INNERGEX RENEWABLE ENERGY INC.
ANNUAL
REPORT
AT DECEMBER 31, 2017
TABLE OF
CONTENTS
MESSAGE TO SHAREHOLDERS
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESPONSIBILITY FOR FINANCIAL REPORTING
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
3
5
68
69
70
78
2017 Highlights
Production up 25% over 2016
Revenues up 37% over 2016
Adjusted EBITDA1 up 38% over 2016
Acquisition of six wind farms in France with
Desjardins Group Pension Plan
Two hydro facilities in British Columbia reached
commercial operation
Arrangement agreement pursuant to which
Innergex is to acquire all of the issued and
outstanding common shares of Alterra Power
Corp. The transaction closed on February 6, 2018
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore
may not be comparable to those presented by other issuers. Please refer
to the "Non-IFRS Measures" section of the Management's Discussion and
Analysis for more information.
Innergex Renewable Energy Inc. is a leading
Canadian independent renewable power
producer. Active since 1990, the Corporation
develops, acquires, owns and operates run-
of-river hydroelectric facilities, wind farms,
solar photovoltaic farms and geothermal
power facilities and carries out its operations
in Canada, in the United States, in France
and in Iceland. 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.
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.
Installed Capacity1
Hydro
Wind
Solar
Geothermal
Gross
Net2
1,029
1,429
54
174
684
671
53
94
TOTAL
1 Installed capacity is the installed capacity for all operating facilities as at
February 21, 2018.
2 Net capacity is the proportional share of the total capacity attributable to
Innergex based on its ownership interest in each facility.
2,686
1,502
Facilities1
Hydro
Wind
Solar
Geothermal
In operations
In development
34
24
3
2
1
1
—
—
2
TOTAL
63
1 Number of facilities as at February 21, 2018.
FINANCIAL HIGHLIGHTS
OPERATING RESULTS
Production (MWh)
Revenues
Adjusted EBITDA1
Adjusted EBITDA Margin (%)1
Adjusted EBITDA Proportionate1
Net Earnings (Loss)
Adjusted Net Earnings1
Cash Flow from Operating Activities
Free Cash Flow1
Payout Ratio (%)1
COMMON SHARES
Dividends
Weighted average number of common shares
(in 000s)
FINANCIAL POSITION
Total Assets
Non-current liabilities
Non-controlling interests
Equity attributable to owners
Year ended December 31
2017
2016
2015
4,394,210
400,263
298,728
3,521,645
292,785
215,983
2,987,637
246,869
183,738
75%
74%
74%
308,343
19,668
16,194
192,451
87,207
224,368
32,043
29,076
76,753
75,702
193,179
(48,383)
19,731
4,557
74,386
82%
91%
86%
71,621
108,427
4,190,456
3,493,423
14,920
435,269
68,524
106,883
3,604,204
2,898,602
14,712
470,520
63,646
102,304
3,128,303
2,471,576
21,907
449,650
1. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA Proportionate, Adjusted Net Earnings, Free Cash Flow and Payout ratio are
not recognized measures under IFRS and therefore may not be comparable to those presented by other issuers. Please refer to the "Non-
IFRS Measures" section of the Management's Discussion and Analysis for more information.
MESSAGE TO SHAREHOLDERS
THINK BIG, AIM TRUE
With its recently commissioned facilities and new acquisitions, Innergex has expanded its net installed capacity
by 63% since December 31, 2016. Now with 2,686 gross MW in operation (1,502 net MW1), Innergex can take
pride in not only being a leader in Canada but the largest independent producer of renewable energy in British
Columbia.
Since 1990, Innergex has focused exclusively on producing renewable energy. We knew at that time that renewable energy
was essential for the well-being of our planet. Now, 27 years later, our focus remains the same, and it continues to be the
guiding factor in everything we do every day. What's more, we are proud of the part we play in helping the global energy
transition.
Over the last few years, we have successfully completed a number of major projects in Canada, including several in British
Columbia where we commissioned four hydroelectric facilities from 2015 to 2017: Tretheway Creek (21.2 MW), Big Silver Creek
(40.6 MW), Upper Lillooet River (81.4 MW) and Boulder Creek (25.3 MW). This most recent commissioning marks the culmination
of a period of major construction projects that we undertook simultaneously in Western Canada.
In Quebec, the Mesgi’g Ugju’s’n wind project (150 MW) began commercial operation at the end of 2016. This project, developed
in partnership with Quebec's three Mi'gmaq communities, is one of a kind. It exemplifies our ability to develop long-term
partnerships that create benefits shared with local communities, making a tangible difference for the economic future of their
communities.
Every day we work to bring projects to life that meet the expectations and have the support of their host communities. Our
development teams have also been hard at work for the last several years on a number of potential projects, some of which
could be developed in cooperation with First Nations as well as other partners.
All our enormous successes are the result of several years of dedication by our talented team. Each individual team member
is committed to the company's values and is prepared to go all out to achieve a common goal. It is because of our employees
that we are able to successfully establish such strong and long-lasting relationships with our partners.
Now that we have completed our construction activities in Canada, we can focus even more on growth opportunities to be
seized throughout the country and internationally. As a leader in renewable energy production in Canada, we are always on
the lookout for new project opportunities with the goal of establishing facilities in other provinces. At the moment, we are excited
to have pre-qualified to participate in the request for proposals for up to 200 MW of wind power in Saskatchewan.
GO THE EXTRA MILE
In 2015, we adopted a five-year strategic plan and continue to implement it successfully. We remain committed to producing
energy exclusively from renewable sources and we plan to continue to grow with this strategy in mind. Our plan also consists
of diversifying our assets, expanding our operations throughout Canada, and further developing our presence internationally.
Our growth strategy includes a number of target markets such as France, the United States and Latin America. With the valuable
help of our team of experts, Innergex acquired 15 wind farms in France in less than two years. These transactions also
demonstrated our expertise in project management, as the commissioning of three of these wind farms was completed under
our supervision. An essential component to our growth in France lies in the expertise of our team that is now working from our
new office in Lyon who are tasked with developing and acquiring new projects. We are very pleased with the results that we
have achieved so far. With close to 320 gross MW (221 net MW) in operation, our growth in France is gaining momentum and
marks a first step in our global growth strategy.
Our recent acquisition of Alterra Power Corp. ("Alterra") added 840 gross MW (378 net MW) to our installed capacity and helped
us achieve the four objectives set in our strategic plan. This $1.1 billion transaction -the largest in Innergex's history- enables
us to manage 1,960 gross MW (1,057 net MW) in Canada alone, with new hydroelectric facilities as well as a new wind farm
in British Columbia.
1 Net capacity represents the proportional share of the total capacity attributable to Innergex, based on its ownership interest in these facilities and projects. The
remaining capacity is attributable to the partners’ ownership share.
Innergex Renewable Energy Inc.
Annual Report 2017
Message to shareholders p3
(in thousands of Canadian dollars, except as noted and amounts per share)
In addition to these new assets that strengthen our presence in Canada, the Alterra acquisition boosts and reinforces our
position in North America with a very attractive platform for growth that already manages 234 gross MW (131 net MW) in the
United States. In 2017, we had already made significant strides in the US with the opening of an office in San Diego, California
where we have a new team dedicated to seizing growth opportunities. With this acquisition, we can now grow more easily and
quickly in the United States. In 2018, we expect to commission the Flat Top wind project (200 MW gross) in Texas. We also
intend to begin construction on another wind project also in Texas of the same scale.
The United States represents a market ripe for renewable energy development, and business opportunities there are significant.
We firmly intend to carve a niche in this country by developing and acquiring high-quality projects sustained by power purchase
agreements or long-term power hedge contracts, whenever possible. With the combined strength and expertise of our team,
we are confident that a bright future south of the border awaits us.
Last but not least, the Alterra acquisition in the first quarter of 2018 has enabled us to diversify our offering in terms of power
sources by adding geothermal energy to our portfolio. We have also enhanced our geographic presence as our activities now
cover Canada, the United States, France and Iceland. And this is just the beginning. We are actively pursuing other growth
opportunities, in particular in Latin America where we have initiated work.
ADAPT FOR TOMORROW
The field of renewable energy, like the energy sector in general, is constantly evolving. New processes and technologies are
hitting the market and will undoubtedly influence our industry for years to come. Consequently, we always keep our eyes on
new trends so that we can stay competitive in our approach and in the development or acquisition of new projects. Renewable
energy now encompasses more than pure energy generation and requires collection and storage systems that will help reduce
the dependence on changing weather patterns to store the energy produced.
These collection and storage systems help to stabilize energy networks, smooth out production and consumption irregularities,
and increase the quality of voltage and other auxiliary systems that can contribute to sound management of the power grid.
Soon, they could even become the solution to compete more fiercely with non-renewable sources of energy like coal and other
fossil fuels.
Accordingly, we intend to remain at the forefront of our industry and take these new technologies into consideration in our
growth plan.
Before concluding, we would like to welcome Ross Beaty to our Board of Directors. He was previously Executive Chairman of
Alterra. The growing Innergex family will no doubt benefit from his vast experience in the renewable energy industry.
At Innergex, we are proud of the outstanding work of all of our employees. By working together, with everyone’s different skills,
we can achieve a common goal and reach new heights.
On behalf of everyone at Innergex, we want to thank our customers, shareholders, lenders, local communities, suppliers and,
of course, all our partners for their confidence and support. Thanks to your collaboration, we see a growing future for the well-
being of our communities, our environment and our company.
Jean La Couture
Chairman of the Board of Directors
Michel Letellier
President and Chief Executive Officer
Innergex Renewable Energy Inc.
Annual Report 2017
Message to shareholders p4
(in thousands of Canadian dollars, except as noted and amounts per share)
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2017, and reflects all
material events up to February 21, 2018, 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, 2017.
The audited consolidated financial statements attached to this MD&A and the accompanying notes for the year ended
December 31, 2017, along with the 2016 comparative figures, have been prepared in accordance with International Financial
Reporting Standards (“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. Please refer to the "Non-IFRS Measures" section
for more information.
All dollar amounts are in thousands of Canadian dollars, except amounts per share or unless otherwise indicated. Some amounts
included in this MD&A have been rounded to make reading easier, which may affect some calculations.
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”). Please refer to the "Forward-Looking Information" section for more
information.
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.
TABLE OF CONTENTS
Overview
Business Strategy
Key Performance Indicators
Selected Annual Information
Developments in 2017
Operating Results
Liquidity and Capital Resources
Share Capital Structure
Financial Position
Free Cash Flow and Payout Ratio
Projected Financial Performance
Segment Information
6
7
9
10
12
19
24
26
27
31
33
37
Quarterly Financial Information
Fourth Quarter Results
Investments in Joint Ventures
Non-wholly Owned Subsidiaries
Related Party Transaction
Non-IFRS Measures
Forward-Looking Information
Risks and Uncertainties
Critical Accounting Estimates
Accounting Changes
Establishment and Maintenance of DC&P and ICFR
Subsequent Events
40
41
44
47
55
55
56
59
64
65
66
67
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p5
(in thousands of Canadian dollars, except as noted and amounts per share)
OVERVIEW
The Corporation is a developer, acquirer, owner and operator of renewable power-generating facilities with a focus
on hydroelectric, wind power, solar photovoltaic and geothermal power 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:
•
•
63 facilities in commercial operation (the “Operating Facilities”). Commissioned between 1978 and December 2017,
the facilities have a weighted average age of approximately 9.0 years. They mostly sell the generated power under
long-term Power Purchase Agreements, power hedge contracts or short- and long-term industrial and retail contracts
(“PPA”) that have a weighted average remaining life of 17.5 years (based on gross long-term average production);
Two projects scheduled to begin commercial operations in the first quarter of 2018 and in 2020 (the “Development
Projects”);
• Numerous projects that have secured land rights, for which an investigative permit application has been filed or for
which a proposal has 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.
Some Prospective Projects are targeted toward specific future Requests for Proposals and 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 PPAs with public utilities or other retail, financial or commercial entities or other
various arrangements in Canada or in other countries such as France, the United States and Iceland. Theses numerous
Prospective Projects have a combined potential net installed capacity of 8,530 MW (gross 9,200 MW).
There is no certainty that any Prospective Project will be realized.
The following chart features the Corporation's direct and indirect interests in the Operating Facilities, Development Projects
and Prospective Projects.
63 Operating Facilities 2 Development Projects
Numerous
Prospective Projects
HYDRO
Net
Gross
WIND
Net
Gross
SOLAR
Net
Gross
GEOTHERMAL
Net
Gross
TOTAL
Net
Gross
684.3
1,028.5
670.7
1,429.4
53.0
53.7
93.8
174.0
1,501.8
2,685.6
5.4
10.0
102.0
200.0
—
—
—
—
107.4
210.0
1,980.0
2,265.0
6,225.0
6,535.0
85.0
160.0
240.0
240.0
8,530.0
9,200.0
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p6
(in thousands of Canadian dollars, except as noted and amounts per share)
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 sustainable 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 Corporation strives to maintain a diversified portfolio of assets in terms of geography and sources of energy to alleviate
any seasonal and production variations. The amount of electricity generated by the Operating Facilities is generally dependent
on the availability of water flows, wind regimes, solar irradiation and geothermal resources. Lower-than-expected water flows,
wind regimes, solar irradiation or geothermal resources in any given year could have an impact on the Corporation's revenues
and hence on its profitability. Innergex owns interests in 34 hydroelectric facilities, which draw on 29 watersheds, 24 wind farms,
3 solar farms and 2 geothermal plants, providing significant diversification in terms of operating revenue sources. Furthermore,
the nature of hydroelectric, wind, solar and geothermal power generation partially offsets any seasonal variations, as illustrated
in the following table:
Consolidated long-term average production1
In GWh and %
HYDRO
WIND
SOLAR
GEOTHERMAL
Total
Q1
Q2
Q3
Q4
Total
370
600
7
320
1,297
12%
30%
19%
25%
21%
1,066
429
12
320
1,827
35%
22%
33%
25%
29%
1,003
379
13
320
1,714
33%
19%
33%
25%
27%
581
571
6
320
1,477
19%
29%
15%
25%
23%
3,019
1,979
38
1,279
6,315
1. The consolidated long-term average production is the annualized LTA for the facilities in operation at February 21, 2018. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p7
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 commitment to the development of renewable energy supply. Consequently, the Corporation believes that the outlook
for the renewable energy industry is promising and it therefore intends to pursue growth by developing, acquiring and operating
renewable energy projects.
Key Growth Factors
The Corporation's future growth will be affected by the following key factors:
Demand for renewable energy;
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, in response to its commitments under the Paris Agreement, the Government of Canada released the Pan-Canadian
Framework on Clean Growth and Climate Change and Canada’s Mid-Century Low Greenhouse Gas Strategy and the Paris
Agreement on Climate Change. The federal government’s commitments on climate include phasing out coal-fired generation
by 2030, introducing a national low-carbon fuel standard and implementing a national price on carbon by the end of 2018. The
Corporation continues to seek potential opportunities and participate in requests for proposals, when available, across the
country. While there are no current requests for proposal (RFP) in Quebec, Ontario or British Columbia, the Corporation is well
positioned to take advantage of longer term opportunities due to our operational presence.
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 of wind capacity in 2023
from about 12,000 MW in 2016. The feed-in-tariff contract structure has been changed to a contract for difference ("CfD contract")
system under which wind farms of up to six turbines will sell their electricity directly to the market and receive the difference
between the target price and the market price under a 20-year CfD contract. Larger wind farms will have the option to participate
in auction processes to be granted a similar CfD contract. In 2016, the Corporation established its presence in France with the
acquisition of nine wind farms. In 2017, it acquired an additional six wind projects and deployed a local development team to
secure projects that could be submitted for CfD contracts. It continues to assess a number of other renewable energy
opportunities. Recently, the French government has restated its strong commitment towards renewable energy by adopting a
number of measures to accelerate the development process of projects, which helps make France a key market for Innergex.
In the United States, the Corporation increased its presence with its recent acquisition and will continue to assess potential
opportunities in light of the existence of renewable portfolio standards (RPS) in several states and the increasing procurement
of renewable energy. Twenty-nine states, Washington, D.C. and three territories have adopted a RPS, while eight states and
one territory have set renewable energy goals. Hawaii currently has the most ambitious target of 100% renewable energy by
2045 and California is currently on track to meet its target of 50% renewable by the end of 2030. In addition, a growing number
of cities and corporations are looking to source their operations with renewable energy exclusively through Corporate PPAs,
which will create new opportunities for industry growth.
Iceland’s electricity supply is generated from nearly 100% renewable resources. Further power demand growth is expected to
be driven by continued growth in the data centre industry and an emerging silicon manufacturing industry. The Corporation will
selectively assess future growth opportunities in Iceland.
In Latin America, demand for electricity remains strong and governments are seeking to increase the production of renewable
energy, for which they have ample resources. Many countries in Europe have adopted ambitious GHG emissions reduction
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p8
(in thousands of Canadian dollars, except as noted and amounts per share)
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 industry. The experience and dedication of its management team constitute
an important 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
the feasibility analysis of its projects. As at the date of this MD&A, the Corporation employed a total of 375 people (including
Cartier Wind Energy employees).
KEY PERFORMANCE INDICATORS
The Corporation measures its performance using key performance indicators.
Power generation comparison with a long-term average in megawatt-hours (“MWh”) and gigawatt-hours (“GWh”);
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Proportionate;
Adjusted Net Earnings;
Free Cash Flow; and
Payout Ratio.
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.
These indicators are not recognized measures under IFRS, have no standardized meaning prescribed by IFRS and therefore
may not be comparable to those presented by other issuers. Please refer to the "Non-IFRS Measures" section for more
information.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p9
(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 EBITDA1
Adjusted EBITDA Margin1
Adjusted EBITDA Proportionate1
Net earnings (loss)
Adjusted Net earnings1
Net earnings (loss) attributable to owners of the parent
($ per common share - basic)
($ per common share - diluted)
Year ended December 31
2016
2015
2017
4,394,210
4,763,836
92%
3,521,645
3,364,907
105%
2,987,637
3,054,642
98%
400,263
298,728
74.6%
308,343
19,668
16,194
30,007
0.22
0.22
108,427
292,785
215,983
73.8%
224,368
32,043
29,076
35,963
0.28
0.28
106,883
246,869
183,738
74.4%
193,179
(48,383)
19,731
(30,301)
(0.37)
(0.37)
102,304
3,604,204
220,370
2,507,236
296,526
94,840
2,898,602
14,712
470,520
4,190,456
246,844
3,047,583
349,594
96,246
3,493,423
14,920
435,269
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
Declared per Class A Preferred Share
Declared per Class C Preferred Share
Declared per common share
PAYOUT RATIO
Dividends declared on common shares
Free Cash Flow 1, 2
Payout Ratio 1, 2
1. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA Proportionate, Adjusted Net Earnings, Free Cash Flow and Payout ratio are not recognized
measures under IFRS and therefore may not be comparable to those presented by other issuers. Please refer to the "Non-IFRS Measures" section of this MD&A
for more information.
2. 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.
3,128,303
185,170
2,160,438
217,708
93,430
2,471,576
21,907
449,650
0.902
1.4375
0.64
1.250
1.4375
0.62
0.902
1.4375
0.66
71,621
87,207
68,524
75,702
63,646
74,386
86%
82%
91%
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p10
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial year 2017
For the year ended December 31, 2017, the increase in power generated, revenues, Adjusted EBITDA and Adjusted EBITDA
Proportionate are attributable mostly to the contribution of the facilities commissioned in 2016 and 2017 and to the wind facilities
acquired in France in 2016 and in 2017. The increase was partly offset by lower production at our British Columbia hydro
facilities.
The Corporation recorded $19.7 million in net earnings compared to $32.0 million in 2016, mainly due to this year's below-
average production compared with last year's above-average production and to challenging post-commissioning activities
currently being addressed at the Upper Lillooet River and Mesgi'g Ugju's'n facilities.
The increase in total assets is due mainly to the acquisition of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières
wind farms and the construction of Upper Lillooet River and Boulder Creek hydro facilities.
The increase in long-term debt results mainly from the addition of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les
Renardières facilities, additional drawings on Innergex's credit facilities and the Rougemont-2, Mesgi’g Ugju’s’n, Plan Fleury
and Les Renardières financings, the issuance of debentures carrying an 8.0% interest rate to Desjardins for its investment in
the acquisition of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières facilities and the addition of the
subordinated debt financing for two of the French subsidiaries, partly offset by the reimbursement of the Mesgi'g Ugju's'n
substation loan and scheduled repayment of project-level debts.
The equity attributable to owners decreased due mainly to the declaration of dividends on preferred and common shares in
2017, partly offset by the recognition of $30.0 million in net earnings attributable to the owners of the parent.
Free Cash Flow increased due mainly to higher cash flows from operating activities before changes in non-cash operating
working capital items, partly offset by greater scheduled debt principal payments. The Corporation payout ratio was 82% for
the year ended December 31, 2017.
Financial year 2016
2016 was marked by Innergex's first oversea acquisitions in France, the acquisition of Walden hydroelectric facility in BC and
the commissioning of a hydroelectric facility in BC and a wind farm in Quebec. These factors, along with better results in all
hydroelectricity markets except Ontario, positively influenced results, increasing the power generated, revenues and adjusted
EBITDA despite the lower wind regime in Quebec.
In 2016, the Corporation recorded $32.0 million in net earnings compared to a net loss of $48.4 million in 2015, which can be
explained mainly by the $32.2 million increase in Adjusted EBITDA and by two factors recorded in 2015, namely a $38.2 million
net loss on derivative financial instruments and the recognition of a $51.7 million impairment of project development costs.
These items were partly offset by higher finance costs, higher amortization and depreciation costs and an income tax expense
(compared with a recovery in 2015).
Total assets in 2016 increased due mainly to investments made by the Corporation in the ongoing construction of the Big Silver
Creek (commissioned in July 2016), Upper Lillooet River and Boulder Creek hydro projects and the Mesgi'g Ugju's'n wind
project (commissioned in December 2016) as well as investments made to acquire the Walden hydro facility and seven French
wind farms.
Long-term debt increased mainly due to the acquisitions in France, for which project-level debts were added and debenture
carrying an interest rate of 8.0% were issued to Desjardins in the amount of $38.2 million. Additional drawings on Innergex's
credit facilities, Stardale's long-term debt increase on its borrowing and additional drawings on the Upper Lillooet River and
Boulder Creek, and Mesgi’g Ugju’s’n financings also contributed to an increase in long-term debt, partly offset by the scheduled
repayment of project-level debts.
The equity attributable to owners increased due mainly to the recognition of net earnings attributable to owners of the parent
of $36.0 million and the issuance of $54.3 million in new common shares, which were partially offset by the declaration of
dividends on preferred and common shares in 2016.
Free Cash Flow increased 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%.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p11
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial year 2015
The year 2015 results were impacted mostly by the full-year contribution of the Sainte-Marguerite hydroelectric facility in Quebec
acquired in June 2014 and the commissioning of the Tretheway Creek hydroelectric facility commissioned at the end of 2015.
The Corporation recorded increases in the power generated, revenues and Adjusted EBITDA, which were also positively
impacted by above-average wind regimes.
In 2015, the Corporation recorded a $48.4 million net loss, which is attributable mainly to the recognition of an impairment
expense of $51.7 million in relation to some project development costs and the 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.
Total assets in 2015 increased due mainly to investments made in the ongoing construction of the Tretheway Creek
(commissioned in October 2015), Big Silver Creek, Upper Lillooet River and Boulder Creek hydro projects and the Mesgi'g
Ugju's'n wind project.
Long-term debt increased in 2015 again attributable mainly to the addition of projects-level debt for projects under construction
at the time, 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 equity attributable to owners and non-controlling interests decreased in 2015 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%.
Free Cash Flow increased in 2015, attributable mainly to an increase in Adjusted EBITDA, which was partly offset by the
increase in dividends resulting from the greater number of shares outstanding, yielding a lower Payout Ratio of 86%.
DEVELOPMENTS IN 2017
Conversion of Big Silver Creek Loan
On January 31, 2017, the $197.2 million non-recourse construction and term project financing closed by Big Silver Creek Power
Limited Partnership on June 22, 2015, for the Big Silver Creek River run-of-river hydroelectric project 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%; 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 $128.3 million construction loan carrying a fixed interest rate of 4.76%; 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%; it was converted into a 39.5-year term loan
and its principal will be reimbursed at maturity.
Financing of the French Subsidiaries
On February 10, 2017, Innergex and Desjardins Group Pension Plan ("RRMD") raised €8.5 million of subordinated debt from
a French infrastructure fund through their French subsidiaries created for the acquisition of wind farms in France in April 2016.
The subordinated loan carries an interest rate of 7.25% and has an eight-year tenor; its principal will be reimbursed at maturity.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p12
(in thousands of Canadian dollars, except as noted and amounts per share)
Completion of the Acquisition of the Yonne Wind Farm
On February 21, 2017, Innergex completed the acquisition of the 44 MW Yonne wind farm located in northern France. This
wind farm acquisition was announced simultaneously to the acquisition of seven wind farms in 2016. At the time, the facility
was under construction and its acquisition was to be concluded once the commissioning was completed. The commissioning
activities began in the fourth quarter of 2016 and were completed at the end of January 2017. Innergex owns a 69.55% interest
in the wind farm and RRMD owns the remaining 30.45%.
The total purchase price amounted to €35.2 million ($49.0 million) subject to certain adjustments and included €3.8 million
($5.3 million) of working capital. A €10.0 million ($13.9 million) deposit had already been provided by the Corporation when the
acquisition was first announced in March 2016. Innergex’s net additional investment to pay for the purchase totalled €10.7
million ($14.9 million) and it fulfilled its obligation to pay its portion of the purchase price through available funds. The remainder
of the purchase price was paid by RRMD in the amount of €6.2 million ($8.6 million) and with the funds generated by the
financing of two French subsidiaries on February 10, 2017, in the amount of €8.4 million ($11.6 million).
In its first full year of operation, the Yonne wind farm’s average annual production is estimated to reach 100,400 MWh, enough
to power about 21,000 French households. The facility is expected to generate revenues and Adjusted EBITDA of approximately
€8.6 million ($12.0 million) and €7.2 million ($10.0 million) respectively. All the electricity it produces is sold under a PPA with
Electricité de France ("EDF") for an initial term of 15 years. The PPA comes to term on October 19, 2031.
The project financing of €59.5 million ($82.8 million), which is already in place, will remain at the acquired project level.
Extension and Amendment of the Revolving Credit Facilities
On February 21, 2017, Innergex executed a Fifth Amended and Restated Credit Agreement of its then existing $425 million
revolving credit facilities. These amendments give the Corporation flexibility in borrowing in euros using EURIBOR loans. The
Corporation also extended its revolving term from 2020 to 2021 (except for one lender of $42.5 million, whose commitment
remained in effect until 2020) to provide greater financing flexibility. Moreover, a Letter of Credit Facility of up to $30 million
guaranteed by Export Development Canada (EDC) has been added and put in place.
On October 31, 2017, the Corporation announced that it had increased its revolving credit facilities by $50 million and added
a new lender to the syndicate of lenders. It also extended the maturity of its revolving facility from December 2021 to
December 2022 for all its lenders to provide greater flexibility.
Acquisition of Rougemont 1-2 and Vaite
On May 24, 2017, Innergex completed the acquisition of three wind projects in France's Bourgogne–Franche-Comté region
with an aggregate capacity of 119.5 MW. Innergex owns a 69.55% interest in the wind farms while RRMD owns the remaining
30.45%.
The equity's purchase price was approximately €51.4 million ($76.2 million), subject to certain adjustments. Innergex’s net
share of the purchase price amounted to about €31.3 million ($46.4 million) and was paid through funds available under its
corporate revolving credit facilities. The remainder of the purchase price was paid by RRMD in the amount of €20.1 million
($29.8 million).
Non-recourse debts related to the projects, which were already in place, amounted to €174.3 million ($258.4 million) at the end
of construction and will remain at each project level.
The aggregate annual power generation is expected to reach 278,200 MWh , enough to power about 58,400 French households.
All the electricity produced by these wind farms is sold under fixed-price PPAs, with a portion of the price being adjusted
according to inflation indexes, for an initial term of 15 years, with EDF. Innergex is expecting revenues of approximately
€23.5 million
($26.9 million) for the first 12 months of
operations.
($34.8 million) and Adjusted EBITDA of approximately €18.2 million
The Rougemont-1 and Vaite wind farm were commissioned in the second quarter of 2017 while the Rougemont-2 wind farm
reached commercial operation during the fourth quarter of 2017.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p13
(in thousands of Canadian dollars, except as noted and amounts per share)
Acquisition of Plan Fleury and Les Renardières
On August 25, 2017, Innergex completed the acquisition of two wind projects in France's Champagne-Ardenne region with an
aggregate capacity of 43 MW. Innergex owns a 69.55% interest in the wind farms while RRMD owns the remaining 30.45%.
The equity's purchase price was €27.4 million ($40.8 million), subject to certain adjustments. Innergex’s net share of the purchase
price amounted to about €16.5 million ($24.2 million) and was paid through funds available under its corporate revolving credit
facilities. The remainder of the purchase price was paid by RRMD in the amount of €10.7 million ($15.7 million).
The non-recourse debts related to the projects, which were already in place, totalled €72.0 million ($105.7 million) at the end
of construction and will remain in place at each project level.
The aggregate annual power generation is expected to reach 118,000 MWh once the two projects are in commercial operation,
enough to power about 24,775 French households. All the electricity produced by these wind farms will be sold under fixed-
price PPAs with EDF, with a portion of the price being adjusted according to inflation indexes, for an initial term of 15 years.
Innergex is expecting revenues of approximately €9.9 million ($14.5 million) and Adjusted EBITDA of approximately €8.2 million
($12.0 million) for the first 12 months of operation.
The Plan Fleury (22.0 MW) wind farm began commercial operation during the third quarter. The wind project Les Renardières
(21.0 MW) was commissioned in the fourth quarter of 2017.
Normal Course Issuer Bid
On August 15, 2017, Innergex announced that it has received approval from the Toronto Stock Exchange (TSX) to proceed
with a normal course issuer bid on its common shares (the "Bid").
Under the Bid, the Corporation may purchase for cancellation up to 2,000,000 of its common shares, corresponding to
approximately 1.84% of the 108,640,790 issued and outstanding common shares of the Corporation as at August 14, 2017.
The Bid commenced on August 17, 2017, and will terminate on August 16, 2018.
Purchases will be made on behalf of the Corporation by a registered broker through the facilities of the TSX at prevailing market
prices.
The Corporation believes that the market price of its Common shares may, from time to time, not reflect the inherent value of
the Corporation and that purchases of its Common shares pursuant to the Bid may represent an appropriate and desirable use
of the Corporation's funds. Therefore, the Corporation believes that it is in its best interest to proceed with the Bid.
On November 14, 2017, the Corporation announced that it has received approval from the Toronto Stock Exchange (TSX) to
implement an automatic purchase plan under the Bid. The Corporation has entered into an automatic purchase plan agreement
with a designated broker to allow for purchases of its common shares during times when it would ordinarily not be permitted
to do so due to self-imposed black-out periods or regulatory restrictions.
Arrangement Agreement to Acquire Alterra Power Corp.
On October 30, 2017, the Corporation and Alterra Power Corp. announced that they had entered into an arrangement agreement
(the "Arrangement Agreement") pursuant to which Innergex would acquire at a price of $8.25 per share all of the issued and
outstanding common shares of Alterra ("Alterra Common Shares") for an aggregate consideration of $1.1 billion, including the
assumption of Alterra's debt (the "Transaction"). The Transaction was subject to approval by Alterra's shareholders and other
customary closing conditions. Pursuant to the Transaction, Alterra shareholders would receive an aggregate consideration,
which would consist of approximately 25% in cash and 75% in common shares of Innergex (the “Innergex Common Shares”).
On December 14, 2017, Alterra shareholders were asked to vote on a special resolution approving the Arrangement Agreement
in accordance with its terms during a Special Meeting of Shareholders. The special resolution was approved by 99.89% of the
32,994,488 votes cast by Alterra shareholders.
On February 6, 2018, Innergex completed the Transaction.
OPERATIONAL HIGHLIGHTS
Alterra complements Innergex’s current operating, under construction and prospective projects, resulting in increased
geographic and technological diversification through meaningful presence in the United States and Icelandic power markets
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p14
(in thousands of Canadian dollars, except as noted and amounts per share)
as well as the addition of geothermal power generation to Innergex’s production mix. The transaction significantly accelerates
Innergex’s growth profile.
Alterra’s and Innergex’s experienced management teams, with a track record of successfully developing and operating
renewable energy projects in various jurisdictions, will play an important role in developing the large growth pipeline of the
combined company.
TRANSACTION DETAILS
Pursuant to the Transaction, Alterra shareholders had the right to elect to receive either $8.25 in cash (“Cash Alternative”) or
0.5563 Innergex common shares (“Share Alternative”) for each Alterra common share, subject in each case to the pro-ration,
such that the aggregate consideration paid to all Alterra shareholders consisted of approximately 25% in cash and 75% in
Innergex common shares.
The Innergex common shares that were issuable to Alterra shareholders with the Transaction correspond to an ownership of
approximately 18% of the combined corporation. One member of the Alterra board of directors joined the Innergex board of
directors on the closing of the Transaction.
SUPPORT OF KEY SHAREHOLDERS
Innergex entered into a support agreement with Ross Beaty, Executive Chairman of Alterra, and certain related entities that
had control over approximately 31% of Alterra’s issued and outstanding common shares. Under the support agreement, Mr.
Beaty and the related entities have elected to receive Innergex Common Shares for the entirety of the Alterra Common Shares
held by them and agreed to a 12-month holding period with respect to the Innergex Common Shares received by them as a
result of the Transaction.
Further information regarding the Transaction is contained in a management proxy circular prepared by Alterra and filed and
mailed to Alterra shareholders on November 16, 2017. Copies of the Arrangement Agreement, support and voting agreements
and management proxy circular are available on SEDAR under Alterra’s profile at sedar.com.
FINANCING
Innergex has structured the financing of the cash portion of the Transaction in order to maintain a strong and flexible balance
sheet that provides for ample liquidity to fully fund Innergex’s development portfolio post-Transaction. To that end, the Caisse
de dépôt et placement du Québec provided Innergex with a five-year $150 million subordinated unsecured term loan at a
5.128% interest rate.
Innergex has also increased its revolving credit facilities by $225 million to $700 million, led by BMO Capital Markets, National
Bank Financial Inc. and TD Securities as co-lead arrangers and joint book managers. The maturity of the revolving credit
facilities remains December 2022.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p15
(in thousands of Canadian dollars, except as noted and amounts per share)
SUMMARY OF ALTERRA PROJECTS
Operating
Energy
Country
Ownership
Shannon1
East Toba
Montrose Creek
Reykjanes 1-2
Svartsengi8
Dokie 1
Jimmie Creek
Kokomo1
Spartan1
Operating
Wind
Hydro
Hydro
Geothermal
Geothermal
Wind
Hydro
Solar
Solar
U.S.
Canada
Canada
Iceland
Iceland
Canada
Canada
U.S.
U.S.
50%
40%
40%
54%
54%
26%
51%
90%
100%
Net Installed
Capacity
(MW)
Projected
2018
Revenues
($M)3 4
102
59
35
54
40
37
32
6
14
379
23.4
75.6 6
72.1 7
36.6
19.7
1.0
2.0
Under
Construction
Energy
Country
Ownership1
Net Installed
Capacity
(MW)
Projected
Year One
Revenues
($M)3 4
Flat Top1
Brúarvirkjun
Wind
Hydro
U.S.
Iceland
51%
54%
Under Construction
102
5
107
26.7
4.2
Projected
2018 Gross
Adjusted
EBITDA2
($M)3 4
12.7
Projected
2018 Net
Adjusted
EBITDA5
($M)4
6.4
58.2 6
34.9 7
26.5
15.6
0.8
1.6
23.3 6
18.8 7
6.8
8.0
0.7
1.6
65.6
Expected Full
Year One
Gross
Adjusted
EBITDA2
($M)3 4
11.9
3.2
Expected Full
Year One Net
Adjusted
EBITDA5
($M)4
6.1
1.7
7.8
Prospective projects9
Energy
Country
Ownership
Net Capacity
(MW)
Advanced-Stage
Foard City (PTC Qualified)10
Reykjanes 4
Boswell Springs (PTC Qualified)10
Advanced-Stage
Other Prospective Projects
Wind
Geothermal
Wind
U.S.
Iceland
U.S.
100%
54%
100%
350
16
320
686
>3,500
1 The percentage of ownership reflects Innergex’s portion of sponsor equity partnership.
2 Gross Adjusted EBITDA is not a recognized measure by IFRS and therefore may not be comparable to those presented by other issuers.
Please refer to the “Non-IFRS Measures” section of this MD&A for more information.
3 Corresponding to 100% of the facility
4 U.S. dollar and Icelandic króna figures converted to Canadian dollars at USD-CAD rate of 1.289 and CAD-ISK rate of 78.35.
5 Net Adjusted EBITDA is not a recognized measure by IFRS and therefore may not be comparable to those presented by other issuers. It
corresponds to Gross Adjusted EBITDA multiplied by ownership percentage. Please refer to the “Non-IFRS Measures” section of this MD&A
for more information.
6 Reflects the combined metrics for Toba Montrose (East Toba and Montrose Creek).
7 Reflects the combined metrics for HS Orka (Reykjanes 1-2 and Svartsengi).
8 The Svartsengi geothermal facility also sells water with a gross thermal energy capacity of 190 MW.
9 There is no certainty that these projects will materialize on time or on budget and the number of MWs per project could vary.
10 "PTC" stands for U.S. renewable electricity production tax credit.
The acquisition of Alterra included a 54% interest in a subsidiary which owns a 30% stake of the Blue Lagoon Geothermal Spa
and Resort located in Iceland. Innergex intends to review the future ownership of this non-core asset.
Conversion of the Mesgi'g Ugju's'n loan
On November 27, 2017, the $311.7 million non-recourse construction and term project financing closed by Mesgi’g Ugju’s’n
(MU) Wind Farm, L.P. on September 24, 2015, for the Mesgi’g Ugju’s’n wind farm project was converted into a 19.5-year term
loan. On October 27, 2017, a $49.2 million construction loan was repaid with the proceeds of the scheduled reimbursement of
the MU electrical substation.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p16
(in thousands of Canadian dollars, except as noted and amounts per share)
The loan comprises two facilities or tranches:
•
•
A $103.0 million floating-rate construction loan carrying a swap-fixed interest rate of 3.54%; it was converted into a
9.5-year term loan and the principal is amortized over the term of the loan;
A $159.5 million construction loan carrying a fixed interest rate of 4.28%; it was converted into a 19.5-year term loan
and the principal will be amortized after the 9.5-year term loan reaches maturity.
Power Purchase Agreement Up for Renewal
The PPA for the 8.0 MW St-Paulin hydroelectric facility located in Quebec 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 the other arbitration proceeding. The decision in the other
arbitration was rendered on March 24, 2017. The agreement on the renewal of the PPA was signed on November 27, 2017,
for a 20-year term ending November 28, 2034.
The PPA for the 5.5 MW Windsor hydroelectric facility located in Quebec 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. On November 27, 2017, the renewal of the PPA was signed for
a 20-year term ending January 21, 2036.
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 has signed a series of a temporary extension agreement while it continues negotiations
with BC Hydro as part of the normal course of a PPA renewal.
The first PPA for the Sainte-Marguerite hydroelectric facility located in Quebec will reach the end of its initial 25-year term in
December 2018 and the Corporation has sent Hydro-Québec a notice of automatic renewal of the PPA for an additional 25-
year term. Discussions on the renewal terms and conditions will take place during the year.
The PPA for the Chaudière hydroelectric facility located in Quebec will reach the end of its initial 20-year term in March 2019
and the Corporation has sent Hydro-Québec a notice of automatic renewal of the PPA for an additional 20-year term. Discussions
on the renewal terms and conditions will take place during the year.
Commissioning Activities
HYDRO (British Columbia)
Upper Lillooet River
Boulder Creek
WIND (France)
Ownership
%
Gross
installed
capacity
(MW)
Gross
estimated
LTA1
(GWh)
PPA
term
(years)
Total project costs
Expected first full year
Estimated1
($M)
As at
Dec. 31
($M)
Revenues1
($M)
Adjusted
EBITDA1 3
($M)
66.7
66.7
81.4
25.3
334.0
92.5
40
40
345.8
124.4
344.5
124.0
33.0
9.0
27.5
7.5
Plan Fleury
Les Renardières
6.7 2
5.3 2
9.6 2
1. This information is intended to inform readers of the projects' potential impact on the Corporation's results. Actual results may vary. These
59.8 2
52.2 2
104.5 2
60.6 2
52.9 2
108.9 2
8.0 2
6.4 2
12.4 2
Rougemont-2
100.3
52.4
21.0
22.0
44.5
65.3
69.6
69.6
69.6
15
15
15
estimates are up-to-date as at the date of the MD&A.
2. Corresponding to 100% of this facility. Euro amounts have been translated at 1.5052.
3. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p17
(in thousands of Canadian dollars, except as noted and amounts per share)
Upper Lillooet River and Boulder Creek
In the first quarter, the Corporation began commercial operation of the 81.4 MW Upper Lillooet River run-of-river hydroelectric
facility located in British Columbia. Construction began in October 2013 and was completed in March 2017. The Commercial
Operation Date ("COD") Certificate delivered to BC Hydro shows an effective commissioning date of March 30, 2017. The
Upper Lillooet River facility’s average annual production is estimated to reach 334,000 MWh, enough to power more than
31,850 households. In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of approximately
$33.0 million and $27.5 million respectively. Estimated Total Project Costs were increased for this project mainly due to
challenging post-commissioning activities currently being addressed.
In the second quarter, the Corporation began commercial operation of the 25.3 MW Boulder Creek run-of-river hydroelectric
facility in British Columbia. Construction began in October 2013. The COD Certificate delivered to BC Hydro shows an effective
commissioning date of May 16, 2017. The Boulder Creek facility’s average annual production is estimated at 92,500 MWh,
enough to power more than 8,500 households. In its first full year of operation, the facility is expected to generate revenues
and Adjusted EBITDA of approximately $9.0 million and $7.5 million respectively.
All the electricity the facilities produce is covered by two 40-year fixed-price power purchase agreements 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 March 17, 2015, the Corporation announced the closing
of a $491.6 million non-recourse construction and term project financing for the Boulder Creek and Upper Lillooet River projects,
which received the Clean Energy BC’s Finance Award for 2015 and the 2016 Hydro Power Deal of the Year from the World
Finance Magazine.
The insurance claims process for the forest fire that occurred during construction in 2015 continues, with interim progress
payments being made. The Corporation expects to receive an indemnity, which should cover most of the financial consequences
from the fire.
Plan Fleury
In the third quarter, the Corporation began commercial operation of the 22.0 MW Plan Fleury wind facility located in Champagne-
Ardenne, France. Construction began prior to its acquisition by Innergex and was completed in August 2017. The Declaration
of COD under the purchase agreement with EDF shows an effective commissioning date of September 6, 2017. The Plan
Fleury facility’s average annual production is estimated to reach 65,266 MWh, enough to power more than 13,750 French
households.
In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of approximately €5.5 million
($8.0 million) and €4.6 million ($6.7 million) respectively. All the electricity the facility produces is covered by an initial 15-year
fixed-price PPA with EDF, with a portion of the price being adjusted according to inflation indexes.
Les Renardières
In the fourth quarter, the Corporation began commercial operation of the 21.0 MW Les Renardières wind facility located in
Champagne-Ardenne, France. Construction began prior to its acquisition by Innergex and was completed in November 2017.
The Declaration of COD under the purchase agreement with EDF shows an effective commissioning date of November 18,
2017. The Les Renardières facility’s average annual production is estimated to reach 52,427 MWh, enough to power more
than 11,200 French households.
In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of approximately €4.4 million
($6.4 million) and €3.6 million ($5.3 million) respectively. All the electricity the facility produces is covered by an initial 15-year
fixed-price PPA with EDF, with a portion of the price being adjusted according to inflation indexes.
Rougemont-2
In the fourth quarter, the Corporation began commercial operation of the 44.5 MW Rougemont-2 wind facility located in
Bourgogne-Franche-Comté, France. Construction began prior to its acquisition by Innergex and was completed in
November 2017. The Declaration of COD under the purchase agreement with EDF shows an effective commissioning date of
December 1, 2017. The Rougemont-2 facility’s average annual production is estimated to reach 100,340 MWh, enough to
power more than 21,400 French households.
In its first full year of operation, it is expected to generate revenues and Adjusted EBITDA of approximately €8.4 million
($12.4 million) and €6.5 million ($9.6 million) respectively. All the electricity the facility produces is covered by an initial 15-year
fixed-price PPA with EDF, with a portion of the price being adjusted according to inflation indexes.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p18
(in thousands of Canadian dollars, except as noted and amounts per share)
Construction Activities
The total project costs for the Development Projects are as follows:
WIND (United States)
Flat Top
HYDRO (Iceland)
Brúarvirkjun
Ownership
%
Gross
installed
capacity
(MW)
Expected
COD
Gross
estimated
LTA1
(GWh)
PPA
term
(years)
Total project
costs
Expected first full year
Estimated1
($M)
Revenues1
($M)
Adjusted
EBITDA1 4
($M)
51.0
200.0
2018
872.9
13
2
404.8
2
26.7
2
11.9
53.9
10.0
210.0
2020
80.0
952.9
5
-
52.3 3
457.1
4.2 3
30.9
3.2 3
15.1
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. Corresponding to 100% of this facility. US amounts have been translated at 1.289
3. Corresponding to 100% of this facility. Icelandic króna amounts have been translated at CAD-ISK rate of 78.35
4. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
5. Power generated to be sold on the retail market.
Flat Top
The Flat Top wind project was acquired in the first quarter of 2018 as part of the Alterra acquisition. Construction was already
under way at the time of the acquisition.
As at the date of this MD&A, construction for the 200 MW wind farm continues on time and on budget, with all road construction,
turbine foundations and collector lines now completed. All 100 turbines have been delivered to site and the majority have been
fully erected. Commissioning is under way to allow connection to the grid and the project has begun delivering limited test
power. The Corporation expects commercial operations to commence in the first quarter of 2018.
The funding of the tax equity investment and retirement of the credit facility are expected to occur on or near the commercial
operation date. The Corporation does not expect to make any further equity contributions towards the Flat Top project, which
is currently being funded solely by the construction loan facility and equity contributions by our sponsor equity partner.
Brúarvirkjun
The Brúarvirkjun hydro project was acquired in the first quarter of 2018 as part of the Alterra acquisition. Site preparation work
was already under way at the time of the acquisition.
As at the date of this MD&A, site preparation work, including laydown areas and access roads to the powerhouse and intake
and supply of the owner's site camp, had been completed. Construction of the project is scheduled to start in 2018 following
receipt of the final construction permit with commissioning expected to occur in early 2020.
OPERATING RESULTS
Electricity production last year was 92% of the LTA production due mainly to lower production from challenging
post-commissioning activities currently being addressed at the Upper Lillooet River and Mesgi'g Ugju's'n facilities,
below-average water flows in British Columbia and below-average wind regimes in France, which were partly offset
by above-average water flows in the hydroelectric sector in Quebec and Ontario.
Production increased 25%, revenues 37% and Adjusted EBITDA 38%. These increases are attributable mainly to
the contribution of the facilities commissioned in 2016 and 2017 and to the wind facilities acquired in France in
2016 and 2017; they were partly offset by lower production at our British Columbia hydro facilities.
The Corporation's operating results for the year ended December 31, 2017, are compared with the operating results
for the same period in 2016.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p19
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec
France
Subtotal
SOLAR
Ontario
Total
Year ended December 31
2017
2016
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
748,128
87,743
1,902,568
37,276
2,775,715
699,930
74,544
2,175,579
46,800
2,996,853
1,158,681
419,757
1,578,438
1,238,990
490,366
1,729,356
107%
118%
87%
80%
93%
94%
86%
91%
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%
40,057
4,394,210
37,627
4,763,836
106%
92%
42,063
3,521,645
37,892
3,364,907
111%
105%
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 consistency's sake, 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, 2017, the Corporation's facilities produced 4,394,210 MWh of electricity or 92% of the
LTA of 4,763,836 MWh. Overall, the hydroelectric facilities produced 93% of their LTA due mainly to lower production from
challenging post-commissioning activities currently being addressed at the Upper Lillooet River facility and below-average
water flows in British Columbia, partly offset by above-average water flows in Quebec and Ontario. Overall, the wind farms
produced 91% of their LTA due to lower production from post-commissioning activities currently being addressed at the Mesgi'g
Ugju's'n facility and below-average wind regimes in France. Wind regimes in France have lately trended well below the historical
average, which explains the lower production. The Stardale solar farm produced 106% 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 25% production increase compared with the same period last year is due mainly to the contribution of the facilities
commissioned in 2016 and 2017 and the wind farms acquired in France in 2016 and in 2017 and to higher production at some
of our Quebec and Ontario hydro facilities, which was partly offset by lower production at our British Columbia hydro facilities.
The overall performance of the Corporation's facilities for the period ended December 31, 2017, demonstrates the benefits of
geographic diversification and the complementarity of hydroelectric, wind and solar power generation.
Power Purchase Agreements
As at December 31, 2017, the 54 Operating Facilities sold 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 less than 1% of revenues in 2017). For the Horseshoe Bend hydroelectric facility in Idaho, 85% of the
price is fixed and 15% is adjusted annually as determined by the Idaho Public Utility Commission.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p20
(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 EBITDA1
Adjusted EBITDA margin1
Finance costs
Other net expenses
Depreciation and amortization
Share of earnings of joint ventures (note 2)
Unrealized net gain on financial instruments
Income taxes expenses
Net earnings
Net earnings attributable to:
Owners of the parent
Non-controlling interests
Basic net earnings per share ($)
Year ended December 31
2017
2016
Change
400,263
71,672
17,806
12,057
298,728
292,785
51,469
15,045
10,288
215,983
74.6%
73.8%
146,766
2,453
129,429
(4,638)
(2,245)
7,295
19,668
30,007
(10,339)
19,668
0.22
95,254
265
90,303
(2,526)
(4,292)
4,936
32,043
35,963
(3,920)
32,043
0.28
107,478
20,203
2,761
1,769
82,745
51,512
2,188
39,126
(2,112)
2,047
2,359
(12,375)
(5,956)
(6,419)
(12,375)
37 %
39 %
18 %
17 %
38 %
54 %
826 %
43 %
84 %
(48)%
48 %
(39)%
(17)%
164 %
(39)%
1. Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures under IFRS and therefore may not be comparable to those
presented by other issuers. Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
2. 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
Up 37% to $400.3 million for the year ended December 31, 2017
This increase is attributable mainly to the facilities commissioned in 2016 and 2017 and the wind facilities acquired in 2016
and 2017 in France as well as to higher production at all of our Ontario hydro facilities, which was partly offset by lower production
at our British Columbia hydro facilities.
Expenses
Up 32% to $101.5 million for the year ended December 31, 2017
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, 2017, the Corporation recorded operating
expenses of $71.7 million ($51.5 million in 2016). The 39% increase for the year is attributable mainly to the commissioning of
the Big Silver Creek hydro facility in July 2016, the Mesgi'g Ugju's'n wind farm in December 2016, the Upper Lillooet River
hydro facility in March 2017 and the Boulder Creek hydro facility in May 2017 as well as to the acquisition of wind facilities in
France in 2016 and 2017. Operating expenses for the year were also impacted by a $3.2 million aggregate payment related
to water rights for 2011 and 2012 for Fire Creek, Lamont Creek, Stokke Creek, Tipella Creek and Upper Stave River, which
were reassessed following the decision by the British Columbia Ministry of Forests, Lands and Natural Resource Operations
to apply higher rental rates based on the facilities' combined production rather than apply lower rates for each facility based
on its individual production, as had previously been the ministry's practice. The Corporation has filed an appeal of this decision
with the Environmental Appeal Board. Since 2013, these facilities' water rights fees have been paid at the higher rates. A 49.99%
portion of the water rights payment is allocated to the non-controlling interests.
General and administrative expenses consist primarily of salaries, professional fees and office expenses. For the year ended
December 31, 2017, general and administrative expenses totalled $17.8 million ($15.0 million in 2016). The 18% increase for
the year stems mainly from the greater number of facilities in operation.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p21
(in thousands of Canadian dollars, except as noted and amounts per share)
Prospective project expenses include the costs incurred for the development of Prospective Projects. They are related to the
number of Prospective Projects that the Corporation chooses to advance and the resources required to do so. For the year
ended December 31, 2017, prospective project expenses totalled $12.1 million ($10.3 million in 2016). The 17% increase for
the year is mainly attributable to pursuing opportunities in new international markets, to current and future requests for proposals
and expressions of interest in Canadian provinces and to the advancement of a number of prospective projects.
Adjusted EBITDA
Up 38% to $298.7 million for the year ended December 31, 2017
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. Adjusted EBITDA is not
recognized measure under IFRS, has no standardized meaning prescribed by IFRS and therefore may not be comparable with
those presented by other issuers. Please refer to the "Non-IFRS Measures" section for more information.
This increase is due mainly to production and revenues from new facilities, partly offset by higher operating expenses, general
and administrative expenses and prospective project expenses. The Adjusted EBITDA Margin increased from 73.8% to 74.6%
for the year due mainly to the increase in revenues net of expenses, partly offset by the payment related to water rights for
2011 and 2012 in British Columbia made in the first quarter of 2017.
Adjusted EBITDA Proportionate
Up 37% to $308.3 million for the year ended December 31, 2017
Adjusted EBITDA Proportionate, which is defined as Adjusted EBITDA plus Innergex's share of Adjusted EBITDA of the joint
ventures, is a key performance indicator when evaluating the Corporation's financial results. Adjusted EBITDA Proportionate
is not a recognized measure under IFRS, has no standardized meaning prescribed by IFRS and therefore may not be comparable
with those presented by other issuers. Please refer to the "Non-IFRS Measures" section for more information.
Year ended December 31
2017
2016
Adjusted EBITDA1
Innergex's share of Adjusted EBITDA of joint ventures2
Adjusted EBITDA proportionate1
1. Adjusted EBITDA and Adjusted EBITDA proportionate are not recognized measures under IFRS and therefore may not be comparable to
215,983
8,385
224,368
298,728
9,615
308,343
those presented by other issuers. Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
2. Please refer to the "Investments in Joint Ventures" section of this MD&A for more information.
This increase is due mainly to higher Adjusted EBITDA and a higher share of Adjusted EBITDA of joint ventures stemming from
higher production at the Umbata Falls and Viger-Denonville facilities.
Finance Costs
Up 54% to $146.8 million for the year ended December 31, 2017
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. The increase is due mainly to expenses related to the facilities commissioned or acquired in 2016 and 2017.
The effective all-in interest rate on the Corporation's debt and convertible debentures was 4.43% as at December 31, 2017
(4.79% as at December 31, 2016).
Other Net Expenses
Up to $2.5 million for the year ended December 31, 2017
Other Net Expenses include transaction costs, realized gain on foreign exchange, gain or loss on contingent considerations,
other net revenues, loss on disposal of property, plant and equipment and recovery loan payment. The increase is due mainly
to higher transaction costs stemming from more time and effort being devoted to acquisitions, partly offset by unrealized
contingent consideration.
Depreciation and Amortization
Up 43% to $129.4 million for the year ended December 31, 2017
This increase is attributable mainly to the Big Silver Creek hydro facility commissioned in July 2016, the Mesgi’g Ugju’s’n wind
farm commissioned in December 2016, the Upper Lillooet River hydro facility commissioned in March 2017, the Boulder Creek
hydro facility commissioned in May 2017 and to the French wind farms acquired in 2016 and 2017.
Share of Earnings of Joint Ventures
Share of net earnings of $4.6 million for the year ended December 31, 2017, compared with $2.5 million in 2016
Please refer to the "Investments in Joint Ventures" section for more information.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p22
(in thousands of Canadian dollars, except as noted and amounts per share)
Unrealized Net Gain on Financial Instruments
Unrealized net gain of $2.2 million for the year ended December 31, 2017, compared with $4.3 million in 2016
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.
The unrealized net gain on financial instruments for the year ended December 31, 2017, is due to an unrealized gain on the
conversion of an intragroup loan and the amortization of the accumulated losses from the pre-hedge accounting period, partly
offset by an unrealized net loss on the foreign exchange rate swap due to an unfavourable change in the CAD-EUR foreign
exchange rate.
For the corresponding period last year, the Corporation recognized an unrealized net gain on financial instruments of $4.3 million
due mainly to a gain on the amortization of the accumulated losses from the pre-hedge accounting period partly offset by an
unrealized loss on the conversion of an intragroup loan and to the unfavourable change in the CAD-EUR foreign exchange
rate.
In connection with the Alterra transaction, the Corporation entered into bond forward contracts for a total of $50 million to
mitigate the risk of interest rate increases before the closing of the transaction. For the period ended December 31, 2017, the
Derivatives to be settled upon the closing of the Alterra transaction had a positive value of $0.3 million.
Income Tax Expense
Up 48% to $7.3 million for the year ended December 31, 2017
For the year ended December 31, 2017, the Corporation recorded a current income tax expense of $4.1 million ($3.0 million
in 2016) and a deferred income tax expense of $3.2 million (deferred income tax expense of $2.0 million in 2016). The $1.2 million
increase in the current income tax expense is due mainly to higher income from wind facilities acquired in December 2016 and
2017 in France. The deferred income tax expense in 2017 is due mainly to the recognition of accounting earnings before income
taxes resulting from the Corporation's regular business activities and increasing non–deductible expenses, partly offset by a
decrease in the corporate income tax rates in France. In 2016, although the net earnings before the income tax expense were
higher, the deferred income tax expense was reduced significantly by much larger tax cuts in 2016 in France than those
announced by the French government in 2017.
Net Earnings
Down 39% to $19.7 million for the year ended December 31, 2017
For the year ended December 31, 2017, the Corporation recorded net earnings of $19.7 million (basic and diluted net earnings
of $0.22 per share) compared with net earnings of $32.0 million (basic and diluted net earnings of $0.28 per share) in 2016.
The $12.4 million decrease in net earnings is attributable mainly to this year's below-average production compared with last
year's above-average production and to challenging post-commissioning activities currently being addressed at the Upper
Lillooet River and Mesgi'g Ugju's'n facilities, which explains the decrease in net earnings as opposed to the increase in revenues.
As a result, the $51.5 million increase in finance costs, the $39.1 million increase in depreciation and amortization and the
$2.4 million increase in income taxes were only partly offset by the $82.7 million increase in Adjusted EBITDA, and the $2.1 million
increase in share of earnings of joint ventures.
Adjusted Net Earnings
Down 44% to $16.2 million for the year ended December 31, 2017
When evaluating its operating results and to provide a more accurate picture of its operating results, a key performance analysis
for the Corporation is the "Adjusted Net Earnings". Adjusted Net Earnings is not a recognized measure under IFRS, has no
standardized meaning prescribed by IFRS and therefore may not be comparable with those presented by other issuers. Please
refer to the "Non-IFRS Measures" section for more information.
Impact on net earnings (loss) of financial instruments
Net earnings
Add (Subtract):
Unrealized net gain on financial instruments
(Recovery) income tax expense related to above items
Share of unrealized net (gain) loss on financial instruments of joint ventures, net of
Year ended December 31
2017
2016
19,668
32,043
(2,245)
(232)
(4,292)
1,215
related income tax
Adjusted Net Earnings1
1. Adjusted Net Earnings is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers.
(997)
16,194
110
29,076
Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p23
(in thousands of Canadian dollars, except as noted and amounts per share)
Excluding gains on financial instruments and the related income taxes, net earnings for the year ended December 31, 2017,
would have been $16.2 million, compared with net earnings of $29.1 million in 2016. The decrease is attributable mainly to the
factors described in Net Earnings.
Non-controlling Interests
Loss of $10.3 million for the year ended December 31, 2017, compared with a loss of $3.9 million in 2016
Non-controlling interests are related to the Harrison Hydro Limited Partnership ("HHLP"), the Creek Power Inc. subsidiaries
("Creek Power"), the Mesgi'g Ugju's'n (MU) Wind Farm, L.P. ("MU"), the Innergex Europe (2015) Limited Partnership ("Innergex
Europe"), the Kwoiek Creek Resources Limited Partnership ("Kwoiek"), the Magpie Limited Partnership, the Innergex Sainte-
Marguerite S.E.C. entity and the Cayoose Creek Power Limited Partnership and their respective general partners.
The Corporation allocated losses to non-controlling interests mainly related to losses at Innergex Europe due to weak production,
at Creek Power due to challenging post-commissioning activities currently being addressed at Upper Lillooet River and at HHLP
due to a payment related to water rights for 2011 and 2012, partly offset by revenues at MU.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2017, the Corporation generated cash flows from operating activities of
$192.5 million compared with cash flows of $76.8 million for the same period last year. During this year, the
Corporation generated funds from financing activities of $24.7 million and used funds for investing activities of
$212.0 million mainly to pay for the acquisition of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières
wind farms and the construction of Upper Lillooet River, Boulder Creek and Rougemont-2 facilities, partly offset
by a decrease in restricted cash and short-term investments. As at December 31, 2017, the Corporation had cash
and cash equivalents amounting to $61.9 million, compared with $56.2 million as at December 31, 2016.
Cash Flows from Operating Activities
Up $115.7 million to $192.5 million for the year ended December 31, 2017
The increase is attributable to a $82.7 million increase in Adjusted EBITDA and a $80.2 million increase in non-cash operating
working capital items, partly offset by a $44.1 million increase in interest paid on long-term debt.
Cash Flows from Financing Activities
Down $170.5 million to $24.7 million for the year ended December 31, 2017
The decrease is attributable to a $91.5 million net increase in long-term debt in 2017 compared with a $212.4 million increase
in long-term debt and to a $50.0 million private placement of common shares of Innergex with three Desjardins Group-affiliated
entities in 2016.
The $91.5 million increase in long-term debt is attributable mainly to the issuance of debentures carrying an 8.0% interest rate
to Desjardins for its investment in the acquisitions of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières
facilities, to drawings made on the revolving credit facilities related to same facilities acquired, to drawings made on Montjean,
Theil-Rabier, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières project financing and to the raising of subordinated debt
from a French infrastructure fund via the French subsidiaries, which funds were used to finance a portion of the acquisition of
the Yonne facility in France in February 2017. The increase was partly offset by the reimbursement of the Mesgi'g Ugju's'n
substation loan, the reimbursement of a loan dedicated to the consumer taxes recoverable from the government for the Yonne
facility and by scheduled debt repayments.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p24
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Subtotal: net increase in long-term debt
Proceeds from issuance of common shares
Payment of buy-back of common shares
Proceeds from exercise of share options
Investments from non-controlling interests
Generation of financing proceeds
Year ended December 31
2017
2016
Change
668,856
(576,187)
(1,161)
91,508
—
(4,119)
—
16,842
872,247
(657,207)
(2,680)
212,360
50,000
—
1,034
9,565
(120,852)
104,231
272,959
(168,728)
Business acquisitions
Decrease of restricted cash and short-term investments
Net funds (invested into) withdrawn from the reserve accounts
Additions to property, plant and equipment
Reductions of (additions to) other long-term assets
Net use of financing proceeds
(Reduction) increase in working capital
(152,797)
70,203
(85)
(135,656)
1,020
(217,315)
(113,084)
(125,493)
222,978
1,610
(351,258)
(14,740)
(266,903)
6,056
49,588
(119,140)
During the year ended December 31, 2017, the Corporation borrowed a net amount of $91.5 million and RRMD invested
$16.8 million in equity mainly to pay for the acquisition of the Yonne, Rougemont 1-2, Vaite, Les Renardières and Plan Fleury
wind facilities in February, May and August 2017. The net amount borrowed was also used for the construction of the
Rougemont-2 facility. The Corporation used $70.2 million in restricted cash mainly to continue construction of the Upper Lillooet
River, Boulder Creek, Plan Fleury and Les Renardières facilities.
Cash Flows from Investing Activities
Lower outflow of $43.0 million to $212.0 million for the year ended December 31, 2017
During the period, the main investing activities impacting cash flows were as follows: additions to property, plant and equipment
accounted for a $135.7 million outflow ($351.3 million outflow in 2016); fluctuations in restricted cash and short-term investments
accounted for a $70.2 million inflow ($223.0 million inflow in 2016); reductions to other long-term assets accounted for a small
inflow (additions to other long-term assets for a $14.7 million outflow in 2016); and business acquisitions accounted for a
$152.8 million outflow ($125.5 million outflow in 2016) for the acquisition of the Yonne, Rougemont 1-2, Vaite, Les Renardières
and Plan Fleury facilities in February, May and August 2017.
Cash and Cash Equivalents
Up $5.7 million to $61.9 million for the year ended December 31, 2017
For the year ended December 31, 2017, cash and cash equivalents increased by $5.7 million (increased by $15.6 million
in 2016) as a net result of its operating, financing and investing activities.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p25
(in thousands of Canadian dollars, except as noted and amounts per share)
SHARE CAPITAL STRUCTURE
Information on Capital Stock
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
2017
2016
108,427
820
109,247
106,883
879
107,762
1. As at December 31, 2017, all of the 2,782,599 stock options (3,331,684 of the 3,457,432 for the year ended December 31, 2016) were
dilutive. During the year ended December 31, 2017, 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 2016).
The Corporation’s Equity Securities
As at
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
February 21, 2018 December 31, 2017 December 31, 2016
108,181,592
100,000
3,400,000
2,000,000
3,457,432
108,608,083
100,000
3,400,000
2,000,000
2,782,599
132,322,161
100,000
3,400,000
2,000,000
2,782,599
As at the opening of the market on February 21, 2018, and since December 31, 2017, the increase in the number of common
shares of the Corporation is attributable mainly to the the issuance of 24,327,225 shares on February 6, 2018, related to the
acquisition of Alterra and to the issuance of 83,565 shares related to the Corporation's Dividend Reinvestment Plan ("DRIP"),
which were partly offset by the 696,712 shares purchased for cancellation under the normal course issuer bid ("NCIB").
As at December 31, 2017, the increase in the number of common shares since December 31, 2016, is attributable mainly to
the issuance of 121,378 shares following the exercise of stock options and of 361,195 shares related to the DRIP, net of
56,082 shares purchased for cancellation under the NCIB .
Dividends
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 test imposed under corporate law for the
declaration of dividends and other relevant factors.
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
2017
71,621
0.66
3,067
0.902
2,875
1.4375
68,524
0.64
3,067
0.902
2,875
1.4375
1. The increase in dividends declared on common shares is attributable to the increase in annual dividend, the issuance of 3,906,250 shares
to three Desjardins Group-affiliated entities under a private placement of Innergex common shares in April 2016, to the issuance of shares
following the exercise of stock options and to the issuance of shares under the DRIP.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p26
(in thousands of Canadian dollars, except as noted and amounts per share)
The following dividends will be paid by the Corporation on April 16, 2018:
Date of
announcement
02/21/2018
Record date
3/30/2018
Payment date
4/16/2018
Dividend per
common share ($)
0.1700
Dividend per Series A
Preferred Share ($)
0.2255
Dividend per Series C
Preferred Share ($)
0.359375
On February 21, 2018, the Board of Directors increased the quarterly dividend from $0.165 to $0.170 per common share,
corresponding to an annual dividend of $0.68 per common share. This is the fifth consecutive $0.02 annual dividend increase.
Normal Course Issuer Bid
Under the normal course issuer bid on the Corporation's common shares (Common shares) and the normal course issued bid
on its Cumulative Rate Reset Preferred Shares, Series A (Series A shares) and Cumulative Redeemable Fixed Rate Preferred
Shares, Series C (Series C shares) (collectively, the Bids) covering the period between March 24, 2016 and March 23, 2017,
the Corporation did not repurchase any Common shares, Series A shares and Series C shares for cancellation.
In August 2017, the Corporation proceded with a normal course issuer bid on its common shares (Common shares) (New Bid)
covering the period between August 17, 2017, and August 16, 2018. The Corporation may purchase for cancellation up to
2,000,000 of its Common shares, representing approximately 1.84% of the 108,640,790 issued and outstanding Common
shares of the Corporation as at August 14, 2017.
Under the New Bid, the Corporation has entered into an automatic purchase plan agreement with a designated broker to allow
for purchases of its common shares at times when it would ordinarily not be permitted to do so due to self-imposed black-out
periods or regulatory restrictions.
Under the New Bid, between August 17, 2017 and December 31, 2017, the Corporation purchased 56,082 common shares at
an average price of $13.85 per share, for an aggregate consideration of $0.8 million. As at the opening of the market on
February 21, 2018 and since December 31, 2017, the Corporation has purchased 696,712 common shares at an average price
of $13.60 per share, for an aggregate consideration of $9.5 million.
FINANCIAL POSITION
As at December 31, 2017, the Corporation had $4,190 million in total assets, $3,740 million in total liabilities,
including $3,157 million in long-term debt, and $450.2 million in shareholders' equity. The Corporation also had a
working capital ratio of 0.90:1.00 (1.14:1.00 as at December 31, 2016). In addition to cash and cash equivalents
amounting to $61.9 million, the Corporation had restricted cash and short-term investments of $58.7 million and
reserve accounts of $50.0 million. The explanations below highlight the most significant changes in the statement
of financial position items during the year ended December 31, 2017.
Assets
Highlights of significant changes in total assets during the year ended December 31, 2017
•
•
A $488.2 million increase in property, plant and equipment, due mainly to the acquisition of the Yonne, Rougemont 1-2,
Vaite, Plan Fleury and Les Renardières facilities in 2017 and the construction of the Upper Lillooet River and Boulder
Creek facilities, partly offset by the depreciation for the period;
A $109.2 million increase in intangible assets, due mainly to the acquisition of the Yonne, Rougemont 1-2 , Vaite, Plan
Fleury and Les Renardières facilities 2017, partly offset by the amortization.
Working Capital Items
Working capital was negative at $25.2 million, as at December 31, 2017, with a working capital ratio of 0.90:1.00. As at
December 31, 2016, working capital was positive at $31.9 million, with a working capital ratio of 1.14:1.00. The decrease in
the working capital ratio is due to lower restricted cash and short-term investments, lower accounts receivable and a higher
current portion of long-term debt.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p27
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation considers its current level of working capital to be sufficient to meet its needs. As at December 31, 2017, the
Corporation had $475.0 million in revolving term credit facilities and had drawn $264.0 million and US$13.9 million as cash
advances, while $43.7 million had been used for issuing letters of credit, leaving $149.9 million available.
Cash and cash equivalents amounted to $61.9 million as at December 31, 2017, compared with $56.2 million as at December 31,
2016. The increase stems from a greater number of facilities in operation.
Restricted cash and short-term investments amounted to $58.7 million as at December 31, 2017, compared with $89.7 million
as at December 31, 2016. The decrease stems mainly from amounts used to pay for construction of the Upper Lillooet River
and Boulder Creek facilities and from the cash released upon the conversion of the Big Silver Creek non-recourse construction
and term project financing into a term loans, partly offset by the cash cumulated and not distributed since the commissioning
of the Mesgi'g Ugju's'n wind farm and from the restricted cash to pay the remaining construction costs for Rougemont 1-2,
Vaite, Plan Fleury and Les Renardières facilities.
Accounts receivable decreased from $98.8 million to $87.5 million between December 31, 2016, and December 31, 2017, due
mainly to the reimbursement of $49.3 million for the Mesgi'g Ugju's'n substation receivable from Hydro-Quebec, partly offset
by higher accounts receivable due to a greater number of facilities in operation and by a better month of December 2017
compared with December 2016.
Accounts payable and other payables from December 31, 2016, to December 31, 2017, increased from $85.9 million to
$91.0 million, due mainly to higher accounts payable from a greater number of facilities in operation and unpaid interests on
the debenture issued to Desjardins, partly offset by payment of construction costs related to the Montjean, Theil Rabier, Upper
Lillooet River and Boulder Creek facilities.
Current portion of long-term debt amounted to $109.9 million as at December 31, 2017, compared with $99.4 million as at
December 31, 2016. The increase stems mainly from payments due on long-term debts of the newly acquired or commissioned
facilities, partly offset by the reimbursement of the Mesgi'g Ugju's'n substation loan.
Reserve Accounts
Reserve accounts consist of a hydrology/wind reserve, which was 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, which was established in order to prefund any major plant repairs that may be
required to maintain the Corporation's generating capacity. The Corporation had $50.0 million in long-term reserve accounts
as at December 31, 2017, compared with $49.5 million as at December 31, 2016. The minor increase is mainly due to mandatory
investments made during the period, partly offset by drawings on reserve accounts.
The availability of funds in the hydrology/wind and major maintenance reserve accounts is restricted by credit agreements.
The Corporation also has reserve accounts for the dismantling of the wind farms in France at the end of their service life. The
Corporation had $0.2 million in long-term dismantling reserve accounts as at December 31, 2017.
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, 2017, the Corporation had $3,188 million in property, plant and equipment
compared with $2,700 million as at December 31, 2016. The increase stems mainly from the acquisition of the Yonne,
Rougemont 1-2, Vaite, Plan Fleury and Les Renardières facilities in 2017 and the construction of the Upper Lillooet River and
Boulder Creek facilities, partly offset by the depreciation for the period.
Intangible Assets
Intangible assets consist of various power purchase agreements, permits and licenses. The Corporation had $654.1 million in
intangible assets as at December 31, 2017, compared with $544.9 million as at December 31, 2016. The increase is due mainly
to the acquisition of the Yonne, Rougemont 1-2 , Vaite, Plan Fleury and Les Renardières facilities and to the consideration of
our commitment recorded as liabilities related to future ownership rights owned by First Nations for the Upper Lillooet River,
Boulder Creek, Big Silver Creek and Tretheway Creek facilities, partly offset by the amortization.
Goodwill
Goodwill represents the excess of the purchase price over the aggregate fair value of net assets acquired. The Corporation
had $38.6 million in goodwill as at December 31, 2017, compared with $8.3 million as at December 31, 2016. The increase is
due to the acquisitions achieved in 2017.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p28
(in thousands of Canadian dollars, except as noted and amounts per share)
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 $982.0 million as at December 31, 2017.
Foreign exchange forward contracts allow the Corporation to hedge its exposure to foreign exchange rate on its investments
in France. These totalled $579.6 million as at December 31, 2017.
Overall, Derivatives had a net negative value of $62.3 million as at December 31, 2017 (net negative value of $60.1 million as
at December 31, 2016). The increase in negative value is due mainly to the negative value of the Derivatives acquired with the
2017 acquisitions, partly offset by the unrealized net gain recognized in the period.
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, 2017, accrual for acquisition of long-term assets was nil ($37.4 million
as at December 31, 2016). The $37.4 million decrease results mainly from payments made in relation to the Mesgi’g Ugju’s’n,
Montjean and Theil Rabier facilities, for which drawings were made from the long-term financing in place.
Long-Term Debt
As at December 31, 2017, long-term debt totalled $3,157 million ($2,607 million as at December 31, 2016). The $550.8 million
increase results mainly from the addition of the Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières facilities,
additional drawings on Innergex's credit facilities and the Rougemont-2, Mesgi’g Ugju’s’n, Plan Fleury and Les Renardières
financings, the issuance of debentures carrying an 8.0% interest rate to Desjardins for its investment in the acquisition of the
Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières facilities and the addition of the subordinated debt financing
for two of the French subsidiaries, partly offset by the reimbursement of the Mesgi'g Ugju's'n substation loan and scheduled
repayment of project-level debts.
On February 21, 2017, Innergex executed a Fifth Amended and Restated Credit Agreement of its existing $425 million revolving
credit facilities. These amendments increase the Corporation's flexibility in borrowing euros through EURIBOR loans. The
Corporation also extended its revolving term from 2020 to 2021 to provide greater financing flexibility. Moreover, a Letter of
Credit Facility of up to $15 million guaranteed by Export Development Canada (EDC) was added and put in place.
On October 31, 2017, Innergex increased its revolving credit facilities by $50 million to $475 million and added a new lender
to the syndicate of lenders. It also extended the maturity of its revolving facility from December 2021 to December 2022 to
provide greater financing flexibility.
On February 6, 2018, Innergex increased its revolving credit facilities by $225 million to $700 million and added a new lender
to the syndicate of lenders. This increase enables the Corporation to pursue the development and construction of its portfolio.
The maturity of the revolving credit facilities remains December 2022.
As at December 31, 2017, 94% of the Corporation's outstanding debt, including convertible debentures, was fixed or hedged
against interest rate movements (99% as at December 31, 2016).
Since the beginning of the 2017 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.
Annual Report 2017
Management's Discussion and Analysis p29
(in thousands of Canadian dollars, except as noted and amounts per share)
Total long-term debt
Deferred financing costs
Current portion of long-term debt
Long-term portion
December 31,
2017
December 31,
2016
3,190,809
(33,351)
3,157,458
(109,875)
3,047,583
2,634,619
(27,986)
2,606,633
(99,397)
2,507,236
Other Liabilities
Other liabilities, including amounts shown in current liabilities, consist of contingent considerations, asset retirement obligations,
various liabilities related to future ownership rights owned by First Nations and interest payable on the Innergex Sainte-
Marguerite, S.E.C. debenture relating to the Corporation's facilities. As at December 31, 2017, other liabilities totalled
$80.0 million ($27.5 million in 2016). The increase is mostly attributable to the $23.9 million actualized liabilities related to future
ownership rights owned by First Nations for the Upper Lillooet River, Boulder Creek, Big Silver Creek and Tretheway Creek
facilities, the $19.1 million asset retirement obligations related to the facilities acquired in 2017 and to the $9.3 million interest
payable related to the Sainte-Marguerite facility.
Convertible debentures
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.
As at December 31, 2017, the liability portion of convertible debentures stood at $96.2 million and the equity portion stood at
$1.9 million ($94.8 million and $1.9 million as at December 31, 2016).
Shareholders' Equity
As at December 31, 2017, the Corporation's shareholders' equity totalled $450.2 million, including $14.9 million of non-
controlling interests, compared with $485.2 million as at December 31, 2016, which included $14.7 million of non-controlling
interests. This $35.0 million decrease in total shareholders' equity is attributable mainly to $77.6 million in dividends declared
on common and preferred shares, partly offset by the recognition of $19.7 million in net earnings, the recognition of other items
of comprehensive income totaling $12.8 million, a $9.4 million net investment of non-controlling interest and $5.1 million in
shares issued under the DRIP.
Contractual Obligations
As at December 31, 2017
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
3,340,784
109,539
281,837
495,493
2,453,915
2,658,610
60,130
261,354
6,320,878
143,377
3,899
13,784
270,599
349,028
7,551
33,164
671,580
248,676
7,541
35,017
786,727
1,917,529
41,139
179,389
4,591,972
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 2017, the
Corporation recorded a $0.9 million gain on contingent considerations, offsetting the loss recorded in 2016. The balance of the
contingent consideration, payable to Cloudworks Energy Inc. vendors is nil as at December 31, 2017.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p30
(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, 2017, the Corporation had issued letters of credit totaling $66.6 million to meet its obligations under its
various PPAs and other agreements. Of this amount, $43.7 million was issued under its revolving term credit facilities, either
on a temporary basis during the construction of the Upper Lillooet River and Boulder Creek facilities, which ended recently, or
for projects in operations, with the remainder being issued under the projects' non-recourse credit facilities. As at that date,
Innergex had also issued a total of $36.2 million in corporate guarantees used mainly to guarantee the long-term currency
hedging instruments of its European operations and to support the performance of the Brown Lake and Miller Creek hydroelectric
facilities and the construction of the Mesgi'g Ugju's'n facility.
FREE CASH FLOW AND PAYOUT RATIO
Free Cash Flow and Payout Ratio calculation1
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 interests2
Dividends declared on Preferred shares
Cash receipt for wheeling services to be provided by the Harrison
Hydro L.P. to other facilities3
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
Dividends declared on common shares and paid in cash4
Payout Ratio - after the impact of the DRIP
Trailing 12 months ended December 31
2015
2016
2017
192,451
76,753
4,557
(23,782)
(3,973)
(67,572)
(10,425)
(5,942)
56,442
(2,730)
(43,220)
(8,571)
(5,942)
(8,275)
(3,553)
(31,813)
(2,550)
(7,125)
—
—
3,327
6,450
—
87,207
71,621
82%
67,990
78%
2,970
—
75,702
68,524
91%
63,346
84%
261
119,557
74,386
63,646
86%
57,613
77%
1. Free Cash Flow and Payout ratio are not recognized measures under IFRS and therefore may not be comparable to those presented by
other issuers. Please refer to the "Non-IFRS Measures" section of the MD&A for more information.
2. The portion of Free Cash Flow attributed to non-controlling interests is subtracted, regardless of whether or not an actual distribution to non-
controlling interests is made, in order to reflect the fact that such distributions may not occur in the period they are generated.
3. These amounts represent cash receipts by the Harrison Hydro L.P. for the wheeling services to be provided to the Big Silver Creek facility,
49.99% of which was included in the Free Cash Flow attributed to non-controlling interests.
4. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p31
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
For the year ended December 31, 2017, the Corporation generated Free Cash Flow of $87.2 million compared with $75.7 million
for the corresponding period last year. The increase in Free Cash Flow is due mainly to higher cash flows from operating
activities before changes in non-cash operating working capital items, partly offset by greater scheduled debt principal payments.
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, 2017, the dividends on common shares declared by the Corporation amounted to 82% of
Free Cash Flow compared with 91% for the corresponding period last year. This positive change results mainly from the recent
commissioning of the Mesgi’g Ugju’s’n, Upper Lillooet River and Boulder Creek facilities and the acquisition of wind facilities
in 2016 and 2017 which generated higher Free Cash Flow, partly offset by higher dividend payments as a result of the increase
in annual dividend, 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 Innergex common shares in April 2016 and to additional shares following
the exercise of stock options and issued under the DRIP.
The Payout Ratio reflects the Corporation's decision to invest yearly 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, 2017, the Corporation incurred prospective project expenses of $12.1 million compared with $10.5 million for
the corresponding period last year. This 17% increase for the year is mainly attributable to pursuing opportunities in new
international markets, to current and future requests for proposals and expressions of interest in Canadian provinces and to
the advancement of a number of prospective projects. Excluding these discretionary expenses, the Corporation's Payout Ratio
would have been approximately 10% points lower for the year ended December 31, 2017, and approximately 11% points lower
for the prior year.
Furthermore, given the anticipated increase in cash flows from operations, the project-level financing secured for the project
and the additional equity provided by the DRIP, the Corporation does not expect to require additional equity in order to complete
its Flat Top and Brúarvirkjun projects currently under construction.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p32
(in thousands of Canadian dollars, except as noted and amounts per share)
PROJECTED FINANCIAL PERFORMANCE
As at December 31, 2017, the Corporation had 54 Operating Facilities with a net installed capacity of 1,124 MW (gross
1,846 MW) and annualized consolidated long-term average production of 5,036 GWh.
The increase in installed capacity and in the number of facilities in operation in 2017 reflects the commissioning of the Upper
Lillooet River and Boulder Creek hydro facilities as well as the acquisition of Yonne, Rougemont 1-2, Vaite, Plan Fleury and
Les Renardières wind farms.
In 2017, Power Generated was expected to increase 31%, Revenues were expected to increase 44%, Adjusted EBITDA was
expected to increase 44%, but lower-than-LTA production negatively impacted growth, resulting in respective increases of 25%,
37% and 38%.
On February 6, 2018, the Corporation completed the acquisition of Alterra. Therefore, as of the date of this MD&A, the Corporation
has 63 Operating Facilities with a net installed capacity of 1,502 MW (gross 2,686 MW) and annualized consolidated long-term
average production of 6,315 GWh. The Alterra acquisition also included two projects under development, namely the Flat Top
wind farm in Texas, USA and the Brùarvirkjun hydro facility in Iceland, whose construction activities the Corporation will continue.
Power Generated (GWh)
Revenues
Adjusted EBITDA
Adjusted EBITDA proportionate
Number of facilities in operation
Net installed capacity (MW)
Consolidated LTA production, annualized (GWh)
2018
2017
2016
+41%
+40%
+27%
+43%
approx.
approx.
approx.
approx.
64
1,604
6,315
+25%
+37%
+38%
+37%
4,394
400,263
298,728
308,343
54
1,124
5,036
+18%
+19%
+18%
+16%
3,522
292,785
215,983
224,368
46
909
4,111
The Corporation makes certain projections to provide readers with an indication of its business activities and operating
performance. These projections take into account the facilities acquired with the Alterra acquisition but do not take into account
possible acquisitions, divestments or additional Development Projects. 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 general and administrative expenses following the acquisition of Alterra.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p33
(in thousands of Canadian dollars, except as noted and amounts per share)
Projected Installed Capacity
The Corporation believes that installed capacity provides a
good indication of the size and magnitude of its operations.
With the Alterra acquisition completed on February 6, 2018,
and the contribution of the Flat Top wind farm to be
commissioned at the end of the first quarter of 2018, the
Corporation expects its net installed capacity to increase
from 1,124 MW (gross $1,846 MW) at the end of 2017 to
1,604 MW (gross 2,686 MW) in 2018, corresponding to a
43% increase (gross 46%).
Net installed capacity reflects proportional share of the total
capacity attributable to Innergex based on its ownership
interest in each facility. Installed capacity includes the
Dokie 1, East Toba, Flat Top, Jimmie Creek, Kokomo,
Montrose Creek, Shannon, Spartan, Umbata Falls and
Viger-Denonville facilities, which 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.
With the addition of HS Orka, the Corporation expects its
annualized consolidated LTA production to increase from
5,036 GWh at the end of 2017 to 6,315 GWh in 2018,
corresponding to a 25% increase.
Consolidated LTA production is presented in accordance
with revenue recognition accounting rules under IFRS and
excludes the Dokie 1, East Toba, Flat Top, Jimmie Creek,
Kokomo, Montrose Creek, Shannon, Spartan, Umbata
Falls and Viger-Denonville facilities, which are treated as
joint ventures and accounted for using the equity method.
Annualized Consolidated LTA Production (GWh)
December 31,
2018
December 31,
2017
Hydro
Wind
Solar
Geothermal
Total
3,019
1,979
38
—
5,036
3,019
1,979
38
1,279
6,315
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p34
(in thousands of Canadian dollars, except as noted and amounts per share)
Projected Adjusted EBITDA
Projected Adjusted EBITDA
A key performance indicator for the Corporation is Adjusted
EBITDA generation.
With the addition of HS Orka, the Corporation expects in
2018 to generate Adjusted EBITDA of approximately
$379.7 million, compared with $298.7 million in 2017. This
corresponds to an increase of approximately 27% for 2018
compared with 2017.
Adjusted EBITDA is presented in accordance with revenue
recognition accounting rules under IFRS and excludes the
Dokie 1, East Toba, Flat Top, Jimmie Creek, Kokomo,
Montrose Creek, Shannon, Spartan, Umbata Falls and
Viger-Denonville facilities, which are treated as joint
ventures and accounted for using the equity method.
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. Nor does it take into account any potential
acquisitions or other development opportunities.
Adjusted EBITDA is not a recognized measure under IFRS, has no
standardized meaning prescribed by IFRS and therefore may not be
comparable with those presented by other issuers. Please refer to the "Non-
IFRS Measures" section for more information.
Projected Adjusted EBITDA Proportionate
A key performance indicator for the Corporation is the
Adjusted EBITDA Proportionate.
With the Alterra acquisition completed on February 6, 2018,
and the contribution of the Flat Top wind farm to be
commissioned at the end of the first quarter of 2018, the
Corporation expects in 2018 to generate Adjusted EBITDA
Proportionate of approximately $439.8 million compared
with $308.3 million in 2017. This corresponds to an increase
of approximately 43% for 2018 compared with 2017.
Adjusted EBITDA Proportionate reflects the fact that some
of the Corporation's facilities are not wholly owned. These
include the Dokie 1, East Toba, Flat Top, Jimmie Creek,
Kokomo, Montrose Creek, Shannon, Spartan, Umbata
Falls and Viger-Denonville facilities, which are treated as
joint ventures and accounted for using the equity method.
The Adjusted EBITDA Proportionate does not take into
account any potential acquisitions or other development
opportunities.
Adjusted EBITDA Proporationate is not a recognized measure under IFRS,
has no standardized meaning prescribed by IFRS and therefore may not be
comparable with those presented by other issuers. Please refer to the "Non-
IFRS Measures" section for more information.
Adjusted EBITDA Proportionate ($M)
December 31,
2017
December 31,
2018
Adjusted EBITDA
Dokie 1 (26%)
East Toba (40%)
Flat Top (51%)
Jimmie Creek (51%)
Kokomo (90%)
Montrose Creek (40%)
Shannon (50%)
Spartan (100%)
Umbata Falls (49%)
Viger-Denonville
(50%)
Adjusted EBITDA
Proportionate
298.7
—
—
—
—
—
—
—
—
5.1
4.5
379.7
5.8
14.6
6.8
7.9
0.7
8.7
5.9
1.5
3.8
4.4
308.3
439.8
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p35
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
With the Alterra acquisition completed on February 6, 2018,
and the contribution of the Flat Top wind farm to be
commissioned at the end of the first quarter of 2018, the
Corporation expects in 2018 to generate Free Cash Flow
of approximately $117.4 million compared with $87.2 million
in 2017. This corresponds to an increase of approximately
35% for 2018 compared with 2017 and will reflect the cash
flows generated by the Corporation's 64 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.
Free Cash Flow is not a recognized measure under IFRS, has no
standardized meaning prescribed by IFRS and therefore may not be
comparable with those presented by other issuers. Please refer to the "Non-
IFRS Measures" section for more information.
For more information on the principal assumptions used in
the
financial
determining projected
principal risks and uncertainties related thereto, please
refer to the "Forward-Looking Information" section.
information and
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p36
(in thousands of Canadian dollars, except as noted and amounts per share)
SEGMENT INFORMATION
Geographic Segments
As at December 31, 2017, the Corporation had interests in 30 hydroelectric facilities, seven wind farms and one solar farm in
Canada, 15 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
Non-current assets, excluding derivatives financial instruments
and deferred tax assets
Canada
Europe
United States
Year ended December 31
2017
2016
278,723
9,836
4,226
292,785
344,440
52,300
3,523
400,263
As at
December 31, 2017
December 31, 2016
2,977,859
973,740
7,052
3,958,651
3,005,720
318,924
7,365
3,332,009
Canada
Revenues up 24% to $344.4 million for the year ended December 31, 2017
The increase in Canadian revenues is attributable mainly to the contribution of the recently commissioned facilities, namely
the Big Silver Creek hydro facility commissioned in July 2016, the Mesgi'g Ugju's'n wind farm commissioned in December 2016,
the Upper Lillooet River hydro facility commissioned in March 2017 and the Boulder Creek hydro facility commissioned in
May 2017, which were partly offset by lower revenues from the British Columbia hydro facilities.
For the year ended December 31, 2017, the decrease in non-current assets, excluding derivative financial instruments and
deferred income tax assets in Canada, stems mainly from amortization and depreciation, partly offset by the construction of
the Upper Lillooet River and Boulder Creek facilities.
Europe
Revenues up 432% to $52.3 million for the year ended December 31, 2017
The increase in European revenues is attributable mainly to the wind facilities acquired in 2016 and 2017.
For the period ended December 31, 2017, the change in non-current assets, excluding derivative financial instruments and
deferred income tax assets in Europe, stems from the wind facilities acquired in France between February and August 2017.
United States
Revenues down 17% to $3.5 million for the year ended December 31, 2017
The decrease in revenues can mainly be explained by a voluntary limitation in production of the Horseshoe Bend hydro facility
in the second quarter due to unusually high water volumes; this prevented sand accumulation in the canal, which can damage
the facility and be costly to remove.
For the period ended December 31, 2017, the decrease in non-current assets is attributable mainly to depreciation.
Operating Segments
As at December 31, 2017, the Corporation had four operating segments: hydroelectric generation, wind power generation,
solar power generation and site development.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p37
(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, 2017. 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.
Hydroelectric
Generation
SUMMARY OPERATING RESULTS
Solar Power
Generation
Wind Power
Generation
Site
Development
Total
Year ended December 31, 2017
Power generated (MWh)
Revenues
Expenses:
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA1
Year ended December 31, 2016
Power generated (MWh)
Revenues
Expenses:
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA1
2,775,715
226,211
1,560,425
155,307
44,151
9,934
—
172,126
2,718,768
211,881
37,197
8,459
—
166,225
26,098
7,271
—
121,938
760,814
63,238
13,515
4,090
—
45,633
40,057
16,824
678
144
—
16,002
42,063
17,666
757
152
—
16,757
18,013
1,921
4,394,210
400,263
745
457
12,057
(11,338)
71,672
17,806
12,057
298,728
— 3,521,645
292,785
—
—
2,344
10,288
(12,632)
51,469
15,045
10,288
215,983
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
Hydroelectric
Generation
Wind Power
Generation
FINANCIAL POSITION
Solar Power
Generation
Site
Development
Total
As at December 31, 2017
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and equipment
during the period
As at December 31, 2016
Goodwill
Total assets
Total liabilities
8,269
2,425,646
2,093,158
30,311
1,651,537
1,516,245
—
101,449
105,061
—
11,824
25,803
38,580
4,190,456
3,740,267
18,804
352,968
12
185,884
557,668
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
Acquisition of property, plant and equipment
during the year
3,420
219,813
11
369,723
592,967
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p38
(in thousands of Canadian dollars, except as noted and amounts per share)
Hydroelectric Generation Segment
Revenues up 7% to $226.2 million for the year ended December 31, 2017
For the year ended December 31, 2017, this segment produced 93% of the LTA compared with production at 109% of the LTA
last year. The decrease in the percentage of the LTA is attributable mainly to below-average water flows in British Columbia.
The increase in revenues compared with last year is due mainly to the contribution of the Big Silver Creek, Upper Lillooet River
and Boulder Creek hydroelectric facilities commissioned between July 2016 and May 2017, partly offset by lower production
at most of our British Columbia hydro facilities. Expenses for the year were higher due mainly to a greater number of facilities
in operation and a $3.2 million aggregate payment related to water rights for 2011 and 2012 for Fire Creek, Lamont Creek,
Stokke Creek, Tipella Creek and Upper Stave River, which were reassessed following the decision by the British Columbia
Ministry of Forests, Lands and Natural Resource Operations to apply higher rental rates based on the facilities' combined
production rather than applying lower rates for each facility based on its individual production, as had previously been the
ministry's practice. Since 2013, the facilities' water rights fees have been paid at the higher rates. A 49.99% portion of the water
rights payment is allocated to the non-controlling interests.
The increase in total assets since December 31, 2016, stems mainly from the Upper Lillooet River and Boulder Creek
hydroelectric projects being transferred from the Site Development Segment to the Hydroelectric Generation Segment following
their commissioning in March and May 2017 respectively, which was partly offset by depreciation of property, plant and equipment
and amortization of intangible assets.
The increase in total liabilities since December 31, 2016, is attributable mainly to the transfer of the project financing of the
Upper Lillooet River and Boulder Creek projects from the Site Development Segment to the Hydroelectric Generation Segment
following their commissioning, which was partly offset by the scheduled repayment of long-term debt.
Wind Power Generation Segment
Revenues up 146% to $155.3 million for the year ended December 31, 2017
For the year ended December 31, 2017, this segment produced 91% of the LTA compared with production at 91% of the LTA
last year. The below-LTA production is due mainly to post-commissioning activities currently being addressed at the Mesgi'g
Ugju's'n facility and below-average wind regimes in France.
Revenues increased due mainly to the commissioning of the Mesgi'g Ugju's'n wind farm, despite challenging post-commissioning
activities and to the wind facilities acquired in France in 2016 and 2017.
The increase in total assets since December 31, 2016, is mainly attributable to the acquisition of the Yonne, Rougemont 1-2,
Vaite, Plan Fleury and Les Renardières facilities in February, May and August 2017 respectively. The increase was partly offset
by the reimbursement by Hydro-Québec of the Mesgi'g Ugju's'n substation recevable and depreciation of property, plant and
equipment and amortization of intangible assets.
The increase in total liabilities since December 31, 2016, is attributable mainly to the acquisition of the Yonne, Rougemont 1-2,
Vaite, Plan Fleury and Les Renardières facilities in February, May and August 2017, which was partly offset by the scheduled
repayment of long-term debt.
Solar Power Generation Segment
Revenues down 5% to $16.8 million for the year ended December 31, 2017
For the year ended December 31, 2017, this segment produced 106% of the LTA compared with production at 111% of the LTA
last year.
The decrease in revenues can be explained by lower solar irradiation than last year.
The decrease in total assets since December 31, 2016, results mainly from depreciation of property, plant and equipment and
from amortization of intangible assets.
The decrease in total liabilities since December 31, 2016, results mainly from the scheduled repayment of long-term debt.
Site Development Segment
Expenses up 5% to $13.3 million for the year ended December 31, 2017
This increase in expenses is mainly due to investments made to pursue growth opportunities. Production and revenues recorded
in the quarter stemmed from eight turbines being in operation at the Rougemont-2 facility for the months of October and
November. The facility reached full commissioning on December 1, 2017, and production was then allocated in the Wind
Generation Segment.
The decrease in total assets since December 31, 2016, stems mainly from the Upper Lillooet River and Boulder Creek hydro
projects being transferred from the Site Development Segment to the Hydroelectric Generation Segment following their
commissioning in March and May 2017.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p39
(in thousands of Canadian dollars, except as noted and amounts per share)
Since December 31, 2016, the decrease in total liabilities is mainly due to the transfer of the Upper Lillooet River and Boulder
Creek projects from the Site Development Segment to the Hydroelectric Generation Segment following their commissioning
in March and May 2017.
QUARTERLY FINANCIAL INFORMATION
(in millions of dollars, unless otherwise stated)
Power generated (MWh)
Revenues
Adjusted EBITDA1
Realized and unrealized net (loss) gain on financial
instruments
Net earnings (loss)
Net earnings attributable to owners of the parent
Net earnings attributable to owners of the parent ($ per
share – basic and diluted)
Dividends declared on preferred shares
Dividends declared on common shares
Dividends declared on common shares, $ per share
Three months ended
Dec. 31, 2017 Sept. 30, 2017 June 30, 2017 Mar. 31, 2017
722,273
74.5
50.9
1,322,781
109.5
85.9
1,243,099
108.2
81.8
1,106,060
108.0
80.1
(1.4)
3.5
7.1
0.05
1.5
17.9
0.165
(1.0)
4.4
5.9
0.04
1.5
17.9
0.165
(0.5)
14.1
14.6
0.12
1.5
17.9
0.165
5.1
(2.3)
2.5
0.01
1.5
17.9
0.165
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
(in millions of dollars, unless otherwise stated)
Power generated (MWh)
Revenues
Adjusted EBITDA1
Realized and unrealized net gain (loss) on financial
instruments
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
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
1.3
7.2
8.3
0.07
1.5
16.6
0.160
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
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 60% 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 factors responsible for the largest fluctuations in net
earnings (loss) are 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 these
factors 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.
Annual Report 2017
Management's Discussion and Analysis p40
(in thousands of Canadian dollars, except as noted and amounts per share)
FOURTH QUARTER RESULTS
Electricity Production
Three months ended December 31
2017
2016
Three months ended December 31
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec
France
Subtotal
SOLAR
Ontario
Total
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
195,682
24,341
283,954
5,215
509,192
415,222
176,089
591,311
181,486
21,212
372,987
5,223
580,908
346,067
200,365
546,432
5,557
1,106,060
5,701
1,133,041
108%
115%
76%
100%
88%
120%
88%
108%
97%
98%
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%
5,902
848,967
5,741
838,051
103%
101%
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, 2017, the Corporation's facilities produced 1,106 GWh of electricity or
98% of the LTA of 1,133 GWh. Overall, the hydroelectric facilities produced 88% of their LTA due to challenging post-
commissioning activities currently being addressed at the Upper Lillooet River facility and below-average water flows at most
of the British Columbia facilities. Overall, the wind farms produced 108% of their LTA due to the above-average wind regime
in Quebec and to compensation received from the manufacturer for non-availability of equipment at the Mesgi'g Ugju's'n facility,
partly offset by the below-average wind regime in France. The solar farm produced 97% of its LTA due to the average solar
regime. For more information on operating segment results, please refer to the "Segment Information" section.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p41
(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 EBITDA1
Adjusted EBITDA margin1
Finance costs
Other net expenses
Depreciation and amortization
Share of earnings of joint ventures2
Unrealized net loss (gain) on derivative financial
instruments
Income tax expense (recovery of)
Net earnings
Net earnings attributable to
Owners of the parent
Non-controlling interests
Basic net earnings per share ($)
Three months ended December 31
2017
2016
Change
107,973
20,278
3,784
3,852
80,059
73,265
15,674
4,508
2,819
50,264
34,708
4,604
(724)
1,033
29,795
47 %
29 %
(16)%
37 %
59 %
74.1%
68.6%
40,398
2,480
34,476
(1,707)
1,350
(451)
3,513
7,107
(3,594)
3,513
0.05
26,228
895
25,614
(2,919)
(2,172)
(6,147)
8,765
9,835
(1,070)
8,765
0.08
14,170
1,585
8,862
1,212
3,522
5,696
(5,252)
(2,728)
(2,524)
(5,252)
54 %
177 %
35 %
(42)%
(162)%
(93)%
(60)%
(28)%
236 %
(60)%
1. Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures under IFRS and therefore may not be comparable to those
presented by other issuers. Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
2. 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
Up 47% to $108.0 million for the three-month period ended December 31, 2017
This increase is attributable mainly to the contribution of the recently commissioned Mesgi'g Ugju's'n, Upper Lillooet River and
Boulder Creek facilities as well as to the acquisition of the Montjean, Theil-Rabier, Yonne, Rougemont 1-2, Vaite, Plan Fleury
and Les Renardières facilities. The increase was partly offset by lower production at most of the British Columbia hydro facilities.
Expenses
Up 21% to $27.9 million for the three-month period ended December 31, 2017
For the three-month period ended December 31, 2017, the Corporation recorded operating expenses of $20.3 million
($15.7 million in 2016), general and administrative expenses of $3.8 million ($4.5 million in 2016) and prospective project
expenses of $3.9 million ($2.8 million in 2016). The increase in operating expenses compared with the same period last year
is due mainly to the commissioning of the Mesgi'g Ugju's'n, Upper Lillooet River and Boulder Creek facilities as well as to the
acquisition of the Montjean, Theil-Rabier, Yonne, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières wind farms. The
decrease in general and administrative expenses stems mainly from more salaries being classified as transaction costs and
prospective expenses due to the greater time and effort being devoted to acquisitions and advancing prospective projects. The
increase in prospective project expenses is attributable mainly to pursuing opportunities in new international markets, to current
and future requests for proposals and expressions of interest in Canadian provinces and to the progress of a number of
prospective projects.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p42
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EBITDA
Up 59% to $80.1 million for the three-month period ended December 31, 2017
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. Adjusted EBITDA is not
a recognized measure under IFRS, has no standardized meaning prescribed by IFRS and therefore may not be comparable
with those presented by other issuers. Please refer to the "Non-IFRS Measures" section for more information.
The increase is mainly due to higher revenues net of expenses, as discussed above.
Adjusted EBITDA Proportionate
Up 62% to $83.2 million for the three-month period ended December 31, 2017
Adjusted EBITDA Proportionate, which is defined as Adjusted EBITDA plus Innergex's share of Adjusted EBITDA of the joint
ventures, is a key performance indicator when evaluating the Corporation's financial results. Adjusted EBITDA Proportionate
is not a recognized measure under IFRS, has no standardized meaning prescribed by IFRS and therefore may not be comparable
with those presented by other issuers. Please refer to the "Non-IFRS Measures" section for more information.
Three months ended December 31
2017
2016
Adjusted EBITDA1
Innergex's share of Adjusted EBITDA of joint ventures2
Adjusted EBITDA proportionate1
1. Adjusted EBITDA and Adjusted EBITDA proportionate are not recognized measures under IFRS and therefore may not be comparable to
80,059
3,140
83,199
50,264
1,231
51,495
those presented by other issuers. Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
2. Please refer to the "Investments in Joint Ventures" section of this MD&A for more information.
This increase is due mainly to higher Adjusted EBITDA and a higher share of Adjusted EBITDA of joint ventures stemming from
higher production and revenues at the Umbata Falls and Viger-Denonville facilities.
Finance Costs
Up 54% to $40.4 million for the three-month period ended December 31, 2017
The increase is due mainly to expenses related to recently commissioned facilities, namely the Mesgi'g Ugju's'n, Upper Lillooet
River and Boulder Creek facilities, and to the wind farms acquired in France in December 2016 and in 2017.
Other Net Expenses
Up 177% to $2.5 million for the three-month period ended December 31, 2017
The increase is due mainly to higher transaction costs stemming from more time and effort being devoted to acquisitions.
Depreciation and Amortization
Up 35% to $34.5 million for the three-month period ended December 31, 2017
The increase is attributable mainly to recently commissioned facilities, namely the Mesgi'g Ugju's'n, Upper Lillooet River and
Boulder Creek facilities and to the wind farms acquired in France in December 2016 and in 2017.
Net Earnings
Down 60% to $3.5 million for the three-month period ended December 31, 2017
Net Earnings of $3.5 million (basic and diluted net earnings of $0.05 per share), compared with a net earnings of $8.8 million
(basic and diluted net earnings of $0.08 per share) in 2016, were recorded by the Corporation in the quarter. The decrease is
explained mainly by the $14.2 million increase in finance costs, the $8.9 million increase in depreciation and amortization and
the $5.7 million decrease in income tax recovery. Net earnings were also impacted by the recognition of an unrealized net loss
on derivative financial instruments compared with a gain for the three-months ended December 31, 2016, and to a lower share
of earnings of joint ventures compared with the same quarter in 2016. These factors were partly offset by the $29.8 million
increase in Adjusted EBITDA.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p43
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted Net Earnings
Down 40% to $3.9 million for the three-month period ended December 31, 2017
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." Adjusted Net Earnings is not recognized measure
under IFRS, has no standardized meaning prescribed by IFRS and therefore may not be comparable with those presented by
other issuers. Please refer to the "Non-IFRS Measures" section for more information.
Impact on net earnings of financial instruments
Net earnings
Add (Subtract):
Unrealized net loss (gain) on financial instruments
(Recovery) income tax expense related to above items
Share of unrealized net gain on financial instruments of joint ventures, net of related
income tax
Adjusted Net Earnings
Three months ended
December 31
2017
3,513
2016
8,765
1,350
(888)
(123)
3,852
(2,172)
467
(655)
6,405
1. Adjusted Net Earnings is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers.
Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
Excluding losses and gains on financial instruments and the related income taxes, net earnings for the three-month period
ended December 31, 2017, would have been $3.9 million compared with net earnings of $6.4 million in 2016. The decrease
is attributable mainly to the factors described in Net Earnings.
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
Umbata Falls
Viger-Denonville
Three months ended December 31
2017
2016
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
45,551
24,190
33,037
20,300
138%
119%
27,392
19,309
33,037
20,300
83%
95%
1. Corresponds to 100% of the facility's electricity production and LTA.
Umbata Falls
Viger-Denonville
Year ended December 31
2017
2016
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
136,833
73,369
109,101
72,400
125% 111,019
68,865
101%
109,101
72,400
102%
95%
1. Corresponds to 100% of the facility's electricity production and LTA.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p44
(in thousands of Canadian dollars, except as noted and amounts per share)
Innergex's share of Adjusted EBITDA of joint ventures
Innergex's share of Adjusted EBITDA1 of joint ventures:
Umbata Falls (49%)
Viger-Denonville (50%)
Three months ended December 31
2017
2016
1,589
1,551
3,140
473
758
1,231
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information
Innergex's share of Adjusted EBITDA1 of joint ventures:
Umbata Falls (49%)
Viger-Denonville (50%)
Year ended December 31
2017
2016
5,066
4,549
9,615
4,160
4,225
8,385
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information
Umbata Falls, L.P.
Summary Statements of Earnings and Comprehensive Income – Umbata Falls, L.P.
Revenues
Operating and general and administrative expenses
Adjusted EBITDA1
Finance costs
Other net expenses (revenues)
Depreciation and amortization
Unrealized net gain on financial instruments
Net earnings and comprehensive income
Year ended December 31
2017
2016
11,645
1,307
10,338
2,392
23
4,016
(2,056)
5,963
9,429
938
8,491
2,507
(31)
4,017
(526)
2,524
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, production was 125% of the LTA due to above-average water flows.
The increase in Adjusted EBITDA for the year ended December 31, 2017, is due mainly to higher production levels and revenues
compared with the same period last year.
For the year ended December 31, 2017, Umbata Falls L.P. recorded net earnings and comprehensive income of $6.0 million,
compared with $2.5 million for the same period last year. The increase reflects the higher revenues and higher unrealized net
gain on financial instruments.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p45
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – Umbata Falls, L.P.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partners' equity
As at
December 31, 2017
December 31, 2016
3,550
60,658
64,208
3,512
40,924
19,772
64,208
2,090
64,647
66,737
3,033
46,173
17,531
66,737
As at December 31, 2017, the increase in partners' equity stems from the recognition of $6.0 million in net earnings and
comprehensive income, partly offset by the $3.7 million distributions to the Corporation and its partner. 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
$41.6 million used to hedge the interest rate on the Umbata Falls loan had a net negative value of $5.5 million at December 31,
2017 (negative value of $7.6 million at December 31, 2016).
Viger-Denonville, L.P.
Summary Statements of Earnings and Comprehensive Income – Viger-Denonville, L.P.
Revenues
Operating and general and administrative expenses
Adjusted EBITDA1
Finance costs
Other net revenues
Depreciation and amortization
Unrealized net gain on financial instruments
Net earnings
Other comprehensive income
Total other comprehensive income
Year ended December 31
2017
2016
10,998
1,899
9,099
3,466
(40)
2,815
(704)
3,562
1,501
5,063
10,293
1,844
8,449
3,635
(30)
2,923
(658)
2,579
2
2,581
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, production was 101% of the LTA due mainly to an average wind regime.
For the year ended December 31, 2017, the Adjusted EBITDA increased due mainly to higher revenues compared with last
year.
For the year ended on December 31, 2017, the increase in net earnings compared with last year is due mainly to higher Adjusted
EBITDA and lower finance costs.
For the year ended on December 31, 2017, the increase in other comprehensive income is attributable mainly to unrealized
net gains on financial instruments.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p46
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – Viger-Denonville, L.P.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partners' equity
As at
December 31, 2017
December 31, 2016
3,005
53,812
56,817
4,355
49,920
2,542
56,817
2,249
56,583
58,832
4,375
54,223
234
58,832
As at December 31, 2017, the increase in partners' equity stems mainly from the recognition of $5.1 million in net earnings and
other comprehensive income, partly offset by the $2.8 million in distributions to the Corporation and its partner. 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 $49.3 million used to hedge the interest rate of the Viger-Denonville loan had a net negative value of $3.3 million at
December 31, 2017 (negative $5.5 million at December 31, 2016).
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 EBITDA1
Net (loss) earnings and comprehensive (loss) income
Net (loss) earnings and comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
Year ended December 31
2017
2016
50,891
36,847
(6,798)
(3,970)
(2,828)
(6,798)
60,039
48,437
4,982
1,919
3,063
4,982
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, the net loss recorded is due mainly to lower production levels and revenues. Also,
operating expenses were impacted by a $3.2 million aggregate payment related to water rights for 2011 and 2012 for the
Harrison Hydro L.P. facilities, which were reassessed following the decision by the British Columbia Ministry of Forests, Lands
and Natural Resource Operations to apply higher rental rates based on the facilities' combined production rather than apply
lower rates for each facility based on its individual production, as had previously been the ministry's practice. The Corporation
has filed an appeal of this decision with the Environmental Appeal Board. Since 2013, these facilities' water rights fees have
been paid at the higher rates. A 49.99% portion of the water rights payment is allocated to the non-controlling interests.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p47
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – Harrison Hydro L.P.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interests
As at
December 31, 2017
December 31, 2016
13,376
601,105
614,481
17,163
453,647
90,787
52,884
614,481
22,416
615,937
638,353
17,847
458,037
100,759
61,710
638,353
The decrease in equity attributable to owners and non-controlling interests is due mainly to a $12.0 million distribution to the
Corporation and its partners and to the recognition of a comprehensive loss.
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, Upper Lillooet
River and Boulder Creek hydroelectric facilities. The Upper Lillooet River hydro facility began commercial operation on March 30,
2017, and the Boulder Creek hydro facility began commercial operation on May 16, 2017. For more information on these
facilities, please refer to the "Developments in 2017" section of this MD&A.
Summary Statements of Earnings and Comprehensive Income – Creek Power Inc.
Revenues
Adjusted EBITDA1
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
2016
2017
27,882
21,411
(13,580)
465
(13,115)
(9,047)
(4,533)
(13,580)
(8,737)
(4,378)
(13,115)
3,413
1,532
(4,559)
26
(4,533)
(3,028)
(1,531)
(4,559)
(3,011)
(1,522)
(4,533)
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, total comprehensive loss reflects challenging post-commissioning activities currently
being addressed at the Upper Lillooet River facility which impacted revenues. Finance costs and depreciation and amortization
expenses were higher during the year following the commissioning of the facilities. The recognition of a net loss is attributable
mainly to the recording of $11.2 million of preferred return payable to the Corporation on the $98.4 million preferred units, partly
offset by higher revenues for the year. Excluding the preferred return, the net loss would have been $2.4 million.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p48
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – Creek Power Inc.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interest deficit
As at
December 31, 2017
December 31, 2016
36,422
542,988
579,410
53,658
618,205
(65,388)
(27,065)
579,410
82,759
492,414
575,173
48,853
605,658
(56,651)
(22,687)
575,173
The decrease in current assets is due mainly to the decrease in restricted cash, which was used to pay for ongoing construction
costs, partly offset by cash cumulated and not distributed since the commissioning of the Upper Lilloeet River and Boulder
Creek facilities. The increase in non-current assets is due mainly to construction spending for the Upper Lillooet River and
Boulder Creek projects. The increase in non-current liabilities is due to liabilities related to future ownership rights owned by
First Nations for the Upper Lillooet River and Boulder Creek facilities.
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 EBITDA1
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2017
2016
19,016
15,234
(890)
(445)
(445)
(890)
19,840
15,519
(704)
(352)
(352)
(704)
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, the decreases in revenues and Adjusted EBITDA are due mainly to production levels
that were lower than for the same period last year. The recognition of a net loss is attributable mainly to the recording of a $4.2
million preferred return payable to the Corporation on the $39.8 million preferred units and the $3.7 million subordinated debt.
Excluding these elements, net earnings would have been $3.7 million.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p49
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – Kwoiek Creek Resources Limited Partnership
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interests deficit
As at
December 31, 2017
December 31, 2016
7,335
172,223
179,558
7,919
193,480
(10,672)
(11,169)
179,558
8,949
175,049
183,998
9,964
194,985
(10,227)
(10,724)
183,998
For the year ended December 31, 2017, the decrease in non-current assets in due mainly to the depreciation and amortization.
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.
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 EBITDA1
Net earnings (loss)
Other comprehensive income (loss)
Total comprehensive income (loss)
Net earnings (loss) attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2017
2016
51,845
46,219
21,825
3,246
25,071
15,795
6,030
21,825
18,144
6,927
25,071
1,024
945
(1,097)
(1,643)
(2,740)
(794)
(303)
(1,097)
(1,955)
(785)
(2,740)
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, net earnings are due to revenues stemming from the Mesgi'g Ugju's'n facility being
in operation despite challenging post-commissioning activities, partly offset by higher finance costs and amortization and
depreciation expenses.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p50
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statement of Financial Position – Mesgi'g Ugju's'n
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interest deficit
As at
December 31, 2017
December 31, 2016
21,727
283,271
304,998
16,004
247,867
44,826
(3,699)
304,998
64,843
294,918
359,761
59,360
264,582
44,986
(9,167)
359,761
The decrease in current assets is attributable for the most part to the decrease in accounts receivable following the
reimbursement of the Mesgi'g Ugju's'n substation, partly offset by higher restricted cash and short-term investments from the
cash cumulated and not distributed since the commissioning of the Mesgi'g Ugju's'n facility. The decrease in non-current assets
is due mainly to amortization and depreciation expenses.
The decrease in current liabilities is mainly due to the reimbursement of the Mesgi'g Ugju's'n substation loan, partly offset by
the payables transferred from the non-current liabilities to the current liabilities.
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 EBITDA1
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Year ended December 31
2017
12,755
10,507
(2,104)
(1,052)
(1,052)
(2,104)
2016
10,666
8,148
(4,289)
(2,145)
(2,144)
(4,289)
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
The recognition of a net loss is attributable mainly to the recording of $4.6 million of preferred return payable to the Corporation
on the $43.8 million preferred units, partly offset by higher revenues for the year. Excluding the preferred return, net earnings
would have been $2.5 million.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p51
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position – SM S.E.C.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners
Non-controlling interests deficit
As at
December 31, 2017
December 31, 2016
2,794
129,614
132,408
8,085
121,067
9,870
(6,614)
132,408
2,344
132,351
134,695
8,654
120,681
10,922
(5,562)
134,695
For the year ended December 31, 2017, the decrease in non-current assets is due mainly to the depreciation and amortization.
As at December 31, 2017, the decrease of equity attributable to owners and the increase in the non-controlling interest deficit
is attributable to the recognition of a comprehensive loss during the year.
Innergex Europe (2015) Limited Partnership and Its Subsidiaries ("Innergex Europe")
The Corporation owns a 69.55% interest in Innergex Europe, which owns the Antoigné, Beaumont, Bois d'Anchat, Bois des
Cholletz, Les Renardières, Longueval, Montjean, Plan Fleury, Porcien, Rougemont 1-2, Theil-Rabier, Vaite, Vallottes and Yonne
wind facilities. For more information on Les Renardières, Plan Fleury and Rougemont-2, please refer to the "Developments in
2017" section of this MD&A.
On February 21, 2017, Innergex and RRMD completed the acquisition of the Yonne wind facility located in Northern France.
The acquisition was realized through wholly owned foreign subsidiaries of Innergex Europe.
On May 24, 2017, Innergex and RRMD completed the acquisition of the Rougemont-1 and Vaite wind farms and the Rougemont-2
wind project located in Bourgogne-Franche-Comté in France. The acquisition was realized through wholly owned foreign
subsidiaries of Innergex Europe.
On August 25, 2017, Innergex and RRMD completed the acquisition of the Les Renardières and Plan Fleury wind projects
located in Champagne-Ardenne, France. The acquisition was realized through wholly owned foreign subsidiaries of Innergex
Europe.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p52
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings and Comprehensive Income – Innergex Europe
Revenues
Adjusted EBITDA1
Net loss
Other comprehensive income (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
Year ended
December 31, 2017
Period of 261 days
ended December 31,
2016
52,300
40,164
(23,538)
354
(23,184)
(16,370)
(7,168)
(23,538)
(16,124)
(7,060)
(23,184)
9,836
5,208
(11,309)
(799)
(12,108)
(8,601)
(2,708)
(11,309)
(9,157)
(2,951)
(12,108)
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
For the year ended December 31, 2017, production was 86% of the LTA, due mainly to the below-average wind regime in
France. The net loss for the period is due mainly to low revenues resulting from the below-average production, higher finance
costs and depreciation and amortization expenses. The expenses include $1.9 million of acquisition costs ($1.7 million in 2016),
$5.0 million in interest payable to Desjardins on the $78.0 million debenture ($1.5 million on the $38.2 million debenture in
2016), a $11.5 million preferred return payable to Innergex on the $178.1 million preferred units ($4.3 million on the $87.2
million preferred units in 2016) and $0.1 million in interest payable to Innergex on a temporary bridge loan ($0.6 million in 2016).
Excluding these items, the net loss would have been $5.1 million ($3.3 million in 2016). Expenses also include non-cash
expenses such as depreciation and amortization of a total of $31.7 million ($9.8 million in 2016).
Summary Statements of Financial Position – Innergex Europe
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interests
As at
December 31, 2017 December 31, 2016
76,091
967,260
1,043,351
119,935
934,396
(21,541)
10,561
1,043,351
19,036
325,310
344,346
32,475
316,508
(5,416)
779
344,346
The increase in all Financial Position items results from the recently acquired wind facilities in February, May and August 2017.
The excess in current liabilities over the current assets comes mainly from the interest payable to RRMD on the debenture and
the preferred return payable to Innergex on the preferred units.
Entities excluded from the Corporation's control policies and procedures
The Rougemont 1-2, Vaite, Les Renardières and Plan Fleury figures are excluded from the Corporation's control policies and
procedures, as stated in the "Establishment and Maintenance of DC&P and ICFR" section of this MD&A.
Summary financial information about the Rougemont 1-2, Vaite, Plan Fleury and Les Renardières is set out below:
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p53
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statement of Earnings and Comprehensive (Loss) Income – Rougemont 1-2 and Vaite
Revenues
Adjusted EBITDA1
Net earnings
Other comprehensive income
Total comprehensive income
Period of 221 days
ended December 31,
2017
14,113
11,528
1,572
46
1,618
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
Summary Statement of Financial Position – Rougemont 1-2 and Vaite
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
As at
December 31, 2017
20,753
345,562
366,315
30,696
295,718
39,901
366,315
Summary Statement of Earnings and Comprehensive Income – Plan Fleury and Les Renardières
Revenues
Adjusted EBITDA1
Net earnings
Other comprehensive income
Total comprehensive income
Period of 129 days
ended December 31,
2017
3,280
3,104
1,309
7
1,316
1. Adjusted EBITDA is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers. Please
refer to the "Non-IFRS Measures" section of this MD&A for more information.
Summary Statement of Financial Position – Plan Fleury and Les Renardières
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
As at
December 31, 2017
As at
26,542
161,664
188,206
30,061
117,297
40,848
188,206
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p54
(in thousands of Canadian dollars, except as noted and amounts per share)
RELATED PARTY TRANSACTIONS
Related party transactions conducted in the normal course of operations are measured at fair value which is the amount
established and agreed to by the related parties, unless specific requirements within IFRS require different treatment.
The Corporation's subsidiaries have entered into the following transactions with partners: Sainte Marguerite L.P.'s debenture
to RRMD; Magpie's convertible debenture to the municipality; Innergex Europe (2015) Limited Partnership's debenture to
RRMD; and Kwoiek Creek's loan to a partner (please refer to the "Notes to the Consolidated Financial Statements" for more
information).
As of the closing of the Alterra Acquisition, the following transactions had occurred: (i) in 2011, Ross J. Beaty entered into a
revolving credit facility with Alterra (the “Credit Facility”). The Credit Facility has a borrowing capacity amount of C$20.0 million
and makes funds available to Alterra on a revolving basis at an interest rate of 8% per annum, compounded and payable
monthly. In addition, a standby fee in the amount of 0.75% of the Credit Facility, and a drawdown fee in the amount of 1.5% of
amounts advanced, are payable in cash. The Credit Facility matures on March 31, 2018. As at February 16, 2018, Alterra had
borrowed C$17.3 million under the Credit Facility; and (ii) in October 2016, Ross J. Beaty loaned through a five-year term bond
US$35.7 million to Alterra’s subsidiary Magma Energy Sweden A.B (the “Bond”). The Bond pays interest at 8.5% per annum
with an upfront fee of 2% of the principal which was paid at closing of the financing. The Bond is collateralized by 15% of the
outstanding shares in HS Orka.
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 EBITDA
Margin, Adjusted EBITDA Proportionate, 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. Innergex believes that the presentation of this measure enhances the
understanding of the Corporation's operating performance. Readers are cautioned that Adjusted EBITDA should not be
construed as an alternative to net earnings, as determined in accordance with IFRS. Please refer to the "Operating Results"
section of this MD&A for the reconciliation of Adjusted EBITDA.
References in this document to "Adjusted EBITDA Margin" are to Adjusted EBITDA divided by revenues. Innergex believes
that the presentation of this measure enhances the understanding of the Corporation's operating performance.
References in this document to "Adjusted EBITDA Proportionate" are to Adjusted EBITDA plus Innergex's share of Adjusted
EBITDA of the joint ventures. Innergex believes that the presentation of this measure enhances the understanding of the
Corporation's operating performance. Readers are cautioned that Adjusted EBITDA Proportionate should not be construed as
an alternative to net earnings, as determined in accordance with IFRS. Please refer to the "Investments in Joint Ventures"
section of this MD&A for the reconciliation of Adjusted EBITDA Proportionate.
References to "Adjusted Net Earnings" are to net earnings or losses of the Corporation, to which the following elements are
added (subtracted): unrealized net (gain) loss on financial instruments; realized (gain) loss on financial instruments; 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 on the profit and loss of
the Corporation. Innergex believes that the analysis and presentation of net earnings or loss on this basis enhances
understanding of the Corporation's operating performance. Readers are cautioned that Adjusted Net Earnings should not be
construed as an alternative to net earnings, as determined in accordance with IFRS. Please refer to the "Operating Results"
section of this MD&A for the reconciliation of Adjusted Net Earnings.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p55
(in thousands of Canadian dollars, except as noted and amounts per share)
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 L. P. for the wheeling services to be provided to other facilities owned by the Corporation over the course
of their power purchase agreement, 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. Innergex believes that presentation of this measure enhances the understanding
of the Corporation's cash generation capabilities, its ability to sustain current dividends and dividend increases and its ability
to fund its growth. Readers are cautioned that Free Cash Flow should not be construed as an alternative to cash flows from
operating activities, as determined in accordance with IFRS. Please refer to the "Free Cash Flow and Payout Ratio" section
of this MD&A for the reconciliation of Free Cash Flow.
References to “Payout Ratio” are to dividends declared on common shares divided by Free Cash Flow. Innergex believes that
this is a measure of its ability to sustain current dividends and dividend increase as well as its ability to fund its growth.
This MD&A contains references to the Alterra Power Corp. acquisition. Gross Adjusted EBITDA, Net Adjusted EBITDA and
Projected Revenues are not recognized under IFRS, have no standardized meaning prescribed by them 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 cash generation capabilities and facilitates the comparison of
results over different periods.
References in this document to "Gross Adjusted EBITDA" are to Projected Revenues less operating expenses, general and
administrative expenses and cost of power (if applicable), Readers are cautioned that Gross Adjusted EBITDA should not be
construed as an alternative to net earnings as determined in accordance with IFRS.
References in this document to "Net Adjusted EBITDA" corresponds to Gross Adjusted EBITDA multiplied by Innergex's
ownership interest in each facility.
References to "Projected Revenues" are to expected gross production of a project multiplied by the price of the associated
power purchase agreement, the projected merchant price of electricity or secured financial power hedge contract. In these
contracts, any pricing mechanisms that stipulate price adjustments depending on merchant prices reflect management's current
views and expectations, subject to change, of the merchant prices. (HS Orka Projected Revenues are calculated from total
generation produced by HS Orka multiplied by a mix of long- and short-term industrial and retail contracts as well as revenue
from hot and cold water sales and other revenues.)
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”), including the Corporation's power production, prospective projects,
successful development, construction and financing of the projects under construction and the advanced-stage prospective
projects, estimates of recoverable geothermal energy resources, business strategy, future development and growth prospects,
business integration, governance, business outlook, objectives, plans and strategic priorities, and other statements that are
not historical facts. 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 Adjusted EBITDA Proportionate, 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 Corporation's ability to sustain current dividends 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, geothermal resources and solar irradiation, performance of operating facilities, project
performance, economic, financial and financial market conditions, the Corporation’s success in developing new facilities,
expectations and assumptions concerning availability of capital resources.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p56
(in thousands of Canadian dollars, except as noted and amounts per share)
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 “Risk Factors” section of this Annual Information Form 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 the capital
markets; liquidity risks related to derivative financial instruments; variability in hydrology, geothermal resources, 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 renew any power purchase agreement; fluctuation affecting prospective power prices; 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; potential undisclosed liabilities associated with the Alterra Acquisition; failure to realize the anticipated benefits of the
Alterra Acquisition; integration of the Alterra Acquisition; 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; exposure to many different forms
of taxation in various jurisdictions; changes in general economic conditions; regulatory and political risks; ability to secure
appropriate land; reliance on PPAs; 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, geothermal and sun resources and associated electricity production; 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; 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; risks related
to U.S. production tax credits, changes in U.S. corporate tax rates and availability of tax equity financing; host country economic,
social and political conditions; risk inherent to geothermal resources; aluminum price risks; geological occurrences, rockslides,
avalanches or other occurrences outside the Corporation’s control; adverse claims to property title; unknown liabilities; reliance
on intellectual property and confidential agreements to protect our rights and confidential information.
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.
There are also risks inherent to the Alterra Transaction, including incorrect assessments of the value of the other entity. There
can be no assurance that the strategic, operational or financial benefits expected to result from the Alterra Transaction will be
realized.
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; for solar energy, the historical solar irradiation conditions, panel
technology and expected solar panel degradation; and for geothermal power, the historical
geothermal resources, natural depletion of geothermal resources over time, the technology
used and the potential of energy loss to occur before delivery. 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 Dokie 1, East Toba, Flat Top, Jimmie
Creek, Kokomo, Montrose Creek, Shannon, Spartan, Umbata Falls and Viger-Denonville,
which are accounted for using the equity method).
and
resources
Improper assessment of water, wind, sun and
geothermal
associated
electricity production
Variability in hydrology, wind regimes, solar
irradiation and geothermal resources
Natural depletion of geothermal resources
Equipment failure or unexpected operations
and maintenance activity
Natural disaster
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p57
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
Principal Risks and Uncertainties
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 Dokie 1, East Toba, Flat Top, Jimmie Creek, Kokomo,
Montrose Creek, Shannon, Spartan, Umbata Falls and Viger-Denonville, which are
accounted for using the equity method).
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 Dokie 1, East Toba, Flat Top, Jimmie
Creek, Kokomo, Montrose Creek, Shannon, Spartan, 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.
Projected Adjusted EBITDA Proportionate
On a consolidated basis, the Company estimates annual Adjusted EBITDA Proportionate by
adding to the projected Adjusted EBITDA Innergex's share of Adjusted EBITDA of the joint
ventures (Dokie 1, East Toba, Flat Top, Jimmie Creek, Kokomo, Montrose Creek, Shannon,
Spartan, Umbata Falls and Viger-Denonville).
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 Projected Free Cash Flow as projected cash flows from operating
activities 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 declared 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, 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.
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.
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.
Production levels below the LTA caused mainly
by the risks and uncertainties mentioned above
the
Unexpected seasonal variability
production and delivery of electricity
Lower-than-expected inflation rate
Changes in the purchase price of electricity
upon renewal of a PPA
in
Lower revenues caused mainly by the risks and
uncertainties mentioned above
Variability of facility performance and related
penalties
Unexpected maintenance expenditures
Lower revenues caused mainly by the risks and
uncertainties mentioned above
Variability of facility performance and related
penalties
Unexpected maintenance expenditures
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
Outcome of insurance claims
Adjusted EBITDA below expectations caused
mainly by the risks and uncertainties mentioned
above and by higher prospective project
expenses
Projects 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
Regulatory and political risks
Ability of the Corporation to execute its strategy
for building shareholder value
Ability to secure new PPAs
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p58
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
Principal Risks and Uncertainties
Alterra's Projected Revenues
For each facility, expected annual revenues are estimated by multiplying the expected
production by the price of the associated power purchase agreement or secured financial
power hedge contract. Any pricing mechanisms in these contracts that stipulate price
adjustment depending on merchant prices reflect management’s current views and
expectations, subject to change, of the merchant prices. HS Orka's Projected Revenues are
calculated from the total generation produced by the HS Orka assets multiplied by a mix of
long- and short-term industrial and retail contracts as well as revenue from hot and cold water
sales and other revenues. Projected Revenues excludes revenue generated from purchased
power subsequently resold. U.S. dollar and Icelandic króna figures are converted to Canadian
dollars at the USD-CAD rate of 1.289 and USD-ISK rate of 105.
levels below
Production
the expected
production caused mainly by the risks and
uncertainties mentioned above
Unexpected seasonal variability
production and delivery of electricity
Lower than expected inflation rate
Change in the purchase price of electricity upon
renewal of a PPA
Negative change of merchant price of electricity
Negative change of the currency exchange
rates
the
in
Alterra's Projected Gross Adjusted EBITDA and Net Adjusted EBITDA
For each facility, annual operating earnings are estimated by subtracting from the estimated
Projected Revenues the budgeted annual operating costs, which consist primarily of
operators’ salaries, insurance premiums, operating and maintenance expenditures, property
taxes and royalties; these are predictable and relatively fixed, varying mainly with inflation
(except for maintenance expenditures) and the cost of power (if applicable).
Lower revenues caused mainly by the risks and
uncertainties mentioned above
Variability of facility performance and related
penalties
Unexpected maintenance expenditures
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 power production 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 the Prospective
Projects and other capital expenditures will be financed out of cash generated from the Corporation’s operating facilities,
borrowing 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 or 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.
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, of foreign
currency variation or of electricity market price variation. The Corporation does not own or issue financial instruments for
speculation purposes.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p59
(in thousands of Canadian dollars, except as noted and amounts per share)
Variability in Hydrology, Geothermal Resources, Wind Regimes and Solar Irradiation
The amount of energy 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 watercourses on which the Corporation’s hydroelectric facilities are located. In the event
of severe flooding, the Corporation’s hydroelectric facilities may be damaged. Geothermal resources by their nature deteriorate
over time. There is no certainty that there will be sufficient geothermal fluids to maintain the resource or that generation of
power will permit maintenance of the resource as presently anticipated. Similarly, the amount of energy generated by the
Corporation’s wind farms will depend upon 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 energy to be generated by the Corporation’s solar
farm will depend on the availability of solar radiation, which is naturally variable. Lower solar irradiation levels at only Corporation’s
solar farm over an extended period may reduce the production from such facilities and the Corporation’s revenues and
profitability. Variability in hydrology, geothermal resources, wind regimes and solar irradiation and their predictability may also
be affected by climate changes which may provoke unforeseen changes in the historical trends.
Risks Inherent in Geothermal Resources
Until a geothermal resource is actually accessed and tested by production wells, the temperature and composition of
underground fluids must be considered estimates only. In addition, estimates as to the percentage of heat that can be expected
to be recovered at the surface and the efficiency of converting the heat into electrical energy are subject to a number of
assumptions including, but not limited to, resource base temperature, areal extent of the geothermal reservoir, thickness of the
geothermal reservoir, percentage of resource recovery and the expected lifetime of the geothermal reservoir.
Delays and Cost Overruns in the Design and Construction of Projects
Delays and cost over-runs may occur in completing the construction of the Development Projects, and the development and
construction of Prospective Projects and future projects that the Corporation will undertake. A number of factors which could
cause such delays or cost over-runs 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 faced by the Corporation. 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 processes or bilateral negotiations.
During these processes and negotiations, 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
that the Corporation will be successful in such negotiations or that existing PPAs will be renewed or will be renewed on equivalent
terms and conditions upon the expiry of their respective terms.
Fluctuations Affecting Prospective Power Prices
If the Corporation is unable to secure PPAs or power hedges for its development assets, or maintain or renew PPAs for its
producing assets or contract for the sale of 100% of generation, the Corporation may be forced to sell electrical power generated
at market price. Further, most of the output at the Shannon wind farm is, and once completed the Flat Top wind farm will be,
sold under a long-term power hedge agreement. All output not sold under the long-term power hedge agreement is subject to
merchant prices. If the Corporation is unable to produce sufficient power to meet its contractual obligations under its PPAs, the
Corporation will be forced to purchase third-party power at merchant prices. If the settlement point of the Corporation’s long-
term power hedge agreements differs from the point of interconnection, power sales pursuant to that power hedge are further
subject to locational risk. This potential difference in pricing is referred to as a “basis differential”. Depending on the specifics
of the power hedge, a large basis differential could require the Corporation to purchase third-party power at merchant prices,
or otherwise supplement the basis differential to the hedge provider. Power sales under power hedges are also required to be
sold in blocks of hourly periods. If the Corporation’s output within any given block is insufficient to meet its contractual
commitments, it may be required to purchase third party power at merchant prices to meet its commitments. This potential risk
is referred to as a “shape risk”.
The market price of power in individual jurisdictions can be volatile and may be incapable of being controlled. If the price of
electricity should drop significantly, in each of the cases described above, the economic prospects of the operational properties
that rely, in whole or in part, on merchant prices, such as Shannon, Miller Creek or development properties in which the
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p60
(in thousands of Canadian dollars, except as noted and amounts per share)
Corporation has an interest, could be significantly reduced or rendered uneconomic. The Corporation expects that the Flat Top
project will be subject to similar risks. A material reduction in such prices, or a non-material reduction in such prices coupled
with the impact of the aggregate risks described above, could have a material adverse effect on the Corporation’s financial
condition, in particular.
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, licences, permits and other approvals, and potential civil liability. Compliance with health, safety and
environmental laws (and any future changes) and the requirements of licences, 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 licences, 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, licences, permits or other approvals could have a significant impact on operations and/
or result in additional material expenditures. As a consequence, 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.
Uncertainties Surrounding the Development of New Facilities
The Corporation participates in the construction and development 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.
The Corporation is in some cases required to advance funds and post-performance bonds during development of its new
facilities. If some of these facilities are not completed or do not operate to the expected specifications, or unforeseen costs or
taxes are incurred, the Corporation could be adversely affected.
Obtainment of Permits
The Corporation does not currently hold all the approvals, licences 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
licences, 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 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 only takes
such actions where 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 regarding 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 due to 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
down times for maintenance and repair, or suffers disruptions of power generation 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 the electric power business. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p61
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial Leverage and Restrictive Covenants Governing Current and Future Indebtedness
The Corporation’s and its subsidiaries’ operations 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) certain of the
Corporation’s and its subsidiaries’ borrowings will be at variable rates of interest, which exposes the Corporation and its
subsidiaries to the risk of increased 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, equity
finance 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 or equity 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 consider appropriate or desirable.
Possibility That the Corporation May Not Declare or Pay a Dividend
Holders of Common Shares, Series A Shares and Series C Shares do not have a right to dividends on such shares unless
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 Corporations’ cash available for distribution is not sufficient or if there
are reasonable grounds for believing that (i) the Corporation is, or would after the 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, tax credits and other incentives to increase the portion of renewable energy
in their electricity generation supply mix 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.
Variability of Installation Performance and Related Penalties
The ability of the Corporation’s facilities to generate the maximum amount of power which can be sold to Hydro-Québec,
BC Hydro, the OPA, Électricité de France and other purchasers of electricity under PPAs is an important determinant of the
Corporation’s revenues. If one of the Corporation’s facilities delivers less than the required quantity of electricity in a given
contract year or is otherwise in default under its respective PPA, penalty payments may be payable to the relevant purchaser
by the Corporation. The payment of any such penalties by the Corporation could adversely affect the revenues and profitability
of the Corporation.
Exposure to Many Different Forms of Taxation in Various Jurisdictions
The Corporation is subject to many different forms of taxation in various jurisdictions throughout the world, including but not
limited to, income tax, withholding tax, tax on capital, property tax, sales tax, transfer tax, social security and other payroll
related taxes, which may be amended or may lead to disagreements with tax authorities regarding the application of tax law.
Tax law and administration is extremely complex and often requires the Corporation to make subjective determinations. The
computation of taxes involves many factors, including the interpretation of tax legislation in various jurisdictions in which the
Corporation is or may become subject to tax assessments. The Corporation’s estimate of tax related assets, liabilities, recoveries
and expenses incorporates significant assumptions. These assumptions include, but are not limited to, the tax rates in various
jurisdictions, the effect of tax treaties between jurisdictions and taxable income projections. To the extent that such assumptions
differ from actual results, the Corporation may have to record additional tax expenses and liabilities, including interest and
penalties.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p62
(in thousands of Canadian dollars, except as noted and amounts per share)
Changes in General Economic Conditions
Most of the PPAs of the Corporation have fixed price adjusted annually for inflation on a CPI formula basis. If the inflation is
lower than expected or if it decreases, the Corporation’s expected revenues and projected adjusted EDITDA and free cash
flow may be lower than expected or reduced which would respectively impact the payout ratio.
Reliance on various forms of PPAs
The power generated by the Corporation is mostly sold under long-term power purchase agreements and in some cases under
power hedges and commercial and retail contracts. If, for any reason, any of the purchasers of power under such PPAs were
unable or unwilling to fulfill their contractual obligations under the relevant PPA or if they refuse to accept delivery of power
pursuant to the relevant PPA, the Corporation’s business, operating results, financial condition or prospects could be adversely
affected. If the Development Projects are not brought into commercial operation within the delay stipulated in their respective
PPA or power hedges, the Corporation may be subject to penalty payments or the counterparty may be entitled to terminate
the related PPA or power hedges.
Foreign Market Growth and Development Risks
The Corporation may, regarding 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.
Foreign Exchange Fluctuations
The Corporation occasionally purchases equipment from foreign suppliers. As such, the Corporation may be exposed to changes
in the Canadian dollar in relation to the foreign currency denominated equipment purchases. Our development work and
operations in Canada, France, United States, Iceland and South America make us subject to foreign currency fluctuations.
Some of our revenue and costs are denominated in currencies other than the Canadian dollar. Foreign exchange fluctuations
may impact our results as they are reported in Canadian dollars.
Our functional and reporting currency is the Canadian dollar. As such, our foreign investments, operations costs and assets
will be exposed to net changes in currency exchange rates. Volatility in exchange rates could have an adverse effect on our
business, financial condition and operating results.
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 operating results.
Failure to Realize the Anticipated Benefits of Acquisitions
The Corporation believes that the acquisitions recently completed and to be completed will provide benefits for the Corporation.
However, there is a risk that some or all of the expected benefits may fail to materialize, or may not occur within the time periods
anticipated by the management of the Corporation. The realization of such benefits may be affected by a number of factors,
many of which are beyond the control of the Corporation.
Risks related to U.S. Production Tax Credits, Changes in U.S. Corporate Tax Rates and Availability of Tax Equity
Financing
The Corporation owns interest in projects for which on and off-site project activities are or were performed to qualify for United
States renewable tax incentives (production tax credits, or "PTCs"). There can be no assurance that the projects will qualify
for PTCs or, if they do, that they will qualify for full PTCs. There also can be no assurance that the PTCs will continue to be
available. Any new tax rule, regulation or other guidance promulgated (as the same may be amended, updated or otherwise
modified from time to time, including those amendments passed in late 2017) USA may jeopardize or otherwise impede the
effectiveness of such on and off-site project activities qualifying such projects for the full value of PTCs.
Qualification of the projects for PTCs is critical to obtaining tax equity financing for wind projects. The inability to qualify the
projects for PTCs, in whole or in part, would adversely affect the financing options for those projects. If the qualification of a
project for PTCs is not successful, there may be a material impairment of the Corporation’s investment in that project.
Other government actions could be taken that could, directly or indirectly, inhibit the Corporation’s ability to raise tax equity
financing. For example, following the tax reform enacted in late-2017, lower corporate tax rates in the United States may impact
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p63
(in thousands of Canadian dollars, except as noted and amounts per share)
the amount of available tax equity investment for specific projects or generally in the market, impeding our ability to obtain
sufficient amounts of tax equity investment on terms and at rates beneficial to the Corporation and its projects.
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, project
development costs and goodwill, 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.
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.
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 recoverable amount 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p64
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
ACCOUNTING CHANGES
Revised IFRS affecting the reported financial performance and financial position in 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 27 of the Notes to the Consolidated 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 do not have any impact on its consolidated financial
statements.
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 took training courses
in order to start evaluating the impact this standard is expected to have on its consolidated financial statements. The Corporation
has reviewed the amendments of this standard and has concluded that it will not have a significant impact 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. The Corporation has reviewed this standard and has concluded that it will not have a significant impact
on its consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p65
(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. The Corporation has
reviewed this standard and has concluded that it will not have a significant impact 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 took training courses in
order to start evaluating the impact this standard is expected to have on its consolidated financial statements. Identification of
the leases to which this standard might apply has begun.
ESTABLISHMENT AND MAINTENANCE OF DISCLOSURE CONTROLS AND
PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
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 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 made known to the President and Chief Executive Officer and the Chief Financial Officer by
others, particularly during the period in which the 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
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.
The President and Chief Executive Officer and the Chief Financial Officer of the Corporation have evaluated, or caused to be
evaluated under their supervision, the effectiveness of the Corporation's DC&P and ICFR as at December 31, 2017, and have
concluded that they were effective at the financial year end. There were no significant weakness relating to the design and
operation of DC&P and no material weaknesses relating to the design and operation of ICFR at the financial year end. During
the period beginning on October 1, 2017 and ended on December 31, 2017, there was no change to the ICFR that has materially
affected, or is reasonably likely to materially affect, the Corporation's ICFR.
They have also limited the scope of the Corporation's design of DC&P and ICFR to exclude the controls, policies and procedures
of Energies du Plateau Central (Rougemont-1), Energies du Plateau Central 2 (Rougemont-2), Energie du Rechet (Vaite), Éole
de Plan Fleury and Les Renardières (collectively "entities excluded from the Corporation's control policies and procedures").
The evaluation of the design and the operating effectiveness of the DC&P and ICFR for these entities will be completed in the
12 months following their dates of acquisition. A summary of the financial information about the entities excluded is presented
in the "Non-wholly Owned Subsidiaries" section of this MD&A.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p66
(in thousands of Canadian dollars, except as noted and amounts per share)
SUBSEQUENT EVENTS
Acquisition of Alterra Power Corp.
On February 6, 2018, Innergex announced the completion of the acquisition of Alterra by way of an arrangement agreement
pursuant to which Innergex acquired all of the issued and outstanding common shares of Alterra for an aggregate consideration
of $1.1 billion, including the assumption of Alterra's debt (the "Transaction"). Pursuant to the Transaction, Alterra shareholders
had the right to elect to receive either $8.25 in cash (“Cash Alternative”) or 0.5563 Innergex common shares (“Share Alternative”)
for each Alterra common share, subject in each case to the pro-ration, such that the aggregate consideration paid to all Alterra
shareholders consisted of approximately 25% in cash and 75% in Innergex common shares.
The Innergex common shares that were issuable to Alterra shareholders with the transaction represent an ownership of
approximately 18% of the combined corporation. One member of the Board of Directors of Alterra joined the Board of Directors
of Innergex at the closing of the Transaction.
Support from la Caisse de dépôt et placement du Québec
Concurrently with the closing of the Alterra acquisition, Innergex closed a $150 million subordinated unsecured 5-year term
loan at a 5.13% interest rate with la Caisse de dépôt et placement du Québec.
Increase to the revolving credit facilities
On February 6, 2018, the Corporation announced that it had increased its revolving credit facilities by $225 million to $700 million
and added a new lender to the syndicate of lenders. The maturity of the revolving credit facilities remains December 2022.
Decision rendered on water rights
On January 14, 2014, Harrison Hydro Project Inc., Fire Creek Project Limited Partnership, Lamont Creek Project Limited
Partnership, Stokke Creek Project Limited Partnership, Tipella Creek Project Limited Partnership and Upper Stave Project
Limited Partnership (the "Appellants") filed appeals with the Environmental Appeal Board challenging a determination by the
Comptroller of the Water Rights respecting the water rental rates to be charged under the Water Act R.S.B.C. 1996, c. 483 in
respect of the Fire Creek Facility, Lamont Creek Facility, Stokke Creek Facility, Tipella Creek Facility and Upper Stave River
Facility. On December 8, 2015, the Environmental Appeal Board Decision issued its decision rejecting the appeal. On
January 20, 2016, an application for judicial review was filed to the British Columbia Supreme Court ("BCSC"). On February 27,
2017, the BCSC declined to set aside the Environmental Appeal Board Decision. On March 21, 2017, the Appellants filed an
appeal of the BCSC decision and on February 8, 2018, in a split decision, the British Columbia Court of Appeal refused to set
aside the BCSC decision. The Appellants are currently analysing the possibility of filing a petition for permission to appeal to
the Supreme Court of Canada. The outcome of the judicial review could affect the expenses of these entities on an annual
basis going forward which would represent an approximately $1.6 million aggregate increase for water rights. The amount for
such potential increase water rights rentals was included in the years 2013, 2014, 2015 and 2016 results of the Corporation,
which owns a 50.0024% indirect interest in those facilities.
Innergex Renewable Energy Inc.
Annual Report 2017
Management's Discussion and Analysis p67
(in thousands of Canadian dollars, except as noted and amounts per share)
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 21, 2018
Innergex Renewable Energy Inc.
Annual Report 2017
Responsibility for Financial Reporting p68
(in thousands of Canadian dollars, except as noted and amounts per share)
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, 2017 and December 31, 2016 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, 2017 and December 31, 2016, 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 21, 2018
_________________________
1 CPA auditor, CA, public accountancy permit No. A111405
Innergex Renewable Energy Inc.
Annual Report 2017
Independent Auditor's Report p69
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF EARNINGS
Revenues
Expenses
Operating
General and administrative
Prospective projects
Earnings 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
Income taxes expenses
Current
Deferred
Net earnings
Net earnings attributable to:
Owners of the parent
Non-controlling interests
Weighted average number of common shares outstanding (in
000s)
Basic net earnings per share ($)
Diluted weighted average number of common shares outstanding
(in 000s)
Diluted net earnings per share ($)
Notes
6
7
8
6,18
6,19
9
10
11
11
28
12
12
12
12
Year ended December 31
2017
2016
400,263
292,785
71,672
17,806
12,057
298,728
146,766
2,453
149,509
92,762
36,667
(4,638)
(2,245)
26,963
4,141
3,154
7,295
19,668
30,007
(10,339)
19,668
108,427
0.22
109,247
0.22
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Earnings p70
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS)
INCOME
Net earnings
Items of comprehensive income (loss) that will be subsequently
reclassified to earnings:
Foreign exchange gain (loss) on translation of self-sustaining
foreign subsidiaries
Related deferred tax
Notes
26
Foreign exchange gain on the designated hedges on the
investments in self-sustaining foreign subsidiaries
Related deferred tax
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 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
Change in fair value of hedging instruments
Related deferred tax
Other comprehensive income (loss)
Total comprehensive income
Other comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Year ended December 31
2017
2016
19,668
32,043
27
(60)
69
147
15,047
(4,172)
815
(201)
320
(323)
1,260
(98)
12,831
32,499
11,672
1,159
12,831
41,679
(9,180)
32,499
(872)
91
296
(17)
408
(74)
1
—
(253)
9
(55)
14
(452)
31,591
(167)
(285)
(452)
35,796
(4,205)
31,591
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Comprehensive Income (Loss) p71
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash and short-term investments
Accounts 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, 2017
December 31, 2016
Notes
15
16
10
17
18
19
9
10
11
20
61,914
58,676
87,500
5,416
8,104
221,610
49,970
3,188,238
654,081
11,011
9,558
11,873
38,580
5,535
4,190,456
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Financial Position p72
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
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 income (loss)
Equity attributable to owners
Non-controlling interests
Total shareholders’ equity
Notes
21
11
10
22
23
10
22
23
24
11
25 a)
25 b)
25 c)
25 d)
26
28
December 31, 2017
December 31, 2016
19,406
91,032
3,282
22,749
109,875
500
246,844
54,494
—
3,047,583
79,507
96,246
215,593
3,740,267
2,867
939,047
131,069
1,713
1,877
(651,233)
9,929
435,269
14,920
450,189
4,190,456
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
162,862
775,413
131,069
2,199
1,877
(601,157)
(1,743)
470,520
14,712
485,232
3,604,204
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Financial Position p73
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2017
Common
shares
capital
account
Contributed
surplus
from
reduction of
capital on
common
shares
Equity attributable to owners
Preferred
shares
Share-
based
payment
Equity
portion of
convertible
debentures
Deficit
Accumulated
other
comprehensive
(loss) income
Total
Non-
controlling
interests
Total
shareholders’
equity
Balance January 1, 2017
162,862
775,413
131,069
2,199
1,877
(601,157)
(1,743)
470,520
14,712
485,232
Net earnings (loss)
30,007
30,007
(10,339)
19,668
Other items of comprehensive income
11,672
11,672
1,159
12,831
Total comprehensive income (loss)
—
—
—
—
—
30,007
11,672
41,679
(9,180)
32,499
Common shares issued through
dividend reinvestment plan
Reduction of capital on common
shares (Note 25b)
5,135
(166,460)
166,460
Share buyback of common shares
(1)
(471)
Share-based payment
Common shares options exercised
(Note 25d)
1,335
99
(585)
(4)
(2,355)
Shares purchased - PSP plan
Distributions to non-controlling
interests
Investments from non-controlling
interests
Dividends declared on common
shares
Dividends declared on preferred
shares
(305)
(1,234)
(981)
(71,621)
(5,942)
5,135
—
(777)
99
(484)
(3,340)
—
—
(71,621)
(5,942)
Balance December 31, 2017
2,867
939,047
131,069
1,713
1,877
(651,233)
9,929
435,269
14,920
The accompanying notes are an integral part of these audited consolidated financial statements.
5,135
—
(777)
99
(484)
(3,340)
(7,458)
(7,458)
16,846
16,846
(71,621)
(5,942)
450,189
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Changes in Shareholders' Equity p74
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2016
Equity attributable to owners
Common
shares
capital
account
Contributed
surplus from
reduction of
capital on
common
shares
Preferred
shares
Share-
based
payment
Equity
portion of
convertible
debentures
Deficit
Accumulated
other
comprehensive
loss
Total
Non-
controlling
interests
Total
shareholders’
equity
Balance January 1, 2016
108,541
775,413
131,069
2,174
1,877
(567,848)
(1,576)
449,650
21,907
471,557
35,963
35,963
(3,920)
32,043
Net earnings (loss)
Other items of comprehensive loss
Total comprehensive income (loss)
—
—
—
—
—
35,963
Common shares issued on April 15, 2016:
private placement
Common shares issued through dividend
reinvestment plan
Share-based payment
50,000
3,209
Common shares options exercised
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)
(167)
(167)
(167)
(285)
(452)
35,796
(4,205)
31,591
50,000
3,209
103
1,034
—
(7,388)
5,194
4,398
(68,524)
(5,942)
50,000
3,209
103
1,034
(7,388)
9,592
(68,524)
(5,942)
Balance December 31, 2016
162,862
775,413
131,069
2,199
1,877
(601,157)
(1,743)
470,520
14,712
485,232
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Changes in Shareholders' Equity p75
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net earnings
Items not affecting cash:
Depreciation
Amortization
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
(Gain) loss on contingent considerations
Distributions received from joint ventures
Current income tax expense
Net income taxes paid
Effect of exchange rate fluctuations
Notes
18
19
9
10
7
7
7
7
7
8
Changes in non-cash operating working capital items
27
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 buyback of common shares
Proceeds from issuance of common shares
Proceeds from exercise of share options
28
23
25
25 d)
Year ended December 31
2017
2016
19,668
32,043
92,762
36,667
(4,638)
(2,245)
3,910
2,980
1,404
1,664
(385)
3,154
607
134,420
(125,825)
(881)
3,201
4,141
(2,583)
648
168,669
23,782
192,451
(65,875)
(5,942)
(7,458)
16,842
668,856
(576,187)
(1,161)
(246)
(4,119)
—
—
24,710
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Cash Flows p76
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes
5
5
17
INVESTING ACTIVITIES
Cash acquired on business acquisitions
Business acquisitions
Decrease of restricted cash and short-term investments
Net funds (invested into) withdrawn from the reserve accounts
Additions to property, plant and equipment
Investments in joint ventures
Reductions of (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 in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Cash and cash equivalents is comprised of:
Cash
Short-term investments
Additional information is presented in Note 27.
Year ended December 31
2017
2016
5,335
(152,797)
70,203
(85)
(135,656)
—
1,020
24
(211,956)
482
5,687
56,227
61,914
60,695
1,219
61,914
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Consolidated Statements of Cash Flows p77
(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 1225 St-Charles Street West, 10th floor, Longueuil, Qc, J4K 0B9, Canada.
These consolidated financial statements were approved by the Board of Directors on February 21, 2018.
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 IFRS
2.1 Revised IFRS affecting the reported financial performance and financial position in 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 27.
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 do not have any impact
on its consolidated financial statements.
2.2 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 took training courses in order to start evaluating the impact this standard is expected to have on its consolidated
financial statements. The Corporation has reviewed the amendments of this standard and has concluded that it will not
have a significant impact on its consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p78
(in thousands of Canadian dollars, except as noted and amounts per share)
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. The Corporation has reviewed this standard and has concluded that it will not
have a significant impact 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.
The Corporation has reviewed this standard and has concluded that it will not have a significant impact 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 took training courses in order to start evaluating the impact this standard is expected to have on its consolidated
financial statements. Identification of the leases to which this standard might apply has begun.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p79
(in thousands of Canadian dollars, except as noted and amounts per share)
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 that the Corporation controls are consolidated from the effective date of acquisition up to the effective
date of disposal or loss of control.
Details of the Corporation's significant subsidiaries at the end of the reporting period are set out below.
Name of subsidiaries
Principal activity
Place of
creation and
operation
Proportion of
ownership interest
and voting rights
held by the
Corporation
Harrison Hydro L.P. and its
subsidiaries
Own and operate hydroelectric facilities
Creek Power Inc. and its subsidiaries Own and operate hydroelectric facilities
Kwoiek Creek Resources L.P. 1
Own and operate a hydroelectric facility
Ashlu Creek Investments Limited
Partnership
Innergex Inc.
Big Silver Creek Power Limited
Partnership
Own and operate a hydroelectric facility
Own and operate hydroelectric facilities
Own and operate a hydroelectric facility
Innergex Sainte-Marguerite S.E.C.
Own and operate a hydroelectric facility
Canada
Canada
Canada
Canada
Canada
Canada
Canada
50.01%
66.67%
50.00%
100.00%
100.00%
100.00%
50.01%
Tretheway Creek Power Limited
Partnership
Mesgi'g Ugju's'n (MU) Wind Farm
L.P. 2
Innergex GM, L.P. (3)
Stardale Solar LP
Innergex Europe (2015) Limited
Partnership and its subsidiaries
Own and operate a hydroelectric facility
Own and operate a wind facility
Own and operate a wind facility
Own and operate a solar facility
Own and operate wind facilities
Canada
100.00%
Canada
Canada
Canada
50.00%
100.00%
100.00%
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.
3. The Corporation owns through the Limited Partnership a 38% ownership interest in the assets, liabilities, revenues and expenses
and 50% voting rights of the joint operations.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p80
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p81
(in thousands of Canadian dollars, except as noted and amounts per share)
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
three months 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 three 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 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. A third reserve is the dismantlement reserve aiming to have sufficient funding available
for decommissioning the wind farm at the end of the project. The availability of the funds in the reserve accounts may be
restricted by credit agreements.
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.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p82
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
As of October 1, 2017, the Corporation changed the useful life for the depreciation period for some components of the
property, plant and equipment assets mainly related to certain Quebec wind farms facilities. The estimated useful life of
the speed increasers and the blades, which were formerly equal to 15 and 20 years respectively, were increased to 20
and 25 years, which reflects the state of the assets and the predictive maintenance conducted. This change in estimates
was recorded prospectively. The estimated annual impact of this change in accounting estimates is a decrease of $2,932
in annual depreciation expense for the next 12 months. The impact of this change for the period ended December 31,
2017, is a $733 decrease in depreciation expense.
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 2092
2021 to 2042
2032 to 2037
2018 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 where allowable. 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 were also including the cost of extended warranties for wind farm equipments; these costs
were amortized over the warranty period ending in 2016.
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.
The useful life used to calculate amortization is as follows:
Intangible assets related to:
Hydroelectric facilities
Wind farm facilities
Solar facility
Ending years of
amortization period
2018 to 2081
2024 to 2032
2032
Useful life for the
amortization period
4 to 75 years
8 to 20 years
20 years
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p83
(in thousands of Canadian dollars, except as noted and amounts per share)
Project development costs
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.
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 an after-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.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p84
(in thousands of Canadian dollars, except as noted and amounts per share)
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 into other liabilities 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 into other 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.
(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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p85
(in thousands of Canadian dollars, except as noted and amounts per share)
(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.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p86
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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
for the first 10 years following commisionning of each facility. The Ashlu Creek, Fitzsimmons Creek, Douglas Creek, Fire
Creek, Stokke Creek, Tipella Creek, Lamont Creek, Upper Stave River, Magpie River (ended in June 2017) and Umbata
Falls hydro facilities and the Carleton, Baie-des-Sables (ended in March 2017) and L'Anse-à-Valleau wind farms are entitled
to the subsidies. As per the electricity purchase agreements, the Corporation must transfer 75% of the Carleton, Baie-des-
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p87
(in thousands of Canadian dollars, except as noted and amounts per share)
Sables and L'Anse-à-Valleau wind farms subsidies to Hydro-Québec. Gross EcoEnergy subsidies of $11,177 ($15,227 in
2016) 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.
Performance share plan (“PSP plan”)
The Corporation measures equity-settled action 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 shares that will eventually vest and a corresponding liability is recorded. For shares that are forfeited before
vesting, the expense that had previously been recognized is reversed. When shares are purchased by the Fiduciary on
the secondary market, the corresponding fair value is debited to common shares capital. On the vesting date, each
performance share right entitles its holder to one common share of the Corporation with all the reinvested dividends accrued
thereon from the grant date. When paid, the corresponding fair value is credited from the common share capital against
the corresponding liability.
Cash settled share-based payment
Under the Corporation’s Deferred Share Unit Plan (the “DSU Plan”), Directors and officers may elect to receive all or any
portion of their compensation in DSUs in lieu of cash compensation. The Corporation cash-settled share-based payments
are measured at fair value at the grand date with a corresponding liability. Until the liability is settled, the fair value of the
liability is remeasured at the end of each reporting period and at the date of settlement, with any changes in fair value
recognized in income. DSUs cannot be redeemed for cash until the Director leaves the Board or the officer leaves.
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p88
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation formally documents these hedges. On a quarterly basis, the Corporation reviews the hedges to ensure
that they effectively offset the translation gains or losses arising from its investment in its U.S. and its Euro functional
currencies foreign operations.
The exchange rates for the currencies used in the preparation of the consolidated financial statements were as follow:
Exchange rates as at
Average exchange rates for fiscal years
December 31, 2017
1.5052
1.2545
December 31, 2016
1.4169
1.3427
2017
2016
1.4652
1.2980
1.4380
1.3256
Euro
US dollar
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, project development costs and goodwill, 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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p89
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 recoverable amount 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p90
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p91
(in thousands of Canadian dollars, except as noted and amounts per share)
5. BUSINESS ACQUISITIONS
a. Acquisition of Yonne wind facility
On February 21, 2017, the Corporation finalized the acquisition of an operating wind facility located in France ("Yonne").
The purchase price for the wind power project was a net cash consideration of €35,184 (all amounts in € are in thousands
of €) ($48,983). A €10,000 ($13,922) deposit had already been provided by the Corporation in the year 2016.
All power generated from the operating facility is sold to Electricité de France.
Additional cash flows generated from the asset acquired are expected to further increase the Corporation's liquidity and
flexibility to fund the development of future projects. Yonne added an additional gross installed capacity of 44 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%.
The following table reflects the final allocation of the purchase price to the fair value of the net assets acquired:
Cash and cash equivalents
Accounts receivable
Prepaid and others
Property, plant and equipment
Intangible assets
Goodwill
Accounts payable and other payables
Long-term debt
Derivative financial instruments
Asset retirement obligations
Deferred tax liabilities
Net assets acquired
Preliminary
purchase price
allocation
previously
disclosed
Subsequent
adjustments
Final purchase price
allocation
3,583
12,936
351
76,629
24,138
—
(712)
(72,753)
(683)
(1,855)
(6,450)
35,184
—
—
—
1,542
(6,446)
4,539
—
—
—
(1,546)
1,911
—
3,583
12,936
351
78,171
17,692
4,539
(712)
(72,753)
(683)
(3,401)
(4,539)
35,184
$
4,989
18,009
488
108,830
24,631
6,319
(991)
(101,287)
(951)
(4,735)
(6,319)
48,983
Adjustments have been made to reflect the final valuation of some elements of the purchase price allocation.
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, 2017, the consolidated revenues and net earnings for the year ended
December 31, 2017 would have been $401,724 and $20,284 respectively.
The amounts of revenues and net loss of the facilities since February 21, 2017 included in the consolidated statement of
earnings are $8,470 and $13 respectively for the 314 days ended December 31, 2017.
b. Acquisition of Rougemont 1-2 and Vaite wind facilities
On May 24, 2017, the Corporation finalized the acquisition of Rougemont 1-2 and Vaite projects located in France
("Rougemont 1-2 and Vaite"). The purchase price for Rougemont 1-2 and Vaite is a cash consideration of €51,380 (all
amounts in € are in thousands of €) ($77,773), subject to certain adjustments.
All power generated from the operating facilities is sold to Electricité de France.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p92
(in thousands of Canadian dollars, except as noted and amounts per share)
€
€
€
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. Rougemont 1-2 and Vaite added an additional gross installed capacity
of 119,5 MW to the Corporation's portfolio of wind farms.
The Corporation owns a 69.55% interest in the project and the RRMD owns the remaining 30.45%.
The following table reflects the adjusted preliminary allocation of the purchase price to the fair value of the net assets
acquired:
Cash and cash equivalents
Restricted cash and short term investments
Accounts receivable
Prepaid and others
Property, plant and equipment
Intangible assets
Goodwill
Accounts payable and other payables
Income tax payable
Long-term debt
Derivative financial instruments
Asset retirement obligations
Deferred tax liabilities
Net assets acquired
Preliminary
purchase price
allocation
previously
disclosed
Subsequent
adjustments
Adjusted preliminary
purchase price allocation
45
6,443
4,699
52
165,183
39,833
—
(5,612)
(252)
(138,551)
(6,645)
(2,944)
(10,871)
51,380
—
—
—
—
779
(5,047)
7,827
(6,076)
(779)
3,296
—
45
6,443
4,699
52
165,962
34,786
7,827
(5,612)
(252)
(144,627)
(6,645)
(3,723)
(7,575)
51,380
$
68
9,752
7,113
79
251,217
52,656
11,848
(8,495)
(382)
(218,922)
(10,059)
(5,636)
(11,466)
77,773
Adjustments have been made to reflect the updated valuation of some elements of the purchase price allocation. The
purchase price allocation remains subject to the completion of the valuation of working capital adjustments, intangible assets,
goodwill, long-term debt 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, 2017, the consolidated revenues and net earnings for the year ended
December 31, 2017 would have been $404,341 and $21,611 respectively.
The amounts of revenues and net earnings of the facilities since May 24, 2017 included in the consolidated statement of
earnings are $14,113 and $1,572 respectively for the 221 days ended December 31, 2017.
c. Acquisition of Plan Fleury and Les Renardières wind facilities
On August 25, 2017, the Corporation finalized the acquisition of Plan Fleury and Les Renardières projects located in France
("Plan Fleury and Les Renardières"). The purchase price for Plan Fleury and Les Renardières is a cash consideration of
€27,352 (all amounts in € are in thousands of €) ($40,839), subject to certain adjustments.
All power generated from the operating facilities is sold to Electricité 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. Plan Fleury and Les Renardières added an additional gross installed
capacity of 43 MW to the Corporation's portfolio of wind farms.
The Corporation owns a 69.55% interest in the project and the RRMD owns the remaining 30.45%.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p93
(in thousands of Canadian dollars, except as noted and amounts per share)
€
€
€
The following table reflects the preliminary allocation of the purchase price to the fair value of the net assets acquired:
Cash and cash equivalents
Restricted cash and short term investments
Accounts receivable
Prepaid and others
Property, plant and equipment
Intangible assets
Goodwill
Accounts payable and other payables
Long-term debt
Deferred tax liabilities
Net assets acquired
Preliminary
purchase price
allocation
previously
disclosed
Subsequent
adjustments
Adjusted preliminary
purchase price allocation
186
19,639
13,123
168
67,579
37,498
—
(24,690)
(75,107)
(11,044)
27,352
(11,044)
7,772
3,272
—
186
19,639
13,123
168
67,579
26,454
7,772
(24,690)
(75,107)
(7,772)
27,352
$
277
29,322
19,595
250
100,903
39,499
11,604
(36,865)
(112,142)
(11,604)
40,839
Adjustments have been made to reflect the updated valuation of some elements of the purchase price allocation. The
purchase price allocation remains subject to the completion of the valuation of working capital adjustments, intangible assets,
goodwill, long-term debt 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, 2017, the consolidated revenues and net earnings for the year ended
December 31, 2017 would have been $400,263 and $19,628 respectively.
The amounts of revenues and net earnings of the facilities since August 25, 2017 included in the consolidated statement
of earnings are $3,280 and $1,309 respectively for the 129 days ended December 31, 2017.
d. 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 was a net cash consideration
of €16,123 ($22,698), subject to certain adjustments. In December 2017, an adjustment of €582 ($876) has been made to
the purchase price and the calculation of asset retirement obligations was finalized.
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p94
(in thousands of Canadian dollars, except as noted and amounts per share)
€
€
€
The following table reflects the final 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
previously
disclosed
79
9,022
6
1,400
43,858
14,410
(12,271)
(34,235)
(1,312)
(4,834)
16,123
Subsequent
adjustments
Final purchase price allocation
—
—
—
—
1,200
(740)
(1,200)
158
(582)
79
9,022
6
1,400
45,058
13,670
(12,271)
(34,235)
(2,512)
(4,676)
15,541
$
111
12,700
8
1,971
63,429
19,171
(17,274)
(48,193)
(3,535)
(6,566)
21,822
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).
e. Acquisition of 7 operating wind facilities in France
The final valuation of the April 2016 acquisition of 7 operating wind facilities has been made and no adjustment was required
to the purchase price allocation since the latest annual report.
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
Final purchase price allocation
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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p95
(in thousands of Canadian dollars, except as noted and amounts per share)
€
€
€
€
6. OPERATING EXPENSES
Salaries
Insurance
Operation and maintenance
Property taxes and royalties
Year ended December 31
2017
2016
5,287
4,308
32,190
29,887
71,672
4,421
2,894
22,398
21,756
51,469
Depreciation and amortization recorded in the consolidated statements of earnings are mainly related to operating expenses
incurred to generate revenues.
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 gain on foreign exchange
(Gain) loss on contingent considerations 23 a)
Other net revenues
Loss on disposal of property, plant and equipment
Recovery of loan impairment
Year ended December 31
2017
2016
134,420
3,910
2,980
1,404
1,664
2,388
146,766
Year ended December 31
2017
2016
6,450
(910)
(881)
(2,644)
888
(450)
2,453
86,687
4,207
1,194
1,442
551
1,173
95,254
2,547
(1,008)
800
(1,599)
—
(475)
265
9. INVESTMENTS IN JOINT VENTURES
9.1 Details of material joint ventures
Details of the Corporation's material joint ventures at the end of the reporting periods are as follows:
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p96
(in thousands of Canadian dollars, except as noted and amounts per share)
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,
2017
49%
December 31,
2016
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.
Umbata Falls, L.P.
Summary Statements of Earnings and Comprehensive Income
Revenues
Operating, general and administrative expenses
Finance costs
Other net expenses (revenues)
Depreciation and amortization
Unrealized net gain 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
2017
2016
11,645
1,307
10,338
2,392
23
4,016
(2,056)
5,963
9,429
938
8,491
2,507
(31)
4,017
(526)
2,524
December 31, 2017
1,620
1,930
3,550
December 31, 2016
1,010
1,080
2,090
60,658
64,208
198
3,314
3,512
40,924
19,772
64,208
64,647
66,737
138
2,895
3,033
46,173
17,531
66,737
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
Proportion of the Corporation's ownership interest in the joint
venture
Carrying amount of the Corporation's interest in the joint
venture
December 31, 2017
19,772
December 31, 2016
17,531
49%
9,688
49%
8,590
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p97
(in thousands of Canadian dollars, except as noted and amounts per share)
Umbata Falls, L.P. 's Debt
The loan consist of a five-year term loan, amortized over a 18.5-year period starting 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 are increased by a cash flow sweep calculated as follow: the percentage of excess of actual production
over the forecasted 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, 2017, 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 $64,208.
Umbata Falls, L.P. holds an amortizing interest rate swap contract of $41,621 as at December 31, 2017 ($43,005 in
2016), 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 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
2017
2016
10,998
1,899
9,099
3,466
(40)
2,815
(704)
3,562
1,501
5,063
10,293
1,844
8,449
3,635
(30)
2,923
(658)
2,579
2
2,581
December 31, 2017
1,760
1,245
3,005
December 31, 2016
840
1,409
2,249
53,812
56,817
744
3,611
4,355
49,920
2,542
56,817
56,583
58,832
446
3,929
4,375
54,223
234
58,832
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture
recognized in the consolidated financial statements:
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p98
(in thousands of Canadian dollars, except as noted and amounts per share)
As at
Net assets of the joint venture
December 31, 2017
2,542
December 31, 2016
234
Proportion of the Corporation's ownership interest in the joint
venture
Carrying amount of the Corporation's interest in the joint
venture
50%
1,271
50%
117
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 $2,864 for 2018. The lenders also agreed to make available
a letter of credit facility in an amount not to exceed $984. As at December 31, 2017, an amount of $984 has been
used to secure one letter of credit. These loans are secured by Viger-Denonville, L.P's assets with a carrying value
of $56,817.
Viger-Denonville, L.P. holds an amortizing interest rate swap contract of $49,262 as at December 31, 2017 ($51,847
in 2016), maturing in 2031 and bearing an interest rate of 3.40%.
9.2 Commitments of joint ventures
As at December 31, 2017, 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
2018
2019
2020
2021
2022
Thereafter
Total
Umbata Falls, L.P.
Hydroelectric Generation Wind Power Generation
240
243
246
249
252
2,356
3,586
2
2
2
2
2
37
47
Total
242
245
248
251
254
2,393
3,633
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 and bond forwards 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 $6,086. Conversely, a decrease in
swap rates curve of 0.1% would result in an increase of $6,267 of the negative fair value of these financial instruments.
The estimated impact of an increase of 1% in the euro exchange rate against the Canadian dollar would increase the
negative fair value of these financial instruments by $3,541. Conversely, a decrease in the euro exchange rate against the
Canadian dollar of 1.0% would result in a positive fair value of $3,541 of these financial instruments.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p99
(in thousands of Canadian dollars, except as noted and amounts per share)
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, 2017
over the remaining terms of these agreements, discounted at a rate of 3.11%. The expected impact of a 0.1% increase
in the long-term inflation rate would reduce the fair value of these financial instruments by $172 a 0.1% decrease in
the long-term inflation rate would increase the fair value of these financial instruments by $172.
The classification of the fair value hierarchy of all the financial assets and liabilities remained the same during 2017.
Financial assets (liabilities)
As at January 1, 2017
Derivatives acquired on business acquisitions (Note 5)
Variation in fair value of derivative financial
instruments in statement of earnings 1
Variation in fair value of derivative financial
instruments recognized in other comprehensive
income
Net foreign exchange differences
As at December 31, 2017
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Inflation
provisions
(Level 3)
Total
(8)
—
(62,790)
2,707
(60,091)
(11,010)
—
(11,010)
(16,224)
10,798
(972)
(6,398)
(1,062)
—
(17,294)
16,307
(15)
(46,710)
—
—
1,735
15,245
(15)
(62,269)
1. On the statement of earnings, a gain of $8,643 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)
As at January 1, 2016
Derivatives acquired on business acquisitions (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.
Reported in the consolidated statements of financial position:
As at
Current assets – derivative financial instruments
Non-current assets – derivative financial instruments
Current liabilities – derivative financial instruments
Non-current liabilities – derivative financial instruments
December 31, 2017
December 31, 2016
5,416
9,558
(22,749)
(54,494)
(62,269)
1,527
8,117
(14,541)
(55,194)
(60,091)
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p100
(in thousands of Canadian dollars, except as noted and amounts per share)
Interest rate risk
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, 0.96%
Interest rate swaps, 4.27% to 4.41%
Bond forwards, 1.74%
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 swaps, 2.1825%
Interest rate swaps, 2.325%
Interest rate swaps, 2.3275%
Interest rate swap, 3.74%, amortizing
Interest rate swap, 4.22%, amortizing
Interest rate swap, 2.64%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 4.25%, amortizing
Interest rate swap, 0.78%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 1.302%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 1.303%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 1.475%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 1.277%, amortizing, translated
at CAD 1.5052/Euro
Interest rate swap, 4.61%, amortizing
Interest rate swap, 2.85%, amortizing
Maturity
Early
termination
option
Notional Amounts
December 31,
2017
December 31,
2016
2017
2018
2018
2024
2024
2026
2026
2027
2027
2028
2028
2030
2030
2030
2031
2031
2032
2032
2032
2032
2035
2041
None
None
None
2019
2019
None
None
None
2022
2022
2022
None
2021
None
2018
None
None
None
None
None
2025
2021
—
82,600
50,000
20,000
20,000
98,056
39,151
29,831
20,000
30,000
52,600
79,947
23,361
15,537
37,035
67,132
71,620
43,553
13,753
77,024
92,455
18,314
981,969
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
During the year, the Corporation entered into hedge agreements to mitigate the risk of fluctuations in the interest rates on
its long-term debt.
The wind farms acquired in 2017 hold interest rate swaps to mitigate the risk of fluctuations in the interest
rates on their long-term debts. Hedge accounting is applied on these contract. Rates on contracts represent the interest
rate, excluding the applicable margin on the debts.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p101
(in thousands of Canadian dollars, except as noted and amounts per share)
Foreign exchange risk
As part of the Yonne, Rougemont 1-2 and Vaite and Plan Fleury and Les Renardières Acquisitions, 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
Foreign exchange forwards amortizing until 2041,
allowing translation at a fixed rate of CAD 1.7150/
Euro
Foreign exchange forwards amortizing until 2043,
allowing translation at a fixed rate of CAD 1.7890/
Euro
Foreign exchange forwards amortizing until 2043,
allowing translation at a fixed rate of CAD 1.80110/
Euro
Maturity
Early
termination
option
Notional Amounts
December 31,
2017
December 31,
2016
2018
None
162,881
164,375
2018
None
50,671
52,156
2019
None
113,938
2019
None
170,208
2019
None
81,882
579,580
—
—
—
216,531
A portion of the Libor advances of US$13,900 ($17,438) drawn on the revolving credit facilities available until 2022, is used
as a hedge on the investment in self-sustaining foreign subsidiaries.
Hedging instruments
As at December 31, 2017, the following items were designated as cash-flow hedging instruments to mitigate the interest
rate risk and the foreign exchange risk:
Notional amount
of the hedging
instrument
Carrying amount of the hedging
instrument
Assets
Liabilities
Cumulative
changes in fair
value used for
calculating hedge
ineffectiveness
932,026
2,400
(49,434)
14,716
11,129
24,173
—
318
11,129
(1,260)
735
(1,182)
Cash-flow hedges:
Interest rate risk
Interest rate swaps
Net investment hedges:
Foreign exchange risk
Libor advances
Foreign exchange forwards
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p102
(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, 2017:
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
(13,653)
13,634
—
(735)
1,207
—
127
735
(1,168)
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, 2017:
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
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
16,307
729
—
807
(1,062)
—
(39)
—
94
—
—
—
—
—
—
Ineffectiveness is accounted for in the unrealized net loss (gain) on 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.
Annual Report 2017
Notes to the Consolidated Financial Statements p103
(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 recognized in the current year
Decrease in deferred income tax rates
Adjustments recognized in the current year in relation to
the deferred tax of prior years
Total income taxes expenses recognized in the current
year
December 31, 2017
December 31, 2016
4,148
(7)
4,141
5,463
(2,565)
256
3,154
7,295
2,966
4
2,970
7,452
(4,181)
(1,305)
1,966
4,936
The following table summarizes the reconciliation of the income tax expense calculated at the Canadian statutory
income tax rate and the income tax expense recognized in statements of earnings.
Earnings before income taxes
Canadian statutory income tax rate
Income taxes expenses calculated at the statutory rate
Items affecting the statutory rate:
Non-deductible expenses
Effect of previously unrecognized tax losses balances
used in the year
Income taxable at a different rate than the Canadian
statutory tax rate
Decrease 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 loss (earnings) allocated to minority
interests on non-taxable entities
Others
Income taxes expenses recognized in statements of
earnings
December 31, 2017
26,963
December 31, 2016
36,979
26.6%
7,172
2,678
(322)
(1,839)
(2,565)
710
160
(7)
256
760
292
7,295
26.6%
9,836
1,266
(286)
(1,059)
(4,181)
1,369
192
4
(1,305)
(761)
(139)
4,936
The tax rate used for 2017 and 2016 reconciliations above is the average combined corporate tax rate payable by
corporate entities in Canada on taxable profits under federal and provincials' tax laws. In Canada, the Quebec
corporate tax rate is decreasing gradually. The tax rate is reduced from 11.9% in 2016 to 11.8% in 2017 and it will
get to 11.5% in 2020. In British-Colombia, an increase from 11.0% to 12.0% will be applicable in 2018. In France,
the corporate tax rate continues to decrease. The regular tax rate of 33.33% in 2017 will gradually decline to 25%
in 2022.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p104
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Income tax recognized in other comprehensive income
December 31, 2017
December 31, 2016
Deferred tax
Arising on income and expenses recognized in other
comprehensive income:
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
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
60
(147)
4,172
201
98
4,384
(91)
17
74
—
(14)
(14)
c. Current tax assets and liabilities
Current tax assets
Income tax receivable
Current tax liabilities
Income tax payable
d. Deferred tax balances
December 31, 2017
December 31, 2016
—
—
3,282
1,292
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, 2017
December 31, 2016
11,873
(215,593)
(203,720)
11,849
(176,965)
(165,116)
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p105
(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,
2017
Recognized in
statement of
earnings
Recognized in
other
comprehensive
income
Recognized in
business
acquisitions
Net exchange
differences
As at December 31,
2017
(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)
1,575
1,394
(3,589)
(559)
(22)
92
(626)
128
(39)
468
176
(1,002)
(2,152)
(3,154)
—
—
—
(232)
—
(4,299)
—
—
—
—
—
(4,531)
147
(4,384)
(1,011)
(34,366)
—
—
—
3,262
2,162
—
—
(396)
—
(30,349)
1,198
(29,151)
(840)
(2,109)
—
—
—
117
78
—
—
10
—
(2,744)
829
(1,915)
(159,943)
(150,542)
11,403
(4,455)
(1,247)
52,721
(2,713)
(358)
521
(4,186)
1,381
(257,418)
53,698
(203,720)
As at December 31, 2017, the Corporation, its subsidiaries and joint ventures have non-capital losses totaling approximately $175,000 that may be applied against future
taxable income. The non-capital losses in Canada and the United-States expire gradually between 2031 and 2037. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p106
(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)
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p107
(in thousands of Canadian dollars, except as noted and amounts per share)
e. 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, 2017
December 31, 2016
4,468
8,584
477
13,529
3,551
10,990
476
15,017
The unrecognized tax losses-revenue in nature will expire gradually between 2034 and 2036.
12. EARNINGS PER SHARE
The net earnings per share is computed as follows:
Net earnings attributable to owners of the parent
Dividends declared on preferred shares
Net earnings available to common shareholders
Weighted average number of common shares (in 000s)
Basic net earnings 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 per share ($)
Year ended December 31
2017
2016
30,007
(5,942)
24,065
108,427
0.22
108,427
820
109,247
0.22
35,963
(5,942)
30,021
106,883
0.28
106,883
879
107,762
0.28
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.
Shares that are excluded from the dilutive elements on common
shares that can be issued from (in 000s) :
Stock options
Convertible debentures
Year ended December 31
2017
2016
203
6,667
126
6,667
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p108
(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
14. EMPLOYEE BENEFITS
Year ended December 31
2017
2016
5,642
700
1,503
390
8,235
6,024
662
1,610
103
8,399
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
Year ended December 31
2017
2016
5,287
9,815
6,942
1,538
2,306
25,888
4,421
9,843
5,602
1,304
3,676
24,846
15. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
As at
Restricted cash accounts
Restricted proceeds account
Debt service payment accounts
December 31, 2017
December 31, 2016
24,586
27,037
7,053
58,676
25,424
57,362
6,956
89,742
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, Mesgig'g Ugju's'n LP, Rougemont 1, Rougemont 2, Vaite, Plan Fleury and
Les Renardières 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.
Annual Report 2017
Notes to the Consolidated Financial Statements p109
(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, 2017
December 31, 2016
52,196
25,110
2,418
—
7,776
87,500
23,479
18,980
1,476
49,250
5,662
98,847
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 governments, mainly in relation with the development
and construction of projects. The payment receivable for property, plant and equipment has been received from Hydro-
Québec and was 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.
Annual Report 2017
Notes to the Consolidated Financial Statements p110
(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, 2017
Net (withdrawals from) investments in the
reserves
Impact of foreign exchange fluctuations
Reserves – end of year
Less: Current portion
Long-term portion
46,311
(793)
396
45,914
—
45,914
3,178
878
—
4,056
—
4,056
Hydrology / wind power
reserve
Major maintenance
reserve
Total
Reserves – As at January 1, 2016
Reserve acquired on business acquisition
(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
49,489
85
396
49,970
—
49,970
42,836
8,541
(1,610)
(278)
49,489
—
49,489
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 $49,180 ($48,650 in 2016) in the reserve accounts is restricted by credit agreements.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p111
(in thousands of Canadian dollars, except as noted and amounts per share)
18. PROPERTY, PLANT AND EQUIPMENT
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities under
construction
Other
equipments
Total
Cost
As at January 1, 2017
Additions
Business acquisitions (Note 5)
Transfer of assets upon commissioning
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2017
Accumulated depreciation
As at January 1, 2017
Depreciation
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2017
3,011
4
40
—
—
—
—
3,055
—
—
—
—
—
—
1,613,017
17,870
—
453,495
(2,001)
—
(524)
2,081,857
(194,633)
(37,400)
1,212
—
205
(230,616)
876,569
12,147
340,396
156,086
(178)
3,215
124,303
12
—
—
—
7
426,059
61,319
122,203
(609,581)
—
—
22,059
1,410,294
—
124,322
(123,831)
(47,848)
41
—
(801)
(172,439)
(27,775)
(5,958)
—
—
—
(33,733)
—
—
—
—
—
—
—
—
—
10,830
3,677
3,053,789
95,029
—
—
(95)
(23)
462,639
—
(2,274)
3,199
87
14,476
21,622
3,634,004
(7,543)
(1,556)
90
25
6
(8,978)
(353,782)
(92,762)
1,343
25
(590)
(445,766)
5,498
3,188,238
Carrying amount as at December 31,
2017
3,055
1,851,241
1,237,855
90,589
All of the property, plant and equipment are given as securities under the respective project financing or for corporate financing.
Additions in the current period include $6,716 of capitalized financing costs incurred prior to their commissioning.
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 facilities 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 ($3,003 as at December 31, 2016).
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p112
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p113
(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
Cost
As at January 1, 2017
Additions
Business acquisitions (Note 5)
Transfer of assets upon
commissioning
Other changes
Net foreign exchange
As at December 31, 2017
Accumulated amortization
As at January 1, 2017
Amortization
Other changes
Net foreign exchange
As at December 31, 2017
Net value as at
545,215
23,041
—
—
(5,326)
(174)
562,756
(137,629)
(20,070)
5,326
84
(152,289)
165,489
—
94,249
21,423
(1,122)
7,822
287,861
(35,542)
(16,120)
1,122
(562)
(51,102)
9,538
—
—
—
—
—
9,538
(2,206)
(477)
—
—
(2,683)
December 31, 2017
410,467
236,759
6,855
—
—
21,423
(21,423)
—
—
—
—
—
—
—
—
—
720,242
23,041
115,672
—
(6,448)
7,648
860,155
(175,377)
(36,667)
6,448
(478)
(206,074)
654,081
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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p114
(in thousands of Canadian dollars, except as noted and amounts per share)
20. GOODWILL
Allocation of goodwill to each cash-generating unit is as follows:
As at
St-Paulin
Portneuf
Chaudière
Yonne
Rougemont 1
Rougemont 2
Vaite
Plan Fleury
Renardières
Total Goodwill
December 31, 2017
December 31, 2016
935
4,166
3,168
6,832
3,716
3,480
4,585
6,886
4,812
38,580
935
4,166
3,168
—
—
—
—
—
—
8,269
Changes in the year in the goodwill arise from business acquisitions (see Note 5).
For the years ended December 31, 2017 and 2016, 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 discount rates of 4.1% to 5.4% (5.4% in 2016).
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.
The expected selling price of electricity once the power purchase agreements are renewed or on the spot market.
A cash-generating unit is an individual 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 expected production. These long-term averages
approximate actual results.
21. ACCOUNTS PAYABLE AND OTHER PAYABLES
As at
Trade and other payables
Current portion of construction holdbacks
Interest payable
Commodity taxes
December 31, 2017
December 31, 2016
63,487
9,104
15,523
2,918
91,032
51,360
22,259
10,754
1,477
85,850
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p115
(in thousands of Canadian dollars, except as noted and amounts per share)
22. LONG-TERM DEBT
(references to US$ and € are in thousands)
Revolving credit facilities including LIBOR advances of US$13,900
a)
Innergex
Project Loans
b) Plan Fleury (€45,41 1)
c) Les Renardières (€40,175)
d) Rougemont 1 (€52,946)
e) Rougemont 2 (€59,234)
f) Montagne-Sèche
g) Rutherford Creek
h) Valottes (€ 10,934)
i) Ashlu Creek
j) Sainte-Marguerite
k) Antoigné (€ 5,714)
l) Longueval (€ 6,724)
m) Porcien (€ 6,895)
n)
Innergex Champagne et Innergex Lorraine (€8,775)
o) Bois d'Anchat (€ 9,760)
p) Magpie
q) L’Anse-à-Valleau
r) Fitzsimmons Creek
s) Montjean (€ 17,534)
t) Theil Rabier (€ 19,520)
u) Mesgi'g Ugju's'n
v) Carleton
w) Beaumont (€ 22,959)
x) Yonne (€57,351)
y) Stardale
z) Cholletz (€ 10,322)
aa) Vaite (€55,163)
bb) Big Silver Creek
cc)
Innergex Europe
dd) Harrison Operating Facilities
ee) Kwoiek Creek
ff) Northwest Stave River
gg) Tretheway Creek
hh) Boulder Creek and Upper Lillooet
4.22%-4.46%
Other loans with various interest rates
Total long-term debt
Deferred financing costs
Current portion of long-term debt
Long-term portion
Interests rate
2017
Maturity
December 31,
2017
December 31,
2016
3.03%-4.05%
2022
281,438
189,163
1.00%-1.80% 2018-2034
1.05%-1.80% 2018-2034
0.54%-0.73% 2018-2035
0.47%-0.73% 2018-2035
3.19%
6.88%
2021
2024
1.80%-2.69% 2024-2026
2.98%
2025
3.30%-8.00% 2025-2064
2.67%
1.67%-1.86%
1.67%-1.86%
7.25%
2025
2025
2025
2025
2.25%-3.20% 2025-2030
4.34%-4.37% 2025-2031
2.74%
2.12%
2026
2026
1.46%-2.73% 2026-2031
1.46%-2.73% 2026-2031
68,353
60,471
79,695
89,158
23,360
32,061
16,458
89,387
67,705
8,601
10,121
10,378
13,208
14,691
52,030
30,490
20,230
26,392
29,381
—
—
—
—
24,534
35,845
17,407
91,989
71,473
9,109
10,658
10,973
—
14,880
55,304
33,327
20,651
23,971
24,537
3.07%-4.28% 2026-2036
257,515
284,931
3.90%
2027
2.16%-2.63% 2027-2031
1.08%-1.54% 2028-2031
3.07%
2.64%
0.54%
2030
2030
2035
4.57%-4.76% 2041-2056
8.00%
3.91%-6.58%
2046
2049
5.08%-10.07% 2052-2054
5.30%
4.99%
2053
2055
2019
38,802
34,558
86,325
96,563
15,537
83,031
197,223
77,957
452,513
170,635
71,972
92,916
42,346
34,598
—
102,946
15,799
—
197,223
38,189
456,060
172,162
71,972
92,916
491,643
491,643
11
13
2,909,371
2,445,456
3,190,809
2,634,619
(33,351)
(27,986)
3,157,458
2,606,633
(109,875)
(99,397)
3,047,583
2,507,236
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p116
(in thousands of Canadian dollars, except as noted and amounts per share)
22. LONG-TERM DEBT (continued)
a.
Revolving credit facilities
On February 21, 2017, the Corporation executed a Fifth Amended and Restated Credit Agreement of its existing $425,000
revolving credit facilities. These amendments give the Corporation flexibility in borrowing in euros using EURIBOR loans.
The Corporation also extended its revolving term from 2020 to 2021 to provide greater financing flexibility. On October
31, 2017, the Corporation increased its revolving credit facilities by $50,000 and added a new lender to the syndicate
of lenders. It also extended the maturity of its revolving facility from December 2021 to December 2022 to provide greater
financial flexibility. As at December 31, 2017, the revolving credit facilities were standing at $475,000.
Moreover, a Letter of Credit Facility of an amount of up to $15,000 guaranteed by Export Development Canada (EDC)
was added and put in place. No letter of credit have been issued as of December 31, 2017 under this facility.
As at December 31, 2017, the Bankers' Acceptances (“BA”) rate advances and prime rate advances totaling $264,000
along with a LIBOR rate advance of $17,438 (US$13,900) were due under this facility. An amount of $43,658 has been
used to secure letters of credit. Thus, the unused and available position of the facility was $149,904. The carrying value
of assets of the Corporation and subsidiaries given as securities under this facility totals approximately $484,500.
The revolving credit facilities was renegociated on February 6, 2018, see subsequent events section.
b.
Plan Fleury
As part of the acquisition of Plan Fleury and Les Renardières, the Corporation assumed the related loan facilities for a
total value of €40,302.
• A €2,554 loan bearing a variable interest rate at EURIBOR+1.8% and fully repayable in 2018. It is a short term bridge
financing dedicated to pre-finance relevant Value added taxes expenditures recoverable from the government.
Following the acquisition, the debt increased by €4,714.
• A €27,688
loan bearing a fix interest rate at 1.65% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2019 and maturing in 2032.
• A €5,273
loan bearing a fix interest rate at 1.65% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2019 and maturing in 2034.
• A €4,145 loan bearing a fix interest rate at 1% for 3 years, repayable in quarterly installments and maturing in 2019.
The principal repayments are set to €2,073
for 2018.
• A €642 loan bearing a variable interest rate at EURIBOR+1.8%, repayable in semi annual installments and maturing
in 2019. The principal repayments are set to €519
for 2018. Following the acquisition, the debt increased by €395.
• A €1,585 revolving loan facility for a debt service reserve, bearing interest at a variable rate at EURIBOR+1.8%,
maturing in 2033. As at December 31, 2017, no funds have been drawn from this facility.
The debt is secured by the assets of Eole de Plan Fleury with a carrying value of approximately €68,700.
c.
Les Renardières
As part of the acquisition of Plan Fleury and Les Renardières, the Corporation assumed the related loan facilities for a
total value of €35,699.
• A €2,131 loan bearing a variable interest rate at EURIBOR+1.8% and fully repayable in 2018. It is a short term bridge
financing dedicated to pre-finance relevant Value added taxes expenditures recoverable from the government.
Following the acquisition, the debt increased by €4,288.
• A €24,769
loan bearing a fix interest rate at 1.70% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2019 and maturing in 2032.
• A €4,394
loan bearing a fix interest rate at 1.70% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2019 and maturing in 2034.
• A €3,762
loan bearing a fix interest rate at 1.05% for 3 years, repayable in quarterly installments and maturing in
2019. The principal repayments are set to €1,881
for 2018.
• A €643 loan bearing a variable interest rate at EURIBOR+1.8%, repayable in semi annual installments and maturing
in 2019. The principal repayments are set to €416
for 2018. Following the acquisition, the debt increased by €188.
• A €1,400 revolving loan facility for a debt service reserve, bearing interest at a variable rate at EURIBOR+1.8%,
maturing in 2033. As at December 31, 2017, no funds have been drawn from this facility.
The debt is secured by the assets of Les Renardières with a carrying value of approximately €56,400.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p117
(in thousands of Canadian dollars, except as noted and amounts per share)
d.
Rougemont 1
As part of the Rougemont 1-2 and Vaite Acquisition, the Corporation assumed the related loan facilities for a total of
€51,579.
• A €1,592 loan bearing a variable interest rate at EURIBOR +1% and fully repayable in 2018. It is a bridge financing
dedicated to the consumer taxes recoverable from the government. Following the acquisition, the debt decreased
by a net amount of €1,426.
• A €49,987 loan bearing a variable interest rate at EURIBOR +1.4 % to 1.95%, repayable in semi-annual installments
and maturing in 2035. The principal repayments are set to €2,910
for 2018. The loan was accounted for at its fair
market value of €50,948 for an effective rate of 0.81%. As at December 31, 2017, the all-in effective interest rate was
1.97% after accounting for the interest swap. Following the acquisition, the debt increased by €3,345.
• A €2,410 revolving loan facility for a debt service reserve, bearing interest at a variable rate at EURIBOR +1.5% to
1.65%, maturing in 2027. As at December 31, 2017, no funds have been drawn from this facility.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed €1,000. As at
December 31, 2017 an amount of €700 has been used to secure letter of credits related to the decommissioning
guarantee.The debt is secured by the assets of Énergies du Plateau Central with a carrying value of approximately
€68,000.
e.
Rougemont 2
As part of the Rougemont 1-2 and Vaite Acquisition, the Corporation assumed the related loan facilities for a total of
€40,758.
• A €776
loan bearing a variable interest rate at EURIBOR +1% and fully repayable in 2019. It is a bridge financing
dedicated to the consumer taxes recoverable from the government. Following the acquisition, the debt decreased
by a net amount of €477.
• A €31,096 loan bearing a variable interest rate at EURIBOR + 1.4% to 1.95%, repayable in semi-annual installments
for 2018. The loan was accounted for at its fair
and maturing in 2035. The principal repayments are set to €1,647
market value of €31,688 for an effective rate of 0.81%. As at December 31, 2017, the all-in effective interest rate was
1.99% after accounting for the interest swap. Following the acquisition, the debt increased by €840.
• A €8,886 loan bearing a variable interest rate at EURIBOR +1.4% to 1.95%, repayable in semi-annual installments
and maturing in 2035. The principal repayments are set to €794
for 2018. The loan was accounted for at its fair
market value of €9,341 for an effective rate of 0.84%. As at December 31, 2017, the all-in effective interest rate was
1.25% after accounting for the interest swap. Following the acquisition, the debt increased by €17,975.
• A €2,840 revolving loan facility for a debt service reserve, bearing interest at a variable rate at EURIBOR + 1.5%
to 1.65%, maturing in 2027. As at December 31, 2017, no funds have been drawn from this facility.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed €1,000. As at
December 31, 2017 an amount of €861 has been used to secure letter of credits related to the decommissioning
guarantee.The debt is secured by the assets of Énergies du Plateau Central 2 with a carrying value of approximately
€79,300.
f.
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 $1,258 for 2018. As at December 31, 2017, the all-in effective
interest rate was 5.97% (5.97% in 2016) 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,
2017, 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 $32,800.
g. 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
repayments are variable and are set at $4,052
the assets of
Rutherford Creek Power Limited Partnership, with a carrying value of approximately $77,300.
is secured by
for 2018. The
loan
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p118
(in thousands of Canadian dollars, except as noted and amounts per share)
h.
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 €505
for 2018.
• A €7,273
loan bearing interest at 5.34%, repayable in quarterly installments and maturing in 2026. The principal
for an
for 2018. The term loan was accounted for at its fair market value of €8,502
repayments are set to €727
effective rate of 1.80%.
The debt is secured by the assets of Energie des Valottes with a carrying value of approximately €21,100.
i.
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 $3,017 for 2018. As at December 31, 2017, the all-in effective interest rate was
6.14% (6.16% in 2016) 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, 2017 an amount of $1,349 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 $152,200.
j.
Sainte-Marguerite
The loan consists of a 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 2018
are set at $3,070. 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 Innergex Sainte-Marguerite L.P. with a carrying value of approximately $132,700.
In 2014, a debenture was issued by Innergex Sainte-Marguerite L.P. to RRMD 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. The
partner, RRMD, is considered a related party.
k. Antoigné
As part of the Seven French Entities Acquired, the Corporation assumed a €6,964 term loan, bearing interest at 2.67%,
for 2018. The loan
repayable in quarterly installments and maturing in 2025. The principal repayments are set to €714
is secured by the assets of Energie Antoigné with a carrying value of approximately €13,200.
l.
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 2018.
• A €1,812 loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
for an
for 2018. The term loan was accounted for at its fair market value of €2,186
repayments are set to €156
effective rate of 1.72%.
The debt is secured by the assets of Eoliennes de Longueval with a carrying value of approximately €14,400.
m. 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 2018.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p119
(in thousands of Canadian dollars, except as noted and amounts per share)
• A €2,047 loan bearing interest at 5.73%, repayable in semi-annual installments and maturing in 2025. The principal
for an
for 2018. The term loan was accounted for at its fair market value of €2,454
repayments are set to €200
effective rate of 1.67%.
The debt is secured by the assets of Energie du Porcien with a carrying value of approximately €14,700.
n.
Financing of two of the French subsidiaries
On February 10, 2017, each of Innergex Champagne S.A.S. and Innergex Lorraine S.A.S. concluded a €4,250
subordinated debt financing with a French Infrastructure fund. The subordinated loans carry an interest rate of 7.25%,
have an eight year tenor and their principal will be reimbursed at maturity.
o. 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 €156
for 2018.
• 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 2018.
The debt is secured by the assets of Société d'Exploitation du Parc Éolien du Bois d'Anchat with a carrying value of
approximately €20,900.
p. Magpie
A fixed rate bridge loan was amortized until August 2017. The bridge loan was repayable in monthly blended payments
of principal and interest totaling $27.
A debenture was amortized until December 2017. The debenture was repayable by yearly blended payments of principal
and interest totaling $400, excluding non-cash implicit interest of $18.
A $3,000 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. The municipality is a partner in Magpie L.P.
and is considered a related party.
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 $1,926 for 2018.
The bridge loan and the term loan are secured by the assets of Magpie L.P. with a carrying value of approximately
$93,700.
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 $2,939 for 2018. As at December 31, 2017, the all-in effective interest
rate was 6.13% (6.03% in 2016) 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,
2017, an amount of $705 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 $49,200.
r.
Fitzsimmons Creek
In December 2016, the maturity of the term loan was extended to November 2026; the loan is 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 $353 for 2018. As at December 31, 2017, the all-in effective interest
rate was 3.59% (3.58% in 2016) after accounting for the interest rate swap.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p120
(in thousands of Canadian dollars, except as noted and amounts per share)
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $150. As at
December 31, 2017, 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 $23,500.
s. 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%. It was 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 at
acquisition. This loan was fully repaid in June 2017.
• 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
2018. The unused and available position of this credit facility was €2,320 at acquisition and nil as at December 31,
2017. The term loan was accounted for at its fair market value of €1 1,054 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
for 2018. There was no unused and available position on this credit facility.
for an effective rate of 1.46%.
principal repayments are set to €413
The loan was accounted for at its fair market value of €4,062
• A €700
loan facility for a debt service reserve, bearing interest at a fixed rate of 2.00%, repayable in quarterly
for
installments starting in 2022 and maturing in 2031. This loan was accounted for at its fair market value of €675
an effective rate of 2.73%.
The debt is secured by the assets of Montjean Energies with a carrying value of approximately €29,500.
t.
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%. 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 at
acquisition. This loan was fully repaid in June 2017.
• A €12,972 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 €1,000 for 2018. The
unused portion of this credit facility was €2,028 at acquisition and nil as at December 31, 2017. The loan was accounted
for at its fair market value of €1 1,345 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
for 2018. There was no unused and available position on this credit facility.
for an effective rate of 1.46%.
principal repayments are set to €413
The loan was accounted for at its fair market value of €4,062
• A €700
loan facility for a debt service reserve, bearing interest at a fixed rate of 2.00%, repayable in quarterly
for
installments starting in 2022 and maturing in 2031. This loan was accounted for at its fair market value of €676
an effective rate of 2.73%.
The debt is secured by the assets of Theil Rabier Energies with a carrying value of approximately €31,700.
u. Mesgig'g Ugju's'n
The construction loan was converted into a term loan in November 2017.
The loan comprises three facilities or tranches:
• A $49,250 floating-rate construction loan carrying a swap-fixed interest rate of 2.41%; fully repaid in 2017 with the
proceeds of the scheduled reimbursement by Hydro-Québec for the Mesgi’g Ugju’s’n electrical substation;
• A $103,000 floating-rate construction loan carrying a swap-fixed interest rate of 3.54%; converted into a 9.5-year
term loan and the principal will be amortized over the term of the loan. The principal repayments are set at $6,592
for 2018;
• A $159,459 construction loan carrying a fixed interest rate of 4.28%; converted 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. The term loan is repayable in quarterly
installments starting in 2026 and maturing in 2036.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $51,284. As at December
31, 2017, an amount of $14,430 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 $298,100.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p121
(in thousands of Canadian dollars, except as noted and amounts per share)
v.
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 $3,613 for 2018. As at December 31, 2017, the all-in effective interest rate was
5.76% (5.46% in 2016) 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 $63,100.
w. 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 €68 for 2018. 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 set to €25
for 2018.
• 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 2018.
The debt is secured by the assets of Eoles Beaumont S.A.S. with a carrying value of approximately €46,900.
x. Yonne
As part of the Yonne Acquisition, the Corporation assumed the related loan facilities for a total of €70,814.
•
A €1 1,350 loan bearing a variable interest rate at 0.93% and fully repaid in the second quarter of 2017. It was a
bridge financing dedicated to the consumer taxes recoverable from the government.
• A €14,864 loan bearing a variable interest rate at EURIBOR +1.90% , repayable in quarterly installments and maturing
in 2028. The principal repayments are set to €3,342 for 2018. The loan was accounted for at its fair market value of
€15,328
for an effective rate of 1.08%.
• A €44,600 loan bearing a variable interest rate at EURIBOR +1.95%, repayable in quarterly installments and maturing
for 2018. The loan was accounted for at its fair market value of
for an effective rate of 1.54%. As at December 31, 2017, the all-in effective interest rate was 2.32% after
in 2031. The principal repayments are set to €324
€46,075
accounting for the interest rate swap.
The debt is secured by the assets of Éoles-Yonne SAS with a carrying value of approximately €101,700.
y.
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 $6,420 for 2018. As at December 31, 2017, the all-in effective interest rate was 4.97% (5.36% in 2016) 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, 2017, 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 $101,800.
z. 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. This loan was fully repaid in 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 €752
for the 2018.
The debt is secured by the assets of Energie des Cholletz with a carrying value of approximately €20,400.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p122
(in thousands of Canadian dollars, except as noted and amounts per share)
aa. Vaite
As part of the Rougemont 1-2 and Vaite Acquisition, the Corporation assumed the related loan facilities for a total of
€53,545.
• A €552
loan bearing a variable interest rate at EURIBOR +1%. It is a bridge financing dedicated to the consumer
taxes recoverable from the government. This loan was fully repaid in 2017.
• A €52,993 loan bearing a variable interest rate at EURIBOR +1.4% to 1.95%, repayable in semi-annual installments
for 2018. The loan was accounted for at its fair
for an effective rate of 0.81%. As at December 31, 2017, the all-in effective interest rate
and maturing in 2035. The principal repayments are set to €3,244
market value of €54,023
was 1.99% after accounting for the interest swap. Following the acquisition, the debt increased by €2,820.
• A €2,520 revolving loan facility for a debt service reserve, bearing interest at a variable rate at EURIBOR +1.5% to
1.65%, maturing in 2027. As at December 31, 2017, no funds have been drawn from this facility.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed €1,000. As at
December 31, 2017 an amount of €754 has been used to secure letter of credits related to the decommissioning
guarantee.The debt is secured by the assets of Énergies du Réchet with a carrying value of approximately €71,600.
bb. Big Silver Creek
The construction loan was converted into a 39.5-year term loan in January 2017.
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. The term loan is repayable in
quarterly installments starting in 2019 and maturing in 2041;
• 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. The term loan is repayable in
quarterly installments starting in 2042 and maturing in 2056;
• 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 in 2056.
This debt is secured by the assets of Big Silver Creek Power L.P. with a carrying value of approximately $212,600.
cc.
Innergex Europe (2015) Limited Partnership
Following the acquisitions in France, a debenture was issued to the other partner for proceeds of $38,189 in 2016 and
additional proceeds of $39,768 in 2017 for a total of $77,957. 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 partner is
considered a related party.
The Corporation invested a total of $87,227 in 2016 and additional amounts of $90,832 in 2017 for a total of $178,059
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.
dd. 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 ($6,787 including CPI adjustment in 2017). In
December 2031, the payment amount decreases to $4,481 before CPI adjustment, where it remains until maturity. For
2018, the principal repayments are set at $6,276.
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 2018, the principal repayments are set at
$3,658.
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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p123
(in thousands of Canadian dollars, except as noted and amounts per share)
adjusted. Payments on this bond are due quarterly and the bond matures in September 2049. Quarterly interest payments
amount to $389 before CPI adjustment ($456 including CPI adjustment in 2017). Principal repayment are set at $480
for 2018.
The bonds are secured by the Harrison Operating Facilities. The carrying value of the property and assets of the Harrison
Operating Facilities totals approximately $610,000.
Balance – January 1, 2017
Inflation compensation interest
Principal repayment
Amortization of revaluation
Balance – December 31, 2017
Senior Real
Return Bond
Senior Fixed
Rate Bond
Junior Real
Return Bond
Total
222,645
3,472
(6,069)
1,367
221,415
204,640
—
(3,463)
957
202,134
28,775
438
(346)
97
28,964
456,060
3,910
(9,878)
2,421
452,513
The increase in inflation compensation interest is a result of the CPI rate change over the reference period.
ee. 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 $1,592 for 2018. The loan is secured by the assets of
Kwoiek Creek Resources L.P. with a carrying value of approximately $179,558
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. The loan bears a fixed interest rate of 10.07%.
The partner is considered a related party.
ff.
Northwest Stave River
The loan consists of a 38-year term loan starting in February 2015 and amortized over a 35-year period starting in 2020.
The term loan is repayable in semi-annual installments starting in 2020 and maturing in 2053. The loan is secured by
the assets of Northwest Stave River L.P. with a carrying value of approximately $79,100.
gg. Tretheway Creek
The construction loan bearing fixed interest rate of 4.99% was converted into a 39-year term loan in April 2016 and
amortized over a 35-year period starting in 2020. The term loan is repayable in semi-annual installments starting in 2020
and maturing in 2055. The loan is secured by the assets of Tretheway L.P. with a carrying value of approximately
$106,000.
hh. 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 $512,800.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p124
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal repayments
The principal repayments for the next years, excluding the revaluations, will be as follows:
2018
2019
2020
2021
2022
Thereafter
Principal repayments
Revolving credit
facilities
Project loans
Amortization of
revaluation
Long-term debt
—
—
—
—
281,438
—
281,438
109,539
87,716
93,691
105,825
108,230
2,440,888
2,945,889
336
140
(24)
(207)
(410)
(36,353)
(36,518)
109,875
87,856
93,667
105,618
389,258
2,404,535
3,190,809
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p125
(in thousands of Canadian dollars, except as noted and amounts per share)
23. OTHER LIABILITIES
Other liabilities, including amounts shown in current liabilities, consist of contingent considerations, asset retirement
obligations, interests payable on Innergex Sainte-Marguerite, S.E.C. ("SM S.E.C.") debenture relating to the Corporation's
facilities and the future ownership rights.
As at January 1, 2017
Liability assumed as part of the business
acquisitions (note 5)
New obligations
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
Impact of foreign exchange fluctuations
As at December 31, 2017
Current portion of other liabilities
Long-term portion of other liabilities
Contingent
considerations
Asset
retirement
obligations
2,949
15,256
Interests
payable on
SM S.E.C.
debenture
9,256
Future
ownership
rights
Total
—
27,461
—
—
—
128
(881)
—
(246)
—
1,950
(500)
1,450
12,060
8,604
—
656
—
3,220
—
882
40,678
—
40,678
—
—
4,202
—
—
—
—
—
13,458
—
13,458
—
23,041
—
880
—
—
—
—
23,921
—
23,921
12,060
31,645
4,202
1,664
(881)
3,220
(246)
882
80,007
(500)
79,507
Contingent
considerations
Asset
retirement
obligations
Interests
payable on
SM S.E.C.
debenture
Total
As at January 1, 2016
2,047
6,269
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
a. Contingent considerations
—
—
—
102
800
—
—
2,949
(495)
2,454
6,466
1,687
—
449
—
563
(178)
15,256
—
15,256
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
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.
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p126
(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 the 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
2042
2,592
2,466
2,748
2,952
3,028
1,542
6,243
4,602
1,858
11,286
32,921
72,238
The cash flows were discounted at rates between 1.94% to 4.45% as at December 31, 2017 (4.29% to 4.61% in 2016)
to determine the obligations.
c. Interests payable on debentures
In connection with the acquisition of the Sainte-Marguerite facility in 2014, RRMD 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.
d. Future ownership rights
Other liabilities, includes various liabilities related to future ownership rights owned by First Nations for the Upper Lillooet
River, Boulder Creek, Big Silver Creek and Tretheway Creek facilities, the counterpart of which is capitalized into the
intangible assets.
24. 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
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p127
(in thousands of Canadian dollars, except as noted and amounts per share)
25. 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
The change in the number of common shares was as follows as at:
As at
Issued and fully paid
Beginning of the year
Common shares issued on private placement
Common shares issued through dividend reinvestment plan
Common shares options exercised
Buyback of common shares
End of year
Held in trust under the PSP plan
Beginning of the year
Purchased
End of year
Common shares outstanding at end of the year
Buyback of common shares
December 31, 2017
December 31, 2016
108,181,592
—
361,195
121,378
(56,082)
108,608,083
—
(273,762)
(273,762)
108,334,321
103,938,636
3,906,250
242,706
94,000
—
108,181,592
—
—
—
108,181,592
On August 15, 2017, Innergex announced that it has received approval from the Toronto Stock Exchange (TSX) to
proceed with a normal course issuer bid on its common shares (the Bid).
Under the Bid, the Corporation may purchase for cancellation up to 2,000,000 of its common shares, representing
approximately 1.84% of the 108,640,790 issued and outstanding common share of the Corporation as at August 14,
2017. The Bid commenced on August 17, 2017 and will terminate on August 16, 2018. Up to December 31, 2017,
56,082 common shares have been purchased and cancelled at an average price of $13.85.
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 was entitled to purchase for cancellation up to 2,000,000 of its common
shares. No common shares have been purchased and cancelled in 2016.
b) Contributed surplus from reduction of capital account on common shares
A special resolution 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 was adopted on May 9, 2017. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p128
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 were not 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p129
(in thousands of Canadian dollars, except as noted and amounts per share)
During 2017, 752,000 share options have been exercised at $11.00 per share resulting in 121,378 common share
issued cashless. The differences between the 752,000 options exercised and the 121,378 shares issued are the result
of the exercise of the options without disbursement by the holders and the withholding of deductions at source by the
Corporation as authorized by the option plan and the Board of directors.
Also 77,167 share options were granted during the year. The options granted under the stock option plan vest in equal
amounts on a yearly basis over a period of four years following the grant date. Options must be exercised before August
2024 at an exercise price of $14.52.
The following table summarizes outstanding stock options of the Corporation as at December 31, 2017 and 2016:
December 31, 2017
December 31, 2016
Number of options
(000's)
Weighted average
exercise price ($)
Number of options
(000's)
Weighted average
exercise price ($)
Outstanding - beginning of
year
Granted during the year
Exercised during the year
Canceled during the year
Outstanding - end of year
Options exercisable - end of
year
3,457
77
(752)
—
2,782
2,512
10.23
14.52
11.00
—
10.14
9.80
3,425
126
(94)
—
3,457
3,034
10.09
14.65
11
—
10.23
10.03
The following options were outstanding and exercisable as at December 31, 2017:
Year of granting
2011
2012
2010
2013
2014
2016
2017
Number of options
outstanding (000's)
770
397
618
397
397
126
77
2,782
Exercise price ($)
Number of options
exercisable (000's)
Year of maturity
9.88
10.70
8.75
9.13
10.96
14.65
14.52
770
397
618
397
298
32
—
2,512
2018
2019
2020
2020
2021
2023
2024
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, 2017
1.67%
$0.66
6 years
19.53%
$1.40
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,
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p130
(in thousands of Canadian dollars, except as noted and amounts per share)
without paying fees such as brokerage commissions and service charges. Shares will either be purchased on the open
market or issued from treasury.
f) Performance Share Plan and Deferred Share Unit Plan
Performance Share Plan (the ''PSP Plan'')
The goal of the PSP Plan is to motivate the executive officers to create long-term economic value for the Corporation
and its shareholders. This portion of the Equity-Based Incentive Plan focuses executive officers on delivering business
performance over the next three years against the total shareholder value. The award is paid out at the end of the
three years, depending on how well the Corporation performed against targets set at the beginning of the three-year
period.
The vesting date of the performance share rights is determined on the grant date which shall not exceed three (3) years
thereafter. The payouts are made in shares, so the value goes up or down based on stock price performance from
the beginning of the grant. On the vesting date, each performance share right entitles its holder to one Common Share
of the Corporation with all the reinvested dividends accrued thereon from the grant date, such dividend being either
paid in cash, in shares or in a combination of both at the sole discretion of the Corporation.
The Corporation’s Deferred Share Unit Plan
Under the Corporation’s Deferred Share Unit Plan (the “DSU Plan”), Directors and officers may elect to receive all or
any portion of their compensation in DSUs in lieu of cash compensation. A DSU is a unit that has a value based upon
the value of one Common Share. When a dividend is paid on Common Shares, the Director’s DSU account is credited
with additional DSUs equivalent to the dividend paid.
DSUs cannot be redeemed for cash until the Director leaves the Board or the officer leaves. DSUs are not shares,
cannot be converted to shares, and do not carry voting rights. DSUs received by Directors and officers in lieu of cash
compensation and held by them represent an at-risk investment in the Corporation. The value of DSUs is based on
the value of the Common Shares, and therefore is not guaranteed.
The number of PSP and DSU has varied as follows, for the year ended:
(in 000s)
Balance beginning of year
Granted during the year
Paid out during the year
Dividend reinvestment during the year
Balance end of year
December 31, 2017
DSU
PSP
December 31, 2016
DSU
PSP
325
135
(113)
21
368
4
23
—
1
28
263
122
(75)
15
325
—
4
—
—
4
From time to time, the Corporation provides instructions to a trustee under the terms of a Trust Agreement to purchase
common shares of the Corporation in the open market in connection with the PSP plan. These shares are held in Trust
for the benefit of the beneficiaries until the PSPs become vested or cancelled. The cost of these purchases has been
deducted from share capital.
A compensation expense of $1,695 was recorded during the year ended December 31, 2017 with respect to the PSP
and DSU plan (a compensation expense of $1,610 was recorded during the year ended December 31, 2016).
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p131
(in thousands of Canadian dollars, except as noted and amounts per share)
26 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
Share of cash
flow hedge
interest rate risk
of joint venture
Total
Balance as at January 1, 2017
Exchange differences on translation of
foreign operations
Hedging gain of the reporting period
Related deferred tax
Balance as at December 31, 2017
1,094
27
—
(60)
1,061
(1,290)
—
69
147
(1,074)
(196)
(1,596)
27
69
87
(13)
—
15,047
(4,172)
9,279
49
—
815
(201)
663
(1,743)
27
15,931
(4,286)
9,929
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
Share of cash
flow hedge
interest rate risk
of joint venture
Total
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)
48
—
1
—
49
(1,576)
(872)
705
—
(1,743)
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p132
(in thousands of Canadian dollars, except as noted and amounts per share)
27. 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
2017
2016
59,271
(1,844)
(33,645)
23,782
(46,109)
156
(10,489)
(56,442)
Year ended December 31
2017
2016
Interest paid (including $6,882 capitalized interest ($37,838 in
2016))
132,707
87,574
Non-cash transactions
in unpaid property, plant and equipment
in unpaid other liabilities
in unpaid intangible assets
in common shares issued through share options exercised
variation in discounted rates in asset retirement obligations
in common shares issued through dividend reinvestment plan
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 period
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 period
(49,845)
23,041
(23,041)
(101)
3,220
(5,135)
(4)
19,596
—
—
(78)
563
(3,209)
(27)
Year ended December 31
2017
2016
2,606,633
668,856
(576,187)
(1,161)
432,351
7,677
19,289
3,157,458
2,215,433
872,247
(657,207)
(2,680)
178,362
5,815
(5,337)
2,606,633
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p133
(in thousands of Canadian dollars, except as noted and amounts per share)
28. SUBSIDIARIES
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,
2017
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
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%
(2,828)
3,063
52,884
61,710
Canada
33.33%
33.33%
(4,533)
(1,531)
(27,065)
(22,687)
Canada
50.00%
50.00%
(445)
(352)
(11,169)
(10,724)
Canada
50.00%
50.00%
6,030
(303)
(3,699)
(9,167)
Canada
49.99%
49.99%
(1,052)
(2,144)
(6,614)
(5,562)
Canada/
Europe
Canada
30.45%
Various
30.45%
Various
(7,168)
(343)
(10,339)
(2,708)
55
(3,920)
10,561
22
14,920
779
363
14,712
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p134
(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 (loss) earnings and comprehensive (loss) income
Net (loss) earnings and comprehensive (loss) income 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 (decrease) increase in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2017
December 31, 2016
13,376
601,105
614,481
17,163
453,647
90,787
52,884
614,481
22,416
615,937
638,353
17,847
458,037
100,759
61,710
638,353
Year ended December 31
2017
2016
50,891
57,689
(6,798)
(3,970)
(2,828)
(6,798)
15,486
(21,878)
(1,287)
(7,679)
5,998
60,039
55,057
4,982
1,919
3,063
4,982
29,458
(22,581)
(98)
6,779
6,748
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p135
(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 1
Deficit attributable to owners
Non-controlling interest deficit
1. Non-current liabilities include $98,443 of preferred units own by Innergex
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses 1
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 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
December 31, 2017
December 31, 2016
36,422
542,988
579,410
53,658
618,205
(65,388)
(27,065)
579,410
82,759
492,414
575,173
48,853
605,658
(56,651)
(22,687)
575,173
Year ended December 31
2017
2016
27,882
41,462
(13,580)
465
(13,115)
(9,047)
(4,533)
(13,580)
(8,737)
(4,378)
(13,115)
5,967
12,733
(18,359)
341
—
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
—
1. Expenses include $11,196 of preferred return payable to Innergex on the $98,443 preferred units. Excluding these elements, the Net loss
would have been $2,384.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p136
(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 1
Deficit attributable to owners
Non-controlling interest deficit
December 31, 2017
December 31, 2016
7,335
172,223
179,558
7,919
193,480
(10,672)
(11,169)
179,558
8,949
175,049
183,998
9,964
194,985
(10,227)
(10,724)
183,998
1. Non-current liabilities include $39,752 of preferred units own by Innergex and $3,662 subordinated debt own by a partner
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses 1
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 (outflow) inflow from operating activities
Net cash outflow from financing activities
Net cash outflow from investing activities
Net (decrease) increase in cash and cash equivalents
Distributions paid to non-controlling interests
Year ended December 31
2017
2016
19,016
19,906
(890)
(445)
(445)
(890)
(97)
(1,530)
(175)
(1,802)
—
19,840
20,544
(704)
(352)
(352)
(704)
1,967
—
(113)
1,854
—
1. Expenses include $4,185 of preferred return payable to Innergex on the $39,752 preferred units and on the $3,662 subordinated debt
payable to a partner. Excluding these elements, the Net earnings would have been $3,294.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p137
(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 earnings (loss)
Other comprehensive income (loss)
Total comprehensive income (loss)
Net earnings (loss) attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income (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) inflow from financing activities
Net cash outflow from investing activities
Net (decrease) increase in cash and cash equivalents
December 31, 2017 December 31, 2016
21,727
283,271
304,998
16,004
247,867
44,826
(3,699)
304,998
64,843
294,918
359,761
59,360
264,582
44,986
(9,167)
359,761
Year ended December 31
2016
2017
51,845
30,020
21,825
3,246
25,071
15,795
6,030
21,825
18,144
6,927
25,071
77,324
(47,379)
(32,345)
(2,400)
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
Distributions paid to non-controlling interests
—
—
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p138
(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 1
Equity attributable to owners
Non-controlling interest deficit
1. Non-current liabilities include $43,720 of preferred units own by Innergex
Summary Statements of Earnings and Comprehensive loss
Revenues
Expenses 1
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
Distributions paid to non-controlling interests
December 31, 2017
December 31, 2016
2,794
129,614
132,408
8,085
121,067
9,870
(6,614)
132,408
2,344
132,351
134,695
8,654
120,681
10,922
(5,562)
134,695
Year ended December 31
2016
2017
12,755
14,859
(2,104)
(1,052)
(1,052)
(2,104)
3,768
(2,928)
(217)
623
—
10,666
14,955
(4,289)
(2,145)
(2,144)
(4,289)
3,149
(2,605)
(441)
103
—
1. Expenses include $4,591 of preferred return payable to Innergex on the $43,720 preferred units. Excluding these elements, the Net
earnings would have been $2,487.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p139
(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, RRMD 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 RRMD upon the closing of the acquisition of the two wind farms on December 22, 2016.
An investment of $8,568 including a debenture of $6,478 was made by RRMD into Innergex Europe (2015) Limited Partnership
to partly finance a portion of the acquisition of Yonne on February 21, 2017.
An investment of $31,119 including a debenture of $22,296 was made by RRMD into Innergex Europe (2015) Limited Partnership
to partly finance a portion of the acquisition of Rougemont 1-2 and Vaite on May 24, 2017.
An investment of $16,923 including a debenture of $10,994 was made by RRMD into Innergex Europe (2015) Limited Partnership
to partly finance a portion of the acquisition of Plan Fleury and Les Renardières on August 25, 2017.
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, 2017 December 31, 2016
76,091
967,260
1,043,351
119,935
934,396
(21,541)
10,561
1,043,351
19,036
325,310
344,346
32,475
316,508
(5,416)
779
344,346
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p140
(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 income (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 inflow from operating activities
Net cash inflow from financing activities
Net cash outflow from investing activities
Net increase in cash and cash equivalents
Year ended
December 31, 2017
Period of 261 days
ended December 31,
2016
52,300
75,838
(23,538)
354
(23,184)
(16,370)
(7,168)
(23,538)
(16,124)
(7,060)
(23,184)
7,171
177,775
(182,484)
2,462
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
Distributions paid to non-controlling interests
640
640
1. Expenses include $1,883 ($1,679 in 2016) of acquisition costs, $4,999 ($1,470 in 2016) of interest payable to RRMD on the $77,957
($38,189 in 2016) debenture, $11,496 ($4,265 in 2016) of preferred return payable to Innergex on the $178,059 ($87,227 in 2016) preferred
units and $51 ($603 in 2016) of interest payable to Innergex on a temporary bridge loan. Excluding these elements, the Net loss would
have been $5,109 ($3,292 in 2016). Expenses also include non-cash expenses such as depreciation and amortization of a total amount of
$31,679 ($9,805 in 2016).
28.1 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.
Annual Report 2017
Notes to the Consolidated Financial Statements p141
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation invested a total of $63,315 in units of Mesgi'g Ugju's'n (MU) Wind Farm L.P. This investment provides the
Corporation with distributions. The Mi'gmaq partner invested a total of $2,300 in units of the Mesgi'g Ugju's'n (MU) Wind farm
L.P.
29. JOINT OPERATIONS
Name of entities
Principal activity
Place of creation
and operation
Proportion of ownership interest and
voting rights held by the Corporation
December 31,
2017
December 31,
2016
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
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
50%
(1). The Corporation owns through the Limited Partnerships a 38%ownership interest in the assets, liabilities, revenues and expenses
and 50% voting rights of the joint operations.
30. RELATED PARTY TRANSACTIONS
Related party transactions conducted in the normal course of operations are measured at fair value which is the amount
established and agreed to by the related parties, unless specific requirements within IFRS require different treatment.
The Corporation's subsidiaries have entered into the following transactions with partners:
Sainte Marguerite L.P.'s debenture to RRMD (see note 22 j)
Magpie's convertible debenture to the municipality (see note 22 p)
Innergex Europe (2015) Limited Partnership's debenture to RRMD (see note 22 cc)
The Corporation's partner made a loan to Kwoiek Creek Resources L.P. (see note 22 ee)
31. 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, 2017, 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, 2017, 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
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p142
(in thousands of Canadian dollars, except as noted and amounts per share)
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 $127,986 lower than their estimated fair
values based on the swap interest curve on December 31, 2017. The carrying values of the fixed-rate debts, the bonds
and the debentures are approximately $138,612 lower than their estimated fair market values based on the swap
interest curve on December 31, 2017. 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, bond forward contracts 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 facilities.
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.
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 negative working capital of $25,234 as at December 31, 2017 (positive working capital of
$31,859 in 2016). If necessary, the Corporation can use its revolving credit facilities, as described in Note 22 a), of
which $149,904 was available as at December 31, 2017 ($185,313 in 2016). 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p143
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Long-term debt
Other liabilities
Liability portion of convertible debentures
Total
19,406
68,591
241
3,024
44,142
249
22,441
3,041
19,725
65,733
251
135,653
111,191
40,982
676,398
5,541
96,246
819,167
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
the exchange rate in effect on the conversion date. The Corporation's net risk is estimated to be $167 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 $1 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p144
(in thousands of Canadian dollars, except as noted and amounts per share)
32. 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 2018 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.
Total revenues from Hydro-Québec amounted to $154,360 in 2017 ($102,935 in 2016), representing 39% of the
Corporation's revenues (35% in 2016). 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 2018 and 2057, 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 $155,807 in 2017 ($139,012 in 2016)
representing 39% of the Corporation's revenues (47% in 2016). 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 $22,553 ($21,250 in 2016) representing 6% of the Corporation's
revenues (7% in 2016).
Europe facilities
Under PPAs with terms of 15 years expiring between 2024 and 2032, 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 $52,300 in 2017 ($9,836 in 2016)
representing 13% of the Corporation's revenues (3% in 2016).
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 $3,523 in 2017 ($4,226 in 2016), representing 1% of the
Corporation's revenues (1% in 2016).
b. Other Commitments
(i) Hydroelectric facilities
The Corporation and its subsidiaries entered into royalties and other commitments related to surrounding municipalities,
land owners and the operation of the hydroelectric facilities.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p145
(in thousands of Canadian dollars, except as noted and amounts per share)
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
40% of the Corporation's ownership of the project will be transferred to the First Nation partner in 2057 for no financial
consideration.
Big Silver facility
A 50% ownership of the assets of the project will be transferred to one of the First Nations partners in 2056 for no
financial consideration.
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 22 g).
Tretheway facility
50% of the Corporation's ownership will be transferred to a First Nation in 2055 for no financial consideration.
Upper Lillooet facility
40% of the Corporation's ownership of the project will be transferred to the First Nation partner in 2057 for no financial
consideration.
(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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p146
(in thousands of Canadian dollars, except as noted and amounts per share)
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 2018 and 2028.
c. Summary of commitments
As at December 31, 2017, the expected schedule of commitment payments is as follows:
Year of expected
payment
2018
2019
2020
2021
2022
Thereafter
Total
d. Contingencies
Hydroelectric
Generation
Wind Power
Generation
Solar
Generation
Site
Development
Total
1,169
1,032
1,066
965
953
21,405
26,590
14,759
17,622
17,862
18,196
19,462
192,680
280,581
219
225
231
236
242
—
1,153
1,535
1,360
1,317
1,254
1,249
6,443
13,158
17,682
20,239
20,476
20,651
21,906
220,528
321,482
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.
33. 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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p147
(in thousands of Canadian dollars, except as noted and amounts per share)
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 $3,703,893 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 facilities described in Note 22 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.
Annual Report 2017
Notes to the Consolidated Financial Statements p148
(in thousands of Canadian dollars, except as noted and amounts per share)
34. SEGMENT INFORMATION
Geographic segments
The Corporation had interests in 30 hydroelectric facilities, seven wind farms and one solar farm in Canada, 15 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
2017
2016
344,440
52,300
3,523
400,263
278,723
9,836
4,226
292,785
As at
Non-current assets, excluding derivatives financial instruments
and deferred tax assets
December 31, 2017
December 31, 2016
Canada
Europe
United States
Major Customers
2,977,859
973,740
7,052
3,958,651
3,005,720
318,924
7,365
3,332,009
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 three major customers. The sales of the Corporation
to these major customers are the following:
Major customer
Segment
British Columbia Hydro and
Power authority
Hydro-Québec
Électricité de France
Hydroelectric generation
Hydroelectric and wind power
generation
Wind power generation
Operating segments
Year ended December 31
2017
2016
155,807
154,360
49,987
360,154
139,012
102,935
8,647
250,594
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
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.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p149
(in thousands of Canadian dollars, except as noted and amounts per share)
The operations of the Corporation’s operating segments are conducted by different teams, as each segment has different
skill requirements.
For the year ended December 31, 2017
Operating segments
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, 2017
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the period
Hydroelectric
generation
Wind power
generation
Solar power
generation
Site
development
Total
226,211
155,307
16,824
1,921
400,263
44,151
9,934
—
26,098
7,271
—
678
144
—
745
457
12,057
71,672
17,806
12,057
172,126
121,938
16,002
(11,338)
298,728
146,766
2,453
149,509
92,762
36,667
(4,638)
(2,245)
26,963
8,269
2,425,646
2,093,158
30,311
1,651,537
1,516,245
—
101,449
105,061
—
11,824
25,803
38,580
4,190,456
3,740,267
18,804
352,968
12
185,884
557,668
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p150
(in thousands of Canadian dollars, except as noted and amounts per share)
For the year ended December 31, 2016
Operating segments
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
Hydroelectric
generation
Wind power
generation
Solar power
generation
Site
development
Total
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.
Annual Report 2017
Notes to the Consolidated Financial Statements p151
(in thousands of Canadian dollars, except as noted and amounts per share)
35. 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 ($)
Dividend per Series
C Preferred Share ($)
02/21/2018
03/30/2018
04/16/2018
0.1700
0.2255
0.359375
b. Arrangement Agreement to acquire Alterra Power Corp.
Acquisition of Alterra Power Corp.
On February 6, 2018, Innergex announced the completion of the acquisition of Alterra by way of an arrangement
agreement pursuant to which Innergex acquired all of the issued and outstanding common shares of Alterra.
The Innergex common shares issuable to Alterra shareholders with the transaction represent an ownership of
approximately 18% of the combined corporation. One member of the current Board of Directors of Alterra joined the
Board of Directors of Innergex at the closing of the Transaction.
The total purchase for Alterra is $450,865 comprised of a cash consideration of $120,258 and the issuance of
24,327,225 common shares of the Corporation at a price of $13.59 for a value of $330,607.
The purchase price allocation has not been prepared as of today as the information is not available yet.
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. Alterra added an additional gross installed capacity of
2,896 MW to the Corporation's portfolio.
Support from la Caisse de dépôt et placement du Québec
Concurrently to the closing of the acquisition of Alterra, Innergex has closed a $150 million subordinated unsecured
5-year term loan at a 5.13% interest rate with la Caisse de dépôt et placement du Québec.
c. Increase to the revolving credit facilities
On February 6, 2018 the Corporation announced that it had increased its revolving credit facilities by $225 million to
$700 million and added a new lender to the syndicate of lenders. The maturity of the revolving credit facilities remains
December 2022.
d. Decision rendered on water rights
On January 14, 2014, Harrison Hydro Project Inc., Fire Creek Project Limited Partnership, Lamont Creek Project Limited
Partnership, Stokke Creek Project Limited Partnership, Tipella Creek Project Limited Partnership and Upper Stave
Project Limited Partnership (the "Appellants") filed appeals with the Environmental Appeal Board challenging a
determination by the Comptroller of the Water Rights respecting the water rental rates to be charged under the Water
Act R.S.B.C. 1996, c. 483 in respect of the Fire Creek Facility, Lamont Creek Facility, Stokke Creek Facility, Tipella
Creek Facility and Upper Stave River Facility. On December 8, 2015, the Environmental Appeal Board Decision issued
its decision rejecting the appeal. On January 20, 2016, an application for judicial review was filed to the British Columbia
Supreme Court ("BCSC"). On February 27, 2017, the BCSC declined to set aside the Environmental Appeal Board
Decision. On March 21, 2017, the Appellants filed an appeal of the BCSC decision and on February 8, 2018, in a split
decision, the British Columbia Court of Appeal refused to set aside the BCSC decision. The Appellants are currently
analysing the possibility of filing a petition for permission to appeal to the Supreme Court of Canada. The outcome of
the judicial review could affect the expenses of these entities on an annual basis going forward which would represent
an approximately $1,600 aggregate increase for water rights. The amount for such potential increase water rights
rentals was included in the years 2013, 2014, 2015 and 2016 results of the Corporation, which owns a 50.0024%
indirect interest in those facilities.
Innergex Renewable Energy Inc.
Annual Report 2017
Notes to the Consolidated Financial Statements p152
(in thousands of Canadian dollars, except as noted and amounts per share)
SHAREHOLDER INFORMATION
Head Office
1225 St-Charles West,
10th floor
Longueuil QC J4K 0B9
Tel. 450 928.2550
Fax 450 928.2544
innergex.com
Investor Relations
Karine Vachon
Director - Communications
Tel. 450 928.2550 x1222
kvachon@innergex.com
Stock Exchange Listing
Innergex Renewable Energy Inc.'s securities are listed
on the Toronto Stock Exchance (TSX).
The Corporation is included in the following S&P/TSX
indices:
- Composite Index
- Composite Dividend Index
- Composite High Dividend Index
- Completion Index
- Renewable energy and Clean Technology Index
Common Shares - TSX: INE
Innergex Renewable Energy Inc. had 108,608,083
common shares outstanding as at December 31, 2017,
with a closing price of $14.40 per share.
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 redeemable
by the Corporation since 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 of dollars of principal amount
of debentures. The debentures will mature on
August 31, 2020 and will not be redeemable before
August 31, 2018, except
limited
circumstances. The convertible debentures are
the
subordinated
Corporation.
indebtedness of
to all other
in certain
Credit Rating by Standard & Poor's
Innergex Renewable Energy Inc.
Series A Preferred Shares
Series C Preferred Shares
BBB-
P-3
P-3
Dividend
On February 21, 2018, 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 $0.66 to $0.68, payable
quarterly, reflects the execution of the Corporation's
strategy for building shareholder value. This is the fifth
consecutive $0.02 annual dividend increase.
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
the
dividends. For more
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.
information about
Transfer Agent and Registrar
For information
concerning share
certificates, dividend
payments, a change of
address, or electronic
delivery of shareholder
documents, please
contact:
Computershare Investor
Service Inc.
1500 Robert-Bourassa,
Suite 700
Montreal QC H3A 3S8
Tel. 1 800 564.6253
514 982.7555
service@computershare.com
Independent Auditor
Deloitte LLP
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Pour la version papier, écrivez-nous à info@innergex.com