations in the price of the underlying resource year
over year.
Over and above the foregoing, a significant push for developing renewable energy worldwide and implementing a global energy
transition toward clean and renewable energy came during the 21st Conference of Parties, which was held in Paris, France in
2015. The agreement that came out of the 2015 Paris Climate Conference (the "Paris Agreement") is a legally binding, universal
agreement on climate, with the aim of keeping global warming well below 2°C. The Paris Agreement establishes long-term
vision in order to greatly reduce global emissions and phase out carbon from the world's energy sources through the deployment
of and an important transition to renewable energy within each national energy strategy. On October 5, 2016, the threshold for
entry into force of the Paris Agreement was achieved. The Paris Agreement entered into force on November 4, 2016. The first
session of the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA 1) took place in
Marrakech, Morocco in November 2016.
Innergex Renewable Energy Inc. – 2016 Financial Review – 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Renewable Power in Canada
Over the past few years, the significant growth in renewable power generation in Canada has resulted from: the increased cost
of large-scale hydroelectric sites; public concern over nuclear power generation, air quality, and greenhouse gases;
improvements in renewable energy technologies; and shorter construction lead times for some renewable energy projects.
Renewable electricity generation in Canada is also supported by federal and provincial incentives, such as long-term fixed
price contracts, accelerated depreciation and Renewable Portfolio Standards, which are explained below.
In response to the long-term trend toward stronger environmental protection policies, many provincial governments have
introduced Renewable Portfolio Standards (“RPS”), which typically set a target for an increased component of renewable energy
in their electricity generation supply mix in order to reduce greenhouse gas emissions over time. These RPS typically reflect
the distinct resource issues associated with electricity generation, given the provinces' respective electricity industry structures
and geographical conditions. While RPS are sometimes applied and implemented as goals or targets rather than mandatory
requirements, provincial authorities or their utilities are using RPS to source renewable generation resources and, in some
cases, offer PPAs through competitive bidding processes. The competitive bidding process seeks to ensure that the RPS are
achieved at the lowest possible cost and with the highest probability of project completion. By simplifying the negotiation and
financing processes and decreasing the transactional costs for obtaining a long-term PPA, these mechanisms can contribute
to meeting renewable energy generation goals. Several provinces have set a specific target percentage of electricity to be
generated from renewable sources, including British Columbia (100% of total electricity from clean or renewable resources),
and Ontario (the current Long-Term Energy Plan calls for an increase in hydro energy capacity to 9,300 MW and the development
of 10,700 MW of installed wind, solar and bioenergy capacity by 2021). In addition, Alberta has committed to being 30%
renewable electricity by 2030 (corresponding to the procurement of approximately 5,000 MW of renewable electricity) and
Saskatchewan has committed to being 50% renewable electricity by 2030 (corresponding to the procurement of approximately
1,600 MW of new wind energy between 2016 and 2030 and a small amount of solar energy; the province is also exploring
geothermal energy).
Canada enjoys a unique abundance of hydrological resources. With an estimated installed hydroelectric capacity of more than
75,000 MW, it is the third largest hydroelectric energy producer in the world. Furthermore, according to the Canadian Hydropower
Association, the country has an undeveloped, technically feasible potential estimated at 163,000 MW. Despite the competition
for appropriate sites and the challenges associated with power transmission over great distances, the low operational costs
and long project lives of these facilities suggest that hydroelectric power generation will remain a major affordable supply source
for many years. Transmission corridors in Canada have traditionally run directly from major generation facilities to major demand
centres, meaning that strategic investments in new transmission corridors will play an important role in the development of
hydroelectric projects and other isolated renewable energy generation projects.
Over the last few years, according to the National Energy Board, wind power has become commercially viable and emerged
as the fastest growing segment of the renewable power industry in Canada. The Canadian Wind Energy Association ranks
Canada as the seventh largest producer of wind energy in the world, with an installed wind power capacity of more than
11,205 MW, and, in 2016, Canada was the seventh largest market for new wind development in the world. The wind industry
in Canada is growing at a rate of 18% per year (1,327 MW/year). Several reasons explain the robustness of the wind energy
industry, including the improving cost-competitiveness of wind energy due to economies of scale and technological
improvements, provincial RPS, relatively short construction timelines, favourable wind resources, including strong winds across
a wide range of rural areas and vast shorelines, and provincial renewable energy RFPs. The usual challenges of resource
availability and transmission exist in Canada and, in some areas, access to transmission lines with available capacity is an
economic or regulatory consideration.
A solar energy industry has emerged in Canada in recent years and future growth is focused on opportunities in the Prairies.
According to CanSIA, by the end of 2015, Canada had more than 2,500 MW of cumulative installed solar electricity capacity.
In 2015 alone, a record 700 MW was added, earning Canada a place in the top-ten largest national markets globally. Production
costs for solar energy continue to decline rapidly due to technological improvements and economies of scale.
Innergex Renewable Energy Inc. – 2016 Financial Review – 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
SELECTED ANNUAL INFORMATION
PRODUCTION
Power generated (MWh)
LTA (MWh)
Production as percentage of LTA
STATEMENT OF EARNINGS
Revenues
Adjusted EBITDA
Adjusted EBITDA Margin
Net earnings (loss)
Net earnings (loss) attributable to owners of the parent
($ per common share - basic)
($ per common share - diluted)
Weighted average number of common shares (in 000s)
STATEMENT OF FINANCIAL POSITION
Total assets
Current liabilities
Long-term debt
Other long-term liabilities
Liability portion of convertible debentures
Total non-current liabilities
Non-controlling interests
Equity attributable to owners
DIVIDENDS
Dividend declared per Class A Preferred Share
Dividend declared per Class C Preferred Share
Dividend declared per common share
PAYOUT RATIO
Dividends declared on common shares
Free Cash Flow 1
Payout Ratio 1
Year ended December 31
2015
2014
2016
3,521,645
3,364,907
105%
2,987,637
3,054,642
98%
2,962,450
2,964,070
100%
292,785
215,983
73.8%
32,043
35,963
0.28
0.28
106,883
3,604,204
220,370
2,507,236
296,526
94,840
2,898,602
14,712
470,520
0.90
1.4375
0.64
68,524
75,703
246,869
183,738
74.4%
(48,383)
(30,301)
(0.37)
(0.37)
102,304
3,128,303
185,170
2,160,438
217,708
93,430
2,471,576
21,907
449,650
1.25
1.4375
0.62
63,646
74,386
241,834
179,562
74.3%
(84,378)
(54,853)
(0.63)
(0.63)
98,341
2,716,015
202,035
1,610,800
260,937
80,018
1,951,755
47,411
514,814
1.25
1.4375
0.60
59,549
67,744
91%
86%
88%
1. For more information on the calculation and explanation of the Corporation's Free Cash Flow and Payout Ratio, please refer to the Free
Cash Flow and Payout Ratio section.
Comparison between 2016, 2015 and 2014
For the year ended December 31, 2016, the increase in power generated, revenues and Adjusted EBITDA are equally attributable
to better results in all hydroelectricity markets except Ontario and to the contribution of the recently commissioned or acquired
facilities, which were partly offset by lower production and revenues related to from the wind regime in Quebec.
The $32.0 million net earnings for the year ended December 31, 2016, compared with a net loss of $48.4 million for the same
period last year, can be explained mainly by the $32.2 million increase in Adjusted EBITDA and by a $38.2 million net loss on
derivative financial instruments in 2015 and by the recognition, in 2015, of a $51.7 million impairment of project development
costs, partly offset by higher finance costs, higher amortization and depreciation costs and an income tax expense (compared
with a recovery in 2015).
Innergex Renewable Energy Inc. – 2016 Financial Review – 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The increase in total assets is due mainly to investments made by the Corporation in the ongoing construction of the Boulder
Creek and Upper Lillooet River development projects, the Big Silver Creek project commissioned in July 2016 and the
Mesgi'g Ugju's'n project commissioned in December 2016 as well as to the investments made to acquire the Walden hydroelectric
facility and purchase the French Entities.
The increase in long-term debt results mainly from the addition of the French Entities project-level debts, the issuance of a
$38.2 million debenture carrying an interest rate of 8.0% to Desjardins for its investment in the French Entities, additional
drawings on Innergex's credit facility, Stardale's long-term debt increase on its borrowing and additional drawings on Upper
Lillooet River and Boulder Creek, and Mesgi’g Ugju’s’n's financings, partly offset by the scheduled repayment of project-level
debts.
The increase in equity attributable to owners is due mainly to the recognition of net earnings attributable to owners of the parent
of $32.5 million and the issuance of new common shares for $54.3 million, partially compensated by the declaration of dividends
on preferred and common shares in 2016.
The increase in Free Cash Flow is due mainly to higher cash flows from operating activities in 2016 before changes in non-
cash operating working capital items and realized losses on derivative financial instruments (none in 2016), which were partly
offset by greater scheduled debt principal payments and higher free cash flow attributed to non-controlling interests. The
Corporation also decided to invest more to pursue growth opportunities in new international markets, resulting in a higher
payout ratio of 91%.
For the year ended December 31, 2015, the increases in power generated, revenues and Adjusted EBITDA are attributable
mainly to the full-year contribution of the Sainte-Marguerite hydroelectric facility acquired in June 2014, the addition of the
Tretheway Creek hydroelectric facility commissioned at the end of 2015 and above-average wind regimes. The $48.4 million
net loss for the year ended December 31, 2015, compared with a $84.4 million net loss for the same period last year, is
attributable mainly to the recognition of an impairment expense of $51.7 million ($nil in 2014) by the Corporation in relation to
some of project development costs and the smaller negative impact of derivative financial instruments, namely a $119.6 million
realized loss on derivative financial instruments partly offset by a $81.4 million unrealized gain on derivative financial instruments,
compared with a $121.7 million unrealized loss and a $8.4 million realized loss on derivative financial instruments in 2014.
The increase in total assets in 2015 is due mainly to investments by the Corporation in ongoing construction costs of the
Corporation's Boulder Creek and Upper Lillooet River Development Projects, and in the Big Silver Creek project commissioned
in July 2016, the Mesgi'g Ugju's'n project commissioned in December 2016 and the Tretheway Creek project commissioned
in October 2015. The increase in long-term debt is again attributable mainly to the addition of Development Projects-level debts
partly offset by a reduction in the revolving credit term facility. The increase in the liability portion of convertible debentures in
2015 is due to the fact that the Corporation issued $100.0 million of new convertible debentures bearing interest at 4.25% while
it redeemed or converted the outstanding principal amount of $80.5 million of the convertible debentures bearing interest at
5.75%. The decrease in equity attributable to owners and non-controlling interests is due mainly to the recognition of a net loss
and the declaration of dividends on preferred and common shares in 2015, which was partially offset by the issuance of new
common shares upon conversion, at the holders' request, of convertible debentures bearing interest at 5.75%. The increase
in Free Cash Flow, which is attributable mainly to an increase in Adjusted EBITDA, more than offset the increase in dividends
resulting from the greater number of shares outstanding, yielding a lower Payout Ratio of 86%.
Innergex Renewable Energy Inc. – 2016 Financial Review – 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Adjusted Net Earnings
When evaluating its operating results and to provide a more accurate picture of its renewable energy operating results, a key
performance analysis for the Corporation is the "Adjusted Net Earnings", which is a non-IFRS measure of the Corporation.
Impact on net earnings (loss) of financial instruments
and the impairment of project development costs
Net earnings (loss)
Add (Subtract):
Year ended December 31
2015
2014
2016
32,043
(48,383)
(84,378)
Unrealized net (gain) loss on financial instruments
Realized loss on financial instruments
Impairment of project development costs
Income tax expense (recovery) related to above items
Share of unrealized net loss on financial instruments of joint
ventures, net of related income tax
Adjusted Net Earnings
(4,292)
—
—
1,215
110
29,076
(81,368)
119,557
51,719
(22,837)
1,043
19,731
121,685
8,366
—
(32,096)
2,804
16,381
Excluding the gains and losses on financial instruments, the impairment of project development costs and the related income
taxes, the net earnings for the year ended December 31, 2016, would have been $29.1 million, compared with net earnings of
$19.7 million in 2015. The increase is attributable mainly to the $32.2 million increase in Adjusted EBITDA, partly offset by a
$12.1 million increase in finance costs and a $14.8 million increase in depreciation and amortization.
DEVELOPMENTS IN 2016
Conversion of the Cumulative Rate Reset Preferred Shares, Series A
On January 15, 2016, and on January 15 every five years thereafter, the holders of Preferred Shares, Series A (the "Series A
Shares") are entitled, at their option, to convert all or part of their Series A Shares into Series B, Preferred Shares (the "Series B
Shares") of the Corporation, provided certain conditions are met.
On January 7, 2016, the Corporation announced that after considering all election notices received by the conversion deadline
of December 31, 2015, and the conversion requirements, the holders of the Series A Shares were not entitled to convert their
shares.
Accordingly, 3,400,000 Series A Shares remain listed on the TSX under the symbol INE.PR.A. The dividend rate for the five-
year period commencing on January 15, 2016, and extending to but excluding January 15, 2021, will be 3.608% or $0.2255
per share per quarter.
Completion of the Acquisition of the Walden Facility
On February 25, 2016, the Corporation, in partnership with the Cayoose Creek Indian Band, completed the acquisition from
FortisBC of the Walden facility located in the province of British Columbia, Canada ("Walden"). Walden is a 16 MW facility
commissioned in 1993 and located on private land in Cayoosh Creek near Lillooet, close to several of the Corporation’s other
hydroelectric facilities.
Innergex and Cayoose Creek Development Corporation, the economic arm of the Cayoose Creek Indian Band, have formed
the Cayoose Creek Limited Partnership, which in turn has acquired the assets that make up the facility. The transaction closed
at a total purchase price of $9.2 million.
Renewal of Normal Course Issuer Bid for Common Shares and Commencement for Preferred Shares
On March 21, 2016, the Corporation announced that it had received approval from the TSX to renew the normal course issuer
bid on its common shares (“Common Shares”) and to commence a normal course issuer bid on its Cumulative Rate Reset
Series A shares ("Series A Shares") and Cumulative Redeemable Fixed Rate Preferred Shares, Series C (“Series C Shares”)
(collectively, the “Bids”).
Innergex Renewable Energy Inc. – 2016 Financial Review – 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Under the Bids, the Corporation may purchase for cancellation a maximum of 2,000,000 Common Shares, 68,000 Series A
Shares and 40,000 Series C Shares.
The Bids started on March 24, 2016, and will terminate on March 23, 2017.
Acquisition of Seven French Entities and a Private Placement of $50.0 Million – Investment by Desjardins
in the French Acquisition Portfolio
On April 15, 2016, Innergex completed the acquisition of seven operating wind power facilities with an installed capacity of
86.8 MW (the "Seven French Entities") and committed to acquiring another project, the Yonne wind farm, with an installed
capacity of 44.0 MW from a German company, wpd europe GmbH, for a total of 130.8 MW. Simultaneously, the Corporation
completed a private placement of $50.0 million with three Desjardins Group-affiliated entities.
The purchase price for the Seven French Entities is a net cash consideration of €64.0 million (or $94.5 million), subject to certain
adjustments and including €8.1 million (or $11.9 million) of cash and cash equivalents. The purchase price for the Yonne facility
acquired on February 21, 2017 amounts to €35.2 million (or $49.0 million), and a deposit of €10.0 M (or $13.9 million) has
already been paid. Please refer to the Subsequent Events section for more information.
The Seven French Entities are expected to generate annual revenues of approximately €15.1 million (equivalent to $22.6 million)
in 2017, and Adjusted EBITDA of €1 1.1 million (equivalent to $16.6 million).
The project financing totalled €88.2 million (equivalent to $130.2 million) and will remain at the acquired project level.
The non-recourse debt related to the eight projects will remain at the acquired project level. The Corporation has reduced its
exposure to exchange rate fluctuations with long-term currency hedging instruments.
On June 10, 2016, Innergex announced the closing of Desjardins's investment in the French Acquisition Portfolio. Innergex
and Desjardins completed the acquisition of the recently commissioned Yonne French wind farm on February 21, 2017. More
details on Desjardins's investment are provided below.
Overview of the Acquired Asset
The seven wind farms are located in northern and central France. The aggregated installed capacity of all seven farms is
86.8 MW and the annual long-term average level of electricity production is expected to reach 169,400 MWh. All the electricity
produced
term of 15 years, with Électricité de France
(six wind farms) and S.I.C.A.E Oise (one wind farm).
is sold under PPAs at
fixed prices,
for an
initial
Project name
Porcien
Longueval
Antoigné
Vallotes
Bois d‘Anchat
Beaumont
Cholletz
Total
Gross capacity (MW)
Commencement
of delivery
PPA expiry
10.0
10.0
8.0
12.0
10.0
25.0
11.8
86.8
2009
2009
2010
2010
2014
2015
2015
2024
2024
2025
2025
2029
2029
2030
Private Placement of Innergex's Common Shares for $50.0 Million
To finance part of the acquisition, three Desjardins Group-affiliated entities have collectively subscribed to a private placement
of 3,906,250 common shares of Innergex, for gross proceeds of $50.0 million on the closing date. Moreover, the common
shares issued under the private placement were subject to a statutory four-month sale restriction period after their issuance.
Innergex Renewable Energy Inc. – 2016 Financial Review – 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Partnership with Desjardins
On June 10, 2016, the Corporation announced the closing of a $38.4 million investment by Desjardins in the French Acquisition
Portfolio. Following this investment, the Corporation and Desjardins respectively hold 69.55% and 30.45% of the limited
partnership that holds these projects.
Benefits of the acquisition
Increases annualized Free Cash Flow
•
• Opens up a new market, the European market, to Innergex
•
Adds high-quality, long-term wind assets
Acquisition of Two Wind Farms in Nouvelle-Aquitaine, France
On December 22, 2016, the Corporation completed the acquisition of two wind power projects from French group BayWa r.e.
(the "Two French Entities in Nouvelle-Aquitaine"). With a total capacity of 24 MW, the two projects are located in Nouvelle-
Aquitaine, France. Innergex owns a 69.55% interest in the project and Desjardins owns the remaining 30.45%.
The purchase price for the Two French Entities in Nouvelle-Aquitaine is a net cash consideration of $22.7 million, subject to
certain adjustments, and $0.8 million in transaction costs.
Located on private land approximately 400 km southwest of Paris, the facilities are expected to generate annual revenues of
approximately €6.3 million (equivalent to $9.4 million) and Adjusted EBITDA of €5.2 million (equivalent to $7.9 million).
The project financing totalled € 34.2 million (equivalent to $48.2 million) and will remain at the acquired project level.
The non-recourse debt related to the two projects will remain at the acquired project level. The Corporation has reduced its
exposure to exchange rate fluctuations with long-term currency hedging instruments.
Overview of the Acquired Asset
The two wind farms are located in Nouvelle-Aquitaine, France. The aggregated installed capacity of the two farms is 24 MW
and the annual long-term average level of electricity production is expected to reach 74,000 MWh. All the electricity produced
is sold under PPAs at fixed prices, for an initial term of 15 years, with Électricité de France.
Project name
Montjean
Theil-Rabier
Total
Gross capacity (MW)
Commencement
of delivery
12.0
12.0
24.0
2016
2016
PPA expiry
2031
2031
DEVELOPMENT PROJECTS AND COMMISSIONING ACTIVITIES
On July 29, 2016, the Big Silver Creek hydroelectric facility began commercial operation In British Columbia.
On December 30, 2016, the Mesgi'g Ugju's'n wind facility began commercial operation in Quebec.
Innergex Renewable Energy Inc. – 2016 Financial Review – 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Commissioning Activities
HYDRO (British Columbia)
Big Silver Creek
WIND (Quebec)
Mesgi'g Ugju's'n
Ownership
%
Gross
installed
capacity
(MW)
Gross
estimated
LTA1
(GWh)
PPA
term
(years)
Total project costs
Expected year-one
Estimated1
($M)
As at
Dec. 31
($M)
Revenues1
($M)
Adjusted
EBITDA1
($M)
100.0
40.6
139.8
40
206.0
205.7
17.2
14.5
50.0
150.0
190.6
562.5
702.3
20
305.0
511.0
289.4
495.1
59.6
76.8
52.5
67.0
1. This information is intended to inform readers of the projects' potential impact on the Corporation's results. Actual results may vary.
Big Silver Creek
In the third quarter, the Corporation began commercial operation of the 40.6 MW Big Silver Creek run-of-river hydroelectric
facility located in British Columbia. The Big Silver Creek facility is located on crown land approximately 40 km north of Harrison
Hot Springs, British Columbia. Construction began in June 2014 and was completed in July 2016, earlier than expected and
on budget. The Commercial Operation Date ("COD") certificate was approved by BC Hydro with an effective commissioning
date of July 29, 2016. Big Silver Creek’s average annual production is estimated to reach 139,800 MWh, enough to power
more than 12,900 households.
In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of circa $17.2 million and $14.5 million
respectively. The small decrease in expected revenues and Adjusted EBITDA compared with prior estimates is due to the lower
inflation encountered in the last few years. All the electricity the facility produces is covered by a 40-year fixed-price power
purchase agreement with BC Hydro, which was obtained under that province’s 2008 Clean Power Call Request for Proposals
and which provides for an annual adjustment to the selling price based on a portion of the Consumer Price Index. On June 22,
2015, the Corporation announced the closing of a $197.2 million non-recourse construction and term project financing for this
project.
Mesgi'g Ugju's'n
In the fourth quarter, the Corporation, along with the three Mi'gmaq communities of Quebec, began commercial operation of
the 150 MW Mesgi'g Ugju's'n wind facility located in Quebec. Construction of this wind farm located on public lands in the
Avignon Regional County Municipality began in May 2015 and was completed in December 2016, within budget. The COD
certificate was approved by Hydro-Québec with an effective commissioning date of December 30, 2016. Mesgi'g Ugju's'n's
average annual production is estimated to reach 562,500 MWh, enough to power about 30,000 households.
In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of circa $59.6 million and $52.5 million
respectively. All the electricity the facility will produce is covered by a 20-year fixed-price power purchase agreement with Hydro-
Québec, which provides for an annual adjustment to the selling price based on a portion of the Consumer Price Index.
As reported in the second quarter’s MD&A, the Corporation has revised the annual forecast for the gross estimated LTA energy
yield upward from 515 GWh to 562.5 GWh, which corresponds approximately to a 9% increase. The revised gross estimated
LTA of the Mesgi’g Ugju’s’n wind farm will result in a $4.6 million increase in expected revenues and a $4.5 million increase in
Adjusted EBITDA. Innergex is entitled to approximately 70% of the total free cash flows that will be generated by the project
in 2017, which will result in a $3.2 million increase in Projected Free Cash Flow. On September 28, 2015, the Corporation and
its partner, the three Mi’gmaq communities of Quebec, announced the closing of a $311.7 million non-recourse construction
and term project financing for this project.
Innergex Renewable Energy Inc. – 2016 Financial Review – 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Construction activities
The total project costs for the Development Projects were as follows:
PROJECTS UNDER
CONSTRUCTION
Ownership
%
HYDRO (British Columbia)
Upper Lillooet River
Boulder Creek
66.7
66.7
Gross
installed
capacity
(MW)
Expected
COD
Gross
estimated
LTA1, 2
(GWh)
PPA
term
(years)
Total project costs
Expected year-one
Estimated1
($M)
As at
Dec. 31
($M)
Revenues1
($M)
Adjusted
EBITDA1
($M)
81.4
25.3
106.7
2017
2017
4
4
334.0
92.5
426.5
40
40
327.1 3
124.1 3
451.2
315.1 3
112.3 3
427.4
33.0 3
9.0 3
42.0
27.5 3
7.5 3
35.0
1. This information is intended to inform readers of the projects' potential impact on the Corporation's results. Actual results may vary. These
estimates are up-to-date as at the date of the MD&A.
2. Upon commissioning, LTA figures may be updated to reflect design optimization or constraints or selection of different turbines. Please refer
to the Forward-Looking Information section for more information.
3. Corresponding to 100% of this facility.
4. The COD should be reached in the first quarter of 2017 for the Upper Lillooet hydroelectric project and in the second quarter of 2017 for the
Boulder Creek hydroelectric facility. Commercial operation has been delayed due to the forest fire that forced the interruption of construction
activities in the summer 2015. BC Hydro has agreed that the fire constitutes a force majeure event and consequently confirmed that the
COD could be delayed up to 98 force majeure days. If financial consequences nonetheless result from the fire, the Upper Lillooet River and
Boulder Creek projects expect to be indemnified for such delays by virtue of their insurance coverage.
Upper Lillooet River and Boulder Creek
The construction of the Upper Lillooet River and Boulder Creek hydroelectric facilities began in October 2013. On
March 17, 2015, the Corporation announced the closing of a $491.6 million non-recourse construction and term project financing
for both these projects, which has received the Clean Energy BC’s Finance Award for 2015 and the 2016 Hydro Power Deal
of the Year from the World Finance Magazine.
As at the date of this MD&A, all civil work on the Upper Lillooet River facility had been completed. At the intake the head-pond
filling was successfully completed in early February. The overall weather conditions and high risk of avalanches have pushed
back the final completion of the overall facility. The powerhouse turbine and generation equipment installation is nearly complete
with only portions of the electrical and control equipment remaining to be installed. The transformer and switchyard are complete
and currently energized from the transmission line (back feed from BC Hydro). The start of the commissioning activities began
mid-February and COD is expected at the end of March 2017.
The Boulder Creek tunnel excavation, cleaning and tunnel plug were completed by mid-December 2016. The steel liner
installation work, including the concrete embedment is expected to be completed by mid-March 2017. The intake civil and
hydro-mechanical are complete with only minor electrical work remaining. The leave to commence diversion package has been
submitted to the agencies concerned for approval. The start of the commissioning activities of the Boulder Creek facility is
expected by the end of March 2017 and COD is expected in the second quarter of 2017.
The joint transmission line is complete, commissioned and energized.
The insurance claims process for the fire continues, with interim progress payments being made. In any case, the Corporation
expects to be indemnified and to suffer no significant adverse financial consequences from the fire.
PROSPECTIVE PROJECTS
With a combined potential net installed capacity of 3,560 MW (gross 3,940 MW), all the Prospective Projects are in the preliminary
development stage.
Some Prospective Projects are targeted toward specific future Requests for Proposals in the provinces of New-Brunswick,
Alberta and Saskatchewan. Other Prospective Projects are maintained or continue to be advance and will be available for
future requests for proposals yet to be announced or are targeted toward negotiated power purchase agreements with public
utilities or other creditworthy counterparties in Quebec, British Columbia and Ontario or in other countries such as France and
the United States. There is no certainty that any Prospective Project will be realized.
Innergex Renewable Energy Inc. – 2016 Financial Review – 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
OPERATING RESULTS
Electricity production in the last year was 105% of the LTA production due mainly to higher-than-average results
in the hydroelectric sector in British Columbia, partly offset by lower wind regimes in Quebec and in France.
Production increased 18%, revenues 19% and Adjusted EBITDA 18%. These increases are equally attributable
to better results in all hydroelectricity markets except Ontario and to the contribution of the recently commissioned
or acquired facilities, which were partly offset by lower production and revenues related to the wind regime in
Quebec.
The Corporation's operating results for the year ended December 31, 2016, are compared with the operating results
for the same period in 2015.
Electricity Production
When evaluating its operating results, a key performance indicator for the Corporation is to compare actual electricity generation
with a long-term average for each hydroelectric facility, wind farm and solar farm. These LTA are determined to allow long-term
forecasting of the expected power generation for each of the Corporation's facilities.
Year ended December 31
2016
2015
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec
France
Subtotal
SOLAR
Ontario
Total
710,686
54,341
1,906,877
46,864
2,718,768
699,930
74,544
1,670,734
46,800
2,492,008
683,150
77,664
760,814
724,710
110,297
835,007
102%
73%
114%
100%
109%
94%
70%
91%
696,065
70,683
1,428,953
42,675
2,238,376
699,930
74,544
1,518,712
46,800
2,339,986
709,712
—
709,712
676,489
—
676,489
42,063
3,521,645
37,892
3,364,907
111%
105%
39,549
2,987,637
38,167
3,054,642
99%
95%
94%
91%
96%
105%
—%
105%
104%
98%
1. The Umbata Falls hydroelectric facility and the Viger-Denonville wind farm are treated as joint ventures and accounted for using the equity
method; their revenues are not included in the Corporation's consolidated revenues and, for the sake of consistency, their electricity production
figures have been excluded from the production table. For more information on the Corporation's joint ventures, please refer to the Investments
in Joint Ventures section.
During the year ended December 31, 2016, the Corporation's facilities produced 3,522 GWh of electricity or 105% of the LTA
of 3,365 GWh. Overall, the hydroelectric facilities produced 109% of their LTA due mainly to above-average water flows in all
markets but Ontario. Overall, the wind farms produced 91% of their LTA due to the below-average wind regimes in Quebec
and in France. The Stardale solar farm produced 111% of its LTA due to an above-average solar regime. For more information
on operating segment results, please refer to the Segment Information section.
The 18% production increase over the same period last year is due mainly to higher water flows in BC and to the contribution
of the recently commissioned or acquired facilities, which were partly offset by lower wind regimes in Quebec and by lower
water flows in Ontario.
The overall performance of the Corporation's facilities for the period ended December 31, 2016, demonstrates the benefits of
geographic diversification and the complementarity of hydroelectric, wind and solar power generation.
Innergex Renewable Energy Inc. – 2016 Financial Review – 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Additional Information
Power Purchase Agreements
The 47 Operating Facilities sell the generated power under long-term PPAs to rated public utilities or other creditworthy
counterparties. For Operating Facilities in Quebec, Ontario and British Columbia, as well as in France, PPAs include a base
price and, in some cases, a price adjustment depending on the month, day and hour of delivery, except for the Miller Creek
hydroelectric facility, for which the price is based on a formula using the Platts Mid-C pricing indices (this facility accounted for
1% of revenues in 2016). For the Horseshoe Bend hydroelectric facility located in Idaho, USA, 85% of the price is fixed and
15% is adjusted annually as determined by the Idaho Public Utility Commission.
Inflation Protection
Most of the Corporation's PPAs for Operating Facilities include a clause that adjusts for the effects of inflation:
• all PPAs for Quebec hydroelectric facilities except Magpie, the second PPA (22 MW) for Sainte-Marguerite and the PPAs
•
•
•
up for renewal provide for an annual CPI-based power rate increase of between 3% and 6%;
the PPA for the Magpie hydroelectric facility provides for an annual power rate increase of 1%;
the second PPA (22 MW) for the Sainte-Marguerite hydroelectric facility provides for an annual power rate increase of
2%;
the PPAs for the Glen Miller and Umbata Falls hydroelectric facilities provide for an annual power rate adjustment based
on 15% of the CPI;
• all PPAs for British Columbia hydroelectric facilities except Kwoiek Creek, Brown Lake and Miller Creek provide for an
annual power rate adjustment based on 50% of the CPI; for the six facilities owned by Harrison Hydro Limited Partnership,
this inflation protection is partly offset by the inflation component of the real-return bonds;
the PPA for the Kwoiek Creek hydroelectric facility in British Columbia provides for an annual power rate adjustment
based on 30% of the CPI;
•
• all PPAs for Quebec wind farms provide for an annual power rate adjustment based on approximately 20% of the CPI;
• all PPAs for the French wind farms provide for an annual power rate adjustment based on the Revised Hourly Labour
Cost Index for all employees in the mechanical and electric industries and on the French Industry Production Price Index
for the French Market.
Power Purchase Agreements Up for Renewal
The PPA for the 8.0 MW St-Paulin hydroelectric facility reached the end of its initial 20-year term in November 2014. The
Corporation had sent Hydro-Québec a notice of automatic renewal of the PPA for an additional 20-year term. Following initial
discussions, the Corporation and Hydro-Québec could not reach agreement on the renewal terms and conditions and the
Corporation subsequently filed a notice of arbitration. The Corporation has agreed with Hydro-Québec to suspend its arbitration
proceeding until a decision is made in another arbitration proceeding already under way between Hydro-Québec and other
independent power producers. In the meantime, Hydro-Québec has agreed to maintain the terms and conditions of the St-
Paulin PPA until 30 days following the decision in this other arbitration proceeding.
The PPA for the 5.5 MW Windsor hydroelectric facility reached the end of its initial 20-year term in January 2016 and the
Corporation sent Hydro-Québec a notice of automatic renewal of the PPA for an additional 20-year term. Following initial
discussions, the Corporation and Hydro-Québec could not reach agreement on the renewal terms and conditions and the
Corporation subsequently filed a notice of arbitration which follows its course.
The PPA for the Brown Lake hydroelectric facility located in British Columbia reached the end of its initial 20-year term in
December 2016 and the Corporation signed a temporary extension agreement while it continues negotiations with BC Hydro
as part of the normal course of a PPA renewal.
Innergex Renewable Energy Inc. – 2016 Financial Review – 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Financial Results
Revenues
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA
Finance costs
Other net expenses
Depreciation and amortization
Impairment of project development costs
Share of earnings of joint ventures (note 1)
Unrealized net gain on financial instruments
Income tax expense (recovery of)
Net earnings (loss)
Net earnings (loss) attributable to:
Owners of the parent
Non-controlling interests
Basic net earnings (loss) per share ($)
Year ended December 31
2015
2016
292,785 100.0%
51,469 17.6%
246,869 100.0%
40,938 16.6%
5.1%
15,045
10,288
3.5%
215,983 73.8%
5.7%
14,188
8,005
3.2%
183,738 74.4%
95,254
265
90,303
—
(2,526)
(4,292)
4,936
32,043
35,963
(3,920)
32,043
0.28
83,130
116,764
75,478
51,719
(1,562)
(81,368)
(12,040)
(48,383)
(30,301)
(18,082)
(48,383)
(0.37)
1. The Umbata Falls hydroelectric facility and Viger Denonville wind farm are treated as joint ventures and the Corporation's interests in these
facilities are required to be accounted for using the equity method. For more information on the Corporation's joint ventures, please refer to
the Investments in Joint Ventures section.
Revenues
For the year ended December 31, 2016, the Corporation recorded revenues of $292.8 million, compared with $246.9 million
for year ended December 31, 2015. This 19% increase is attributable mainly to better results in all hydroelectricity markets
except Ontario and to the contribution of the recently commissioned or acquired facilities, which were partly offset by lower
revenues related to wind regime in Quebec wind farms.
Expenses
Operating expenses consist primarily of the operators' salaries, insurance premiums, expenditures related to operation and
maintenance, property taxes and royalties. For the year ended December 31, 2016, the Corporation recorded operating
expenses of $51.5 million ($40.9 million in 2015). This increase of 26% for the year is due mainly to the higher production levels
and repairs and maintenance in British Columbia as well as to the addition of the Tretheway Creek hydro facility, the Walden
hydroelectric facility, the Big Silver Creek hydro facility and the French Entities.
General and administrative expenses consist primarily of salaries, professional fees and office expenses. For the year ended
December 31, 2016, general and administrative expenses totalled $15.0 million ($14.2 million in 2015). The 6% increase for
the year stems mainly from the greater number of facilities in operation.
Prospective project expenses include the costs incurred for the development of Prospective Projects. They result from the
number of Prospective Projects that the Corporation chooses to advance and the resources required to do so. For the year
ended December 31, 2016, prospective project expenses totalled $10.3 million ($8.0 million in 2015). This increase of 29% for
the year is related mainly to pursuing opportunities in new international markets, to current and future requests for proposals
and expressions of interest in the Canadian provinces and to the advancement of a number of prospective projects.
Innergex Renewable Energy Inc. – 2016 Financial Review – 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Adjusted EBITDA
Adjusted EBITDA, which is defined as revenues less operating expenses, general and administrative expenses and prospective
project expenses, is a key performance indicator when evaluating the Corporation's financial results.
For the year ended December 31, 2016, the Corporation recorded Adjusted EBITDA of $216.0 million, compared with
$183.7 million for the same period last year. This increase of 18% for the year is due mainly to the increase in production and
revenues, partly offset by higher operating expenses, general and administrative expenses and prospective project expenses.
The adjusted EBITDA Margin decreased from 74.4% to 73.8% for the year due mainly to lower production by the French Entities
and to higher operating and prospective project expenses.
Finance Costs
Finance costs include interest on long-term debt and convertible debentures, inflation compensation interest, amortization of
financing fees, accretion of long-term debt and convertible debentures, accretion expenses on other liabilities and other finance
costs. For the year ended December 31, 2016, finance costs totalled $95.3 million ($83.1 million in 2015). The increase is due
mainly to expenses related to the recently commissioned or acquired facilities (the Tretheway Creek and Big Silver Creek
hydroelectric projects commissioned respectively in November 2015 and July 2016, the Mesgi’g Ugju’s’n wind project
commissioned in December 2016 and the acquisitions of the French Entities) and to higher inflation compensation interest on
the real-return bonds attributable to higher inflation during the period.
The effective all-in interest rate on the Corporation's debt and convertible debentures was 4.79% as at December 31, 2016
(5.12% as at December 31, 2015).
Other Net Expenses
Other net expenses include transaction costs, realized loss on derivative financial instruments, realized (gain) loss on foreign
exchange, (gain) loss on contingent considerations, other net revenues and recovery of loan impairment. The Corporation
recorded, for the year ended December 31, 2016, other net expenses of $0.3 million (net expense of $116.8 million in 2015).
The significant decrease in other net expenses for the year stems mainly from the Corporation's having no loss on derivatives
financial instruments in 2016, compared with a realized loss of $119.6 million for the same period last year upon settlement of
the Big Silver Creek, Boulder Creek, Upper Lillooet and Mesgi'g Ugju's'n bond forward contracts at the closing of the projects'
financing.
Depreciation and Amortization
For the year ended December 31, 2016, depreciation and amortization expenses totalled $90.3 million ($75.5 million in 2015).
This increase is attributable mainly to the Tretheway Creek hydroelectric facility commissioned in November 2015, the Walden
hydroelectric facility acquired in February 2016, the French Entities acquired in April and December 2016, the Big Silver Creek
hydroelectric facility commissioned in the third quarter and the Mesgi’g Ugju’s’n wind project commissioned in December 2016.
Share of Loss (Earnings) of Joint Ventures
For the year ended December 31, 2016, the Corporation recorded a share of net earnings of joint ventures of $2.5 million (a
share of net earnings of $1.6 million in 2015). Please refer to the Investments in Joint Ventures section for more information.
Unrealized Net Gain on Financial Instruments
Derivatives are used by the Corporation to manage its exposure to the risk of rising interest rates on its existing and upcoming
debt financing and to reduce the Corporation's foreign exchange risk, thereby protecting the economic value of its projects.
Since October 2014, the Corporation has, whenever possible, used hedge accounting for new Derivatives and, since
April 1, 2015, it has used hedge accounting for its existing Derivatives used to fix the interest rate on the project-level debts
(with the exception of Umbata Falls) and on most of its revolving term credit facility in order to reduce the fluctuations in net
earnings or losses resulting from unrealized gains or losses on these Derivatives during a given period. Under hedge accounting,
most of the unrealized gains or losses on Derivatives that arise from a decrease or increase in the benchmark interest rate
are recorded in other comprehensive income, while only the portion of the unrealized gain or loss related to the "ineffectiveness"
and the settlement of the Derivatives will be recorded in net earnings (loss).
For the year ended December 31, 2016, the Corporation recognized a $4.3 million unrealized net gain on financial instruments,
due mainly to a gain on interest rate swaps, which was partly offset by an unrealized net loss on the foreign exchange rate
swap due mainly to an unfavorable change in CAD-EUR foreign exchange rate.
Innergex Renewable Energy Inc. – 2016 Financial Review – 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
For the year ended December 31, 2015, the Corporation recognized an unrealized net gain on Derivatives of $81.4 million,
due mainly to the reversal of the unrealized loss accrued upon settlement of the bond forward contracts concurrently with the
closing of the Boulder Creek and Upper Lillooet River project financing in March, the Big Silver Creek project financing in June
and the Mesgi'g Ugju's'n project financing in September.
For the period ended December 31, 2016, the Corporation had no Derivatives to be settled upon the closing of project financing,
as all the Development Project financings were put in place in 2015.
Income Tax Expense (Recovery)
For the year ended December 31, 2016, the Corporation recorded a current income tax expense of $3.0 million ($3.1 million
in 2015) and a deferred income tax expense of $2.0 million (deferred income tax recovery of $15.2 million in 2015). The deferred
income tax expense is due mostly to the recognition of accounting earnings before income taxes resulting from the Corporation's
regular business activities. There was also a decrease in the future income tax rates for France and Quebec, which resulted
in a recovery of $4.2 million. The deferred income tax recovery in 2015 was due partly to a $38.2 million net loss on derivative
financial instruments and by the recognition of a $51.7 million impairment of project development costs.
Net Earnings (Loss)
For the year ended December 31, 2016, the Corporation recorded net earnings of $32.0 million (basic and diluted net earnings
of $0.28 per share), compared with a net loss of $48.4 million (basic and diluted net loss of $0.37 per share) in 2015. The
$80.4 million increase in net earnings can be explained mainly by the $32.2 million increase in Adjusted EBITDA and by a
$38.2 million net loss on derivative financial instruments in 2015, compared with a $4.3 million net gain in 2016, and by the
recognition, in 2015, of a $51.7 million impairment of project development costs, partly offset by higher finance costs, higher
amortization and depreciation costs and an income tax expense compared with a recovery in 2015.
As specifically regards the impact of the Derivatives, the Corporation recognized a $119.6 million realized loss on derivatives
in the same period last year, which was partly offset by a $81.4 million unrealized net gain on derivative financial instruments,
compared with a $4.3 million unrealized net gain on Derivatives this year.
Innergex Renewable Energy Inc. – 2016 Financial Review – 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Main items explaining the change in net earnings for the year December 31, 2016, compared with the net loss for
the corresponding period in 2015
Main items – Positive impact
Change
Adjusted EBITDA
32,245
Other net expenses
116,499
Explanation
Due mainly to the increase in production and revenues attributable to
better results in all hydroelectricity markets except Ontario and to the
contribution of the recently commissioned or acquired facilities, which
were partly offset by lower revenues related to wind regime in Quebec.
The increase in revenues was partly offset by higher operating expenses,
general and administrative expenses and prospective project expenses.
Due mainly to the Corporation's having no realized loss on derivative
financial instruments in 2016, compared with a realized loss of
$119.6 million for the same period last year on settlement of the Big Silver
Creek, Boulder Creek, Upper Lillooet and Mesgi'g Ugju's'n bond forward
contracts at the closing of the projects' financing.
Impairment of project development
costs
51,719
Main items – Negative impact
Change
Due to an impairment in 2015 (none in 2016) following the low
probability of being able to develop the British Columbia hydroelectric
prospective projects acquired in 2011.
Explanation
Finance costs
12,124
Due mainly to expenses related to the recently commissioned or acquired
facilities and to higher inflation compensation interest on the real-return
bonds attributable to higher inflation during the period.
Depreciation and amortization
14,825
Unrealized net gain on financial
instruments
77,076
Deferred income tax expense
17,128
Due mainly to the Tretheway Creek hydroelectric facility commissioned
in November 2015, the Walden hydroelectric facility acquired in February
2016, the French Entities acquisitions made in April and December 2016,
the Big Silver Creek hydroelectric facility commissioned in the third
quarter and the Mesgi’g Ugju’s’n wind project commissioned in December
2016.
.
Due mainly to an unrealized net gain on financial instruments in 2015,
following the settlement of the bond forward contracts (no bond forward
contracts were settled in 2016).
Due mainly to the recognition, in 2016, of a deferred income tax expense
on accounting earnings before income taxes resulting from the
Corporation's regular business activities. There was also a decrease in
the future income tax rates for France and Quebec that resulted in a $4.2
million recovery. In 2015, a deferred income tax recovery was recognized
on an accounting loss before income taxes resulting mainly from the net
loss on Derivatives and the Corporation's recognition of a $51.7 million
impairment related to its British Columbia Prospective Projects.
Non-controlling Interests
Non-controlling interests are related to the Harrison Hydro Limited Partnership, the Creek Power Inc. subsidiaries, the Mesgi'g
Ugju's'n (MU) Wind Farm, L.P., the Innergex Europe (2015) Limited Partnership, the Kwoiek Creek Resources Limited
Partnership, the Magpie Limited Partnership, the Innergex Sainte-Marguerite S.E.C. entity, the Cayoose Creek Power Limited
Partnership and their respective general partners. For the year ended December 31, 2016, the Corporation allocated losses
of $3.9 million to non-controlling interests (losses of $18.1 million in 2015). Please refer to the Non-Wholly Owned Subsidiaries
section for more information.
Innergex Renewable Energy Inc. – 2016 Financial Review – 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Number of Common Shares Outstanding
Weighted average number of common shares outstanding (000s)
Weighted average number of common shares
Effect of dilutive elements on common shares1
Diluted weighted average number of common shares
Year ended December 31
2016
106,883
879
2015
102,304
283
107,762
102,587
1. During the year ended December 31, 2016, 3,331,684 of the 3,457,432 stock options (2,579,684 of the 3,425,684 for the year ended
December 31, 2015) were dilutive. During the year ended December 31, 2016, none of the 6,666,667 shares that can be issued on conversion
of convertible debentures were dilutive (none of the 6,666,667 shares were dilutive for the same period in 2015).
The Corporation’s Equity Securities
As at
February 23, 2017 December 31, 2016 December 31, 2015
Number of common shares
Number of 4.25% convertible debentures
Number of Series A Preferred Shares
Number of Series C Preferred Shares
Number of stock options outstanding
108,375,159
100,000
3,400,000
2,000,000
3,457,432
108,181,592
100,000
3,400,000
2,000,000
3,457,432
103,938,636
100,000
3,400,000
2,000,000
3,425,684
As at the date of this MD&A and since December 31, 2016, the increase in the number of common shares of the Corporation
is attributable to the Corporation's Dividend Reinvestment Plan ("DRIP").
As at December 31, 2016, the increase in the number of common shares since December 31, 2015, is attributable mainly to
the issuance of 3,906,250 shares to three Desjardins Group-affiliated entities under a private placement of common shares of
Innergex, to the issuance of 94,000 shares following the exercise of stock options and to 242,706 shares related to the DRIP.
Also, the increase in the number of stock options outstanding since December 31, 2015, is attributable mainly to the issuance
of 125,748 stock options to Innergex employees, partly offset by the exercise of 94,000 stock options.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2016, the Corporation generated cash flows from operating activities of
$76.8 million, compared with the generation of $4.6 million for the same period last year. This year, the Corporation
generated funds from financing activities of $195.2 million and used funds for investing activities of $255.0 million,
mainly to pay for the construction of its Upper Lillooet River and Boulder Creek development projects and the Big
Silver Creek and Mesgi’g Ugju’s’n facilities as well as the acquisition of the French Entities, partly offset by a
decrease of restricted cash and short-term investments. As at December 31, 2016, the Corporation had cash and
cash equivalents amounting to $56.2 million, compared with $40.7 million as at December 31, 2015.
Cash Flows from Operating Activities
For the year ended December 31, 2016, cash flows generated by operating activities totalled $76.8 million ($4.6 million
generation in 2015). The change of $72.2 million is attributable mainly to the $119.6 million realized net loss on derivative
financial instruments in 2015 and the higher Adjusted EBITDA generated in 2016, partly offset by changes in non-cash operating
working capital items including receivables of $49.3 million for property, plant and equipment receivable from Hydro-Québec
related to the substation of the Mesgi'g Ugju's'n wind farm.
Innergex Renewable Energy Inc. – 2016 Financial Review – 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Cash Flows from Financing Activities
For the year ended December 31, 2016, cash flows generated by financing activities totalled $195.2 million (compared with
$535.7 million generated in 2015). The cash flows from the financing activities are attributable mainly to a $212.4 million net
increase in long-term debt and $50.0 million from a private placement of common shares of Innergex with three Desjardins
Group-affiliated entities, partly offset by the payment of $70.4 million in dividends.
The $212.4 million net increase in long-term debt is attributable mainly to the additional fundings from the projects-level debts
and revolving term credit facility for the ongoing construction of the Upper Lillooet River and the Boulder Creek hydroelectric
development projects, the Big Silver Creek hydroelectric facility commissioned in July 2016 and the Mesgi’g Ugju’s’n wind
project commissioned in December 2016 as well as for the acquisition of the French Entities.
Use of Financing Proceeds
Proceeds from issuance of long-term debt (including revolving credit facility)
Repayment of long-term debt (including revolving credit facility)
Payment of deferred financing costs
Sub-total: net increase in long-term debt
Proceeds from issuance of common shares
Net proceeds from issuance of convertible debentures
Payment of redemption of convertible debentures
Payment of buy-back of common shares
Proceeds from exercise of share options
Investments from non-controlling interests
Generation of financing proceeds
Business acquisitions
Realized loss on derivative financial instruments
Decrease (increase) of restricted cash and short-term investments
Net funds withdrawn from (invested into) the reserve accounts
Additions to property, plant and equipment
Additions to project development costs
Additions to other long-term assets
Net use of financing proceeds
Increase (reduction) in working capital
Year ended December 31
2015
2016
872,247
(657,207)
(2,680)
212,360
50,000
—
—
—
1,034
9,565
272,959
(125,493)
—
222,978
1,610
(351,258)
—
(14,740)
(266,903)
6,056
1,241,951
(665,085)
(13,842)
563,024
—
95,527
(41,591)
(12,349)
394
—
605,005
—
(119,557)
(226,913)
(1,336)
(296,153)
(29,107)
(1,324)
(674,390)
(69,385)
During the year ended December 31, 2016, the Corporation borrowed a net amount of $212.4 million, mainly to pay for the
construction of the Development Projects, to acquire Walden and the French Entities and to make a deposit on the French
entity to be acquired upon commissioning. It also used $223.0 million in restricted cash to continue construction of the
Development Projects.
During the year ended December 31, 2015, the Corporation borrowed a net amount of $563.0 million mainly to pay for
construction of the Development Projects and the $119.6 million realized loss on derivative financial instruments resulting from
the settlement of the Boulder Creek, Upper Lillooet River, Big Silver Creek and Mesgi'g Ugju's'n bond forward contracts. It also
increased restricted cash by $226.9 million, as the use of cash to pay for construction costs related to the Development Projects
was more than offset by the addition of proceeds received from the projects' debts.
Innergex Renewable Energy Inc. – 2016 Financial Review – 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Cash Flows from Investing Activities
For the year ended December 31, 2016, cash flows used by investing activities amounted to $255.0 million ($554.8 million in
2015). During this period, the main investing activities that impacted cash flows were as follows: additions to property, plant
and equipment accounted for a $351.3 million outflow ($296.2 million outflow in 2015); fluctuations in restricted cash and short-
term investments accounted for a $223.0 million inflow ($226.9 million outflow in 2015); additions to other long-term assets
accounted for a $14.7 million outflow ($1.3 million outflow in 2015) from a deposit made for the acquisition of a wind farm in
France; business acquisitions accounted for an $125.5 million outflow (none in 2015) for the acquisition of Walden and the
French Entities; and additions to project development costs of a $29.1 million outflow in 2015 (none in 2016).
Cash and Cash Equivalents
As at December 31, 2016, the Corporation had cash and cash equivalents amounting to $56.2 million ($40.7 million as at
December 31, 2015). For the year ended December 31, 2016, cash and cash equivalents increased by $15.6 million (decreased
by $23.2 million in 2015) as a net result of its operating, financing and investing activities, including the acquisitions of the
French Entities.
DIVIDENDS
The following dividends were declared by the Corporation:
Dividends declared on common shares1
Dividends declared on common shares ($/share)
Dividends declared on Series A Preferred Shares
Dividends declared on Series A Preferred Shares ($/share)
Dividends declared on Series C Preferred Shares
Dividends declared on Series C Preferred Shares ($/share)
Year ended December 31
2016
68,524
0.64
3,067
0.90
2,875
1.4375
2015
63,646
0.62
4,250
1.25
2,875
1.4375
1. On February 24, 2016, the Board of Directors increased the annual dividend from $0.62 to $0.64 per common share, payable quarterly. The
increase in dividends declared on common shares is also attributable to the issuance of 3,906,250 shares to three Desjardins Group-affiliated
entities under a private placement of common shares of Innergex, to the issuance of 94,000 shares following the exercise of stock options
as well as to the issuance of 242,706 shares under the DRIP.
The following dividends will be paid by the Corporation on April 17, 2017:
Date of
announcement
02/23/2017
Record date
3/31/2017
Payment date
4/17/2017
Dividend per
common share ($)
0.1650
Dividend per Series A
Preferred Share ($)
0.2255
Dividend per Series C
Preferred Share ($)
0.359375
On February 23, 2017, the Board of Directors increased the annual dividend from $0.64 to $0.66 per common share, payable
quarterly.
Innergex Renewable Energy Inc. – 2016 Financial Review – 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
FINANCIAL POSITION
As at December 31, 2016, the Corporation had $3,604 million in total assets, $3,119 million in total liabilities, including
$2,607 million in long-term debt, and $485.2 million in shareholders' equity. The Corporation also had a working capital ratio
of 1.14:1.00 (2.15:1.00 as at December 31, 2015). In addition to cash and cash equivalents amounting to $56.2 million, the
Corporation had restricted cash and short-term investments of $89.7 million and reserve accounts of $49.5 million. The
explanations below highlight the most significant changes in the statement of financial position items during the year ended
December 31, 2016.
Assets
Highlights of significant changes in total assets during the year ended December 31, 2016
•
•
•
A $207.4 million net decrease in cash and cash equivalents and restricted cash and short-term investments, due
mainly to the amounts used to pay for the Upper Lillooet River, Boulder Creek, Tretheway Creek, Big Silver Creek
and Mesgi’g Ugju’s’n construction costs, partly offset by cash and cash equivalents from the acquisition of the French
Entities;
A $525.8 million increase in property, plant and equipment, due mainly to the construction of the Upper Lillooet River,
Boulder Creek, Big Silver Creek and Mesgi’g Ugju’s’n facilities, the acquisition of the Walden facility on February 25,
2016, the purchase of the Seven French Entities on April 15, 2016, and the acquisition of the Two French Entities in
Nouvelle-Aquitaine on December 22, 2016, partly offset by the depreciation for the period; and
A $72.6 million increase in intangible assets, due to the acquisition of Walden and the French Entities, partly offset
by the amortization for the period.
Working Capital Items
Working capital was positive at $31.9 million, as at December 31, 2016, with a working capital ratio of 1.14:1.00. As at
December 31, 2015, working capital was positive at $212.2 million, with a working capital ratio of 2.15:1.00. The decrease in
the working capital ratio is due mainly to a $223.0 million decrease in restricted cash and short-term investments.
The Corporation considers its current level of working capital to be sufficient to meet its needs. The Corporation can also use
its $425.0 million revolving term credit facility if necessary. As at December 31, 2016, the Corporation had drawn $170.5 million
and US$13.9 million as cash advances, while $50.5 million had been used for issuing letters of credit, leaving $190.1 million
available.
Cash and cash equivalents amounted to $56.2 million as at December 31, 2016, compared with $40.7 million as at December 31,
2015. The increase stems mainly from the cash acquired with the French Entities in April and December 2016.
Restricted cash and short-term investments amounted to $89.7 million as at December 31, 2016, compared with $312.7 million
as at December 31, 2015. The decrease stems mainly from the amounts used to pay for construction of the Upper Lillooet
River, Boulder Creek, Tretheway Creek, Big Silver Creek and Mesgi’g Ugju’s’n facilities.
Accounts receivable increased from $37.1 million to $98.8 million between December 31, 2015, and December 31, 2016, due
mainly to a receivable of $49.3 million from Hydro-Québec for the construction of the substation and accounts receivable related
to commodity taxes acquired with the the Two French Entities in Nouvelle-Aquitaine.
Accounts payable and other payables from December 31, 2015 to December 31, 2016, decreased from $95.5 million to
$85.9 million, due mainly to the end of construction at the Tretheway Creek facility commissioned in November 2015 and the
Big Silver Creek facility commissioned in July 2016 and to payments made on the Upper Lillooet River and Boulder Creek
development projects, partly offset by higher accounts payable from the Mesgi’g Ugju’s’n facility commissioned in December
2016 and the acquisitions of the French Entities.
Current portion of long-term debt amounted to $99.4 million as at December 31, 2016, compared with $55.0 million as at
December 31, 2015 . The increase stems mainly from the portion of the Mesgi’g Ugju’s’n facility's debt payable in the short
term (substation loan of $40.6 million), from the addition of the short-term portion of the debt from the French Entities and from
the Stardale facility's long-term debt increase related to borrowing, partly offset by the reclassification of the long-term debt of
the Fitzsimmons Creek facility following its successful refinancing.
Innergex Renewable Energy Inc. – 2016 Financial Review – 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Reserve Accounts
Reserve accounts consist of a hydrology/wind reserve, established at the start of commercial operation at a facility to compensate
for the variability of cash flows related to fluctuations in hydrology or wind regimes and to other unpredictable events, and a
major maintenance reserve, established in order to prefund any major plant repairs that may be required to maintain the
Corporation's generating capacity. The Corporation had $49.5 million in long-term reserve accounts as at December 31, 2016,
compared with $41.5 million as at December 31, 2015. The increase is mainly due to the reserves included with the acquisitions
of the French Entities and, to a lesser extent, to mandatory investments in reserve accounts during the year, partly offset by
some drawings on reserve accounts.
The availability of funds in the hydrology/wind and major maintenance reserve accounts are in large part restricted by credit
agreements.
Property, Plant and Equipment
Property, plant and equipment are comprised mainly of hydroelectric facilities, wind farms and a solar farm that are either in
operation or under construction. As at December 31, 2016, the Corporation had $2,700 million in property, plant and equipment ,
compared with $2,174 million as at December 31, 2015. The increase stems mainly from the construction of the Upper Lillooet
River and the Boulder Creek development projects as well as the Big Silver Creek and the Mesgi’g Ugju’s’n facilities
commissioned in 2016, the acquisition of the Walden facility on February 25, 2016, the purchase of the Seven French Entities
on April 15, 2016, and the acquisition of the Two French Entities in Nouvelle-Aquitaine on December 22, 2016, partly offset by
the depreciation.
Intangible assets
Intangible assets consist of various power purchase agreements, permits and licenses. The Corporation had $544.9 million in
intangible assets as at December 31, 2016, compared with $472.3 million as at December 31, 2015. The increase is due mainly
to the acquisition of the Walden facility and the purchase of the French Entities, partly offset by the amortization.
Liabilities and Shareholders' Equity
Derivative Financial Instruments and Risk Management
The Corporation uses derivative financial instruments ("Derivatives") to manage its exposure to the risk of increasing interest
rates on its debt financing and its exposure to exchange rate fluctuations on the future repatriation of cash flows from its French
operations. The Corporation does not own or issue any Derivatives for speculation purposes.
Interest rate swap contracts allow the Corporation to eliminate the risk of interest rate increases on actual floating-rate debts.
These totalled $626.7 million as at December 31, 2016.
Innergex Renewable Energy Inc. – 2016 Financial Review – 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Interest Rate Swap Contracts
Maturity
Contracts used to hedge the interest rate risk
Interest rate swap, 4.27%
Interest rate swap, 0.96%
Interest rate swaps, 4.27% to 4.41%
Interest rate swaps, 2.33%
Interest rate swaps, 2.30%
Interest rate swap, 1.91%, amortizing
Interest rate swaps, 2.94% to 4.83%, amortizing
Interest rate swaps, from 3.35% to 3.50%,
amortizing
Interest rate swap, 3.74%, amortizing
Interest rate swap, 4.22%, amortizing
Interest rate swap, 2.64%, amortizing, translated
at CAD 1.4169/Euro
Interest rate swap, 4.25%, amortizing
Interest rate swap, 4.61%, amortizing
Interest rate swap, 2.85%, amortizing
2016
2017
2018
2024
2024
2026
2026
2027
2030
2030
2030
2031
2035
2041
Early
termination
option
Notional Amounts
December 31,
2016
December 31,
2015
None
None
None
2019
2019
None
None
None
None
2021
None
2018
2025
2021
—
49,250
82,600
20,000
20,000
103,000
42,781
32,524
84,532
24,534
14,736
38,771
95,292
18,704
3,000
49,250
82,600
20,000
20,000
103,000
46,342
35,080
89,113
26,063
—
41,146
97,957
19,018
626,724
632,569
Foreign Exchange Contracts
Maturity
Early
termination
option
Notional Amounts
December 31,
2016
December 31,
2015
Contracts used to hedge the foreign exchange risk
Foreign exchange forwards amortizing until 2041,
allowing translation at a fixed rate of CAD 1.7575/
Euro
Foreign exchange forwards amortizing until 2042,
allowing translation at a fixed rate of CAD 1.7588/
Euro
2018
None
164,375
2018
None
52,156
216,531
—
—
—
Overall, Derivatives had a net negative value of $60.1 million at December 31, 2016 (net negative value of $67.7 million at
December 31, 2015). The decrease in negative value is due mainly to a raise in benchmark interest rates and to the amortization
of the interest rate swaps held by the Corporation. These figures exclude the impact of Derivatives used to hedge loans of the
Corporation's joint ventures. For information on the impact of derivative financial instruments used in the Corporation's joint
ventures, please refer to the Investments in Joint Ventures section.
Innergex Renewable Energy Inc. – 2016 Financial Review – 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Accrual for Acquisition of Long-Term Assets
Accrual for acquisition of long-term assets consists of long-term debt commitments that have been secured and will be drawn
to finance the Corporation's projects. As at December 31, 2016, accrual for acquisition of long-term assets was $37.4 million
(nil as at December 31, 2015). The $37.4 million increase results mainly from payments to be made in relation to the Mesgi’g
Ugju’s’n facility and the Two French Entities in Nouvelle-Aquitaine for which drawings will be made from the long-term financing
in place.
Long-Term Debt
As at December 31, 2016, long-term debt totalled $2,607 million ($2,215 million as at December 31, 2015). The $391.2 million
increase results mainly from the addition of the French Entities project-level debts, the issuance of a $38.2 million debenture
carrying an interest rate of 8.0% to Desjardins for its investment in the French Entities, additional drawings on Innergex's credit
facility, Stardale's long-term debt increase on its borrowing and additional drawings on Upper Lillooet River and Boulder Creek,
and Mesgi’g Ugju’s’n's financings, partly offset by the scheduled repayment of project-level debts.
As at December 31, 2016, 99% of the Corporation's outstanding debt, including convertible debentures, was fixed or hedged
against interest rate movements (99% as at December 31, 2015).
Since the beginning of the 2016 fiscal year, the Corporation and its subsidiaries have met all the financial and non-financial
conditions related to their credit agreements, trust indentures and PPAs. Were they not met, certain financial and non-financial
covenants included in the credit agreements or trust indentures entered into by various subsidiaries of the Corporation could
limit the capacity of these subsidiaries to transfer funds to the Corporation. These restrictions could have a negative impact on
the Corporation's ability to meet its obligations.
Innergex Renewable Energy Inc. – 2016 Financial Review – 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
references to US$ and € are in thousands
Effective all-in
interest rate
after
accounting for
the interest
rates swaps
Maturity
December 31,
2016
December 31,
2015
Revolving credit facility (with recourse to the Corporation) including
LIBOR advances, US$13,900
a)
Innergex
4.48%
2020
189,163
149,138
Loans (Non-recourse to the Corporation)
b) Hydro-Windsor
c) Magpie
d) Cholletz (€ 750)
e) Mesgi'g Ugju's'n
f) Montjean (€ 1,126)
g) Theil Rabier (€ 1,234)
h) Montagne-Sèche
i) Rutherford Creek
j) Valottes (€ 12,285)
k) Ashlu Creek
l) Sainte-Marguerite
m) Antoigné (€ 6,429)
n) Longueval (€ 7,522)
o) Porcien (€ 7,744)
p) Bois d'Anchat (€ 10,502)
c) Magpie
q) L’Anse-à-Valleau
r) Fitzsimmons Creek
f) Montjean (€ 15,792)
g) Theil Rabier (€ 16,083)
s) Carleton
t) Beaumont (€ 24,418)
u) Stardale
d) Cholletz (€ 10,400)
v)
Innergex Europe
8.25%
2.33%-4.59%
1.90%
2.41%
1.50%
1.50%
5.97%
6.88%
2016
2017
2017
2017
2017
2017
2021
2024
1.80%-2.69% 2024-2026
6.16%
3.30%
2.67%
1.72%-1.86%
1.67%-1.86%
2025
2025
2025
2025
2025
2.25%-3.20% 2025-2030
4.37%-4.59% 2025-2031
6.03%
3.58%
2026
2026
1.46%-1.85% 2026-2031
1.46%-1.84% 2026-2031
5.51%
2027
2.16%-2.63% 2027-2031
5.36%
2.64%
8.00%
2030
2030
2046
2049
—
601
1,063
40,588
1,596
1,749
24,534
35,845
17,407
91,989
29,072
9,109
10,658
10,973
14,880
54,703
33,327
20,651
22,375
22,788
42,346
34,598
1,015
1,285
—
—
—
—
26,063
39,378
—
95,062
32,598
—
—
—
—
57,263
36,091
21,051
—
—
45,758
—
102,946
96,862
14,736
38,189
456,060
172,162
71,972
92,916
42,401
244,343
197,223
491,643
13
—
—
458,754
172,162
71,972
92,916
42,401
159,459
197,223
445,733
134
2,445,456
2,093,180
w) Harrison Operating Facilities
3.95%-6.61%
x) Kwoiek Creek
y) Northwest Stave River
z) Tretheway Creek
l) Sainte-Marguerite
e) Mesgi'g Ugju's'n
aa) Big Silver Creek
bb) Boulder Creek and Upper Lillooet
Other loans with various interest rates
5.08%-10.07% 2052-2054
5.30%
4.99%
8.00%
2053
2055
2064
3.54%-4.28%
4.57%-4.76%
4.22%-4.46%
2017-2019
Innergex Renewable Energy Inc. – 2016 Financial Review – 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
references to US$ and € are in thousands
Effective all-in
interest rate
after
accounting for
the interest
rates swaps
Maturity
December 31,
2016
December 31,
2015
Total long-term debt
Deferred financing costs
Current portion of long-term debt (net of nil deferred financing costs in
2016, $29 in 2015)
Long-term portion
a. Revolving credit facility
2,634,619
2,242,318
(27,986)
(26,885)
2,606,633
2,215,433
(99,397)
(54,995)
2,507,236
2,160,438
The Corporation has a maximum borrowing capacity of $425.0 million on its revolving credit facility. On January 18,
2016, the Corporation executed an amending agreement to extend its revolving credit facility from 2019 to 2020.
As at December 31, 2016, the Bankers' Acceptances (“BA”) rate advances and prime rate advances totaling $170.5 million
along with a LIBOR rate advance of $18.7 million (US$13.9 million) were due under this facility. An amount of $50.5 million
has been used to secure letters of credit. Thus, the unused and available position of the facility was $185.3 million. The
carrying value of assets of the Corporation and subsidiaries given as securities under this facility totals approximately
$466.0 million.
The revolving credit facility was renegociated on February 21, 2017, see subsequent events section.
b. Hydro-Windsor
The loan consisted of a 20-year fixed rate term loan starting in December 1996 and amortized over a 20-year period
ended in December 2016. The loan was repayable in monthly blended payments of principal and interest totaling
$0.1 million.
c. Magpie
A fixed rate bridge loan is amortized until August 2017. The bridge loan is repayable in monthly blended payments of
principal and interest totaling $0.3 million. The principal repayments for the bridge loan are set at $0.2 million for 2017.
A debenture is amortized until December 2017. The debenture is repayable by yearly blended payments of principal
and interest totaling $0.4 million, excluding non-cash implicit interest of $0.02 million. The principal repayment for 2017
is set at $0.4 million.
A convertible debenture has no predetermined repayment schedule and matures in January 2025. The convertible
debenture entitles the municipality to a 30% interest in the facility upon conversion of the debenture on or before
January 1, 2025. Early conversion is at the discretion of the Corporation.
A term loan amortizing until 2031 is repayable in monthly blended payments of principal and interest totaling $0.4 million.
The principal repayments for the term loan are variable and are set at $1.8 million for 2017.
The bridge loan and the term loan are secured by the assets of Magpie L.P. with a carrying value of approximately
$96.3 million.
d. Cholletz
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €1 1.9 million.
• A €1.5 million loan bearing interest at 1.9%, repayable in quarterly installments and maturing in 2017. The principal
repayments are set to €0.8 million for the 2017.
• A €10.4 million loan bearing interest at 2.23% until 2026 and at variable rate plus an applicable margin afterwards,
repayable in quarterly installments and maturing in 2030. The principal repayments are set to €0.1 million for the 2017.
Innergex Renewable Energy Inc. – 2016 Financial Review – 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The debt is secured by the assets of Energie des Cholletz with a carrying value of approximately €21.0 million.
e. Mesgig'g Ugju's'n
On September 28, 2015, Mesgi’g Ugju’s’n (MU) Wind Farm L.P. closed a $311.7 million non-recourse construction and
term project financing for the Mesgi’g Ugju’s’n wind project.
The loan comprises three facilities or tranches:
• A $49.3 million floating-rate construction loan carrying a swap-fixed interest rate of 2.41%; following the start of
the wind farm’s commercial operation, it will be repaid with the proceeds of the scheduled reimbursement by
Hydro-Québec for the Mesgi’g Ugju’s’n electrical substation. As at December 31, 2016, an amount of $40.6 million
had been drawn from this tranche;
• A $103.0 million floating-rate construction loan carrying a swap-fixed interest rate of 3.54%; following the start of
the wind farm’s commercial operation, it will convert into a 9.5-year term loan and the principal will be amortized
over the term of the loan. As at December 31, 2016, an amount of $84.9 million had been drawn from this tranche;
• A $159.5 million construction loan carrying a fixed interest rate of 4.28%; following the start of the wind farm’s
commercial operation, it will convert into a 19.5-year term loan and the principal will begin to be amortized after
the maturity of the 9.5-year term loan. As at December 31, 2016, this tranche was fully used.
The lenders also agreed to make available a credit facility in an amount not to exceed $51.3 million. As at December 31,
2016, an amount of $42.8 million had been used to secure two letters of credit. This debt is secured by the assets of
Mesgi’g Ugju’s’n (MU) Wind Farm L.P. with a carrying value of approximately $353.4 million.
f. Montjean
As part of the Two French Entities Acquired in Nouvelle-Aquitaine, the Corporation assumed the related loan facilities
for a total value of €23.9 million.
• A €1.1 million loan bearing a variable interest rate at EURIBOR +1.5% and fully repayable by June 2017. It is a bridge
financing dedicated to the consumer taxes and recoverable from the government. The unused and available position
of this credit facility was €2.9 million.
• A €12.7 million loan on the credit margin bearing interest at a fixed rate of 1.25% until 2026, after which a variable
rate will apply, repayable in quarterly installments and maturing in 2031. The principal repayments are set to €1.0
million for 2017. The unused and available position of this credit facility was €2.3 million. The term loan was accounted
for at its fair market value of €1 1.7 million for an effective rate of 1.85%.
• A €4.1 million loan bearing interest at a fixed rate of 1.15%, repayable in quarterly installments and maturing in 2026.
The principal repayments are set to €0.4 million for 2017. There was no unused and available position on this credit
facility. The loan was accounted for at its fair market value of €4.1 million for an effective rate of 1.46%.
• A credit facility of €0.7 million was unused and available on December 31, 2016. It is dedicated to financing the main
part of the debt service reserve account.
The debt is secured by the assets of Montjean Energies with a carrying value of approximately €33.7 million.
g.
Theil Rabier
As part of the Two French Entities Acquired in Nouvelle-Aquitaine, the Corporation assumed the related loan facilities
for a total value of €23.9 million.
• A €1.2 million loan bearing a variable interest rate at EURIBOR +1.5% and fully repayable by June 2017. It is a bridge
financing dedicated to the consumer taxes and recoverable from the government. The unused portion of this credit
facility at year-end was €2.8 million.
• A €13.0 million loan bearing interest at a fixed rate of 1.25% until 2026, after which a variable rate will apply until
maturity, repayable in quarterly installments and maturing in 2031. The principal repayments are set to €1.0 million
for 2017. The unused portion of this credit facility at year-end was €2.0 million. The loan was accounted for at its fair
market value of €12.0 million for an effective rate of 1.84%.
• A €4.1 million loan bearing interest at a fixed rate of 1.15%, repayable in quarterly installments and maturing in 2026.
The principal repayments are set to €0.4 million for 2017. There was no unused and available position on this credit
facility. The loan was accounted for at its fair market value of €4.1 million for an effective rate of 1.46%.
• A credit facility of €0.7 million was unused and available on December 31, 2016. It is dedicated to financing the main
part of the debt service reserve account.
Innergex Renewable Energy Inc. – 2016 Financial Review – 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The debt is secured by the assets of Theil Rabier Energies with a carrying value of approximately €35.0 million.
h. Montagne-Sèche
In May 2014, the Corporation renegotiated the loan to extend the maturity to June 2021. The loan consists of a 7-year
term loan, amortized over a 16-year period starting in May 2014. The loan bears interest at the BA rate plus an applicable
margin. The principal repayments are variable and set at $1.2 million for 2017. As at December 31, 2016, the all-in
effective interest rate was 5.97% (5.97% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $0.4 million. As at
December 31, 2016, an amount of $0.3 million has been used to secure one letter of credit. The loan is secured by the
assets of Innergex Montagne-Sèche, L.P. with a carrying value of approximately $34.0 million.
i.
Rutherford Creek
The loan consists of a 20-year fixed rate term loan starting in July 2004 amortized over a 12-year period effective
July 1, 2012. This debt is repayable by monthly blended payments of principal and interest totaling $0.5 million. The
principal repayments are variable and are set at $3.8 million for 2017. The loan is secured by the assets of
Rutherford Creek Power Limited Partnership, with a carrying value of approximately $77.1 million.
j.
Valottes
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €12.0 million.
• A €4.7 million loan bearing interest at 2.69%, repayable in quarterly installments and maturing in 2024. The principal
repayments are set to €0.4 million for 2017.
• A €7.3 million loan bearing interest at 5.34%, repayable in quarterly installments and maturing in 2026. The principal
repayments are set to €0.7 million for 2017. The term loan was accounted for at its fair market value of €8.5 million
for an effective rate of 1.80%.
The debt is secured by the assets of Energie des Valottes with a carrying value of approximately €22.0 million.
k.
Ashlu Creek
The loan consists of a 15-year term loan, amortized over a 25-year period starting in September 2010. The loan bears
interest at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The principal
repayments are variable and are set at $2.8 million for 2017. As at December 31, 2016, the all-in effective interest rate
was 6.16% (6.06% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $3.0 million. As at
December 31, 2016 an amount of $1.4 million had been used to secure one letter of credit. The loan is secured by the
assets of Ashlu Creek hydroelectric facility with a carrying value of approximately $159.0 million.
l.
Sainte-Marguerite
As part of its acquisition in 2014, the Corporation assumed a $30.8 million term loan, bearing interest at a fixed rate of
7.40%, repayable in monthly blended payments of principal and interest totaling $0.4 million, increasing over the years
and maturing in 2025. The principal repayments for 2017 are set at $3.0 million. The term loan was accounted for at its
fair market value of $37.5 million for an effective rate of 3.30%. The loan is secured by the assets of Sainte-Marguerite
L.P. with a carrying value of approximately $134.9 million.
In 2014, a debenture was issued by Sainte-Marguerite L.P. to Desjardins Group Pension Plan for a total amount of
$42.4 million. This debenture carries an interest rate of 8.00%; it has no predetermined repayment schedule and matures
in 2064.
Innergex Renewable Energy Inc. – 2016 Financial Review – 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
m. Antoigné
As part of the Seven French Entities Acquired, the Corporation assumed a €7.0 million term loan, bearing interest at
2.67%, repayable in quarterly installments and maturing in 2025. The principal repayments are set to €0.7 million for
2017. The loan is secured by the assets of Energie Antoigné with a carrying value of approximately €13.9 million.
n. Longueval
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €7.9 million.
• A €6.1 million loan bearing interest at 1.86%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €0.6 million for 2017.
• A €1.8 million loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
repayments are set to €0.1 million for 2017. The term loan was accounted for at its fair market value of €2.2 million
for an effective rate of 1.72%.
The debt is secured by the assets of Eoliennes de Longueval with a carrying value of approximately €15.5 million.
o. Porcien
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €8.1 million.
• A €6.1 million loan bearing interest at 1.86%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €0.6 million for 2017.
• A €2.0 million loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
repayments are set to €0.1 million for 2017. The term loan was accounted for at its fair market value of €2.5 million
for an effective rate of 1.67%.
The debt is secured by the assets of Energie du Porcien with a carrying value of approximately €15.5 million.
p. Bois d'Anchat
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €1 1.2 million.
• A €1.0 million loan bearing interest at 3.20%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €0.04
for the 2017.
• A €10.2 million loan bearing interest at 2.25%, repayable in quarterly installments and maturing in 2030. The principal
repayments are set to €0.7 million for the 2017.
The debt is secured by the assets of Société d'Exploitation du Parc Éolien du Bois d'Anchat with a carrying value of
approximately €21.9 million.
q. L'Anse-à-Valleau
The loan consists of an 18.5-year term loan starting in December 2007 and amortized over an 18.5-year period. The
loan bears interests at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The
principal repayments are variable and are set at $2.8 million for 2017. As at December 31, 2016, the all-in effective
interest rate was 6.03% (6.03% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a credit facility of $1.2 million in order to secure letters of credit. As at
December 31, 2016, an amount of $0.4 million had been used to secure one letter of credit. The loan is secured by the
assets of Innergex AAV, L.P. with a carrying value of approximately $53.0 million.
r. Fitzsimmons Creek
In December 2016, the maturity of the term loan was extended to November 2026; the loan will be amortized over a
remaining 25-year period starting in January 2017. The loan advances bear interest at the BA rate plus an applicable
Innergex Renewable Energy Inc. – 2016 Financial Review – 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
margin. The principal repayments are variable and are set at $0.3 million for 2017. As at December 31, 2016, the all-in
effective interest rate was 3.58% (3.98% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $0.2 million. As at
December 31, 2016, an amount of $0.1 million had been used to secure one letter of credit. This debt is secured by the
assets of Fitzsimmons Creek Hydro L.P. with a carrying value of approximately $24.8 million.
s. Carleton
The loan consists of a 14-year term loan starting in June 2013 and amortized over a 14-year period. The term loan bears
interest at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The principal
repayments are variable and are set at $3.5 million for 2017. As at December 31, 2016, the all-in effective interest rate
was 5.46% (5.46% in 2015) after accounting for the interest rate swap.
This debt is secured by the assets of Innergex CAR, L.P. with a carrying value of approximately $67.3 million.
t. Beaumont
As part of the Seven French Entities Acquired, the Corporation assumed three loan facilities for a total value of
€25.1 million.
• A €3.6 million loan bearing interest at 3.78%, repayable in quarterly installments and maturing in 2027. The principal
repayments are set to €0.3 million for 2017. The term loan was accounted for at its fair market value of €4.0 million
for an effective rate of 2.16%.
• A €1.0 million loan bearing interest at 2.63%, repayable in quarterly installments and maturing in 2027. The principal
repayments are almost nil for 2017.
• A €20.5 million loan bearing interest at 2.42%, repayable in quarterly installments and maturing in 2031. The principal
repayments are set to €1.4 million for 2017.
The debt is secured by the assets of Eoles Beaumont S.A.S. with a carrying value of approximately €48.6 million.
u. Stardale
On February 22, 2016, Stardale refinanced its long-term debt to increase its borrowing by $12.1 million to a total of
$109.0 million. The loan bears interest at the BA rate plus an applicable credit margin. The principal repayments are
variable and are set at $6.4 million for 2017. As at December 31, 2016, the all-in effective interest rate was 5.36% (5.99%
in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $5.6 million. As at
December 31, 2016, an amount of $5.6 million had been used to secure two letters of credit. The loan is secured by the
assets of Stardale L.P. with a carrying value of approximately $108.2 million.
v.
Innergex Europe (2015) Limited Partnership
Following the acquisitions in France, a debenture was issued to the other partner for total proceeds of $38.2 million.
This debenture carries an interest rate of 8.00% compounded yearly and is payable quarterly if funds are available. The
debenture will be repayable in full in 2046. The Corporation invested a total of $87.2 million in preferred units of Innergex
Europe (2015) Limited Partnership, which carry a preferred return rate of 8.00% compounded yearly and payable at the
same time as the debenture. The preferred units are eliminated into the consolidation process.
w. Harrison Operating Facilities
The Harrison Operating Facilities Senior Real Return bond bears interest at 2.96% adjusted by an inflation ratio as well
as an inflation compensation interest factor. Both inflation adjustments are based on the All-items Consumer Price Index
for Canada (“CPI”), which is not seasonally adjusted. Payments on this bond are due semi-annually and the bond matures
in June 2049. Semi-annual payments are $5.8 million before CPI adjustment ($6.7 million including CPI adjustment in
2016). In December 2031, the payment amount decreases to $4.5 million before CPI adjustment, where it remains until
maturity. For 2017, the principal repayments are set at $6.0 million.
Innergex Renewable Energy Inc. – 2016 Financial Review – 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The Harrison Operating Facilities Senior Fixed Rate bond bears interest at 6.61%. Payments on this bond are due semi-
annually with the bond maturing in September 2049. Semi-annual payments amount to $8.1 million. In September 2031,
the payment amount decreases to $6.7 million, where it remains until maturity. For 2017, the principal repayments are
set at $3.5 million.
The Harrison Operating Facilities Junior Real Return Rate bond bears interest at 4.27% adjusted by an inflation ratio
and an inflation compensation interest factor. Both inflation adjustments are based on the CPI, which is not seasonally
adjusted. Payments on this bond are due quarterly and the bond matures in September 2049. Quarterly interest payments
amount to $0.3 million before CPI adjustment ($0.3 million including CPI adjustment in 2016).
In June 2017, the payment amount increases to $0.4 million before CPI adjustment, where it remains until maturity.
Principal repayment are set at $0.3 million for 2017. The bond is secured by the Harrison Operating Facilities.
x. Kwoiek Creek
The $168.5 million construction term loan bearing fixed interest rate of 5.08% was converted into a 37-year term loan
in February 2015 and amortized over a 36-year period starting in January 2017. The term loan is repayable in quarterly
installments. The principal repayments are variable and set at $1.5 million for 2017. The loan is secured by the assets
of Kwoiek Creek Resources L.P. with a carrying value of approximately $184.0 million.
The Corporation's partner in the Kwoiek Creek project made a $3.7 million loan to Kwoiek Creek Resources L.P. Under
the project agreements, both partners can participate in the project financing.
y.
Northwest Stave River
The non-recourse construction loan was converted into a 38-year term loan in February 2015 and amortized over a
35-year period starting in 2020. Principal repayments do not commence until December 2020. The loan is secured by
the assets of Northwest Stave River L.P. with a carrying value of approximately $80.9 million.
z.
Tretheway Creek
The construction loan was converted into a 39-year term loan in April 2016 and will amortize over a 35-year period.
Principal repayments do not commence until December 2020. The loan is secured by the assets of Tretheway L.P. with
a carrying value of approximately $102.6 million.
aa. Big Silver Creek
On June 22, 2015, Big Silver Creek Power Limited Partnership closed a $197.2 million non-recourse construction and
term project financing for the Big Silver Creek River run-of-river hydroelectric project.
On January 31, 2017, the loan was converted into a 39.5-year term loan.
The loan comprises three facilities or tranches:
• A $51.0 million construction loan carrying a fixed interest rate of 4.57%; in 2017 it was converted into a 25-year
term loan and the principal will begin to be amortized over an 22-year period starting in 2019;
• A $128.3 million construction loan carrying a fixed interest rate of 4.76%; in 2017 it was converted into a 39.5-
year term loan and the principal will be amortized after the 25-year term loan reaches maturity;
• A $17.9 million construction loan carrying a fixed interest rate of 4.76%; in 2017 it was converted into a 39.5-year
term loan and its principal will be reimbursed at maturity.
This debt is secured by the assets of Big Silver Creek Power L.P. with a carrying value of approximately $211.2 million.
bb. Boulder Creek and Upper Lillooet River
On March 17, 2015, Boulder Creek Power Limited Partnership and Upper Lillooet River Power Limited Partnership jointly
closed a $491.6 million non-recourse construction and term project financing for the Boulder Creek and Upper Lillooet
River run-of-river hydroelectric projects.
Innergex Renewable Energy Inc. – 2016 Financial Review – 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The loan comprises three facilities or tranches:
• A $191.6 million construction loan carrying a fixed interest rate of 4.22%; following the start of the facilities’
commercial operation, it will convert into a 25-year term loan and the principal will be amortized over a 20-year
period, starting in the sixth year;
• A $250.0 million construction loan carrying a fixed interest rate of 4.46%; following the start of the facilities’
commercial operation, it will convert into a 40-year term loan and the principal will begin to be amortized after the
25-year term loan’s maturity;
• A $50.0 million construction loan carrying a fixed interest rate of 4.46%; following the start of the facilities’
commercial operation, it will convert into a 40-year term loan and its principal will be reimbursed at maturity.
This debt is secured by the assets of Boulder Creek Power L.P. and Upper Lillooet River Power L.P. with a carrying
value of approximately $509.1 million.
Convertible debentures
As at December 31, 2016, the liability portion of convertible debentures stood at $94.8 million and the equity portion stood at
$1.9 million ($93.4 million and $1.9 million as at December 31, 2015). The convertible debentures currently outstanding bear
interest at a rate of 4.25% per annum, payable semi-annually on August 31 and February 28 of each year. They are convertible
at the holder’s option into common shares of the Corporation at a conversion price of $15.00 per share, representing a conversion
rate of 66.6667 common shares per each thousand of dollars of principal amount of convertible debentures. They will mature
on August 31, 2020, and will not be redeemable before August 31, 2018, except in certain limited circumstances.
The convertible debentures are subordinated to all other indebtedness of the Corporation.
Shareholders' Equity
As at December 31, 2016, the Corporation's shareholders' equity totalled $485.2 million, including $14.7 million of non-
controlling interests, compared with $471.6 million as at December 31, 2015, and which included $21.9 million of non-controlling
interests. This $13.7 million increase in total shareholders' equity is attributable mainly to the recognition of $32.0 million in net
earnings, to the issuance of 3,906,250 shares for a value of $50.0 million to three Desjardins Group-affiliated entities under a
private placement of common shares of Innergex and $3.2 million in shares issued under the DRIP, partly offset by $74.5 million
in dividends declared on common and preferred shares, and to the recognition of other items of comprehensive loss totalling
$0.5 million.
Contractual Obligations
As at December 31, 2016
Long-term debt including convertible
debentures
Interest on long-term debt and
convertible debentures
Purchase (Contractual) obligations1
Others
Total contractual obligations
Total
Under 1 year
1 to 3 years
4 to 5 years
Thereafter
2,787,856
99,418
116,286
428,432
2,143,720
2,524,195
158,742
37,783
5,508,576
130,206
21,342
4,266
255,232
251,109
18,087
5,052
390,534
222,568
19,166
4,914
675,080
1,920,312
100,147
23,551
4,187,730
1. Purchase obligations are derived mainly from engineering, procurement and construction contracts.
Contingencies
The acquisition of Cloudworks Energy Inc. realized in 2011 provides for the potential payment of additional amounts to the
vendors over a period commencing on the acquisition date and ending in 2056. The deferred payments are effectively intended
to provide for a potential sharing of the value created if the projects perform better than the Corporation expects and would
result in incremental accretion to the Corporation net of these payments. The maximum aggregate amount of all deferred
payments under this acquisition was limited to a present value amount of $35.0 million as at the acquisition date. In the year
ended December 31, 2015, the Corporation recognized an impairment related to its BC Prospective Projects acquired in 2011.
Concurrently with the recognition of an impairment, the Corporation recorded a $3.4 million gain on contingent considerations
in 2015 in relation to amounts payable on the future development of the Prospective Projects in British Columbia acquired from
Cloudworks Energy Inc. In 2016, the Corporation recorded an $0.8 million loss on contingent considerations.
Innergex Renewable Energy Inc. – 2016 Financial Review – 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
In connection with the Magpie Acquisition, the Corporation assumed an obligation to pay contingent consideration to the
Minganie Regional County Municipality until the convertible debenture issued by Magpie Limited Partnership is converted.
Upon conversion, the Minganie Regional County Municipality will be entitled to a participation of 30% in Magpie Limited
Partnership.
Off-Balance-Sheet Arrangements
As at December 31, 2016, the Corporation had issued letters of credit totaling $136.5 million to meet its obligations under its
various PPAs and other agreements. Of this amount, $50.5 million was issued under its revolving term credit facility, for the
most part on a temporary basis during the construction of the Development Projects, with the remainder being issued under
the projects' non-recourse credit facilities. As at that date, Innergex had also issued a total of $28.9 million in corporate guarantees
used mainly to support the performance of the Brown Lake and Miller Creek hydroelectric facilities and the construction of the
Mesgi'g Ugju's'n project.
FREE CASH FLOW AND PAYOUT RATIO
Free Cash Flow
When evaluating its operating results, a key performance indicator for the Corporation is the cash flows available for distribution
to common shareholders and for reinvestment to fund the Corporation's growth. Free Cash Flow is a non-IFRS measure that
the Corporation calculates as cash flows from operating activities before changes in non-cash operating working capital items,
less maintenance capital expenditures net of proceeds from disposals, scheduled debt principal payments and preferred share
dividends declared. It also subtracts the portion of Free Cash Flow attributed to non-controlling interests regardless of whether
an actual distribution to non-controlling interests is made in order to reflect the fact that such distribution may not occur in the
period the Free Cash Flow is generated, and adds back cash receipts by the Harrison Hydro L.P. for the wheeling services to
be provided to other facilities owned by the Corporation over the course of their PPAs. The Corporation also adjusts for other
elements that represent cash inflows or outflows that are not representative of the Corporation's long-term cash generating
capacity. Such adjustments include adding back transaction costs related to realized acquisitions (which are financed at the
time of the acquisition) and adding back realized losses or subtracting realized gains on derivative financial instruments used
to hedge the interest rate on project-level debt prior to securing such debt or the exchange rate on equipment purchases.
Innergex Renewable Energy Inc. – 2016 Financial Review – 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Free Cash Flow and Payout Ratio calculation
Cash flows from operating activities
Add (Subtract) the following items:
Changes in non-cash operating working capital items
Maintenance capital expenditures net of proceeds from
disposals
Scheduled debt principal payments
Free Cash Flow attributed to non-controlling interests1
Dividends declared on Preferred shares
Cash receipt for wheeling services to be provided by the
Harrison Hydro L.P. to other facilities2
Adjust for the following elements:
Transaction costs related to realized acquisitions
Realized losses on derivative financial instruments
Free Cash Flow
Dividends declared on common shares
Payout Ratio - before the impact of the DRIP
Year ended December 31
2015
2016
84,048
4,557
2014
87,578
49,148
(2,730)
(43,220)
(8,571)
(5,942)
(8,275)
(3,553)
(31,813)
(2,550)
(7,125)
13,218
(2,851)
(29,190)
(4,865)
(7,125)
—
3,327
2,092
2,970
—
75,703
68,524
91%
261
119,557
74,386
63,646
86%
521
8,366
67,744
59,549
88%
Dividends declared on common shares and paid in cash3
Payout Ratio - after the impact of the DRIP
1. The portion of Free Cash Flow attributed to non-controlling interests is subtracted, regardless of whether or not an actual distribution to non-
49,358
73%
63,346
84%
57,613
77%
controlling interests is made, in order to reflect the fact that such distributions may not occur in the period they are generated.
2. These amounts represent cash receipts by the Harrison Hydro L.P. for the wheeling services to be provided to the Big Silver Creek and
Tretheway Creek facilities respectively, 49.99% of which was included in the Free Cash Flow attributed to non-controlling interests.
3. Represents dividends declared on common shares outstanding that were not registered in the DRIP at the time of the declaration; the
dividends declared on common shares registered in the DRIP were paid in common shares.
For the year ended December 31, 2016, the Corporation generated Free Cash Flow of $75.7 million, compared with $74.4 million
for the same period last year. This slight increase in Free Cash Flow is due mainly to higher cash flows from operating activities
in 2016 before changes in non-cash operating working capital items and realized losses on derivative financial instruments
(none in 2016), which were partly offset by greater scheduled debt principal payments and higher free cash flow attributed to
non-controlling interests. The Corporation also decided to invest more to pursue growth opportunities in new international
markets, which also reduced cash flows from operating activities.
Payout Ratio
The Payout Ratio represents the dividends declared on common shares divided by Free Cash Flow. The Corporation believes
it is a measure of its ability to sustain current dividends and dividend increases as well as its ability to fund its growth.
For the year ended December 31, 2016, the dividends on common shares declared by the Corporation amounted to 91% of
Free Cash Flow, compared with 86% for the prior year. This change is due mainly to a slightly better Free Cash Flow than in
2015, which was more than offset by higher dividend payments as a result of a higher number of common shares outstanding
due to the issuance of 3,906,250 shares to three Desjardins Group-affiliated entities under a private placement of common
shares of Innergex and to the issuance of 94,000 shares following the exercise of stock options and 242,706 shares related
to the DRIP.
The Payout Ratio reflects the Corporation's decision to invest each year in advancing the development of its Prospective
Projects, which investments must be expensed as incurred. The Corporation considers such investments essential to its long-
term growth and success, as it believes that the greenfield development of renewable energy projects offers the greatest
potential internal rates of return and represents the most efficient use of management's expertise and value-added skills. For
the year ended December 31, 2016, the Corporation incurred prospective project expenses of $10.3 million, compared with
$8.0 million for the prior year. This 29% increase is attributable mainly to the advancement of a number of prospective projects
and to pursuing opportunities in new international markets. Excluding these discretionary expenses, the Corporation's Payout
Innergex Renewable Energy Inc. – 2016 Financial Review – 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Ratio would have been approximately 11% points lower for the year ended December 31, 2016, and approximately 8% points
lower for the prior year.
Furthermore, the Corporation does not expect to require additional equity in order to complete its Upper Lillooet River and
Boulder Creek projects under construction, given the anticipated increase in cash flows from operations once these projects
have been commissioned, the project-level financing that the Corporation has secured for the projects and the additional equity
provided by the DRIP.
PROJECTED FINANCIAL PERFORMANCE
As at December 31, 2016, the Corporation has 46 Operating Facilities with a net installed capacity of 909 MW (gross 1,533 MW)
and annualized consolidated long-term average production of 4,111 GWh. The Corporation is also pursuing the construction
of Upper Lillooet River and Boulder Creek Development Projects with power purchase agreements.
Power Generated (GWh)
Revenues
Adjusted EBITDA
Number of facilities in operation
Net installed capacity (MW)
Consolidated LTA production, annualized (GWh)
2017
2016
2015
+31%
+44%
+48%
approx.
approx.
approx.
49
1,011
4,640
+18%
+19%
+18%
3,522
292,785
215,983
46
909
4,111
2,988
246,869
183,738
34
708
3,130
+1%
+2%
+2%
The increase in installed capacity and in the number of facilities in operation in 2016 reflects the commissioning of the Big Silver
Creek hydroelectric facility and the Mesgi'g Ugju's'n wind farm before year-end as well as the acquisition of the Walden
hydroelectric facility acquired in February 2016, the Seven French Entities acquired in April 2016 and the acquisition of the Two
French Entities in Nouvelle-Aquitaine in December 2016. In 2016, Power Generated was expected to increase 6 to 8% and
Revenues were expected to increase 9 to 11% while higher-than LTA production and acquisitions resulted in a 18% and 19%
increase respectively. Although adjusted EBITDA was expected to increase by 7 to 9%, it actually increased by 18%, due to
higher production and acquisitions.
The Corporation makes certain projections to provide readers with an indication of its business activities and operating
performance once the two existing Development Projects have been commissioned. These projections also include the data
for the Yonne facility, acquired in the first quarter of 2017. These projections do not take into account possible acquisitions,
divestments or additional Development Projects following the award of any new power purchase agreements. Projected
increases in production and revenues reflect production levels in line with the long-term average production. The increase in
Adjusted EBITDA reflects a significant increase in expected Prospective Projects expenses, as the Corporation funds its
expansion into target markets internationally.
Innergex Renewable Energy Inc. – 2016 Financial Review – 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Projected Installed Capacity
the
The Corporation believes that installed capacity provides a
good indication of the size and magnitude of its operations.
Once
two Development Projects have been
commissioned and following the acquisition of Yonne, the
Corporation expects its net installed capacity to increase
from 909 MW (gross 1,533 MW) at the end of 2016 to
1,011 MW (gross 1,683 MW) in 2017, corresponding to a
11% increase (gross 10%). Net installed capacity reflects
the fact that some of the Corporation's facilities are not
wholly owned. Installed capacity includes the Umbata Falls
and Viger-Denonville facilities that are treated as joint
ventures and accounted for using the equity method.
Projected Long-Term Average Production (LTA)
A key performance indicator for the Corporation is to
compare actual electricity generation with the expected LTA
production for each facility. Once the two Development
Projects have been commissioned and following the
acquisition of Yonne, the Corporation expects its annualized
consolidated LTA production to increase from 4,111 GWh
at the end of 2016 to 4,640 GWh in 2017, corresponding to
a 13% increase. Consolidated LTA production is presented
in accordance with revenue recognition accounting rules
under IFRS and excludes the Umbata Falls and Viger-
Denonville facilities that are treated as joint ventures and
accounted for using the equity method.
Annualized Consolidated LTA Production (GWh)
December 31,
2016
Run-Rate 2017
Hydro
Wind
Solar
Total
2,591
1,482
38
4,111
3,019
1,583
38
4,640
Innergex Renewable Energy Inc. – 2016 Financial Review – 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Projected Adjusted EBITDA
A key performance indicator for the Corporation is Adjusted
EBITDA generation. Once the two Development Projects
have been commissioned and following the acquisition of
Yonne, the Corporation expects to generate Adjusted
EBITDA in 2017 of approximately $319.6 million, compared
with $216.0 million in 2016. This represents an increase of
approximately 48% for 2017 compared to 2016. Adjusted
in accordance with revenue
EBITDA
recognition accounting rules under IFRS and excludes the
Umbata Falls and Viger-Denonville facilities that are treated
as joint ventures and accounted for using the equity method.
The annual Adjusted EBITDA for these facilities combined
is approximately
attributable
$8.5 million.
the Corporation
is presented
to
It should be noted that Adjusted EBITDA does not take into
account the impact of interest and principal payments on
the Corporation's existing debt and on the project-level debt
financing.
Projected Free Cash Flow
Another key performance indicator for the Corporation is
the Free Cash Flow generated from its operations and
available for distribution to common shareholders and for
reinvestment to fund its growth. Once the two Development
Projects have been commissioned and following the
acquisition of Yonne, the Corporation expects to generate
Free Cash Flow in 2017 of approximately $110.1 million,
compared with $75.7 million in 2016. This represents an
increase of approximately 45% for 2017 compared to 2016
and will reflect
the
Corporation's 49 Operating Facilities at that time, after
taking into account maintenance capital expenditures,
scheduled debt principal payments, preferred share
dividends and the portion of Free Cash Flow attributed to
non-controlling interests.
flows generated by
the cash
For more information on the principal assumptions used in
determining projected
the
financial
principal risks and uncertainties related thereto, please
refer to the Forward-Looking Information section.
information and
Innergex Renewable Energy Inc. – 2016 Financial Review – 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
SEGMENT INFORMATION
Geographic Segments
As at December 31, 2016, the Corporation had interests in 28 hydroelectric facilities, seven wind farms and one solar farm in
Canada, nine wind farms in Europe and one hydroelectric facility in the United States. The Corporation operates in three
principal geographical areas, which are detailed below.
Revenues
Canada
Europe
United States
Year ended December 31
2016
2015
278,723
9,836
4,226
292,785
243,043
—
3,826
246,869
As at
December 31, 2016
December 31, 2015
Non-current assets, excluding financial instruments and deferred
tax assets
Canada
Europe
United States
Canada
3,005,720
318,924
7,365
3,332,009
2,704,788
—
8,043
2,712,831
For the year ended December 31, 2016, the Corporation recorded revenues in Canada of $278.7 million, compared with
$243.0 million last year. The increase in Canadian revenues is attributable mainly to better results from most of the British
Columbia hydroelectric facilities compared with the same period last year and to the contribution of the recently commissioned
and acquired facilities, namely the Tretheway Creek hydroelectric facility commissioned in November 2015, the Walden
hydroelectric facility acquired in February 2016, the Big Silver Creek hydroelectric facility commissioned in July 2016 and the
Mesgi'g Ugju's'n wind farm commissioned in December 2016, which were partly offset by lower revenues from the wind regime
in Quebec and from the hydrologic regime in Ontario.
For the year ended December 31, 2016, the increase in non-current assets, excluding financial instruments and deferred income
tax assets in Canada, stems mainly from the construction of the Big Silver Creek hydroelectric facility and the Mesgi'g Ugju's'n
wind farm, the Upper Lillooet River and Boulder Creek development projects and the purchase of Walden on February 25,
2016.
Europe
For the year ended December 31, 2016, the increase in revenues and in non-current assets, excluding financial instruments
and deferred income tax assets in France, stems from the French Entities acquired on April 15, 2016, and December 22, 2016.
United States
For the year ended December 31, 2016, the Corporation recorded revenues in the United States of $4.2 million, compared
with $3.8 million last year. The increase in United States revenues is attributable to better operating results from the Horseshoe
Bend hydroelectric facility compared with the same period last year. For the period ended December 31, 2016, the decrease
in non-current assets stems mainly from depreciation.
Operating Segments
As at December 31, 2016, the Corporation had four operating segments: hydroelectric generation, wind power generation,
solar power generation and site development.
Innergex Renewable Energy Inc. – 2016 Financial Review – 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Through its hydroelectric, wind power and solar power generation segments, the Corporation sells electricity produced by its
hydroelectric, wind and solar facilities to publicly owned utilities or other creditworthy counterparties. Through its site development
segment, Innergex analyzes potential sites and develops hydroelectric, wind and solar facilities up to the commissioning stage.
The accounting policies for these segments are the same as those described in the Significant Accounting Policies section of
the Corporation's audited consolidated financial statements for the year ended December 31, 2016. The Corporation evaluates
performance based on Adjusted EBITDA and accounts for inter-segment and management sales at cost. Any transfers of assets
from the site development segment to the hydroelectric, wind or solar power generation segments are accounted for at cost.
The operations of the Corporation's operating segments are conducted by different teams, as each segment has different skill
requirements.
SUMMARY OPERATING RESULTS
Year ended December 31, 2016
Power generated (MWh)
Revenues
Expenses:
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA
Year ended December 31, 2015
Power generated (MWh)
Revenues
Expenses:
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA
FINANCIAL POSITION
As at December 31, 2016
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and equipment
during the year
As at December 31, 2015
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and equipment
during the year
Hydroelectric Generation Segment
Hydroelectric
Generation
2,718,768
211,881
Wind Power
Generation
760,814
63,238
Solar Power
Generation
42,063
17,666
Site
Development
Total
— 3,521,645
292,785
—
37,197
8,459
—
166,225
13,515
4,090
—
45,633
757
152
—
16,757
—
2,344
10,288
(12,632)
51,469
15,045
10,288
215,983
2,238,376
173,567
709,712
56,691
30,696
7,747
—
135,124
9,512
3,497
—
43,682
39,549
16,611
730
153
—
15,728
— 2,987,637
246,869
—
—
2,791
8,005
(10,796)
40,938
14,188
8,005
183,738
Hydroelectric
Generation
8,269
1,993,033
1,537,791
Wind Power
Generation
—
1,003,964
847,148
Solar Power
Generation
—
108,231
113,538
Site
Development
—
498,976
620,495
Total
8,269
3,604,204
3,118,972
3,420
219,813
11
369,723
592,967
8,269
1,806,873
1,344,518
—
332,698
213,415
—
114,543
107,641
—
874,189
991,172
8,269
3,128,303
2,656,746
4,051
871
81
299,549
304,552
For the year ended December 31, 2016, this segment produced 109% of the LTA and generated revenues of $211.9 million,
compared with production at 96% of the LTA and revenues of $173.6 million last year. The revenue and production increases
in this segment are due mainly to production equal or above the long-term average in all jurisdictions except Ontario during
the period, to the contribution of the Tretheway Creek and Big Silver Creek hydroelectric facilities, which began commercial
operation in November 2015 and July 2016 respectively, and to the contribution of the Walden hydroelectric facility acquired
in February 2016.
Innergex Renewable Energy Inc. – 2016 Financial Review – 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The increase in total assets since December 31, 2015, stems mainly from the Big Silver Creek hydroelectric project being
transferred from the Site Development Segment to the Hydroelectric Generation Segment following its commissioning in
July 2016 and to the purchase of the Walden facility on February 25, 2016, which were partly offset by the depreciation of
property, plant and equipment and amortization of intangible assets.
The increase in total liabilities since December 31, 2015, is attributable mainly to the transfer of the project financing of the Big
Silver Creek project from the Site Development Segment to the Hydroelectric Generation Segment following its commissioning
and to the purchase of the Walden facility on February 25, 2016, which were partly offset by the scheduled repayment of long-
term debt.
Wind Power Generation Segment
For the year ended December 31, 2016, this segment produced 91% of the LTA and generated revenues of $63.2 million,
compared with production at 105% of the LTA and revenues of $56.7 million for the same period last year. The decrease in the
percentage of the LTA is due mainly to the lower wind regimes at the Quebec facilities and the sub-LTA wind regime at the
French facilities. The revenue increase is due mainly to the acquisition of the French Entities.
The increase in total assets since December 31, 2015, is attributable mainly to the acquisition of the French Entities and to the
Mesgi'g Ugju's'n wind farm project being transferred from the Site Development Segment to the Wind Power Generation
Segment following its commissioning in December 2016, partly offset by depreciation of property, plant and equipment and
amortization of intangible assets.
The increase in total liabilities since December 31, 2015, is attributable mainly to the acquisition of the French Entities and to
the Mesgi'g Ugju's'n wind farm project being transferred from the Site Development Segment to the Wind Power Generation
Segment following its commissioning in December 2016, partly offset by the scheduled repayment of long-term debt.
Solar Power Generation Segment
For the year ended December 31, 2016, this segment produced 111% of the LTA and generated revenues of $17.7 million,
compared with production at 104% of the LTA and revenues of $16.6 million for the same period last year. The increase in
production and revenues for the year stems mainly from solar irradiation higher than last year.
The decrease in total assets since December 31, 2015, results mainly from depreciation of property, plant and equipment and
from amortization of intangible assets.
The increase in total liabilities since December 31, 2015, is attributable to Stardale's increase in its long-term debt borrowing
upon refinancing, partly offset by scheduled repayments.
Site Development Segment
For year ended December 31, 2016, site development expenses were $12.6 million respectively, compared with $10.8 million
in 2015. The increase is due mainly to investments made to pursue growth opportunities in new international markets.
The decrease in total assets since December 31, 2015, stems mainly from the Big Silver Creek hydroelectric project being
transferred from the Site Development Segment to the Hydroelectric Generation Segment following its commissioning in
July 2016 and the Mesgi'g Ugju's'n wind farm project being transferred from the Site Development Segment to the Wind Power
Generation Segment following its commissioning in December 2016, partly offset by the construction of the Upper Lillooet River
and Boulder Creek hydroelectric facilities.
Since December 31, 2015, the decrease in total liabilities has been due mainly to the Big Silver Creek hydroelectric project
being transferred from the Site Development Segment to the Hydroelectric Generation Segment following its commissioning
in July 2016 and the Mesgi'g Ugju's'n wind farm project being transferred from the Site Development Segment to the Wind
Power Generation Segment following its commissioning in December 2016, which was partly offset by drawings on the Boulder
Creek and Upper Lillooet River project financings.
Innergex Renewable Energy Inc. – 2016 Financial Review – 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
QUARTERLY FINANCIAL INFORMATION
(in millions of dollars, unless otherwise stated)
Power generated (MWh)
Revenues
Adjusted EBITDA
Realized and unrealized net gain (loss) on financial
instruments
Impairment of project development costs
Net earnings
Net earnings attributable to owners of the parent
Net earnings attributable to owners of the parent ($ per
share – basic and diluted)
Dividends declared on preferred shares
Dividends declared on common shares
Dividends declared on common shares, $ per share
(in millions of dollars, unless otherwise stated)
Power generated (MWh)
Revenues
Adjusted EBITDA
Realized and unrealized net gain (loss) on financial
instruments
Impairment of project development costs
Net (loss) earnings
Net (loss) earnings attributable to owners of the parent
Net (loss) earnings attributable to owners of the parent
($ per share – basic and diluted)
Dividends declared on preferred shares
Dividends declared on common shares
Dividends declared on common shares, $ per share
Three months ended
Dec. 31, 2016 Sept. 30, 2016 June 30, 2016 Mar. 31, 2016
664,387
62.5
47.7
1,176,451
87.8
66.9
831,840
69.3
51.2
848,967
73.3
50.3
2.2
—
8.8
9.8
0.08
1.5
17.3
0.160
(1.3)
—
0.4
3.4
0.02
1.5
17.3
0.160
2.2
—
15.7
14.4
0.12
1.5
17.3
0.160
Three months ended
1.3
—
7.2
8.3
0.07
1.5
16.6
0.160
Dec. 31, 2015 Sept. 30, 2015 June 30, 2015 Mar. 31, 2015
658,427
57.7
43.0
647,062
56.3
38.8
904,172
70.2
53.4
777,975
62.7
48.6
2.0
(51.7)
(34.4)
(30.6)
(0.31)
1.8
16.1
0.155
(2.7)
—
1.3
5.8
0.04
1.8
16.2
0.155
18.6
—
22.5
22.8
0.21
1.8
15.7
0.155
(56.0)
—
(37.8)
(29.1)
(0.31)
1.8
15.7
0.155
Comparing the results for the most recent quarters illustrates the seasonality that is characteristic of the Corporation's production
and the variability of power generated, revenues and Adjusted EBITDA from quarter to quarter. As the Corporation's annualized
consolidated LTA is 63% hydroelectric, this seasonality can be explained by water flows that are normally at their highest in
the second quarter due to the snow melt season and at their lowest in the first quarter due to the cold temperatures, which limit
precipitation in the form of rain. However, premiums for the electricity generated during the coldest months of the year included
in some PPAs of the Corporation's hydroelectric facilities attenuate this seasonality. Wind regimes are generally best in the first
quarter, while solar irradiation is at its highest during the summer months and at its lowest during the winter months.
Readers may expect the net earnings or losses to reflect this seasonality characteristic of run-of-river hydroelectric facilities,
wind farms and solar farms. However, other factors also influence these figures, some of which have a relatively stable quarter-
to-quarter impact while others are more variable. For the Corporation, the factor responsible for the largest fluctuations in net
earnings (loss) is the unrealized and realized gains (losses) on financial instruments arising from the increase (decrease) in
benchmark interest rates, and foreign exchange fluctuations. Historical analysis of net earnings (losses) should take this factor
into account. It should be borne in mind that the unrealized changes in market value of derivative financial instruments result
from interest rate fluctuations and foreign exchange fluctuations and do not have an impact on the Corporation's Adjusted
EBITDA, finance costs, cash flows from operating activities, Free Cash Flow or Payout Ratio.
Innergex Renewable Energy Inc. – 2016 Financial Review – 48
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
FOURTH QUARTER RESULTS
Electricity Production
Three months ended December 31
2016
2015
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec
France
Subtotal
SOLAR
Ontario
Total
182,925
14,250
409,994
2,751
609,921
197,096
36,048
233,144
181,486
21,212
315,077
5,223
522,998
255,495
53,817
309,312
101%
67%
130%
53%
117%
77%
67%
75%
150,780
20,912
276,543
2,301
450,536
190,198
—
190,198
181,486
21,212
269,952
5,223
477,873
207,276
—
207,276
83%
99%
102%
44%
94%
92%
—%
92%
5,902
848,967
5,741
838,051
103%
101%
6,328
647,062
5,783
690,932
109%
94%
1. The Umbata Falls hydroelectric facility and the Viger-Denonville wind farm are treated as joint ventures and accounted for using the equity
method; their revenues are not included in the Corporation's consolidated revenues and, for the sake of consistency, their electricity production
figures have been excluded from the production table. For more information on the Corporation's joint ventures, please refer to the Investments
in Joint Ventures section.
During the three-month period ended December 31, 2016, the Corporation's facilities produced 849 GWh of electricity or 101%
of the LTA of 838 GWh. Overall, the hydroelectric facilities produced 117% of their LTA due to above-average water flows in all
markets, except Ontario and the USA. Overall, the wind farms produced 75% of their LTA due to the below-average wind regime
in Quebec and in France. The solar farm produced 103% of its LTA due to an above-average solar regime. For more information
on operating segment results, please refer to the Segment Information section.
Innergex Renewable Energy Inc. – 2016 Financial Review – 49
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Financial Results
Revenues
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA
Finance costs
Other net revenues (loss)
Depreciation and amortization
Impairment of project development costs
Share of earnings of joint ventures1
Unrealized net gain on derivative financial instruments
(Recovery of) income tax expense
Net earnings (loss)
Net earnings (loss) attributable to
Owners of the parent
Non-controlling interests
Basic net earnings (loss) per share ($)
Three months ended December 31
2016
2015
73,265 100.0%
15,674 21.4%
6.2%
4,508
2,819
3.8%
50,264 68.6%
56,291 100.0%
11,185 19.9%
5.9%
3,297
2,990
5.3%
38,819 69.0%
26,228
895
25,614
—
(2,919)
(2,172)
(6,147)
8,765
9,835
(1,070)
8,765
0.08
20,097
(2,916)
19,106
51,719
(858)
(1,962)
(11,976)
(34,391)
(30,570)
(3,821)
(34,391)
(0.31)
1. The Umbata Falls hydroelectric facility and Viger Denonville wind farm are treated as joint ventures and the Corporation's interests in these
facilities are required to be accounted for using the equity method. For more information on the Corporation's joint ventures, please refer to
the Investments in Joint Ventures section.
Revenues
For the three-month period ended December 31, 2016, the Corporation recorded revenues of $73.3 million, compared with
$56.3 million for the three-month period ended December 31, 2015. This 30% increase is attributable mainly to better results
from most of the British Columbia hydroelectric facilities compared with the same period last year and to the contribution of the
recently commissioned or acquired facilities (the Tretheway Creek hydro facility commissioned in November 2015, the Walden
hydroelectric facility acquired in February 2016, the French Entities acquired in April 2016 and December 2016, the Big Silver
Creek facility commissioned on July 29, 2016, and the Mesgi'g Ugju's'n wind farm commissioned at the end of the fourth quarter
of 2016), which were partly offset by lower revenues from the wind regime in Quebec and the hydrologic and solar regimes in
Ontario.
Expenses
For the three-month period ended December 31, 2016, the Corporation recorded operating expenses of $15.7 million
($11.2 million in 2015), general and administrative expenses of $4.5 million ($3.3 million in 2015) and prospective project
expenses of $2.8 million ($3.0 million in 2015). The increase in operating expenses compared with the same period last year
is due mainly to the addition of the Tretheway Creek hydroelectric facility, the Walden hydroelectric facility, the French Entities
acquired and the Big Silver Creek facility and to the variable costs associated with higher production levels. The increase in
general and administrative expenses stems mainly from the greater number of facilities in operation.
Innergex Renewable Energy Inc. – 2016 Financial Review – 50
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Adjusted EBITDA
For the three-month period ended December 31, 2016, the Corporation recorded Adjusted EBITDA of $50.3 million, compared
with $38.8 million for the same period last year, due mainly to higher revenues and expenses as described above.
Finance Costs
For the three-month period ended December 31, 2016, finance costs totalled $26.2 million ($20.1 million in 2015). The increase
is due mainly to the interest expenses related to the commissioning of the Tretheway Creek, Big Silver Creek and Mesgi'g
Ugju's'n facilities, the French acquisitions and to higher inflation compensation interest on the real-return bonds attributable to
higher inflation during the period.
Depreciation and Amortization
For the three-month period ended December 31, 2016, depreciation and amortization expenses totalled $25.6 million
($19.1 million in 2015), attributable mainly to the Tretheway Creek hydroelectric facility commissioned in November 2015, the
Walden hydroelectric facility acquired in February 2016, the French Entities acquired in April 2016 and December 2016, the
Big Silver Creek hydroelectric facility commissioned in July 2016 and the Mesgi'g Ugju's'n wind farm commissioned in
December 2016.
Net Earnings (Loss)
Net earnings of $8.8 million (basic and diluted net earnings of $0.08 per share), compared with a net loss of $34.4 million (basic
and diluted net loss of negative $0.31 per share) in 2015, were recorded by the Corporation in the quarter. The difference is
explained mainly by the $11.4 million increase in Adjusted EBITDA and the recognition, in 2015, of an impairment expense by
the Corporation in relation to some of its Prospective Projects in the amount of $51.7 million related to its BC Prospective
Projects, resulting in an income tax recovery of $13.6 million and a net impact of $38.1 million (nil in 2016). These factors were
partly offset by higher finance costs, depreciation and amortization.
INVESTMENTS IN JOINT VENTURES
The Corporation's material joint ventures at the end of the reporting period were Umbata Falls Limited Partnership ("Umbata
Falls, L.P.") (49% interest) and Parc éolien communautaire Viger-Denonville, s.e.c. (Viger-Denonville, L.P.) (50% interest). A
summary of the electricity production and financial information for the Corporation's material joint ventures is presented below.
The summarized financial information corresponds to amounts shown in the joint ventures' financial statements prepared in
accordance with IFRS.
Electricity Production
Three months ended December 31
2016
2015
Umbata Falls
Viger-Denonville
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
27,392
19,309
33,037
20,300
83%
95%
27,549
20,334
33,037
20,300
83%
100%
Year ended December 31
2016
Umbata Falls
Viger-Denonville
Production
(MWh)1
111,019
68,865
LTA
(MWh)1
109,101
72,400
Production
as a % of
LTA
Production
(MWh)1
102% 116,207
80,319
95%
1. Corresponds to 100% of the facility's electricity production and LTA.
2015
LTA
(MWh)1
109,101
72,400
Production
as a % of
LTA
107%
111%
Innergex Renewable Energy Inc. – 2016 Financial Review – 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Umbata Falls, L.P.
Summary Statements of Earnings and Comprehensive Income – Umbata Falls, L.P.
Revenues
Operating and general and administrative expenses
Adjusted EBITDA
Finance costs
Other net revenues
Depreciation and amortization
Unrealized net (gain) loss on financial instruments
Net earnings and comprehensive income
Year ended December 31
2015
2016
9,429
938
8,491
2,507
(31)
4,017
(526)
2,524
9,854
846
9,008
2,559
(32)
4,019
1,217
1,245
For the year ended December 31, 2016, production was 102% of the LTA, due mainly to above-average water flows during the
year.
The decrease in Adjusted EBITDA for the year ended December 31, 2016, is due mainly to lower production levels in 2016
compared with the previous year.
For the year ended December 31, 2016, Umbata Falls L.P. recorded a $2.5 million net earnings and comprehensive income,
compared with $1.2 million for the same period last year. The income for the year reflects the impact of a $0.5 million unrealized
net gain on financial instruments, compared with a $1.2 million unrealized net loss for the same period last year and of a
decrease in revenues. The unrealized gain on financial instruments result from the increase in benchmark interest rates.
Summary Statements of Financial Position – Umbata Falls, L.P.
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partners' equity
2,090
64,647
66,737
3,033
46,173
17,531
66,737
2,223
68,467
70,690
3,062
48,852
18,776
70,690
As at December 31, 2016, the reduction in partners' equity stems from the $3.8 million distribution to the partners, partly offset
by the recognition of $2.5 million net earnings and comprehensive income. To manage its exposure to the risk of increasing
interest rates on its debt financing, Umbata Falls, L.P. uses a derivative financial instrument but does not own or issue any
derivative financial instruments for speculation purposes. An amortizing interest-rate swap totaling $43.0 million used to hedge
the interest rate on the Umbata Falls loan had a net negative value of $7.6 million at December 31, 2016 (negative value of
$8.1 million at December 31, 2015).
Innergex Renewable Energy Inc. – 2016 Financial Review – 52
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Viger-Denonville, L.P.
Summary Statements of Earnings and Comprehensive Income – Viger-Denonville, L.P.
Revenues
Operating and general and administrative expenses
Adjusted EBITDA
Finance costs
Other net revenues
Depreciation and amortization
Unrealized net (gain) loss on financial instruments
Net earnings
Other comprehensive income
Total other comprehensive income
Year ended December 31
2015
2016
10,293
1,844
8,449
3,635
(30)
2,923
(658)
2,579
2
2,581
11,978
1,923
10,055
3,636
(45)
2,921
1,639
1,904
127
2,031
For the year ended December 31, 2016, production was 95% of the LTA , due mainly to the below-average wind regime. The
decrease in Adjusted EBITDA is due mainly to lower production levels and revenues than for the same period last year.
On April 1, 2015, the Corporation began using hedge accounting in the treatment of existing derivative financial instruments
used to fix the interest rate on the Viger-Denonville project-level debt in order to reduce the fluctuations in net earnings or losses
resulting from unrealized gains or losses on these derivative financial instruments during a given period.
For the year ended on December 31, 2016, the increase in net earnings, compared with last year, is due mainly to an unrealized
net gain on derivatives on financial instruments in 2016 compared with a loss in 2015, partly offset by lower revenues and
production levels.
Summary Statements of Financial Position – Viger-Denonville, L.P.
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partners' equity
2,249
56,583
58,832
4,375
54,223
234
58,832
2,426
59,518
61,944
4,500
57,191
253
61,944
As at December 31, 2016, the small reduction in partners' equity stems mainly from a $2.6 million distribution to the partners,
partly offset by the recognition of a $2.6 million net earnings and other comprehensive income. Viger-Denonville, L.P. uses a
derivative financial instrument to manage its exposure to the risk of increasing interest rates on its debt financing and does not
own or issue any derivative financial instruments for speculation purposes. An amortizing interest-rate swap totaling $51.8 million
used to hedge the interest rate of the Viger-Denonville loan had a net negative value of $5.5 million at December 31, 2016
(negative $6.2 million at December 31, 2015).
Innergex Renewable Energy Inc. – 2016 Financial Review – 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
NON-WHOLLY OWNED SUBSIDIARIES
Summarized financial information regarding each of the Corporation's subsidiaries that has material non-controlling interests
is set out below. Amounts are shown before intragroup eliminations.
Harrison Hydro Limited Partnership ("Harrison Hydro L.P.") and Its Subsidiaries
The Corporation owns a 50.01% interest in Harrison Hydro Limited Partnership, which has interests in six hydroelectric facilities:
Douglas Creek, Fire Creek, Lamont Creek, Stokke Creek, Tipella Creek and Upper Stave River.
Summary Statements of Earnings and Comprehensive Income – Harrison Hydro L.P.
Revenues
Adjusted EBITDA
Net earnings (loss) and comprehensive income (loss)
Net earnings (loss) and comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests
Year ended December 31
2016
2015
60,039
48,437
4,982
1,919
3,063
4,982
42,452
33,123
(9,428)
(5,287)
(4,141)
(9,428)
For the year ended December 31, 2016, net earnings are due mainly to higher production levels and revenues, partly offset
by variable expenses, which increases according to production.
Summary Statements of Financial Position – Harrison Hydro L.P.
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interests
22,416
615,937
638,353
17,847
458,037
100,759
61,710
638,353
16,930
631,521
648,451
15,653
461,810
105,593
65,395
648,451
The decrease in equity attributable to owners and non-controlling interests is due mainly to a $13.5 million distribution to the
Corporation and its partners, partially offset by the recognition of net earnings and comprehensive income.
Innergex Renewable Energy Inc. – 2016 Financial Review – 54
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Creek Power Inc. and Its Subsidiaries
The Corporation owns a 66 2/3% interest in Creek Power Inc., which has interests in the Fitzsimmons Creek hydroelectric
facility and the Upper Lillooet River and Boulder Creek Development Projects. For more information on these projects, please
refer to the Development Projects section.
Summary Statements of Earnings and Comprehensive Income – Creek Power Inc.
Revenues
Adjusted EBITDA
Net loss
Other comprehensive income
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2015
2016
3,413
1,532
(4,559)
26
(4,533)
(3,028)
(1,531)
(4,559)
(3,011)
(1,522)
(4,533)
3,135
1,198
(19,077)
147
(18,930)
(12,708)
(6,369)
(19,077)
(12,610)
(6,320)
(18,930)
For the year ended December 31, 2016, the smaller net loss reflects a net gain of $0.1 million on financial instruments compared
with a pretax net loss of $19.2 million last year. In 2015, the Corporation settled Boulder Creek and Upper Lillooet River bond
forward contracts upon the closing of the financing for these projects on March 17, 2015, resulting in a realized loss on financial
instruments of $68.0 million, which was partly offset by an unrealized gain of $48.8 million on financial instruments resulting
from the reversal of unrealized losses accumulated at December 31, 2014, upon settlement of these bond forward contracts.
On April 1, 2015, the Corporation decided to begin using hedge accounting in the treatment of existing derivative financial
instruments used to fix the interest rate on its project-level debts in order to reduce the fluctuations in net earnings or losses
resulting from unrealized gains or losses on these derivative financial instruments during a given period.
Summary Statements of Financial Position – Creek Power Inc.
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling deficit
82,759
492,414
575,173
48,853
605,658
(56,651)
(22,687)
575,173
182,681
342,038
524,719
59,716
539,660
(53,541)
(21,116)
524,719
The decrease in current assets is due mainly to the decrease in restricted cash which was used to pay for ongoing construction
costs. The increase in non-current assets is due mainly to construction spending for the Upper Lillooet River and Boulder Creek
projects. The decrease in current liabilities is due to a $18.7 million reclassification to the non-current liabilities of the Fitzsimmons
Innergex Renewable Energy Inc. – 2016 Financial Review – 55
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Creek project's loan, which was refinanced in 2016, partly offset by an increase in accounts payable of $9.8 million due to
ongoing construction at Upper Lillooet River and Boulder Creek sites.
Kwoiek Creek Resources Limited Partnership
The Corporation owns a 50.0% interest in Kwoiek Creek Resources Limited Partnership, which owns the Kwoiek Creek
hydroelectric facility.
Summary Statements of Earnings and Comprehensive Income – Kwoiek Creek Resources Limited Partnership
Revenues
Adjusted EBITDA
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2016
2015
19,840
15,519
(704)
(352)
(352)
(704)
18,553
14,091
(4,333)
(1,947)
(2,386)
(4,333)
For the year ended December 31, 2016, the increase in revenues and EBITDA are due mainly to production levels that were
higher than for the same period last year and lower operating expenses.
Summary Statements of Financial Position – Kwoiek Creek Resources Limited Partnership
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interests deficit
8,949
175,049
183,998
9,964
194,985
(10,227)
(10,724)
183,998
6,946
177,836
184,782
8,599
196,430
(9,875)
(10,372)
184,782
Innergex Renewable Energy Inc. – 2016 Financial Review – 56
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Mesgi'g Ugju's'n (MU) Wind Farm, L.P. ("Mesgi'g Ugju's'n")
The Corporation owns a 50% interest in Mesgi'g Ugju's'n (MU) Wind Farm, L.P., which owns the Mesgi'g Ugju's'n wind project.
For more information on this project, please refer to the Development Projects and Commissioning Activities section. The
Mesgi'g Ugju's'n wind farm began commercial operation on December 30, 2016.
Summary Statement of Earnings and Comprehensive Income – Mesgi'g Ugju's'n
Revenues
Adjusted EBITDA
Net loss
Other comprehensive loss
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2016
2015
1,024
945
(1,097)
(1,643)
(2,740)
(794)
(303)
(1,097)
(1,955)
(785)
(2,740)
—
—
(9,992)
(1,639)
(11,631)
(6,869)
(3,123)
(9,992)
(8,028)
(3,603)
(11,631)
For the year ended December 31, 2016, the lower net loss reflects a minimal net gain on financial instruments compared with
a $9.9 million net loss in 2015. The facility began commercial operation in December 2016 and generated some revenue, which
was offset by finance costs and amortization and depreciation expenses.
Summary Statement of Financial Position – Mesgi'g Ugju's'n
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity (deficit) attributable to owners
Non-controlling interest deficit
64,843
294,918
359,761
59,360
264,582
44,986
(9,167)
359,761
97,923
100,966
198,889
6,535
155,434
45,302
(8,382)
198,889
The decrease in current assets is due in part to the decrease in restricted cash, which was used to pay for ongoing construction
costs, partly offset by a $49.3 million receivable from Hydro-Québec for the construction of the substation. The increase in non-
current assets is due mainly to construction spending for the project.
The increase in current liabilities is mainly due to the substation construction loan to be paid in 2017 and to higher accounts
payable related to construction. The increase in the non-current liabilities is due to drawings made on long-term debt related
to construction costs.
Innergex Renewable Energy Inc. – 2016 Financial Review – 57
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Innergex Sainte-Marguerite, S.E.C. ("SM S.E.C.")
The Corporation owns 50.01% of the common units and all of the preferred units of SM S.E.C., which owns the Sainte-Marguerite
hydroelectric facility.
Summary Statements of Earnings and Comprehensive Income – SM S.E.C.
Revenues
Adjusted EBITDA
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2016
10,666
8,148
(4,289)
(2,145)
(2,144)
(4,289)
2015
10,562
8,168
(4,086)
(2,044)
(2,042)
(4,086)
The recognition of a net loss is attributable mainly to the recording as an expense of the distributions on the preferred units
held by the Corporation and to the interest on the debentures held by the Corporation's partner.
Summary Statements of Financial Position – SM S.E.C.
As at December 31, 2016
December 31, 2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interests deficit
2,344
132,351
134,695
8,654
120,681
10,922
(5,562)
134,695
1,476
134,873
136,349
6,148
120,552
13,067
(3,418)
136,349
For the year ended December 31, 2016, the decrease in non-current assets in due mainly to the depreciation and amortization
for the year. As at December 31, 2016, the decrease of equity attributable to owners and the increase in the non-controlling
interest deficit is attributable to the recognition of a net loss and comprehensive loss during the year.
Innergex Europe (2015) Limited Partnership and Its Subsidiaries
On April 15, 2016, Innergex completed the acquisition of seven operating wind power projects in France. The Corporation
realized the acquisition through wholly owned foreign subsidiaries of Innergex Europe (2015) Limited Partnership. Up to the
investment made by Desjardins, 100% of the units of Innergex Europe (2015) Limited Partnership were owned by the
Corporation. On June 10, 2016, Desjardins invested $38.4 million in exchange for 30.45% of the common units and a
$32.0 million debenture issued by Innergex Europe (2015) Limited Partnership. The participation in the common units is reflected
in the non-controlling interest account.
On December 22, 2016, Innergex and Desjardins completed the acquisition of two operating wind power projects located in
Nouvelle-Aquitaine in France. The acquisition was realized through wholly owned foreign subsidiaries of Innergex Europe (2015)
Limited Partnership.
Innergex Renewable Energy Inc. – 2016 Financial Review – 58
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Summary Statements of Earnings and Comprehensive Income – Innergex Europe (2015) Limited Partnership and
Its Subsidiaries
Period of 261 days ended
December 31, 2016
Revenues
Adjusted EBITDA
Net loss
Other comprehensive loss
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
9,836
5,208
(11,309)
(799)
(12,108)
(8,601)
(2,708)
(11,309)
(9,157)
(2,951)
(12,108)
From the acquisition on April 15, 2016, through December 31, 2016, production was 70% of the LTA, due mainly to the below-
average wind regime in France. The net loss for the period is due mainly to lower revenues, which result from below-average
production, and to acquisition and finance costs. The expenses include $1.7 million of acquisition costs, $1.5 million in interest
payable to Desjardins on the $38.2 million debenture, a $4.3 million preferred return payable to Innergex on the $87.2 million
preferred units and $0.6 million in interest payable to Innergex on a temporary bridge loan. Excluding these elements, the net
loss would have been $3.3 million. Expenses also include non-cash expenses such as depreciation and amortization of a total
of $9.8 million.
Although the Seven French Entities were acquired in the second quarter, it is worth mentioning that for the year ended
December 31, 2016, production was 87% of the LTA for the seven wind farms in France. This is due primarily to production
that was 118% of the LTA in the first quarter of 2016 despite production having been below-average since the acquisition. The
Two French Entities Acquired in Nouvelle-Aquitaine began commercial operations in December 2016 and therefore were
excluded from this calculation.
Summary Statements of Financial Position – Innergex Europe (2015) Limited Partnership and Its Subsidiaries
As at
December 31, 2016
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interests
19,036
325,310
344,346
32,475
316,508
(5,416)
779
344,346
The excess in current liabilities over the current assets comes mainly from the short-term portion of the long-term debt, which
will be refunded with the revenues generated during the year. It is also comprised of a $3.8 million due to the partners, which
will be paid when the funds are available.
French Entities
The following figures are excluded from the controls policies and procedures of the Corporation as stated in the Establishment
and Maintenance of DC&P and ICFR section of this MD&A.
Innergex Renewable Energy Inc. – 2016 Financial Review – 59
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Summary financial information about the French Entities is set out below:
Summary Statements of Earnings and Comprehensive Income – French Entities
Revenues
Adjusted EBITDA
Net loss
Other comprehensive income
Total comprehensive loss
Summary Statements of Financial Position – French Entities
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Period of 261 days ended
December 31, 2016
9,836
5,669
(1,552)
64
(1,488)
As at
December 31, 2016
16,768
304,754
321,522
29,527
230,518
61,477
321,522
RISKS AND UNCERTAINTIES
The Corporation is exposed to various risks and uncertainties and has outlined below those that it considers material. Additional
risks and uncertainties are discussed in the “Risk Factors” section of the Corporation's most recent Annual Information Form
available on SEDAR at sedar.com. There may also exist additional risks and uncertainties that are not presently known to the
Corporation or that are currently believed to be immaterial that may adversely affect the Corporation's business.
Ability of the Corporation to Execute Its Strategy for Building Shareholder Value
The Corporation's strategy for building shareholder value is to acquire or develop high-quality facilities that generate sustainable
cash flows and provide an attractive risk-adjusted return on invested capital, and to distribute a stable dividend. However, there
is no certainty that the Corporation will be able to acquire or develop high-quality power production facilities at attractive prices
to supplement its growth.
The successful execution of this strategy requires careful timing and business judgment as well as the resources to complete
the development of power generating facilities. The Corporation may underestimate the costs necessary to bring power
generating facilities into commercial operation or may be unable to quickly and efficiently integrate new acquisitions into its
existing operations.
Ability to Raise Additional Capital and the State of the Capital Market
Future development and construction of new facilities and the development of the Development Projects and Prospective
Projects and other capital expenditures will be financed out of cash generated from the Corporation's Operating Facilities,
borrowings or the issuance and sale of additional equity. To the extent that external sources of capital, including issuance of
additional securities of the Corporation, become limited or unavailable, the Corporation's ability to make necessary capital
investments to construct existing or future projects or to maintain existing or future facilities would be impaired. There is no
certainty that sufficient capital will be available on acceptable terms to fund further development or expansion. There are
numerous renewable energy projects to be constructed in the coming years that will result in competition for capital. In addition,
payment of dividends may impair the Corporation's ability to finance its ongoing and future projects.
Furthermore, the Corporation's capital-raising efforts could involve the issuance and sale of additional Common Shares, or
debt securities convertible into its Common Shares, which, depending on the price at which such shares or debt securities are
issued or converted, could have a material dilutive effect on holders of the Corporation's Common Shares and adversely impact
the trading price of the Corporation's Common Shares.
Innergex Renewable Energy Inc. – 2016 Financial Review – 60
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Liquidity Risks Related to Derivative Financial Instruments
Derivative financial instruments are entered into with major financial institutions and their effectiveness is dependent on the
performance of these institutions. Failure by one of them to perform its obligations could involve a liquidity risk. Liquidity risks
related to derivative financial instruments also include the settlement of bond forward contracts on their maturity dates and the
early termination option included in some interest rate swap contracts and foreign exchange contracts. The Corporation uses
derivative financial instruments to manage its exposure to the risk of an increase in interest rates on its debt financing or of
foreign currency variation. The Corporation does not own or issue financial instruments for speculation purposes.
Variability in Hydrology, Wind Regimes and Solar Irradiation
The amount of electricity generated by the Corporation's hydroelectric facilities depends on the availability of water flows. There
is no certainty that the long-term availability of such resources will remain unchanged. The Corporation’s revenues may be
significantly affected by events that impact the hydrological conditions of the Corporation’s hydroelectric project facilities such
as low and high water flows within the watersheds on which the Corporation’s hydroelectric facilities are located. In the event
of severe flooding, the Corporation's hydroelectric facilities may be damaged. Similarly, the amount of electricity generated by
the Corporation's wind farms will depend on the availability of wind, which is naturally variable. A reduced or increased amount
of wind at the location of one of the wind farms over an extended period may reduce the production from such facility and may
reduce the Corporation's revenues and profitability. Finally, the amount of electricity generated by the Corporation's solar farms
will depend on the availability of solar irradiation, which is naturally variable. Lower solar irradiation levels at any of the
Corporation's solar farms over an extended period may reduce the production from such facilities and the Corporation's revenues
and profitability.
Delays and Cost Overruns in the Design and Construction of Projects
Delays and cost overruns may occur in completing the construction of the Development Projects, the Prospective Projects and
future projects that the Corporation will undertake. A number of factors that could cause such delays or cost overruns include,
without limitation, permitting delays, construction pricing escalation, changing engineering and design requirements, the
performance of contractors, labour disruptions, adverse weather conditions and the availability of financing. Even when
complete, a facility may not operate as planned due to design or manufacturing flaws, which may not all be covered by warranty.
Mechanical breakdown could occur in equipment after the period of warranty has expired, resulting in loss of production as
well as the cost of repair. In addition, if the Development Projects are not brought into commercial operation within the delay
stipulated in their PPA, the Corporation may be subject to penalty payments or the counterparty may be entitled to terminate
the related PPA.
Ability to Secure New Power Purchase Agreements or Renew Any Power Purchase Agreement
Securing new PPAs, which is a key component of the Corporation's growth strategy, is a risk factor in light of the competitive
environment in which the Corporation operates. The Corporation expects to continue to enter into PPAs for the sale of its power,
which PPAs are mainly obtained through participation in competitive requests for proposals. During these processes, the
Corporation faces competitors ranging from large utilities to small independent power producers, some of which have significantly
greater financial and other resources than the Corporation. There is no assurance that the Corporation will be selected as
power supplier following any particular request for proposals in the future or that existing PPAs will be renewed or will be
renewed on equivalent terms and conditions upon the expiry of their respective terms.
Health, Safety and Environmental Risks
The ownership, construction and operation of the Corporation's power generation assets carry an inherent risk of liability related
to worker health and safety and the environment, including the risk of government imposed orders to remedy unsafe conditions
and/or to remediate or otherwise address environmental contamination, potential penalties for contravention of health, safety
and environmental laws, licenses, permits and other approvals and potential civil liability. Compliance with health, safety and
environmental laws (and any future changes) and the requirements of licenses, permits and other approvals remain material
to the Corporation's business. The Corporation has incurred and will continue to incur significant capital and operating
expenditures to comply with health, safety and environmental laws and to obtain and comply with licenses, permits and other
approvals and to assess and manage its potential liability exposure. Nevertheless, the Corporation may become subject to
government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety and
environmental matters. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of,
health, safety and environmental laws, licenses, permits or other approvals could have a significant impact on the Corporation's
operations and/or give rise to additional material and unanticipated expenditures. As a result, no assurances can be given that
additional environmental and workers' health and safety issues relating to presently known or unknown matters will not require
unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) material to
its business and operations.
Innergex Renewable Energy Inc. – 2016 Financial Review – 61
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Uncertainties Surrounding the Development of New Facilities
The Corporation participates in the development and construction of new power generating facilities. These facilities have
greater uncertainty surrounding future profitability than existing Operating Facilities with established track records. In certain
cases many factors affecting costs are not yet determined, such as land royalty payments, water royalties or municipal taxes.
In other cases, the Corporation is required to advance funds and post-performance bonds in the course of developing these
facilities. In the event that some of these facilities are not completed or do not operate according to specifications or that
unforeseen costs or taxes are incurred, the Corporation could be adversely affected.
Obtainment of Permits
The Corporation does not currently hold all the approvals, licenses and permits required for the construction and operation of
the Development Projects or the Prospective Projects, including environmental approvals and permits necessary to construct
and operate the Development Projects or the Prospective Projects. The failure to obtain or delays in obtaining all necessary
licenses, approvals or permits, including renewals thereof or modifications thereto, could result in construction of the
Development Projects or the Prospective Projects being delayed or not being completed or commenced. There can be no
assurance that any one Prospective Project will result in any actual operating facility. In addition, delays may occur in obtaining
necessary government approvals required for future power projects.
From time to time, and in order to secure long lead times required for ordering equipment, the Corporation may place orders
for equipment and make deposits thereon or advance projects prior to obtaining all requisite permits and licences. The
Corporation takes such actions only when it reasonably believes that such licences or permits will be forthcoming in due course
prior to the requirement to expend the full amount of the purchase price. However, any delay in permitting could adversely
affect the Corporation.
Environmental permits to be issued in connection with any of the Development Projects or the Prospective Projects may contain
conditions that need to be satisfied prior to obtaining a PPA, to start construction, during construction and during and after the
operation of the Development Projects. It is not possible to predict the conditions imposed by such permits or the cost of any
mitigating measures required by such permits.
Equipment Failure or Unexpected Operations and Maintenance Activity
The Corporation's facilities are subject to the risk of equipment failure resulting from the deterioration of the asset from use or
age, latent defect and design or operator error, among other things. To the extent that a facility's equipment requires longer
than forecast downtimes for maintenance and repair, or suffers power generation disruptions for other reasons, the Corporation's
business, operating results, financial condition or prospects could be adversely affected.
Interest Rate Fluctuations and Refinancing Risk
Interest rate fluctuations are of particular concern to a capital-intensive industry such as electricity generation. The Corporation
faces interest rate and debt refinancing risk in respect of floating-rate bank credit facilities used for construction and long-term
financings. The Corporation's ability to refinance debt on favourable terms is dependent on debt capital market conditions,
which are inherently variable and difficult to predict.
Financial Leverage and Restrictive Covenants Governing Current and Future Indebtedness
The Corporation's operations and those of its subsidiaries are subject to contractual restrictions contained in the instruments
governing any of their current and future indebtedness. The degree to which the Corporation and its subsidiaries are leveraged
could have important consequences to shareholders, including: (i) the Corporation's and its subsidiaries' ability to obtain
additional financing for working capital, capital expenditures, acquisitions or other project developments in the future may be
limited; (ii) a significant portion of the Corporation's and its subsidiaries' cash flows from operations may be dedicated to the
payment of the principal of and interest on their indebtedness, thereby reducing funds available for future operations; (iii) some
of the Corporation's and its subsidiaries' borrowings may carry variable interest rates, which exposes the Corporation and its
subsidiaries to the risk of increasing interest rates; and (iv) the Corporation and its subsidiaries may be more vulnerable to
economic downturns and be limited in their ability to withstand competitive pressures.
The Corporation and its subsidiaries are subject to operating and financial restrictions through covenants in certain loan and
security agreements. These restrictions prohibit or limit the Corporation's and its subsidiaries' ability to, among other things,
incur additional debt, provide guarantees for indebtedness, create liens, dispose of assets, liquidate, dissolve, amalgamate,
consolidate or effect any corporate or capital reorganization, make distributions or pay dividends, issue any equity interests
and create subsidiaries. These restrictions may limit the Corporation's and its subsidiaries' ability to obtain additional financing,
withstand downturns in the Corporation's and its subsidiaries' business and take advantage of business opportunities. Moreover,
the Corporation and its subsidiaries may be required to seek additional debt financing on terms that include more restrictive
covenants, require repayment on an accelerated schedule, or impose other obligations that limit the Corporation's or its
subsidiaries' ability to grow the business, acquire assets or take other actions the Corporation or its subsidiaries might otherwise
Innergex Renewable Energy Inc. – 2016 Financial Review – 62
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
consider appropriate or desirable.
Possibility That the Corporation May Not Declare or Pay a Dividend
Holders of Common Shares, Series A Preferred Shares and Series C Preferred Shares do not have a right to dividends on
such shares unless such dividends are declared by the Board of Directors. The declaration of dividends is at the discretion of
the Board of Directors even if the Corporation has sufficient funds, net of its liabilities, to pay such dividends.
The Corporation may not declare or pay a dividend if the Corporation’s cash available for distribution is not sufficient or if there
are reasonable grounds to believe that (i) the Corporation is, or would after the dividend payment be, unable to pay its liabilities
as they become due; or (ii) the realizable value of the Corporation's assets would thereby be less than the aggregate of its
liabilities and stated capital of its outstanding shares.
Changes in Governmental Support to Increase Electricity to be Generated from Renewable Sources by Independent
Power Producers
Development and growth of renewable energy is dependent on governmental support, policies and incentives. Many provincial
governments have introduced portfolio standards to increase the portion of renewable energy in their electricity generation
supply mix in order to reduce greenhouse gas emissions over time. There is a risk that governmental support providing incentives
for renewable energy could change at any time and that additional increase in the procurement of renewable energy projects
from independent power producers be reduced or suspended at any time. As a result, the Corporation may face reduced ability
to develop its prospective projects and may suffer material write-offs of prospective projects.
Foreign Market Growth and Development Risks
The Corporation may, in connection with any international expansion of its activities, face risks related to (i) its ability to effectively
consummate future acquisitions, create new partnerships and develop, construct and operate projects in an unfamiliar regulatory
and procurement market, (ii) competing with more established competitors; (iii) foreign exchange fluctuations; (iv) lack of
knowledge of foreign market and (v) changes in international and local taxation.
Cybersecurity
The Corporation is dependent on various information technologies to carry out multiple business activities. A successful cyber
intrusion, such as, and not limited to, unauthorized access, malicious software or other violations on the system that control
generation and transmission at any of our offices or facilities could severely disrupt or otherwise affect business operations or
diminish competitive advantages. These attacks on our information base systems through theft, alteration or destruction could
generate unexpected expenses to investigate and repair security breaches or system damage and could lead to litigation, fines,
other remedial action, heightened regulatory scrutiny and damage to our reputation. A breach of our cyber/data security measures
could have a material adverse effect on the Corporation’s business, operations, financial condition and results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates. During the reporting periods, management made a number of estimates
and assumptions pertaining primarily to the fair value calculation of the assets acquired and liabilities assumed in business
acquisitions, impairment of assets, useful lives and recoverability of property, plant and equipment, intangible assets and project
development costs, deferred income taxes, asset retirement obligations, as well as the fair value of financial assets and liabilities
including derivatives, effectiveness of hedging relationships and classification of structured entities. These estimates and
assumptions are based on current market conditions, management's planned course of action and assumptions about future
business and economic conditions. Changes in the underlying assumptions and estimates could have a material impact on
the reported amounts. These estimates are reviewed periodically. If adjustments prove necessary, they are recognized in
earnings in the period in which they are made.
Changes made during the year ended December 31, 2016, are described in the Accounting Changes section. Other significant
accounting policies are listed in Note 3 of the Corporation's audited consolidated financial statements for the year ended
December 31, 2016.
Innergex Renewable Energy Inc. – 2016 Financial Review – 63
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
ACCOUNTING CHANGES
Revised IFRS Affecting the Reported Financial Performance and Financial Position in the Current Year
International Accounting Standard 1 (''IAS 1'') – Presentation of Financial Statements
In December 2014, the International Accounting Standards Board (''IASB'') issued Disclosure Initiative (Amendments to IAS
1), which addressed concerns expressed about some of the existing presentation and disclosure requirements in IAS 1 and
ensured that entities are able to use judgment when applying those requirements. In addition, the amendments clarified the
requirements in other comprehensive income. Those amendments must be applied for annual periods beginning on or after
January 1, 2016. The application of this amendment has not had any material impact on the amounts reported for the current
year.
IFRS 11 – Joint Arrangements
IFRS 11 was amended in May 2014 to add new guidance on how to account for the acquisition of an interest in a joint operation
that constitutes a business. The amendments are effective for annual periods beginning on or after January 1, 2016. The
application of this standard has not had any material impact on the amounts reported for the current year.
IAS 7 – Statement of Cash Flows
In January 2016, the IASB issued Disclosure Initiative (Amendments to IAS 7), which addressed that entities shall provide
disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. Those
amendments must be applied for annual periods beginning on or after January 1, 2017 with early adoption permitted. The
Corporation has disclosed the new requirements in Note 28 in the Financial Statements.
IAS 12 – Income Taxes
In January 2016, the IASB issued Amendments to IAS 12, which concluded that the diversity in practice around the recognition
of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the
application of some of the principles in IAS 12. Those amendments must be applied for annual periods beginning on or after
January 1, 2017. The new requirements on recognition of deferred tax assets were already followed by the Corporation.
Accordingly, the Corporation has concluded that these amendments should not have any impact on its consolidated financial
statements.
New and Revised IFRS Issued but Not Yet Effective
IFRS 2 – Share-based Payments
In June 2016, the IASB issued amendments to IFRS 2 Share-based Payments, clarifying how to account for certain types of
share-based payment transactions. The amendments provide requirements on the accounting for: the effects of vesting and
non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with
a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment
that changes the classification of the transaction from cash-settled to equity-settled. The amendments are effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. Employees of the Corporation have taken training
course in order to start evaluating the impact this standard is expected to have on its consolidated financial statements.
IFRS 9 – Financial Instruments (2014)
In July 2014, the IASB issued the complete IFRS 9 (2014), Financial Instruments (''IFRS 9 (2014)''). IFRS 9 (2014) differs in
some regards from IFRS 9 (2013) which the Corporation early adopted effective October 1, 2014. IFRS 9 (2014) includes
updated guidance on the classification and measurement of financial assets. The final standard also amends the impairment
model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of IFRS 9 (2014)
is for annual periods beginning on or after January 1, 2018, and must be applied retrospectively with some exemptions. Early
adoption is permitted. Employees of the Corporation have taken training course in order to start evaluating the impact of the
adoption of this standard on its consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 64
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except as noted, and amounts per share)
IFRS 15 – Revenue from Contracts with Customers
In May 2014, IASB issued IFRS 15– Revenue from Contracts with Customers (“IFRS 15”). This standard replaces IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue-Barter Transactions Involving Advertising
Services. IFRS 15 applies to all contracts with customers except those that are within the scope of other IFRSs. IFRS 15 is
effective for annual periods commencing on or after January 1, 2018, with early adoption permitted. Employees of the Corporation
have taken training course in order to start evaluating the impact this standard is expected to have on its consolidated financial
statements.
IFRS 16 – Leases (IFRS 16)
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the identification of lease arrangements
and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated
interpretive guidance. Significant changes were made to lessee accounting with the distinction between operating and finance
leases removed and assets and liabilities recognized in respect of all leases (subject to limited exceptions for short-term leases
and leases of low value assets). In contrast, IFRS 16 does not include significant changes to the requirements for lessors.
IFRS 16 is effective January 1, 2019, with earlier application permitted. Employees of the Corporation have taken training
course in order to start evaluating the impact of the adoption of this standard on its consolidated financial statements.
SUBSEQUENT EVENTS
Big Silver Term Loan
On January 31, 2017, the construction term loan of Big Silver was converted into a 39.5-year term loan.
Financing of Two of the French Subsidiaries
On February 10, 2017, two of the French subsidiaries concluded a €8,5 million subordinated debt financing with a French
Infrastructure fund. The subordinated loan carries an interest rate of 7.25%, has an eight year tenor and its principal will be
reimbursed at maturity.
Revolving Credit Facility
On February 21, 2017, the Corporation executed a Fifth Amended and Restated Credit Agreement of its existing $425 million
revolving credit facility. These amendments add flexibility to the Corporation to borrow in EURO via EURIBOR loans. The
Corporation also extended its revolving term from 2020 to 2021 (except for one lender of $42.5 million whose commitment
remains until 2020) to provide greater financing flexibility. Moreover, a Letter of Credit Facility of an amount of up to $30 million
guaranteed by Export Development Canada (EDC) was added and will be put in place.
Acquisition of Yonne
On February 21, 2017, the Corporation and Desjardins completed the purchase of the Yonne wind farm, a 44 MW facility for
which the commissioning activities began in the fourth quarter 2016 and were completed at the end of January 2017, and which
was part of the French wind projects acquisition concluded in April 2016. The electricity produced by Yonne is sold under a
power purchase agreement at fixed price for an initial term of 15 years, to Électricité de France. The total purchase price
amounted to €35.2 million (or $49.0 million), subject to certain adjustments. A €10.0 million (or $13.9 million) deposit had already
been provided by the Corporation. The project financing of €59.5 million (equivalent to $82.8 million), which is already in place,
will remain at the acquired project level. The Corporation reduces its exposure to exchange rate fluctuations by entering into
long-term currency hedging instruments. Innergex owns a 69.55% interest in the wind farm and Desjardins Group Pension
Plan owns the remaining 30.45%.
Innergex Renewable Energy Inc. – 2016 Financial Review – 65
Responsibility for Financial Reporting
The consolidated financial statements of Innergex Renewable Energy Inc. (the “Corporation”) accompanying this annual report
and all of the information herein concerning the Corporation are the responsibility of Management.
These consolidated financial statements were prepared by Management in accordance with International Financial Reporting
Standards (“IFRS”) by applying the detailed accounting policies set out in the notes to the consolidated financial statements.
Management is of the opinion that the consolidated financial statements were prepared based on reasonable criteria and using
justifiable and reasonable estimates. The Corporation's financial information, presented elsewhere in the annual report, is
consistent with what is presented in the consolidated financial statements.
Management maintains efficient and high-quality internal accounting and management control systems while ensuring that
costs are reasonable. These systems provide assurance that the financial information is relevant, accurate and reliable, and
that the Corporation's assets are correctly accounted for and adequately safeguarded.
The Board of Directors of the Corporation is responsible for ensuring that Management fulfils its financial reporting
responsibilities. In addition, the Board of Directors is ultimately responsible for reviewing and approving the Corporation's
consolidated financial statements. The Board of Directors fulfils this responsibility through its Audit Committee.
The Audit Committee is appointed by the Board of Directors and all of its members are external non-related Directors.
The Audit Committee meets with Management and the independent auditor for the purposes of discussing internal controls
relating to the financial reporting process, audit of financial information and other financial issues, and to make sure that each
party is properly fulfilling its responsibilities. In addition, the Audit Committee reviews the annual report, the consolidated financial
statements and the independent auditor's report. The Audit Committee submits its finding to the Board of Directors for review
and for approval of the consolidated financial statements prior to their presentation to the shareholders. The Audit Committee
also determines whether to retain the services of independent auditor and to renew their mandate, which is subject to Board
review and shareholders' approval.
These consolidated financial statements were approved by the Corporation's Board of Directors. The Corporation's consolidated
financial statements were audited by its independent auditor, Deloitte LLP, in accordance with Canadian generally accepted
auditing standards and on the shareholders' behalf. Deloitte LLP enjoy full and unrestricted access to the Audit Committee.
[s] Michel Letellier
Michel Letellier, MBA
President and Chief Executive Officer
[s] Jean Perron
Jean Perron, CPA, CA
Chief Financial Officer
Innergex Renewable Energy Inc.
Longueuil, Canada, February 23, 2017
Innergex Renewable Energy Inc. – 2016 Financial Review – 66
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Innergex Renewable Energy Inc.
We have audited the accompanying consolidated financial statements of Innergex Renewable Energy Inc., which comprise
the consolidated statements of financial position as at December 31, 2016 and December 31, 2015 and the consolidated
statements of earnings, consolidated statements of comprehensive income (loss), consolidated statements of changes in
shareholders’ equity and consolidated statements of cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Innergex
Renewable Energy Inc. as at December 31, 2016 and December 31, 2015, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards.
[s] Deloitte LLP1
Montreal, Quebec
February 23, 2017
_________________________
1 CPA auditor, CA, public accountancy permit No. A109248
Innergex Renewable Energy Inc. – 2016 Financial Review – 67
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Revenues
Expenses
Operating
General and administrative
Prospective projects
Earnings before finance costs, income taxes, depreciation,
amortization, impairment of project development costs, other net
expenses, share of earnings of joint ventures and unrealized net
gain on financial instruments
Finance costs
Other net expenses
Earnings (loss) before income taxes, depreciation, amortization,
impairment of project development costs, share of earnings of joint
ventures and unrealized net gain on financial instruments
Depreciation
Amortization
Impairment of project development costs
Share of earnings of joint ventures
Unrealized net gain on financial instruments
Earnings (loss) before income taxes
Income tax expense (recovery of)
Current
Deferred
Net earnings (loss)
Net earnings (loss) attributable to:
Owners of the parent
Non-controlling interests
Weighted average number of common shares outstanding (in 000s)
Basic net earnings (loss) per share ($)
Diluted weighted average number of common shares outstanding (in
000s)
Diluted net earnings (loss) per share ($)
Notes
6
7
8
6, 18
6, 19
20
9
10
11
11
29.2
12
12
12
12
Year ended December 31
2015
2016
292,785
246,869
51,469
15,045
10,288
215,983
95,254
265
120,464
61,722
28,581
—
(2,526)
(4,292)
36,979
2,970
1,966
4,936
32,043
35,963
(3,920)
32,043
106,883
0.28
107,762
0.28
40,938
14,188
8,005
183,738
83,130
116,764
(16,156)
53,261
22,217
51,719
(1,562)
(81,368)
(60,423)
3,122
(15,162)
(12,040)
(48,383)
(30,301)
(18,082)
(48,383)
102,304
(0.37)
102,587
(0.37)
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 68
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS)
INCOME
(in thousands of Canadian dollars, except as noted, and amounts per share)
Net earnings (loss)
Items of comprehensive income (loss) that will be subsequently
reclassified to earnings:
Foreign exchange (loss) gain on translation of self-sustaining foreign
subsidiaries
Related deferred tax
Foreign exchange gain (loss) on the designated hedges on the
investments in self-sustaining foreign subsidiaries
Related deferred tax
Notes
27
Change in fair value of hedging instruments
Related deferred tax
Share of change in fair value of hedging instruments of joint venture
Related deferred tax
Share of non-controlling interests in foreign exchange loss on
translation of self-sustaining foreign subsidiaries
Share of non-controlling interests in foreign exchange gain on the
designated hedges on the investments in self-sustaining foreign
subsidiaries
Share of non-controlling interests in change in fair value of hedging
instruments
Related deferred tax
Other comprehensive loss
Total comprehensive income (loss)
Other comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests
Year ended December 31
2015
2016
32,043
(48,383)
(872)
91
296
(17)
408
(74)
1
—
(253)
9
(55)
14
1,689
(223)
(1,610)
212
(2,267)
590
64
(16)
—
—
(414)
(18)
(452)
31,591
(1,993)
(50,376)
(167)
(285)
(452)
35,796
(4,205)
31,591
(1,561)
(432)
(1,993)
(31,862)
(18,514)
(50,376)
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 69
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, except as noted, and amounts per share)
As at
Assets
Current assets
Cash and cash equivalents
Restricted cash and short-term investments
Accounts receivable
Reserve accounts
Income tax receivable
Derivative financial instruments
Prepaid and others
Non-current assets
Reserve accounts
Property, plant and equipment
Intangible assets
Investments in joint ventures
Derivative financial instruments
Deferred tax assets
Goodwill
Other long-term assets
December 31, 2016
December 31, 2015
Notes
15
16
17
11
10
17
18
19
9
10
11
21
56,227
89,742
98,847
—
—
1,527
5,886
252,229
49,489
2,700,007
544,865
8,758
8,117
11,849
8,269
20,621
3,604,204
40,663
312,720
37,073
1,315
4
1,209
4,363
397,347
41,521
2,174,222
472,271
9,327
2,768
15,356
8,269
7,222
3,128,303
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 70
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, except as noted, and amounts per share)
As at
Liabilities
Current liabilities
Dividends payable to shareholders
Accounts payable and other payables
Income tax payable
Derivative financial instruments
Current portion of long-term debt
Current portion of other liabilities
Non-current liabilities
Derivative financial instruments
Accrual for acquisition of long-term assets
Long-term debt
Other liabilities
Liability portion of convertible debentures
Deferred tax liabilities
Shareholders’ equity
Common share capital
Contributed surplus from reduction of capital on common
shares
Preferred shares
Share-based payment
Equity portion of convertible debentures
Deficit
Accumulated other comprehensive loss
Equity attributable to owners
Non-controlling interests
Total shareholders’ equity
Notes
22
11
10
23
24
10
23
24
25
11
26 a)
26 b)
26 c)
26 d)
25
27
29.2
December 31, 2016
December 31, 2015
18,795
85,850
1,292
14,541
99,397
495
220,370
55,194
37,401
2,507,236
26,966
94,840
176,965
3,118,972
17,892
95,466
1,234
15,337
54,995
246
185,170
56,348
—
2,160,438
13,429
93,430
147,931
2,656,746
162,862
108,541
775,413
131,069
2,199
1,877
(601,157)
(1,743)
470,520
14,712
485,232
3,604,204
775,413
131,069
2,174
1,877
(567,848)
(1,576)
449,650
21,907
471,557
3,128,303
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 71
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, except as noted, and amounts per share)
Year ended December 31,
2016
Number of
common
shares
(In 000s)
Common
shares
capital
account
Contributed
surplus from
reduction of
capital on
common
shares
Preferred
shares
Share-
based
payment
Equity
portion of
convertible
debentures
Accumulated
other
comprehensive
loss
Deficit
Non-
controlling
interests
Total
shareholders’
equity
Total
Equity attributable to owners
Balance January 1, 2016
103,938
108,541
775,413
131,069
2,174
1,877
(567,848)
(1,576)
449,650
21,907
471,557
—
—
—
—
—
—
35,963
(167)
35,796
(4,205)
31,591
35,963
35,963
(3,920)
32,043
(167)
(167)
(285)
(452)
Net earnings (loss)
Other items of comprehensive
loss
Total comprehensive income
(loss)
Common shares issued on
April 15, 2016 : private
placement (Note 5b))
Common shares issued
through dividend
reinvestment plan
Share-based payment
3,906
50,000
243
3,209
Share options exercised
94
1,112
Distributions to non-
controlling interests
Investments from non-
controlling interests
Dividends declared on
common shares
Dividends declared on
preferred shares
103
(78)
5,194
(68,524)
(5,942)
50,000
50,000
3,209
103
1,034
3,209
103
1,034
—
(7,388)
(7,388)
5,194
4,398
9,592
(68,524)
(5,942)
(68,524)
(5,942)
485,232
Balance December 31, 2016
108,181
162,862
775,413
131,069
2,199
1,877
(601,157)
(1,743)
470,520
14,712
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 72
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, except as noted, and amounts per share)
Year ended December 31,
2015
Number of
common
shares
(In 000s)
Common
shares
capital
account
Contributed
surplus from
reduction of
capital on
common
shares
Preferred
shares
Share-
based
payment
Equity
portion of
convertible
debentures
Accumulated
other
comprehensive
loss
Deficit
Non-
controlling
interests
Total
shareholders’
equity
Total
Equity attributable to owners
Balance January 1, 2015
100,672
62,224
784,482
131,069
2,050
1,340
(466,336)
(15)
514,814
47,411
562,225
(30,301)
(30,301)
(18,082)
(48,383)
Net loss
Other items of comprehensive
loss
Total comprehensive loss
—
—
—
—
—
—
(30,301)
Common shares issued
through dividend
reinvestment plan
Buyback of common shares
Share-based payment
758
(1,190)
8,172
(998)
(9,069)
Share options exercised
45
462
3,653
38,681
Convertible debentures
converted into common
shares
Redemption of convertible
debentures
Equity portion of convertible
debentures issued (Net of
$673 of deferred income
taxes)
Distributions to non-
controlling interests
Investments from non-
controlling interests
Dividends declared on
common shares
Dividends declared on
preferred shares
192
(68)
(648)
(692)
1,877
(2,282)
891
951
(63,646)
(7,125)
(1,561)
(1,561)
(1,561)
(432)
(31,862)
(18,514)
(1,993)
(50,376)
8,172
(12,349)
192
394
38,924
259
1,877
—
—
(63,646)
(7,125)
8,172
(12,349)
192
394
38,924
259
1,877
(7,448)
(7,448)
458
458
(63,646)
(7,125)
Balance December 31, 2015
103,938
108,541
775,413
131,069
2,174
1,877
(567,848)
(1,576)
449,650
21,907
471,557
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 73
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Year ended December 31
2016
2015
Notes
18
19
20
9
10
7
7
7
7
7
Operating activities
Net earnings (loss)
Items not affecting cash:
Depreciation
Amortization
Impairment of project development costs
Share of earnings of joint ventures
Unrealized net gain on financial instruments
Inflation compensation interest
Amortization of financing fees
Accretion of long-term debt and convertible debentures
Accretion expenses on other liabilities
Share-based payment
Deferred income taxes
Others
Interest on long-term debt and convertible debentures
Interest paid
Loss (gain) on contingent considerations
Distributions received from joint ventures
Current income tax expense
Net income taxes paid
Effect of exchange rate fluctuations
Changes in non-cash operating working capital items
28
Financing activities
Dividends paid on common shares
Dividends paid on preferred shares
Distributions to non-controlling interests
Investments from non-controlling interests
Increase of long-term debt
Repayment of long-term debt
Payment of deferred financing costs
Payment of other liabilities
Payment for redemption of convertible debentures
Net proceeds from issuance of convertible debentures
Payment for buyback of common shares
Proceeds from issuance of common shares
Proceeds from exercise of share options
29.2
24
25
25
26 a)
26
26 d)
32,043
61,722
28,581
—
(2,526)
(4,292)
4,207
1,194
1,442
551
103
1,966
(130)
86,687
(81,739)
800
3,147
2,970
(2,893)
(638)
133,195
(56,442)
76,753
(64,116)
(6,237)
(7,388)
9,565
872,247
(657,207)
(2,680)
—
—
—
—
50,000
1,034
195,218
(48,383)
53,261
22,217
51,719
(1,562)
(81,368)
2,937
753
1,184
609
192
(15,162)
425
76,752
(71,742)
(3,447)
6,859
3,122
(3,289)
1,205
(3,718)
8,275
4,557
(54,464)
(7,125)
(7,448)
—
1,241,951
(665,085)
(13,842)
(244)
(41,591)
95,527
(12,349)
—
394
535,724
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 74
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Notes
5
5
17
Investing activities
Cash acquired on business acquisitions
Business acquisitions
Decrease (increase) of restricted cash and short-term
investments
Net funds withdrawn from (invested into) the reserve accounts
Additions to property, plant and equipment
Additions to project development costs
Investments in joint ventures
Additions to other long-term assets
Proceeds from disposal of property, plant and equipment
Effects of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents is comprised of:
Cash
Short-term investments
Additional information is presented in Note 28.
Year ended December 31
2016
2015
11,998
(125,493)
222,978
1,610
(351,258)
—
(50)
(14,740)
—
(254,955)
(1,452)
15,564
40,663
56,227
55,489
738
56,227
—
—
(226,913)
(1,336)
(296,153)
(29,107)
—
(1,324)
39
(554,794)
567
(13,946)
54,609
40,663
22,898
17,765
40,663
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
DESCRIPTION OF BUSINESS
Innergex Renewable Energy Inc. (“Innergex” or the “Corporation”) was incorporated under the Canada Business Corporation
Act on October 25, 2002. The Corporation is a developer, owner and operator of renewable power-generating facilities,
essentially focused on the hydroelectric, wind power and solar photovoltaic sectors. The head office of the Corporation is located
at 1111, St-Charles Street West, East Tower, Suite 1255, Longueuil, Qc, J4K 5G4, Canada.
These consolidated financial statements were approved by the Board of Directors on February 23, 2017.
These consolidated financial statements have been prepared in accordance with the accounting policies described in Note 3.
1. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared using accounting policies consistent with International
Financial Reporting Standards (“IFRS”).
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments
that are measured at fair values as described in the significant accounting policies. Historical cost is generally based on
the fair value of the consideration given in exchange for assets.
2. APPLICATION OF NEW AND REVISED IFRS
2.1 Revised IFRS affecting the reported financial performance and financial position in the current year
International Accounting Standard 1 (''IAS 1'') - Presentation of Financial Statements
In December 2014, the International Accounting Standards Board (''IASB'') issued Disclosure Initiative (Amendments to
IAS 1), which addressed concerns expressed about some of the existing presentation and disclosure requirements in IAS
1 and ensured that entities are able to use judgment when applying those requirements. In addition, the amendments
clarified the requirements in other comprehensive income. Those amendments must be applied for annual periods beginning
on or after January 1, 2016. The application of this amendment has not had any material impact on the amounts reported
for the current year.
IFRS 11- Joint Arrangements
IFRS 11 was amended in May 2014 to add new guidance on how to account for the acquisition of an interest in a joint
operation that constitutes a business. The amendments are effective for annual periods beginning on or after
January 1, 2016. The application of this standard has not had any material impact on the amounts reported for the current
year.
IAS 7 - Statement of Cash Flows
In January 2016, the IASB issued Disclosure Initiative (Amendments to IAS 7), which addressed that entities shall provide
disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.
Those amendments must be applied for annual periods beginning on or after January 1, 2017 with early adoption permitted.
The Corporation has disclosed the new requirements in Note 28.
IAS 12 - Income Taxes
In January 2016, the IASB issued Amendments to IAS 12, which concluded that the diversity in practice around the
recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to
uncertainty about the application of some of the principles in IAS 12. Those amendments must be applied for annual
periods beginning on or after January 1, 2017. The new requirements on recognition of deferred tax assets were already
followed by the Corporation. Accordingly, the Corporation has concluded that these amendments should not have any
impact on its consolidated financial statements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
2.2 New and revised IFRS issued but not yet effective
IFRS 2- Share-based Payments
In June 2016, the IASB issued amendments to IFRS 2 Share-based Payments, clarifying how to account for certain types
of share-based payment transactions. The amendments provide requirements on the accounting for: the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions
with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-
based payment that changes the classification of the transaction from cash-settled to equity-settled. The amendments are
effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. Employees of the
Corporation have taken training course in order to start evaluating the impact this standard is expected to have on its
consolidated financial statements.
IFRS 9 - Financial Instruments (2014)
In July 2014, the IASB issued the complete IFRS 9 (2014), Financial Instruments (''IFRS 9 (2014)''). IFRS 9 (2014) differs
in some regards from IFRS 9 (2013) which the Corporation early adopted effective October 1, 2014. IFRS 9 (2014) includes
updated guidance on the classification and measurement of financial assets. The final standard also amends the impairment
model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of
IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018, and must be applied retrospectively with some
exemptions. Early adoption is permitted. Employees of the Corporation have taken training course in order to start evaluating
the impact of the adoption of this standard on its consolidated financial statements.
IFRS 15- Revenue from Contracts with Customers
In May 2014, IASB issued IFRS 15– Revenue from Contracts with Customers (“IFRS 15”). This standard replaces IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue-Barter Transactions
Involving Advertising Services. IFRS 15 applies to all contracts with customers except those that are within the scope of
other IFRSs. IFRS 15 is effective for annual periods commencing on or after January 1, 2018, with early adoption permitted.
Employees of the Corporation have taken training course in order to start evaluating the impact this standard is expected
to have on its consolidated financial statements.
IFRS 16 Leases (IFRS 16)
On January 13, 2016, the IASB issued IFRS 16 that provides a comprehensive model for the identification of lease
arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases
and its associated interpretive guidance. Significant changes were made to lessee accounting with the distinction between
operating and finance leases removed and assets and liabilities recognized in respect of all leases (subject to limited
exceptions for short-term leases and leases of low value assets). In contrast, IFRS 16 does not include significant changes
to the requirements for lessors. IFRS 16 is effective January 1, 2019, with earlier application permitted. Employees of the
Corporation have taken training course in order to start evaluating the impact of the adoption of this standard on its
consolidated financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation, and the subsidiaries that it controls. Control
exists where the Corporation has the power over the subsidiary, where the Corporation is exposed or has rights to variable
returns from its involvement with the subsidiary and where the Corporation has the ability to use its power to affect its
returns. Subsidiaries are consolidated from the effective date of acquisition up to the effective date of disposal or loss of
control.
Innergex Renewable Energy Inc. – 2016 Financial Review – 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using
the equity method of accounting. Under the equity method, an investment in a joint venture is initially recognized in the
consolidated statement of financial position at cost and adjusted thereafter to recognize the Corporation's share of the
profit or loss and other comprehensive income of the joint venture. When the Corporation's share of losses of a joint venture
exceeds the Corporation's interest in that joint venture (which includes any long-term interest that, in substance, forms
part of the Corporation's net investment in the joint venture), the Corporation discontinues recognizing its share of further
losses. Additional losses are recognized only to the extent that the Corporation has incurred legal or constructive obligations
or made payments on behalf of the joint venture.
An investment is accounted for using the equity method from the date on which the investee becomes a joint venture. On
acquisition of the investment in a joint venture, any excess of the cost of the investment over the Corporation's share of
the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within
the carrying amount of the investment. Any excess of the Corporation's share of the net fair value of the identifiable assets
and liabilities over the cost of the investment, after reassessment, is recognized immediately in earnings or loss.
The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect
to the Corporation's investment in a joint venture. When necessary, the entire carrying amount of the investment (including
goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its
recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss
recognized forms part of the carrying amount of the investment. Any reversal of the impairment loss is recognized in
accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
The Corporation discontinues the use of the equity method from the date when the investment ceases to be a joint venture.
When the Corporation retains an interest in the former joint venture and the retained interest is a financial asset, the
Corporation measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial
recognition in accordance with IFRS 9. The difference between the carrying amount of the joint venture at the date the
equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part
interest in the joint venture is included in the determination of the gain or loss on disposal of the joint venture. In addition,
the Corporation accounts for all amounts previously recognized in other comprehensive income in relation to that joint
venture on the same basis as would be required if that joint venture had directly disposed of the related assets or liabilities.
Therefore, if a gain or loss previously recognized in other comprehensive income by that joint venture would be reclassified
to profit or loss on the disposal of the related assets or liabilities, the Corporation reclassifies the gain or loss from equity
to profit or loss (as a reclassification adjustment) when the equity method is discontinued.
Investments in joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of
the parties sharing control.
When the Corporation undertakes its activities under joint operations, the Corporation as a joint operator recognizes in
relation to its interest in a joint operation:
•
•
•
•
•
its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue form the sale of its share of the output arising from the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.
Innergex Renewable Energy Inc. – 2016 Financial Review – 78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The Corporation accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with IFRSs applicable to the particular assets, liabilities, revenues and expenses.
When the Corporation transacts with a joint operation in which a group entity is a joint operator (such as a sale or contribution
of assets), the Corporation is considered conducting the transaction with other parties to the joint operation and profits
and losses resulting from the transactions are recognized in the Corporation's consolidated financial statements only to
the extent of the other parties' interests in the joint operation.
When the Corporation transacts with a joint operation in which a group entity is a joint operator (such as a purchase of
assets), the Corporation does not recognize its share of the gains and losses until it resells those assets to a third party.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the acquisition is
measured at the aggregate of the fair values, at the acquisition date, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Corporation in exchange for control of the acquiree. Acquisition-related costs are
recognized in the consolidated statement of earnings as incurred. Where appropriate, the cost of acquisition includes any
asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value.
Subsequent changes in such fair values are adjusted against the cost of acquisition when they qualify as measurement
period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or
liability are accounted for in accordance with the relevant IFRS and reflected through net earnings. Changes in the fair
value of contingent consideration classified as equity are not recognized.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, bank balances and short-term investments with original maturities of a
year or less, net of bank overdrafts whenever they are an integral part of the Corporation's cash management process.
Restricted cash and short-term investments
The Corporation holds restricted cash and short-term investments as required under some of its project financings.
The restricted cash accounts and short-term investments are currently invested in cash or in short-term investments having
maturities of three months or less.
The availability of funds in the restricted cash and short-term investments accounts are restricted by credit agreements.
Reserve accounts
The Corporation holds two types of reserve accounts designed to help ensure its financial stability. The first is the hydrology/
wind reserve established at the start of commercial operations of a facility to compensate for the variability of cash flows
related to fluctuations in hydrology or wind conditions or other unpredictable events. The amounts in the reserve are
expected to vary from quarter to quarter according to the seasonality of cash flows. The second is the major maintenance
reserve established in order to prefund any major plant repairs that may be required to maintain the Corporation's generating
capacity.
The reserve accounts are currently invested in cash or in short-term investments having maturities of a year or less as
well as in Government-backed securities.
The availability of funds in the reserve accounts may be restricted by credit agreements.
Property, plant and equipment
Property, plant and equipment are comprised mainly of hydroelectric facilities, wind farm facilities and a solar facility that
are either in operation or under construction. They are recorded at cost less accumulated depreciation and accumulated
impairment losses if any.
Innergex Renewable Energy Inc. – 2016 Financial Review – 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Property, plant and equipment are depreciated using the straight-line method over the lesser of (i) the estimated useful
lives of the assets or (ii) the period for which the Corporation owns the rights to the assets. Improvements that increase
or extend the service life or capacity of an asset are capitalized. Maintenance and repair costs are expensed as incurred.
Property, plant and equipment are not depreciated until they are ready for their intended use.
The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and
is recognized in earnings.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those
assets, until such time as the assets are substantially ready for their intended use or sale. The total costs of those assets,
including the addition of borrowing costs, shall not exceed the recoverable amount of the assets.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in earnings in the period in which they are incurred.
The useful life used to calculate depreciation is as follows:
Type of property, plant and equipment
Hydroelectric facilities
Wind farm facilities
Solar facility
Other equipments
Leases
Ending years of
depreciation period
2019 to 2091
2021 to 2041
2032 to 2037
2017 to 2024
Useful life for the
depreciation period
8 to 75 years
14 to 25 years
20 to 25 years
3 to 10 years
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to income on a straight
line basis over the term of the leases.
Intangible assets
Intangible assets consist of various permits, licenses and agreements. Intangibles assets are amortized using the straight-
line method over a period ending on the maturity date of the permits, licenses or agreements of each facility. The estimated
useful life reflects the respective Power Purchase Agreements' (''PPA'') renewable rights periods, since it is the Corporation's
intention to exercise its option to renew its PPAs. They are recorded at cost less accumulated amortization and accumulated
impairment losses. Amortization starts when the related facility becomes ready for its intended use.
Intangible assets related to facilities under construction are not amortized until the related facilities are ready for their
intended use. Intangible assets also include the cost of extended warranties for wind farm equipments; these costs are
amortized over the warranty period.
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Innergex Renewable Energy Inc. – 2016 Financial Review – 80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The useful life used to calculate amortization is as follows:
Intangible assets related to:
Hydroelectric facilities
Wind farm facilities
Solar facility
Project development costs
Ending years of
amortization period
2017 to 2081
2024 to 2031
2032
Useful life for the
amortization period
4 to 75 years
8 to 20 years
20 years
Project development costs represent costs incurred for the acquisition of prospective projects and for the development of
hydroelectric, wind farm and solar sites. They are recorded at cost less impairment losses. Development phase starts
when a public announcement is made by a utility that a prospective project has been selected to be awarded a power
purchase agreement. These costs are transferred to property, plant and equipment or intangible assets when construction
starts. Current costs for prospective projects are expensed as incurred and costs of a project under development are
written off in the year if the project is abandoned. Borrowing costs directly attributable to the acquisition or development
are capitalized as project development costs. See note 20.
Impairment of property, plant and equipment , intangible assets and project development costs other than goodwill
At the end of each reporting period, the Corporation reviews the carrying amounts of its property, plant and equipment,
intangible assets and project development costs to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an
individual asset, the Corporation estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable
and consistent allocation basis can be identified.
Intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication
that the asset may be impaired.
Recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized
immediately in earnings.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased
to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit)
in prior years. A reversal of an impairment loss is recognized immediately in earnings.
Goodwill
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests
in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the
amount of the identifiable assets acquired and the liabilities assumed at the date of acquisition. If, after reassessment, the
net amount of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred,
the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in
the acquiree (if any), the excess is recognized immediately in earnings as a bargain purchase gain.
For purposes of impairment testing, goodwill is allocated to each of the Corporation's cash-generating unit (or groups of
cash-generating units) that is expected to benefit from the synergies of the combination.
Innergex Renewable Energy Inc. – 2016 Financial Review – 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when
there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the goodwill of the unit. Any impairment loss for goodwill
is recognized in earnings. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Other long-term assets
Other long-term assets include security deposits under various agreements and long-term receivables.
Accrual for acquisition of long-term assets
The accrual for acquisition of long-term assets is defined as long-term debt commitments that have been secured and that
will be drawn upon to finance the Corporation's projects currently under development or construction.
Provisions and asset retirement obligations
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Corporation has a present
obligation (legal or constructive) as a result of a past event, it is probable that the Corporation will be required to settle the
obligation, and a reliable estimate can be made of the amount of the obligation. A legal obligation can arise through a
contract, legislation, or other operation of law. A constructive obligation arises from an entity's actions whereby, through
an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated
it will accept certain responsibilities and has thus created a valid expectation that it will discharge those responsibilities.
The amount recognized as a provision is the best estimate, at each period end, of the expenditures required to settle the
present obligation considering the risks and uncertainties associated with the obligation. Where expenditures are expected
to be incurred in the future, the obligation is measured at its present value using a current market-based, risk adjusted
interest rate.
Asset retirement obligations are recorded as liabilities when those obligations are incurred and are measured as the present
value , if a reasonable estimate of the expected costs to settle the liability can be determined, discounted at a current pre-
tax rate specific to the liability. In subsequent years, the liability is adjusted for changes resulting from the passage of time
and revisions to either the timing or the amount of the original estimate of the undiscounted cash flows. The accretion of
the liability to its fair value as a result of the passage of time is charged to earnings while changes resulting from the
revisions to either the timing, the amount of the original estimate of the undiscounted cash flows or a change of the discount
rate are accounted for as part of the carrying amount of the related long-lived asset.The carrying amount of the asset
retirement obligations is reviewed quarterly to reflect current estimates and changes in the discount rate.
Financial instruments
The Corporation initially recognizes financial assets on the trade date at which the Corporation becomes a party to the
contractual provisions of the instrument.
Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value
through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s
acquisition or origination. On initial recognition, the Corporation classifies its financial assets as subsequently measured
at either amortized cost or fair value, depending on its business model for managing the financial assets and the contractual
cash flow characteristics of the financial assets.
(i) Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any
impairment loss, if:
•
The asset is held within a business model whose objective is to hold assets in order to collect contractual cash
flows; and
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments
of principal and/or interest.
•
The Corporation currently classifies its Cash and cash equivalents, restricted cash and short-term investments,
accounts receivable, and reserve accounts as assets measured at amortized cost.
Innergex Renewable Energy Inc. – 2016 Financial Review – 82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
(ii) Financial assets measured at fair value
These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized
in net earnings unless hedge accounting is used in which case the changes are recognized in comprehensive income.
The Corporation currently classifies its derivative financial instruments as financial assets measured at fair value.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are transferred.
Financial liabilities are classified into the following categories.
(i) Financial liabilities measured at amortized cost
Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
The Corporation currently classifies its dividends payable to shareholders, accounts payables and other payables as
liabilities as measured at amortized cost.
(ii) Financial liabilities measured at fair value
Financial liabilities at fair value are initially recognized at fair value and are re-measured at each reporting date with
any changes therein recognized in net earnings unless hedge accounting is used in which case the changes are
recognized in comprehensive income.
The Corporation currently classifies its derivative financial instruments as a financial liability measured at fair value.
The Corporation derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position
when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or
to realize the asset and settle the liability simultaneously.
Financial instruments are classified in fair value hierarchy levels as follows:
Level 1 valuation based on quoted prices (unadjusted) in active markets to which the entity has access at the evaluation
date for identical assets or liabilities;
Level 2 valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3 valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument
is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
The Corporation recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
Impairment of financial assets
The Corporation assesses at the end of each reporting period whether there is objective evidence that a financial asset
or group of financial assets is impaired. Evidence of impairment may include indications that the debtors or a group of
debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability
that they will enter bankruptcy or other financial reorganization, and where observable data indicates that there is a
measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate
with defaults. Impairment losses are recorded in other net expenses (revenues) if applicable.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to
an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal
of the previously recognized impairment loss is recognized in the consolidated statement of earnings.
Innergex Renewable Energy Inc. – 2016 Financial Review – 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Hedging relationships
The Corporation enters into derivative financial instruments to hedge its market risk exposures. On initial designation of
new hedges the Corporation formally documents the relationship between the hedging instruments and hedged items,
including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at
the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to
be effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for
which the hedge is designated.
For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present
an exposure to variations in cash flows that could ultimately affect reported net earnings.
Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in net earnings as incurred.
Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described
below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect
net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income
and presented in accumulated other comprehensive income as part of equity. The amount recognized in other
comprehensive income is removed and included in net earnings under the same line item in the consolidated statement
of earnings as the hedged item, in the same period that the hedged cash flows affect net earnings. Any ineffective portion
of changes in the fair value of the derivative is recognized immediately in net earnings. If the hedging instrument no longer
meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated
other comprehensive income until the forecasted transaction affects net earnings. If the forecasted transaction is no longer
expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in net earnings.
Net investment in foreign operation hedges
The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the
foreign operation and Corporation’s functional currency (Canadian dollars).
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in
a foreign operation are recognized in other comprehensive income to the extent that the hedge is effective, and are
presented within equity in the accumulated other comprehensive income. Any ineffective portion of changes in the hedging
instruments is recognized directly in net earnings. When the hedged part of a net investment is disposed of, the relevant
amount in the accumulated other comprehensive income is transferred to the statement of earnings as part of the profit
or loss on disposal.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition
of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are
not measured at fair value through profit or loss.
Non-controlling interests
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Corporation's
equity therein. The interest of non-controlling shareholders may be initially measured either at fair value or at the non-
controlling interest's proportionate share in the recognized amounts of the acquiree's identifiable net assets. The choice
of measurement basis is made on an acquisition by acquisition basis. Subsequent to acquisition, non-controlling interests
consist of the amount attributed to such interests at initial recognition and the non-controlling interest's share of changes
in equity since the date of the acquisition.
Innergex Renewable Energy Inc. – 2016 Financial Review – 84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Revenue recognition
Revenues are recognized, on an accrual basis, upon delivery of electricity at rates provided for under the PPAs entered
into with the purchasing utilities or upon compensations from insurance or suppliers for loss of revenues when it is virtually
certain that the claim will be received.
Government assistance
Government assistance in the form of subsidies or refundable investment tax credits are recorded in the consolidated
financial statements when there is reasonable assurance that the Corporation complied with all conditions necessary to
obtain the assistance.
The Corporation is entitled to subsidies under the EcoEnergy program. The subsidies are equal to 1¢ per KWh produced
at the Ashlu Creek, Fitzsimmons Creek, Douglas Creek, Fire Creek, Stokke Creek, Tipella Creek, Lamont Creek, Upper
Stave River, Magpie River and Umbata Falls hydro facilities and at the Carleton, Baie-des-Sables and L'Anse-à-Valleau
wind farms for the first 10 years following commissioning of each facility. As per the electricity purchase agreements, the
Corporation must transfer 75% of the Carleton, Baie-des-Sables and L'Anse-à-Valleau wind farms subsidies to Hydro-
Québec. Gross EcoEnergy subsidies of $15,227 ($13,103 in 2015) are included in the revenues and the 75% payable to
Hydro-Québec for the Carleton, Baie-des-Sables and L'Anse-à-Valleau wind farms are included in the operating expenses.
The Corporation incurs renewable energy development expenditures, which are eligible for refundable investment tax
credits. The recorded investment tax credits are based on management's estimates of amounts expected to be recovered
and are subject to an audit by the taxation authorities. Investment tax credits for renewable energy development
expenditures are reflected as a reduction in the cost of the assets or expenses to which they relate.
Share-based payment
The Corporation measures equity-settled stock option awards using the fair value method. Expense is measured at the
grant date at the fair value of the award and is recognized over the vesting period based on the Corporation's estimate of
the number of options that will eventually vest. Each equity-settled stock option award that vests in installments is accounted
for as a separate award with its own distinct fair value measurement. The fair value of options is amortized to earnings
over the vesting period with an offset to share-based payment in equity. For options that are forfeited before vesting, the
compensation expense that had previously been recognized and the offset to share-based payment in equity are reversed.
When options are exercised, the corresponding share-based payment in equity and the proceeds received by the
Corporation are credited to share capital.
Foreign currency translation
The Corporation and its subsidiaries each determine their functional currency based on the currency of the primary economic
environment in which they operate. The Corporation's functional currency is the Canadian dollar. Transactions denominated
in a currency other than the functional currency of an entity are translated at the exchange rate in effect on the transaction
date. The resulting exchange gains and losses are included in each entity's net earnings in the period in which they arise.
The Corporation's foreign operations are translated to the Corporation's presentation currency, which is the Canadian
dollar, for inclusion in the consolidated financial statements. Foreign denominated monetary and non-monetary assets and
liabilities of foreign operations are translated at exchange rates in effect at the end of the reporting period and revenue
and expenses are translated at exchange rate in effect on the transaction date. The resulting translation gains and losses
are included in other comprehensive income (loss) with the cumulative gain or loss reported in accumulated other
comprehensive income. Amounts previously recognized in accumulated other comprehensive income are recognized in
earnings when there is a reduction in the net investment.
The Corporation designates a portion of its U.S. dollar-denominated debt to hedge its investment in its U.S. functional
currency foreign operations. The Corporation also designates a portion of its foreign exchange forwards to hedge its
investment in its Euro functional currency foreign operations.Translation gains or losses on the portion of the debt and
foreign exchange forwards designated as hedges are included in other comprehensive income with the cumulative gain
or loss reported in accumulated other comprehensive income. The gain or loss relating to the portion of the debt and foreign
exchange forwards in excess of the investment in the foreign subsidiaries is recognized immediately in earnings. Gains
and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency
translation reserve are reclassified to earnings in the same way as exchange differences relating to the foreign operations.
The Corporation formally documents these hedges. On a quarterly basis, the Corporation reviews the hedges to ensure
Innergex Renewable Energy Inc. – 2016 Financial Review – 85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
that they effectively offset the translation gains or losses arising from its investment in its U.S. and its Euro functional
currencies foreign operations.
lncome taxes
Current tax and deferred tax are recognized in earnings except to the extent that it relates to a business combination, or
to items recognized directly in equity or in other comprehensive income (loss).
Current tax is the expected tax on the taxable income or loss for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that
are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted at the reporting date.
Deferred tax is not recognized in respect of subsidiaries for the temporary differences between the carrying amounts of
the investments and the tax basis, unless such differences are expected to reverse in the foreseeable future.
Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the
deductible temporary differences can be utilized.
Earnings (loss) per share
Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted
average number of shares outstanding during the year.
The Corporation uses the treasury stock method for calculating diluted earnings (loss) per share. Diluted earnings (loss)
per share are computed similarly to basic earnings (loss) per share except that the weighted average shares outstanding
are increased to include additional shares from the assumed conversion of convertible debentures and the exercise of
stock options, if dilutive. The number of additional shares is calculated by assuming that convertible debentures were
converted and that outstanding stock options were exercised and that the proceeds from such exercises were used to
acquire shares at the average market price during the year.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Significant estimates and assumptions
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates. During the reporting periods, management made a number of
estimates and assumptions pertaining primarily to the fair value calculation of the assets acquired and liabilities assumed
in business acquisitions, impairment of assets, useful lives and recoverability of property, plant and equipment, intangible
assets and project development costs, deferred income taxes, asset retirement obligations, as well as the fair value of
financial assets and liabilities including derivatives, effectiveness of hedging relationships and classification of structured
entities. These estimates and assumptions are based on current market conditions, management's planned course of
action and assumptions about future business and economic conditions. Changes in the underlying assumptions and
estimates could have a material impact on the reported amounts. These estimates are reviewed periodically. If adjustments
prove necessary, they are recognized in earnings in the period in which they are made.
Critical judgments and estimates
Fair Value of Financial Instruments
Certain financial instruments, such as derivative financial instruments, are carried in the consolidated statements of financial
position at fair value, with changes in fair value reflected in earnings unless hedge accounting is used in which case the
changes are recognized in comprehensive income. Fair values of some financial instruments are estimated by using
valuation techniques using several assumptions such as interest rate, credit spread and risk.
Innergex Renewable Energy Inc. – 2016 Financial Review – 86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Useful Lives of Property, Plant and Equipment and Intangible assets
Property, plant and equipment and intangible assets represent a significant proportion of the Corporation's total assets.
The Corporation reviews estimates of the useful lives of property, plant and equipment and Intangible assets on an annual
basis and adjust depreciation on a prospective basis, if necessary.
Goodwill Impairment
The Corporation makes a number of estimates when calculating the recoverable amount of goodwill using discounted
future cash flows or other valuation methods. These estimates include the assumed growth rates for future cash flows,
the numbers of years used in the cash flow model, and the discount rate.
Impairment of Property, plant and equipment, Intangible assets and Project development costs
The Corporation makes a number of estimates when calculating fair value using discounted future cash flows or other
valuation methods. These estimates include the assumed growth rates for future cash flows, the number of years used in
the cash flow model, and the discount rate. The likelihood of being able to develop future projects is also assessed in
regards of the competitive business environment and the willingness expressed by the governmental authorities of procuring
additional sources of energy.
Business acquisition fair value
The Corporation makes a number of estimates when determining the acquisition date fair values of assets and liabilities
acquired in a business acquisition. Fair values are estimated by using valuation techniques using several assumptions
such as future production, earnings and expenses, interest and discount rates.
Structured entity
Based on the contractual arrangements between the Corporation and the other respective partner, the Corporation
concluded that it has control over Kwoiek Creek Resources L.P and Mesgi'g Ugju's'n (MU) Wind Farm L.P.
Asset retirement obligations
The Corporation makes a number of estimates when calculating fair value of the amount of obligation using discounted
rate. The obligation is measured at its present value using a current market-based, risk adjusted interest rate.
Hedging
The Corporation makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis,
whether the hedging instruments are expected to be effective in offsetting the changes in the fair value or cash flows of
the respective hedged items during the period for which the hedge is designated.
Income Taxes
The calculation of income taxes requires judgment in interpreting tax rules and regulations. The Corporation's tax filings
are also subject to audits, the outcome of which could change the amount of current and deferred tax assets and liabilities.
The Corporation believes that it has sufficient amounts accrued for outstanding tax matters based on the information that
currently is available. Deferred tax assets and liabilities require management's judgment in determining the amounts to
be recognized. In particular, judgment is required when assessing the timing of reversal of temporary differences to which
future income tax rates are applied. Further, the amount of deferred tax assets, which is limited to the amount that is
probable to be realized, is estimated with consideration given to the timing, sources and amounts of future taxable profit.
Innergex Renewable Energy Inc. – 2016 Financial Review – 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
5. BUSINESS ACQUISITIONS
a. Acquisition of assets of Walden
On February 25, 2016, the Corporation and Cayoose Creek Development Corporation (''Cayoose'') finalized the acquisition
of the Walden ("Walden") run-of-river hydroelectric facility located in British Columbia, Canada. The purchase price of $9,200
for the Walden facility was paid in cash, of which $870 was paid as a deposit in the fourth quarter of 2015 and was classified
under other long-term assets as at December 31, 2015.
The Corporation and Cayoose respectively own 51% and 49% of the participating units of Cayoose Creek Power Limited
Partnership (''Cayoose L.P.''), which was formed for the acquisition of the Walden facility.
All power generated from the facility is sold to British Columbia Hydro and Power Authority.
Additional cash flows generated from the assets acquired are expected to further increase the Corporation's liquidity and
flexibility to fund the development of future projects. The acquisition of the Walden facility added an additional installed
gross capacity of approximately 16 MW to the Corporation's portfolio of operational hydroelectric facilities.
The following table reflects the final purchase price allocation of the purchase price to the fair value of the net assets acquired:
Property, plant and equipment
Intangible assets
Deferred tax liabilities
Net assets acquired
Final purchase price
allocation
1,786
8,078
(664)
9,200
The transaction costs relating to this acquisition have been expensed as transaction costs of the business combination in
accordance with IFRS 3 (see note 8).
If the acquisition had taken place on January 1, 2016, the consolidated revenues and net earnings for the year ended
December 31, 2016 would have been $292,898 and $31,993 respectively.
The amounts of revenues and net earnings of Cayoose LP since February 25, 2016 included in the consolidated statement
of earnings are $2,533 and $995 respectively for the 311 days ended December 31, 2016.
b. Acquisition of 7 operating wind facilities in France
On April 15, 2016, the Corporation finalized the acquisition of a portfolio of 7 operating wind facilities located in France ("the
Seven French Entities Acquired"). The purchase price for the wind power projects is a net cash consideration of €63,971
(all amounts in € are in thousands of €) ($94,465), subject to certain adjustments.
Simultaneously, an amount of €10,000 ($13,922) was also paid as a deposit for a project currently under construction.
All power generated from the operating facilities is sold to Électricité de France and S.I.C.A.E Oise.
Additional cash flows generated from the assets acquired are expected to further increase the Corporation's liquidity and
flexibility to fund the development of future projects. The Seven French Entities Acquired added an additional gross installed
capacity of 86.8 MW to the Corporation's portfolio of operational wind farms.
To finance part of the acquisition, three Desjardins Group affiliated entities have collectively subscribed to a private placement
of 3,906,250 common shares of the Corporation for proceeds of $50,000.
Innergex Renewable Energy Inc. – 2016 Financial Review – 88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The following table reflects the preliminary purchase price allocation of the purchase price to the fair value of the net assets
acquired:
Preliminary purchase price allocation
Cash and cash equivalents
Accounts receivable
Prepaid and others
Reserve accounts
Property, plant and equipment
Intangible assets
Accounts payable and other payables
Current portion of derivative financial instruments
Long-term debt
Derivative financial instruments
Asset retirement obligations
Deferred tax liabilities
Net assets acquired
8,050
2,315
1,018
4,449
106,543
51,258
(1,952)
(42)
(88,150)
(213)
(3,129)
(16,176)
63,971
$
11,887
3,419
1,503
6,570
157,330
75,692
(2,882)
(62)
(130,170)
(315)
(4,620)
(23,887)
94,465
The purchase price allocation remains subject to the completion of working capital adjustments, intangible assets, deferred
tax liabilities and consequential adjustments.
The transaction costs relating to this acquisition have been expensed as transaction costs of the business combination in
accordance with IFRS 3 (see note 8).
If the acquisition had taken place on January 1, 2016, the consolidated revenues and net earnings for the year ended
December 31, 2016 would have been $301,905 and $33,100 respectively.
The amounts of revenues and net loss of the facilities since April 15, 2016 included in the consolidated statement of earnings
are $9,771 and $5,710 respectively for the 261 days ended December 31, 2016.
c. Acquisition of 2 additional French wind farms in Nouvelle-Aquitaine (France)
On December 22, 2016, the Corporation finalized the acquisition of 2 operating wind facilities located in France ("the Two
French Entities Acquired in Nouvelle-Aquitaine"). The purchase price for the wind power projects is a net cash consideration
of €16,124 ($22,698), subject to certain adjustments.
All power generated from the operating facilities is sold to Électricité de France.
Additional cash flows generated from the assets acquired are expected to further increase the Corporation's liquidity and
flexibility to fund the development of future projects. The Two French Entities Acquired in Nouvelle-Aquitaine added an
additional gross installed capacity of 24 MW to the Corporation's portfolio of operational wind farms.
The Corporation owns a 69.55% interest in the project and the Régime de rentes du Mouvement Desjardins (RRMD) owns
the remaining 30.45%.
Innergex Renewable Energy Inc. – 2016 Financial Review – 89
€
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The following table reflects the preliminary purchase price allocation of the purchase price to the fair value of the net assets
acquired:
Cash and cash equivalents
Accounts receivable
Prepaid and others
Reserve accounts
Property, plant and equipment
Intangible assets
Accounts payable and other payables
Long-term debt
Asset retirement obligations
Deferred tax liabilities
Net assets acquired
Preliminary purchase price allocation
79
9,022
6
1,400
43,858
14,410
(12,271)
(34,235)
(1,312)
(4,834)
16,123
$
111
12,700
8
1,971
61,740
20,285
(17,275)
(48,192)
(1,846)
(6,804)
22,698
The purchase price allocation remains subject to the completion of the valuation of the property, plant and equipment,
intangible assets, deferred tax liabilities and consequential adjustments.
The transaction costs relating to this acquisition have been expensed as transaction costs of the business combination in
accordance with IFRS 3 (see note 8).
If the acquisition had taken place on January 1, 2016, the consolidated revenues and net earnings for the year ended
December 31, 2016 would have been $292,960 and $31,859 respectively.
The amounts of revenues and net earnings of the facilities since December 22, 2016 included in the consolidated statement
of earnings are $65 and $41 respectively for the 9 days ended December 31, 2016.
6. OPERATING EXPENSES
Salaries
Insurance
Operation and maintenance
Property taxes and royalties
Year ended December 31
2015
2016
4,421
2,894
22,398
21,756
51,469
4,168
2,601
18,054
16,115
40,938
Depreciation and amortization recorded in the consolidated statements of earnings are mainly related to operating expenses
incurred to generate revenues.
Innergex Renewable Energy Inc. – 2016 Financial Review – 90
€
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
7. FINANCE COSTS
Interest on long-term debt and on convertible debentures
Inflation compensation interest
Amortization of financing fees
Accretion of long-term debt and convertible debentures
Accretion expenses on other liabilities
Others
8. OTHER NET EXPENSES
Transaction costs
Realized loss on derivative financial instruments
Realized (gain) loss on foreign exchange
Loss (gain) on contingent considerations 24 a)
Other net revenues
Recovery of loan impairment
9. INVESTMENTS IN JOINT VENTURES
9.1 Details of material joint ventures
Year ended December 31
2015
2016
86,687
4,207
1,194
1,442
551
1,173
95,254
76,752
2,937
753
1,184
609
895
83,130
Year ended December 31
2015
2016
2,547
—
(1,008)
800
(1,599)
(475)
265
261
119,557
1,403
(3,447)
(1,010)
—
116,764
Details of the Corporation's material joint ventures at the end of the reporting periods are as follows:
Name of joint venture
Principal activity
Place of creation
and principal place
of operation
Proportion of ownership interest
and voting rights held by the
Corporation
Umbata Falls, L.P.
Own and operate an
hydroelectric facility
Ontario
December 31,
2016
49%
December 31,
2015
49%
Viger-Denonville, L.P. Own and operate a wind farm
Québec
50%
50%
The joint ventures are accounted for using the equity method in these consolidated financial statements.
The summarized financial information below represents amounts shown in the joint venture's financial statements
prepared in accordance with IFRSs.
Innergex Renewable Energy Inc. – 2016 Financial Review – 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Umbata Falls, L.P.
Summary Statements of Earnings and Comprehensive Income
Revenues
Operating, general and administrative expenses
Finance costs
Other net revenues
Depreciation and amortization
Unrealized net (gain) loss on derivative financial instruments
Net earnings and comprehensive income
Summary Statements of Financial Position
As at
Cash and cash equivalents
Other current assets
Current assets
Non-current assets
Accounts payable and other payables
Other current liabilities
Current liabilities
Non-current liabilities
Partner's equity
Year ended December 31
2016
2015
9,429
938
8,491
2,507
(31)
4,017
(526)
2,524
9,854
846
9,008
2,559
(32)
4,019
1,217
1,245
December 31, 2016
1,010
1,080
2,090
December 31, 2015
831
1,392
2,223
64,647
66,737
138
2,895
3,033
46,173
17,531
66,737
68,467
70,690
134
2,928
3,062
48,852
18,776
70,690
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture
recognized in the consolidated financial statements:
As at
Net assets of the joint venture
December 31, 2016
17,531
December 31, 2015
18,776
Proportion of the Corporation's ownership interest in the joint
venture
Carrying amount of the Corporation's interest in the joint
venture
49%
8,590
49%
9,200
Umbata Falls, L.P. 's Debt
On March 30, 2015, the long-term debt was refinanced. The loan consisting of a five-year term loan has been extended
to March 2020. The loan is amortized over a remaining 18.5-year period which started in April 2015. The loan bears
interest at the bankers' acceptance rate plus an applicable credit margin for an all-in rate of 5.48%. The quarterly
repayments will be increased by a cash flow sweep calculated as follow: the percentage of excess of actual production
over the forecast production multiply by the quarterly excess cash flow.
The lender also agreed to make available a letter of credit facility in a principal amount not exceeding $500. As at
December 31, 2016, an amount of $470 has been used to secure two letters of credit. This debt is secured by all of
Umbata Falls LP's assets with a carrying value of $66,737.
Innergex Renewable Energy Inc. – 2016 Financial Review – 92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Umbata Falls, L.P. holds an amortizing interest rate swap contract of $43,005 as at December 31, 2016 ($44,303 in
2015), maturing in 2034 and bearing an interest rate of 3.98%.
Viger-Denonville, L.P.
Summary Statements of Earnings and Comprehensive Income
Revenues
Operating, general and administrative expenses
Finance costs
Other net revenues
Depreciation and amortization
Unrealized net (gain) loss on derivative financial instruments
Net earnings
Other comprehensive income
Total comprehensive income
Summary Statements of Financial Position
As at
Cash and cash equivalents
Other current assets
Current assets
Non-current assets
Accounts payable and other payables
Other current liabilities
Current liabilities
Non-current liabilities
Partner's equity
Year ended December 31
2016
2015
10,293
1,844
8,449
3,635
(30)
2,923
(658)
2,579
2
2,581
11,978
1,923
10,055
3,636
(45)
2,921
1,639
1,904
127
2,031
December 31, 2016
840
1,409
2,249
December 31, 2015
1,460
966
2,426
56,583
58,832
446
3,929
4,375
54,223
234
58,832
59,518
61,944
572
3,928
4,500
57,191
253
61,944
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture
recognized in the consolidated financial statements:
As at
Net assets of the joint venture
December 31, 2016
234
December 31, 2015
253
Proportion of the Corporation's ownership interest in the joint
venture
Carrying amount of the Corporation's interest in the joint
venture
50%
117
50%
127
Viger-Denonville, L.P. 's Debt
The loan consists of a 18-year term loan, amortized over an 18-year period which started in June 2014. The term loan
carries a floating interest rate equal to the banker's acceptance rate plus an applicable margin for an all-in rate of
6.00%. The principal repayments are variable and set to $2,709 for 2017. The lenders also agreed to make available
a letter of credit facility in an amount not to exceed $984. As at December 31, 2016, an amount of $984 has been
Innergex Renewable Energy Inc. – 2016 Financial Review – 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
used to secure one letter of credit. These loans are secured by Viger-Denonville, L.P's assets with a carrying value
of $58,832.
Viger-Denonville, L.P. holds an amortizing interest rate swap contract of $51,847 as at December 31, 2016 ($54,285
in 2015), maturing in 2031 and bearing an interest rate of 3.40%.
9.2 Commitments of joint ventures
As at December 31, 2016, the Corporation's share of the expected schedule of commitment payments for Umbata
Falls, L.P. and Viger-Denonville, L.P. is as follows:
Years of
2017
2018
2019
2020
2021
Thereafter
Total
Umbata Falls, L.P.
Hydroelectric Generation Wind Power Generation
240
243
246
249
252
2,606
3,836
2
2
2
2
2
40
50
Total
242
245
248
251
254
2,646
3,886
The partnership will be dissolved in 2034, which is 25 years after the beginning of operations. Upon the dissolution
of the partnership, the property and assets of the partnership shall be transferred to the other partner for no
consideration.
Viger-Denonville, L.P.
Parc Eolien Communautaire Viger-Denonville LP entered into royalties and other commitments related to amounts to
set aside for the dismantling of wind farm components, commitments to surrounding municipalities and land owners
and the operation of the wind farms.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation holds interest rate swap contracts (“Interest hedging instruments”) that enable it to hedge its exposure
to the floating interest rates payable on the portion of its long-term debt. The Corporation also holds foreign exchange
forwards contracts (“foreign exchange forward”) that enable it to hedge its exposure to foreign exchange rate on its
investments in France. The counterparties to the contracts are major financial institutions; the Corporation does not
anticipate any payment defaults on their part. The estimated impact of an increase in swap rates curve of 0.1% would
decrease the negative fair value of these financial instruments by $3,852. Conversely, a decrease in swap rates curve of
0.1% would result in an increase of $4,148 of the negative fair value of these financial instruments. The estimated impact
of an increase in foreign exchange rates curve of 1.0% would increase the negative fair value of these financial instruments
by $1,295. Conversely, a decrease in foreign exchange rates curve of 1.0% would result in a positive fair value of $1,295
of these financial instruments.
The Corporation records embedded derivatives separately from the host contracts:
•
The inflation embedded derivative relates to provisions establishing minimum inflation rate at 3% of the selling prices
provided for under some of the PPAs entered into with Hydro-Québec. The Corporation does not anticipate any
payment defaults from the counterparty. The fair value of these financial instruments is evaluated using revenue
estimates based on long-term production averages estimated for each facility. It varies based on the difference between
the 3% minimum inflation rate and the long-term inflation rate, which is estimated at 2% as at December 31, 2016
over the remaining terms of these agreements, discounted at a rate of 2,83%. The expected impact of a 0.1% increase
in the long-term inflation rate would reduce the fair value of these financial instruments by $268 a 0.1% decrease in
the long-term inflation rate would increase the fair value of these financial instruments by $267.
Innergex Renewable Energy Inc. – 2016 Financial Review – 94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
•
The foreign exchange embedded derivative adjusted the price of an equipment purchase for exchange rate fluctuations
between the Euro and the Canadian dollar. The equipment purchase price varied based on the change in the exchange
rate. This embedded derivative was economically hedged with a foreign exchange forward contract with the same
notional amount. Gains or losses on the embedded derivative caused by a change in the exchange rate between the
Euro and the Canadian dollar were offset by gains or losses associated with the foreign exchange forward contract.
During the year 2015, the Corporation terminated its $78,400 foreign exchange forward contract related to the Mesgi'g
Ugju's'n project for a total cash consideration of $3,246. Concurrently, the Corporation fixed the rate of the Euro portion
of its turbine supply agreement, therefore realizing a gain of $3,422.
The classification of the fair value hierarchy of all the financial assets and liabilities remained the same during 2016.
Financial assets (liabilities)
As at January 1, 2016
Derivatives acquired on business acquisition (Note 5)
Variation in fair value of derivative financial instruments
recognized in statement of earnings1
Variation in fair value of derivative financial instruments
recognized in other comprehensive income
Net foreign exchange differences
As at December 31, 2016
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Inflation
provisions
(Level 3)
Total
—
—
(39)
31
—
(8)
(71,685)
3,977
(67,708)
(377)
—
(377)
8,904
(1,270)
7,595
352
16
(62,790)
—
—
2,707
383
16
(60,091)
1. On the statement of earnings, a loss of $3,303 is also recognized in unrealized net (gain) loss on financial instruments, resulting from
an intragroup loan. On consolidation, although the intragroup loan is eliminated from the consolidated statement of financial position, the
related exchange loss recognized in the consolidated statement of earnings survives the consolidation process.
Financial assets (liabilities)
Foreign
exchange
embedded
derivative
(Level 3)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Inflation
provisions
(Level 3)
Total
As at January 1, 2015
1,542
(1,228)
(151,535)
5,373
(145,848)
Variation in fair value of derivative
financial instruments
Settlements
Recognized in consolidated statement
of earnings
Recognized in project development
costs
Variation in fair value of derivative
financial instruments recognized in
other comprehensive income
As at December 31, 2015
2,427
(3,422)
(995)
(547)
—
—
(2,018)
3,246
(37,202)
119,733
(1,396)
—
(38,189)
119,557
1,228
82,531
(1,396)
81,368
—
—
—
—
—
(547)
(2,681)
(71,685)
—
3,977
(2,681)
(67,708)
Innergex Renewable Energy Inc. – 2016 Financial Review – 95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Reported in the consolidated financial statements:
As at
December 31, 2016
December 31, 2015
Current assets – derivative financial instruments
Non-current assets – derivative financial instruments
Current liabilities – derivative financial instruments
Non-current liabilities – derivative financial instruments
Interest rate risk
1,527
8,117
(14,541)
(55,194)
(60,091)
1,209
2,768
(15,337)
(56,348)
(67,708)
The terms of the contracts reducing the Corporation's risk of interest rate fluctuations are as follows:
Contracts
Contracts used to hedge the interest rate risk
Interest rate swap, 4.27%
Interest rate swap, 0.96%
Interest rate swaps, 4.27% to 4.41%
Interest rate swaps, 2.33%
Interest rate swaps, 2.30%
Interest rate swap, 1.91%, amortizing
Interest rate swaps, 2.94% to 4.83%, amortizing
Interest rate swaps, from 3.35% to 3.50%,
amortizing
Interest rate swap, 3.74%, amortizing
Interest rate swap, 4.22%, amortizing
Interest rate swap, 2.64%, amortizing, translated
at CAD 1.4169/Euro
Interest rate swap, 4.25%, amortizing
Interest rate swap, 4.61%, amortizing
Interest rate swap, 2.85%, amortizing
Early
termination
option
Maturity
Notional Amounts
December 31,
2016
December 31,
2015
2016
2017
2018
2024
2024
2026
2026
2027
2030
2030
2030
2031
2035
2041
None
None
None
2019
2019
None
None
None
None
2021
None
2018
2025
2021
—
49,250
82,600
20,000
20,000
103,000
42,781
32,524
84,532
24,534
14,736
38,771
95,292
18,704
626,724
3,000
49,250
82,600
20,000
20,000
103,000
46,342
35,080
89,113
26,063
—
41,146
97,957
19,018
632,569
The Corporation entered into hedge agreements to mitigate the risk of fluctuations in the interest rates on its long-term
debt. Rates on contracts represent the interest rate, excluding the applicable margin on the debt.
One of the French wind farms acquired in 2016 holds an interest rate swap to mitigate the risk of fluctuations in the interest
rates of its long-term debt. Hedge accounting is applied on this contract.
Innergex Renewable Energy Inc. – 2016 Financial Review – 96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Foreign exchange risk
Following the acquisitions of the wind farms in France, the Corporation entered into hedge agreements to reduce the
Corporation's foreign exchange risk.
Contracts
Contracts used to hedge the foreign exchange
risk
Foreign exchange forwards amortizing until 2041,
allowing translation at a fixed rate of CAD 1.7575/
Euro
Foreign exchange forwards amortizing until 2042,
allowing translation at a fixed rate of CAD 1.7588/
Euro
Early
termination
option
Notional Amounts
December 31,
2016
December 31,
2015
Maturity
2018
None
164,375
2018
None
52,156
216,531
—
—
—
A portion of the Libor advances of US$13,900 ($18,663) drawn on the revolving credit facility available until 2020, is used
as a hedge on the investment in self-sustaining foreign subsidiaries.
Hedging instruments
As at December 31, 2016, the following items were designated as cash-flow hedging instruments to mitigate the interest
rate risk and the foreign exchange risk:
Carrying amount of the hedging
instrument
Notional amount
of the hedging
instrument
Assets
Liabilities
Cumulative
changes in fair
value used for
calculating hedge
ineffectiveness
Cash-flow hedges:
Interest rate risk
Interest rate swaps
Net investment hedges:
Foreign exchange risk
Libor advances
Foreign exchange forwards
621,802
—
(62,791)
(2,331)
11,730
11,919
—
439
11,730
(445)
1,542
114
All the hedging instruments are accounted for in the short-term or long-term portion of derivative financial instruments in
the consolidated statements of financial position.
Innergex Renewable Energy Inc. – 2016 Financial Review – 97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The following table summarizes the Corporation’s hedged items as at December 31, 2016:
Cumulative changes
in fair value used for
calculating hedge
ineffectiveness
Cash flow hedge
reserve 1
Foreign currency
translation reserve
Cash-flow hedge:
Interest rate risk
Interest rate swaps
Hedge of net investment in a foreign
operation:
Foreign exchange risk
Libor advances
Foreign exchange forwards
2,660
(2,673)
—
(1,542)
(92)
—
(101)
1,542
90
1. The balance of cash flow hedge reserve for which hedge accounting is no longer applied is nil.
The following table summarizes the impact of hedge ineffectiveness and hedging gains or losses as at December 31, 2016:
Changes in fair
value of the
hedging
instrument
recognized in
other
comprehensive
income
Hedge
ineffectiveness
recognized in
profit or loss
Amount
reclassified
from the cash
flow hedge
reserve to
profit or loss
Amount
reclassified
from the
foreign
currency
translation
reserve to
profit or loss
Line item
affected in
profit or loss
resulting from
the
reclassification
352
(377)
—
—
—
274
31
—
24
—
43
—
—
—
—
Cash-flow hedge:
Interest rate risk
Interest rate swaps
Hedge of net investment in a
foreign operation:
Foreign exchange risk
Libor advances
Foreign exchange forwards
Ineffectiveness is accounted for in the unrealized net loss (gain) on derivative financial instruments in the consolidated
statements of earnings.
Hedging ineffectiveness can result from the credit valuation adjustment applied to the fair value of hedging derivatives as
well as the designation of hedging derivatives with a non-zero fair value at the inception of a hedging relationship
Innergex Renewable Energy Inc. – 2016 Financial Review – 98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
11. INCOME TAXES
a. Income tax recognized in statements of earnings
Current tax
Current tax expense in respect of the current year
Adjustments recognized in the current year in relation to
the current tax expense of prior years
Deferred tax
Deferred tax expense (recovery) recognized in the current
year
(Decrease) increase in deferred income tax rates
Adjustments recognized in the current year in relation to
the deferred tax of prior years
Total income tax expense (recovery of) recognized in the
current year
December 31, 2016
December 31, 2015
2,966
4
2,970
7,452
(4,181)
(1,305)
1,966
4,936
3,194
(72)
3,122
(15,383)
58
163
(15,162)
(12,040)
The following table summarizes the reconciliation of the income tax expense (recovery) calculated at the Canadian
statutory income tax rate and the income tax expense (recovery) recognized in statements of earnings.
Earnings (loss) before income taxes
Canadian statutory income tax rate
Income tax expense (recovery of) calculated at the
statutory rate
Items affecting the statutory rate:
Non-deductible expenses
Effect of previously unrecognized tax losses balances
used in the year
(Loss deductible) income taxable at a different rate than
the Canadian statutory tax rate
(Decrease) increase in deferred income tax rates
Increase in taxable temporary differences in relation to
investments in subsidiaries and in joint ventures
Tax on dividends on preferred shares
Adjustments recognized in the current year in relation to
the current tax of prior years
Adjustments recognized in the current year in relation to
the deferred tax of prior years
Income tax on (earnings) loss allocated to minority
interests on non-taxable entities
Others
Income tax expense (recovery) recognized in statements
of earnings
December 31, 2016
36,979
26.6%
9,836
1,266
(286)
(1,059)
(4,181)
1,369
192
4
(1,305)
(761)
(139)
4,936
December 31, 2015
(60,423)
26.6%
(16,073)
63
(259)
394
58
1,560
211
(72)
163
1,933
(18)
(12,040)
The tax rate used for 2016 and 2015 reconciliations above is the average combined corporate tax rate payable by
corporate entities in Canada on taxable profits under federal and provincials' tax laws. There was no change in
Canadian corporate tax rates in 2016. The decrease in Quebec tax rates is applicable for 2017 and the following
years. A new tax regulation was adopted in France in December 2016, according to which, starting in 2017, the
regular corporate tax rate is gradually declining.
Innergex Renewable Energy Inc. – 2016 Financial Review – 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
b. Income tax recognized in other comprehensive income
December 31, 2016
December 31, 2015
Deferred tax
Arising on income and expenses recognized in other
comprehensive income:
Foreign exchange (loss) gain on translation of self-
sustaining foreign subsidiaries
Foreign exchange gain (loss) on the designated hedges
on the investments in self-sustaining foreign subsidiaries
Change in fair value of hedging instruments
Share of change in fair value of hedging instruments of
joint venture
Share of non-controlling interests in change in fair value
of hedging instruments
Total income tax recognized directly in other
comprehensive income
c. Income tax recognized directly in equity
Deferred tax
Arising on transactions with owners:
Equity portion of convertible debentures
Total income tax recognized directly in equity
d. Current tax assets and liabilities
Current tax assets
Income tax receivable
Current tax liabilities
Income tax payable
e. Deferred tax balances
(91)
17
74
—
(14)
(14)
223
(212)
(590)
16
18
(545)
December 31, 2016
December 31, 2015
—
—
171
171
December 31, 2016
December 31, 2015
—
4
1,292
1,234
The following is the analysis of deferred tax assets (liabilities) presented in the consolidated statements of financial
position:
Deferred tax assets
Deferred tax liabilities
December 31, 2016
December 31, 2015
11,849
(176,965)
(165,116)
15,356
(147,931)
(132,575)
Innergex Renewable Energy Inc. – 2016 Financial Review – 100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Deferred tax assets (liabilities) in relation to:
Property, plant and equipment
Intangible assets
Project development costs
Investments into subsidiaries and in joint ventures
Non-repatriated income from foreign subsidiaries
Derivative financial instruments
Long-term debt
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Tax losses carried forward
As at January 1,
2016
Recognized in
statement of
earnings
Recognized in
other
comprehensive
income
Recognized
in business
acquisitions
Net exchange
differences
As at December
31, 2016
(122,327)
(95,119)
10,717
(3,886)
(1,046)
55,734
(4,230)
(525)
540
(2,692)
1,020
(161,814)
29,239
(132,575)
(15,449)
11,364
4,275
105
(179)
(2,251)
(449)
39
20
(1,576)
185
(3,916)
1,950
(1,966)
—
—
—
117
—
(60)
—
—
—
—
—
57
(43)
14
(22,511)
(32,734)
—
—
—
129
352
—
—
—
—
(54,764)
23,409
(31,355)
620
1,028
—
—
—
(3)
—
—
—
—
—
1,645
(879)
766
(159,667)
(115,461)
14,992
(3,664)
(1,225)
53,549
(4,327)
(486)
560
(4,268)
1,205
(218,792)
53,676
(165,116)
As at December 31, 2016, the Corporation, its subsidiaries and joint ventures have non-capital losses totaling approximately $187,000 that may be applied against future
taxable income. The non–capital losses in Canada and the United–States expire gradually between 2030 and 2036. The non–capital losses in France are subject to
restrictions over time but have no expiration date.
The Corporation recognized a deferred tax asset on non-capital losses because it is probable that sufficient taxable profit and taxable capital gains will be available from
hydroelectric, solar and wind projects currently in operation or that will be in the near future.
Innergex Renewable Energy Inc. – 2016 Financial Review – 101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
As at
January 1,
2015
Recognized
in statement
of earnings
Recognized in
other
comprehensive
income
Transfer of
project
development
costs to
property,
plant and
equipment
Transfer of
property, plant
and equipment
to intangibles
from
subsequents
adjustments
(Note 5)
Recognized
directly in
equity
Net
exchange
differences
As at
December
31, 2015
(109,672)
(97,575)
(9,479)
(13,575)
4,331
19,360
—
—
—
(836)
—
836
1,739
(1,739)
—
(813)
(2,834)
(239)
(855)
47,492
(4,049)
(126)
581
(718)
610
(174,604)
26,326
(148,278)
(191)
7,670
(181)
(228)
(41)
(1,974)
410
12,747
2,415
15,162
—
572
—
—
—
—
—
333
212
545
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(171)
—
—
—
(171)
—
(171)
17
(136)
—
(122,327)
(95,119)
10,717
—
(3,886)
—
—
—
—
—
—
—
(119)
286
167
(1,046)
55,734
(4,230)
(525)
540
(2,692)
1,020
(161,814)
29,239
(132,575)
Deferred tax assets (liabilities) in relation
to:
Property, plant and equipment
Intangible assets
Project development costs
Investments into subsidiaries and in joint
ventures
Non-repatriated income from foreign
subsidiaries
Derivative financial instruments
Long-term debt
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Tax losses carried forward
Innergex Renewable Energy Inc. – 2016 Financial Review – 102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
f. Unrecognized deductible temporary differences, unused tax losses and unused tax credits
Tax losses - revenue in nature
Tax losses- capital in nature
Transaction costs
December 31, 2016
December 31, 2015
3,551
10,990
476
15,017
4,175
13,165
2,285
19,625
The unrecognized tax losses-revenue in nature will expire gradually between 2034 and 2035.
12. EARNINGS PER SHARE
The net earnings (loss) per share is computed as follows:
Net earnings (loss) attributable to owners of the parent
Dividends declared on preferred shares
Net earnings (loss) available to common shareholders
Weighted average number of common shares (in 000s)
Basic net earnings (loss) per share ($)
Weighted average number of common shares (in 000s)
Effect of dilutive elements on common shares (in 000s) (a)
Diluted weighted average number of common shares (in 000s)
Diluted net earnings (loss) per share ($) (b)
Year ended December 31
2016
2015
35,963
(5,942)
30,021
106,883
0.28
106,883
879
107,762
0.28
(30,301)
(7,125)
(37,426)
102,304
(0.37)
102,304
283
102,587
(0.37)
a. Stock options for which the exercise price was above the average market price of common shares are excluded from
the calculation of diluted weighted average number of shares outstanding. During year ended December 31, 2016,
3,331,684 of the 3,457,432 stock options (2,579,684 of the 3,425,684 for the year ended December 31, 2015) were
dilutive.
During the year ended December 31, 2016, none of the 6,666,667 shares that can be issued on conversion of
convertible debentures were dilutive (none of the 6,666,667 shares were dilutive for the same periods in 2015).
b. During the year ended December 31, 2015, 2,579,684 of the 3,425,684 stock options were excluded as they were
anti-dilutive in the calculation of the diluted net loss per share.
Innergex Renewable Energy Inc. – 2016 Financial Review – 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
13. KEY MANAGEMENT PERSONNEL COMPENSATION
The following are the expenses that the Corporation recognized for its key management personnel. The members of the
Board of Directors as well as the President and CEO, CFO, CIO and all the Senior Vice-Presidents and Vice-Presidents
are key management personnel of the Corporation.
Salaries and short-term benefits
Attendance fees for members of the Board of Directors
Performance share plan
Share-based payment
Year ended December 31
2016
2015
6,024
662
1,610
103
8,399
5,409
524
1,416
192
7,541
14. EMPLOYEE BENEFITS
The expenses that the Corporation recognized for its employee benefits is composed of salaries and short-term benefits.
The expenses were included in the following categories:
Operating expenses
General and administrative
Prospective projects expenses
Transaction costs
Capitalized in Property, plant and equipment
Capitalized in Project development costs
Year ended December 31
2016
2015
4,421
9,843
5,602
1,304
3,676
—
24,846
4,153
9,085
4,714
131
5,724
221
24,028
15. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
As at
Restricted cash accounts
Restricted proceeds account
Debt service payment accounts
December 31, 2016
December 31, 2015
25,424
57,362
6,956
89,742
37,487
268,441
6,792
312,720
As part of the Boulder Creek Power LP, Upper Lillooet River Power LP, Kwoiek Creek LP, Northwest Stave LP, Big Silver
Creek Power LP, Tretheway Creek Power LP and Mesgig'g Ugju's'n LP credit agreements, the Corporation maintains
restricted cash accounts and restricted proceeds accounts. The balance of the loans proceeds are held in restricted
proceeds account managed by the lenders and amounts are transferred from time to time into the restricted cash accounts
to finance the construction of the projects. The restricted cash accounts are used to pay the current construction costs of
the projects and to hold the construction holdbacks amounts that will be released at the end of the construction of the
respective projects.
Innergex Renewable Energy Inc. – 2016 Financial Review – 104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
In relation with the six run-of-river hydroelectric facilities at Harrison Hydro L.P. (the "Harrison Operating Facilities"), the
Corporation maintains debt service payment accounts. The debt service payment accounts require a monthly transfer
equal to one-sixth of the next semi-annual bond payments and a monthly transfer equal to one-third of the next quarterly
bond payment required on the outstanding junior bonds. Senior and junior loan payments are taken from this account on
their due dates.
16. ACCOUNTS RECEIVABLE
As at
Trade
Commodity taxes
Investment tax credits
Payment receivable for property, plant and equipment
Others
December 31, 2016
December 31, 2015
23,479
18,980
1,476
49,250
5,662
98,847
24,984
8,112
856
—
3,121
37,073
Substantially all of the Corporation's trade receivables relate to electricity sold to public utilities including Hydro-Québec,
British Columbia Hydro, Hydro One Inc. and its affiliates, Idaho Power Company, Électricité de France and S.I.C.A.E Oise.
Hydro-Québec currently holds a credit rating of Aa2 from Moody's. British Columbia Hydro and Power Authority currently
holds a credit rating of Aaa from Moody's. The Ministry of Energy of the Province of Ontario has stated that the Province
of Ontario, which currently holds a credit rating of A+ from Standard & Poor's (S&P), will honor Hydro One Inc. and its
affiliates obligations under the PPAs to which it is a party. Hydro One Inc. and its affiliates currently holds a credit rating of
A from S&P. Idaho Power Company currently has a credit rating of BBB from S&P. Électricité de France currently has a
credit rating of A- from S&P.
Commodity taxes and investment tax credits are receivable from the federal or provincial governments, mainly in relation
with the development and construction of projects. The payment receivable for property, plant and equipment is receivable
from Hydro-Québec and is related to the substation of the Mesgi’g Ugju’s’n wind farm.
The Corporation did not record any allowance for doubtful accounts since, based on its experience, there is a low risk of
bad debts. The Corporation does not hold any specific guarantees for its accounts receivable. All accounts receivable are
current.
Innergex Renewable Energy Inc. – 2016 Financial Review – 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
17. RESERVE ACCOUNTS
Hydrology / wind power
reserve
Major maintenance
reserve
Total
Reserves – As at January 1, 2016
Reserves acquired on business
acquisitions (Note 5)
Net (withdrawals from) investments in the
reserves
Impact of foreign exchange fluctuations
Reserves – end of year
Less: Current portion
Long-term portion
39,724
8,541
(1,701)
(253)
46,311
—
46,311
3,112
—
91
(25)
3,178
—
3,178
Hydrology / wind power
reserve
Major maintenance
reserve
Total
Reserves – As at January 1, 2015
Net investments in (withdrawals from) the
reserves
Impact of foreign exchange fluctuations
Reserves – end of year
Less: Current portion
Long-term portion
37,547
2,038
139
39,724
(947)
38,777
3,788
(702)
26
3,112
(368)
2,744
42,836
8,541
(1,610)
(278)
49,489
—
49,489
41,335
1,336
165
42,836
(1,315)
41,521
Short-term investments are held at major financial institutions. The Corporation recorded no impairment on these financial
instruments since the counterparties have high credit ratings.
The availability of $48,650 ($40,929 in 2015) in the reserve accounts is restricted by credit agreements.
Innergex Renewable Energy Inc. – 2016 Financial Review – 106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
18. PROPERTY, PLANT AND EQUIPMENT
Cost
As at January 1, 2016
Additions
Business acquisitions (Note 5)
Transfer of assets upon commissioning
Other changes
Net foreign exchange differences
As at December 31, 2016
Accumulated depreciation
As at January 1, 2016
Depreciation
Other changes
Net foreign exchange differences
As at December 31, 2016
Carrying amount as at December 31,
2016
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities under
construction
Other
equipments
Total
2,623
—
392
—
—
(4)
3,011
—
—
—
—
—
1,427,025
1,178
1,500
183,556
—
(242)
1,613,017
(164,117)
(30,604)
—
88
(194,633)
372,038
522
218,956
290,479
540
(5,966)
876,569
(100,307)
(23,642)
5
113
(123,831)
124,274
11
—
—
18
—
124,303
(21,820)
(5,955)
—
—
(27,775)
531,591
368,503
—
(474,035)
—
—
426,059
—
—
—
—
—
9,194
1,897
8
—
(263)
(6)
10,830
(6,279)
(1,521)
263
(6)
(7,543)
2,466,745
372,111
220,856
—
295
(6,218)
3,053,789
(292,523)
(61,722)
268
195
(353,782)
3,011
1,418,384
752,738
96,528
426,059
3,287
2,700,007
All of the property, plant and equipment are given as securities under the respective project financing or for corporate financing.
Additions in the current year include $38,756 of capitalized financing costs ($30,341 for the year ended December 31, 2015) incurred prior to their intended use.
The financing costs related to a specific project financing are entirely capitalized to the specific property, plant and equipment. Financing costs related to the revolving
credit facility are capitalized for the portion of the financing actually used for a specific property, plant and equipment.
The cost of the facilities were reduced by investment tax credits of $3,003 ($2,622 as at December 31, 2015).
Innergex Renewable Energy Inc. – 2016 Financial Review – 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Cost
As at January 1, 2015
Additions
Adjustment to business acquisition
Transfer of assets upon commissioning
Transfer from projects under development
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2015
Accumulated depreciation
As at January 1, 2015
Depreciation
Dispositions
Net foreign exchange differences
As at December 31, 2015
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities under
construction
Other
equipments
Total
2,541
62
—
—
—
—
—
20
2,623
—
—
—
—
—
1,340,129
3,707
(6,591)
89,084
—
(613)
—
1,309
1,427,025
(135,670)
(28,164)
137
(420)
(164,117)
372,106
782
—
—
—
—
(850)
—
372,038
(82,528)
(17,779)
—
—
(100,307)
124,244
68
—
—
—
—
(38)
—
124,274
(15,866)
(5,954)
—
—
(21,820)
287,401
299,105
—
(89,084)
34,169
—
—
—
531,591
—
—
—
—
—
8,367
828
—
—
21
(49)
—
27
9,194
(4,935)
(1,364)
43
(23)
(6,279)
2,134,788
304,552
(6,591)
—
34,190
(662)
(888)
1,356
2,466,745
(238,999)
(53,261)
180
(443)
(292,523)
Carrying amount as at December 31, 2015
2,623
1,262,908
271,731
102,454
531,591
2,915
2,174,222
Innergex Renewable Energy Inc. – 2016 Financial Review – 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
19. INTANGIBLE ASSETS
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities under
construction
Total
517,089
8,078
23,240
(3,111)
(81)
545,215
(122,542)
(18,232)
3,111
34
(137,629)
75,816
95,977
—
(3,365)
(2,939)
165,489
(29,045)
(9,968)
3,365
106
(35,542)
9,538
—
—
—
—
9,538
(1,729)
(477)
—
—
(2,206)
23,240
—
(23,240)
—
—
—
(96)
96
—
—
—
625,683
104,055
—
(6,476)
(3,020)
720,242
(153,412)
(28,581)
6,476
140
(175,377)
Cost
As at January 1, 2016
Business acquisitions (Note 5)
Transfer of assets upon
commissioning
Other changes
Net foreign exchange
As at December 31, 2016
Accumulated amortization
As at January 1, 2016
Amortization
Other changes
Net foreign exchange
As at December 31, 2016
Net value as at
December 31, 2016
407,586
129,947
7,332
—
544,865
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities under
construction
Total
497,620
325
6,591
12,111
442
517,089
(106,095)
(16,265)
(182)
(122,542)
75,816
—
—
—
—
75,816
(23,570)
(5,475)
—
(29,045)
9,538
—
—
—
—
9,538
(1,252)
(477)
—
(1,729)
35,351
—
618,325
325
—
6,591
(12,111)
—
23,240
—
442
625,683
(96)
—
—
(96)
(131,013)
(22,217)
(182)
(153,412)
Cost
As at January 1, 2015
Additions
Adjustment to business
acquisition
Transfer of assets upon
commissioning
Net foreign exchange
As at December 31, 2015
Accumulated amortization
As at January 1, 2015
Amortization
Net foreign exchange
As at December 31, 2015
Net value as at
December 31, 2015
394,547
46,771
7,809
23,144
472,271
Innergex Renewable Energy Inc. – 2016 Financial Review – 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
20. PROJECT DEVELOPMENT COSTS
Cost
Beginning of year
Additions
Transfer to property, plant and equipment
Impairment of project development costs
End of year
December 31, 2016
December 31, 2015
—
—
—
—
—
61,020
24,889
(34,190)
(51,719)
—
For the year ended December 31, 2015, the Corporation conducted annual project development costs impairment tests.
Based on the results of these tests, a $51,719 impairment charge was required in 2015 for projects for which uncertainties
existed regarding the timing and profitability of any development.
The recoverable amount of the project development costs is determined based on the basis of a value-in-use calculation
that uses cash flow projections based on the financial budgets for comparable projects. The projections are approved by
management, cover a period of 40 to 75 years and assume a pre-tax discount rate.
The following assumptions are used to determine the recoverable amount of assets:
•
•
•
•
The discount rate is a weighted average between the consolidated cost of debt and the consolidated cost of equity
to which a risk premium is added for each project.
A cash-generating unit is an individual hydroelectric facility.
The future expected cash flows are based on the comparable projects budgets for each cash-generating unit. The
budgets have been built using long-term water flow averages. These averages approximate actual results.
The number of projects and the time frames for the projects to be developed.
In 2011, full ownership of hydroelectric projects in British Columbia in various stages of development (with a potential
aggregate installed capacity of over 800 MW) resulted from the acquisition of Cloudworks Energy Inc. Accordingly, an
amount of $51,719 for Prospective Projects was recorded following the acquisition. However, as at December 31, 2015,
BC Hydro's Site C (a mega hydroelectric station that should provide around 1,100 MW of capacity, and produce about
5,100 GWh of electricity a year) is moving forward. Construction of the project started in summer 2015. Furthermore, in
September 2015, the BC Supreme Court dismissed a petition seeking an order quashing the Environmental Assessment
Certificate issued by the Minister of the Environment and the Minister of Forests, Lands and Natural Resource Operations
for the project. In November 2015, BC Hydro and the BC Government announced the awarding of a $1,5 Billion construction
contract for Site C. The odds of success on litigation led by First Nations and various environmental groups against Site
C are fairly remote as construction activities are in progress. BC Hydro publicly announced that based on their forecasts,
it would likely be the early 2030s before the utility foresees the need for a significant block of new electricity from Independent
Power Producers. Consequently, in the year ended December 31, 2015, the Corporation recognized an impairment of
$51,719 related to its BC Prospective Projects for which it retains ownership of the licenses that it might develop in the
future . Simultaneously, the contingent considerations related to these Prospective Projects were reversed resulting in a
gain of $3,447.
Additions in the year 2015 include $204 of capitalized interests.
Innergex Renewable Energy Inc. – 2016 Financial Review – 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
21. GOODWILL
Allocation of goodwill to each cash-generating unit is as follows:
As at
St-Paulin
Portneuf
Chaudière
Total Goodwill
December 31, 2016
December 31, 2015
935
4,166
3,168
8,269
935
4,166
3,168
8,269
For the years ended December 31, 2016 and 2015, the Corporation conducted annual goodwill impairment tests. Based
on the result of these tests, no impairment charge was required.
The recoverable amount of each cash-generating unit is determined based on a value in use calculation which uses cash
flow projections based on financial budgets approved by management covering a period extending to the lesser of 50
years or the period for which the Corporation owns its rights on the site and a discount rate of 5.37% (5.51% in 2015).
Assumptions used to determine the recoverable amount of assets are the following:
•
•
•
•
The discount rate is a weighted average between the consolidated cost of debt and the consolidated cost of equity
to which a risk premium is added for each cash-generating unit.
The expected selling price of electricity once the power purchase agreements are renewed.
A cash-generating unit is an individual hydroelectric facility.
The future expected cash flows are based on the budgets before debt service and income tax of each cash-generating
unit. The budgets have been built using long-term averages of water flows. These long-term averages approximate
actual results.
22. ACCOUNTS PAYABLE AND OTHER PAYABLES
As at
December 31, 2016
December 31, 2015
Trade and other payables
Current portion of construction holdbacks
Interest payable
Commodity taxes
51,360
22,259
10,754
1,477
85,850
53,175
32,415
7,941
1,935
95,466
Innergex Renewable Energy Inc. – 2016 Financial Review – 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
23. LONG-TERM DEBT
(references to US$ and € are in thousands)
Interests rate
2016
Maturity
December 31,
2016
December 31,
2015
Revolving credit facility (with recourse to the Corporation)
including LIBOR advances, US$13,900
a)
Innergex
2.16%-2.26 %
2020
189,163
149,138
Loans (Non-recourse to the Corporation)
b) Hydro-Windsor
c) Magpie
d) Cholletz (€ 750)
e) Mesgi'g Ugju's'n
f) Montjean (€ 1,126)
g) Theil Rabier (€ 1,234)
h) Montagne-Sèche
i) Rutherford Creek
j) Valottes (€ 12,285)
k) Ashlu Creek
l) Sainte-Marguerite
m) Antoigné (€ 6,429)
n) Longueval (€ 7,522)
o) Porcien (€ 7,744)
p) Bois d'Anchat (€ 10,502)
c) Magpie
q) L’Anse-à-Valleau
r) Fitzsimmons Creek
f) Montjean (€ 15,792)
g) Theil Rabier (€ 16,083)
s) Carleton
t) Beaumont (€ 24,418)
u) Stardale
d) Cholletz (€ 10,400)
v)
Innergex Europe
w) Harrison Operating Facilities
x) Kwoiek Creek
y) Northwest Stave River
z) Tretheway Creek
l) Sainte-Marguerite
e) Mesgi'g Ugju's'n
aa) Big Silver Creek
bb) Boulder Creek and Upper Lillooet
Other loans with various interest rates
8.25%
2.33%-4.59%
1.90%
2.41%
1.50%
1.50%
2.69%
6.88%
2016
2017
2017
2017
2017
2017
2021
2024
1.80%-2.69% 2024-2026
2.52%
3.30%
2.67%
1.72%-1.86%
1.67%-1.86%
2025
2025
2025
2025
2025
2.25%-3.20% 2025-2030
4.37%-4.59% 2025-2031
2.14%
1.65%
2026
2026
1.46%-1.85% 2026-2031
1.46%-1.84% 2026-2031
3.10%
2027
2.16%-2.63% 2027-2031
2.57%
2.23%
8.00%
3.95%-6.61%
2030
2030
2046
2049
5.08%-10.07% 2052-2054
5.30%
4.99%
8.00%
2053
2055
2064
3.54%-4.28%
4.57%-4.76%
4.22%-4.46%
2017-2019
—
601
1,063
40,588
1,596
1,749
24,534
35,845
17,407
91,989
29,072
9,109
10,658
10,973
14,880
54,703
33,327
20,651
22,375
22,788
42,346
34,598
102,946
14,736
38,189
456,060
172,162
71,972
92,916
42,401
244,343
197,223
491,643
13
1,015
1,285
—
—
—
—
26,063
39,378
—
95,062
32,598
—
—
—
—
57,263
36,091
21,051
—
—
45,758
—
96,862
—
—
458,754
172,162
71,972
92,916
42,401
159,459
197,223
445,733
134
2,445,456
2,093,180
Innergex Renewable Energy Inc. – 2016 Financial Review – 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
23. LONG-TERM DEBT (continued)
Total long-term debt
Deferred financing costs
Current portion of long-term debt ( net of nil deferred financing costs in
2016, $29 in 2015)
Long-term portion
a. Revolving credit facility
Interests rate
2016
Maturity
December 31,
2016
December 31,
2015
2,634,619
2,242,318
(27,986)
(26,885)
2,606,633
2,215,433
(99,397)
(54,995)
2,507,236
2,160,438
The Corporation has a maximum borrowing capacity of $425,000 on its revolving credit facility. On January 18, 2016,
the Corporation executed an amending agreement to extend its revolving credit facility from 2019 to 2020.
As at December 31, 2016, the Bankers' Acceptances (“BA”) rate advances and prime rate advances totaling $170,500
along with a LIBOR rate advance of $18,663 (US$13,900) were due under this facility. An amount of $50,524 has been
used to secure letters of credit. Thus, the unused and available position of the facility was $185,313. The carrying value
of assets of the Corporation and subsidiaries given as securities under this facility totals approximately $466,000.
The revolving credit facility was renegociated on February 21, 2017, see subsequent events section.
b. Hydro-Windsor
The loan consisted of a 20-year fixed rate term loan starting in December 1996 and amortized over a 20-year period
ended in December 2016. The loan was repayable in monthly blended payments of principal and interest totaling $105.
c. Magpie
A fixed rate bridge loan is amortized until August 2017. The bridge loan is repayable in monthly blended payments of
principal and interest totaling $27. The principal repayments for the bridge loan are set at $215 for 2017.
A debenture is amortized until December 2017. The debenture is repayable by yearly blended payments of principal
and interest totaling $400, excluding non-cash implicit interest of $18. The principal repayment for 2017 is set at $400.
A convertible debenture has no predetermined repayment schedule and matures in January 2025. The convertible
debenture entitles the municipality to a 30% interest in the facility upon conversion of the debenture on or before
January 1, 2025. Early conversion is at the discretion of the Corporation.
A term loan amortizing until 2031 is repayable in monthly blended payments of principal and interest totaling $379. The
principal repayments for the term loan are variable and are set at $1,808 for 2017.
The bridge loan and the term loan are secured by the assets of Magpie L.P. with a carrying value of approximately
$96,300.
d. Cholletz
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €1 1,900.
• A €1,500
loan bearing interest at 1.9%, repayable in quarterly installments and maturing in 2017. The principal
repayments are set to €750
for the 2017.
• A €10,400 loan bearing interest at 2.23% until 2026 and at variable rate plus an applicable margin afterwards, repayable
in quarterly installments and maturing in 2030. The principal repayments are set to €78 for the 2017.
The debt is secured by the assets of Energie des Cholletz with a carrying value of approximately €21,000.
Innergex Renewable Energy Inc. – 2016 Financial Review – 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
e. Mesgig'g Ugju's'n
On September 28, 2015, Mesgi’g Ugju’s’n (MU) Wind Farm L.P. closed a $311,709 non-recourse construction and term
project financing for the Mesgi’g Ugju’s’n wind project.
The loan comprises three facilities or tranches:
A $49,250 floating-rate construction loan carrying a swap-fixed interest rate of 2.41%; following the start of the
wind farm’s commercial operation, it will be repaid with the proceeds of the scheduled reimbursement by Hydro-
Québec for the Mesgi’g Ugju’s’n electrical substation. As at December 31, 2016, an amount of $40,588 had been
drawn from this tranche;
• A $103,000 floating-rate construction loan carrying a swap-fixed interest rate of 3.54%; following the start of the
wind farm’s commercial operation, it will convert into a 9.5-year term loan and the principal will be amortized over
the term of the loan. As at December 31, 2016, an amount of $84,884 had been drawn from this tranche;
• A $159,459 construction loan carrying a fixed interest rate of 4.28%; following the start of the wind farm’s
commercial operation, it will convert into a 19.5-year term loan and the principal will begin to be amortized after
the maturity of the 9.5-year term loan. As at December 31, 2016, this tranche was fully used.
The lenders also agreed to make available a credit facility in an amount not to exceed $51,284. As at December 31,
2016, an amount of $42,767 had been used to secure two letters of credit. This debt is secured by the assets of Mesgi’g
Ugju’s’n (MU) Wind Farm L.P. with a carrying value of approximately $353,400.
f. Montjean
As part of the Two French Entities Acquired in Nouvelle-Aquitaine, the Corporation assumed the related loan facilities
for a total value of €23,897.
• A €1,126
loan bearing a variable interest rate at EURIBOR +1.5% and fully repayable by June 2017. It is a bridge
financing dedicated to the consumer taxes and recoverable from the government. The unused and available position
of this credit facility was €2,945.
• A €12,680 loan on the credit margin bearing interest at a fixed rate of 1.25% until 2026, after which a variable rate will
apply, repayable in quarterly installments and maturing in 2031. The principal repayments are set to €1,000 for 2017.
The unused and available position of this credit facility was €2,320. The term loan was accounted for at its fair market
value of €1 1,729 for an effective rate of 1.85%.
• A €4,125 loan bearing interest at a fixed rate of 1.15%, repayable in quarterly installments and maturing in 2026. The
principal repayments are set to €412 for 2017. There was no unused and available position on this credit facility. The
loan was accounted for at its fair market value of €4,062 for an effective rate of 1.46%.
• A credit facility of €700 was unused and available on December 31, 2016. It is dedicated to financing the main part
of the debt service reserve account.
The debt is secured by the assets of Montjean Energies with a carrying value of approximately €33,700.
g.
Theil Rabier
As part of the Two French Entities Acquired in Nouvelle-Aquitaine, the Corporation assumed the related loan facilities
for a total value of €23,897.
• A €1,234
loan bearing a variable interest rate at EURIBOR +1.5% and fully repayable by June 2017. It is a bridge
financing dedicated to the consumer taxes and recoverable from the government. The unused portion of this credit
facility at year-end was €2,838.
• A €12,972
loan bearing interest at a fixed rate of 1.25% until 2026, after which a variable rate will apply until maturity,
for 2017. The
The loan was accounted for at its fair market value of
repayable in quarterly installments and maturing in 2031. The principal repayments are set to €1,000
unused portion of this credit facility at year-end was €2,028.
€12,021
for an effective rate of 1.84%.
• A €4,125 loan bearing interest at a fixed rate of 1.15%, repayable in quarterly installments and maturing in 2026. The
principal repayments are set to €412 for 2017. There was no unused and available position on this credit facility. The
loan was accounted for at its fair market value of €4,062 for an effective rate of 1.46%.
• A credit facility of €700 was unused and available on December 31, 2016. It is dedicated to financing the main part of
the debt service reserve account.
Innergex Renewable Energy Inc. – 2016 Financial Review – 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The debt is secured by the assets of Theil Rabier Energies with a carrying value of approximately €35,000.
h. Montagne-Sèche
In May 2014, the Corporation renegotiated the loan to extend the maturity to June 2021. The loan consists of a 7-year
term loan, amortized over a 16-year period starting in May 2014. The loan bears interest at the BA rate plus an applicable
margin. The principal repayments are variable and set at $1,174 for 2017. As at December 31, 2016, the all-in effective
interest rate was 5.97% (5.97% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $445. As at December 31,
2016, an amount of $267 has been used to secure one letter of credit. The loan is secured by the assets of Innergex
Montagne-Sèche, L.P. with a carrying value of approximately $34,000.
i.
Rutherford Creek
The loan consists of a 20-year fixed rate term loan starting in July 2004 amortized over a 12-year period effective
July 1, 2012. This debt is repayable by monthly blended payments of principal and interest totaling $511. The principal
the assets of
repayments are variable and are set at $3,784
Rutherford Creek Power Limited Partnership, with a carrying value of approximately $77,100.
is secured by
for 2017. The
loan
j.
Valottes
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €12,022.
• A €4,749
loan bearing interest at 2.69%, repayable in quarterly installments and maturing in 2024. The principal
repayments are set to €416
for 2017.
• A €7,273
loan bearing interest at 5.34%, repayable in quarterly installments and maturing in 2026. The principal
repayments are set to €727 for 2017. The term loan was accounted for at its fair market value of €8,502 for an effective
rate of 1.80%.
The debt is secured by the assets of Energie des Valottes with a carrying value of approximately €22,000.
k.
Ashlu Creek
The loan consists of a 15-year term loan, amortized over a 25-year period starting in September 2010. The loan bears
interest at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The principal
repayments are variable and are set at $2,837 for 2017. As at December 31, 2016, the all-in effective interest rate was
6.16% (6.06% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $3,000. As at
December 31, 2016 an amount of $1,411 had been used to secure one letter of credit. The loan is secured by the assets
of Ashlu Creek hydroelectric facility with a carrying value of approximately $159,000.
l.
Sainte-Marguerite
As part of its acquisition in 2014, the Corporation assumed a $30,796 term loan, bearing interest at a fixed rate of 7.40%,
repayable in monthly blended payments of principal and interest totaling $360, increasing over the years and maturing
in 2025. The principal repayments for 2017 are set at $2,928. The term loan was accounted for at its fair market value
of $37,455 for an effective rate of 3.30%. The loan is secured by the assets of Sainte-Marguerite L.P. with a carrying
value of approximately $134,900.
In 2014, a debenture was issued by Sainte-Marguerite L.P. to Desjardins Group Pension Plan for a total amount of
$42,401. This debenture carries an interest rate of 8.00%; it has no predetermined repayment schedule and matures in
2064.
Innergex Renewable Energy Inc. – 2016 Financial Review – 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
m. Antoigné
As part of the Seven French Entities Acquired, the Corporation assumed a €6,964 term loan, bearing interest at 2.67%,
repayable in quarterly installments and maturing in 2025. The principal repayments are set to €714
for 2017. The loan
is secured by the assets of Energie Antoigné with a carrying value of approximately €13,900.
n. Longueval
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €7,881.
• A €6,069
loan bearing interest at 1.86%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €639
for 2017.
• A €1,812
loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
repayments are set to €95 for 2017. The term loan was accounted for at its fair market value of €2,186 for an effective
rate of 1.72%.
The debt is secured by the assets of Eoliennes de Longueval with a carrying value of approximately €15,300.
o. Porcien
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €8,1 16.
• A €6,069
loan bearing interest at 1.86%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €639
for 2017.
• A €2,047
loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
repayments are set to €139 for 2017. The term loan was accounted for at its fair market value of €2,454 for an effective
rate of 1.67%.
The debt is secured by the assets of Energie du Porcien with a carrying value of approximately €15,500.
p. Bois d'Anchat
As part of the Seven French Entities Acquired, the Corporation assumed two loan facilities for a total value of €1 1,205.
• A €1,005
loan bearing interest at 3.20%, repayable in quarterly installments and maturing in 2025. The principal
repayments are set to €38
for the 2017.
• A €10,200
loan bearing interest at 2.25%, repayable in quarterly installments and maturing in 2030. The principal
repayments are set to €703
for the 2017.
The debt is secured by the assets of Société d'Exploitation du Parc Éolien du Bois d'Anchat with a carrying value of
approximately €21,900.
q. L'Anse-à-Valleau
The loan consists of an 18.5-year term loan starting in December 2007 and amortized over an 18.5-year period. The
loan bears interests at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The
principal repayments are variable and are set at $2,837 for 2017. As at December 31, 2016, the all-in effective interest
rate was 6.03% (6.03% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a credit facility of $1,200 in order to secure letters of credit. As at December 31,
2016, an amount of $423 had been used to secure one letter of credit. The loan is secured by the assets of Innergex
AAV, L.P. with a carrying value of approximately $53,000.
Innergex Renewable Energy Inc. – 2016 Financial Review – 116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
r. Fitzsimmons Creek
In December 2016, the maturity of the term loan was extended to November 2026; the loan will be amortized over a
remaining 25-year period starting in January 2017. The loan advances bear interest at the BA rate plus an applicable
margin. The principal repayments are variable and are set at $333 for 2017. As at December 31, 2016, the all-in effective
interest rate was 3.58% (3.98% in 2015) after accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $150. As at
December 31, 2016, an amount of $50 had been used to secure one letter of credit. This debt is secured by the assets
of Fitzsimmons Creek Hydro L.P. with a carrying value of approximately $24,800.
s. Carleton
The loan consists of a 14-year term loan starting in June 2013 and amortized over a 14-year period. The term loan bears
interest at the BA rate plus an applicable margin. The term loan is repayable in quarterly installments. The principal
repayments are variable and are set at $3,487 for 2017. As at December 31, 2016, the all-in effective interest rate was
5.46% (5.46% in 2015) after accounting for the interest rate swap.
This debt is secured by the assets of Innergex CAR, L.P. with a carrying value of approximately $67,300.
t. Beaumont
As part of the Seven French Entities Acquired, the Corporation assumed three loan facilities for a total value of €25,131.
• A €3,649
loan bearing interest at 3.78%, repayable in quarterly installments and maturing in 2027. The principal
repayments are set to €26 for 2017. The term loan was accounted for at its fair market value of €3,999 for an effective
rate of 2.16%.
• A €982
loan bearing interest at 2.63%, repayable in quarterly installments and maturing in 2027. The principal
repayments are almost nil for 2017.
• A €20,500
loan bearing interest at 2.42%, repayable in quarterly installments and maturing in 2031. The principal
repayments are set to €1,390
for 2017.
The debt is secured by the assets of Eoles Beaumont S.A.S. with a carrying value of approximately €48,600.
u. Stardale
On February 22, 2016, Stardale refinanced its long-term debt to increase its borrowing by $12,138 to a total of $109,000.
The loan bears interest at the BA rate plus an applicable credit margin. The principal repayments are variable and are
set at $6,383 for 2017. As at December 31, 2016, the all-in effective interest rate was 5.36% (5.99% in 2015) after
accounting for the interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $5,600. As at
December 31, 2016, an amount of $5,600 had been used to secure two letters of credit. The loan is secured by the
assets of Stardale L.P. with a carrying value of approximately $108,200.
v.
Innergex Europe (2015) Limited Partnership
Following the acquisitions in France, a debenture was issued to the other partner for total proceeds of $38,189. This
debenture carries an interest rate of 8.00% compounded yearly and is payable quarterly if funds are available. The
debenture will be repayable in full in 2046. The Corporation invested a total of $87,227 in preferred units of Innergex
Europe (2015) Limited Partnership which carry a preferred return rate of 8.00% compounded yearly and payable at the
same time as the debenture. The preferred units are eliminated into the consolidation process.
Innergex Renewable Energy Inc. – 2016 Financial Review – 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
w. Harrison Operating Facilities
The Harrison Operating Facilities Senior Real Return bond bears interest at 2.96% adjusted by an inflation ratio as well
as an inflation compensation interest factor. Both inflation adjustments are based on the All-items Consumer Price Index
for Canada (“CPI”), which is not seasonally adjusted. Payments on this bond are due semi-annually and the bond matures
in June 2049. Semi-annual payments are $5,790 before CPI adjustment ($6,693 including CPI adjustment in 2016). In
December 2031, the payment amount decreases to $4,481 before CPI adjustment, where it remains until maturity. For
2017, the principal repayments are set at $6,011.
The Harrison Operating Facilities Senior Fixed Rate bond bears interest at 6.61%. Payments on this bond are due semi-
annually with the bond maturing in September 2049. Semi-annual payments amount to $8,072. In September 2031, the
payment amount decreases to $6,724, where it remains until maturity. For 2017, the principal repayments are set at
$3,463.
The Harrison Operating Facilities Junior Real Return Rate bond bears interest at 4.27% adjusted by an inflation ratio
and an inflation compensation interest factor. Both inflation adjustments are based on the CPI, which is not seasonally
adjusted. Payments on this bond are due quarterly and the bond matures in September 2049. Quarterly interest payments
amount to $291 before CPI adjustment ($336 including CPI adjustment in 2016).
In June 2017, the payment amount increases to $389 before CPI adjustment, where it remains until maturity. Principal
repayment are set at $342 for 2017. The bond is secured by the Harrison Operating Facilities.
The bonds are secured by the Harrison Operating Facilities. The carrying value of the property and assets of the Harrison
Operating Facilities totals approximately $633,400.
Balance – January 1, 2016
Inflation compensation interest
Principal repayment
Amortization of revaluation
Balance – December 31, 2016
Senior Real
Return Bond
Senior Fixed
Rate Bond
Junior Real
Return Bond
Total
223,391
3,744
(5,803)
1,313
222,645
207,141
—
(3,278)
777
204,640
28,222
463
—
90
28,775
458,754
4,207
(9,081)
2,180
456,060
The increase in inflation compensation interest is a result of the CPI rate change over the reference period.
x. Kwoiek Creek
The $168,500 construction term loan bearing fixed interest rate of 5.08% was converted into a 37-year term loan in
February 2015 and amortized over a 36-year period starting in January 2017. The term loan is repayable in quarterly
installments. The principal repayments are variable and set at $1,527 for 2017. The loan is secured by the assets of
Kwoiek Creek Resources L.P. with a carrying value of approximately $183,998
The Corporation's partner in the Kwoiek Creek project made a $3,662 loan to Kwoiek Creek Resources L.P. Under the
project agreements, both partners can participate in the project financing.
y.
Northwest Stave River
The non-recourse construction loan was converted into a 38-year term loan in February 2015. Principal repayments do
not commence until December 2020. The loan is secured by the assets of Northwest Stave River L.P. with a carrying
value of approximately $80,900.
z.
Tretheway Creek
The construction loan was converted into a 39-year term loan in April 2016 and will amortize over a 35-year period.
Principal repayments do not commence until December 2020. The loan is secured by the assets of Tretheway L.P. with
a carrying value of approximately $102,600.
Innergex Renewable Energy Inc. – 2016 Financial Review – 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
aa. Big Silver Creek
On June 22, 2015, Big Silver Creek Power Limited Partnership closed a $197,223 non-recourse construction and term
project financing for the Big Silver Creek River run-of-river hydroelectric project.
On January 31, 2017, the loan was converted into a 39.5-year term loan.
The loan comprises three facilities or tranches:
• A $51,012 construction loan carrying a fixed interest rate of 4.57%; in 2017 it was converted into a 25-year term
loan and the principal will begin to be amortized over a 22-year period starting in 2019;
• A $128,311 construction loan carrying a fixed interest rate of 4.76%; in 2017 it was converted into a 39.5-year term
loan and the principal will be amortized after the 25-year term loan reaches maturity;
• A $17,900 construction loan carrying a fixed interest rate of 4.76%; in 2017 it was converted into a 39.5-year term
loan and its principal will be reimbursed at maturity.
This debt is secured by the assets of Big Silver Creek Power L.P. with a carrying value of approximately $211,200.
bb. Boulder Creek and Upper Lillooet River
On March 17, 2015, Boulder Creek Power Limited Partnership and Upper Lillooet River Power Limited Partnership jointly
closed a $491,643 non-recourse construction and term project financing for the Boulder Creek and Upper Lillooet River
run-of-river hydroelectric projects.
The loan comprises three facilities or tranches:
• A $191,643 construction loan carrying a fixed interest rate of 4.22%; following the start of the facilities’ commercial
operation, it will convert into a 25-year term loan and the principal will be amortized over a 20-year period, starting
in the sixth year.
• A $250,000 construction loan carrying a fixed interest rate of 4.46%; following the start of the facilities’ commercial
operation, it will convert into a 40-year term loan and the principal will begin to be amortized after the 25-year term
loan’s maturity.
• A $50,000 construction loan carrying a fixed interest rate of 4.46%; following the start of the facilities’ commercial
operation, it will convert into a 40-year term loan and its principal will be reimbursed at maturity.
This debt is secured by the assets of Boulder Creek Power L.P. and Upper Lillooet River Power L.P. with a carrying
value of approximately $509,100.
Principal repayments
The principal repayments for the next years, excluding the revaluations, will be as follows:
2017
2018
2019
2020
2021
Thereafter
Principal repayments
Recourse to the
Corporation
Non-recourse to
the Corporation
Amortization of
revaluation
Long-term debt
—
—
—
189,163
—
—
189,163
99,418
57,293
58,562
64,299
74,970
2,134,895
2,489,437
(21)
(169)
(321)
(456)
(609)
(42,405)
(43,981)
99,397
57,124
58,241
253,006
74,361
2,092,490
2,634,619
Innergex Renewable Energy Inc. – 2016 Financial Review – 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
24. OTHER LIABILITIES
Other liabilities, including amounts shown in current liabilities, consist of contingent considerations, asset retirement
obligations and interests payable on Innergex Sainte-Marguerite, S.E.C. ("SM S.E.C.") debenture relating to the
Corporation's facilities.
As at January 1, 2016
Liability assumed as part of the business acquisition
(note 5)
New obligations
Interest expense included in finance cost
Accretion expense included in finance cost
Loss on contingent considerations
Revisions in estimated cash flows
Impact of foreign exchange fluctuations
As at December 31, 2016
Current portion of other liabilities
Long-term portion of other liabilities
As at January 1, 2015
Interest expense included in finance cost
Accretion expense included in finance cost
Gain on contingent considerations
Revisions in estimated cash flows
Payment of contingent considerations
As at December 31, 2015
Current portion of other liabilities
Long-term portion of other liabilities
a. Contingent considerations
Contingent
considerations
Asset
retirement
obligations
2,047
6,269
—
—
—
102
800
—
—
2,949
(495)
2,454
6,466
1,687
—
449
—
563
(178)
15,256
—
15,256
Interests
payable on
SM S.E.C.
debenture
Total
5,359
—
—
3,897
—
—
—
—
9,256
—
9,256
13,675
6,466
1,687
3,897
551
800
563
(178)
27,461
(495)
26,966
Contingent
considerations
Asset
retirement
obligations
Interests
payable on
SM S.E.C.
debenture
Total
5,458
—
280
(3,447)
—
(244)
2,047
(246)
1,801
6,828
—
329
—
(888)
—
6,269
—
6,269
1,766
3,593
—
—
—
—
5,359
—
5,359
14,052
3,593
609
(3,447)
(888)
(244)
13,675
(246)
13,429
An acquisition realized in 2011 provides for the potential payment of additional amounts to the vendors over a period
commencing on the acquisition date and ending in 2056. The deferred payments are effectively intended to provide
for a potential sharing of the value created if the projects perform better than the Corporation's expectations and would
result in incremental accretion to the Corporation, net of these payments. The maximum aggregate amount of all
deferred payments under this acquisition is limited to a present value amount of $35,000 as at the acquisition date.
During the year 2015, the Corporation recognized an impairment on Project development costs although the
Corporation still owns rights over the sites. Simultaneously, the contingent considerations related to these projects
were reversed resulting in a gain of $3,447 in 2015.
In connection with the Magpie Acquisition, the Corporation assumed an obligation to pay contingent consideration to
the Minganie Regional County Municipality until the convertible debenture issued by Magpie L.P. is converted. Upon
conversion, the Minganie Regional County Municipality will be entitled to a participation of 30% in Magpie L.P.
Innergex Renewable Energy Inc. – 2016 Financial Review – 120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
b. Asset retirement obligations
Asset retirement obligations primarily arise from obligations to retire wind farms and solar facility upon expiry of the
site leases. The wind farm facilities and solar facility were constructed on sites held under leases expiring at least 25
years after the signing date. The Corporation estimates that the undiscounted value of the payments required for
settling the obligations over a 25-year period will be as follows:
Year of expected payments
2031
2032
2033
2034
2035
2036
2037
2039
2040
2041
2,592
2,466
2,748
2,779
2,851
1,542
6,243
4,332
1,749
10,929
38,231
The cash flows were discounted at rates between 4.29% to 4.61% as at December 31, 2016 (4.69% to 5.03% in 2015)
to determine the obligations.
c. Interests payable on debentures
In connection with the acquisition of the Sainte-Marguerite facility in 2014, Desjardins subscribed to a debenture issued
by SM S.E.C. for a total amount of $42,401. This debenture carries an interest rate of 8.00%, has no predetermined
repayment schedule and matures in 2064. Unpaid interests are compounded and are recorded in other long-term
liabilities.
25. CONVERTIBLE DEBENTURES
a. Redemption of 5.75% convertible debentures
During the first quarter of 2015, the convertible debentures were decreased by an aggregate amount of $922 further to
the exercise by debentures holders of their conversion privileges. As a result, 922 debentures have been converted into
86,571 common shares.
On July 20, 2015, the Corporation issued a redemption notice in respect of the aggregate principal amount of $79,578 of
the 5.75% convertible debentures that was outstanding. Of that principal amount, $37,987 was converted at the holders’
request into 3,566,851 common shares of the Corporation at a conversion price of $10.65 per share. The remaining $41,591
was redeemed at a price of a thousand dollars per convertible debenture, plus accrued and unpaid interest up to
August 19, 2015 inclusively, and was financed with drawings under the Corporation’s revolving credit facility.
b. Issuance of 4.25% convertible debentures
On August 10, 2015, the Corporation issued an aggregate principal amount of $100,000 of 4.25% convertible debentures
at a price of a thousand dollars per convertible debenture, bearing interest at a rate of 4.25% per annum, payable semi-
annually on August 31 and February 28 each year, commencing on February 28, 2016. The convertible debentures will
be convertible at the holder’s option into common shares of the Corporation at a conversion price of $15.00 per share,
representing a conversion rate of 66.6667 common shares per each thousand dollars of principal amount of convertible
debentures. The convertible debentures will mature on August 31, 2020 and will not be redeemable before August 31,
2018, except in certain limited circumstances. On or after August 31, 2018, and before August 31, 2019, Innergex may
Innergex Renewable Energy Inc. – 2016 Financial Review – 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
redeem the Debentures at par plus accrued and unpaid interest, in certain circumstances. On or after August 31, 2019,
Innergex may redeem the debentures at par plus accrued and unpaid interest.
The convertible debentures are subordinated to all other indebtedness of the Corporation.
The liability portion is being accreted such that the liability at maturity will equal the face value less prior conversions if
any.
26. SHAREHOLDERS' CAPITAL
Authorized
The authorized capital of the Corporation consists of an unlimited number of common shares and an unlimited number of
preferred shares, non-voting, retractable and redeemable. This includes up to 3,400,000 Cumulative Rate Reset Preferred
Shares, Series A (the "Series A Preferred Shares"), up to 3,400,000 Cumulative Floating Rate Preferred Shares, Series
B (the "Series B Preferred Shares") and up to 2,000,000 Cumulative Redeemable Fixed Rate Preferred Shares, Series C
(the ''Series C Preferred Shares'').
a) Common shares
Details of common shares issued are shown in the Consolidated Statements of Changes in Shareholders' Equity.
Buyback of common shares
In March 2016, the Corporation announced the approval from the Toronto Stock Exchange to renew its normal course
issuer bid. Under the bid, the Corporation is entitled to purchase for cancellation up to 2,000,000 of its common shares.
In 2015, the Corporation purchased for cancellation 1,190,173 common shares (none in 2016) at an average price of
$10.36.
5.75% Convertible debentures converted in common shares
During the first and the third quarter of 2015, the 5.75% convertible debentures were decreased by an aggregate
amount of $38,909 further to the exercise by debentures holders of their conversion privileges. As a result, 38,909
debentures have been converted into 3,653,422 common shares.
b) Contributed surplus from reduction of capital account on common shares
Special resolutions to approve the reduction of the legal stated capital account maintained in respect of the common
shares of the Corporation, without any payment or distribution to the shareholders were adopted in prior years. This
resulted in a decrease of the shareholders' capital account and an equivalent increase of the contributed surplus from
reduction of capital on common shares account.
c) Preferred shares
Series A Preferred Shares
On September 14, 2010, the Corporation issued a total of 3,400,000 Series A Preferred Shares at $25.00 per share
for aggregate gross proceeds of $85,000. The holders of Series A Preferred Shares are entitled to receive fixed
cumulative preferential cash dividends, as and when declared by the Board of Directors. The dividends are payable
quarterly on the 15th day of January, April, July and October in each year. For the initial five-year period to, but excluding
January 15, 2016 (the “Initial Fixed Rate Period”), the dividends were payable at an annual rate equal to $1.25 per
share. The annual dividend rate for the five-year period starting January 15, 2016, equal $0.902 per share.
Innergex Renewable Energy Inc. – 2016 Financial Review – 122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
For each five-year period after the Initial Fixed Rate Period (each a ”Subsequent Fixed Rate Period”), the holders of
the Series A Preferred Shares will be entitled to receive fixed cumulative preferential cash dividends as and when
declared by the Board of Directors. The dividends will be payable quarterly in an annual amount per Series A Preferred
Share equal to the sum of the yield on a Government of Canada bond with a five-year term to maturity on the applicable
fixed rate calculation date, plus 2.79% applicable to such Subsequent Fixed Rate Period multiplied by $25.00.
Each holder of Series A Preferred Shares will have the right, at its option, to convert all or any of its Series A Preferred
Shares into the Series B Preferred Shares of the Corporation on the basis of one Series B Preferred Share for each
Series A Preferred Share converted, subject to certain conditions, on January 15, 2016, and on January 15 every five
years thereafter. The holders of Series B Preferred Shares will be entitled to receive floating rate cumulative preferential
cash dividends as and when declared by the Board of Directors. The dividends will be payable quarterly in an annual
amount per Series B Preferred Share equal to the Treasury Bill rate for the preceding quarterly period plus 2.79% per
annum determined on the 30th day prior to the first day of the applicable quarterly floating rate period multiplied by
$25.00.
The Series A Preferred Shares were not redeemable by the Corporation prior to January 15, 2016. None were redeemed
at that date. The next redemption date is January 15, 2021, and on January 15 every five years thereafter, at which
time, the Corporation may, at its option, redeem all or any number of the outstanding Series A Preferred Shares.
Series C Preferred Shares
On December 11, 2012, the Corporation issued a total of 2,000,000 Series C Preferred Shares at $25.00 per share for
aggregate gross proceeds of $50,000. Holders of the Series C Preferred Shares will be entitled to receive fixed
cumulative preferential cash dividends as and when declared by the Corporation's Board of Directors. The dividends
will be payable quarterly on the 15th day of January, April, July and October in each year at an annual rate equal to
$1.4375 per share. The Series C Preferred Shares will not be redeemable by the Corporation prior to January 15, 2018.
The Series C Preferred Shares do not have a fixed maturity date and are not redeemable at the option of the holders.
d) Share-based payment
Stock option
The Corporation has a stock option plan . The share-based payments expense is accounted under fair value method.
In accordance with this method, the stock options are measured at the fair value of the equity instruments at the date
of grant.
The Corporation has a stock option plan providing for the granting of options by the Board of Directors to employees,
officers, directors and certain consultants of the Corporation and its subsidiaries to purchase common shares. Options
granted under the stock option plan will have an exercise price of not less than the market price of the common shares
at the date of grant of the option, calculated as the volume weighted average trading price of the common shares on
the Toronto Stock Exchange for the five trading days immediately preceding the date of grant.
The maximum number of common shares of the Corporation available for issuance pursuant to options granted under
the stock option plan is 4,064,123. Any common shares subject to an option that expires or terminates without having
been fully exercised may be subject to a further option. The number of common shares issuable to non-executive
directors of the Corporation under the stock option plan cannot at any time exceed 1% of the issued and outstanding
common shares.
Options must be exercised during a period established by the Board of Directors, which may not be greater than 10 years
after the date of grant. Options granted under the stock option plan vest in equal amounts on a yearly basis over a
period of four to five years following the grant date.
The following table summarizes outstanding stock options of the Corporation as at December 31, 2016 and 2015:
Innergex Renewable Energy Inc. – 2016 Financial Review – 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
December 31, 2016
December 31, 2015
Number of options
(000's)
Weighted average
exercise price ($)
Number of options
(000's)
Weighted average
exercise price ($)
Outstanding - beginning of
year
Granted during the year
Exercised during the year
Canceled during the year
Outstanding - end of year
Options exercisable - end of
year
3,425
126
(94)
—
3,457
3,034
10.09
14.65
11.00
—
10.23
10.03
3,470
—
(45)
—
3,425
2,830
10.07
—
8.75
—
10.09
10.04
The following options were outstanding and exercisable as at December 31, 2016:
Year of granting
2007
2011
2012
2010
2013
2014
2016
Number of options
outstanding (000's) Exercise price ($)
11.00
9.88
10.70
8.75
9.13
10.96
14.65
752
770
397
618
397
397
126
3,457
Number of options
exercisable (000's)
Year of maturity
752
770
397
618
298
199
—
3,034
2017
2018
2019
2020
2020
2021
2023
The Corporation applies the fair value method of accounting for options granted to senior management, which is
estimated using the Black-Scholes option-pricing model. Share-based payments are expensed and a credit is made
to the share-based payment account in the equity of the Corporation to account for the options granted.
The following assumptions were used to estimate the fair value of the options issued to grantees during the year:
Risk-free interest rate
Expected annual dividend per common share
Expected life of options
Expected volatility
Fair value of options granted
December 31, 2016
0.74%
$0.64
6 years
19.30%
$1.24
For the purpose of compensation expense, stock-based compensation is amortized to expenses on a straight-line basis
over the vesting period of a maximum of five years. The weighted average contractual life of the outstanding stock
options is five years. Expected volatility is estimated by considering historic average share price volatility.
e) Dividend Reinvestment Plan (''DRIP'')
The Corporation implemented a DRIP for its shareholders. The plan allows eligible common shareholders the opportunity
to reinvest a portion or all of the dividends they receive to purchase additional common shares of the Corporation,
without paying fees such as brokerage commissions and service charges. Shares will either be purchased on the open
market or issued from treasury.
Innergex Renewable Energy Inc. – 2016 Financial Review – 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
27. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Foreign exchange gain
(loss) on translation of
self-sustaining foreign
subsidiaries
Foreign exchange (loss)
gain on the designated
hedges on the investments
in self-sustaining foreign
subsidiaries
Net currency
translation
reserve
Cash flow
hedge interest
rate risk
Balance as at January 1, 2016
Exchange differences on translation of
foreign operations
Hedging gain of the reporting period
Related deferred tax
Balance as at December 31, 2016
1,875
(872)
—
91
1,094
(1,569)
—
296
(17)
(1,290)
306
(872)
296
74
(196)
(1,930)
—
408
(74)
(1,596)
Foreign exchange gain
(loss) on translation of
self-sustaining foreign
subsidiaries
Foreign exchange (loss)
gain on the designated
hedges on the investments
in self-sustaining foreign
subsidiaries
Net currency
translation
reserve
Cash flow
hedge interest
rate risk
Balance as at January 1, 2015
Exchange differences on translation of
foreign operations
Hedging (loss) gain of the reporting
period
Related deferred tax
Balance as at December 31, 2015
409
1,689
—
(223)
1,875
(171)
—
(1,610)
212
(1,569)
238
1,689
(1,610)
(11)
306
(253)
—
(2,267)
590
(1,930)
Share of cash
flow hedge
interest rate risk
of joint venture
48
—
1
—
49
Share of cash
flow hedge
interest rate risk
of joint venture
—
—
64
(16)
48
Total
(1,576)
(872)
705
—
(1,743)
Total
(15)
1,689
(3,813)
563
(1,576)
Innergex Renewable Energy Inc. – 2016 Financial Review – 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
28. ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
a. Changes in non-cash operating working capital items
Accounts receivable and income tax receivable
Prepaid and others
Accounts payable and other payables and income tax payable
b. Additional information
Year ended December 31
2016
2015
(46,109)
156
(10,489)
(56,442)
(1,730)
913
9,092
8,275
Year ended December 31
2016
2015
Interest paid (including $37,838 capitalized interest ($29,243 in
2015))
119,577
100,985
Non-cash transactions
in unpaid property, plant and equipment
in unpaid development costs
in unpaid transactions costs of convertible debentures
in common shares issued through the conversion of
convertible debentures
in common shares issued through share options exercised
variation in discounted rates in asset retirement obligations
in common shares issued through dividend reinvestment plan
intangible acquired in exchange of a non-controlling interest
in a subsidiary
loans to partners in exchange of non-controlling interests in
subsidiaries
c. Changes in liabilities arising from financing activities
Long-term debt at beginning of the year
Increase of long-term debt
Repayment of long-term debt
Payment of deferred financing costs
Business acquisitions (Note 5)
Other changes
Net foreign exchange differences
Long-term debt at end of the year
19,596
—
—
—
(78)
563
(3,209)
—
(27)
7,215
(4,218)
102
(40,521)
(68)
(888)
(8,172)
(325)
(133)
Year ended December 31
2016
2015
2,215,433
872,247
(657,207)
(2,680)
178,362
5,815
(5,337)
2,606,633
1,644,599
1,241,951
(665,085)
(13,842)
—
4,697
3,113
2,215,433
Innergex Renewable Energy Inc. – 2016 Financial Review – 126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
29. SUBSIDIARIES
29.1 General information of subsidiaries
Details of the Corporation's significant subsidiaries at the end of the reporting period are set out below.
Name of subsidiaries
Principal activity
Harrison Hydro L.P. and its
subsidiaries
Own and operate
hydroelectric facilities
Creek Power Inc. and its
subsidiaries
Develop, construct, own
and operate
hydroelectric facilities
Kwoiek Creek Resources L.P. 1 Own and operate a
Place of
creation and
operation
Proportion of ownership interest and
voting rights held by the Corporation
December 31,
2016
December 31,
2015
Canada
50.01%
50.01%
hydroelectric facility
Canada
50.00%
Canada
66.67%
66.67%
50.00%
Ashlu Creek Investments L.P. Own and operate a
hydroelectric facility
Canada
100.00%
100.00%
Big Silver Creek Power Limited
Partnership
Own and operate
hydroelectric facility
Mesgi'g Ugju's'n (MU) Wind
Farm L.P. 2
Innergex Europe (2015)
Limited Partnership and its
subsidiaries
Own and operate a wind
facility
Own and operate wind
facilities
Canada
100.00%
100.00%
Canada
50.00%
50.00%
Canada/Europe
69.55%
—%
1. The Corporation owns more than 50% of the economic interest in Kwoiek Creek Resources L.P.
2. The Corporation owns more than 50% of the economic interest in Mesgi'g Ugju's'n (MU) Wind Farm L.P.
The Corporation has subsidiaries, the principal activities of which are summarized as follows:
Principal activity
Principal place of
business
Number of subsidiaries
December 31, 2016
December 31, 2015
Own or operate hydroelectric facilities
Own or operate wind farm facilities
Canada
United States
Canada
Europe
Own or operate a solar facility
Canada
Develop or construct hydroelectric
facilities
Canada
Holdings and others
Canada
United States
Europe
41
1
42
12
9
21
2
4
34
2
8
44
113
37
1
38
10
0
10
2
8
34
2
4
40
98
Innergex Renewable Energy Inc. – 2016 Financial Review – 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
29.2 Details of non-wholly-owned subsidiaries that have non-controlling interests
The table below shows details of non-wholly-owned subsidiaries of the Corporation:
Name of subsidiaries
Place of
creation and
operation
Proportion of ownership
interests and voting
rights held by non-
controlling interests
Earnings (loss) allocated
to non-controlling interests
for the year ended
Non-controlling interests
(deficit)
Dec. 31,
2016
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2015
Harrison Hydro L.P. and
its subsidiaries
Creek Power Inc. and its
subsidiaries
Kwoiek Creek Resources,
L.P. (1)
Mesgi'g Ugju's'n (MU)
Wind Farm L.P. (1)
Innergex Sainte-
Marguerite, S.E.C.
Innergex Europe (2015)
Limited Partnership and
its subsidiaries (2)
Others
Canada
49.99%
49.99%
3,063
(4,141)
61,710
65,395
Canada
33.33%
33.33%
(1,531)
(6,369)
(22,687)
(21,116)
Canada
50.00%
50.00%
(352)
(2,386)
(10,724)
(10,372)
Canada
50.00%
50.00%
(303)
(3,123)
(9,167)
(8,862)
Canada
49.99%
49.99%
(2,144)
(2,042)
(5,562)
(3,418)
Canada/
Europe
Canada
30.45%
Various
—%
Various
(2,708)
55
(3,920)
—
(21)
(18,082)
779
363
14,712
—
280
21,907
1.The Corporation owns more than 50% of the economic interest in the subsidiary.
2.Period of 261 days in 2016.
Innergex Renewable Energy Inc. – 2016 Financial Review – 128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Summarized financial information in respect of each of the Corporation's subsidiaries that has material non-controlling
interests is set out below. The summarized financial information below represents amounts before intragroup eliminations.
Harrison Hydro L.P. and its subsidiaries
As at
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interests
Summary Statements of Earnings and Comprehensive income
(loss)
Revenues
Expenses
Net earnings (loss) and comprehensive income (loss)
Net earnings (loss) and comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests
Summary Statements of Cash Flows
Net cash inflow from operating activities
Net cash outflow from financing activities
Net cash outflow from investing activities
Net increase (decrease) in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2016
December 31, 2015
22,416
615,937
638,353
17,847
458,037
100,759
61,710
638,353
16,930
631,521
648,451
15,653
461,810
105,593
65,395
648,451
Year ended December 31
2016
2015
60,039
55,057
4,982
1,919
3,063
4,982
29,458
(22,581)
(98)
6,779
6,748
42,452
51,880
(9,428)
(5,287)
(4,141)
(9,428)
12,377
(23,738)
(527)
(11,888)
7,448
Innergex Renewable Energy Inc. – 2016 Financial Review – 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Creek Power Inc. and its subsidiaries
As at
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interest deficit
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses
Net loss
Other comprehensive income
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Summary Statements of Cash Flows
Net cash inflow (outflow) from operating activities
Net cash inflow from financing activities
Net cash outflow from investing activities
Net increase (decrease) in cash and cash equivalents
December 31, 2016
December 31, 2015
82,759
492,414
575,173
48,853
605,658
(56,651)
(22,687)
575,173
182,681
342,038
524,719
59,716
539,660
(53,541)
(21,116)
524,719
Year ended December 31
2016
2015
3,413
7,972
(4,559)
26
(4,533)
(3,028)
(1,531)
(4,559)
(3,011)
(1,522)
(4,533)
92
44,774
(44,283)
583
3,135
22,212
(19,077)
147
(18,930)
(12,708)
(6,369)
(19,077)
(12,610)
(6,320)
(18,930)
(67,876)
373,861
(310,482)
(4,497)
Innergex Renewable Energy Inc. – 2016 Financial Review – 130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Kwoiek Creek Resources L.P.
As at
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interest deficit
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Summary Statements of Cash Flows
Net cash inflow (outflow) from operating activities
Net cash outflow from financing activities
Net cash (outflow) inflow from investing activities
Net increase in cash and cash equivalents
December 31, 2016
December 31, 2015
8,949
175,049
183,998
9,964
194,985
(10,227)
(10,724)
183,998
6,946
177,836
184,782
8,599
196,430
(9,875)
(10,372)
184,782
Year ended December 31
2016
2015
19,840
20,544
(704)
(352)
(352)
(704)
1,967
—
(113)
1,854
18,553
22,886
(4,333)
(1,947)
(2,386)
(4,333)
(13,990)
(57)
18,562
4,515
Innergex Renewable Energy Inc. – 2016 Financial Review – 131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Mesgi'g Ugju's'n (MU) Wind Farm L.P.
As at
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interest deficit
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses
Net loss
Other comprehensive loss
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Summary Statements of Cash Flows
Net cash outflow from operating activities
Net cash inflow from financing activities
Net cash outflow from investing activities
Net increase in cash and cash equivalents
December 31, 2016 December 31, 2015
64,843
294,918
359,761
59,360
264,582
44,986
(9,167)
359,761
97,923
100,966
198,889
6,535
155,434
45,302
(8,382)
198,889
Year ended December 31
2016
2015
1,024
2,121
(1,097)
(1,643)
(2,740)
(794)
(303)
(1,097)
(1,955)
(785)
(2,740)
(54,473)
124,368
(63,787)
6,108
—
9,992
(9,992)
(1,639)
(11,631)
(6,869)
(3,123)
(9,992)
(8,028)
(3,603)
(11,631)
(34,458)
208,758
(174,293)
7
Innergex Renewable Energy Inc. – 2016 Financial Review – 132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Innergex Sainte-Marguerite, S.E.C.
As at
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interest deficit
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Summary Statements of Cash Flows
Net cash inflow from operating activities
Net cash outflow from financing activities
Net cash outflow from investing activities
Net increase in cash and cash equivalents
December 31, 2016
December 31, 2015
2,344
132,351
134,695
8,654
120,681
10,922
(5,562)
134,695
1,476
134,873
136,349
6,148
120,552
13,067
(3,418)
136,349
Year ended December 31
2015
2016
10,666
14,955
(4,289)
(2,145)
(2,144)
(4,289)
3,149
(2,605)
(441)
103
10,562
14,648
(4,086)
(2,044)
(2,042)
(4,086)
3,026
(2,308)
(666)
52
Innergex Renewable Energy Inc. – 2016 Financial Review – 133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Innergex Europe (2015) Limited Partnership and its subsidiaries
The Corporation owned 100% of the participating units of Innergex Europe (2015) Limited Partnership, formed for the acquisition
of seven operating wind farms in France on April 15, 2016.
On June 10, 2016, Desjardins subscribed an amount of $38,357 in exchange of 30.45% of the common units and a debenture
of $31,965 issued by Innergex Europe (2015) Limited Partnership. An additional investment of $9,397 including a debenture
of $6,224 was made by Desjardins upon the closing of the acquisition of the two wind farms on December 22, 2016.
As at
Summary Statement of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interest
December 31, 2016
19,036
325,310
344,346
32,475
316,508
(5,416)
779
344,346
Innergex Renewable Energy Inc. – 2016 Financial Review – 134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Summary Statement of Earnings and Comprehensive loss
Revenues
Expenses 1
Net loss
Other comprehensive loss
Total comprehensive loss
Net loss attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
Summary Statement of Cash Flows
Net cash outflow from operating activities
Net cash inflow from financing activities
Net cash outflow from investing activities
Net increase in cash and cash equivalents
Distributions paid to non-controlling interests
Period of 261 days
ended December 31,
2016
9,836
21,145
(11,309)
(799)
(12,108)
(8,601)
(2,708)
(11,309)
(9,157)
(2,951)
(12,108)
(17,443)
121,132
(100,504)
3,185
640
1. Expenses include $1,679 of acquisition costs, $1,470 of interest payable to Desjardins on the $38,189 debenture, $4,265 of preferred
return payable to Innergex on the $87,227 preferred units and $603 of interest payable to Innergex on a temporary bridge loan. Excluding
these elements, the Net loss would have been $3,292. Expenses also include non-cash expenses such as depreciation and amortization
of a total amount of $9,805.
29.3 Financial support to structured entities
Kwoiek Creek Resources L.P
Based on the contractual arrangements between the Corporation and the other partner, the Corporation concluded that it
has control over Kwoiek Creek Resources L.P.
The Corporation invested $39,752 in preferred units of Kwoiek Creek Resources L.P. This investment provides the Corporation
with preferred distributions.
Kwoiek Creek Resources Inc., the other partner, invested $3,662 in subordinated debt of Kwoiek Creek Resources L.P.
Interests or distributions on the aggregate subordinated debt and preferred units will be payable annually subject to the
availability of gross revenues. The interests or distributions on preferred units are payable before making any distributions
on the common units.
Mesgi'g Ugju's'n (MU) Wind Farm L.P
Based on the contractual arrangements between the Corporation and the other partner, the Corporation concluded that it
has control over Mesgi'g Ugju's'n (MU) Wind Farm L.P.
The Corporation is responsible for financing equity required by the project. Mi'gmawei Mawiomi Resources L.P., the other
partner, can participate in the financing of the equity for an amount up to a maximum of $2,300.
Innergex Renewable Energy Inc. – 2016 Financial Review – 135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The Corporation invested a total of $63,315 in preferred units of Mesgi'g Ugju's'n (MU) Wind Farm L.P. This investment
provides the Corporation with preferred distributions. The Mi'gmaq partner invested a total of $2,300 in preferred units of the
Mesgi'g Ugju's'n (MU) Wind farm L.P.
Distributions on preferred units will be payable subject to the availability of gross revenues. The cumulated distributions on
preferred units are payable before making any distributions on common units.
30. JOINT OPERATIONS
Name of entities
Principal activity
Place of creation
and operation
Proportion of ownership interest and
voting rights held by the Corporation
Innergex AAV, L.P. (1)
Innergex BDS, L.P. (1)
Innergex CAR, L.P. (1)
Innergex GM, L.P. (1)
Innergex MS, L.P. (1)
own and operate a wind
farm facility
own and operate a wind
farm facility
own and operate a wind
farm facility
own and operate a wind
farm facility
own and operate a wind
farm facility
Others
operate wind farm facilities
Quebec
Quebec
Quebec
Quebec
Quebec
Quebec
December 31,
2016
December 31,
2015
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
50%
(1). Each of the Limited Partnership owns a 38% ownership interest in the assets, liabilities, revenues and expenses and 50% voting
rights of the joint operations.
Innergex Renewable Energy Inc. – 2016 Financial Review – 136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
31. RELATED PARTY TRANSACTIONS
Harrison Hydro L.P reimbursed the non-interest bearing term loans made by its partners in an amount of $1,750 during
the first quarter of 2015.
32. FINANCIAL INSTRUMENTS
a. Fair value disclosures
Fair value estimates are made at specific points in time using available information about the financial instrument in
question. These estimates are subjective in nature and often cannot be determined precisely.
As at December 31, 2016, the Corporation determined that the carrying values of its current financial assets and
liabilities approximated their fair values due to these instruments' short term maturity.
As at December 31, 2016, the Corporation determined that the carrying values of its short-term investments and
government-backed securities included in reserve accounts approximated their fair values due to these instruments'
short-term maturity.
The fair value of each debt instrument is estimated utilizing standard financial industry practices where future expected
cash flows are discounted at discount rates based on the interest rate and credit conditions prevailing in the financial
markets as of the valuation date. Notably, for fixed rate instruments, contractual cash flows are discounted at an
appropriate yield to maturity. For floating rate instruments, future expected contractual interest rates represent the
sum of future expected levels of the reference interest rate index and the instrument’s quoted margin whereas discount
rates represent the sum of future expected levels of the reference index and an appropriate discount margin.
Appropriate yields to maturity and discount margins are estimated utilizing the available quoted or indicative pricing
of individual debt instruments or indices whose credit is deemed comparable to the debt instruments being evaluated.
The carrying values of the floating rate long-term debts are approximately $77,774 lower than their estimated fair
values based on the swap interest curve on December 31, 2016. The carrying values of the fixed-rate debts, the bonds
and the debentures are approximately $112,489 lower than their estimated fair market values based on the swap
interest curve on December 31, 2016. All of these are estimated using Level 2 valuation techniques.
Financial assets or liabilities measured at fair value are derivative financial instruments which are level 3 for PPAs
inflation provision and level 2 for interest rate swap and foreign exchange forwards contracts.
b.
Interest rate risk
The Corporation entered into fixed rate debts or hedge agreements to mitigate the risk of fluctuations in the interest
rates on its non-recourse long-term debt. It also use hedge agreements on a portion of its revolving credit facility.
During 2016, as part of the acquisition of the wind farms in France, Cholletz wind farm holds an interest rate swap
contract for a notional amount of €10,400 maturing in 2030 at a weighted average rate of 2.64%, to manage its risk
on its long-term debt.
The interest hedging instruments and related risks are described in detail in Note 10.
c. Credit risk
Credit risk relates to the possibility that a loss may occur from a party's failure to comply with contractual requirements.
Cash and cash equivalents are mainly held at large Canadian financial institutions and, to a lesser degree, at major
U.S. and European financial institutions.
The financial derivatives and related risks are described in detail in Note 10.
The accounts receivable and related risks are described in detail in Note 16.
Innergex Renewable Energy Inc. – 2016 Financial Review – 137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
The reserve accounts and related risks are described in detail in Note 17.
d. Liquidity risk
Liquidity risk relates to the capacity of the Corporation to meet liabilities as they become due. Certain covenants of
long-term borrowing contracts could prevent the Corporation from repatriating funds from certain subsidiaries.
Some hedging instruments have embedded early termination options. The triggering of these options could pose a
liquidity risk. Should the early termination option be triggered, a presumed realized loss would be offset by the savings
realized on future expenses, as a negative value would be the result of an environment in which actual rates are more
beneficial than the rates embedded in the swap.
The Corporation has a positive working capital of $31,859 as at December 31, 2016 (positive working capital of
$212,177 in 2015). If necessary, the Corporation can use its revolving credit facility, as described in Note 23 a), of
which $185,313 was available as at December 31, 2016 ($180,359 in 2015). In addition, in the event of lower revenue
due to a decline in production or to a major equipment breakdown, the Corporation has available reserve accounts
(as described in Note 17) and is covered by insurance plans. Accordingly, the Corporation believes its current working
capital to be sufficient to meet all of its needs.
The following table presents the maturities of the financial liabilities:
Less than 3 months
Between 3 months
and 1 year
Between 1 year and 5
years
Dividends payable to shareholders
Accounts payable and other payables
Income tax payable
Current portion of derivative financial
instruments
Current portion of long-term debt
Current portion of other liabilities
Derivative financial instruments
Accrual for acquisition of long-term assets
Long-term debt
Other liabilities
Liability portion of convertible debentures
Total
18,795
27,003
—
3,684
14,944
246
—
58,847
1,292
10,857
84,453
249
64,672
155,698
31,670
37,401
442,732
3,333
94,840
609,976
The maturities are determined based on the expected terms of the payments.
e. Market risk
Market risk is related to fluctuations in the fair value or future cash flows of a financial instrument because of market
price variations. Market risk includes foreign exchange and interest rate risks, described under separate headings,
and other price risks.
The sale of electricity is made pursuant to long-term agreements where the offtakers are committed to take and pay
for the total production, up to certain annual limits. The inflation clauses of the sale price of electricity are normally
allowing the Corporation to cover its increase of variable operation expenses. The inflation clauses included in some
of the electricity purchasing contracts with Hydro-Québec are limited to a maximum of 6% per year.
f. Foreign exchange risk
The foreign exchange risk relates to fluctuations in the U.S. dollar and Euro against the Canadian dollar.
The Corporation has subsidiaries in Europe for which the revenues, net of the expenses incurred, are repatriated to
Canada. The Corporation's foreign exchange forwards are denominated in Euro dollars. Repatriated funds that are
not used to service the Euro dollar-denominated foreign exchange forwards are converted into Canadian dollars at
Innergex Renewable Energy Inc. – 2016 Financial Review – 138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
the exchange rate in effect on the conversion date. The Corporation's net risk is estimated to be $81 for each 1%
increase in the value of the Canadian dollar against the Euro dollar. The Corporation uses a portion of its Euro dollar-
denominated foreign exchange forwards to hedge its investment in its subsidiaries, as described in Note 10.
The Corporation has subsidiaries in the United States for which the revenues, net of the expenses incurred, are
repatriated to Canada. A portion of the Corporation's debts is denominated in U.S. dollars. Repatriated funds that are
not used to service the U.S. dollar-denominated debt are converted into Canadian dollars at the exchange rate in
effect on the conversion date. The Corporation's net risk is estimated to be $13 for each 1% increase in the value of
the Canadian dollar against the U.S. dollar. The Corporation uses a portion of its U.S. dollar-denominated debt to
hedge its investment in its subsidiaries, as described in Note 10.
33. COMMITMENTS AND CONTINGENCIES
In addition to the commitments of the Joint Venture presented in note 9, the Corporation entered into the following
transactions:
a. Power Purchase Agreements
Quebec facilities
Under PPAs with terms varying from 20 to 25 years and expiring between 2017 and 2036, Hydro-Québec agreed to
purchase all of the electrical energy produced by the facilities and wind farms located in the Province of Quebec.
Certain facilities have an agreed maximum quantity of electricity and a minimum quantity of electricity to deliver during
each of the consecutive 12-month periods. Most of the hydroelectric facilities can renew their PPAs for identical periods.
Total revenues from Hydro-Québec amounted to $102,935 in 2016 ($104,110 in 2015), representing 35% of the
Corporation's revenues (42% in 2015). The Corporation is economically dependent on Hydro-Québec given the size
of its revenues.
British Columbia facilities
Under PPAs with terms varying from 20 to 40 years and expiring between 2017 and 2056, British Columbia Hydro
and Power Authority agreed to purchase all of the electrical energy produced by the facilities located in the Province
of British-Columbia.
Total revenues from British Columbia Hydro and Power Authority amounted to $139,012 in 2016 ($104,293 in 2015)
representing 47% of the Corporation's revenues (42% in 2015). The Corporation is economically dependent on British
Columbia Hydro and Power Authority given the size of its revenues.
Ontario facilities
Under PPAs with terms varying from 20 to 30 years and expiring between 2025 and 2032, Hydro One inc. and its
affiliates agreed to purchase all of the electrical energy produced by the facilities located in Ontario.
Total revenues from the Ontario facilities amounted to $ $21,250 ($21,228 in 2015) representing 7% of the Corporation's
revenues (9% in 2015).
Europe facilities
Under PPAs with terms varying from 15 to 17 years and expiring between 2024 and 2031, Électricité de France and
S.I.C.A.E Oise agreed to purchase all of the electrical energy produced by the facilities located in France.
Total revenues from Électricité de France and S.I.C.A.E Oise amounted to $9,836 in 2016 (nil in 2015) representing
3% of the Corporation's revenues (nil in 2015).
Innergex Renewable Energy Inc. – 2016 Financial Review – 139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Idaho facility
Under a PPAs with a 35-year term and expiring in 2030, Idaho Power Company agreed to purchase all of the electricity
produced by Horseshoe Bend Hydroelectric Corporation.
Total revenues from Idaho Power Company amounted to $ $4,226 in 2016 ($3,826 in 2015), representing 1% of the
Corporation's revenues (2% in 2015).
b. Other Commitments
(i) Hydroelectric facilities
The Corporation and its subsidiaries entered into royalties and other commitments related to surrounding municipalities
and land owners and the operation of the hydroelectric facilities.
Ashlu Creek facility
The ownership of the assets of the project will be transferred to a First Nation in 2049 for a nominal financial
consideration.
Boulder Creek facility
Boulder Creek LP entered into several contracts for the construction of an hydroelectric power-generating facility.
Partnership agreement
40% of the Corporation's ownership of the project will be transferred to the First Nation partner 40 years after the
commencement of delivery.
Glen Miller facility
Glen Miller Power, Limited Partnership entered into a 30-year lease agreement, ending in December 2035, for the
site that is in commercial operation. The lease has a 15-year extension option upon terms and conditions to be
negotiated.
Glen Miller Power, Limited Partnership is committed to remit the facility to the lessor of the site, at the end of the lease
agreement, for no consideration.
Harrison Hydro L.P.
The ownership of Douglas Creek Project L.P. and Tipella Creek Project L.P. will be transferred to a First Nation in
2069 for no financial consideration.
Kwoiek Creek facility
The Corporation's ownership of the project will be transferred to the First Nation partner in 2054 for no financial
consideration. Subsequently, the Corporation will receive a royalty based on a percentage of the gross revenues less
operation costs.
Rutherford Creek facility
Rutherford L.P. agreed to make payments to the former owners, following the expiry of the Rutherford Creek PPA in
2024. This payment is based on the difference between the then selling price of electricity and the last selling price
of electricity under the agreement, adjusted annually following the expiry of the agreement by 50% of the increase or
decrease in the CPI over the previous 12 months. This amount will correspond to 35% of the gross revenues attributable
to the difference for the 20-year period following the expiry of the power purchase agreement. After the 20-year period,
that portion of the payment will correspond to 30% of the gross revenues attributable to the difference. This commitment
is secured by the Rutherford L.P. facility but is subordinated to the term loan described in Note 23 i).
Innergex Renewable Energy Inc. – 2016 Financial Review – 140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Tretheway facility
50% of the Corporation's ownership will be transferred to a First Nation in 2055 for no financial consideration.
Upper Lillooet facility
Upper Lillooet River LP entered into several contracts for the construction of a hydroelectric power-generating facility.
Partnership agreement
40% of the Corporation's ownership of the project will be transferred to the First Nation partner 40 years after the
commencement of delivery.
(ii) Wind farm facilities
The Corporation and its subsidiaries entered into royalties and other commitments related to amounts to set aside for
the dismantling of wind farm components, commitments to surrounding municipalities and land owners and the
operation of the wind farms.
Europe
The French subsidiaries entered into commitments related to land leases, maintenance and management contracts
for the operations of the wind farms.
(iii) Stardale Solar LP
Stardale Solar LP entered into a contract for the operations and maintenance of the solar farm.
(iv) Operating leases
The Corporation is engaged under long-term operating leases of premises which will expire between 2017 and 2028.
c. Summary of commitments
As at December 31, 2016, the expected schedule of commitment payments is as follows:
Year of expected
payment
2017
2018
2019
2020
2021
Thereafter
Total
d. Contingencies
Hydroelectric
Generation
Wind Power
Generation
Solar
Generation
Site
Development
Total
1,576
1,108
971
1,005
911
21,892
27,463
8,603
8,835
9,723
9,881
9,968
94,418
141,428
333
—
—
—
—
—
333
15,096
1,317
1,185
1,160
1,155
7,388
27,301
25,608
11,260
11,879
12,046
12,034
123,698
196,525
The Corporation is subject to various claims that arise in the normal course of business. Management believes that
adequate provisions have been made in the accounts where required. Although it is not possible to estimate the extent
of potential costs and losses, if any, management believes that the ultimate resolution of such contingencies will not
have an adverse effect on the financial position of the Corporation.
Innergex Renewable Energy Inc. – 2016 Financial Review – 141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
34. CAPITAL DISCLOSURES
The Corporation's strategy in managing its capital is: (i) to develop or acquire high-quality power production facilities that
generate sustainable and stable cash flows, with the objective of achieving a high return on invested capital, and (ii) to
distribute a stable dividend.
The Corporation seeks to achieve its objectives by:
• Maintaining the generating capacity and enhancing the operation of its hydroelectric facilities, wind farms and solar
farm; and
Acquiring and developing new electricity-generating facilities.
•
The Corporation maintains its generating capacity by investing the necessary funds to maintain and continually upgrade
its equipment. The Corporation also invests amounts on an annual basis in major maintenance reserve in order to fund
any major maintenance of hydroelectric facilities, wind farms or solar farm which may be required to preserve the
Corporation's generating capacity.
The Corporation determines the amount of capital required, and its allocation between debt and equity, for the acquisition
and development of new electricity-generating facilities by considering the specific characteristics of stability and growth
of each facility. This determination is made in order to distribute a stable dividend while maintaining an acceptable level
of indebtedness.
The Corporation has a hydrology/wind power reserve. This reserve could be used in the event that the net available cash
for any given year is less than expected, due to normal changes in hydrology or wind conditions or other unpredictable
factors.
The Corporation's capital is composed of long-term debt, convertible debentures and shareholders' equity. Total capital
amounts to $3,186,705 at year-end.
The Corporation uses equity primarily to finance the development of projects. The Corporation uses long-term debt to
finance the construction of its facilities. The Corporation expects to finance 70% to 85% of its construction costs mostly
through non-recourse long-term debt financing.
Future development and construction of new facilities, development of projects, expenses on prospective projects and
other capital expenditures will be financed out of cash generated from the Corporation's operating facilities, borrowings
and/or issuance of additional equity. To the extent that external sources of capital, including issuance of additional securities
of the Corporation, become limited or unavailable, the Corporation's ability to make necessary capital investment to construct
new or maintain existing project facilities will be impaired. There is no certainty that sufficient capital will be available on
acceptable terms to fund further development or expansion.
Under the terms of the Revolving credit facility described in Note 23 a), the Corporation needs to maintain, a leverage ratio
and an interest coverage ratio. If the ratios are not met, the lender has the ability to recall the facility.
Regarding the respective non-recourse projects financing, some subsidiaries of the Corporation need to maintain minimum
debt coverage ratios. If the ratios of a particular project financing are not met, the lenders could have the ability to recall
the particular debt. Certain financial restrictive clauses could prevent the subsidiaries from making distributions to the
Corporation.
All debt covenants are monitored on a regular basis by the Corporation. During the year, the Corporation and its subsidiaries
met all the financial and non-financial conditions related to their credit agreements.
The Corporation's capital management objectives, policies and procedures are to ensure the stability and sustainability of
the dividend payable to its shareholders and the development or acquisition of power production facilities. The objectives
were identical in prior years.
Innergex Renewable Energy Inc. – 2016 Financial Review – 142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
35. SEGMENT INFORMATION
Geographic segments
The Corporation had interests in 28 hydroelectric facilities, seven wind farms and one solar farm in Canada, nine wind
farms in France and one hydroelectric facility in the United States. The Corporation operates in three principal geographical
areas, which are detailed below:
Revenues
Canada
Europe
United States
Year ended December 31
2016
2015
278,723
9,836
4,226
292,785
243,043
—
3,826
246,869
As at
December 31, 2016
December 31, 2015
Non-current assets, excluding financial instruments and
deferred tax assets
Canada
Europe
United States
Major Customers
3,005,720
318,924
7,365
3,332,009
2,704,788
—
8,043
2,712,831
A major customer is defined as an external customer whose transaction with the Corporation amount to 10% or more of
the Corporation's annual revenues. The Corporation has identified two major customers. The sales of the Corporation to
these major customers are the following:
Major customer
Segment
Year ended December 31
2016
2015
British Columbia Hydro and
Power authority
Hydro-Québec
Hydroelectric generation
Hydroelectric and wind power
generation
139,012
102,935
241,947
104,293
104,110
208,403
Operating segments
The Corporation has four operating segments: (a) hydroelectric generation (b) wind power generation (c) solar power
generation and (d) site development.
Through its hydroelectric, wind power and solar power generation segments, the Corporation sells electricity produced by
its hydroelectric, wind farm and solar facilities to publicly owned utilities or other creditworthy counterparties. Through its
site development segment, it analyzes potential sites and develops hydroelectric, wind and solar facilities up to the
commissioning stage.
The accounting policies for these segments are the same as those described in the significant accounting policies. The
Corporation evaluates performance based on earnings (loss) before finance costs, income taxes, depreciation,
amortization, impairment of project development costs, other net (revenues) expenses , share of (earnings) loss of joint
Innergex Renewable Energy Inc. – 2016 Financial Review – 143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
ventures and unrealized net (gain) loss on financial instruments. The Corporation accounts for inter-segment and
management sales at cost. Any transfers of assets from the site development segment to the hydroelectric, wind power
generation or solar power generation segments are accounted for at cost.
The operations of the Corporation’s operating segments are conducted by different teams, as each segment has different
skill requirements.
Year ended December 31, 2016
Operating segments
Hydroelectric
generation
Wind power
generation
Solar power
generation
Site
development
Total
Revenues
Expenses:
Operating
General and administrative
Prospective projects
Earnings (loss) before finance
costs, income taxes,
depreciation, amortization,
other net expenses, share of
earnings of joint ventures and
unrealized net gain on financial
instruments
Finance costs
Other net expenses
Earnings before income taxes,
depreciation, amortization,
share of earnings of joint
ventures and unrealized net
gain on financial instruments
Depreciation
Amortization
Share of earnings of joint
ventures
Unrealized net gain on financial
instruments
Earnings before income taxes
As at December 31, 2016
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the year
211,881
63,238
17,666
—
292,785
37,197
8,459
—
13,515
4,090
—
757
152
—
—
2,344
10,288
51,469
15,045
10,288
166,225
45,633
16,757
(12,632)
215,983
95,254
265
120,464
61,722
28,581
(2,526)
(4,292)
36,979
8,269
1,993,033
1,537,791
—
1,003,964
847,148
—
108,231
113,538
—
498,976
620,495
8,269
3,604,204
3,118,972
3,420
219,813
11
369,723
592,967
Innergex Renewable Energy Inc. – 2016 Financial Review – 144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
Year ended December 31, 2015
Operating segments
Hydroelectric
generation
Wind power
generation
Solar power
generation
Site
development
Total
Revenues
Expenses:
Operating
General and administrative
Prospective projects
Earnings (loss) before finance
costs, income taxes,
depreciation, amortization,
impairment of project
development costs,other net
expenses, share of earnings of
joint ventures and unrealized
net gain on financial
instruments
Finance costs
Other net expenses
Loss before income taxes,
depreciation, amortization,
impairment of project
development costs, share of
earnings of joint ventures and
unrealized net gain on financial
instruments
Depreciation
Amortization
Impairment of project
development costs
Share of earnings of joint ventures
Unrealized net gain on financial
instruments
Loss before income taxes
As at December 31, 2015
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the year
173,567
56,691
16,611
—
246,869
30,696
7,747
—
9,512
3,497
—
730
153
—
—
2,791
8,005
40,938
14,188
8,005
135,124
43,682
15,728
(10,796)
183,738
83,130
116,764
(16,156)
53,261
22,217
51,719
(1,562)
(81,368)
(60,423)
8,269
1,806,873
1,344,518
—
332,698
213,415
—
114,543
107,641
—
874,189
991,172
8,269
3,128,303
2,656,746
4,051
871
81
299,549
304,552
Innergex Renewable Energy Inc. – 2016 Financial Review – 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except as noted, and amounts per share)
36. SUBSEQUENT EVENTS
a. Dividends declared by the Board of Directors
Date of
announcement Record date Payment date
Dividend per
common share ($)
Dividend per Series
A Preferred Share ($)
Dividend per Series
C Preferred Share ($)
02/23/2017
03/31/2017
04/17/2017
0.1650
0.2255
0.359375
b. Big Silver Creek
On January 31, 2017, the construction term loan of Big Silver was converted into a 39.5-year term loan, see long-term
debt note 23 aa.
c. Financing of two of the French subsidiaries
On February 10, 2017, two of the French subsidiaries concluded a €8,500 subordinated debt financing with a French
Infrastructure fund. The subordinated loan carries an interest rate of 7.25%, has an eight year tenor and its principal
will be reimbursed at maturity.
d. Revolving credit facility
On February 21, 2017, the Corporation executed a Fifth Amended and Restated Credit Agreement of its existing
$425,000 revolving credit facility. These amendments add flexibility to the Corporation to borrow in EURO via EURIBOR
loans. The Corporation also extended its revolving term from 2020 to 2021 (except for one lender of $42,500 whose
commitment remains until 2020) to provide greater financing flexibility. Moreover, a Letter of Credit Facility of an amount
of up to $30 000 guaranteed by Export Development Canada (EDC) was added and will be put in place.
e. Acquisition of Yonne
On February 21, 2017, the Corporation and Desjardins completed the purchase of the Yonne wind farm, a 44 MW
facility for which the commissioning activities began in the fourth quarter 2016 and were completed at the end of January
2017, and which was part of the French wind projects acquisition concluded in April 2016. The electricity produced by
Yonne is sold under a power purchase agreement at fixed price for an initial term of 15 years, to Électricité de France.
The total purchase price amounted to €35,184 (or $48,983), subject to certain adjustments. A €10,000 (or $13,922)
deposit had already been provided by the Corporation. The project financing of €59,464 (equivalent to $82,786), which
is already in place, will remain at the acquired project level. The Corporation reduces its exposure to exchange rate
fluctuations by entering into long-term currency hedging instruments. Innergex owns a 69.55% interest in the wind farm
and Desjardins Group Pension Plan owns the remaining 30.45%.
Innergex Renewable Energy Inc. – 2016 Financial Review – 146
Innergex Renewable Energy Inc. – 2016 Financial Review – 147
Innergex Renewable Energy Inc. is a leading Canadian
independent renewable power producer. Active since 1990,
the Corporation develops, owns and operates run-of-river
hydroelectric facilities, wind farms, and solar photovoltaic
farms and carries out its operations in Quebec, Ontario, British
Columbia, France and Idaho (USA). The Corporation’s shares are
listed on the Toronto Stock Exchange under the symbols INE,
INE.PR.A and INE.PR.C and its convertible debentures are listed
under the symbol INE.DB.A.
2016 HIGHLIGHTS
Innergex’s mission is to increase its production of renewable
energy by developing and operating high-quality facilities while
respecting the environment and balancing the best interests of
the host communities, its partners and its investors.
Innergex and the Cayoose
Creek Band completed the
acquisition of the 16 MW
Walden North hydroelectric
project in British Columbia
on February 25, 2016.
The Corporation realized
its first overseas
acquisition on April 15, 2016.
The acquisition was
comprised of seven wind
power facilities in France
with an installed capacity
of 86.8 MW.
On April 15, 2016, the
Corporation also
committed to acquire, upon
its commercial commis-
sioning, the 44 MW Yonne
wind power project under
construction in France. The
acquisition was completed
on February 21, 2017.
The Corporation began
commercial operation of
the 40.6 MW Big Silver Creek
run-of-river hydroelectric
facility located in British
Columbia on July 29, 2016.
On December 22, 2016,
Innergex completed
the acquisition of two wind
power facilities in Nouvelle-
Aquitaine, France, with an
installed capacity of 24 MW,
together with Desjardins
Group Pension Plan.
The Mesgi’g Ugju’s’n
wind power facility
located in the Gaspé
Peninsula in Quebec began
commercial operation on
December 30, 2016. This
150 MW wind farm is owned
by Innergex and the three
Mi’gmaq communities
of Quebec.
2016 FINANCIAL PERFORMANCE
Electricity
production increased
18% to
3,522 GWh and was
105% of the long-term
average
Revenues rose
19% to
$292.8 million
compared with last year
Free Cash Flow
generated reached
$75.7 M
Payout ratio was
91%
compared with
86% last year
Adjusted
EBITDA rose
18% to
$216.0 million
compared with
last year
On February 23, 2017, the Board of Directors announced an
increase of $0.02 in the annual dividend that the Corporation
intends to distribute to its shareholders of common shares.
This increase, raising the annual dividend from $0.64 to
$0.66, payable quarterly, reflects the execution of the
Corporation’s strategy for building shareholder value, which
is to develop or acquire high-quality renewable power
production facilities that generate sustainable cash flows and
provide an attractive risk-adjusted return on invested capital,
and to distribute a stable dividend.
REVENUES AND ADJUSTED EBITDA1
At December 31
($000s)
NET INSTALLED CAPACITY
At December 31
(MW)
2016
2015
2014
2013
2012
215,983
292,785
246,869
241,834
183,738
179,562
198,259
148,916
176,655
111,196
Revenues
Adjusted EBITDA
1 Prepared in accordance with IFRS – excluding joint ventures.
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
326
321
271
218
180
909
708
687
672
577
461
INFORMATION FOR INVESTORS
STOCK EXCHANGE LISTING
Innergex Renewable Energy Inc.’s securities are listed on the
Toronto Stock Exchange (TSX).
Common shares
Cumulative Rate Reset
Preferred Shares, Series A
(“Series A Preferred Shares”)
Cumulative Redeemable Fixed
Rate Preferred Shares, Series C
(“Series C Preferred Shares”)
4.25% Convertible Unsecured
Subordinated Debentures
(“Convertible debentures”)
TSX SYMBOL
INE
INE.PR.A
INE.PR.C
INE.DB.A
The Corporation is included in the following indices:
• S&P/TSX Composite Index
• S&P/TSX Composite Dividend Index
• S&P/TSX Composite High Dividend Index
• S&P/TSX Completion Index
• S&P/TSX Renewable Energy and Clean Technology Index
COMMON SHARES (TSX: INE)
Innergex Renewable Energy Inc. had 108,181,592 common
shares outstanding at December 31, 2016, with a closing price of
$14.03 per share. The Corporation’s shares are listed on the
Toronto Stock Exchange.
SERIES A PREFERRED SHARES (TSX: INE.PR.A)
Innergex Renewable Energy Inc. currently has 3,400,000 Series A
preferred shares outstanding, with a nominal value of $25 and a
fixed cumulative preferential annual cash dividend of $0.902 per
share, payable quarterly on the 15th day of January, April, July,
and October. Series A preferred shares are not redeemable by the
Corporation prior to January 15, 2021.
SERIES C PREFERRED SHARES (TSX: INE.PR.C)
Innergex Renewable Energy Inc. currently has 2,000,000 Series C
preferred shares outstanding, with a nominal value of $25 and a
fixed-rate cumulative preferential annual cash dividend of
$1.4375 per share, payable quarterly on the 15th day of January,
April, July, and October. Series C preferred shares are not
redeemable by the Corporation prior to January 15, 2018.
CONVERTIBLE DEBENTURES (TSX: INE.DB.A)
Innergex Renewable Energy Inc. currently has convertible
debentures outstanding for an aggregate principal amount of
$100.0 million, bearing interest at a rate of 4.25% per annum,
payable semi-annually on February 28 and August 31 of each
year, commencing on February 28, 2016. The debentures will be
convertible at the holder’s option into Innergex common shares
at a conversion price of $15.00 per share, representing a
conversion rate of 66.6667 common shares per each thousand
dollars of principal amount of debentures. The debentures will
mature on August 31, 2020 and will not be redeemable before
August 31, 2018, except in certain limited circumstances. The
convertible debentures are subordinated to all other
indebtedness of the Corporation.
CREDIT RATINGS
Innergex Renewable Energy Inc.
Series A Preferred Shares
Series C Preferred Shares
STANDARD
& POOR’S
BBB
P-3
P-3
TRANSFER AGENT AND REGISTRAR
For information concerning share certificates, dividend payments,
a change of address, or electronic delivery of shareholder
documents (such as quarterly and annual reports and proxy
circulars), please contact the Corporation’s transfer agent
and registrar:
Computershare Investor Services Inc.
1500 Robert-Bourassa Blvd, Suite 700
Montreal, Quebec, Canada H3A 3S8
Phone: 1 800 564-6253 or 514 982-7555
Email: service@computershare.com
Website: computershare.com
DIVIDEND REINVESTMENT PLAN (DRIP)
Innergex Renewable Energy Inc. offers a Dividend Reinvestment
Plan (DRIP) for its shareholders of common shares. This plan
enables eligible holders of common shares to acquire additional
common shares of the Corporation by reinvesting all or part of
their cash dividends. For more information about the
Corporation’s DRIP, please visit our website at innergex.com or
contact the DRIP administrator, Computershare Trust Corporation
of Canada. Please note that if you wish to enrol in the DRIP but
own your shares indirectly through a broker or financial
institution, you must contact this intermediary and ask them to
enrol in the DRIP on your behalf.
INDEPENDENT AUDITOR
Deloitte LLP
COMMON SHARE DIVIDEND POLICY AND
PAYMENT HISTORY
The Corporation distributed an annual dividend of $0.64 per
common share, payable quarterly1. The Corporation’s dividend
policy is determined by its Board of Directors and is based on the
Corporation’s results of operations, cash flows, financial
condition, debt covenants, long-term growth prospects, solvency
tests imposed under corporate law for the declaration of
dividends, and other relevant factors.
PAYMENT
HISTORY
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
$0.160
$0.160
$0.160
$0.160
$0.640
2015
$0.155
$0.155
$0.155
$0.155
$0.620
2014
$0.150
$0.150
$0.150
$0.150
$0.600
1 On February 23, 2017, the Board of Directors announced an increase of $0.02 in the annual
dividend that the Corporation intends to distribute to its shareholders of common shares,
raising it from $0.64 to $0.66 per common share, payable quarterly.
STOCK CHART:
JANUARY 1 - DECEMBER 31, 2016
HIGH - LOW OVER 52 WEEKS: $15.70 - $10.17
$
16.00
14.00
12.00
10.00
8.00
Jan
Feb Mar
Apr May
June
July
Au
Sep Oct Nov Dec
ANNUAL SHAREHOLDERS’ MEETING
The annual shareholders’ meeting will be held on
Tuesday, May 9, 2017, at 4:00 p.m. EDT
at the St. James’s Club
1145 Union Avenue, Montréal, Quebec H3B 3C2
Innergex Renewable Energy Inc.’s Notice of Annual Meeting
of Shareholders and Management Information Circular –
Solicitation of Proxies will be available no later than April 11,
2017, on the Investor page of our website. Hard copies will be
available upon request.
INVESTOR RELATIONS
To obtain additional financial information, corporate updates, or recent news
releases and investor presentations, please contact:
Karine Vachon
Director – Communications
Tel.: 450 928-2550, ext. 222, kvachon@innergex.com
Or visit innergex.com.
Ce document est disponible en français.
Pour la version numérique, visitez notre site web à innergex.com.
Pour la version papier, communiquez avec nous à info@innergex.com.
INNERGEX RENEWABLE ENERGY INC.
Longueuil Office: 1111 Saint-Charles Street West, East Tower, Suite 1255
Longueuil, Quebec, Canada J4K 5G4
Vancouver Office: 200 – 666 Burrard Street, Park Place
Vancouver, British Columbia, Canada V6C 2X8
innergex.com
info@innergex.com
FINANCIAL
REVIEW
INNERGEX RENEWABLE ENERGY INC.
AT DECEMBER 31, 2016
I
N
N
E
R
G
E
X
R
E
N
E
W
A
B
L
E
E
N
E
R
G
Y
I
N
C
.
/
F
I
N
A
N
C
I
A
L
R
E
V
I
E
W
A
T
D
E
C
E
M
B
E
R
3
1
,
2
0
1
6
TABLE OF CONTENTS
Management’s Discussion
and Analysis
P. 2
Responsibility for
Financial Reporting
P. 65
Independent Auditor’s Report
P. 66
Consolidated Financial
Statements
P. 67
Notes to the Consolidated
Financial Statements
P. 77
Information for Investors
P. 144