Innergex Renewable Energy Inc. is a leading Canadian independent renewable power producer.
Active since 1990, the Corporation develops, acquires, owns and operates hydroelectric
facilities, wind farms, solar farms and geothermal power facilities and carries out its operations
in Canada, the United States, France, Chile and 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 symbols INE.DB.A and INE.DB.B.
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.
2018 in Figures
2
7
14
176
Innergex entered two
new countries,
Iceland and Chile,
through acquisitions
Innergex successfully
completed seven
acquisitions,
including its largest to
date, the acquisition
of Alterra Power
Corp.
Innergex added
14 new
operating
facilities to its
portfolio of assets
Innergex's
revenues
increased by
$176.4 million in
2018 compared with
2017
3,062
Innergex's gross
installed
capacity grew by
1,222 MW to
3,062 MW during the
year
Installed Capacity
Gross1
Net2
Hydro
Wind
Solar
Geothermal
TOTAL
1,181
1,629
78
174
3,062
797
1,139
52
94
2,082
1. Gross installed capacity is the total capacity of all Operating Facilities of
Innergex.
2. Net capacity is the proportional share of the total capacity attributable to
Innergex based on its ownership interest in each facility.
Facilities
Hydro
Wind
Solar
Geothermal
TOTAL
In operations
In development
37
25
4
2
68
3
1
4
—
8
FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars, except as noted and amounts per share)
OPERATING RESULTS
Production (MWh)
Revenues
Adjusted EBITDA1
Adjusted EBITDA Margin1
Innergex's share of Adjusted EBITDA of joint ventures and associates1 2
Adjusted EBITDA Proportionate1
Net Earnings
Adjusted Net Earnings1
Cash Flow From Operating Activities
Free Cash Flow1 3
Payout Ratio1 3
COMMON SHARES
Dividends declared
Weighted Average Number of Common Shares (in 000s)
FINANCIAL POSITION
Total Assets
Total Liabilities
Non-Controlling Interests
Equity Attributable to Owners
2016
Year ended December 31
2017
Restated 4
4,394,210
400,263
298,728
74.6%
9,615
308,343
19,136
15,662
192,451
87,207
3,521,645
292,785
215,983
73.8%
8,385
224,368
32,043
29,076
76,753
75,702
2018
6,283,436
576,616
385,081
66.8%
74,026
459,107
25,718
26,956
209,391
105,125
86%
82%
91%
90,215
130,030
71,621
108,427
68,524
106,883
6,481,284
5,521,723
329,769
629,792
4,190,456
3,737,194
14,920
438,342
3,604,204
3,118,972
14,712
470,520
1. Adjusted EBITDA, Adjusted EBITDA Margin, Innergex's share of Adjusted EBITDA of joint ventures and associates, 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 of Innergex's share of Adjusted EBITDA of joint ventures and associates, please refer to the
"Investments in Joint Ventures and Associates" section.
3. 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.
4. For more information on the restatement, please refer to the "Accounting Changes" section.
MESSAGE TO SHAREHOLDERS
DEEP ROOTS, STRATEGIC GROWTH
Driven by its mission to produce energy exclusively from renewable sources, Innergex accomplished the objectives outlined
in its 2015-2020 strategic plan two years ahead of schedule, which favourably positioned the Corporation to pursue the renewable
energy growth opportunities of today to shape the future. With a net installed capacity of over 2,000 MW, a presence in new
markets while making headway in novel technologies, the Innergex team is working diligently to raise the Corporation’s profile
and advance future projects.
For nearly 30 years, Innergex has focused on producing renewable energy. This visionary positioning at the time remains
aligned with our core values and proved to be a successful business strategy. It has guided the actions outlined in our strategic
plan and inspired team members in laying out our domestic and international expansion. We are proud of our 2018 achievements,
in which our newly expanded team demonstrated their know-how and propelled Innergex to new heights through the successful
completion of numerous acquisitions while pursuing the expansion of our activities.
Our quick growth is the result of the acquisition of Alterra Power Corp. in February 2018. The large $1.1 billion transaction
added high-quality facilities that diversify our portfolio of assets, consolidated our Canadian presence and expanded our
geographical footprint. The acquisition includes a portfolio of promising projects where we will focus our energy and allocate
resources so that our growth continues over the coming years.
Our strategy also included an international expansion component which was achieved among others by acquiring a 50%
ownership in a Chilean company, Energía Llaima, completed in July. We have now gained a foothold in South America, a
market with huge potential. With this transaction we will leverage our hydroelectric expertise in a new environment while
benefitting from the extensive Chilean market knowledge of our local partners. Innergex will be better positioned to participate
in new initiatives shaping the future of global energy markets.
In October, Innergex completed the acquisition of the Cartier Wind Farms and Operating Entities, which it already partially
owned. As Cartier’s founder, including participation in the launch and operation of the facilities from day one, it was only natural
to fully integrate these activities into our current operations. These wind farms are maintained by an experienced, innovative
team, which will share its expertise by contributing to all of Innergex’s wind operations so that synergies of best practices can
occur throughout the organization.
Additionally, the acquisition of Ledcor’s participation in the Creek Power Inc. facilities increased our position to 100% ownership
of these installations. All in all, we acquired valuable assets that will produce renewable energy for the long-term whose value
we strive to maximize.
PROVEN EXPERTISE, INNOVATIVE PATHWAYS
In the U.S. state of Texas, we are currently building our biggest wind and solar projects ever: Foard City (353 MW) will be added
to our two existing local wind farms, while Phoebe (250 MWAC) will become one of the biggest solar farms in the state. These
initiatives showcase the fact that Innergex has both the expertise and critical mass required to successfully launch major
projects. Our history of sustainable project development and ability to adapt underpin our sensible growth process which is in
line with market expectations. Additionally, other projects in the U.S., such as the Hillcrest solar project in Ohio, serve as
springboards to access regions where renewable energy is scarcely present.
Innergex continues to monitor the situation in Canada, most notably with new requests for proposals in Saskatchewan, or in
response to needs from indigenous communities, municipalities and the private sector.
In France, where Innergex’s grass roots approach of consulting local communities to shape projects is appreciated, we are
leveraging this strength for continued development. Furthermore, the sustained interest for renewable energy is a bellwether
of important growth.
Through our Chilean presence, we are looking to increase our participation in wind and solar energy projects while pursuing
the development of our hydroelectric activities. Our goal is to create both a technologically and geographically diversified
production portfolio.
Innergex Renewable Energy Inc.
Annual Report 2018
Message to shareholders p6
(in thousands of Canadian dollars, except as noted and amounts per share)
Our projects also offer opportunities to innovate. We are extremely excited by the prospect of developing two photovoltaic solar
energy projects with battery storage capacity in Hawaii, thanks to the Power Purchase Agreements we signed. Storage capacity
increases network stability while enabling maximum renewable energy use. Innergex will acquire valuable advanced energy
storage expertise that will allow us to offer solutions which are complementary to renewable energy production. We intend to
participate in the growing market of cutting-edge technologies that will support smart power grids and facilitate the deployment
of renewable energy.
Markets continue to evolve and change, which also requires innovation. Through our Pampa Elvira solar thermal farm in Chile,
we provide hot water to an industrial client whose tanks also store heat. Lessons learned from this first foray beyond the
electricity sector will be useful to understand how to offer other forms of renewable energy and storage capacity. It also provides
an opportunity to work with new types of clients.
These are important milestones in our history and a source of pride. They are also essential to our long-term growth, as the
energy landscape is changing, and it requires us to pay attention to the emerging needs of the various markets in which we
are present from now on.
Profitable assets, anticipating market trends and the courage to embrace new technologies are key elements that reinforce
our confidence in our capacity to develop the renewable energy of tomorrow.
SUSTAINABLE DEVELOPMENT, KNOWLEDGEABLE TEAM
Our core values guide our day-to-day decisions. We take pride in the fact that we are focused exclusively on producing
renewable energy for a healthy environment. Beyond producing carbon-free energy, we strive to integrate our facilities into
their surrounding environment while contributing to our host communities’ needs. Our growing number of employees continue
to actively work at implementing our three P philosophy: planet, people, and profit. This is why we offer a collaborative,
motivating work environment. These sustainability initiatives are detailed in reports that we will continue to develop.
This unique mix of characteristics which defines Innergex makes it a partner of choice in the development of sustainable energy
projects. In addition to the environmental and social issues which are very important to us, we believe that sustainable
development also involves optimizing renewable energy supply costs for consumers. With this in mind, we strive to be efficient
when developing projects so as to make renewable electricity affordable for all.
Innergex is driven by the talent and commitment of its employees. They are the ones that allow us to stand out while remaining
true to our core values. We are extremely appreciative of their efforts. We take pride in the solutions they implement to ensure
a sustainable future for all.
We are also grateful for the amazing support of our shareholders. Their social conscience and desire to contribute to the
energy transition is a source of motivation for Innergex while also providing us with the resources that allow us to serve as a
model of sustainable growth, dedicated to people, planet and profit.
In conclusion, we would like to highlight that Innergex’s successes would be unattainable without our customers, financial
backers, local communities, suppliers and all of our partners, whom we thank for their ongoing trust and support. Backed by
their valuable support, we continue our quest to improve the well-being of both communities and the environment.
Jean La Couture
Chairman of the Board
Michel Letellier
President and Chief Executive Officer
Innergex Renewable Energy Inc.
Annual Report 2018
Message to shareholders p7
(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, 2018, and reflects all
material events up to February 27, 2019, 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, 2018.
The audited consolidated financial statements attached to this MD&A and the accompanying notes for the year ended
December 31, 2018, along with the 2017 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
2018 Highlights
Operating Results
Share Capital Structure
Financial Position
Liquidity and Capital Resources
Free Cash Flow and Payout Ratio
Projected Financial Performance
Segment Information
9
11
13
14
16
20
28
29
34
36
37
38
Quarterly Financial Information
Investments in Joint Ventures and Associates
Non-wholly Owned Subsidiaries
Related Party Transactions
Non-IFRS Measures
Forward-Looking Information
Risks and Uncertainties
Critical Accounting Estimates
Accounting Changes
Establishment and Maintenance of DC&P and ICFR
Entities Excluded from the Corporation's Control
Policies and Procedures
42
43
53
61
61
62
66
75
76
78
78
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p8
(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, solar and geothermal power projects that benefit from 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: the Operating
Facilities, the Development Projects and the Prospective Projects.
Operating Facilities
HYDRO
Canada
United States
Chile
Subtotal
WIND
Canada
France
United States
Subtotal
SOLAR3
Canada
United States
Chile
Subtotal
GEOTHERMAL
Iceland
Total
Number of
Operating Facilities
Installed Capacity (MW)
Gross1
Net2
33
1
3
37
8
15
2
25
1
2
1
4
2
68
1,019
10
152
1,181
908
317
404
1,629
27
17
34
78
174
3,062
713
10
74
797
714
221
204
1,139
27
16
9
52
94
2,082
1 Gross installed capacity is the total capacity of all Operating Facilities of Innergex.
2 Net capacity is the proportional share of the total capacity attributable to Innergex based on its ownership interest in each facility.
3 Installed capacity for solar facilities was changed from MWDC to MWAC as at February 27, 2019.
The Corporation owns and operates 68 facilities in commercial operation (the “Operating Facilities”). Commissioned
between 1978 and March 2018, the facilities have a weighted average age of approximately 9.6 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 (each, a “PPA”) to rated public utilities or other creditworthy counterparties. The PPAs have
a weighted average remaining life of 15.6 years (based on gross long-term average production).
For most Operating Facilities in Canada and in France, PPAs include a base price and, in some cases, a price adjustment
depending on the month, day and hour of delivery. For most Operating Facilities in the United States, power generated is sold
through PPAs or on the open market supported by financial or physical power hedges to address market price risk exposure.
For Operating Facilities in Iceland, most power generated is sold to a number of commercial and retail customers, some of
which have long-term PPAs in place. In Chile, Operating Facilities sell the power generated through PPAs to industrial customers
or on the open market.
The PPA for the Brown Lake hydro facility located in British Columbia was renewed for a 40-year term on April 16, 2018, as
was the PPA for the Walden North hydro facility also located in British Columbia. Both agreements are subject to approval by
the British Columbia Utilities Commission, which is expected in mid-2019.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p9
(in thousands of Canadian dollars, except as noted and amounts per share)
The first PPA for the Sainte-Marguerite hydro facility located in Quebec reached 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 are under way.
The first PPA for the Chaudière hydro 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 in the coming months.
Development Projects
HYDRO
Iceland
Chile
Subtotal
WIND
United States3
SOLAR4
United States
Total
Number of Development
Projects
Installed Capacity (MW)
Gross1
Net2
1
2
3
1
4
8
10
125
135
353
495
983
5
47
52
353
495
900
1. Gross installed capacity is the total capacity of all Development Projects of Innergex.
2. Net capacity is the proportional share of the total capacity attributable to Innergex based on its ownership interest in each facility.
3. The Foard City wind project encounters delays in obtaining specific permits which could result in a reduction of the project size. For more information, please
refer to the "2018 Highlights" section.
4. Installed capacity for solar facilities was changed from MWDC to MWAC as at February 27, 2019.
The Corporation holds interests in eight projects under development, three of which are currently under construction. These
projects are scheduled to begin commercial operation between 2019 and 2022 (the “Development Projects”). For more
information on the Development Projects, please refer to the "2018 Highlights" section.
Prospective Projects
Canada
United States
France
Iceland
Chile
Total
Hydro
1,007
—
—
220
125
1,352
Prospective Projects
Gross Projected Capacity (MW)1
Solar
Wind
Geothermal
4,825
920
205
—
162
6,112
400
95
—
—
28
523
—
—
—
160
—
160
Total
6,232
1,015
205
380
315
8,147
1. As at February 27, 2019, only Gross Installed Capacity will be disclosed for Prospective Projects as the net capacity at this stage is too variable.
The Corporation also owns interest in numerous prospective projects which are at various stages of development. Some 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”).
Some Prospective Projects are targeted toward specific future Requests for Proposals and other Prospective Projects are
maintained or continue to 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, Chile and Iceland. The list of Prospective Projects is revised
regularly to add or remove projects, according to their advancement potential.
There is no certainty that any Prospective Project will be realized.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p10
(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 Renewable Energy
The Corporation is committed to producing energy exclusively from sustainable renewable sources by balancing economic,
social and environmental considerations.
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 resources in
any given year could have an impact on the Corporation's revenues and hence on its profitability.
Innergex owns interests in 37 hydroelectric facilities, which draw on 31 watersheds, 25 wind farms, 4 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:
In GWh and %
HYDRO
WIND
SOLAR
GEOTHERMAL
Total
Consolidated Long-Term Average Production and Quarterly Seasonality1
Q1
Q2
Q3
Q4
370
945
12
320
1,647
12%
31%
19%
25%
22%
1,065
658
21
320
2,064
35%
22%
33%
25%
28%
1,002
563
21
320
1,906
33%
18%
33%
25%
26%
581
885
9
320
1,795
19%
29%
14%
25%
24%
Total
3,018
3,051
63
1,280
7,412
41%
41%
1%
17%
100%
1. The consolidated long-term average production is the annualized LTA for the facilities in operation at February 27, 2019. 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 and Associates" section.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p11
(in thousands of Canadian dollars, except as noted and amounts per share)
Build Strategic Relationships
Nurturing relationships to develop long-term partnerships is at the core of our business strategy and values. Our projects flourish
with our financial, corporate, indigenous or municipal partners who share the ownership of our facilities as well as our vision
of collaboration, transparency, integrity and responsibility.
Pursue Growth Opportunities
The transitioning to a low-carbon economy will be led by the renewable energy sector. Innergex stands well positioned to
continue its strategic growth by further developing, acquiring and operating high-quality renewable energy projects and will
continue to champion the advancement of renewable energy solutions.
Key Growth Factors
The Corporation's future growth will be subject to 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. The plan commits to phasing out coal-fired generation by 2030, introducing
a national low-carbon fuel standard, and implementing a national price on carbon as of January 2019. Canada currently
generates 80% of its electricity from clean, non-emitting sources and has set a goal to increase this to 90% by 2030. 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 and our many prospective projects.
In the United States, the Corporation increased its presence with its acquisition of Alterra Power Corp., the Phoebe solar project
and the Hillcrest solar project as well as through its development activities, including the Foard City wind project, 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
renewable portfolio standard, while eight states and one territory have set renewable energy goals. Hawaii currently has the
most ambitious target – 100% renewable energy by 2045 – and California is currently on track to meet its target of 50%
renewable energy 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 PPAs, which will create new opportunities for industry growth. Texas has
been a leader in wind development since the early 1990s and has around 20 GW of wind capacity currently installed and more
than 5 GW currently under construction, surpassing its target of 10 GW of installed renewable energy capacity by 2025. The
state encouraged construction of wind facilities by authorizing Competitive Renewable Energy Zones (CREZ) and has one the
highest potentials for solar energy in the United States.
Since the early 2000s, France has put in place an ambitious strategy for developing renewable energy within its territory. As
of today, the French onshore wind market continues to be attractive, with a recently announced objective to increase installed
capacity to 35 GW in 2028 (from 15 GW in 2018). The French government has reinstated its strong commitment towards
renewable energy by adopting a number of measures to accelerate the development process of onshore wind projects. In
France, the previously existing feed-in-tariff contract structure has been changed to a contract-for-difference (“CfD Contract”)
PPA system. Although this framework is anticipated to change by 2020, wind farms of up to six turbines could still benefit from
a 20-year CfD Contract, under which they could sell their electricity directly to the market and would receive the difference
between the CfD Contract target price and the market price. Larger wind farms will have the option of participating in the auction
processes for similar CfD Contracts.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p12
(in thousands of Canadian dollars, except as noted and amounts per share)
Renewables are increasingly present in Chile. In 2018, the production of solar and wind energy reached a total of 9,165 GWh,
a 44% increase from 2017, and accounted for 11.9% of the total generated power. Meanwhile, hydroelectric plants continue
to play a significant role, in 2018 they accounted for 30.7% of total generation (equivalent to 23,501 GWh), up 7.8% from 2017.
Mining, which consumes about a third of Chile's overall power production, is also the industry that consumes most of the new
renewable energy. From 2014 to June 2018, the prices of solar energy dropped by more than 60%, prompting the mining sector
and other sectors to invest in renewable energy to reduce their energy bills. The National Electric Coordinator (ISO) foresees
that 98 power plants will begin operation during 2019, which will produce about 2,000 MW of additional power.
In Iceland, a report on power demand for the 2017-2050 period published by a committee hosted by the Energy Authority
forecast an annual 13 to 16 MW increase in demand and a 464 MW total growth in demand (maximum power demand) for the
general market through 2050 and 191 MW for the heavy industry and data centre market. Iceland’s electricity supply is generated
nearly 100% from renewable resources. In 2015, hydroelectric and geothermal generation respectively accounted for
approximately 73% and 27% of total electricity production. Heavy industry consumes approximately 79% of all electricity
generated, with around 89% of that going to aluminum manufacturing.
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 European countries have adopted ambitious GHG emissions reduction targets and governments are seeking to reduce
their dependency on conventional forms of generation, both of which developments require a greater proportion of renewable
energy in these countries' energy portfolios. There are a number of markets to which the Corporation believes it can largely
transpose its business model for developing and operating renewable energy assets.
Acquire Quality Assets
Acquisitions are an important component of the Corporation's business strategy. Gaining a foothold in a new market increases
our reach, diversity and opportunities for growth. Similarly, increasing our presence in established locations allows us to
consolidate our position as a renewable energy leader, such as in the Canadian market. Our focus will remain on generating
energy solely from renewable sources and we will continue to explore new technologies that could bring further opportunities.
Deliver Exceptional Results
Innergex recognizes that what we have accomplished and what is yet to come would not be possible without our highly skilled
team of employees and our culture that promotes excellence, accountability and collaboration. Their collective knowledge,
talent, abilities, experience and sound judgment have always been key to our long-term success. Our management team has
a proven track record of delivering projects on time and on budget. Furthermore, we have nurtured a pool of specialized partners
we can rely on to provide services outside our realm of expertise when necessary, from engineering firms to environmental
monitoring professionals. As of December 31, 2018, the Corporation employs a team of 360 highly talented individuals.
KEY PERFORMANCE INDICATORS
The Corporation measures its performance using key 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 (Loss);
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. The 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 2018
Management's Discussion and Analysis p13
(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
Innergex's share of Adjusted EBITDA of joint ventures and associates1
Adjusted EBITDA Proportionate1
Net earnings
Adjusted Net earnings1
Net earnings attributable to owners of the parent
($ per common share - basic)
($ per common share - diluted)
2018
6,283,436
6,437,964
98%
Year ended December 31
2017
Restated 3
4,394,210
4,763,836
92%
2016
3,521,645
3,364,907
105%
576,616
385,081
66.8%
74,026
459,107
25,718
26,956
32,692
0.21
0.21
130,030
400,263
298,728
74.6%
9,615
308,343
19,136
15,662
29,475
0.22
0.22
108,427
292,785
215,983
73.8%
8,385
224,368
32,043
29,076
35,963
0.28
0.28
106,883
4,190,456
246,844
3,043,387
96,246
350,717
3,490,350
14,920
438,342
6,481,284
641,500
4,024,324
238,648
617,251
4,880,223
329,769
629,792
Weighted average number of common shares (in 000s)
STATEMENT OF FINANCIAL POSITION
Total assets
Current liabilities
Long-term debt
Liability portion of convertible debentures
Other long-term liabilities
Total non-current liabilities
Non-controlling interests
Equity attributable to owners
DIVIDENDS
Declared per Series A Preferred Share
Declared per Series C Preferred Share
Declared per common share
PAYOUT RATIO
Dividends declared on common shares
Free Cash Flow 1, 2
Payout Ratio 1, 2
91%
1. Adjusted EBITDA, Adjusted EBITDA Margin, Innergex's share of Adjusted EBITDA of Joint Ventures and Associates, 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. For more information on the restatement, please refer to the "Accounting Changes" section.
3,604,204
220,370
2,507,236
94,840
296,526
2,898,602
14,712
470,520
0.902
1.4375
0.68
0.902
1.4375
0.66
0.902
1.4375
0.64
90,215
105,125
68,524
75,702
71,621
87,207
82%
86%
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p14
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial year 2018
For the year ended December 31, 2018, the increase in power generated, revenues, Adjusted EBITDA and Adjusted EBITDA
Proportionate are attributable mostly to the contribution of the facilities acquired in 2018.
The Corporation recorded $25.7 million in net earnings compared with $19.1 million in 2017, mainly due to higher Adjusted
EBITDA and a positive change in the share of net earnings of joint ventures and associates, partly offset by higher finance
costs and depreciation and amortization.
The increase in total assets is due mainly to the acquisition of Alterra, the 62% acquired interest in the Cartier Wind Farms,
the 50% ownership investment in Energía Llaima and the acquisition and advancement of the Phoebe solar project.
The increase in long-term debt results mainly from the non-recourse financing of $570.4 million with regards to four operating
wind farms ("Cartier Credit Facility"). The proceeds from the Cartier Credit Facility were used to repay the $400 million one-
year credit facility contracted to pay for a portion of the acquisition of the Cartier Wind Farms and Operating Entities and the
existing credit facilities of the L'Anse-à-Valleau, Carleton and Montagne Sèche facilities as well as to deleverage the corporate
credit facilities with the remaining $69 million. The increase in long-term debt is also attributable to the $150 million subordinated
unsecured five-year term loan obtained in February to finance the cash portion of the Alterra acquisition, to $131 million (US
$100 million) drawn on the revolving credit facilities used for the investment in Energía Llaima and the Duqueco acquisition in
Chile, to the addition of the long-term debt acquired with Alterra, to the construction loan for the Phoebe project and to drawings
made on the corporate revolving credit facilities for the construction of the Foard City wind project. The increase was partly
offset by repayments made on the corporate revolving credit facilities stemming from proceeds of the $150 million debentures
offering and by scheduled repayments of project-level debts.
The equity attributable to owners increased due mainly to the issuance of 24,327,225 shares on February 6, 2018, in connection
with the Alterra acquisition, partly offset by a change in the fair value of hedging instruments in other comprehensive income.
The increase in Free Cash Flow is due mainly to higher cash flows from operating activities before changes in non-cash working
capital items, partly offset by greater scheduled debt principal payments, higher Free Cash Flow attributed to non-controlling
interests and higher maintenance capital expenditures net of proceeds from disposals. The Corporation's payout ratio was 86%
for the year ended December 31, 2018.
Financial year 2017
For the year ended December 31, 2017, the increase in power generated, revenues, Adjusted EBITDA and Adjusted EBITDA
Proportionate were 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 $19.1 million in net earnings compared with $32.0 million in 2016, mainly due to below-average
production compared with 2016's above-average production and to challenging post-commissioning activities that were 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 resulted 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 $29.5 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's payout ratio was 82% for
the year ended December 31, 2017.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p15
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial year 2016
2016 was marked by Innergex's first oversea acquisitions in France, the acquisition of the Walden North hydro 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, which can be explained mainly by the $32.2 million increase
in Adjusted EBITDA and by two factors that were recorded in 2015, partly offset by higher finance costs, higher amortization
and depreciation costs and an income tax expense.
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 North 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 in 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%.
2018 HIGHLIGHTS
Acquisition of all the issued and outstanding common shares of Alterra Power Corp. ("Alterra") on February 6, 2018,
for an aggregate consideration of $1.1 billion, including the assumption of Alterra’s debt. The acquisition included
nine operating facilities and a large portfolio of prospective projects. This acquisition allowed the Corporation to diversify
its activities in terms of energy sources and geography while also consolidating its position in Canada.
On February 6, 2018, the Corporation has structured the financing of the cash portion of the acquisition of Alterra
Power Corp. with a five-year $150 million subordinated unsecured term loan at a 5.128% interest rate with the Caisse
de dépôt et placement du Québec.
The Corporation also increased its revolving credit facilities by $225 million to $700 million on February 6, 2018.
On April 16, 2018, Innergex announced the renewal of the electricity purchase agreement for the Brown Lake hydro
facility for a 40-year term. Also, the Corporation announced together with the Sekw'el'was Cayoose Creek Band the
renewal of the electricity purchase agreement for the Walden North hydro facility for a 40-year term. Both agreements
are subject to approval by the British Columbia Utilities Commission which are expected mid-year 2019.
On April 23, 2018, the Corporation extended all its foreign exchange forward contracts that hedge its exposure to
foreign exchange rate on its investment in France. The contracts have been extended for a period of two years following
their original expiry dates, which range from April 2018 to August 2019.
Innergex announced on May 7, 2018, that a 12-year power purchase agreement had been signed for 300 MW of wind
energy from its 352.8 MW Foard City development project. Sales under the power purchase agreement will start upon
the facility reaching commercial operation.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p16
(in thousands of Canadian dollars, except as noted and amounts per share)
Innergex has acquired the 33.3% interest of Ledcor Power Ltd. in Creek Power inc. on May 15, 2018. Creek Power
Inc. indirectly owns the Fitzsimmons Creek (7.5 MW), Boulder Creek (25.3 MW) and Upper Lillooet River (81.4 MW)
hydro facilities located in British Columbia. Innergex already owned the remaining 67.7% interest in Creek Power Inc.
as well as all the preferred equity and received virtually all of the cash flows generated by the three facilities.
On June 12, 2018, the Corporation completed, on a bought deal basis, an offering in the aggregate principal amount
of $150.0 million of 4.75% convertible debentures (the “4.75% Convertible Debentures”) at a price of $1,000 per
debenture. The 4.75% Convertible Debentures are unsecured and subordinated, have a maturity date of June 30,
2025, bear interest at a rate of 4.75% per annum, payable semi-annually, and are convertible at the option of the
holder into common shares at a conversion price of $20.00 per common share. The 4.75% Convertible Debentures
commenced trading on the TSX on June 12, 2018, under the symbol INE.DB.B.
The Upper Lillooet River and Boulder Creek construction loan was converted into a term loan on June 29, 2018.
On July 2, 2018, the Corporation acquired the 250 MWAC/315 MWDC Phoebe photovoltaic solar project located in
Winkler County, Texas. Full notice to proceed with construction was also issued on July 2, 2018, and commercial
operation should be reached in the third quarter of 2019.
Innergex acquired a 50% ownership interest in Energía Llaima in Chile on July 3, 2018, for a total consideration of
US$110 million ($144.7 million). On July 5, 2018, Energía Llaima completed the acquisition of the 140 MW Duqueco
hydro project for a purchase price of approximately US$210 million ($276.2 million), net of an estimated US$10 million
($13.2 million) in cash and subject to certain adjustments. Energía Llaima now owns three hydro facilities (152 MW)
and one solar thermal facility (34 MW) in operation as well as two hydro facilities in development (125 MW) and other
early development stage projects.
On October 22, 2018, Innergex completed the acquisition of the Hillcrest photovoltaic solar prospective project of
approximately 200 MWAC located in Brown County, Ohio. Interconnection service agreements are in place with PJM
to interconnect to the Duke Energy-owned Hillcrest substation, which would allow a commercial operation date in the
fourth quarter of 2020.
On October 24, 2018, the Corporation completed the acquisition of TransCanada's 62% interest in five wind farms in
Quebec's Gaspé peninsula, known as Baie-des-Sables, Carleton, Gros-Morne, L'Anse-à-Valleau and Montagne Sèche
(the "Cartier Wind Farms"), and its 50% interest in the operating entities of the Cartier Wind Farms (the "Cartier
Operating Entities") for a total consideration of approximately $620 million after adjustment for distributions received
by TransCanada between July 1, 2018, and the transaction closing date. Innergex already owned the remaining
interests in both the Cartier Wind Farms and Cartier Operating Entities.
Also on October 24, 2018, the Corporation obtained two short-term credit facilities to cover the purchase price and
transaction costs in their entirety. Innergex has obtained a $400 million one-year non-recourse credit facility to be
repaid using the proceeds of a non-recourse long-term project level financing. The Corporation also obtained a one-
year term credit facility of $228 million to be reimbursed through the strategic divestment of selected assets that would
be optimal for the long-term performance and outlook of the Corporation.
On December 19, 2018, the Corporation announced the closing of a non-recourse financing of $570.4 million with
regards to four operating wind farms (Cartier Credit Facility), known as Carleton, Gros-Morne, L'Anse-à-Valleau and
Montagne Sèche. The Baie-des-Sables wind farm was not used to secure the Cartier Credit Facility as it already
secures the corporate revolving credit facilities. The Cartier Credit Facility has a 14-year term. Proceeds of the loan
were used to repay the existing credit facilities of the L'Anse-à-Valleau, Carleton and Montagne Sèche wind farms
and to repay the $400 million one-year non-recourse credit facility granted to the Corporation at the time of the
acquisition of the Cartier Wind Farms and Cartier Operating Entities. Innergex used the rest of the proceeds, net of
expenses, to deleverage its corporate revolving credit facilities.
On December 19, 2018, Innergex amended and restated its corporate revolving credit facilities to adjust the security
package and extend the maturity date from December 2022 to December 2023.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p17
(in thousands of Canadian dollars, except as noted and amounts per share)
Commissioning Activities
Ownership
%
Gross
installed
capacity
(MW)
Gross
estimated
LTA1
(GWh)
PPA
term
(years)
Total project costs
Expected first full year
Estimated1
($M)
As at
Dec 31
($M)
Revenues1
($M)
Adjusted
EBITDA1 3
($M)
WIND (United States)
Flat Top2
1. This information is intended to inform readers of the project's potential impact on the Corporation's results. Actual results may vary. These
428.4 4
872.9
428.1
200.0
12.6
28.3
51.0
13
estimates are up-to-date as at the date of the MD&A.
2. Corresponding to 100% of this facility.
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.
4. Project costs, estimated projects costs, expected Revenues and expected Adjusted EBITDA are converted to Canadian dollars as at
December 31, 2018. Estimated project costs were US$314.5 million and project costs as at December 31, 2018 were US$313.8 million.
Flat Top
In the first quarter, the Corporation began commercial operation of the 200 MW Flat Top wind farm located in Texas, U.S.
Construction began prior to its acquisition by Innergex and was substantially completed in March 2018. The Commercial
Operation Date ("COD") was reached on March 23, 2018. The Flat Top wind farm sells 100% of its output to the ERCOT power
grid and set the power price on the majority of its revenue under a 13-year commodity hedge agreement with an affiliate of a
large US-based financial institution, which began on August 1, 2018. Concurrent with commercial operation, Flat Top completed
a US$211.3 million tax equity financing of the project, some of whose proceeds were used primarily to repay the project’s
construction loan.
Construction Activities
The total project costs for the Development Projects are as follows:
Ownership
%
Gross
installed
capacity
(MW)
Expected
COD
Gross
estimated
LTA1 (GWh)
PPA
term
(years)
Total
project
cost
Expected first full year
Estimated1
($M)
Revenues1
($M)
Adjusted
EBITDA1 3
($M)
53.9
10.0
2020
80.0
4
-
53.8 2
4.2 2
3.2 2
100.0
100.0
5
5
352.8
6 2019
6 1,349.1
6
12
394.5 6
- 6
- 6
250.0
2019
738.0
12 5
524.0
34.6
26.7
HYDRO (Iceland)
Brúarvirkjun
WIND (United States)
Foard City
SOLAR (United States)
Phoebe
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 this MD&A.
2. Corresponding to 100% of this facility.
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.
4. Power generated to be sold on the retail market.
5. Ownership interest is 100% of the sponsor equity in Phoebe and Foard City. However, following tax equity funding, a tax equity partner will
hold 100% of the tax equity interests.
6. The Foard City wind project encounters delays in obtaining specific permits which could result in a reduction of the project size and impact
the gross estimated LTA, total project cost and its commercial operation date which was postponed to the fourth quarter of 2019. If the project
proceeds with the actual configuration, the expected revenues and Adjusted EBITDA would be up to $22.2 million and $14.5 million,
respectively.
Brúarvirkjun
The Brúarvirkjun hydro project located in Iceland was acquired in the first quarter of 2018 and was part of the February 2018
acquisition of Alterra. Site preparation work was already under way at the time of the acquisition.
As of the date of this MD&A, construction work continues on site with major civil work at the intake, penstock alignment and
powerhouse. At the intake, the river diversions, excavation and foundation improvements have been completed and concrete
foundation work has commenced. Excavation for the penstock alignment is nearly complete and the first shipments of penstock
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p18
(in thousands of Canadian dollars, except as noted and amounts per share)
have arrived at the site. At the powerhouse, concrete work continues on schedule, including installation of the bifurcation piping.
Manufacturing continued on all of the major supply contracts, including the turbine generators, gates and transformer, and
delivery of the penstock from Spain has commenced. The project has received its Environmental Impact Assessment ("EIA")
and obtained all necessary water rights, land contracts, exploration permits, development licenses and municipal approvals
through a specific local land-use plan. The project recently received a successful ruling from the Appellate Committee for
Environment and Resources confirming that there were no material issues in the granting of the construction permit.
Commissioning is expected to occur in the first half of 2020.
Foard City
The Texas-based Foard City wind project was acquired in the first quarter of 2018, as part of the Alterra acquisition. The project
has a 12-year power purchase agreement for 300 MW of the 352.8 MW capacity, sales of which will start upon the facility
reaching commercial operation.
The project encounters delays in obtaining the Determination of No Hazards from the Federal Aviation Administration (FAA),
which could result in a reduction of total installed capacity of the project and impact the estimated gross LTA, the total project
cost and its expected commercial operation date, which was postponed to the fourth quarter of 2019. The negotiation with the
FAA, whose deadline has been affected by the United States government shutdown, is based on an acceptable airspace
perimeter determination. Mitigation solutions focused on a reduced perimeter with airspace users have been identified and a
final agreement is being drafted by the parties. Issuance of permits by the FAA is expected to resume and to follow its normal
course. To date, most scheduled construction activities are ongoing at the site.
The Corporation received non-binding agreements to secure tax equity and construction financing for the project and funds
will be readily available, subject to finalizing project size and obtaining final permits.
Phoebe
The 250 MWAC/315 MWDC Phoebe solar photovoltaic project, which is located in Texas, U.S., was acquired in the third quarter
of 2018. The contractor has completed clearing of the site and installation of the piles and trackers commenced in the fourth
quarter of 2018. Delivery of the modules started in early February and will continue into August, with over 750,000 modules to
be delivered. Substation construction is nearly complete and the main power transformers have been manufactured and are
being shipped to the site. The project is expected to begin commercial operation in the third quarter of 2019.
The Phoebe project will sell 100% of its output to the ERCOT power grid and receive a fixed price on 89% of the energy
produced under a 12-year PPA.
Development Activities
Frontera
The 109 MW Frontera hydro project was acquired in the third quarter of 2018 as part of the investment in Energía Llaima in
Chile. Full notice to proceed with construction is expected to be issued in 2019, with commercial operation planned for 2022.
As of the date of this MD&A, the financing process, which is critical to the project's success, is ongoing. The project has obtained
most of the rights and permits needed to proceed with construction, including technical and environmental approvals, and is
almost shovel-ready. Delays in construction could result in the expiry of certain permits.
El Canelo
The 16 MW El Canelo hydro project was acquired in the third quarter of 2018 as part of the investment in Energía Llaima in
Chile. Full notice to proceed with construction is expected to be issued in 2019, with commercial operation planned for 2022.
As of the date of this MD&A, the project is being redesigned to address various issues, which has delayed the issuance of
permits.
Hillcrest
The 200 MWAC Hillcrest solar project was acquired in the fourth quarter of 2018. Full notice to proceed with construction is
currently expected in the fourth quarter of 2019, with commercial operation planned for the fourth quarter of 2020, which would
make Hillcrest one of the first operating, utility-scale solar projects in Ohio. Furthermore, Hillcrest is among the first utility-scale
solar projects to successfully complete the Ohio Power Siting Board (OPSB) permitting process and was awarded the Certificate
of Environmental Compatibility and Public Need to Construct an Electric Generation Facility.
As of the date of this MD&A, Hillcrest's interconnection service and construction service agreements are in place. Moreover,
all of the land required has been secured through land leases, easements and options. The Corporation is involved in several
advanced discussions to sell the power produced by the facility through a long-term energy sale agreement. At the same time,
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p19
(in thousands of Canadian dollars, except as noted and amounts per share)
Innergex is moving swiftly to secure construction and major equipment contracts in the first half of 2019 in order to be ready
for the start of construction in the second half of 2019.
Hale Kuawehi
Located on the island of Hawaii, the Hale Kuawehi solar project is a 30 MWAC/41 MWDC facility with 120 MWh of battery storage.
The project has a 25-year power purchase agreement that provides a fixed price with the Hawaii Electric Light Company. The
agreement is subject to approval by the Public Utilities Commission of Hawaii. Sales will start upon the facility reaching
commercial operation, which is expected in 2022.
As of the date of this MD&A, environmental studies are ongoing as are other permitting-related activities.
Paeahu
The Paeahu solar project is a 15 MWAC/20 MWDC facility with 60 MWh of battery storage located on the island of Maui. The
project has signed a 25-year power purchase agreement with the Maui Electric Company that provides a fixed price. The
agreement is subject to approval by the Public Utilities Commission of Hawaii. Sales will start upon the facility reaching
commercial operation, which is expected in 2022.
As of the date of this MD&A, environmental studies are ongoing as are other permitting-related activities.
OPERATING RESULTS
The Corporation's operating results for the three-month period and the year ended December 31, 2018, are
compared with the operating results for the same periods in 2017.
Electricity production in the year was 98% of the LTA production mostly due to below-average water flows in all
regions and below-average wind regimes in France, partly offset by above-average wind regimes in Quebec.
Production increased 43%, revenues increased 44% and Adjusted EBITDA increased 29% during the year. These
increases are attributable mainly to the contribution of the facilities acquired in 2018.
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 (LTA) for each hydroelectric facility, wind farm, solar farm and geothermal facilities. These LTA are
determined to allow long-term forecasting of the expected power generation for each of the Corporation's facilities.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p20
(in thousands of Canadian dollars, except as noted and amounts per share)
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec2
France
Subtotal
SOLAR
Ontario
United States3
Subtotal
GEOTHERMAL
Iceland
Total
Three months ended December 31
2018
2017
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
172,318
22,625
333,194
1,897
530,034
659,210
199,116
858,326
4,849
2,857
7,706
181,486
21,212
372,988
5,223
580,909
595,124
214,319
809,443
5,661
3,732
9,393
95%
107%
89%
36%
91%
111%
93%
106%
86%
77%
82%
195,682
24,341
283,954
5,215
509,192
415,222
176,089
591,311
5,557
—
5,557
181,486
21,212
372,987
5,223
580,908
346,067
200,365
546,432
5,701
—
5,701
351,642
1,747,708
319,740
1,719,485
110%
102%
—
1,106,060
—
1,133,041
108%
115%
76%
100%
88%
120%
88%
108%
97%
—%
97%
—%
98%
1. Some facilities are treated as joint ventures and associates 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 and associates, please refer to the "Investments in Joint Ventures
and Associates" section.
2. Production and LTA reflects the 62% acquired interest in the Cartier Wind Farms for the period from October 24, 2018, to December 31,
2018. LTA were revised at the acquisition.
3. The Kokomo and Spartan solar facilities are now included in the consolidated results.
During the three-month period ended December 31, 2018, the Corporation's facilities produced 1,747,708 MWh of electricity
or 102% of the LTA of 1,719,485 MWh. Overall, the hydroelectric facilities produced 91% of their LTA due to below-average
water flows in most regions and to challenging post-commissioning activities that have mostly been addressed and outages
caused by a wind storm at the Upper Lillooet River and Boulder Creek facilities. Overall, the wind farms produced 106% of
their LTA due to above-average wind regimes in Quebec and compensation received from a manufacturer for reduced availability
of equipment at a wind farm, partly offset by below-average wind regimes and outages caused by maintenance activities in
France. The solar farms produced 82% of their LTA due to below-average solar regimes in all regions. The geothermal facilities
produced 110% of their LTA. For more information on operating segment results, please refer to the "Segment Information"
section.
The 58% production increase in the three-month period ended December 31, 2018 over the same period last year is due mainly
to the contribution of the geothermal facilities acquired from Alterra and the 62% interest in the Cartier Wind Farms acquired
in 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p21
(in thousands of Canadian dollars, except as noted and amounts per share)
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec2
France
Subtotal
SOLAR
Ontario
United States3
Subtotal
GEOTHERMAL
Iceland3
Total
Twelve months ended December 31
2018
2017
Production
(MWh)1
LTA (MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
1
Production
as a % of
LTA
664,640
73,228
2,042,452
44,793
2,825,113
699,930
74,544
2,195,892
46,800
3,017,166
1,539,420
660,675
2,200,095
1,471,005
734,752
2,205,757
39,263
22,026
61,289
37,363
23,330
60,693
1,196,939
6,283,436
1,154,348
6,437,964
95%
98%
93%
96%
94%
105%
90%
100%
105%
94%
101%
104%
98%
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%
40,057
—
40,057
37,627
—
37,627
106%
—
106%
—
4,394,210
—
4,763,836
—%
92%
1. Some facilities are treated as joint ventures and associates 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 and associates, please refer to the "Investments in Joint Ventures
and Associates" section.
2. Production and LTA reflects the 62% acquired interest in the Cartier Wind Farms for the period from October 24, 2018, to December 31,
2018. LTA were revised at the acquisition.
3. The Kokomo and Spartan solar facilities are now included in the consolidated results. Production and LTA for the period from February 6,
2018, to December 31, 2018.
During the year ended December 31, 2018, the Corporation's facilities produced 6,283,436 MWh of electricity or 98% of the
LTA of 6,437,964 MWh. Overall, the hydroelectric facilities produced 94% of their LTA due mainly to below-average water flows
in all regions and to challenging post-commissioning activities that have mostly been addressed at the Upper Lillooet River
and Boulder Creek hydro facilities. Overall, the wind farms produced 100% of their LTA due mainly to above-average wind
regimes in Quebec, partly offset by below-average wind regimes and outages caused by maintenance activities in France. The
solar farms produced 101% of their LTA due to an above-average solar regime in Ontario, partly offset by below-average solar
regimes in Indiana and Michigan. The geothermal facilities produced 104% of their LTA. For more information on operating
segment results, please refer to the "Segment Information" section.
The 43% production increase for the year ended December 31, 2018, compared with last year is due mainly to the contribution
of the geothermal facilities acquired from Alterra in 2018, the 62% interest in the Cartier Wind Farms acquired in 2018 and the
French facilities acquired in 2017 as well as to higher production at the Quebec wind facilities and the Upper Lillooet River
hydro facility, partly offset by lower production at most hydro facilities.
The overall performance of the Corporation's facilities for the year ended December 31, 2018, demonstrates the benefits of
geographic diversification and the complementarity of hydroelectric, wind, geothermal and solar power generation.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p22
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial Results
Three months ended December 31
Change
2018
2018
Year ended December 31
2017
Restated 3
107,973
20,278
2017
Restated 3
400,263
71,672
Change
176,353
66,200
44 %
92 %
Revenues
Operating expenses
166,159
37,558
58,186
17,280
54 %
85 %
576,616
137,872
General and
administrative
expenses
Prospective project
expenses
Adjusted EBITDA1
Adjusted EBITDA
margin1
Finance costs
Other net expenses
Depreciation and
amortization
Share of (earnings)
loss of joint ventures
and associates 2
Unrealized net loss
(gain) on 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 ($)
9,169
3,784
5,385
142 %
34,089
17,806
16,283
91 %
6,281
113,151
3,852
80,059
2,429
33,092
63 %
41 %
19,574
385,081
12,057
298,728
7,517
86,353
62 %
29 %
68.1%
74.1%
66.8%
74.6%
55,444
9,139
40,398
2,480
15,046
6,659
37 %
199,804
147,492
269 %
15,273
2,453
52,312
12,820
35 %
523 %
48,349
34,476
13,873
40 %
171,797
129,429
42,368
33 %
(16,722)
(1,707)
(15,015)
880 %
(34,110)
(4,638)
(29,472)
635 %
1,612
1,350
262
19 %
3,905
(2,245)
6,150
(274)%
1,376
13,953
(451)
3,513
1,827
(405)%
10,440
297 %
2,694
25,718
7,101
19,136
(4,407)
6,582
(62)%
34 %
14,723
7,107
7,616
107 %
32,692
29,475
3,217
11 %
(770)
13,953
(3,594)
3,513
2,824
10,440
(79)%
297 %
(6,974)
25,718
(10,339)
19,136
3,365
6,582
(33)%
34 %
0.10
0.05
0.21
0.22
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. Some facilities are treated as joint ventures and associates and accounted for using the equity method; their revenues are not included in
the Corporation's consolidated revenues. For more information on the Corporation's joint ventures and associates, please refer to the
"Investments in Joint Ventures and Associates" section.
3. For more information on the restatement, please refer to the "Accounting Changes" section.
Revenues
Up 54% to $166.2 million for the three-month period ended December 31, 2018
Up 44% to $576.6 million for the year ended December 31, 2018
The increase for the three-month period ended December 31, 2018, is attributable mainly to the contribution of the geothermal
facilities acquired as part of Alterra in February 2018, to the 62% interest in the Cartier Wind Farms acquired in October 2018
and to higher production at the Upper Lillooet River hydro facility and French wind facilities.
The increase for the year ended December 31, 2018, is attributable mainly to the contribution of the geothermal facilities
acquired as part of Alterra in February 2018, the French wind facilities acquired in 2017 and the 62% interest in the Cartier
Wind Farms acquired in October 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p23
(in thousands of Canadian dollars, except as noted and amounts per share)
Expenses
Up 90% to $53.0 million for the three-month period ended December 31, 2018
Up 89% to $191.5 million for the year ended December 31, 2018
Operating expenses consist primarily of the operators' salaries, insurance premiums, expenditures related to operation and
maintenance, property taxes, royalties and cost of power (if applicable). For the three-month period and year ended
December 31, 2018, the Corporation recorded operating expenses of $37.6 million and $137.9 million respectively ($20.3 million
and $71.7 million for the corresponding periods in 2017). The 85% and 92% increases for the three-month period and year are
attributable mainly to the acquisition of Alterra in February 2018 and the challenging post-commissioning activities that have
now mostly been addressed at the Upper Lillooet River hydro facility. The increase for the year is also attributable to the
acquisition of wind facilities in France in 2017. The operating expenses for the geothermal facilities operated by HS Orka in
Iceland are higher than for other segments, as maintenance and daily operations there require more work. Also, to supplement
its power production, HS Orka purchases power when needed, contributing to higher operating expenses. These two factors
mostly explain the higher increase in operating expenses compared with the increase in revenues. In 2017, the year's operating
expenses were impacted by a $3.3 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 of 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 was denied the leave to appeal to the Supreme Court of Canada of the decision of the Environmental
Review Board for the years 2013 and following. An appeal is ongoing for the years 2011 and 2012 on different grounds not
related to the previous appeal 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 was allocated to the non-controlling interests.
General and administrative expenses consist primarily of salaries, professional fees and office expenses. For the three-month
period and year ended December 31, 2018, general and administrative expenses totalled $9.2 million and $34.1 million
respectively ($3.8 million and $17.8 million for the corresponding periods in 2017). The 142% and 91% increases for the three-
and twelve-month periods stem mainly from the acquisition of Alterra, which includes the HS Orka geothermal operations, and
from the greater number of facilities in operation. With the acquisition of Alterra, we welcomed a large team of employees whose
salaries are included in the consolidated general and administrative expenses, while most of the revenues from the acquisition
are accounted for using the equity method and their revenues are not included in the Corporation's consolidated revenues.
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 three-
month period and year ended December 31, 2018, prospective project expenses totalled $6.3 million and $19.6 million
respectively ($3.9 million and $12.1 million for the corresponding periods in 2017). The 63% and 62% increases for the periods
are mainly attributable to activities undertaken to submit projects in response to requests for proposals, pursuing opportunities
in Canada and international markets and to the advancement of a number of prospective projects.
Adjusted EBITDA
Up 41% to $113.2 million for the three-month period ended December 31, 2018
Up 29% to $385.1 million for the year ended December 31, 2018
These increases for the three-month period and year are due mainly to higher production and revenues from the facilities
commissioned and acquired in 2017 and 2018, partly offset by higher operating expenses, general and administrative expenses
and prospective project expenses. The Adjusted EBITDA Margin decreased from 74.1% to 68.1% for the three-month period
and from 74.6% to 66.8% for the year due mainly to changes in our mix of segments as geothermal operations have a lower
EBITDA margin due to their higher maintenance, daily operating costs and power purchasing costs. The year's margin was
also impacted by challenging post-commissioning activities that have been mostly addressed at the Upper Lillooet River facility.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p24
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EBITDA Proportionate
Up 60% to $133.0 million for the three-month period ended December 31, 2018
Up 49% to $459.1 million for the year ended December 31, 2018
Adjusted EBITDA Proportionate, which is defined as Adjusted EBITDA plus Innergex's share of Adjusted EBITDA of the joint
ventures and associates, 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
Year ended December 31
Adjusted EBITDA1
Innergex's share of Adjusted EBITDA of joint ventures and
associates1 2
Adjusted EBITDA Proportionate1
1. Adjusted EBITDA, Innergex's share of Adjusted EBITDA of joint ventures and associates and Adjusted EBITDA Proportionate 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.
9,615
308,343
19,861
133,012
74,026
459,107
3,140
83,199
80,059
2018
113,151
2017
2018
385,081
2017
298,728
2. Please refer to the "Investments in Joint Ventures and Associates" section of this MD&A for more information.
These increases in Adjusted EBITDA Proportionate for the three-month period and year are due mainly to higher Adjusted
EBITDA and a higher Innergex's share of Adjusted EBITDA of joint ventures and associates stemming from the addition of the
facilities acquired as part of Alterra and Energía Llaima in 2018.
Finance Costs
Up 37% to $55.4 million for the three-month period ended December 31, 2018
Up 35% to $199.8 million for the year ended December 31, 2018
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 for the three-month period is due mainly to expenses related to the acquisitions achieved in 2018 and to
the offering of 4.75% convertible debentures, partly offset by lower inflation compensation interest on real-return bonds.
The increase for the year is due mainly to expenses related to the acquisitions achieved in 2018, to the offering of 4.75%
convertible debentures and to higher inflation compensation interest on real-return bonds.
The effective all-in interest rate on the Corporation's debt and convertible debentures was 4.48% as at December 31, 2018
(4.43% as at December 31, 2017).
Other Net Expenses
Expenses of $9.1 million for the three-month period ended December 31, 2018
Expenses of $15.3 million for the year ended December 31, 2018
Other Net Expenses (Revenues) include transaction costs, realized gain or loss on derivative financial instruments, gain or
loss on contingent considerations, other net revenues, gain or loss on foreign exchange, gain or loss on disposal of property,
plant and equipment and amortization of below market contracts. Expenses recorded for the three-month period and year are
due mainly to a realized loss on derivatives resulting from the reimbursement of three swaps related to the 62% acquired
interest in the Cartier Wind Farms and loss on foreign exchange, partly offset by higher other net revenues resulting mainly
from the amortization of below market contracts. Expenses for the year were also attributable to higher transaction costs
stemming from the Alterra acquisition and the acquisition of the remaining interest in Cartier Wind Farms and Operating Entities.
In connection with the Alterra transaction, the Corporation entered into bond forward contracts for a total of $50.0 million to
mitigate the risk of interest rate increases before the closing of the transaction. These bond forward contracts were settled
upon the closing of the Alterra transaction in February 2018 and resulted in a $0.8 million gain.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p25
(in thousands of Canadian dollars, except as noted and amounts per share)
Depreciation and Amortization
Up 40% to $48.3 million for the three-month period ended December 31, 2018
Up 33% to $171.8 million for the year ended December 31, 2018
These increases are attributable mainly to the 62% acquired interest in the Cartier Wind Farms and to the acquisition of Alterra
in 2018. The increase for the year was also due to the acquisition of French wind farms in 2017 and to the commissioning of
Upper Lillooet River and Boulder Creek facilities in 2017.
Share of Earnings of Joint Ventures and Associates
Share of net earnings of $16.7 million for the three-month period ended December 31, 2018, compared with a share of net
earnings of $1.7 million for the corresponding period in 2017
Share of net earnings of $34.1 million for the year ended December 31, 2018, compared with a share of net earnings of
$4.6 million for the corresponding period in 2017
The acquisition of Alterra included interests in the following entities: HS Orka hf ("HS Orka") (53.9% interest), which holds a
30% interest in Blue Lagoon hf., Dokie General Partnership ("Dokie") (25.5% interest), Flat Top Group Holdings LLC ("Flat
Top") (51% sponsor equity), Jimmie Creek Limited Partnership ("Jimmie Creek") (50.99% interest), Muko Partnership Holdings,
LLC ("Kokomo") (90% sponsor equity), Shannon Group Holdings, LLC ("Shannon") (50% sponsor equity), Spartan Holdings,
LLC ("Spartan") (100% sponsor equity) and Toba Montrose General Partnership ("Toba Montrose") (40% interest) (collectively
"Alterra Power Group Entities").
On July 3, 2018, Innergex completed an investment in Energía Llaima SpA ("Energía Llaima") to acquire a 50% interest.
To these joint ventures and associates, excluding HS Orka, Kokomo and Spartan, which are consolidated, are added the
following entities already owned by Innergex: Umbata Falls, L.P. ("Umbata Falls") (49% interest) and Viger-Denonville, L.P.
("Viger-Denonville") (50% interest).
Please refer to the "Investments in Joint Ventures and Associates" section for more information.
Unrealized Net Loss (Gain) on Financial Instruments
Unrealized net loss of $1.6 million for the three-month period ended December 31, 2018, compared with an unrealized net loss
of $1.4 million for the corresponding period in 2017
Unrealized net loss of $3.9 million for the year ended December 31, 2018, compared with an unrealized net gain of $2.2 million
for the corresponding period in 2017
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 loss on financial instruments for the three-month period and year ended December 31, 2018, is due mainly
to a loss on the HS Orka embedded derivative, an unfavourable variation of the CAD-EUR foreign exchange rate swap, partly
offset by an unrealized gain on the conversion of intragroup loans and by the amortization of the accumulated losses from the
pre-hedge accounting period.
For the year ended December 31, 2017, the Corporation recognized an unrealized net gain on financial instruments due to an
unrealized gain on the conversion of an intragroup loan and to 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.
Income Tax Expense (Recovery of)
Income tax expense at $1.4 million for the three-month period ended December 31, 2018
Income tax expense at $2.7 million for the year ended December 31, 2018
For the three-month period ended December 31, 2018, the Corporation recorded a current income tax expense of $4.1 million
($0.6 million for the corresponding period in 2017) and a deferred income tax recovery of $2.7 million ($1.1 million for the
corresponding period in 2017). The increase in the current income tax expense is due mainly to higher charges in Iceland. The
decrease in the deferred income tax expense is due mainly to reversal of timing differences into current taxable income and
to non–taxable income on the share of earnings of joint ventures and associates.
For the year ended December 31, 2018, the Corporation recorded a current income tax expense of $8.5 million ($4.1 million
for the corresponding period in 2017) and a deferred income tax recovery of $5.8 million (deferred income tax expense of
$3.0 million for the corresponding period in 2017). The $4.4 million increase in the current income tax expense is due mainly
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p26
(in thousands of Canadian dollars, except as noted and amounts per share)
to higher charges in Iceland, partly offset by lower charges in the United States. The $8.8 million positive change in the deferred
income tax is due mainly to the impact of income taxes on earnings being allocated to minority interests on non-taxable entities
and to the decrease in taxable temporary differences in relation to investments in subsidiaries and in joint ventures.
Net Earnings
Up 297% to $14.0 million for the three-month period ended December 31, 2018
Up 34% to $25.7 million for the year ended December 31, 2018
For the three-month period ended December 31, 2018, the Corporation recorded net earnings of $14.0 million (basic and diluted
net earnings of $0.10 per share), compared with net earnings of $3.5 million (basic and diluted net earnings of $0.05 per share)
for the corresponding period in 2017. The $10.4 million increase in net earnings can be explained by the $33.1 million increase
in Adjusted EBITDA and by the $15.0 million positive change in the share of earnings of joint ventures and associates, partly
offset by the $15.0 million increase in finance costs, $13.9 million increase in depreciation and amortization and $6.7 million
increase in other net expenses.
For the year ended December 31, 2018, the Corporation recorded net earnings of $25.7 million (basic and diluted net earnings
of $0.21 per share), compared with net earnings of $19.1 million (basic and diluted net earnings of $0.22 per share) for the
corresponding period in 2017. The $6.6 million increase in net earnings can be explained by the $86.4 million increase in
Adjusted EBITDA, $29.5 million positive change in the share of earnings of joint ventures and associates and $4.4 million
positive change in income taxes, partly offset by the $52.3 million increase in finance costs, the $42.4 million increase in
depreciation and amortization, the $12.8 million negative change in other net expenses (revenues) and the $6.2 million negative
change in unrealized net loss (gain) on financial instruments.
Adjusted Net Earnings
Up to $13.0 million for the three-month period ended December 31, 2018
Up to $27.0 million for the year ended December 31, 2018
When evaluating its operating results and to provide a more accurate picture of them, a key performance indicator for the
Corporation is 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 of financial instruments
Net earnings
Add (Subtract):
Unrealized net loss (gain) on financial instruments
Realized loss on financial instruments
Income tax expenses (recovery of) related to
above items
Share of unrealized net gain on financial
instruments of joint ventures and associates, net
of related income tax
Three months ended
December 31
Year ended December 31
2018
13,953
1,612
6,915
2017
Restated 2
3,513
1,350
—
761
(888)
2018
25,718
3,905
6,092
1,578
2017
Restated 2
19,136
(2,245)
—
(232)
Adjusted Net Earnings 1
1. Adjusted Net Earnings is not a recognized measure under IFRS and therefore may not be comparable to those presented by other issuers.
(10,193)
13,048
(123)
3,852
(10,337)
26,956
(997)
15,662
Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
2. For more information on the restatement, please refer to the "Accounting Changes" section.
Excluding loss (gains) on financial instruments and the related income taxes, net earnings for the three-month period and the
year ended December 31, 2018, would have been $13.0 million and $27.0 million, compared with net earnings of $3.9 million
and $15.7 million in 2017. The increases in the Adjusted Net Earnings are due mainly to a higher Adjusted EBITDA, the positive
change in the share of earnings of joint ventures and associates and, for the year, the positive change in income taxes, partly
offset by the increase in finance costs, the increase in depreciation and amortization and the negative change in other net
expenses (revenues). The change in share of unrealized net gain on financial instruments of joint ventures and associates, net
of related income tax is mainly due to the gain made on financial instruments with the joint ventures acquired with Alterra.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p27
(in thousands of Canadian dollars, except as noted and amounts per share)
Non-controlling Interests
Attribution of losses of $0.8 million for the three-month period ended December 31, 2018, compared with an attribution of losses
of $3.6 million for the corresponding period in 2017
Attribution of losses of $7.0 million for the year ended December 31, 2018, compared with an attribution of losses of $10.3 million
for the corresponding period in 2017
Non-controlling interests are related to the HS Orka hf ("HS Orka"), Harrison Hydro Limited Partnership ("HHLP"), the Creek
Power Inc. subsidiaries ("Creek Power") (for a 136-day period in 2018 as opposed to a full year in 2017), 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 ("Ste-Marguerite"),
the Cayoose Creek Power Limited Partnership ("Cayoose Creek"), the Spartan Holdings, LLC ("Spartan") and the Muko
Partnership Holdings, LLC ("Kokomo") and their respective general partners.
The decrease in losses attributed to non-controlling interests for the three-month period compared with the previous year results
mainly from higher income at HHLP, to the acquisition of the remaining interest in Creek Power and to higher revenues at
Innergex Europe, partly offset by the negative impact of HS Orka, to losses at Kokomo and Spartan and to higher expenses
at Ste-Marguerite.
The decrease in losses attributed to non-controlling interests for the year compared with the previous year stem mainly from
higher revenues at MU, to higher revenues at Innergex Europe, to lower losses at HHLP and the addition of HS Orka, partly
offset by lower revenues and higher expenses at Ste-Marguerite and to losses at Kokomo and Spartan.
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
2018
2017
130,030
877
130,907
108,427
820
109,247
1. During the year ended December 31, 2018, 2,579,684 of the 2,782,599 share options (2,579,684 of the 2,782,599 for the year ended
December 31, 2017) were dilutive and none of the 14,166,667 shares that can be issued on conversion of convertible debentures were
dilutive (none of the 6,666,667 shares were dilutive for the same periods in 2017).
The Corporation’s Equity Securities
Number of common shares
Number of 4.75% convertible debentures
Number of 4.25% convertible debentures
Number of Series A Preferred Shares
Number of Series C Preferred Shares
Number of share options outstanding
As at
February 27, 2019 December 31, 2018 December 31, 2017
108,608,083
—
100,000
3,400,000
2,000,000
2,782,599
132,986,850
150,000
100,000
3,400,000
2,000,000
2,782,599
133,058,339
150,000
100,000
3,400,000
2,000,000
2,782,599
As at the opening of the market on February 27, 2019, and since December 31, 2018, the increase in the number of common
shares of the Corporation is attributable to the issuance of 71,489 shares related to the Corporation's Dividend Reinvestment
Plan ("DRIP").
As at December 31, 2018, the increase in the number of common shares since December 31, 2017, was attributable mainly
to the issuance of 24,327,225 shares on February 6, 2018, in connection with the Alterra acquisition, and of 748,754 shares
related to the DRIP, net of 697,212 shares purchased for cancellation under the normal course issuer bid ("the Bid").
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p28
(in thousands of Canadian dollars, except as noted and amounts per share)
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
2018
2017
90,215
0.68
3,067
0.902
2,875
1.4375
71,621
0.66
3,067
0.902
2,875
1.4375
1. The increase in dividends declared on common shares is mainly attributable to the issuance of 24,327,225 shares on February 6, 2018,
related to the Alterra acquisition, the increase in the quarterly dividend and the issuance of shares under the DRIP, partly offset by shares
repurchased under the Bid.
The following dividends will be paid by the Corporation on April 15, 2019:
Date of
announcement
02/27/2019
Record date
3/29/2019
Payment date
4/15/2019
Dividend per
common share ($)
0.1750
Dividend per Series A
Preferred Share ($)
0.2255
Dividend per Series C
Preferred Share ($)
0.359375
On February 27, 2019, the Board of Directors increased the quarterly dividend from $0.170 to $0.175 per common share,
corresponding to an annual dividend of $0.70 per common share. This is the sixth consecutive $0.02 annual dividend increase.
Normal Course Issuer Bid
In August 2017, the Corporation proceeded with a normal course issuer bid on its Common Shares (the "Bid") covering the
period between August 17, 2017, and August 16, 2018. The Corporation could 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 as at
August 14, 2017.
Under the Bid, the Corporation has entered into an automatic purchase plan agreement with a designated broker to allow for
purchases of Common Shares at times when it would ordinarily not be permitted to do so due to self-imposed blackout periods
or regulatory restrictions.
Under the Bid, the Corporation purchased for cancellation 697,212 Common Shares at an average price of $13.60 per share,
for an aggregate consideration of $9.5 million during the year ended December 31, 2018.
FINANCIAL POSITION
As at December 31, 2018, the Corporation had $6,481 million in total assets, $5,522 million in total liabilities,
including $4,470 million in long-term debt, and $960 million in shareholders' equity. The Corporation also had a
working capital ratio of 0.36:1.00 (0.90:1.00 as at December 31, 2017). In addition to cash and cash equivalents
amounting to $79.6 million, the Corporation had restricted cash and short-term investments of $30.0 million and
reserve accounts of $51.9 million. The explanations below highlight the most significant changes in the statement
of financial position items during the year ended December 31, 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p29
(in thousands of Canadian dollars, except as noted and amounts per share)
Assets
Working Capital Items
Working capital was negative at $413.2 million, as at December 31, 2018, with a working capital ratio of 0.36:1.00 (as at
December 31, 2017, working capital was negative at $25.2 million, with a working capital ratio of 0.90:1.00). The variation in
the working capital ratio is due to higher current portion of long-term debt, higher accounts payable, lower restricted cash and
short-term investments and higher liability portion of derivatives on financial instruments, partly offset by higher cash and cash
equivalents and by higher accounts receivable.
The Corporation considers its current level of working capital to be sufficient to meet its needs, considering that Innergex intends
to divest selected assets or portions of existing assets and that the tax equity bridge loan for the construction of the Phoebe
solar project will be reimbursed through the tax equity investment at commercial operation. As at December 31, 2018, the
Corporation had $700.0 million in revolving term credit facilities and had drawn $184.1 million and US$149.0 million as cash
advances, while $169.1 million had been used for issuing letters of credit, leaving $143.5 million available.
Cash and cash equivalents amounted to $79.6 million as at December 31, 2018, compared with $61.9 million as at December 31,
2017. The increase stems mainly from the cash acquired with and generated by the acquisition of Alterra.
Restricted cash and short-term investments amounted to $30.0 million as at December 31, 2018, compared with $58.7 million
as at December 31, 2017. The decrease stems mainly from the amounts used to pay for the remaining construction costs of
the Upper Lillooet River, Boulder Creek, Mesgi'g Ugju's'n, Rougemont 1-2, Vaite, Plan Fleury and Les Renardières facilities,
partly offset by the restricted cash related to a grant that HS Orka is participating in and administering, which was received and
is to be distributed to the grant partners.
Accounts receivable increased from $87.5 million to $102.7 million between December 31, 2017, and December 31, 2018, due
mainly to the accounts receivable from the Alterra operations, higher accounts receivable at some hydro facilities in British
Columbia due to a better December this year and higher accounts receivables owing to the 62% acquired interest in the Cartier
Wind Farms, partly offset by the reimbursement of commodity taxes for the Plan Fleury, Les Renardières and Theil-Rabier
facilities and lower accounts receivable at the Upper Lillooet hydro facility due to outages caused by a wind storm.
Accounts payable and other payables increased from $91.0 million to $132.1 million from December 31, 2017, to December 31,
2018, due mainly to accounts payable from the Alterra operations, to the residual investment in Energía Llaima, to the accounts
payable stemming from the construction of the Phoebe solar project and Foard City wind project, partly offset by payment of
construction costs related to the Mesgi'g Ugju's'n, Rougemont 1-2 and Vaite facilities.
Liability portion of derivative financial instruments increased from $22.7 million to $30.0 million from December 31, 2017, to
December 31, 2018, due mainly to unfavourable variations on the power hedge for the Phoebe solar project, the embedded
derivative at HS Orka and on the interest swap of Cartier, partly offset by CAD-EUR foreign exchange swaps and amortization.
Current portion of long-term debt amounted to $445.9 million as at December 31, 2018, compared with $109.9 million as at
December 31, 2017. The increase stems mainly from the $228.0 million one-year term credit facility contracted to pay for a
portion of the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities and from the $52.7 million
drawn from the tax-equity bridge loan for the construction of the Phoebe solar project that will be reimbursed through the tax
equity investment at commercial operation expected in the fourth quarter of 2019. The increase is also attributable to the
$57.7 million Valottes, Porcien and Beaumont project-level debts that were reallocated in the current portion of the long-term
debt as some financial ratios were not met and that lenders have a right to request repayment.
Reserve Accounts
Reserve accounts consist mainly of hydrology/wind reserves, which were established at the start of commercial operation at
the facilities to compensate for the variability of cash flows related to fluctuations in hydrology or wind regimes and to other
unpredictable events, and major maintenance reserves, which were established in order to prefund any major plant repairs
that may be required to maintain the Corporation's generating capacity. The Corporation had $51.9 million in long-term reserve
accounts as at December 31, 2018, compared with $50.0 million as at December 31, 2017. The increase is mainly due to
mandatory investments made during the period.
The availability of funds in the hydrology/wind and major maintenance reserve accounts is restricted by credit agreements.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p30
(in thousands of Canadian dollars, except as noted and amounts per share)
Property, Plant and Equipment
Property, plant and equipment are comprised mainly of hydroelectric facilities, wind farms, solar farms and geothermal power
plants that are either in operation or under construction. As at December 31, 2018, the Corporation had $4,483 million in
property, plant and equipment, compared with $3,188 million as at December 31, 2017. The increase stems mainly from the
acquisition of Alterra, from the 62% acquired interest in the Cartier Wind Farms in 2018 and to the advancement of the Phoebe
solar project and the Foard City wind project, partly offset by the depreciation for the period.
Intangible Assets
Intangible assets consist of various power purchase agreements, permits and licenses. The Corporation had $925.0 million in
intangible assets as at December 31, 2018, compared with $654.1 million as at December 31, 2017. The increase is due mainly
to the acquisition of Alterra in 2018 and to the 62% acquired interest in the Cartier Wind Farms in 2018, partly offset by the
amortization.
Project Development Costs
Project Development Costs refer to the costs incurred to acquire prospective projects and develop hydroelectric, wind,
geothermal and solar facilities. The Corporation had $30.1 million in project development costs as at December 31, 2018,
compared with nil as at December 31, 2017. The increase is mainly due to the Prospective Projects acquired with Alterra in
2018 and the acquisition of the Hillcrest solar project.
Investments in Joint Ventures and Associates
Investments in Joint Ventures and Associates is initially recognized at cost and subsequently adjusted to recognize the
Corporation's share of the profit and loss and other comprehensive income of the joint ventures and associates. The Corporation
had $604.8 million in investments in joint ventures and associates as at December 31, 2018, compared with $11.0 million as
at December 31, 2017. The increase is due mainly to the acquisition of Alterra in February 2018, which included six joint ventures
and associates' projects, and to the investment in Energía Llaima in Chile in July 2018.
Goodwill
Goodwill is the excess of the purchase price over the aggregate fair value of net assets acquired. The Corporation had
$110.0 million in goodwill as at December 31, 2018, compared with $38.6 million as at December 31, 2017. The increase is
due to the acquisition of Alterra and of the remaining interest in the Cartier Wind Farms and Operating Entities.
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, its exposure to exchange rate fluctuations on the future repatriation of cash flows from its French
operations and reducing exposure to the risk of decreasing power prices. The Corporation does not own or issue any Derivatives
for speculation purposes. Derivatives also include embedded derivatives such as the ones included in two PPAs at HS Orka
related to aluminum prices.
Interest rate swap contracts allow the Corporation to eliminate the risk of interest rate increases on actual floating-rate debts.
These totalled $1,787.1 million as at December 31, 2018.
Foreign exchange forward contracts allow the Corporation to hedge its exposure to foreign exchange rate on its investments
in France. These totalled $553.7 million as at December 31, 2018.
Power hedge contracts allow the Corporation to hedge its exposure to decreases in power prices on its output to the Electric
Reliability Council of Texas (ERCOT) power grid. The power hedge contract of the Phoebe solar project fixes the price for
7,703,335 MWh over a 12-year period.
Overall, Derivatives had a net negative value of $135.8 million as at December 31, 2018 (net negative value of $62.3 million
as at December 31, 2017). The change in Derivatives is primarily due to unfavourable variations on the interest rate swap of
the Phoebe solar project, the embedded derivative at HS Orka, the interest rate swap of Cartier and CAD-EUR foreign exchange
swaps. The unfavourable variations were partly offset by the termination of the interest rate swaps of the L'Anse-à-Valleau,
Carleton and Montagne Sèche facilities.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p31
(in thousands of Canadian dollars, except as noted and amounts per share)
Long-Term Debt
As at December 31, 2018, long-term debt totalled $4,470 million ($3,153 million as at December 31, 2017). The $1,317.0 million
increase results mainly from the non-recourse financing of $570.4 million with regards to four operating wind farms ("Cartier
Credit Facility"). The proceeds from the Cartier Credit Facility were used to repay the $400 million one-year credit facility
contracted to pay for a portion of the acquisition of the Cartier Wind Farms and Operating Entities and the existing credit facilities
of the L'Anse-à-Valleau, Carleton and Montagne Sèche facilities as well as to deleverage the corporate credit facilities with the
remaining $69 million. The increase in long-term debt is also attributable to the $150 million subordinated unsecured five-year
term loan obtained in February to finance the cash portion of the Alterra acquisition, to $131 million (US$100 million) drawn on
the revolving credit facilities used for the investment in Energía Llaima and the Duqueco acquisition in Chile, to the addition of
the long-term debt acquired with Alterra, to the construction loan for the Phoebe project and to drawings made on the corporate
revolving credit facilities for the construction of the Foard City wind project. The increase was partly offset by repayments made
on the corporate revolving credit facilities stemming from proceeds of the $150 million debentures offering and by scheduled
repayments of project-level debts.
On February 6, 2018, Innergex increased its borrowing capacity on 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. On October 24, 2018, Innergex amended and restated its revolving credit facilities to adjust the
security package and extend the maturity date from December 2022 to December 2023.
As at December 31, 2018, 88% of the Corporation's outstanding debt, including convertible debentures, was fixed or hedged
against interest rate movements (94% as at December 31, 2017).
As at December 31, 2018, the Corporation and its subsidiaries have met all material financial and non-financial conditions,
unless indicated below, related to their credit agreements, trust indentures and PPAs. Were they not met, certain financial and
non-financial covenants included in the credit agreements, trust indentures, PPAs 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. Financial ratios were not met for the $57.7 million Valottes,
Porcien and Beaumont credit agreements due to low production. As lenders have the right to request repayment, the three
loans were reallocated to the current portion of long-term debt.
Total long-term debt
Deferred financing costs
Current portion of long-term debt
Long-term portion
December 31,
2018
December 31,
2017
Restated
4,526,513
(56,261)
4,470,252
(445,928)
4,024,324
3,186,613
(33,351)
3,153,262
(109,875)
3,043,387
Other Liabilities
Other liabilities, including amounts shown in current liabilities, consist of contingent considerations, asset retirement obligations,
pension fund obligation, below market contracts, various liabilities related to future ownership rights owned by First Nations
and interest payable on the Innergex Sainte-Marguerite, S.E.C. debenture. As at December 31, 2018, other liabilities totalled
$173.9 million ($80.0 million in 2017). The increase is mostly attributable to the $33.6 million increase in asset retirement
obligations following the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities and the addition
of Alterra, which includes a $26.9 million pension fund obligation related to HS Orka and $16.6 million related to below market
contracts. The increase is also attributable to the $4.5 million related to the interest payable on the Innergex Sainte-Marguerite,
S.E.C. debenture, which has no predetermined schedule and matures in 2064.
Following the acquisition of HS Orka, existing long-term power sales contracts in place at HS Orka at the time of acquisition
were recognized at fair value by comparing the contracted prices with the prevailing market prices. The contracted prices were
lower than the prevailing market prices. As a result, these pre-existing contracts were considered to be below market and a
liability was recognized at fair value as part of the purchase price allocation for HS Orka. The Corporation amortizes the fair
value of below market sales contracts over the remaining contract term and records the amount in other net expenses (revenues).
Convertible debentures
During the second quarter of 2018, the Corporation completed a bought deal offering of 4.75% convertible unsecured
subordinated debentures of Innergex. The Corporation issued an aggregate principal amount of $150 million of debentures at
a price of $1,000 per debenture, bearing interest at a rate of 4.75% per annum, payable semi-annually on June 30 and
December 31 each year, commencing on December 31, 2018. The debentures will be convertible at the holder’s option into
Innergex common shares at a conversion price of $20.00 per share, corresponding to a conversion rate of 50 common shares
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p32
(in thousands of Canadian dollars, except as noted and amounts per share)
per $1,000 principal amount of debentures. The debentures will mature on June 30, 2025, and will not be redeemable before
June 30, 2021. On and after June 30, 2021, and before June 30, 2023, Innergex may, in certain circumstances, redeem the
debentures at par plus accrued and unpaid interest. On or after June 30, 2023, Innergex may redeem the debentures at par
plus accrued and unpaid interest. The net proceeds of the convertible debenture offering were used to reduce drawings under
the Corporation’s revolving term credit facility to fund future acquisitions and development projects and for general corporate
purposes.
As at December 31, 2018, the liability portion of convertible debentures stood at $238.6 million and the equity portion stood at
$4.0 million ($96.2 million and $1.9 million as at December 31, 2017).
The convertible debentures are subordinate to all other indebtedness of the Corporation.
Shareholders' Equity
As at December 31, 2018, the Corporation's shareholders' equity totalled $959.6 million, including $329.8 million of non-
controlling interests, compared with $453.3 million as at December 31, 2017, which included $14.9 million of non-controlling
interests. This $506.3 million increase in total shareholders' equity is attributable mainly to $330.6 million in shares issued for
the Alterra acquisition, to the $314.8 million increase in non-controlling interest, of which $296.5 million was related to the Alterra
acquisition, and to the recognition of $25.7 million in net earnings, partly offset by $96.2 million in dividends declared on common
and preferred shares and the recognition of other items of comprehensive loss totaling $57.5 million.
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 15, 2018. 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.
Contractual Obligations
As at December 31, 2018
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 5 years
Thereafter
4,805,017
2,700,942
72,714
278,974
7,857,647
405,512
203,357
4,789
15,115
628,773
1,444,650
694,270
18,814
73,691
2,231,425
2,954,855
1,803,315
49,111
190,168
4,997,449
1. Purchase obligations are derived mainly from engineering, procurement and construction contracts.
Contingencies
In February 2016, HS Orka issued a legal letter to HS Veitur hf ("HS Veitur") demanding full payment of a long-term receivable
related to the shared pension liability. A $9.5 million claim was filed and is included under accounts receivable on the balance
sheet. This was following receipt of a termination notice by HS Veitur of an agreement regarding payments of the pension
liability, sent on December 31, 2015. The two companies had reached an agreement on HS Veitur’s share in 2011 and, based
on this agreement, HS Orka considers its claim to be fully valid. Negotiations have not settled the matter. The court proceedings
took place in March 2018. On April 17, 2018, the First Court of Iceland ruled in favour of HS Orka. HS Veitur filed an appeal to
the Court of Appeal, which is a court of second instance. The trial of the case took place on February 21, 2019 and a judgement
is expected within four weeks from the hearing date.
Off-Balance-Sheet Arrangements
As at December 31, 2018, the Corporation had issued letters of credit totaling $169.1 million to meet its obligations under its
various PPAs and other agreements. These letters were issued as payment securities for various projects under construction
(including the Phoebe solar project and the Foard City wind project) and as performance or financial guarantees under PPAs
and other contractual obligations. As at that date, Innergex had also issued a total of $72.0 million in corporate guarantees
used mainly to guarantee the long-term currency hedging instruments of its operations in France. The corporate guarantees
were also used to support the performance of the Brown Lake and Miller Creek hydroelectric facilities, the post-commissioning
activities at the Mesgi'g Ugju's'n facility, the Foard City development project and other prospective projects.
Tax equity investors in U.S. projects generally require sponsor guaranties as a condition to their investment. To support the tax
equity investments at Shannon, Kokomo, Spartan, Flat Top and Phoebe, Alterra, a subsidiary of Innergex, has executed
guarantees effective on funding of the tax equity investments indemnifying the tax equity investors against certain breaches of
project level representations, warranties and covenants and other events. The Corporation believes these indemnifications
cover matters that are substantially under its control and are very unlikely to occur. With respect to the Phoebe project, Alterra
has also provided a guarantee to the lenders related to debt service payments, which will become effective only in the unlikely
event that the Phoebe tax equity investors call upon their corresponding guarantee.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p33
(in thousands of Canadian dollars, except as noted and amounts per share)
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2018, the Corporation generated cash flows from operating activities of
$209.4 million, compared with cash flows of $192.5 million for the same period last year. During this year, the
Corporation generated funds from financing activities of $969.0 million and used $1,160.9 million in funds for
investing activities, mainly to pay for the acquisition of Alterra, of the remaining interest in the Cartier Wind Farms
and Operating Entities and of the Phoebe solar project. As at December 31, 2018, the Corporation had cash and
cash equivalents totalling $79.6 million, compared with $61.9 million as at December 31, 2017.
Cash Flows from Operating Activities
Up $16.9 million to $209.4 million for the year ended December 31, 2018
The increase is primarily attributable to a $86.4 million increase in Adjusted EBITDA, a $23.4 million increase in distributions
from joint ventures and associates, partly offset by a $34.8 million decrease in non-cash operating working capital items and
a $43.2 million increase in the interest paid on long-term debt.
Cash Flows from Financing Activities
Up $944.3 million to $969.0 million for the year ended December 31, 2018
The increase is attributable to a $929.2 million net increase in long-term debt in 2018, compared with a $91.5 million net increase
in long-term debt in 2017, to the $143.1 million increase in net proceeds from the issuance of convertible debentures, which
was partly offset by a $16.8 million decrease in investments from non-controlling interests, to a $5.4 million increase in payment
for buyback of common shares, to a $9.7 million increase in the payment of dividends on common shares and to a $4.9 million
increase in distributions to non-controlling interests.
The $929.2 million net increase in long-term debt results mainly from the non-recourse financing of $570.4 million with regards
to four operating wind farms ("Cartier Credit Facility"). The proceeds from the Cartier Credit Facility were used to repay the
$400 million one-year credit facility contracted to pay for a portion of the acquisition of the Cartier Wind Farms and Operating
Entities and the existing credit facilities of the L'Anse-à-Valleau, Carleton and Montagne Sèche facilities as well as to deleverage
the corporate credit facilities with the remaining $69 million. The increase in long-term debt is also attributable to the $150 million
subordinated unsecured five-year term loan obtained in February to finance the cash portion of the Alterra acquisition, to $131
million (US$100 million) drawn on the revolving credit facilities used for the investment in Energía Llaima and the Duqueco
acquisition in Chile, to the addition of the long-term debt acquired with Alterra, to the construction loan for the Phoebe project
and to drawings made on the corporate revolving credit facilities for the construction of the Foard City wind project. The increase
was partly offset by repayments made on the corporate revolving credit facilities stemming from proceeds of the $150 million
debentures offering and by scheduled repayments of project-level debts.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p34
(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
Net proceeds from issuance of convertible debentures
Payment for buy-back of common shares
Investments from non-controlling interests
Generation of financing proceeds
Business acquisitions
Investment in joint ventures and associates
Decrease of restricted cash and short-term investments
Net funds invested into the reserve accounts
Additions to property, plant and equipment
Additions to project development costs
Buyback of minority interests
Additions to intangible assets
(Additions to) reductions of other long-term assets
Net use of financing proceeds
Reduction in working capital
Year ended December 31
2018
2017
Change
2,070,430
(1,114,449)
(26,736)
929,245
143,090
(9,487)
—
1,062,848
(872,977)
(134,065)
34,440
(731)
(183,028)
(9,129)
(1,700)
(2,766)
(190)
(1,170,146)
(107,298)
668,856
(576,187)
(1,161)
91,508
—
(4,119)
16,842
104,231
(152,797)
—
70,203
(85)
(135,656)
—
—
—
1,020
(217,315)
(113,084)
837,737
958,617
(952,831)
5,786
During the year ended December 31, 2018, the Corporation borrowed a net amount of $929.2 million and issued convertible
debentures for a net amount of $143.1 million, partly offset by a $9.5 million payment for the buyback of common shares. The
net amount borrowed and the net proceeds from the issuance of convertible debentures were used for the acquisition of Alterra,
the acquisition and construction of the Phoebe solar project, the investment in Energía Llaima and the Duqueco acquisition in
Chile and the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities. The Corporation used
$34.4 million in restricted cash and short-term investments mainly to pay for the remaining construction costs of the Upper
Lillooet River, Boulder Creek, Rougemont-1, Vaite, Mesgi'g Ugju's'n and Les Renardières facilities.
Cash Flows from Investing Activities
Outflow up $948.9 million to $1,160.9 million for the year ended December 31, 2018
During the period, the main investing activities impacting cash flows were as follows: business acquisitions accounted for a
$873.0 million outflow ($152.8 million outflow in 2017) for the Alterra, Cartier Wind Farms and Operating Entities and Phoebe
acquisitions; investments in joint ventures and associates accounted for $134.1 million outflow (nil in 2017); additions to property,
plant and equipment accounted for a $183.0 million outflow ($135.7 million outflow in 2017); and fluctuations in restricted cash
and short-term investments accounted for a $34.4 million inflow ($70.2 million inflow in 2017).
Cash and Cash Equivalents
Up $17.7 million to $79.6 million for the year ended December 31, 2018
For the year ended December 31, 2018, cash and cash equivalents increased by $17.7 million (increased by $5.7 million for
the corresponding period in 2017) as a net result of its operating, financing and investing activities.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p35
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Adjust for the following elements:
Transaction costs related to realized acquisitions
Realized loss on derivative financial instruments
Free Cash Flow
Dividends declared on common shares
Payout Ratio
Dividends declared on common shares and paid in cash3
Payout Ratio - after the impact of the DRIP
Year ended December 31
2017
192,451
2018
209,391
2016
76,753
11,019
(9,652)
(86,079)
(27,984)
(5,942)
8,280
6,092
105,125
90,215
86%
80,497
77%
(23,782)
(3,973)
(67,572)
(10,425)
(5,942)
6,450
—
87,207
71,621
82%
67,990
78%
56,442
(2,730)
(43,220)
(8,571)
(5,942)
2,970
—
75,702
68,524
91%
63,346
84%
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 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 are 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.
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. 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 or
the exchange rate on equipment purchases.
For the year ended December 31, 2018, the Corporation generated Free Cash Flow of $105.1 million, compared with
$87.2 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 working capital items, partly offset by greater scheduled debt principal payments,
higher Free Cash Flow attributed to non-controlling interests and higher maintenance capital expenditures net of proceeds
from disposals.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p36
(in thousands of Canadian dollars, except as noted and amounts per share)
For the year ended December 31, 2018, the dividends on common shares declared by the Corporation amounted to 86% of
Free Cash Flow, compared with 82% for the corresponding period last year. This change results mainly from higher dividend
payments as a result of the issuance of 24,327,225 shares on February 6, 2018, related to the Alterra acquisition, to the increase
in the quarterly dividend, to additional shares following the exercise of share options and to additional shares 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, 2018, the Corporation incurred prospective project expenses of $19.6 million, compared with $12.1 million for
the corresponding period last year. This 62% increase for the period is attributable mainly to activities undertaken to submit
projects in request-for-proposals processes, to pursuing opportunities in new international markets, including the United States,
France, Iceland and Chile, to 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 13% lower for the year ended December 31, 2018, and approximately 9% lower for the prior
period.
For its acquisition of the remaining interest in the five Cartier Wind Farms and Operating Entities, the Corporation contracted
a $228 million one-year term credit facility to pay for a portion of the transaction and intends to divest selected assets or portions
of existing assets to repay it. Given the anticipated cash flows from operations, the project-level financing secured for the
Brúarvirkjun and Phoebe projects, the additional equity provided by the DRIP and the expected proceeds from the asset sales
transaction, the Corporation does not expect to require additional equity in order to complete its Brúarvirkjun, Phoebe and
Foard City projects currently under construction.
PROJECTED FINANCIAL PERFORMANCE
As at December 31, 2018, the Corporation had 68 Operating Facilities with a net installed capacity of 2,082 MW (gross
3,062 MW) and produced, on a consolidated basis, 6,283 GWh.
The increase in installed capacity and in the number of facilities in operation in 2018 is related to the acquisition of Alterra Power
Corp. in February 2018 and of a 50% ownership in Energía Llaima in Chile completed in July 2018. The increase in the net
installed capacity is also attributable to the 62% interest acquired in the Cartier Wind Farms.
In 2018, Power Generated was expected to increase 41%, Revenues were expected to increase 40% and Adjusted EBITDA
was expected to increase 27%; however, with the 62% acquired interest in the Cartier Wind Farms, the respective increases
were 43%, 44% and 29%. Adjusted EBITDA Proportionate was expected to increase 43%; however, higher Adjusted EBITDA
than expected and the acquisition of Energía Llaima resulted in a 49% increase.
The Corporation makes certain projections to provide readers with an indication of its business activities and operating
performance. In 2019, the Corporation expects power generated to increase 20%, Revenues to increase 15%, Adjusted EBITDA
to increase 15%, Adjusted EBITDA Proportionate to increase 12% and Free Cash Flow to increase by 10%. In addition to
current activities, these projections take into account the contribution of current Development Projects to achieve commercial
operation during the year but do not take into account either possible acquisitions or divestments of assets or additional
Development Projects.
2019
2018
2017
approx.
Power Generated (GWh)
Revenues
Adjusted EBITDA
Adjusted EBITDA Proportionate
Projected Free Cash Flow
Number of facilities in operation
Net installed capacity (MW)
Consolidated LTA production, annualized (GWh)
1. The Foard City wind project encounters delays in obtaining specific permits which could result in a reduction of the project size. For more information, please
refer to the "2018 Highlights" section.
+43%
4,394
+44% 400,263
+29% 298,728
+49% 308,343
87,207
54
1,124
5,036
6,283
576,616
385,081
459,107
105,125
68
2,082
6,283
approx.
70
2,684 1
6,588
+20%
+15%
+15%
+12%
+10%
+25%
+37%
+38%
+37%
approx.
approx.
approx.
With seven acquisitions that added 14 operating facilities to its portfolio of assets, Innergex underwent tremendous growth in
2018. We also advanced eight Development Projects, three of which are currently under construction.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p37
(in thousands of Canadian dollars, except as noted and amounts per share)
Looking ahead, we will continue our strategic reflection on the divestment of selected assets in light of the one-year credit
facility contracted for the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities. We also
anticipate achieving commercial operation at both the Phoebe solar project and Foard City wind project (depending on the
aforementioned delay) in the United States and will continue to advance our prospective developments to meet commercial
operation and budget schedules. The Innergex team remains committed to seeking out strategic opportunities for acquisitions
to gain a foothold in new markets as well as consolidate its position in regions where it already operates.
SEGMENT INFORMATION
Geographic Segments
As at December 31, 2018, and excluding its investments in joint ventures and associates, which are accounted for using the
equity method, the Corporation had interests in the following operating assets: 29 hydroelectric facilities, six wind farms and
one solar farm in Canada, 15 wind farms in France, one hydroelectric facility and two solar farms in the United States and two
geothermal facilities in Iceland. The Corporation operates in four principal geographical areas, which are detailed below.
Revenues
Canada
France
Iceland
United States
Non-current assets, excluding derivatives financial instruments and
deferred tax assets 1
Canada
France
Iceland 2
United States 3
Chile
1. Includes the investments in joint ventures and associates.
2. Includes the Brúarvirkjun hydro project under construction.
3. Includes the Phoebe solar project and the Foard City wind project under construction.
Year ended December 31, 2018
2018
2017
387,679
87,016
95,198
6,723
576,616
344,440
52,300
—
3,523
400,263
As at
December 31, 2018
December 31, 2017
3,757,207
956,214
832,289
526,716
154,299
6,226,725
2,977,859
973,740
—
7,052
—
3,958,651
Canada
Revenues up 13% to $387.7 million for the year ended December 31, 2018
Non-current assets, excluding derivatives financial instruments and deferred tax assets up 26% to $3,757.2 million for the year
ended December 31, 2018
The increase in Canadian revenues for the year is attributable mainly to the 62% acquired interest in the Cartier Wind Farms
and to higher production at Quebec wind farms and the Upper Lillooet hydro facility.
For the year ended December 31, 2018, the increase in non-current assets, excluding derivative financial instruments and
deferred income tax assets in Canada, stems mainly from the acquisition of the remaining interest in the Cartier Wind Farms
and Operating Entities and of Alterra, partly offset by depreciation of property, plant and equipment and amortization of intangible
assets.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p38
(in thousands of Canadian dollars, except as noted and amounts per share)
France
Revenues up 66% to $87.0 million for the twelve-month period ended December 31, 2018
Non-current assets, excluding derivatives financial instruments and deferred tax assets down 2% to $956.2 million for the year
ended December 31, 2018
The increase in revenues in France for the year is attributable mainly to the annualized effect of the facilities acquired and
commissioned in 2017 and to higher production at all French wind facilities.
For the period ended December 31, 2018, the change in non-current assets, excluding derivative financial instruments and
deferred income tax assets in France, stems from the depreciation of property, plant and equipment and amortization of intangible
assets, partly offset by the foreign exchange rate effect.
Iceland
Revenues at $95.2 million for the year ended December 31, 2018
Non-current assets, excluding derivatives financial instruments and deferred tax assets at $832.3 million for the year ended
December 31, 2018
The increases in revenues and in non-current assets, excluding financial instruments and deferred income tax assets, stem
from the two geothermal facilities acquired in February 2018 as part of the Alterra acquisition.
United States
Revenues up 91% to $6.7 million for the year ended December 31, 2018
Non-current assets, excluding derivatives financial instruments and deferred tax assets up to $526.7 million for the year ended
December 31, 2018
The increase in revenues for the year can be explained mainly by the addition of the Kokomo and Spartan solar facilities
acquired in February 2018 as part of the Alterra acquisition.
For the period ended December 31, 2018, the increase in non-current assets is attributable mainly to the acquisition of Alterra,
which owns the Kokomo and Spartan solar facilities and interests in two US-based joint ventures and associates that are not
consolidated and to the addition of the Phoebe solar project and the Foard City wind project, both being under construction.
Chile
Non-current assets, excluding derivatives financial instruments and deferred tax assets at $154.3 million for the year ended
December 31, 2018
The investment of the Corporation in Energía Llaima in Chile is accounted for using the equity method; its revenues are therefore
not consolidated. Please refer to the "Investments in Joint Ventures and Associates" for more information.
For the period ended December 31, 2018, the increase in non-current assets is attributable to the investment in Energía Llaima
and its acquisition of the Duqueco hydro project on July 3, 2018, and July 5, 2018, respectively.
Operating Segments
As at December 31, 2018, the Corporation had five operating segments: hydroelectric generation, wind power generation,
geothermal power generation, solar power generation and site development.
Through its hydroelectric, wind power, geothermal power and solar power generation segments, the Corporation sells electricity
produced by its hydroelectric, wind, geothermal and solar facilities mainly to publicly owned utilities or other creditworthy
counterparties. Through its site development segment, Innergex analyzes potential sites and develops hydroelectric, wind,
geothermal 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, 2018. 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, geothermal and 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.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p39
(in thousands of Canadian dollars, except as noted and amounts per share)
SUMMARY OPERATING RESULTS
Hydroelectric
Wind
Geothermal
Solar
Site
Development
Total
Year ended December 31,
2018
Power generated (MWh)
Revenues
Expenses:
Operating
General and administrative
Prospective projects
Adjusted EBITDA1
Year ended December 31,
2017
Power generated (MWh)
Revenues
Expenses:
Operating
General and administrative
Prospective projects
Adjusted EBITDA1
2,825,113
238,724
2,200,095
223,579
1,196,939
95,198
49,746
10,815
—
178,163
33,755
16,487
—
173,337
53,149
6,114
—
35,935
2,775,715
226,211
1,560,425
155,307
44,151
9,934
—
172,126
26,098
7,271
—
121,938
—
—
—
—
—
—
61,289
19,115
1,222
673
—
17,220
40,057
16,824
678
144
—
16,002
6,283,436
576,616
—
—
—
19,574
(19,574)
137,872
34,089
19,574
385,081
18,013
1,921
4,394,210
400,263
745
457
12,057
(11,338)
71,672
17,806
12,057
298,728
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.
As at December 31, 2018
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the period
As at December 31, 2017
(Restated 1)
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the year
Hydroelectric
Wind
Geothermal
Solar
Site
Development
Total
FINANCIAL POSITION
20,036
2,577,675
2,313,816
42,438
2,442,365
2,438,536
47,266
913,081
275,956
93
156,166
146,844
162
391,997
346,571
109,995
6,481,284
5,521,723
8,368
803
13,394
386
165,501
188,452
8,269
2,425,646
2,093,158
30,311
1,651,537
1,515,468
—
—
— 101,449
— 102,765
—
11,824
25,803
38,580
4,190,456
3,737,194
18,804
352,968
—
12
185,884
557,668
1. For more information on the restatement, please refer to the "Accounting Changes" section.
Hydroelectric Generation Segment
Revenues up 6% to $238.7 million for the year ended December 31, 2018
For the twelve-month period ended December 31, 2018, this segment produced 94% of the LTA, compared with production at
93% of the LTA last year. Production was lower than the LTA due mainly to below-average water flows in British Columbia,
Quebec and Ontario and to challenging post-commissioning activities that have mostly been addressed at the Upper Lillooet
River and Boulder Creek hydro facilities.
The increase in revenues compared with last year is due mainly to the contribution of the Upper Lillooet River and Boulder
Creek hydroelectric facilities commissioned in March and May 2017, to a better selling price at Miller Creek, which is based on
a formula using the Platts Mid-C pricing indexes, and to higher revenues in British Columbia, partly offset by lower revenues
from the Quebec facilities. Expenses for the period were higher due mainly to challenging post-commissioning activities that
have mostly been addressed at the Upper Lillooet River and Boulder Creek hydro facilities. In 2017, operating expenses for
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p40
(in thousands of Canadian dollars, except as noted and amounts per share)
the 12-month period were impacted by a $3.3 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 was denied leave to appeal the Environmental Review Board decision to the
Supreme Court of Canada for the years 2013 and following. An appeal is ongoing for the years 2011 and 2012 on different
grounds not related to the previous appeal 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 was allocated to the non-controlling interests.
The increase in total assets since December 31, 2017, stems mainly from the February 2018 acquisition of Alterra, which owns
interests in two joint ventures and associates, and from the investment in Energía Llaima, which owns interests in three hydro
facilities. The increase was partly offset by depreciation of property, plant and equipment and amortization of intangible assets.
The increase in total liabilities since December 31, 2017, is attributable mainly to the acquisition of Alterra in February 2018
and to the acquisition of 50% of Energía Llaima in July 2018, partly offset by scheduled repayment of long-term debt.
Wind Power Generation Segment
Revenues up 44% to $223.6 million for the year ended December 31, 2018
For the year ended December 31, 2018, this segment produced 100% of the LTA compared with production at 91% of the LTA
last year. Production was aligned with LTA due mainly to above-average wind regimes in Quebec, partly offset by below-average
wind regimes and outages caused by maintenance activities in France.
Revenues increased due mainly to the contribution of the wind facilities acquired in France in 2017, to the 62% acquired interest
in the Cartier Wind Farms, to compensation from a manufacturer for low-availability of equipment at a wind farm and to higher
production at all wind facilities in France and in Quebec.
The increase in total assets since December 31, 2017, is mainly attributable to the acquisition of the remaining interest in the
Cartier Wind Farms and Operating Entities and of Alterra, which owns interests in several joint ventures and associates, partly
offset by depreciation of property, plant and equipment and amortization of intangible assets.
The increase in total liabilities since December 31, 2017, is mainly attributable to the acquisition of the remaining interest in
the Cartier Wind Farms and Operating Entities and of Alterra, which owns interests in several joint ventures and associates,
partly offset by the scheduled repayment of long-term debt.
Geothermal Power Generation Segment
Revenues at $95.2 million for the year ended December 31, 2018
For the year ended December 31, 2018, this segment produced 104% of the LTA.
The increase in revenues stems from the two geothermal facilities acquired in February 2018 as part of the Alterra acquisition.
The increase in total assets since December 31, 2017, results from the acquisition of Alterra in February 2018 which included
two geothermal facilities in Iceland and a 30% investment in the Blue Lagoon (recorded in joint ventures and associates), partly
offset by depreciation of property, plant and equipment and from amortization of intangible assets.
The increase in total liabilities since December 31, 2017, results from the acquisition of Alterra in February 2018 which included
two geothermal facilities in Iceland and a 30% investment in the Blue Lagoon (recorded in joint ventures and associates).
Solar Power Generation Segment
Revenues up 14% at $19.1 million for the year ended December 31, 2018
For the the year ended December 31, 2018, this segment produced 101% of the LTA compared with production at 106% of the
LTA last year. Production was higher than the LTA due mainly to above-average solar regime in Ontario, partly offset by below-
average solar regimes in Indiana and Michigan.
The increase in revenues stem from the addition of the Kokomo and Spartan solar facilities acquired in February 2018 as part
of the Alterra acquisition.
The increase in total assets since December 31, 2017, results mainly from the acquisition of Alterra, which owns the Kokomo
and Spartan solar facilities, and from the investment in Energía Llaima, which owns an interest in Pampa Elvira that is not
consolidated, partly offset by depreciation of property, plant and equipment and the amortization of intangible assets.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p41
(in thousands of Canadian dollars, except as noted and amounts per share)
The increase in total liabilities since December 31, 2017, is mainly due to the acquisition of Alterra, which owns the Spartan
and Kokomo solar facilities, and to the investment in Energía Llaima, which owns an interest in Pampa Elvira, partly offset by
the scheduled repayment of long-term debt.
Site Development Segment
Expenses up 48% to $19.6 million for the year ended December 31, 2018
These increases in expenses for the year are mainly due to investments made to pursue growth opportunities and to the addition
of Alterra's prospective projects.
The increase in total assets since December 31, 2017, stems mainly from the development of the Phoebe solar project and
Foard City wind project.
Since December 31, 2017, the increase in total liabilities has mainly been due to the Phoebe solar project and Foard City wind
project.
QUARTERLY FINANCIAL INFORMATION
(in millions of dollars, unless otherwise stated)
Power generated (MWh)
Revenues
Adjusted EBITDA1
Realized and unrealized net (loss) gain on financial
instruments
Net earnings (loss)
Adjusted Net Earnings1
Net earnings (loss) attributable to owners of the parent
Net earnings (loss) attributable to owners of the parent ($ per
share – basic and diluted)
Dividends declared on common shares
Dividends declared on common shares, $ per share
Three months ended
Dec. 31,
2018
1,747,708
166.2
113.2
Sept. 30,
2018
1,556,891
140.8
91.6
June 30,
2018
1,823,321
149.5
99.1
Mar. 31,
2018
1,136,345
117.9
79.3
(1.6)
14.0
13.0
14.7
0.10
22.6
0.170
(3.0)
9.4
19.5
10.7
0.07
22.6
0.170
12.8
16.8
1.5
13.3
0.09
22.5
0.170
(11.3)
(14.6)
(7.2)
(6.6)
(0.07)
22.5
0.170
1. Adjusted EBITDA and Adjusted Net Earnings are not a 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.
Restated 2
(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)
Adjusted Net Earnings1
Net earnings attributable to owners of the parent
Net earnings attributable to owners of the parent ($ per share –
basic and diluted)
Dividends declared on common shares
Dividends declared on common shares, $ per share
Dec. 31,
2017
1,106,060
108.0
80.1
Three months ended
June 30,
2017
1,322,781
109.5
85.9
Sept. 30,
2017
1,243,099
108.2
81.8
Mar. 31,
2017
722,273
74.5
50.9
(1.4)
3.4
3.9
7.0
0.05
17.9
0.165
(1.0)
4.2
4.8
5.7
0.04
17.9
0.165
(0.5)
13.9
13.5
14.4
0.12
17.9
0.165
5.1
(2.5)
(6.5)
2.3
0.01
17.9
0.165
1. Adjusted EBITDA and Adjusted Net Earnings are not a 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 restatement, please refer to the "Accounting Changes" section. Only data from 2017 was restated.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p42
(in thousands of Canadian dollars, except as noted and amounts per share)
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 41% 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. Seasonality can also be explained by wind
regimes that are generally best in the first and last quarters, as the wind segment also accounts for 41% of the Corporation's
annualized consolidated LTA. Solar irradiation is at its highest during the summer months and at its lowest during the winter
months. Geothermal production is fairly stable throughout the year.
Readers may expect the net earnings or losses to reflect this seasonality characteristic of hydroelectric facilities, wind farms
and solar farms. However, other factors can 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, foreign exchange fluctuations and fluctuations in future expected aluminum prices. Historical analysis
of net earnings (losses) should take these factors into account. It should be noted that the unrealized changes in the market
value of derivative financial instruments result from interest rate fluctuations, foreign exchange fluctuations and changes in the
value of embedded derivatives linked to aluminum 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.
INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
Electricity Production
Toba Montrose
Shannon
Flat Top
Dokie
Jimmie Creek
Umbata Falls
Viger-Denonville
Peuchén
Mampil
Guayacan
Pampa Elvira
Three months ended December 31
2018
2017
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
60,698
165,436
209,528
103,142
13,992
45,523
22,115
92,887
46,496
23,478
11,647
78,296
185,391
229,921
89,468
13,441
33,037
20,300
66,778
49,383
21,679
13,399
78%
89%
91%
115%
104%
138%
109%
139%
94%
108%
87%
—
—
—
—
—
45,551
24,190
—
—
—
—
—
—
—
—
—
33,037
20,300
—
—
—
—
—
—
—
—
—
138%
119%
—
—
—
—
1. Corresponds to 100% of the facility's electricity production and LTA.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p43
(in thousands of Canadian dollars, except as noted and amounts per share)
Year ended December 31
2018
2017
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Production
(MWh)1
LTA
(MWh)1
Production
as a % of
LTA
Toba Montrose 2
Shannon 2
Flat Top 3
Dokie 2
Jimmie Creek 2
Umbata Falls
Viger-Denonville
Peuchén4
Mampil4
Guayacan5
Pampa Elvira5
1. Corresponds to 100% of the facility's electricity production and LTA.
2. For the period from February 6, 2018, to December 31, 2018.
3. Flat Top was commissioned on March 23, 2018.
4. For the period from July 5, 2018, to December 31, 2018.
5. For the period from July 3, 2018, to December 31, 2018.
655,796
617,821
612,565
269,421
173,571
121,425
77,961
134,478
100,062
34,966
23,632
704,194
646,637
666,581
264,168
165,904
109,101
72,400
124,738
98,962
33,930
26,319
—
93%
—
96%
—
92%
—
102%
105%
—
111% 136,833
73,369
108%
—
108%
—
101%
—
103%
—
90%
—
—
—
—
—
109,101
72,400
—
—
—
—
—
—
—
—
—
125%
101%
—
—
—
—
Innergex's share of Adjusted EBITDA of joint ventures and associates
Three months ended December 31
Year ended December 31
2018
2017
2018
2017
Innergex's share of Adjusted EBITDA of joint
ventures and associates1:
Toba Montrose (40%) 2
Shannon (50%) 2,5
Flat Top (51%) 3,5
Dokie (25.5%) 2
Jimmie Creek (50.99%) 2
Umbata Falls (49%)
Viger-Denonville (50%)
Blue Lagoon (30%) 2,4
Energía Llaima (50%) 6
1,326
985
894
2,804
747
1,559
1,389
4,148
6,009
19,861
—
—
—
—
—
1,589
1,551
—
—
3,140
20,209
2,804
2,707
6,109
8,142
4,189
4,834
16,590
8,442
74,026
—
—
—
—
—
5,066
4,549
—
—
9,615
1. Innergex's share of Adjusted EBITDA of joint ventures and associates 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
2. For the period from February 6, 2018, to December 31, 2018.
3. Flat Top was commissioned on March 23, 2018.
4. HS Orka (53.9% interest) holds a 30% interest in Blue Lagoon.
5. Ownership interest is in the sponsor equity of Shannon and Flat Top, however, tax equity partners hold 100% of the tax equity interests.
6. Energía Llaima includes the Guayacan (69.47% interest), Pampa Elvira (55% interest) facilities for the period from July 3, 2018, to December 31,
2018 and the Mampil (100% interest) and Peuchén (100% interest) facilities for the period from July 5, 2018, to December 31, 2018.
The summarized financial information on next page represents amounts shown in the joint ventures' and associates' financial
statements prepared in accordance with IFRS adjusted for fair value adjustments at acquisition and differences in accounting
policies.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p44
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings and Comprehensive Income (Loss)
Energia
Llaima
(181-day
period)
30,739
Toba
Montrose
(329-day
period)
65,435
Shannon
(329-day
period)
13,934
Flat Top
(329-day
period)
15,057
Dokie
(329-day
period)
31,610
Jimmie
Creek
(329-day
period)
19,166
Umbata
Falls
Viger-
Denonville
9,459
11,724
Year ended December 31, 2018
13,855
16,884
6,043
14,913
50,522
25,409
8,326
5,608
632
9,750
5,307
332
7,655
23,955
9,659
3,202
15,964
8,638
910
8,549
2,257
2,056
9,668
3,423
Blue
Lagoon
(329-day
period)
172,094
116,793
55,301
1,373
(3,588)
(495)
(785)
90
360
672
(81)
(72)
1,069
7,406
14,988
8,798
10,447
11,327
4,380
4,011
2,517
13,656
—
1,135
(12,454)
(6,315)
1,557
5,466
—
—
9,485
9,417
—
753
—
—
—
—
2,609
2,274
3,077
4,568
—
—
10,025
29,178
(715)
(768)
—
13,780
—
9,906
14,851
—
—
—
(180)
(20,353)
19,246
9,485
19,323
15,604
2,609
2,274
3,077
4,388
8,825
Others
Total
— 369,218
— 177,460
— 191,758
57,766
—
—
—
—
—
—
31
31
(2,830)
77,530
(19,117)
11,582
66,827
18,035
84,862
2,715
3,794
10,720
2,502
665
1,160
1,508
2,284
8,762
—
34,110
9,605
3,794
15,673
10,076
665
1,160
1,508
2,194
2,650
31
47,356
—
7,000
2,202
3,232
510
2,295
1,790
2,013
7,557
—
26,599
Revenues
Operating, general and
administrative expenses
Adjusted EBITDA1
Finance costs
Other net (revenues)
expenses
Depreciation and
amortization
Unrealized net (gain) loss
on financial instruments
Provision for income taxes
Net earnings
Other comprehensive
income (loss)
Total comprehensive
income
Net earnings attributable
to Innergex
Total comprehensive
income attributable to
Innergex
Distributions received
from the joint ventures
and associates by the
Corporation
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 Renewable Energy Inc.
2018 Second Quarter
Management's Discussion and Analysis p45
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings and Comprehensive Income (Loss)
Revenues
Operating, general and administrative expenses
Adjusted EBITDA1
Finance costs
Other net expenses (revenues)
Depreciation and amortization
Unrealized net gain on financial instruments
Net earnings
Other comprehensive income
Total comprehensive income
Net earnings attributable to:
Innergex
Total comprehensive income attributable to:
Innergex
Distributions received from the joint ventures and associates by the Corporation
Year ended December 31, 2017
Viger-Denonville
Total
Umbata Falls
11,645
1,307
10,338
2,392
23
4,016
(2,056)
5,963
—
5,963
10,998
1,899
9,099
3,466
(40)
2,815
(575)
3,433
1,630
5,063
22,643
3,206
19,437
5,858
(17)
6,831
(2,631)
9,396
1,630
11,026
2,921
1,717
4,638
2,921
1,823
2,532
1,378
5,453
3,201
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 Renewable Energy Inc.
2018 Second Quarter
Management's Discussion and Analysis p46
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
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
Tax equity interest
Sponsor/Partner's equity interest
Non-controlling interests
As at December 31, 2018
Energia
Llaima
30,531
34,067
64,598
Toba
Montrose
13,348
8,881
22,229
Shannon
6,329
3,466
9,795
Flat Top
5,786
7,896
13,682
Dokie
2,776
11,427
14,203
Jimmie
Creek
7,298
3,319
10,617
Umbata
Falls
2,866
903
3,769
Viger-
Denonville
1,857
1,093
2,950
Blue
Lagoon
10,144
13,375
23,519
570,472
635,070
762,471
784,700
389,088
398,883
482,951
496,633
225,788
239,991
231,632
242,249
56,872
60,641
53,757
56,707
538,975
562,494
3,849
11,048
14,897
244,620
—
308,598
66,955
635,070
5,229
9,800
15,029
567,230
—
202,441
—
784,700
12,197
4,663
16,860
12,075
227,759
142,189
—
398,883
12,178
10,491
22,669
13,492
283,661
176,811
—
496,633
2,460
7,554
10,014
133,815
—
96,162
—
239,991
3,682
925
4,607
165,990
—
71,652
—
242,249
241
3,181
3,422
38,023
—
19,196
—
60,641
746
3,405
4,151
49,652
—
2,904
—
56,707
25,470
13,203
38,673
70,180
—
453,641
—
562,494
Innergex Renewable Energy Inc.
2018 Second Quarter
Management's Discussion and Analysis p47
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
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
As at December 31, 2017
Umbata Falls
1,620
1,930
3,550
Viger-
Denonville
1,760
1,245
3,005
60,658
64,208
198
3,314
3,512
40,924
19,772
64,208
53,812
56,817
744
3,611
4,355
49,920
2,542
56,817
Innergex Renewable Energy Inc.
2018 Second Quarter
Management's Discussion and Analysis p48
(in thousands of Canadian dollars, except as noted and amounts per share)
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint ventures and associates recognized in the consolidated
financial statements:
Summary of Investments in Joint Ventures and Associates
For the year ended December 31, 2018
Balance January 1, 2018
Business acquisitions
Increase in investment
Energia
Llaima
—
—
144,694
Toba
Montrose Shannon
—
57,623
—
—
84,182
—
Flat Top
—
80,810
2,520
Dokie
—
24,366
—
Jimmie
Creek
—
37,670
—
Umbata
Falls
9,688
—
—
Viger-
Denonville
1,272
Blue
Lagoon
—
— 141,135
—
—
Total
Others
51
11,011
— 425,786
147,219
5
Share of earnings (loss)
2,715
3,794
10,720
2,502
665
1,160
1,508
2,284
8,762
—
34,110
Share of other
comprehensive income
(loss)
Foreign exchange
Distributions received
Balance December 31, 2018
6,890
—
—
154,299
—
—
(7,000)
80,976
4,953
—
(2,202)
71,094
7,574
—
(3,232)
90,174
—
—
(510)
24,521
—
—
(2,295)
36,535
—
—
(1,790)
9,406
(90)
—
(2,013)
1,453
(6,112)
—
(7,557)
136,228
13,246
31
—
—
— (26,599)
604,773
87
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture and associates recognized in the consolidated
financial statements:
Summary of Investments in the Joint Venture and Associates
Balance January 1, 2017
Share of earnings
Share of other comprehensive income
Distributions received
Balance December 31, 2017
For the year ended December 31, 2017
Umbata Falls
8,590
2,921
—
(1,823)
9,688
Viger-
Denonville
118
1,717
815
(1,378)
1,272
Others
Total
51
—
—
—
51
8,759
4,638
815
(3,201)
11,011
Innergex Renewable Energy Inc.
2018 Second Quarter
Management's Discussion and Analysis p49
(in thousands of Canadian dollars, except as noted and amounts per share)
Toba Montrose
The Corporation holds a 51% voting interest and 40% participating economic interest in East Toba and Montrose Creek hydro
facilities ("Toba Montrose"). In 2046, the Corporation’s economic interest will increase to 51% for no additional consideration.
For the period from February 6, 2018, to December 31, 2018, production was 93% of the LTA due to below-average water
flows.
Toba Montrose recorded net earnings of $9.5 million for the period from February 6, 2018, to December 31, 2018.
Toba Montrose 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 $92.7 million used to hedge the interest rate of the Toba Montrose loan had a net negative value of $30.7 million
at December 31, 2018.
Shannon
The Corporation holds a 50% sponsor equity interest in the Shannon wind facility, with the remaining 50% sponsor equity
interest and tax equity interest held by third parties.
For the period from February 6, 2018, to December 31, 2018, production was 96% of the LTA due mainly to below-average
wind regimes.
Shannon recorded net earnings of $9.4 million for the period from February 6, 2018, to December 31, 2018.
On June 29, 2015, Shannon entered into a long-term power hedge covering the period from June 1, 2016, to May 31, 2029.
The power hedge provides for Shannon to receive a fixed dollar amount per MWh for a fixed quantity of power. Shannon and
the hedge provider settle net on a monthly basis. Shannon hedges approximately 85% of its output; the power hedge had a
net positive value of $47.7 million at December 31, 2018.
One of the primary incentives for renewable energy in the United States has been the production tax credit program ("PTC"),
whereby corporations that generate electricity from renewable energy sources, including wind, are eligible for tax credits which
provide a tax benefit for each unit of generation for the first 10 years of the facility's operation (until 2025 for Shannon). The
Shannon tax equity investors are allocated a portion of Shannon's taxable income (losses) and PTCs and a portion of the cash
generated until they achieve an agreed after–tax investment return (the "Flip Point"). After the Flip Point, the Shannon tax
equity investors will be allocated 5% of cash distributions and taxable income (losses) and the sponsors will be allocated 95%
of all cash distributions and taxable income (losses).
For the period from February 6, 2018, to December 31, 2018, the wind facility generated approximately US$14.6 million
($15.5 million) of PTCs.
The tax equity investors' and sponsors' taxable income (losses) and PTCs and cash distributions allocations are detailed in
the table below. These allocations will change when the Tax Equity Investors reach their expected return.
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
Sponsors
99.0%
64.1%
1.0%
35.9%
Due to exceptionally low winds at the facility during certain parts of 2016 and 2017, there is currently a higher allocation of cash
to the tax equity investors, which commenced in the first quarter of 2017. The cash allocations are based on a quarterly test
measuring cumulative generation for the project since tax equity funding (December 14, 2015) with allocations to the Sponsors
and Tax Equity Investors based on cumulative allocations.
Tax equity investors in U.S. projects generally require sponsor guaranties as a condition to their investment. To support the tax
equity investments at Shannon, Alterra, a subsidiary of Innergex, executed a guarantee indemnifying the tax equity investors
against certain breaches of project level representations, warranties and covenants and other events. The Corporation believes
these indemnifications cover matters which are substantially under its control, and are very unlikely to occur.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p50
(in thousands of Canadian dollars, except as noted and amounts per share)
Flat Top
The Corporation holds a 51% sponsor equity interest in the Flat Top wind facility, with the remaining 49% sponsor equity interest
and tax equity interest held by third parties. The wind farm began commercial operation on March 23, 2018.
For the period from March 23, 2018, to December 31, 2018, production was 92% of the LTA due mainly to below-average wind
regimes and to post-commissioning activities.
Flat Top recorded net earnings of $0.8 million for the period from February 6, 2018, to December 31, 2018.
On May 24, 2017, Flat Top entered into a long-term power hedge covering the period from August 1, 2018, to July 31, 2031.
The power hedge provides for the Corporation to receive a fixed dollar amount per MWh for a fixed quantity of power. Flat Top
and the hedge provider settle net on a monthly basis. Flat Top hedges approximately 81% of its output; the power hedge had
a net positive value of $16.7 million at December 31, 2018.
One of the primary incentives for renewable energy in the United States has been the PTC program, whereby corporations
that generate electricity from renewable energy sources, including wind, are eligible for tax credits which provide a tax benefit
for each unit of generation for the first 10 years of the facility's operation (until 2028 for Flat Top). The Flat Top tax equity investors
are allocated a portion of Flat Top's taxable income (losses) and PTCs and a portion of the cash generated until they achieve
an agreed after-tax investment return. After the Flip Point, the Flat Top tax equity investors will be allocated 5% of cash
distributions and taxable income (losses) and the sponsors will be allocated 95% of all cash distributions and taxable income
(losses).
For the period from March 23, 2018, to December 31, 2018, the wind facility generated approximately US$14.5 million
($19.1 million) of PTCs.
The tax equity investors' and sponsors' taxable income (losses) and PTCs and cash distributions allocations are detailed in
the table below. These allocations will change when the tax equity investors reach their expected return.
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
Sponsors
99.00%
21.97%
1.00%
78.03%
Tax equity investors in U.S. projects generally require sponsor guaranties as a condition to their investment. To support the tax
equity investments at Flat Top, Alterra, a subsidiary of Innergex, executed a guarantee indemnifying the Tax Equity Investors
against certain breaches of project level representations, warranties and covenants and other events. The Corporation believes
these indemnifications cover matters that are substantially under its control and very unlikely to occur.
Dokie
The Corporation holds a 25.5% voting and participating interest in the Dokie wind facility.
For the period from February 6, 2018, to December 31, 2018, production was 102% of the LTA due mainly to above-average
wind regimes.
Dokie recorded net earnings of $2.6 million for the period from February 6, 2018, to December 31, 2018.
Jimmie Creek
The Corporation holds a 50.99% voting and participating interest in the Jimmie Creek hydro facility.
For the period from February 6, 2018, to December 31, 2018, production was 105% of the LTA due mainly to above-average
water flows.
Jimmie Creek achieved net earnings of $2.3 million for the period from February 6, 2018 to December 31, 2018.
Umbata Falls
The Corporation holds a 49% voting and participating interest in the Umbata Falls hydro facility.
For the year ended December 31, 2018, production was 111% of the LTA, due to above-average water flows.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p51
(in thousands of Canadian dollars, except as noted and amounts per share)
For the year ended December 31, 2018, the decrease in Adjusted EBITDA is due mainly to lower production this year compared
with the same period last year and to the end of the EcoEnergy program subsidies in May 2018.
Net earnings increased for the the year ended December 31, 2018, mainly due to a smaller unrealized net loss on financial
instruments.
Viger-Denonville
The Corporation holds a 50% voting and participating interest in the Viger-Denonville wind facility.
For the year ended December 31, 2018, production was 108% of the LTA due mainly to above-average wind regime.
For the year ended December 31, 2018, the Adjusted EBITDA increased due mainly to higher production compared with last
year.
For the year ended December 31, 2018, the increase in net earnings compared with last year is due mainly to higher Adjusted
EBITDA.
For the year ended December 31, 2018, the decrease in total comprehensive income is attributable mainly to other
comprehensive loss compared to an other comprehensive income in 2017.
Energía Llaima
The Corporation holds a 50% voting and equity interest in Energía Llaima, which produces and sells electricity from the Guayacan
(69.47% interest), Mampil (100% interest) and Peuchén (100% interest) hydro facilities and the Pampa Elvira (55% interest)
solar-thermal facility in Chile.
For the period from July 3, 2018, to December 31, 2018, production of the four facilities combined was 103% of the LTA due
mainly to above-average water flows at the hydro facilities, partly offset by repair and maintenance work performed at Pampa
Elvira.
For the period from July 3, 2018, to December 31, 2018, Energía Llaima recorded net earnings of $5.5 million.
Blue Lagoon
HS Orka holds a 30% interest in Blue Lagoon hf., which operates the Blue Lagoon geothermal spa in Iceland.
Blue Lagoon recorded net earnings of $8.8 million for the period from February 6, 2018, to December 31, 2018.
Commitments of joint ventures and associates
As at December 31, 2018, the Corporation's share of the expected schedule of commitment payments for the joint ventures
and associates were as follows:
Years of
2019
2020
2021
2022
2023
Thereafter
Total
Hydroelectric
Generation
Wind Power
Generation
Total
1,606
1,420
1,439
1,458
1,477
40,094
47,494
4,494
4,497
5,060
5,063
5,067
46,737
70,918
6,100
5,917
6,499
6,521
6,544
86,831
118,412
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p52
(in thousands of Canadian dollars, except as noted and amounts per share)
NON-WHOLLY OWNED SUBSIDIARIES
Summarized financial information regarding each of the Corporation's subsidiaries that has material non-controlling interests
is set out below. Amounts are shown before intragroup eliminations.
HS Orka hf ("HS Orka")
The Corporation holds a 53.9% voting and participating interest in HS Orka, which produces and sells electricity from two
operating geothermal plants located in Iceland, namely Reykjanes and Svartsengi.
Summary Statements of Earnings and Comprehensive Income – HS Orka
Revenues
Adjusted EBITDA1
Net earnings 2
Other comprehensive loss
Total comprehensive loss
Net earnings attributable to:
Innergex
Non-controlling interests
Total comprehensive loss attributable to:
Innergex
Non-controlling interests
Period of 329 days
ended December 31,
2018
95,198
27,906
1,998
(36,711)
(34,713)
1,077
921
1,998
(18,710)
(16,003)
(34,713)
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.
2. Expenses also include non-cash expenses, such as depreciation and amortization totalling $19.8 million and an unrealized net loss on
financial instruments related to embedded derivatives totalling $16.9 million, partly offset by earnings from the Blue Lagoon of $8.8 million
for the 329-day period ended December 31, 2018.
For the period from February 6, 2018 to December 31, 2018, net earnings of $2.0 million are attributable mainly to high
generation, which was 104% of the budget, partially offset by costs of production and changes in the fair value of the embedded
derivatives.
Summary Statement of Financial Position – HS Orka
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to Innergex
Non-controlling interests
As at
December 31, 2018
33,526
832,290
865,816
36,620
205,088
341,443
282,665
865,816
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p53
(in thousands of Canadian dollars, except as noted and amounts per share)
Harrison Hydro Limited Partnership ("Harrison Hydro L.P.") and Its Subsidiaries
The Corporation owns a 50.01% voting and participating 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 and comprehensive loss
Net (loss) earnings and comprehensive (loss) income attributable to:
Innergex
Non-controlling interests
Year ended December 31
2018
2017
50,509
40,411
(4,172)
(2,565)
(1,607)
(4,172)
50,891
36,847
(6,798)
(3,970)
(2,828)
(6,798)
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, 2018, the decrease in net loss is attributable mainly to a $3.3 million non-recurring expense
recorded in 2017 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 was denied leave to appeal the Environmental Review Board's
decision for the years 2013 and following to the Supreme Court of Canada of the decision of the Environmental Review Board's
decision for the years 2013 and following. An appeal is ongoing for the years 2011 and 2012 on different grounds not related
to the previous Environmental Appeal Board appeal. Since 2013, these facilities' water rights fees have been paid at the higher
rates. A 49.99% portion of the water rights payment was allocated to the non-controlling interests.
Summary Statements of Financial Position – Harrison Hydro L.P.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to Innergex
Non-controlling interests
As at
December 31, 2018
December 31, 2017
20,642
587,713
608,355
17,480
451,381
88,218
51,276
608,355
13,376
601,105
614,481
17,163
453,647
90,787
52,884
614,481
The decrease in equity attributable to Innergex and non-controlling interests is due mainly to the recognition of a comprehensive
loss.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p54
(in thousands of Canadian dollars, except as noted and amounts per share)
Kwoiek Creek Resources Limited Partnership
The Corporation owns a 50.0% voting interest in Kwoiek Creek Resources Limited Partnership, which owns the Kwoiek Creek
hydroelectric facility and all the preferred units.
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:
Innergex
Non-controlling interest
Year ended December 31
2018
2017
17,899
13,846
(2,096)
(1,048)
(1,048)
(2,096)
19,016
15,234
(890)
(445)
(445)
(890)
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, 2018, the decreases in revenues and Adjusted EBITDA are due mainly to production levels
that were lower than last year. The recognition of a net loss is attributable mainly to the recording of a $4.1 million (2017- $4.2
million) preferred return payable to the Corporation on the $39.8 million preferred units. It is also attributable to the interest on
the $3.7 million subordinated debt payable to a partner. Excluding these elements, net earnings would have been $2.0 million
(2017- $3.3 million).
Summary Statements of Financial Position – Kwoiek Creek Resources Limited Partnership
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to Innergex
Non-controlling interests deficit
As at
December 31, 2018
December 31, 2017
4,306
169,408
173,714
5,428
191,784
(11,282)
(12,216)
173,714
7,335
172,223
179,558
7,919
193,480
(10,672)
(11,169)
179,558
For the year ended December 31, 2018, the increase in the deficit attributable to owners is mainly due to the net loss incurred.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p55
(in thousands of Canadian dollars, except as noted and amounts per share)
Mesgi'g Ugju's'n (MU) Wind Farm, L.P. ("Mesgi'g Ugju's'n")
The Corporation owns a 50% voting interest in Mesgi'g Ugju's'n (MU) Wind Farm, L.P., which owns the Mesgi'g Ugju's'n wind
facility, and a participation interest of 72.4% in 2018 (participation interest to decline over the years).
Summary Statement of Earnings and Comprehensive Income – Mesgi'g Ugju's'n
Revenues
Adjusted EBITDA1
Net earnings
Other comprehensive (loss) income
Total comprehensive income
Net earnings attributable to:
Innergex
Non-controlling interest
Total comprehensive income attributable to:
Innergex
Non-controlling interest
Year ended December 31
2018
2017
62,592
55,766
33,137
(174)
32,963
23,981
9,156
33,137
23,855
9,108
32,963
51,845
46,219
21,825
3,246
25,071
15,795
6,030
21,825
18,144
6,927
25,071
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, 2018, the increase in net earnings is due mainly to higher production from above-average
wind regimes and from compensation received from a manufacturer for low availability of equipment.
Summary Statement of Financial Position – Mesgi'g Ugju's'n
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to Innergex
Non-controlling interest deficit
As at
December 31, 2018
December 31, 2017
23,533
276,142
299,675
12,500
246,394
44,575
(3,794)
299,675
21,727
283,271
304,998
16,004
247,867
44,826
(3,699)
304,998
For the year ended December 31, 2018, the equity attributable to owners remained stable due to distributions to owners similar
to the comprehensive income.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p56
(in thousands of Canadian dollars, except as noted and amounts per share)
Innergex Sainte-Marguerite, S.E.C. ("SM S.E.C.")
The Corporation owns 50.01% of the common units and all of the preferred units of SM S.E.C., which owns the Sainte-Marguerite
hydroelectric facility.
Summary Statements of Earnings and Comprehensive Income – SM S.E.C.
Revenues
Adjusted EBITDA1
Net loss and comprehensive loss
Net loss and comprehensive loss attributable to:
Innergex
Non-controlling interest
Year ended December 31
2018
11,246
8,502
(4,315)
(2,158)
(2,157)
(4,315)
2017
12,755
10,507
(2,104)
(1,052)
(1,052)
(2,104)
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, 2018, the increase in net loss and comprehensive loss is due mainly to lower production
and revenues compared with last year. A $4.6 million preferred return payable to Innergex on the $43.7 million preferred units
was recorded. Excluding the preferred return, net earnings would have been $0.3 million.
Summary Statements of Financial Position – SM S.E.C.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to Innergex
Non-controlling interests deficit
As at
December 31, 2018
December 31, 2017
1,542
126,863
128,405
6,550
122,915
7,711
(8,771)
128,405
2,794
129,614
132,408
8,085
121,067
9,870
(6,614)
132,408
For the year ended December 31, 2018, the decrease in the equity attributable to owners is mainly due to the net loss and
comprehensive loss.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p57
(in thousands of Canadian dollars, except as noted and amounts per share)
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. The Corporation also owns all preferred units.
Summary Statements of Earnings and Comprehensive Income – Innergex Europe
Revenues
Adjusted EBITDA1
Net loss
Other comprehensive income
Total comprehensive loss
Net loss attributable to:
Innergex
Non-controlling interests
Total comprehensive loss attributable to:
Innergex
Non-controlling interests
Year ended December 31
2018
2017
87,016
68,626
(17,989)
1,130
(16,859)
(12,511)
(5,478)
(17,989)
(11,602)
(5,257)
(16,859)
52,300
40,164
(23,538)
354
(23,184)
(16,370)
(7,168)
(23,538)
(16,124)
(7,060)
(23,184)
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, 2018, production was 90% of the LTA, due mainly to below-average wind regimes and
outages caused by maintenance activities; however, production still increased by 57% over last year. The decrease in net loss
is due mainly to higher revenues resulting from higher production and to the facilities commissioned and acquired in 2017,
partly offset by higher finance costs and depreciation and amortization expenses. Expenses include $6.7 million in interest
payable to Desjardins on the $78.0 million debenture ($5.0 million on the $78.0 million debenture in 2017) and a $15.2 million
preferred return payable to Innergex on the $178.1 million preferred units ($11.5 million on the $178.1 million preferred units
in 2017). Excluding these items, net earnings would have been $3.9 million (net loss of $5.1 million in 2017). Expenses also
include non-cash expenses such as depreciation and amortization, which totalled $47.8 million ($31.7 million in 2017).
Summary Statements of Financial Position – Innergex Europe
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to Innergex
Non-controlling interests
As at
December 31, 2018 December 31, 2017
40,787
957,524
998,311
140,042
888,376
(34,969)
4,862
998,311
76,091
967,260
1,043,351
119,935
934,396
(21,541)
10,561
1,043,351
The decrease in current assets is due to lower accounts receivable related to the reimbursement of commodity taxes for the
Plan Fleury, Les Renardières and Theil-Rabier wind facilities and to lower restricted cash and short-term investments stemming
from the amounts used to pay for remaining construction costs of the Rougemont 1-2, Vaite, Plan Fleury and Les Renardières
facilities.
For the year ended December 31, 2018, the increase in the deficit attributable to Innergex is mainly due to the net loss.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p58
(in thousands of Canadian dollars, except as noted and amounts per share)
Spartan
The Corporation owns 100% of the sponsor equity interest in the Spartan solar facility and none of the tax equity interest, which
is owned by a third party.
Summary Statements of Earnings and Comprehensive Income (Loss) – Spartan
Revenues
Adjusted EBITDA1
Net loss
Other comprehensive income
Total comprehensive income
Net loss attributable to:
Tax equity investor
Innergex
Total comprehensive income (loss) attributable to:
Tax equity investor
Innergex
Period of 329 days
ended December 31,
2018
1,781
1,373
(444)
1,641
1,197
(530)
86
(444)
483
714
1,197
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 – Spartan
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Tax equity interest
Equity attributable to Innergex
As at
December 31, 2018
1,012
28,342
29,354
882
12,687
11,547
4,238
29,354
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p59
(in thousands of Canadian dollars, except as noted and amounts per share)
Kokomo
The Corporation holds a 90% sponsor equity interest in the Kokomo solar facility, with the remaining 10% sponsor equity interest
and tax equity interest held by third parties.
Summary Statements of Earnings and Comprehensive Income (Loss) – Kokomo
Revenues
Adjusted EBITDA1
Net loss
Other comprehensive income
Total comprehensive income
Net loss attributable to:
Tax equity investor
Sponsors
Total comprehensive income (loss) attributable to:
Tax equity investor
Sponsors
Period of 329 days
ended December 31,
2018
844
607
(251)
636
385
(211)
(40)
(251)
182
203
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.
Summary Statement of Financial Position – Kokomo
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Tax equity interest
Sponsors equity interest
As at
December 31, 2018
160
13,318
13,478
596
5,546
4,804
2,532
13,478
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p60
(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.
As part of the acquisition of Alterra, the following debts were assumed: (i) in 2011, Ross J. Beaty, chairman of the board of
directors and a large shareholder of Alterra, entered into a revolving credit facility with Alterra (the “Credit Facility”). The Credit
Facility had a borrowing capacity of $20 million and made 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 were payable in cash. The Credit Facility matured on March 31,
2018. Alterra had borrowed $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 paid 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 was
collateralized by 15% of the outstanding shares in HS Orka. To optimize its treasury management, the Corporation repaid both
the Credit Facility and the Bond in the first quarter of 2018.
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, Innergex's share of Adjusted EBITDA of joint ventures and associates, Adjusted Net
Earnings (Loss), Free Cash Flow and Payout Ratio are not measures recognized by IFRS and have no standardized meaning
prescribed by IFRS.
Net earnings
Income tax expenses (recovery)
Finance costs
Depreciation and amortization
EBITDA
Other net expenses
Share of earnings of joint ventures and associates
Unrealized net (gain) loss on financial instruments
Adjusted EBITDA
Adjusted EBITDA margin
Three months ended December
31
Year ended December 31
2018
13,953
1,376
55,444
48,349
119,122
9,139
(16,722)
1,612
113,151
2017
Restated 1
3,513
(451)
40,398
34,476
77,936
2,480
(1,707)
1,350
80,059
2018
25,718
2,694
199,804
171,797
400,013
15,273
(34,110)
3,905
385,081
2017
Restated 1
19,136
7,101
147,492
129,429
303,158
2,453
(4,638)
(2,245)
298,728
68%
74%
67%
75%
1. For more information on the restatement, please refer to the "Accounting Changes" section.
References in this document to “Adjusted EBITDA” are to net earnings (loss) to which are added (deducted) provision (recovery)
for income tax expenses, finance cost, depreciation and amortization, other net expenses, share of (earnings) loss of joint
ventures and associates and unrealized net (gain) loss on financial instruments. 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.
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 "Innergex's share of Adjusted EBITDA of the joint ventures and associates" are to Innergex's
ownership interest in the equity or in the sponsors' equity when applicable of the Adjusted EBITDA of the joint ventures and
associates. Please refer to the "Joint Ventures and Associates" section of this MD&A for more information.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p61
(in thousands of Canadian dollars, except as noted and amounts per share)
References in this document to "Adjusted EBITDA Proportionate" are to Adjusted EBITDA plus Innergex's share of Adjusted
EBITDA of the joint ventures and associates. 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 "Operating Results" section of
this MD&A for more information.
References to "Adjusted Net Earnings (Loss)" 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 and associates, net of related tax. Innergex uses derivative financial instruments to hedge its exposure to
various 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 (Loss) 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 (Loss) 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 (Loss).
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 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 increases as well as its ability to fund its growth.
FORWARD-LOOKING INFORMATION
To inform readers of the Corporation's future prospects, this MD&A contains forward-looking information within the meaning of
applicable securities laws (“Forward-Looking Information”). Forward-Looking Information can generally be identified by the use
of words such as “approximately”, “may”, “will”, "could", “believes", “expects", “intends”, "should", "would", “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, including information regarding the Corporation's expected production, projected
revenues, projected Adjusted EBITDA and projected Adjusted EBITDA Proportionate, Projected Free Cash Flow and intention
to dividend quarterly, the estimated project size, costs and schedule, including expected obtainment of permits, start of
construction, work conducted and start of commercial operation for Development Projects and Prospective Projects, the
Corporation's intention to submit projects under Requests for proposals, the qualification of U.S. projects for PTCs and ITCs,
the potential divestiture of selected assets by the Corporation and other statements that are not historical facts. Such information
is intended to inform readers of the potential financial impact of expected results, of the expected commissioning of Development
Projects, of the potential financial impact of completed and future acquisitions and of the Corporation's ability to sustain current
dividends and 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, without
restriction, 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
and constructing new facilities, expectations and assumptions concerning availability of capital resources and timely
performance by third parties of contractual obligations, receipt of regulatory approvals and the divestiture of selected assets.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p62
(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 Risks and Uncertainties” section of this MD&A and include, without limitation: the ability of the Corporation
to execute its strategy for building shareholder value (including through the potential divestiture of selected assets); 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; failure to realize the anticipated benefits of such acquisitions (including the
acquisition of the Cartier Wind Farms); integration of the businesses acquired or to be acquired (including the Alterra Acquisition
and the acquisition of the Cartier Wind Farms); 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 (including due to reliance on third parties); 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, solar and geothermal 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; reliance on shared transmission and interconnection infrastructure and the fact that revenues
from certain facilities will vary based on the market (or spot) price of electricity; risks related to U.S. production and investment
tax credits, changes in U.S. corporate tax rates and availability of tax equity financing; host country economic, social and political
conditions; risk inherent in geothermal resources; aluminum price risks; geological occurrences, rockslides, avalanches,
tornados, hurricanes 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; and reputational
risks arising from misconduct of representatives of the Corporation.
Although the Corporation believes that the expectations and assumptions on which Forward-Looking Information is based are
reasonable under the current circumstances, readers are cautioned not to rely unduly on this Forward-Looking Information as
no assurance can be given that it will prove to be correct. Forward-Looking Information contained herein is made as at the date
of this MD&A and the Corporation does not undertake any obligation to update or revise any Forward-Looking Information,
whether as a result of events or circumstances occurring after the date hereof, unless so required by law.
Forward-Looking Information in this MD&A
The following table outlines the Forward-Looking Information contained in this MD&A, which the Corporation considers important
to better inform readers about its potential financial performance, together with the principal assumptions used to derive this
information and the principal risks and uncertainties that could cause actual results to differ materially from this information.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p63
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
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 facilities, 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 LTA. On a consolidated basis, the
Corporation estimates its LTA by adding together the expected LTAs of all the facilities in
operation, for the facilities that it consolidates. This consolidation excludes however the
facilities which are accounted for using the equity method (Dokie, East Toba, Flat Top,
Guayacan, Jimmie Creek, Mampil, Montrose Creek, Pampa Elvira, Peuchén, Shannon,
Umbata Falls and Viger-Denonville).
Principal Risks and Uncertainties
Improper assessment of water, wind, solar
and geothermal resources and associated
electricity production
Variability in hydrology, wind regimes, solar
irradiation and geothermal resources
Risks inherent in geothermal resource
Equipment supply risk, including failure or
unexpected operations and maintenance
activity
Natural disasters and force majeure
Regulatory and political risks affecting
production
Health, safety and environmental risks
affecting production
Variability of installation performance and
related penalties
Availability and reliability of transmission
systems
Litigation
Projected revenues
For each facility, expected annual revenues are estimated by multiplying the LTA by a price
for electricity stipulated in the PPA secured with a public utility or other creditworthy
counterparty mainly. In most cases these PPAs stipulate a base price for electricity produced
and, in some cases, a price adjustment depending on the month, day and hour of its delivery.
This excludes facilities, which receive revenues, based on the market (or spot) price for
electricity, including the Miller Creek hydroelectric facility, which receives a price based on a
formula using the Platts Mid-C pricing indices, 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. Revenues at the HS Orka facilities also fluctuate with the price of
aluminum, as certain of those PPAs are linked to such price. 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 This
consolidation excludes however the facilities which are accounted for using the equity method
(Dokie, East Toba, Flat Top, Guayacan, Jimmie Creek, Mampil, Montrose Creek, Pampa
Elvira, Peuchén, Shannon, Umbata Falls and Viger-Denonville).
See principal assumptions,
uncertainties
Production”
identified under
risks and
“Expected
Reliance on various forms of PPAs
Revenues from certain facilities will vary based
on the market (or spot) price of electricity
Fluctuations affecting prospective power prices
Changes in general economic conditions
Ability
to secure new Power Purchase
Agreements or renew any Power Purchase
Agreement
Projected Adjusted EBITDA
For each facility, the Corporation estimates annual operating earnings by adding (deducting)
to net earnings (loss) provision (recovery) for income tax expenses, finance cost, depreciation
and amortization, other net expenses, share of (earnings) loss of joint ventures and associates
and unrealized net (gain) loss on financial instruments. The Adjusted EBITDA consolidated
excludes however the facilities which are accounted for using the equity method (Dokie, East
Toba, Flat Top, Guayacan, Jimmie Creek, Mampil, Montrose Creek, Pampa Elvira, Peuchén,
Shannon, Umbata Falls and Viger-Denonville). Innergex believes that the presentation of
this measure enhances the understanding of the Corporation's operating performance.
Readers are cautioned that Projected Adjusted EBITDA should not be construed as an
alternative to net earnings, as determined in accordance with IFRS.
See principal assumptions, risks and
uncertainties identified under “Expected
Production” and “Projected Revenues”
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, East Toba, Flat Top, Guayacan, Jimmie Creek, Mampil, Montrose Creek,
Pampa Elvira, Peuchén, Shannon, Umbata Falls and Viger-Denonville).
See principal assumptions, risks and
uncertainties identified under “Expected
Production” and “Projected Revenues”
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p64
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
Principal Risks and Uncertainties
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 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.
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 and Prospective Project, the Corporation may provide (where
available) an estimate of potential installed capacity, estimated project costs, project financing
terms and each project’s development and construction schedule, based on its extensive
experience as a developer, in addition to information directly related incremental internal
costs, site acquisition costs and financing costs, which are eventually adjusted for the
projected costs and construction schedule provided by the engineering, procurement and
construction (“EPC”) contractor retained for the project.
The Corporation provides indications based on assumptions regarding its current strategic
positioning and competitive outlook, as well as scheduling and construction progress, for its
Development Projects and its Prospective Projects, which the Corporation evaluates based
on its experience as a developer.
See principal assumptions,
uncertainties
Production” and “Projected Revenues”
identified under
risks and
“Expected
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
Uncertainties surrounding development of new
facilities
Performance of major counterparties, such as
suppliers or contractors
Delays and cost overruns in the design and
construction of projects
Ability to secure appropriate land
Obtainment of permits
Health, safety and environmental risks
Social acceptance of
projects
renewable energy
Ability
to secure new Power Purchase
Agreements or renew any Power Purchase
agreement
Relationships with stakeholders
Equipment supply
Interest rate fluctuations and financing risk
Risks related to U.S. PTCs and ITCs, changes
in U.S. corporate tax rates and availability of
tax equity financing
Relationships with stakeholders
Regulatory and political risks
Higher-than-expected inflation
Natural disaster
Ability of the Corporation to execute its strategy
for building shareholder value
Failure to realize the anticipated benefits of
completed and future acquisitions
Changes in governmental support to increase
electricity to be generated from renewable
sources by independent power producers
Regulatory and political risks
Foreign market growth and development risks
Outcome of insurance claims
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p65
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
Intention to submit projects under requests for proposals
The Corporation provides indications of its intention to submit projects under requests for
proposals (“Request for Proposals” or “RFP”) based on the state of readiness of some of its
Prospective Projects and their compatibility with the announced terms of these RFPs.
Qualification for PTCs and ITC
For certain Development Projects in the United States, the Corporation has conducted on-
and off-site activities expected to qualify its Development Projects for PTCs or ITC at the full
rate and to obtain tax equity financing on such a basis. To assess the potential qualification
of a project, the Corporation takes into account the construction work performed and the
timing of such work.
Potential divestiture of selected assets
The Corporation ability to successfully identify potential purchasers for some of the
Corporation’s assets and its ability to assess and realize the value of such assessment in a
successful divestiture and the timing of the completion of the transaction.
Principal Risks and Uncertainties
Regulatory and political risks
Ability of the Corporation to execute its strategy
for building shareholder value
Ability to secure new PPAs
Changes in governmental support to increase
electricity to be generated from renewable
sources by independent power producers
Social acceptance of
projects
renewable energy
Relationships with stakeholders
Risks related to U.S. PTCs and ITCs, changes
in U.S. corporate tax rates and availability of
tax equity financing
Regulatory and political risks
Delays and cost overruns in the design and
construction of projects
Obtainment of permits
Ability of the Corporation to execute its
strategy for building shareholder value
Regulatory and political risks
Performance of counterparties
Financial leverage and restrictive covenants
governing current and future indebtedness
Fluctuations affecting prospective power
Prices
Variability in hydrology, geothermal
resources, wind regimes and solar irradiation
Failure to realize the anticipated benefits of
completed and future acquisitions (including
the acquisition of the Cartier Wind Farms)
Ability to raise additional capital and the state
of the capital market
Interest rate fluctuations and refinancing risk
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 renewable power production
facilities that generate sustainable cash flows and provide an attractive risk-adjusted return on invested capital, and to distribute
a stable dividend. However, there is no certainty that the Corporation will be able to acquire or develop high-quality renewable
power production facilities at attractive prices to supplement its growth. Furthermore, this strategy may require the divestiture
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p66
(in thousands of Canadian dollars, except as noted and amounts per share)
by the Corporation of certain assets, to pursue new opportunities, to support or realise the benefits of completed or future
acquisitions, raise additional capital and/or lower the debts of the Corporation.
The successful execution of this strategy requires careful timing and business judgment, the resources to complete the
development of power generating facilities, as well as an accurate assessment of the assets of the Corporation and the value
that it would receive in exchange for their divestiture. The Corporation may underestimate the costs necessary to bring power
generating facilities into commercial operation, may be unable to quickly and efficiently integrate new acquisitions into its existing
operations, inaccurately evaluate the value of its assets or be unable to find a purchaser therefor in a manner which timely
supports the Corporation’s strategy.
Ability to Raise Additional Capital and the State of the Capital Market
Future development and construction of new facilities, the development of the Development Projects and the Prospective
Projects and other capital expenditures will be financed by the Corporation out of cash generated from the its 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.
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
farms will depend on the availability of solar radiation, which is naturally variable. Lower solar irradiation levels at only
Corporation’s solar farms 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.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p67
(in thousands of Canadian dollars, except as noted and amounts per share)
The 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 various forms of PPAs (corporate or
utility owned) 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 or renew PPAs 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. Although, most of the output at the Shannon Wind Farm and the Flat Top Wind Farm are, and once completed the Phoebe
Solar Project will be, sold under long-term PPAs, output not sold under the long-term power hedge agreement is and will be
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 (a form of PPA) 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 the Shannon Wind Farm, the Flat Top Wind Farm, the Miller Creek
Facility or development properties in which the Corporation has an interest, could be significantly reduced or rendered
uneconomic. 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,
with respect to the Shannon Wind Farm.
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, such as sound
level and other operational restrictions, 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 Development of New Facilities
The Corporation participates in the construction and development of new power generating facilities. These facilities have
greater uncertainty surrounding their feasibility, social acceptance and 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 or other applicable 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.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p68
(in thousands of Canadian dollars, except as noted and amounts per share)
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. Interest rate fluctuation and refinancing risks could affect the
Corporation’s ability to raise additional capital.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p69
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Failure to Realize the Anticipated Benefits of Completed and Future Acquisitions
The Corporation believes that completed and future acquisitions (including the Alterra Acquisition, the acquisition of the Cartier
Wind Farms, the Energía Llaima acquisition and the Phoebe Solar Project acquisition) will provide benefits for the Corporation.
However, there is a risk that some or all the expected benefits will 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 many factors, many of
which are beyond the control of the Corporation.
Integration of the Completed and Future Acquisitions
The integration of completed and future business and/or project acquisitions (including the Alterra Acquisition, the Energía
Llaima acquisition and the Phoebe acquisition and the acquisition of the Cartier Wind Farms) and their respective activities,
employees and officers, operations and facilities may result in significant challenges and management of the Corporation may
be unable to accomplish the integration successfully or without spending significant amounts of money or other resources. For
completed and future acquisitions, there can be no assurance that Management will be able to successfully integrate the teams,
activities and facilities forming part of such acquisitions or fully realize the expected benefits of such acquisitions.
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
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, IESO, 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.
Ability to Attract New Talent or to Retain Officers or Key Employees
The Corporation’s officers and other key employees play a significant role in the Corporation’s success. The conduct of the
Corporation’s business and the execution of the Corporation’s growth strategy rely heavily on teamwork and the Corporation’s
future performance and development depend to a significant extent on the abilities, experience and efforts of its management
team. The Corporation’s ability to retain its management team or attract suitable replacements should key members of the
management team leave is dependent on the competitive nature of the employment market.
The loss of services from key members of the management team or a limitation in their availability could adversely impact the
Corporation’s prospects, financial condition and cash flow.
Further, such a loss could be negatively perceived in the capital markets. The Corporation’s success also depends largely upon
its continuing ability to attract, develop and retain skilled employees to meet its needs from time to time.
Litigation
In the normal course of its operations, the Corporation may become involved in various legal actions, including but not limited
to those involving claims relating to contract disputes, personal injuries, property damage, property taxes and land rights. The
Corporation maintains adequate provisions for its outstanding or pending claims, including those identified under section “Legal
Proceedings and Regulatory Actions”. The final outcome with respect to outstanding, pending or future actions cannot be
predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on the
financial position or results of operation of the Corporation in a particular quarter or financial year.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p70
(in thousands of Canadian dollars, except as noted and amounts per share)
Performance of Major Counterparties
The Corporation enters into purchase orders with third-party suppliers for generation equipment for projects under construction,
generator interconnection agreements with utilities and other interconnection providers for transmission infrastructure and the
right to interconnect such projects, each of which involves deposits prior to equipment being delivered and it also enters into
construction agreements with contractors and other third parties. Should one or more of these suppliers or contractors be
unable to meet their obligations under the contracts, this would result in possible loss of revenue, delay in construction and
increase in construction costs for the Corporation. Failure of any equipment supplier, contractor or transmission provider to
meet its obligations to the Corporation may result in the Corporation not being able to meet its commitments and thus lead to
potential defaults under PPAs or power hedges.
Social Acceptance of Renewable Energy Projects
The social acceptance by local stakeholders, including, in some cases, First Nations and other Indigenous peoples, and local
communities is critical to our ability to find and develop new sites suitable for viable renewable energy projects. Failure to obtain
proper social acceptance for a project may prevent the development and construction of a project and lead to the loss of all
investments made in the development and the write-off of such prospective project.
Relationships with Stakeholders
The Corporation enters into various types of arrangements with communities or joint venture partners for the development of
its projects. Certain of these partners may have or develop interests or objectives which are different from or even in conflict
with the objectives of the Corporation. Any such differences could have a negative impact on the success of the Corporation’s
projects. The Corporation is sometimes required through the permitting and approval process to notify and consult with various
stakeholder groups, including landowners, Indigenous communities and municipalities. Any unforeseen delays in this process
may negatively impact the ability of the Corporation to complete any given project on time or at all.
Equipment Supply
The Corporation’s development and operation of power facilities is dependent on the supply of equipment from third parties.
Equipment pricing may rapidly increase depending, among others, on the equipment availability, the raw material prices and
on the market for such product. Any significant increase in the price of supply of equipment could negatively affect the future
profitability of the Corporation’s facilities and the Corporation’s ability to develop other projects. There is no guarantee that
manufacturers will meet all their contractual obligations. Failure of any supplier of the Corporation to meet its commitments
would adversely affect the Corporation’s ability to complete projects on schedule and to honour its obligations under PPAs.
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.
Changes in General Economic Conditions
Changes in general economic conditions could have an effect on the assessment of the value of the Corporation’s assets,
affecting its ability to raise capital, through financing, re-financing, divestiture of certain assets or generally its ability to execute
its strategy. Furthermore, 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 projected revenues and projected adjusted
EDITDA and free cash flow may be lower than expected or reduced which would respectively impact the payout ratio.
Regulatory and Political Risks
The development and operation of power generating facilities are subject to changes in governmental regulatory requirements
and the applicable governing statutes, including regulations related to the environment, unforeseen environmental effects,
general economic conditions and other matters beyond the control of the Corporation.
Moreover, the operation of power generating facilities is subject to extensive regulation by various government agencies at the
municipal, provincial, state and federal levels. There is always the risk of changes being made in government policies and laws
which may result in increased rates, such as for water rentals, and for income, capital and municipal taxes.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p71
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation holds permits and licences from various regulatory authorities for the construction and operation of its facilities.
These licences and permits are critical to the operation of the Corporation’s business. Most of these permits and licences are
long-term in nature, reflecting the anticipated useful life of the facilities. In some cases, these permits may need to be renewed
prior to the end of the anticipated useful life of such facilities and there is no guarantee that such renewals will be granted or
on which conditions they will be renewed. These permits and licences require the Corporation’s compliance with the terms
thereof.
Ability to Secure Appropriate Land
There is significant competition for appropriate sites for new power generating facilities. Optimal sites are difficult to identify
and obtain given that geographic features, legal restrictions and ownership rights naturally limit the areas available for site
development. There can be no assurance that the Corporation will be successful in obtaining any particular site in the future.
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 or industrial 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.
Availability and Reliability of Transmission Systems
The Corporation’s ability to sell electricity is impacted by the availability of the various transmission systems in each jurisdiction.
The failure of existing transmission facilities, the lack of adequate transmission capacity or delays in construction would have
a material adverse effect on the Corporation’s ability to deliver electricity to its various counterparties or to the point of
interconnection, thereby affecting the Corporation’s business, operating results, financial condition or prospects.
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, the U.S., Iceland and Latin 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.
Increase in Water Rental Cost or Changes to Regulations Applicable to Water Use
The Corporation is required to make rental payments for water rights once its projects are in commercial operation. Significant
increases in water rental costs in the future or changes in the way that governments who regulate water supply or apply such
regulations (including those of Québec, BC, Ontario, Idaho, U.S., Iceland and Chile) where the Corporation has hydroelectric
Operating Facilities, could have a material adverse effect on the Corporation’s business, operating results, financial condition
or prospects.
Assessment of Water, Wind, Solar and Geothermal Resources and Associated Electricity Production
The strength and consistency of the water, geothermal, wind and solar resources at power facilities of the Corporation may
vary from what the Corporation anticipates. Electricity production estimates of the Corporation are based on assumptions and
factors that are inherently uncertain, which may result in actual electricity production being different from the estimates of the
Corporation, including (i) the extent to which the limited time period of the site-specific hydrological, wind, geothermal or solar
data accurately reflects long-term water flows, wind speeds, geothermal resources and solar radiation; (ii) the extent to which
historical data accurately reflects the strength and consistency of the water, wind, solar and geothermal resources in the future;
(iii) the strength of the correlation between the site-specific water, wind, solar and geothermal data and the longer-term regional
data; (iv) the potential impact of climatic factors and climatic change; (v) the accuracy of assumptions on a variety of factors,
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p72
(in thousands of Canadian dollars, except as noted and amounts per share)
including but not limited to weather, icing and soiling of water and wind turbines and snow on solar panels, site access, wake
and line losses, replenishment and maintenance of geothermal resources and wind shear; (vi) the accuracy with which
anemometers measure wind speed, and the difference between the hub height of the wind turbines and the height of the
meteorological towers used for data collection; (vii) the potential impact of topographical variations, turbine placement and local
conditions, including vegetation; (viii) the inherent uncertainty associated with the specific methodologies and related models,
in particular future-orientated models, used to project the water, wind and solar resource; and (ix) the potential for electricity
losses to occur before delivery.
Natural Disasters and Force Majeure
The Corporation’s facilities, operations and project under development are exposed to potential damage, partial or full loss,
resulting from environmental disasters (e.g. floods, high winds, fires, and earthquakes), equipment failures or other unforeseen
event. The occurrence of a significant event which disrupts or delay the ability of the Corporation’s power generation assets to
produce or sell power for an extended period, including events which preclude existing customers under PPAs from purchasing
electricity, could have a material negative impact on the business of the Corporation. The Corporation’s generation assets could
be exposed to effects of severe weather conditions, natural disasters and potentially catastrophic events such as a major
accident or incident. The occurrence of such an event may not release the Corporation from performing its obligations pursuant
to PPAs or other agreements with third parties. Furthermore, force majeure events affecting our assets could result in damages
to the environment or harm third parties. In addition, many of the Corporation’s projects are located in remote areas which
make access for repair of damage difficult.
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.
Credit Rating May Not Reflect Actual Performance of the Corporation or a Lowering (Downgrade) of the Credit Rating
The credit ratings applied to the Corporation, the Series A and Series C Shares (the “Credit Ratings”) are an assessment, by
the rating agencies, of the Corporation’s ability to pay its obligations. The Credit Ratings are based on certain assumptions
about the future performance and capital structure of the Corporation that may or may not reflect the actual performance or
capital structure of the Corporation. Changes in the Credit Ratings in the future may affect the market price or value and the
liquidity of the securities of the Corporation. There is no assurance that any Credit Ratings will remain in effect for any given
period of time or that any rating will not be lowered or withdrawn entirely by the rating agencies.
Revenues from Certain Facilities Will Vary Based on the Market (or Spot) Price of Electricity
Because the prices for electricity purchased from certain Operating Facilities vary based on the market price for electricity
(including the Miller Creek Facility is based on a formula using the Platts mid-C spot price for electricity), revenues from such
facilities on the electricity market or under the applicable power purchase agreement will vary. Without limiting the generality
of the above, for the Miller Creek Facility, if the Platts mid-C index declines from its current levels, the Miller Creek Facility’s
revenues and adjusted EBITDA will be negatively impacted. An increase in the volatility of the Platts mid-C spot price would
add uncertainty to the determination of potential revenues and adjusted EBITDA of the Miller Creek Facility and could have an
adverse impact on the Corporation’s results.
Risks related to U.S. Production and Investment 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 U.S.
renewable tax incentives (PTCs or ITCs). There can be no assurance that the projects will qualify for PTCs or ITCs or, if they
do, that they will qualify for full PTCs or ITCs. There also can be no assurance that the PTCs or ITCs 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) in the U.S. 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 or ITCs is critical to obtaining tax equity financing for wind projects. The inability to qualify
the projects for PTCs or ITCs, in whole or in part, would adversely affect the financing options for those projects. If the qualification
of a project for PTCs or ITCs is not successful, there may be a material impairment of the Corporation’s investment in that
project.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p73
(in thousands of Canadian dollars, except as noted and amounts per share)
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 U.S. may impact 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.
Host Country Economic, Social and Political Conditions
A number of the Corporation’s principal assets are located in foreign domiciles. Although the operating environments in these
jurisdictions are considered favourable compared to that in other countries, there are still economic, social and political risks
associated with operating in foreign jurisdictions. These risks include, but are not limited to, terrorism, hostage taking, war, civil
unrest or military repression, expropriation, repatriation or nationalization without adequate compensation, extreme fluctuations
in currency exchange rates, high rates of inflation and labour unrest, renegotiation or nullification of existing concessions,
licenses, permits and contracts, difficulties enforcing judgments in such jurisdictions, changes to tax and royalty regimes,
changes to environmental regulatory regimes, volatile local political, legal and economic climates, nepotism, subsidies directed
at industries competing with ours, difficulties obtaining key equipment and components for equipment, currency control and
host-country favourable legislation.
Host country economic, social and political uncertainty can arise as a result of lack of support for our activities in local communities
in the vicinity of our properties. Changes in renewable resource, energy or investment policies or shifts in political attitudes
may also adversely affect the Corporation’s business. The effect of these factors cannot be accurately predicted. Though the
effects of competition will increase the likelihood of market efficiencies and benefit our properties, elimination of power cost
subsidies may increase the inability of end-use consumers to pay for power and lead to political opposition to privatization
initiatives and have an adverse impact on our properties and operations.
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. All statements
as to MW capacity and expected generation, even in operational geothermal power facilities, are therefore necessarily subject
to natural fluctuations. If any of these assumptions proves to be materially incorrect, it may affect the generation capacity of a
property.
Aluminum Price Risks
A portion of the revenue of the Corporation’s Icelandic operations is subject to the market price for aluminum. Accordingly,
fluctuations in the market price for aluminum could have a material adverse effect on the Corporation’s financial position.
Adverse Claims to Property Title
Although the Corporation has taken reasonable precautions to ensure that legal title to its properties is properly documented,
there can be no assurance of title to any of its property interests, or that such title will ultimately be secured. However, the
results of the Corporation’s investigations should not be construed as a guarantee of title. No assurance can be given that
applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining authorizations
nor that such exploration and mining authorizations will not be challenged or impugned by third parties. The Corporation’s
property interests may also be subject to prior unregistered agreements or transfers or other land claims, and title may be
affected by undetected defects and adverse laws and regulations.
The Corporation cannot guarantee that title to its properties will not be challenged. Title insurance is not always available, or
available on acceptable terms, and the Corporation’s ability to ensure that it has obtained secure claim to individual properties
may be severely constrained. A successful challenge to the precise area and location of these claims could result in the
Corporation being unable to operate on its properties as permitted or being unable to enforce its rights with respect to its
properties.
Unknown Liabilities
As part of the Corporation’s completed and future acquisitions, it has assumed liabilities and risks. While the Corporation
conducted due diligence, there may be liabilities or risks that the Corporation failed, or was unable, to discover in the course
of performing the due diligence investigations or for which the Corporation was not indemnified. Any such liabilities, individually
or in the aggregate, could have a material adverse effect on the Corporation’s financial position and results of operations.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p74
(in thousands of Canadian dollars, except as noted and amounts per share)
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and
assumptions that 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
that require several assumptions such as interest rate, credit spread and other.
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.
Impairment of non-financial assets
The Corporation makes a number of estimates when calculating the recoverable amount of an asset or a cash-generating unit
using value in use calculations based on discounted future cash flows. Future cash flows may be influenced by a number of
estimates such as electricity production, duration of the projects, selling prices, costs to operate, capital expenditures, growth
rate 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 consideration transferred,
assets acquired and liabilities assumed in a business acquisition. Fair values are estimated using valuation techniques which
require several assumptions such as future production, earnings and expenses and discount rates.
Determining control, joint control or significant influence of an investee
The determination of whether the Corporation has control, joint control or significant influence over an investee requires the
Corporation to make assumptions and judgments in evaluating the classification requirements.
Based on the contractual arrangements between the Corporation and the other respective partner, and the fact that the
Corporation owns more than 50% of the economic interest, 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 asset retirement obligations which represent
the present value of future remediation costs for various projects. Estimates for these costs are dependent on labour costs,
the effectiveness of remedial and restoration measures, inflation rates, discount rates that reflect a current market assessment
of the time value of money and the risk specific to the obligation, and the timing of the outlays.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p75
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
The Corporation may, from time to time, enter into long-term power hedge agreements which require critical judgments to
determine the fair value and the designation of the long-term power hedge. As part of the designation of the power hedges as
cash flow hedges, the Corporation makes certain judgments regarding the probability of future events. As part of determining
fair value, the Corporation makes certain assumptions, estimates and judgments regarding future events. Unobservable forecast
future power prices are inherently subjective and impact the change in fair value recognized in the consolidated statement of
earnings and the consolidated statement of comprehensive income.
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
New Accounting Standards and Interpretations Adopted During the Year
IFRS 2, Share-based Payments
In June 2016, the IASB issued amendments to IFRS 2, Share-based Payments (“IFRS 2”), 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. Adoption of the amendments of
IFRS 2 did not have a material impact on the Corporation’s 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. The application
of this standard did not have a material impact on the Corporation’s financial statements.
IFRS 9 (2014), Financial Instruments
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 Corporation applied IFRS 9 (2014)
retrospectively with restatement of prior periods, Other than the changes described below, there was no impact on the opening
statement of financial position as of January 1, 2017, and on the information presented onwards.
A clarification to IFRS 9 was released in October 2017 related to the treatment of a modification of a financial liability that does
not result in the derecognition of the financial liability. The amortized cost of the financial liability is recalculated using the
modified cash flows and the original effective interest rate. Any change in the amortized cost is recognized in the statement of
earnings on the date of the modification or at the date of the application of IFRS 9 (2014). This change is required to be applied
retrospectively.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p76
(in thousands of Canadian dollars, except as noted and amounts per share)
The following tables show the effects of the retrospective application to the modifications of the Montagne-Sèche, L.P. debt in
2014 and the Stardale L.P. debt in 2016 :
Long-term debt
Deferred tax liabilities
Deficit
Long-term debt
Deferred tax liabilities
Deficit
Finance costs
Deferred income taxes expenses
As presented on
January 1, 2017
Application of
IFRS 9 (2014)
Restated balance as of
January 1, 2017
2,507,236
176,965
(601,157)
(4,922)
1,317
3,605
2,502,314
178,282
(597,552)
As presented on
December 31, 2017
Application of
IFRS 9 (2014)
Restated balance as of
December 31, 2017
3,047,583
215,593
(651,233)
(4,196)
1,123
3,073
3,043,387
216,716
(648,160)
Year ended December
31, 2017
Application of
IFRS 9 (2014)
Restated balance for the
year ended December
31, 2017
146,766
3,154
726
(194)
147,492
2,960
New Accounting Standards and Interpretations Issued but Not Yet Adopted
IFRS 16, Leases
On January 13, 2016, the IASB issued IFRS 16, Leases (“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. The Corporation adopted this
standard retrospectively on January 1, 2019 without restating the figures for the comparative periods (modified retrospective
approach). While the Corporation is still completing its assessment of the impacts, the Corporation expects that the initial
adoption of IFRS 16 will result in the recognition of lease liabilities (primarily for land leases and for the rental of office space),
being recognized in the consolidated statement of financial position, with the recognition of a corresponding right-of-use asset.
The Corporation also expects a decrease in operating expenses (land leases) and general and administrative expenses (office
space rental), offset by a corresponding increase in finance costs (originating from the lease liabilities) and depreciation
(originating from the corresponding right-of-use assets).
Amendments to IAS 28, Long-term Interests in Associates and Joint Ventures
On October 12, 2017, the IASB published Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) to
clarify that an entity applies IFRS 9, Financial Instruments to long-term interests in an associate or joint venture that form part
of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are
effective for periods beginning on or after 1 January, 2019. The application of this standard is not expected to have an impact
for the Corporation.
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p77
(in thousands of Canadian dollars, except as noted and amounts per share)
ESTABLISHMENT AND MAINTENANCE OF DISCLOSURE CONTROLS AND
PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
In accordance with Regulation 52-109 respecting 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, 2018, 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 weakness relating to the design and operation of ICFR at the financial year-end. During
the period beginning on October 1, 2018, and ended on December 31, 2018, there was no change to the ICFR that has materially
affected, or is reasonably likely to materially affect, the Corporation's ICFR.
The President and Chief Executive Officer and the Chief Financial Officer have also limited the scope of the Corporation's
design of DC&P and ICFR to exclude the controls, policies and procedures of the Alterra Power Group Entities together with
the Phoebe solar project, the Foard City wind project and the Hillcrest solar project, and the investment in the Energía Llaima
for a 50% ownership which comprises the Duqueco hydro project (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 "Entities Excluded from the Corporation’s Control Policies and Procedures" section of this MD&A.
ENTITIES 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, the figures for the Alterra Power
Group Entitities together with the Phoebe solar project, the Foard City wind project and the Hillcrest solar project (together the
"Alterra Entities and U.S. Development Projects"), and the 50% interest in the Energía Llaima joint venture which comprises
the Duqueco River hydro project are excluded from the Corporation's control policies and procedures.
Summary financial information about the Alterra Power Group Entities and Energía Llaima is set out below:
Summary Statement of Earnings and Comprehensive Income (Loss) – Alterra Entities and U.S. Development Projects
Revenues
Adjusted EBITDA1
Net earnings
Other comprehensive income (loss)
Total comprehensive loss
Period of 329 days
ended December
31, 2018
97,823
29,086
4,936
(38,400)
(33,464)
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 Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p78
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statement of Financial Position – Alterra Entities and U.S. Development Projects
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Non-controlling interests
As at
December 31, 2018
40,976
1,556,212
1,597,188
115,966
765,486
417,430
298,306
1,597,188
The results, assets and liabilities of the Energía Llaima joint venture are incorporated into these consolidated financial statements
using the equity method of accounting. Summary financial information about Energía Llaima is set out below:
Summary Statement of Earnings and Comprehensive Income (Loss) – Energía Llaima
Revenues
Adjusted EBITDA1
Net earnings and comprehensive income
Period of 181 days
ended December 31,
2018
30,739
16,884
5,466
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 – Energía Llaima
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of Energia Llaima
Non-controlling interests
As at
December 31, 2018
64,598
570,472
635,070
14,897
244,620
308,598
66,955
635,070
Innergex Renewable Energy Inc.
Annual Report 2018
Management's Discussion and Analysis p79
(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”) and the management's discussion
and analysis 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 auditors' 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 an 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, KPMG LLP, in accordance with Canadian generally accepted
auditing standards and on the shareholders' behalf. KPMG LLP enjoys full and unrestricted access to the Audit Committee.
[s] Michel Letellier
Michel Letellier, MBA
President and Chief Executive Officer
[s] Jean-François Neault
Jean-François Neault, CPA, CMA, MBA
Chief Financial Officer
Innergex Renewable Energy Inc.
Longueuil, Canada, February 27, 2019
Innergex Renewable Energy Inc.
Annual Report 2018
Responsibility for Financial Reporting p80
(in thousands of Canadian dollars, except as noted and amounts per share)
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Innergex Renewable Energy Inc.
Opinion
We have audited the consolidated financial statements of Innergex Renewable Energy Inc.
(the "Entity"), which comprise:
•
•
•
•
•
•
the consolidated statement of financial position as at December 31, 2018;
the consolidated statement of earnings for the year then ended;
the consolidated statement of comprehensive income (loss) for the year then ended;
the consolidated statement of changes in shareholders’ equity for the year then ended;
the consolidated statement of cash flows for the year then ended;
and notes to the consolidated financial statements, including a summary of significant accounting
policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2018, and its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditors’ Responsibilities for
the Audit of the Financial Statements" section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Other Matter - Comparative Information
The financial statements for the year ended December 31, 2017 were audited by another auditor who
expressed an unmodified opinion on those financial statements on February 21, 2018.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
Innergex Renewable Energy Inc.
Annual Report 2018
(in thousands of Canadian dollars, except as noted and amounts per share)
Responsibility for Financial Reporting p81
Page 2
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions;
the information, other than the financial statements and the auditors’ report thereon, included in
the "2018 Annual Report".
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions and the information, other than the financial statements
and the auditors’ report thereon, included in the "2018 Annual Report" as at the date of this auditors’
report. If, based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact in the auditors’
report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards (IFRS), and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Entity or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting
process.
Innergex Renewable Energy Inc.
Annual Report 2018
(in thousands of Canadian dollars, except as noted and amounts per share)
Responsibility for Financial Reporting p82
Page 3
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion,
from error, as
fraud may
forgery,
• Obtain an understanding of internal control relevant to the audit 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.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Entity's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditors’ report. However, future events or conditions may cause the Entity to
cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Innergex Renewable Energy Inc.
Annual Report 2018
(in thousands of Canadian dollars, except as noted and amounts per share)
Responsibility for Financial Reporting p83
Page 4
• Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
•
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Girolamo Cordi.
Montréal, Canada
February 27, 2019
* CPA auditor, CA, public accountancy permit No. A109612
Innergex Renewable Energy Inc.
Annual Report 2018
(in thousands of Canadian dollars, except as noted and amounts per share)
Responsibility for Financial Reporting p84
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31
2018
2017
Notes
(Restated Note 2.1)
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 associates and unrealized net loss (gain) on
financial instruments
Finance costs
Other net expenses
Earnings before income taxes, depreciation, amortization, share
of earnings of joint ventures and associates and unrealized net
loss (gain) on financial instruments
Depreciation
Amortization
Share of earnings of joint ventures and associates
Unrealized net loss (gain) on financial instruments
Earnings before income taxes
Provision for income taxes
Current
Deferred
Net earnings
Net earnings (loss) 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 ($)
6
7
8
6,18
6,19
9
10
11
11
29
12
12
12
12
576,616
137,872
34,089
19,574
385,081
199,804
15,273
170,004
128,321
43,476
(34,110)
3,905
28,412
8,521
(5,827)
2,694
25,718
32,692
(6,974)
25,718
130,030
0.21
130,907
0.21
400,263
71,672
17,806
12,057
298,728
147,492
2,453
148,783
92,762
36,667
(4,638)
(2,245)
26,237
4,141
2,960
7,101
19,136
29,475
(10,339)
19,136
108,427
0.22
109,247
0.22
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Earnings p85
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS)
INCOME
Year ended December 31
2018
2017
Notes
(Restated Note 2.1)
Net earnings
25,718
19,136
Items of comprehensive income (loss) that will be
subsequently reclassified to earnings:
Foreign currency translation differences for foreign operations
27
Related deferred income taxes
Foreign exchange (loss) gain on the designated hedges on the
net investments in foreign operations
Related deferred income taxes
Change in fair value of financial instruments designated as cash
flow hedges
Related deferred income taxes
Change in fair value of financial instruments of joint ventures
and associates designated as cash flow hedges
Related deferred income taxes
9
Share of non-controlling interests in:
Foreign currency translation differences for foreign operations
Foreign exchange loss on the designated hedges on the net
investments in foreign operations
Change in fair value of hedging instruments
Related deferred income taxes
Items of comprehensive income (loss) that will not be
subsequently reclassified to earnings:
Defined benefit plan actuarial losses
Related deferred income taxes
24
Other comprehensive (loss) income
Total comprehensive (loss) income
Other comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
(14,757)
205
(5,912)
645
(48,743)
13,577
13,246
(3,287)
(11,288)
(287)
(600)
150
(520)
104
(57,467)
(31,749)
(45,442)
(12,025)
(57,467)
(12,750)
(18,999)
(31,749)
27
(60)
69
147
15,047
(4,172)
815
(201)
320
(323)
1,260
(98)
—
—
12,831
31,967
11,672
1,159
12,831
41,147
(9,180)
31,967
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Comprehensive Income (Loss) p86
(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
Income taxes receivable
Derivative financial instruments
Prepaid and others
Non-current assets
Reserve accounts
Property, plant and equipment
Intangible assets
Project development costs
Investments in joint ventures and associates
Derivative financial instruments
Deferred tax assets
Goodwill
Other long-term assets
December 31, 2018
December 31, 2017
(Restated Note 2.1)
Notes
15
16
10
17
18
19
20
9
10
11
21
79,586
29,981
102,723
1,163
2,370
12,454
228,277
51,895
4,482,928
925,009
30,119
604,773
9,817
16,465
109,995
22,006
6,481,284
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Financial Position p87
(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 taxes payable
Derivative financial instruments
Current portion of long-term debt
Current portion of other liabilities
Non-current liabilities
Derivative financial instruments
Long-term debt
Other liabilities
Convertible debentures
Deferred tax liabilities
SHAREHOLDERS' EQUITY
Common share capital
Contributed surplus from reduction of capital on common
shares
Preferred shares
Share-based payments
Convertible debentures
Deficit
Accumulated other comprehensive (loss) income
Equity attributable to owners
Non-controlling interests
Total shareholders’ equity
Notes
December 31, 2018
December 31, 2017
(Restated Note 2.1)
22
10
23
24
10
23
24
25
11
26 a)
26 b)
26 c)
26 d)
25
27
29
24,093
132,139
8,836
29,999
445,928
505
641,500
118,002
4,024,324
173,345
238,648
325,904
5,521,723
6,546
1,270,822
131,069
1,782
3,976
(748,890)
(35,513)
629,792
329,769
959,561
6,481,284
19,406
91,032
3,282
22,749
109,875
500
246,844
54,494
3,043,387
79,507
96,246
216,716
3,737,194
2,867
939,047
131,069
1,713
1,877
(648,160)
9,929
438,342
14,920
453,262
4,190,456
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Financial Position p88
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2018
Common
share
capital
account
Contributed
surplus from
reduction of
capital on
common
shares
Preferred
shares
Share-
based
payments
Convertible
debentures
Deficit
Accumulated
other
comprehensive
income (loss)
Total
Non-
controlling
interests
Total
shareholders’
equity
Equity attributable to owners
Balance January 1, 2018 (Restated Note 2.1)
2,867
939,047
131,069
1,713
1,877
(648,160)
9,929
438,342
14,920
453,262
Net earnings (loss)
Other items of comprehensive loss
Total comprehensive income (loss)
Common shares issued on February 6, 2018
(Note 5 b)
Business acquisition (Note 5 b)
Common shares issued through dividend
reinvestment plan
Reduction of capital on common shares
(Note 26 b)
—
—
—
330,607
—
9,929
—
—
—
—
—
—
(337,785)
337,785
Buyback of common shares
(20)
(6,010)
Share-based payments
Convertible debentures issued (Net of $766 of
deferred income taxes) (Note 25)
Shares vested - Performance Share Plan
Buyback of non-controlling interests
(Note 29.1)
Investments from non-controlling interests
Dividends declared on common shares
Dividends declared on preferred shares
Distributions to non-controlling interests
Balance December 31, 2018
—
—
948
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,099
—
—
—
—
—
—
32,692
—
32,692
—
32,692
(6,974)
(45,442)
(45,442)
(45,442)
(12,750)
(12,025)
(18,999)
25,718
(57,467)
(31,749)
—
—
—
—
(3,457)
—
—
—
(33,808)
—
(90,215)
(5,942)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
330,607
—
—
313,569
330,607
313,569
9,929
—
(9,487)
69
2,099
948
—
—
—
—
—
—
(33,808)
32,108
—
(90,215)
(5,942)
507
—
—
—
(12,336)
9,929
—
(9,487)
69
2,099
948
(1,700)
507
(90,215)
(5,942)
(12,336)
6,546
1,270,822
131,069
1,782
3,976
(748,890)
(35,513)
629,792
329,769
959,561
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Changes in Shareholders' Equity p89
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2017
Equity attributable to owners
Common
shares
capital
account
Contributed
surplus from
reduction of
capital on
common
shares
Preferred
shares
Share-
based
payments
Convertible
debentures
Deficit
Accumulated
other
comprehensive
(loss) income
Total
Non-
controlling
interests
Total
shareholders’
equity
Balance January 1, 2017 (Restated Note 2.1)
162,862
775,413
131,069
2,199
1,877
(597,552)
(1,743)
474,125
14,712
488,837
Net earnings (loss) (Restated Note 2.1)
Other items of comprehensive income
Total comprehensive income (loss)
Common shares issued through dividend
reinvestment plan
—
—
—
5,135
—
—
—
—
Reduction of capital on common shares
(166,460)
166,460
Buyback of common shares
Share-based payments
Common shares options exercised
Shares purchased - Performance Share Plan
Investments from non-controlling interests
Dividends declared on common shares
Dividends declared on preferred shares
Distributions to non-controlling interests
Balance December 31, 2017 (Restated Note
2.1)
(1)
—
1,335
(4)
—
—
—
—
(471)
—
—
(2,355)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
99
(585)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29,475
—
29,475
—
—
(305)
—
(1,234)
(981)
—
(71,621)
(5,942)
—
—
11,672
11,672
29,475
11,672
41,147
(10,339)
1,159
(9,180)
—
—
—
—
—
—
—
—
—
—
5,135
—
(777)
99
(484)
(3,340)
—
—
—
—
—
—
—
16,846
(71,621)
(5,942)
—
—
—
(7,458)
19,136
12,831
31,967
5,135
—
(777)
99
(484)
(3,340)
16,846
(71,621)
(5,942)
(7,458)
2,867
939,047
131,069
1,713
1,877
(648,160)
9,929
438,342
14,920
453,262
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Changes in Shareholders' Equity p90
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2018
2017
(Restated Note 2.1)
Notes
25,718
19,136
OPERATING ACTIVITIES
Net earnings
Items not affecting cash:
Depreciation
Amortization
Share of earnings of joint ventures and associates
Unrealized net loss (gain) on financial instruments
Inflation compensation interest
Amortization of financing fees
Accretion of long-term debt and convertible debentures
Accretion expenses on other liabilities
Amortization of below market contracts
Share-based payments
Deferred income taxes
Others
Interest expense on long-term debt and convertible debentures
Interest paid
Gain on contingent considerations
Distributions received from joint ventures and associates
Changes in net pension fund obligations
Current income tax expense
Net income taxes paid
Effect of exchange rate fluctuations
18
19
9
10
7
7
7
7
8
7
8
9
11
Changes in non-cash operating working capital items
28 a)
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
Net proceeds from issuance of convertible debentures
Payment for buyback of common shares
28 c)
28 c)
28 c)
24
25
128,321
43,476
(34,110)
3,905
6,798
5,248
2,367
3,265
(2,381)
69
(5,827)
1,703
177,395
(168,993)
—
26,599
19
8,521
(5,367)
3,685
220,411
(11,021)
209,390
(75,599)
(5,942)
(12,336)
—
2,070,430
(1,114,449)
(26,736)
—
143,090
(9,487)
968,971
92,762
36,667
(4,638)
(2,245)
3,910
2,980
2,130
1,664
—
(385)
2,960
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Cash Flows p91
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INVESTING ACTIVITIES
Cash acquired on business acquisitions
Business acquisitions
Decrease of restricted cash and short-term investments
Net funds invested in the reserve accounts
Additions to property, plant and equipment
Additions to intangible assets
Additions to project development costs
Investments in joint ventures and associates
Buyback of non-controlling interests
(Additions to) reductions of 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
Notes
5
5
17
9
29.1
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents is comprised of:
Cash
Short-term investments
Additional information is presented in Note 28.
Year ended December 31
2018
2017
(Restated Note 2.1)
8,632
(872,977)
34,440
(731)
(183,028)
(2,766)
(9,129)
(134,065)
(1,700)
(190)
651
(1,160,863)
174
17,672
61,914
79,586
79,586
—
79,586
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Consolidated Statements of Cash Flows p92
(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, and its shares and convertible debentures are listed on the Toronto Stock Exchange. The Corporation
is a developer, acquirer, owner and operator of renewable power-generating facilities, essentially focused on the hydroelectric,
wind, geothermal and solar power sectors. The Corporation's head office 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 27, 2019.
1. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The Corporation’s significant
accounting policies are described in Note 3. These policies have been consistently applied to all years presented, unless
otherwise stated.
Basis of Measurement
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments
and assets and liabilities acquired in business combinations at acquisition date that are measured at fair value, as described
in the significant accounting policies. Historical cost is generally based on the fair value of the consideration given in
exchange for assets.
Functional Currency and Presentation Currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.
2. APPLICATION OF IFRS
2.1 New accounting standards and interpretations adopted during the year
The Corporation has adopted the following new standards and interpretations, with a date of initial application of
January 1, 2018:
IFRS 2, Share-based Payments
In June 2016, the IASB issued amendments to IFRS 2, Share-based Payments (“IFRS 2”), 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.
Adoption of the amendments of IFRS 2 did not have a material impact on the Corporation’s 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. The application of this standard did not have a material impact on the Corporation’s financial statements.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p93
(in thousands of Canadian dollars, except as noted and amounts per share)
IFRS 9 (2014), Financial Instruments
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 Corporation applied IFRS 9 (2014)
retrospectively with restatement of prior periods, Other than the changes described below, there was no impact on the
opening statement of financial position as of January 1, 2017, and on the information presented onwards.
A clarification to IFRS 9 was released in October 2017 related to the treatment of a modification of a financial liability that
does not result in the derecognition of the financial liability. The amortized cost of the financial liability is recalculated using
the modified cash flows and the original effective interest rate. Any change in the amortized cost is recognized in the
statement of earnings on the date of the modification or at the date of the application of IFRS 9 (2014). This change is
required to be applied retrospectively.
The following tables show the effects of the retrospective application to the modifications of the Montagne-Sèche, L.P.
debt in 2014 and the Stardale L.P. debt in 2016 (see note 23):
Long-term debt
Deferred tax liabilities
Deficit
Long-term debt
Deferred tax liabilities
Deficit
Finance costs
Deferred income taxes expenses
As presented on
January 1, 2017
Application of
IFRS 9 (2014)
Restated balance as
of January 1, 2017
2,507,236
176,965
(601,157)
(4,922)
1,317
3,605
2,502,314
178,282
(597,552)
As presented on
December 31, 2017
Application of
IFRS 9 (2014)
Restated balance as
of December 31,
2017
3,047,583
215,593
(651,233)
(4,196)
1,123
3,073
3,043,387
216,716
(648,160)
Year ended
December 31, 2017
Application of
IFRS 9 (2014)
Restated balance for
the year ended
December 31, 2017
146,766
3,154
726
(194)
147,492
2,960
2.2 New accounting standards and interpretations issued but not yet adopted
IFRS 16, Leases
On January 13, 2016, the IASB issued IFRS 16, Leases (“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. The Corporation adopted this standard retrospectively on January 1, 2019 without restating the figures for the
comparative periods (modified retrospective approach). While the Corporation is still completing its assessment of the
impacts, the Corporation expects that the initial adoption of IFRS 16 will result in the recognition of lease liabilities (primarily
for land leases and for the rental of office space), being recognized in the consolidated statement of financial position, with
the recognition of a corresponding right-of-use asset. The Corporation also expects a decrease in operating expenses
(land leases) and general and administrative expenses (office space rental), offset by a corresponding increase in finance
costs (originating from the lease liabilities) and depreciation (originating from the corresponding right-of-use assets).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p94
(in thousands of Canadian dollars, except as noted and amounts per share)
Amendments to IAS 28, Long-term Interests in Associates and Joint Ventures
On October 12, 2017, the IASB published Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
to clarify that an entity applies IFRS 9, Financial Instruments to long-term interests in an associate or joint venture that
form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments
are effective for periods beginning on or after 1 January, 2019. The application of this standard is not expected to have an
impact for the Corporation.
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 when the Corporation has the power over the subsidiary, when it is exposed or has rights to variable returns from
its involvement with the subsidiary and when it 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
Canada
50.01%
Creek Power Inc. and its subsidiaries Own and operate hydroelectric facilities
Canada
100.00%
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 and wind
facilities
Canada
Canada
Canada
50.00%
100.00%
100.00%
Own and operate a hydroelectric facility
Canada
100.00%
Innergex Sainte-Marguerite S.E.C.
Own and operate a hydroelectric facility
Mesgi'g Ugju's'n (MU) Wind Farm
L.P. 2
Own and operate a wind facility
Innergex Cartier Energy LP
Own and operate wind facilities
Canada
Canada
Canada
Innergex Europe (2015) Limited
Partnership and its subsidiaries
Own and operate wind facilities
Canada/Europe
50.01%
50.00%
100.00%
69.55%
HS Orka hf
Own geothermal facilities
Iceland
53.90%
1. The Corporation owns more than 50% of the economic interest in Kwoiek Creek Resources L.P. (see note 29.2)
2. The Corporation owns more than 50% of the economic interest in Mesgi'g Ugju's'n (MU) Wind Farm L.P. (see note 29.2)
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p95
(in thousands of Canadian dollars, except as noted and amounts per share)
Investments in joint ventures and associates
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.
An associate is an entity in which the Corporation has significant influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Corporation holds between 20% and 50% of the voting power
of another entity.
The determination of whether the Corporation has control, joint control or significant influence over an investee requires
the Corporation to make assumptions and critical judgments in evaluating the classification requirements.
The earnings, and assets and liabilities of joint ventures and associates are incorporated in these consolidated financial
statements using the equity method of accounting. Under the equity method, an investment in a joint venture or an associate
is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the
Corporation's share of the earnings (loss) and other comprehensive income of the joint venture or associate. When the
Corporation's share of losses of a joint venture or an associate exceeds the Corporation's interest in that joint venture or
associate (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 or the associate.
An investment is accounted for using the equity method from the date on which the investee becomes a joint venture or
an associate. On acquisition of the investment in a joint venture or associate, 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 (loss).
At the end of each reporting period, the Corporation reviews the carrying amounts of its investments in joint ventures and
associates to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount
of the net investment is estimated. Because goodwill that forms part of the carrying amount of a net investment in an
associate or a joint venture is not separately recognised, it is not tested for impairment separately by applying the
requirements for impairment testing of goodwill. Instead, the entire carrying amount of the investment is tested for impairment
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 recognised in those circumstances forms part of the carrying amount of the net
investment in the associate or joint venture and is not allocated to any asset, including goodwill. Accordingly, any reversal
of that impairment loss is recognised to the extent that the recoverable amount of the net investment subsequently increases.
The Corporation discontinues the use of the equity method from the date when the investment ceases to be a joint venture
or an associate. When the Corporation retains an interest in the former joint venture or associate 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 or associate 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 or associate is included in the determination of the gain or
loss on disposal of the joint venture or associate. In addition, the Corporation accounts for all amounts previously recognized
in other comprehensive income in relation to that joint venture or associate on the same basis as would be required if that
joint venture or associate 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 earnings (loss) on the disposal
of the related assets or liabilities, the Corporation reclassifies the gain or loss from equity to earnings (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. The Corporation discontinues the use of the joint operation method from the date when the
investment ceases to be a joint arrangement. When the Corporation retains an interest in the former joint arrangement,
the Corporation measures the retained interest at its carrying amount. The difference between the carrying amount of the
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p96
(in thousands of Canadian dollars, except as noted and amounts per share)
joint operation at the date the joint operation was discontinued is included in the determination of the gain or loss on
disposal of the joint operation. In addition, the Corporation accounts for all amounts previously recognized in other
comprehensive income in relation to that joint operation on the same basis as would be required if that joint operation had
directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive
income by that joint operation would be reclassified to earnings (loss) on the disposal of the related assets or liabilities,
the Corporation reclassifies the gain or loss from equity to earnings (loss) (as a reclassification adjustment) when the joint
operation is discontinued.
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 from 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 as conducting the transaction with other parties to the joint operation and profits
and losses resulting from the transactions are recognized in the Corporation's consolidated financial statements only to
the extent of the other parties' interests in the joint operation.
When the Corporation transacts with a joint operation in which a group entity is a joint operator (such as a purchase of
assets), the Corporation does not recognize its share of the gains and losses until it resells those assets to a third party.
Business combinations
Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the
aggregate of the fair values, at the acquisition date, of assets transferred, liabilities incurred or assumed, and equity
instruments issued by the Corporation in exchange for control of the acquiree. Where appropriate, the consideration
transferred 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 consideration transferred 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.
Identifiable assets acquired, as well as liabilities and contingent liabilities assumed in a business combination, are measured
initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interests ("NCI"). The
excess of the aggregate of consideration transferred, the amount of any NCI, and in a business combination achieved in
stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree over the fair value of
the identifiable net assets acquired is recorded as goodwill. Any negative goodwill is recognized directly in the consolidated
statement of earnings.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p97
(in thousands of Canadian dollars, except as noted and amounts per share)
The availability of funds in the restricted cash and short-term investments accounts are restricted by various 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, wind or solar 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 of wind farms at the end of the projects.
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, wind farm, solar and geothermal facilities 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 (loss).
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.
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 (loss) in the period in which they are incurred.
The useful lives used to calculate depreciation are summarized as follows:
Type of property, plant and equipment
Hydroelectric facilities
Wind farm facilities
Geothermal facilities
Solar facilities
Other equipments
Leases
Useful life for the
depreciation period
8 to 75 years
14 to 25 years
5 to 50 years
15 to 35 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 recorded to earnings (loss)
on a straight-line basis over the term of the leases.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p98
(in thousands of Canadian dollars, except as noted and amounts per share)
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 lives reflect 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.
The Corporation recognizes an intangible asset arising from a service concession arrangement when it has the right to
charge for usage of the concession infrastructure. An intangible asset received as consideration for providing construction
or upgrade services in a service concession arrangement is measured at fair value upon initial recognition. Subsequent
to initial recognition, the intangible asset is measured at cost, which includes capitalized borrowing costs, less accumulated
amortization and accumulated impairment losses.
Intangible assets related to facilities under construction are not amortized until the related facilities are ready for their
intended use.
The estimated useful lives and amortization methods 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 lives used to calculate amortization is as follows:
Intangible assets related to:
Hydroelectric facilities
Wind farm facilities
Geothermal facilities
Solar facilities
Project development costs
Useful life for the
amortization period
4 to 75 years
8 to 20 years
5 to 64 years
20 years
Project development costs represent costs incurred for the acquisition of prospective projects and for the development of
hydroelectric, wind farm, solar and geothermal sites, including the geothermal property expansion rights owned in Iceland.
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 PPA. 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 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 non-financial assets, other than
goodwill, to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount
of the asset is estimated. Where it is not possible to estimate the recoverable amount of an individual asset, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). Where a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-
generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable
and consistent allocation basis can be identified.
Intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication
that the asset may be impaired.
Recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset or CGU.
If the recoverable amount of an asset or CGU is lower than its carrying amount, the carrying amount is reduced to its
recoverable amount. An impairment loss is recognized immediately in earnings (loss).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p99
(in thousands of Canadian dollars, except as noted and amounts per share)
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised
recoverable amount, to the extent that the carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized. A reversal of an impairment loss is recognized immediately in earnings
(loss).
Goodwill
Goodwill arises during business combinations and is measured at the acquisition date. It is subsequently measured at
cost, less accumulated impairment losses (if any).
For purposes of impairment testing, goodwill is allocated to each of the Corporation's CGU (or groups of CGUs) that is
expected to benefit from the synergies of the combination.
A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication
that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss
is allocated first to reduce the goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets
in the CGU on a pro rata basis. Any impairment loss is recognized in earnings (loss). 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, prepaid leases and royalty fees and long-
term receivables.
Assets held for sale
An asset is classified as held for sale if management is committed to a plan to sell, the asset is available for immediate
sale, an active plan to locate a buyer is initiated, the sale is highly probable (typically within 12 months of classification as
held for sale), the asset is being actively marketed for sale at a price reasonable in relation to its fair value, and actions
required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn. Any asset
classified as held for sale is measured at the lower of its carrying value or fair value less costs to sell.
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 that 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 in 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 periods, 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 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 property, plant and equipment.The carrying amount of
the asset retirement obligations is reviewed at each quarter end to reflect current estimates and changes in the discount
rate.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p100
(in thousands of Canadian dollars, except as noted and amounts per share)
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 earnings (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 financial 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 other comprehensive
income. Also, for investments in equity instruments that are not held for trading, the Corporation may irrevocably elect,
at initial recognition, to present subsequent changes in the investment’s fair value in other comprehensive income.
For such investments measured at fair value through other comprehensive income, gains and losses are never
reclassified to profit or loss, and no impairment is recognized in profit or loss. Dividends earned from such investments
are recognized in profit or loss, unless the dividend clearly represents a repayment of part of the cost of the investment.
This election is made on an investment-by-investment basis.
The Corporation currently classifies its derivative financial instruments as financial assets measured at fair value.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are transferred.
Financial liabilities are classified into the following categories.
(i) Financial liabilities measured at amortized cost
Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
The Corporation currently classifies its dividends payable to shareholders, accounts payable and other payables and
long-term debt as liabilities 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 other comprehensive income.
The Corporation currently classifies its derivative financial instruments as financial liabilities 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:
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p101
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Since January 1, 2018, upon the initial adoption of IFRS 9 (2014), the Corporation prospectively estimates the expected
credit losses associated with the financial assets accounted for at amortized cost. The impairment methodology used
depends on whether there is a significant increase in the credit risk or not. For trade receivables, the Corporation measures
loss allowances at an amount equal to the lifetime expected credit loss (ECL) as allowed by IFRS 9 (2014) under the
simplified method. The Corporation recognises in earnings (loss), as an impairment gain or loss, the amount of expected
credit losses (or reversal thereof) that is required to adjust the loss allowance at the reporting date to the required amount.
Hedging relationships
The Corporation enters into derivative financial instruments to hedge its market risk exposures. On initial designation of
new hedges the Corporation formally documents the relationship between the hedging instruments and hedged items,
including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at
the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to
be effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for
which the hedge is designated.
For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present
an exposure to variations in cash flows that could ultimately affect reported net earnings.
Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in net earnings as incurred.
Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described
below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect
net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income
and presented in accumulated other comprehensive income as part of equity. The amount recognized in other
comprehensive income is removed and included in net earnings under the same line item in the consolidated statement
of earnings as the hedged item, in the same period that the hedged cash flows affect net earnings. Any ineffective portion
of changes in the fair value of the derivative is recognized immediately in net earnings. If the hedging instrument no longer
meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated
other comprehensive income until the forecasted transaction affects net earnings. If the forecasted transaction is no longer
expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in net earnings.
Net investment in foreign operation hedges
The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the
foreign operation and the 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
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p102
(in thousands of Canadian dollars, except as noted and amounts per share)
amount in 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
Revenue is recognized as the Corporation satisfies its performance obligation which occurs, upon delivery of electricity at
rates provided for under the PPAs entered into with the purchasing utilities, on the merchant market 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 (ended in July 2017),
Douglas Creek, Fire Creek, Stokke Creek, Tipella Creek, Lamont Creek, Upper Stave River, Magpie (ended in June 2017),
Umbata Falls (ended in May 2018) and Toba Montrose hydro facilities and the Carleton (ended in November 2018), Baie-
des-Sables (ended in March 2017), L'Anse-à-Valleau (ended in November 2017) and Dokie wind farms are entitled to the
subsidies. As per the PPAs, the Corporation must transfer 75% of the Carleton, Baie-des-Sables and L'Anse-à-Valleau
wind farms subsidies to Hydro-Québec. Gross EcoEnergy subsidies of $9,301 ($11,177 in 2017) 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 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.
Employee benefits
The Corporation’s net obligation in respect of defined benefit multi-employer pension plans or pension fund commitments
at HS Orka is calculated separately for each plan by estimating the amount of future benefits that current and former
employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine
its present value. The calculation is performed annually by qualified actuaries using a method based on earned benefits.
Remeasurements of the net defined benefit liabilities related to actuarial gains and losses are recognized in other
comprehensive income, and other expenses related to the defined benefit plans are recognized as incurred in the
consolidated statement of earnings.
Contributions to the defined contribution pension plan is recognized as an employee benefit expense in earnings (loss) in
the period during which services are rendered by employees.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans
if the Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p103
(in thousands of Canadian dollars, except as noted and amounts per share)
Share-based payment
The Corporation measures equity-settled share 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 share 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 awards using the fair value method. The 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 grant 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 earnings (loss). DSUs cannot be redeemed for cash until the Director leaves the Board or the officer leaves
the Corporation.
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. 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, 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 rates in effect at the transaction date. The resulting translation gains and losses are included in
other comprehensive income (loss) with the cumulative gain or loss reported in accumulated other comprehensive income.
Amounts previously recognized in accumulated other comprehensive income are recognized in earnings when there is a
reduction in the net investment.
The Corporation designates a portion of its U.S. dollar-denominated debt to hedge its investment in its U.S. functional
currency foreign operations. The Corporation also designates a portion of its foreign exchange forwards to hedge its
investment in its Euro functional currency foreign operations. Translation gains or losses on the portion of the debt and
foreign exchange forwards designated as hedges are included in other comprehensive income with the cumulative gain
or loss reported in accumulated other comprehensive income. The gain or loss relating to the portion of the debt and foreign
exchange forwards in excess of the investment in the foreign subsidiaries is recognized immediately in earnings. Gains
and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency
translation reserve are reclassified to earnings in the same way as exchange differences relating to the foreign operations.
The Corporation formally documents these hedges. On a quarterly basis, the Corporation reviews the hedges to ensure
that they effectively offset the translation gains or losses arising from its investment in its U.S. and its Euro functional
currencies foreign operations.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p104
(in thousands of Canadian dollars, except as noted and amounts per share)
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 years
December 31, 2018
1.5613
0.01170
1.3642
December 31, 2017
1.5052
—
1.2545
2018
2017
1.5301
0.01201
1.2958
1.4652
—
1.2980
Euro
ISK
US dollar
lncome taxes
Current and deferred income taxes 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 income taxes are the expected taxes on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.
Deferred income taxes are 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 income 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 income 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.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
Earnings (loss) per share
The Corporation presents basic and diluted earnings per share data for its common shares. Basic earnings (loss) per share
is calculated by dividing net earnings attributable to common shareholders of the Corporation by the weighted average
number of shares outstanding during the period as adjusted by the number of common shares held in trust under the PSP
plan.
The Corporation uses the treasury stock method for calculating diluted earnings (loss) per share. Diluted earnings (loss)
per share is calculated 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
share options, if dilutive. The number of additional shares is calculated by assuming that convertible debentures were
converted and that outstanding share options were exercised and that the proceeds from such exercises were used to
acquire shares at the average market price during the year.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p105
(in thousands of Canadian dollars, except as noted and amounts per share)
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
Significant estimates and assumptions
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates
and assumptions that 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.
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 that require several assumptions such as interest rate, credit spread and other.
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.
Impairment of non-financial assets
The Corporation makes a number of estimates when calculating the recoverable amount of an asset or a cash-generating
unit using value in use calculations based on discounted future cash flows. Future cash flows may be influenced by a
number of estimates such as electricity production, duration of the projects, selling prices, costs to operate, capital
expenditures, growth rate 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 consideration
transferred, assets acquired and liabilities assumed in a business acquisition. Fair values are estimated using valuation
techniques which require several assumptions such as future production, earnings and expenses and discount rates.
Determining control, joint control or significant influence of an investee
The determination of whether the Corporation has control, joint control or significant influence over an investee requires
the Corporation to make assumptions and judgments in evaluating the classification requirements.
Based on the contractual arrangements between the Corporation and the other respective partner, and the fact that the
Corporation owns more than 50% of the economic interest, the Corporation concluded that it has control over Kwoiek
Creek Resources L.P. and Mesgi'g Ugju's'n (MU) Wind Farm L.P.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p106
(in thousands of Canadian dollars, except as noted and amounts per share)
Asset retirement obligations
The Corporation makes a number of estimates when calculating fair value of the asset retirement obligations which represent
the present value of future remediation costs for various projects. Estimates for these costs are dependent on labour costs,
the effectiveness of remedial and restoration measures, inflation rates, discount rates that reflect a current market
assessment of the time value of money and the risk specific to the obligation, and the timing of the outlays.
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.
The Corporation may, from time to time, enter into long-term power hedge agreements which require critical judgments to
determine the fair value and the designation of the long-term power hedge. As part of the designation of the power hedges
as cash flow hedges, the Corporation makes certain judgments regarding the probability of future events. As part of
determining fair value, the Corporation makes certain assumptions, estimates and judgments regarding future events.
Unobservable forecast future power prices are inherently subjective and impact the change in fair value recognized in the
consolidated statement of earnings and the consolidated statement of comprehensive income.
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 2018
Notes to the Consolidated Financial Statements p107
(in thousands of Canadian dollars, except as noted and amounts per share)
5. BUSINESS ACQUISITIONS
a. Acquisition of our partner's interest in five wind farms
On October 24, 2018, the Corporation completed the acquisition of TransCanada’s 62% interest in five wind farms in Quebec's
Gaspé peninsula, namely Baie-des-Sables, Carleton, Gros-Morne, L’Anse-à-Valleau and Montagne Sèche (the “Cartier Wind
Farms”), and its 50% interest in the operating entities of the Cartier Wind Farms (the “Cartier Operating Entities”), for a total
consideration of $621,471.
The Corporation previously owned a 38% interest in the Cartier Wind Farms and a 50% interest in the Cartier Operating
Entities which were accounted for as joint operations as they represented rights to the assets and obligations for the liabilities
of the wind farms. After the acquisition, the Corporation owns 100% of Cartier Wind Farms and 100% of the Cartier Operating
Entities. Upon acquisition, the Corporation did not remeasure its previously held interest in the Cartier Wind Farms.
Concurrent with the closing of the acquisition, Innergex has obtained two short-term credit facilities of $400,000 and $228,000
respectively to cover the purchase price and transaction costs in their entirety.
The Cartier acquisition added an additional gross installed capacity of 365 MW to the Corporation's portfolio.
The following table reflects the preliminary acquisition accounting and 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
Other liabilities
Deferred tax liabilities
Net assets acquired
Preliminary acquisition
accounting
1,414
6,653
2,586
575,995
73,162
11,165
(4,722)
(33,617)
(11,165)
621,471
Goodwill is not deductible for tax purposes. The acquisition accounting remains subject to the completion of the valuation of
property, plant and equipment, intangible assets, goodwill and deferred tax liabilities.
The transaction costs relating to this acquisition have been expensed in accordance with IFRS 3 (see note 8).
The amounts of revenues and net earnings of the acquired interest in the facilities since October 24, 2018 included in the
consolidated statement of earnings are $19,975 and $4,675 respectively for the 69 days ended December 31, 2018.
Had the acquisition taken place on January 1, 2018, the consolidated revenues and net earnings for the period from
January 1, 2018 to October 23, 2018 would have been $67,016 and $4,381 higher respectively.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p108
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Acquisition of Alterra Power Corp
On February 6, 2018, Innergex acquired all of the issued and outstanding common shares of Alterra Power Corp (''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 Board of Directors of Alterra joined the Board of Directors of Innergex
at the closing of the transaction.
The total purchase price of $450,865 for Alterra was 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.
Alterra and its subsidiaries are engaged in the development, construction and operation of renewable energy projects. As
at February 6, 2018, Alterra's operating facilities consisted of a 53.9% net interest in two geothermal power plants in Iceland
("Svartsengi" and "Reykjanes"), and an indirect 30% interest in Blue Lagoon, which operates the Blue Lagoon geothermal
spa in Iceland (''Blue Lagoon''). It also consisted of a 40% net interest in two run-of-river hydro power plants ("Toba Montrose"),
a 25.5% net interest in a wind farm ("Dokie"), a 51% net interest in a run of river hydro power plant ("Jimmie Creek") in British
Columbia, a 50% net interest in the sponsor equity of a wind farm ("Shannon") located in Texas, a 90% net interest in the
sponsor equity of a solar project ("Kokomo") located in Indiana and a 100% net interest in the sponsor equity of a solar project
("Spartan") located in Michigan.
The Alterra acquisition added an additional gross installed capacity of 840 MW to the Corporation's portfolio.
The following table reflects the final acquisition accounting and the fair value of the net assets acquired:
Cash and cash equivalents
Restricted cash and short-term investments
Accounts receivable
Prepaid and others
Reserve accounts
Property, plant and equipment
Intangible assets
Project development costs
Investments in joint ventures and associates
Goodwill
Other long term assets
Accounts payable and other payables
Income tax liabilities
Long-term debt
Derivative financial instruments
Other liabilities
Deferred tax liabilities
Non-controlling interests
Net assets acquired
Goodwill is not deductible for tax purposes.
Final acquisition
accounting
7,218
5,893
17,745
3,925
873
524,186
240,009
19,298
425,786
59,288
16,281
(40,747)
(1,126)
(323,237)
(30,282)
(47,972)
(112,704)
(313,569)
450,865
The transaction costs relating to this acquisition have been expensed in accordance with IFRS 3 (see note 8).
Non controlling interest are measured at their proportionate share of the acquiree’s identifiable net assets.
The amounts of revenues and net earnings of the facilities since February 6, 2018 included in the consolidated statement
of earnings are $97,823 and $4,936 respectively for the 329 days ended December 31, 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p109
(in thousands of Canadian dollars, except as noted and amounts per share)
Had the acquisition taken place on January 1, 2018, the consolidated revenues and net earnings for the period from
January 1, 2018 to February 5, 2018 would have been $11,471 and $4,578 higher respectively.
c. Acquisition of assets of Phoebe
On July 2, 2018, Innergex acquired a 250 MWAC/315 MWDC photovoltaic solar project located in Winkler County, Texas. Full
notice to proceed with construction was also issued on July 2, 2018 and commercial operation should be reached in the third
quarter of 2019. The project is also eligible to receive a federal Investment Tax Credit (ITC) equal to approximately 30% of
the project’s capital costs. The ITC will be mostly allocated to the Tax Equity Investor. The Phoebe project will sell 100% of
its output to the Electric Reliability Council of Texas (''ERCOT'') power grid and receive a fixed price on 89% of its energy
produced under a 12-year power purchase agreement.
The total purchase price for Phoebe was US$100,191 ($131,791) and was comprised entirely of cash consideration.
Total construction costs are estimated at US$397,000 ($524,000) and will be partly financed in priority through a US$115,864
($152,940) construction loan and a US$176,225 ($232,617) tax equity bridge loan. The construction loan will be replaced
by a term loan and the tax equity bridge loan will be retired by equity funding from the Tax Equity Investor upon completion
of certain project milestones. From its Revolving term credit facility, the Corporation issued a letter of credit for an amount
of US$105,000 ($138,600) in support of its obligations under these financing agreements.
The following table reflects the fair value of the assets acquired:
Property, plant and equipment
Derivative financial instruments
Total assets acquired
Assets acquired
US$
$
84,043
16,148
100,191
110,550
21,241
131,791
The Corporation determined that, at the acquisition date, Phoebe constituted a group of assets rather than a business as
defined in IFRS 3, and has accounted for the acquisition as an asset acquisition.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p110
(in thousands of Canadian dollars, except as noted and amounts per share)
d. Acquisition of Rougemont 1-2 and Vaite wind facilities
On May 24, 2017, the Corporation through Innergex Europe (2015) Limited Partnership acquired the Rougemont 1-2 and
Vaite projects located in France ("Rougemont 1-2 and Vaite"). The purchase price for Rougemont 1-2 and Vaite consisted
of a cash consideration of €51,380 ($77,773), subject to certain adjustments. Subsequently, during 2018, the Corporation
completed its acquisition accounting for Rougement 1-2 and Vaite. The adjustments made resulted in an increase to intangible
assets and long-term debt of €4,294 ($6,499).
Rougemont 1-2 and Vaite added an additional gross installed capacity of 119.5 MW to the Corporation's portfolio of wind
farms.
The following table reflects the final acquisition accounting and 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
acquisition
accounting
Subsequent
adjustments
Final acquisition accounting
€
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
€
—
—
—
—
—
4,294
—
—
—
(4,294)
—
—
—
—
€
45
6,443
4,699
52
165,962
39,080
7,827
(5,612)
(252)
(148,921)
(6,645)
(3,723)
(7,575)
51,380
$
68
9,752
7,113
79
251,217
59,155
11,848
(8,495)
(382)
(225,421)
(10,059)
(5,636)
(11,466)
77,773
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).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p111
(in thousands of Canadian dollars, except as noted and amounts per share)
e. Acquisition of Plan Fleury and Les Renardières wind facilities
On August 25, 2017, the Corporation through Innergex Europe (2015) Limited Partnership acquired the Plan Fleury and
Les Renardières wind facilities projects located in France ("Plan Fleury and Les Renardières"). The purchase price for Plan
Fleury and Les Renardières consisted of a cash consideration of €27,352 ($40,839), subject to certain adjustments.
Subsequently, during 2018, the Corporation completed its acquisition accounting in the Plan Fleury and Les Renardières.
The adjustments made resulted in an increase to intangible assets and long-term debt, and a decrease in goodwill and
deferred tax liabilities. In total, an adjustment of €361 ($543) has been made to the consideration transferred.
Plan Fleury and Les Renardières added an additional gross installed capacity of 43 MW to the Corporation's portfolio of
wind farms.
The following table reflects the final acquisition accounting and 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
acquisition
accounting
Subsequent
adjustments
€
€
186
19,639
13,123
168
67,579
26,454
7,772
(24,690)
(75,107)
(7,772)
27,352
—
—
—
—
—
763
(107)
—
(1,124)
107
(361)
Final acquisition accounting
€
186
19,639
13,123
168
67,579
27,217
7,665
(24,690)
(76,231)
(7,665)
26,991
$
277
29,322
19,595
250
100,903
40,634
11,443
(36,865)
(113,820)
(11,443)
40,296
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p112
(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
2018
2017
5,991
4,089
97,334
30,458
137,872
5,287
4,308
32,190
29,887
71,672
Depreciation of $128,321 (2017- $92,762) and amortization of $43,476 (2017- $36,667) recorded in the consolidated
statements of earnings are mainly related to operating expenses incurred to generate revenues.
7. FINANCE COSTS
Interest expense 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
Other
8. OTHER NET EXPENSES (REVENUES)
Transaction costs related to business combinations (note 5)
Realized loss on derivative financial instruments
Realized loss (gain) on foreign exchange
Change in fair value of contingent considerations (note 24 a)
Other net revenues
Loss on disposal of property, plant and equipment
Recovery of loan impairment
Amortization of below market contract
Year ended December 31
2018
2017
177,395
6,798
5,248
2,367
3,265
4,731
199,804
Restated (Note 2.1)
134,420
3,910
2,980
2,130
1,664
2,388
147,492
Year ended December 31
2018
2017
8,280
6,092
5,914
—
(3,170)
538
—
(2,381)
15,273
6,450
—
(910)
(881)
(2,644)
888
(450)
—
2,453
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p113
(in thousands of Canadian dollars, except as noted and amounts per share)
9. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
9.1 Details of material joint ventures and associates
Details of the Corporation's material joint ventures and associates are as follows:
Joint ventures and
associates
Principal activity
Energia Llaima
Toba Montrose
Shannon
Flat Top
Dokie
Jimmie Creek
Umbata Falls
Viger-Denonville
Blue Lagoon
Own and operate three
hydroelectric facilities and a
solar facility
Own and operate two
hydroelectric facilities
Own and operate a wind farm
Own and operate a wind farm
Own and operate a wind farm
Own and operate a
hydroelectric facility
Own and operate a
hydroelectric facility
Own and operate a wind farm
Own and operate a geothermal
spa
Place of creation
and principal
place of
operation
Chile
British Columbia
Texas
Texas
British Columbia
British Columbia
Ontario
Quebec
Iceland
Proportion of ownership interest and
voting rights held by the Corporation
December 31,
2018
December 31,
2017
50%
40%
50% 1
51% 1,3
25.5%
50.99% 3
49%
50%
30% 2
—
—
—
—
—
—
49%
50%
—
1. Ownership interest is in the sponsor equity. However, tax equity partners hold 100% of the tax equity interests.
2. Ownership interest is through HS Orka hf. (of which the Corporation owns 53.9%), which owns a 30% interest in Blue Lagoon.
3. The Corporation doesn’t consolidate these entities as it doesn’t control the decision making.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p114
(in thousands of Canadian dollars, except as noted and amounts per share)
The summarized financial information below represents amounts shown in the joint ventures' and associates' financial statements prepared in accordance with
IFRS adjusted for fair value adjustments at acquisition and differences in accounting policies.
Summary Statements of Earnings and Comprehensive Income (Loss)
Year ended December 31, 2018
Energia
Llaima
(181-day
period)
Toba
Montrose Shannon
(329-day
(329-day
period)
period)
Flat Top
(329-day
period)
Dokie
(329-day
period)
Jimmie
Creek
(329-day
period)
Umbata
Falls
Viger-
Denonvill
e
Blue
Lagoon
(329-day
period)
Others
Total
30,739
65,435
13,934
15,057
31,610
19,166
9,459
11,724
172,094
— 369,218
13,855
16,884
6,043
(3,588)
7,406
—
1,557
5,466
13,780
19,246
14,913
50,522
25,409
(495)
14,988
1,135
—
9,485
—
9,485
8,326
5,608
632
(785)
8,798
9,750
5,307
332
90
10,447
(12,454)
—
(6,315)
—
7,655
23,955
9,659
360
11,327
—
—
3,202
15,964
8,638
672
4,380
—
—
910
8,549
2,257
(81)
4,011
(715)
—
2,056
9,668
3,423
(72)
2,517
(768)
—
9,417
753
2,609
2,274
3,077
4,568
116,793
55,301
1,373
1,069
13,656
—
10,025
29,178
9,906
19,323
14,851
15,604
—
2,609
—
2,274
—
3,077
(180)
4,388
(20,353)
8,825
— 177,460
— 191,758
57,766
—
(2,830)
—
77,530
—
— (19,117)
11,582
—
—
31
31
66,827
18,035
84,862
2,715
3,794
10,720
2,502
665
1,160
1,508
2,284
8,762
—
34,110
9,605
3,794
15,673
10,076
665
1,160
1,508
2,194
2,650
31
47,356
—
7,000
2,202
3,232
510
2,295
1,790
2,013
7,557
—
26,599
Revenues
Operating, general and
administrative expenses
Finance costs
Other net (revenues) expenses
Depreciation and amortization
Unrealized net (gain) loss on
financial instruments
Provision for income taxes
Net earnings
Other comprehensive income
(loss)
Total comprehensive income
Net earnings attributable to
Innergex
Total comprehensive income
attributable to Innergex
Distributions received from the
joint ventures and associates
by the Corporation
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p115
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings and Comprehensive Income (Loss)
Revenues
Operating, general and administrative expenses
Finance costs
Other net expenses (revenues)
Depreciation and amortization
Unrealized net gain on financial instruments
Net earnings
Other comprehensive income
Total comprehensive income
Net earnings attributable to:
Innergex
Total comprehensive income attributable to:
Innergex
Distributions received from the joint ventures and associates by the Corporation
Year ended December 31, 2017
Viger-Denonville
Total
Umbata Falls
11,645
1,307
10,338
2,392
23
4,016
(2,056)
5,963
—
5,963
Restated
10,998
1,899
9,099
3,466
(40)
2,815
(575)
3,433
1,630
5,063
22,643
3,206
19,437
5,858
(17)
6,831
(2,631)
9,396
1,630
11,026
2,921
1,717
4,638
2,921
1,823
2,532
1,378
5,453
3,201
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p116
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
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
Tax equity interest
Sponsor/Partner's equity interest
Non-controlling interests
As at December 31, 2018
Energia
Llaima
30,531
34,067
64,598
Toba
Montrose
13,348
8,881
22,229
Shannon
6,329
3,466
9,795
Flat Top
5,786
7,896
13,682
Dokie
2,776
11,427
14,203
Jimmie
Creek
7,298
3,319
10,617
Umbata
Falls
2,866
903
3,769
Viger-
Denonville
1,857
1,093
2,950
Blue
Lagoon
10,144
13,375
23,519
570,472
635,070
762,471
784,700
389,088
398,883
482,951
496,633
225,788
239,991
231,632
242,249
56,872
60,641
53,757
56,707
538,975
562,494
3,849
11,048
14,897
244,620
—
308,598
66,955
635,070
5,229
9,800
15,029
567,230
—
202,441
—
784,700
12,197
4,663
16,860
12,075
227,759
142,189
—
398,883
12,178
10,491
22,669
13,492
283,661
176,811
—
496,633
2,460
7,554
10,014
133,815
—
96,162
—
239,991
3,682
925
4,607
165,990
—
71,652
—
242,249
241
3,181
3,422
38,023
—
19,196
—
60,641
746
3,405
4,151
49,652
—
2,904
—
56,707
25,470
13,203
38,673
70,180
—
453,641
—
562,494
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint ventures and associates recognized in the consolidated
financial statements:
For the year ended December 31, 2018
Balance January 1, 2018
Business acquisitions
Increase in investment
Share of earnings
Share of other
comprehensive income
(loss)
Distributions received
Balance December 31, 2018
Energia
Llaima
—
—
144,694
2,715
Toba
Montrose Shannon
—
57,623
—
10,720
—
84,182
—
3,794
Flat Top
—
80,810
2,520
2,502
Dokie
—
24,366
—
665
Jimmie
Creek
—
37,670
—
1,160
Umbata
Falls
9,688
—
—
1,508
Viger-
Denonville
1,272
Blue
Lagoon
—
— 141,135
—
—
8,762
2,284
Total
Others
11,011
51
— 425,786
147,219
5
34,110
—
6,890
—
154,299
—
(7,000)
80,976
4,953
(2,202)
71,094
7,574
(3,232)
90,174
—
(510)
24,521
—
(2,295)
36,535
—
(1,790)
9,406
(90)
(2,013)
1,453
(6,112)
(7,557)
136,228
31
13,246
— (26,599)
604,773
87
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p117
(in thousands of Canadian dollars, except as noted and amounts per share)
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
As at December 31, 2017
Umbata Falls
1,620
1,930
3,550
60,658
64,208
198
3,314
3,512
40,924
19,772
64,208
Viger-Denonville
1,760
1,245
3,005
53,812
56,817
744
3,611
4,355
49,920
2,542
56,817
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture recognized in the consolidated financial
statements:
Balance January 1, 2017
Share of earnings
Share of other comprehensive income
Distributions received
Balance December 31, 2017
For the year ended December 31, 2017
Umbata Falls
8,590
2,921
—
(1,823)
9,688
Viger-
Denonville
118
1,717
815
(1,378)
1,272
Others
Total
51
—
—
—
51
8,759
4,638
815
(3,201)
11,011
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p118
(in thousands of Canadian dollars, except as noted and amounts per share)
Energia Llaima
On July 3, 2018, Innergex acquired a 50% ownership in Energia Llaima, which owns interest in the Guyacan hydro
facility (12 MW) and the Pampa Elvira solar facility (34 MW). Energia Llaima also owns interests in two hydro facilities
in development (125 MW) and other early development stage projects. Innergex invested an initial amount of
US$10,000 ($13,154) through available funds under its corporate revolving credit facilities and has agreed to invest
an additional US$100,000 ($131,540) over a 12-month period, of which US$90,000 ($118,386) was invested for the
acquisition of the Duqueco hydro project.
On July 5, 2018, Innergex and Energia Llaima completed the acquisition of the 140 MW Duqueco hydro project in
Chile. The Duqueco hydro project includes two hydro facilities commissioned in 2001, Peuchén (85 MW) and Mampil
(55 MW).
On July 5, 2018, Duqueco SpA closed a US$130,000 ($170,677) non-recourse term loan project financing for the
Duqueco SpA hydroelectric projects. The 15-year term loan bears a variable interest rate at LIBOR+3.50%. US$60,600
($79,562) of principal will be repaid over the period of the loan and US$69,400 ($91,115) will be reimbursed at maturity
in 2033. The annual scheduled debt repayment will be increased by a cash flow sweep calculated as follows: 50% of
the available cash flow for the years ending in 2019 to 2021, 30% of the available cash flow for the following years.
Toba Montrose
The Corporation holds a 51% voting interest and a 40% economic interest in East Toba and Montrose Creek hydro
facilities ("Toba Montrose"). In 2046, the Corporation’s economic interest will increase to 51% for no additional
consideration and its partner’s economic interest will decrease from 60% to 49%.
At the date of the acquisition of Alterra, Toba Montrose had total loan facilities of $436,589.
The debt consists of two credit facilities which were entered into on November 8, 2007. The first is a $370,000, 38-
year senior secured credit facility with a fixed interest rate to correspond with the three-year construction period and
a repayment period over the 35-year term of the project’s PPA with BC Hydro. The interest rate on this credit facility
is 6.173% per annum. The second credit facility is a $100,000, 38-year senior secured credit facility with a floating
interest rate, to correspond with the three-year construction period and a repayment period over the 35-year term of
the project’s PPA with BC Hydro. The floating interest rate on this credit facility is based on three-month Bankers’
Acceptance Rates plus a credit spread of 1.60% per annum. The principal repayments for both debts are set to $6,622
for the year 2019.
Toba Montrose holds an interest rate swap contract which provides for quarterly settlements from November 1, 2010
to June 30, 2045. Pursuant to the interest rate swap agreement, Toba Montrose will receive interest on a notional
amount at the three-month Bankers’ Acceptance Rate from the counterparty and will pay interest on the notional
amount at an interest rate of 5.341% per annum. The notional amount is $92,699 at December 31, 2018 and is reduced
in amounts based on the scheduled principal repayments on the floating rate facility over the life of the interest rate
swap.
Toba Montrose is subject to certain covenants regarding its loan agreements and as at December 31, 2018 was in
compliance with all debt covenants.
Shannon
The Corporation holds a 50% sponsor equity interest in the Shannon wind facility, with the remaining 50% sponsor
equity interest and tax equity interest held by third parties.
On June 29, 2015 Shannon entered into a long-term power hedge covering the period from June 1, 2016 to May 31,
2029. The power hedge provides for Shannon to receive a fixed dollar per MWh for a fixed quantity of power.
The Corporation’s equity pick up of the results of Shannon are calculated in accordance with the hypothetical liquidation
at book value (“HLBV”) method which allocates earnings or losses by measuring the distribution amounts that would
be due to the members (investors) in a hypothetical liquidation of the entity at the net book value of the underlying
assets. The Corporation believes the HLBV method is the method that most appropriately reflects how an increase
or decrease in net assets of the venture will affect cash payments to investors (both sponsors and tax equity investors)
over the life of the venture and upon its liquidation given the disproportionate allocations of cash and tax attributes
that are present.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p119
(in thousands of Canadian dollars, except as noted and amounts per share)
One of the primary incentives for renewable energy in the United States has been the production tax credits program
("PTC"), whereby corporations that generate electricity from renewable energy sources, including wind, are eligible
for tax credits which provide a tax benefit for each unit of generation for the first ten years of the facility’s operation
(until 2025). The Shannon tax equity investors are allocated a portion of Shannon's taxable income (losses) and PTCs
and a portion of the cash generated until they achieve an agreed after-tax investment return (the "Flip Point"). After
the Flip Point, the Shannon tax equity investors will be allocated 5% of cash distributions and taxable income (losses),
and the sponsors will be allocated 95% of all cash distributions and taxable income (losses).
For the period from February 6, 2018 to December 31, 2018, the wind facility generated approximately US$14,573
($15,536) of PTCs.
The Tax Equity Investors and Sponsors' taxable income (losses) and PTCs and cash distributions allocations are
detailed in the table below. These allocations will change when the Tax Equity Investors reach their expected return.
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
Sponsors
99.0%
64.1%
1.0%
35.9%
Tax equity investors in US wind projects generally require sponsor guarantees as a condition to their investment. To
support the tax equity investment in Shannon, Alterra Power Corp., a subsidiary of Innergex, executed a guarantee
indemnifying the tax equity investors against certain breaches of project level representations, warranties and
covenants and other events. The Corporation believes these indemnifications cover matters which are substantially
under its control, and are very unlikely to occur.
Flat Top
The Corporation holds a 51% sponsor equity interest in the Flat Top wind facility, with the remaining 49% sponsor
equity interest and tax equity interest held by third parties. The wind farm began commercial operation on
March 23, 2018.
On May 24, 2017 Flat Top entered into a long-term power hedge covering the period from August 1, 2018 to July 31,
2031. The power hedge provides for Flat Top to receive a fixed dollar per MWh for a fixed quantity of power.
As of the date of the acquisition of Alterra, Flat Top had a total construction loan of US$211,082 ($264,486).
On March 23, 2018, Flat Top achieved commercial operation and concurrently Flat Top’s US$216,678 ($278,843)
construction loan was retired by a US$211,300 ($271,922) tax equity investment, a US$2,902 ($3,735) security deposit
placed by Alterra on July 19, 2017 for future capital contributions and further capital contributions from the other
sponsor.
The Corporation's share of earnings of Flat Top are calculated in accordance with the HLBV method.
Flat Top is part of the PTC program in the United States which provides a tax benefit for each unit of generation for
the first ten years of the facility's operation (until 2028). The Flat Top tax equity investors are allocated a portion of
Flat Top's taxable income (losses) and PTCs and a portion of the cash generated until they achieve an agreed after-
tax investment return (the "Flip Point"). After the Flip Point, the Flat Top tax equity investors will be allocated 5% of
cash distributions and taxable income (losses), and the sponsors will be allocated 95% of all cash distributions and
taxable income (losses).
For the period from March 23, 2018 to December 31, 2018, the wind facility generated approximately US$14,481
($19,057) of PTCs.
The Tax Equity Investors and Sponsors' taxable income (losses) and PTCs and cash distributions allocations are
detailed in the table below. These allocations will change when the Tax Equity Investors reach their expected return.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p120
(in thousands of Canadian dollars, except as noted and amounts per share)
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
Sponsors
99.00%
21.97%
1.00%
78.03%
Tax equity investors in US wind projects generally require sponsor guarantees as a condition to their investment. To
support the tax equity investment in Flat Top, Alterra Power Corp, a subsidiary of Innergex, executed a guarantee
indemnifying the tax equity investors against certain breaches of project level representations, warranties and
covenants and other events. The Corporation believes these indemnifications cover matters which are substantially
under its control, and are very unlikely to occur.
Dokie
The Corporation holds a 25.5% interest in the Dokie wind facility.
As of the date of the acquisition of Alterra, Dokie had total loan facilities of $149,265.
Dokie executed a credit agreement on December 7, 2009 for a $175,000 loan with an annual fixed interest rate of
7.243% and a maturity date of December 31, 2030. The principal repayments are set to $7,554 for 2019.
Dokie is subject to certain covenants regarding its loan agreements and as at December 31, 2018 was in compliance
with all debt covenants.
Jimmie Creek
The Corporation holds a 50.99% interest in the Jimmie Creek hydro facility.
As of the date of the acquisition of Alterra, Jimmie Creek had total loan facilities of $167,558.
Jimmie Creek executed a credit agreement in October 2014 for a $176,450, 42-year senior secured credit facility at
a fixed interest rate, which corresponded with the two-year construction period, and a repayment period over the 40-
year term (plus final 10% bullet payment due on maturity) of the Jimmie Creek project’s PPA with BC Hydro. The
annual interest rate on the loan is fixed at 5.255%. The principal repayments are set to $925 for 2019.
Jimmie Creek is subject to certain covenants regarding its loan agreements and as at December 31, 2018 was in
compliance with all debt covenants.
Umbata Falls
The Corporation holds a 49% interest in the Umbata Falls hydro facility.
The loan consists 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 follows: the percentage of excess of actual production
over the forecasted production multiplied 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, 2018, 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 $40,147 as at December 31, 2018 ($41,621 in
2017), maturing in 2034 and bearing an interest rate of 3.98%.
Viger-Denonville
The Corporation holds a 50% interest in the Viger-Denonville wind facility.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p121
(in thousands of Canadian dollars, except as noted and amounts per share)
The loan consists of an 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 $2,896 for 2019. The lenders also agreed to make available
a letter of credit facility in an amount not to exceed $984. As at December 31, 2018, 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 $46,528 as at December 31, 2018 ($49,262
in 2017), maturing in 2031 and bearing an interest rate of 3.40%.
Blue Lagoon
HS Orka hf ("HS Orka"), holds a 30% interest in Blue Lagoon hf, which operates the Blue Lagoon geothermal spa in
Iceland.
9.2 Commitments of joint ventures and associates
As at December 31, 2018, the Corporation's share of the expected schedule of commitment payments for joint ventures
and associates are as follows:
Year of expected payment
2019
2020
2021
2022
2023
Thereafter
Total
Hydroelectric
Generation
Wind Power
Generation
Total
1,606
1,420
1,439
1,458
1,477
40,094
47,494
4,494
4,497
5,060
5,063
5,067
46,737
70,918
6,100
5,917
6,499
6,521
6,544
86,831
118,412
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 a portion of its long-term debt. The Corporation
also holds foreign exchange forward contracts (“foreign exchange forward”) that enable it to hedge its exposure to foreign
exchange rates on net 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 $9,853. Conversely, a decrease in
swap rates curve of 0.1% would result in an increase of $11,849 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 $3,537. Conversely, a decrease in the euro exchange rate against the
Canadian dollar of 1.0% would result in a positive fair value of $3,538 of these financial instruments.
The Corporation records embedded derivatives separately from the host contracts:
•
The inflation embedded derivative relates to provisions establishing minimum inflation rate at 3% of the selling prices
provided for under some of the PPAs entered into with Hydro-Québec. The Corporation does not anticipate any
payment defaults from the counterparty. The fair value of these financial instruments is evaluated using revenue
estimates based on long-term production averages estimated for each facility. It varies based on the difference between
the 3% minimum inflation rate and the long-term inflation rate, which is estimated at 2% as at December 31, 2018
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 $97. A 0.1% decrease in
the long-term inflation rate would increase the fair value of these financial instruments by $97.
Innergex holds hedge agreements to mitigate the risk of fluctuations in the interest rates on its long-term debts. The fair
value is based on Level 2 valuation techniques. Hedge accounting is applied on these contracts.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p122
(in thousands of Canadian dollars, except as noted and amounts per share)
As part of the acquisition of Alterra, the Corporation acquired HS Orka which has two power purchase agreements that
have embedded derivatives that are accounted for separately from the host contracts. HS Orka signed power sales
agreements on power supply until the year 2026 and the sale of power until the year 2019. Payments under the agreements
are made in USD and are linked to the price of aluminum. These long-term power sales agreements feature embedded
derivatives, the value of which is adjusted upon changes in the future price of aluminum. In evaluating the value of embedded
derivatives, generally accepted valuation methods are applied, as the market value is not available. The fair value is based
on Level 2 valuation techniques. The fair value of the embedded derivatives are calculated on the basis of the forward
price of aluminum. The expected present value of cash flows based on the reporting date is calculated on the basis of the
registered forward price of aluminum on the London Metal Exchange (LME) over the remaining lifetime of the contracts.
The embedded derivatives are recorded at fair value at inception and at each subsequent reporting period based on the
expected present value of cash flows. The fair value change of the embedded derivatives is recognized in earnings or
loss. When calculating the present value, the discount rate the Corporation uses is based on the current government yield
curve for US sovereign strips plus applicable counterparty risk spread which is calculated based on the credit rating of the
counterparty.
On July 2, 2018, Innergex acquired Phoebe including its long-term power hedge agreement. The power hedge covers
the period from July 1, 2019 to June 30, 2031 and provides for Phoebe to receive a fixed dollar amount per MWh for a
fixed quantity of power. The effective portion of changes in the fair value of the power hedge are recorded in other
comprehensive income. The fair value of the power hedge is based on Level 3 valuation techniques as the forward power
prices are not based on observable market data for the entirety of the contracted period. The power forward price curves
are constructed using various assumptions depending on the observable market data available as of the valuation date
and are summarized as follows:
- Observable monthly market prices through December 2024 for ERCOT South.
- A perpetual heat rate based on the calendar year forward electricity price and the NYMEX natural gas calendar
strip resulting in calendar year average power prices through December 2029, the date that NYMEX natural gas
prices are no longer observable. These calendar year average prices are also adjusted for seasonality based on
calendar year 2019.
- After December 2029, the prior year's monthly price is inflated by 2.3% per year.
The Corporation designated the power hedge as a cash flow hedge for accounting purposes upon acquisition of Phoebe
on July 2, 2018. The effective portion of changes in the fair value of the power hedge are recorded in other comprehensive
income (loss of US$19,702 for the year ended December 31, 2018). The ineffective portion is recognized in the statement
of earnings, however there was no ineffective portion in 2018. There was no realized gain or loss recognized for the year
ended December 31, 2018. Phoebe is hedging approximately 89% of its expected output; the power hedge was in a
liability position of US$3,554 at December 31, 2018.
The valuation is sensitive to changes in future power prices. As at December 31, 2018, the projected power prices for
the period of January 1, 2025 to June 30, 2031 are expected to be in a range of US$16.58 to US$101.15 per MWh.
A 10% increase in power prices would increase the liability by US$21,069 and a 10% decrease would decrease the
liability by US$21,068.
The classification of the fair value hierarchy of all the financial assets and liabilities remained the same during 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p123
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial assets (liabilities)
Embedded
derivatives
(Level 2)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Inflation
provisions
(Level 3)
Power
hedge
(Level 3)
Total
As at January 1, 2018
—
(17,294)
(46,710)
1,735
—
(62,269)
Derivatives acquired on business/
asset acquisitions (Note 5)
Recognized in consolidated
statement of earnings
Variation in fair value of derivative
financial instruments recognized in
other comprehensive income
Net foreign exchange differences
As at December 31, 2018
(31,195)
—
913
—
21,241
(9,041)
(16,863)
(13,489)
14,143
(753)
—
(16,962)
—
1,649
(46,409)
(1,346)
—
(32,129)
(21,644)
(111)
(53,409)
—
—
982
(26,353)
263
(4,849)
(49,343)
1,801
(135,814)
1. The $3,905 unrealized net loss on financial instruments recognized in the consolidated statement of earnings includes a gain of $13,057
resulting from an intragroup loan. On consolidation, although the intragroup loan is eliminated from the consolidated statement of financial
position, the related exchange loss is recognized in the consolidated statement of earnings.
Financial assets (liabilities)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Inflation
provisions
(Level 3)
Total
As at January 1, 2017
(8)
(62,790)
2,707
(60,091)
Derivatives acquired on business acquisitions (Note 5)
Recognized in consolidated 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
—
(16,224)
(1,062)
—
(17,294)
(11,010)
10,798
16,307
(15)
(46,710)
—
(972)
—
—
1,735
(11,010)
(6,398)
15,245
(15)
(62,269)
1. The $2,245 unrealized net gain on financial instruments recognized in the consolidated statement of earnings includes a gain of $8,643
resulting from an intragroup loan. On consolidation, although the intragroup loan is eliminated from the consolidated statement of financial
position, the related exchange loss is recognized in the consolidated statement of earnings.
Reported in the consolidated statements of financial position:
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Interest rate risk
December 31, 2018
December 31, 2017
2,370
9,817
(29,999)
(118,002)
(135,814)
5,416
9,558
(22,749)
(54,494)
(62,269)
On July 3, 2018, the Corporation entered into two US$ denominated hedge agreements to mitigate the risk of fluctuations
in the interest rates on its long-term debts following the Phoebe acquisition. The fair value is based on Level 2 valuation
techniques. Hedge accounting is applied on these contracts.
On December 19, 2018, the Corporation entered into five hedge agreements to mitigate the risk of fluctuations in the
interest rates on its long-term debts following the Cartier acquisition. The fair value is based on Level 2 valuation techniques.
Hedge accounting is applied on these contracts.
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 contracts. Rates on contracts represent the interest rate, excluding
the applicable margin on the debts.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p124
(in thousands of Canadian dollars, except as noted and amounts per share)
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 swaps, 4.27% to 4.41%
Bond forwards, 1.74%
Interest rate swap, 2.63%, converted at a fixed
rate of CAD 1.3642/US
Interest rate swap, 2.16%
Interest rate swap, 2.32%
Interest rate swap, 2.31%, converted at a fixed
rate of CAD 1.3642/US
Interest rate swaps, 2.33%
Interest rate swaps, 2.30%
Interest rate swap, 3.07%, converted at a fixed
rate of CAD 1.3642/US
Interest rate swap, 1.86%, converted at a fixed
rate of CAD 1.3642/US
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 1.5613/Euro
Interest rate swap, 4.25%, amortizing
Interest rate swap, 0.78%, amortizing, translated
at CAD 1.5613/Euro
Interest rate swap, 1.302%, amortizing, translated
at CAD 1.5613/Euro
Interest rate swap, 1.303%, amortizing, translated
at CAD 1.5613/Euro
Interest rate swap, 1.475%, amortizing, translated
at CAD 1.5613/Euro
Interest rate swap, 1.277%, amortizing, translated
at CAD 1.5613/Euro
Interest rate swap, 2.827%, amortizing
Interest rate swap, 4.61%, amortizing
Interest rate swap, 2.85%, amortizing
Maturity
Early
termination
option
Notional Amounts
December 31,
2018
December 31,
2017
2018
2018
2019
2023
2023
2024
2024
2024
2026 1
2026
2026
2026
2027
2027
2028
2028
2030
2030
2030
2031
2031
2032
2032
2032
2032
2032
2035
2041
None
None
None
None
None
None
2019
2019
None
None
None
None
None
2022
2022
2022
None
2021
None
2020
None
None
None
None
None
None
2025
2021
—
—
214,679
29,000
49,000
13,403
20,000
20,000
142,255
6,200
91,464
—
—
20,000
30,000
52,600
75,141
—
14,942
35,182
69,128
70,201
42,862
38,909
75,336
569,361
89,438
18,017
1,787,118
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
1. Forward starting interest rate swap; effective date on September 30, 2019.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p125
(in thousands of Canadian dollars, except as noted and amounts per share)
Foreign exchange forward contracts
As part of the Yonne, Rougemont 1-2 and Vaite and Plan Fleury and Les Renardières Acquisitions, the Corporation entered
in 2017 into hedge agreements to reduce the Corporation's foreign exchange risk.
On April 23, 2018, the Corporation extended all of its foreign exchange forward contracts which hedge its exposure to
foreign exchange rate on its investment in France. The contracts have been extended for a period of two years following
their original expiry date ranging from April 2018 to August 2019.
Contracts
Contracts used to hedge the foreign exchange
risk
Foreign exchange forwards amortizing until 2041,
allowing conversion at a fixed rate of CAD 1.7332/
Euro (before 1.7575/Euro)
Foreign exchange forwards amortizing until 2042,
allowing conversion at a fixed rate of CAD 1.7340/
Euro (before 1.7588/Euro)
Foreign exchange forwards amortizing until 2041,
allowing conversion at a fixed rate of CAD 1.6850/
Euro (before 1.7150/Euro)
Foreign exchange forwards amortizing until 2043,
allowing conversion at a fixed rate of CAD 1.7654/
Euro (before 1.7890/Euro)
Foreign exchange forwards amortizing until 2043,
allowing conversion at a fixed rate of CAD 1.7804/
Euro (before 1.8011/Euro)
Maturity
Early
termination
option
Notional Amounts
December 31,
2018
December 31,
2017
2020
none
156,364
162,881
2020
none
47,949
50,671
2021
none
111,945
113,938
2021
none
159,538
170,208
2021
none
77,896
553,692
81,882
579,580
A portion of the Libor advances of US$145,035 ($197,857) drawn on the revolving credit facilities available until 2023, is
used as a hedge on the net investment in foreign operations.
Hedging instruments
As at December 31, 2018, the following items were designated as cash-flow hedging instruments to mitigate the interest
rate risk, the power price 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
1,689,515
7,429
(60,838)
(10,207)
7,705 GWh
4,469
(9,318)
(26,877)
194,716
63,674
—
288
194,716
(4,369)
5,588
(58)
Cash-flow hedges:
Interest rate risk
Interest rate swaps
Power price risk
Power hedge
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 2018
Notes to the Consolidated Financial Statements p126
(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, 2018:
Cumulative
changes in fair
value used for
calculating
hedge
ineffectiveness
Cash flow
hedge reserve 1
Foreign
currency
translation
reserve - Active
Hedging
Relationships
Foreign
currency
translation
reserve -
Terminated
Hedging
Relationships
Cost of hedging
reserve
Cash-flow hedge:
Interest rate risk
Interest rate swaps
Power price risk
Power hedge
Hedge of net investment in a
foreign operation:
Foreign exchange risk
Libor advances
Foreign exchange forwards
11,988
(11,359)
2,671
26,877
(5,588)
(173)
—
—
—
—
—
61
—
—
—
—
—
(3,782)
(5,588)
1,408
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, 2018:
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
Cash-flow hedge:
Interest rate risk
Interest rate swaps
Power price risk
Power hedge
(31,889)
142
(17,454)
(1)
—
—
Hedge of net investment in a foreign operation:
Foreign exchange risk
Libor advances
Foreign exchange forwards
(4,853)
(1,346)
—
(122)
—
203
—
—
—
—
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 2018
Notes to the Consolidated Financial Statements p127
(in thousands of Canadian dollars, except as noted and amounts per share)
11. PROVISION FOR INCOME TAXES
a. Income taxes recognized in statements of earnings
Current income taxes
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 income taxes
Deferred tax (recovery) 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
Provision for income taxes recognized in the current year
December 31, 2018
December 31, 2017
8,526
(5)
8,521
(4,874)
(558)
(395)
(5,827)
2,694
(Restated Note 2.1)
4,148
(7)
4,141
5,269
(2,565)
256
2,960
7,101
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.
December 31, 2018
December 31, 2017
(Restated Note 2.1)
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
(Decrease) Increase in taxable temporary differences in
relation to investments in subsidiaries and in joint
ventures and associates
Tax on dividends on preferred shares
Adjustments recognized in the current year in relation to
the current taxes of prior years
Adjustments recognized in the current year in relation to
the deferred taxes of prior years
Income taxes on (earnings) loss allocated to non-
controlling interests on non-taxable entities
Changes in unrecognized deferred tax asset
Others
Provision for income taxes recognized in the current year
28,412
26.6%
7,558
3,235
(355)
(2,425)
(558)
(2,018)
164
(5)
(395)
(4,725)
1,977
241
2,694
26,237
26.6%
6,979
2,678
(322)
(1,839)
(2,565)
710
160
(7)
256
760
—
291
7,101
The tax rate used for 2018 and 2017 reconciliations above is the average combined corporate tax rate payable by
corporate entities in Canada on taxable profits under federal and provincial tax laws.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p128
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Income taxes recognized in other comprehensive income
December 31, 2018
December 31, 2017
Deferred income taxes
Foreign currency translation differences for foreign
operations
Foreign exchange loss on the designated hedges on the
net investments in foreign operations
Change in fair value of financial instruments designated
as cash flow hedges
Change in fair value of financial instruments of joint
ventures and associates designated as cash flow
hedges
Share of non-controlling interests in change in fair value
of hedging instruments
Defined benefit plan actuarial losses
Total income taxes recognized directly in other
comprehensive income
c. Deferred income tax balances
(205)
(645)
(13,577)
3,287
(150)
(104)
(11,394)
60
(147)
4,172
201
98
—
4,384
The following is the analysis of deferred income tax assets (liabilities) presented in the consolidated statements
of financial position:
Assets
Liabilities
December 31, 2018
December 31, 2017
16,465
(325,904)
(309,439)
(Restated Note 2.1)
11,873
(216,716)
(204,843)
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p129
(in thousands of Canadian dollars, except as noted and amounts per share)
As at January 1,
2018
Recognized in
statement of
earnings
Recognized in
other
comprehensive
income
Recognized in
business
acquisitions
Recognized
directly in
equity
Net exchange
differences
As at December 31,
2018
Deferred income tax assets (liabilities) in
relation to:
Property, plant and equipment
Intangible assets
Project development costs
Investments into subsidiaries and in joint
ventures and associates
Non-repatriated income from foreign
subsidiaries
Derivative financial instruments
Long-term debt
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Others
Tax losses carried forward
(Restated Note 2.1)
(159,943)
(150,542)
11,403
(8,442)
(826)
8,127
—
—
—
(30,713)
(35,153)
(17,706)
(4,455)
(3,273)
(709)
(80,735)
(1,247)
52,721
(3,836)
(358)
521
(4,186)
1,381
—
(258,541)
53,698
(204,843)
220
2,041
2,138
196
(942)
(1,710)
50
1,732
(689)
6,516
5,827
—
11,357
—
—
101
—
—
—
10,749
645
11,394
—
4,794
3,827
—
4,021
42
—
(1,104)
(152,727)
29,019
(123,708)
—
—
—
—
—
—
—
(766)
—
—
—
—
(766)
—
(766)
(525)
2,527
103
(943)
—
161
117
—
—
(1)
—
—
1,439
1,218
2,657
(199,623)
(183,994)
1,927
(90,115)
(1,027)
71,074
2,246
(928)
3,701
(5,855)
1,431
628
(400,535)
91,096
(309,439)
As at December 31, 2018, the Corporation, its subsidiaries and joint ventures and associates have non-capital losses totaling approximately $345,000 that may be applied
against future taxable income. The non-capital losses in Canada and the United-States expire gradually between 2026 and 2038. The non-capital losses in France are
subject to restrictions over time but have no expiration date.
The Corporation recognized a deferred income 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.
2018 Second Quarter
Notes to the Consolidated Financial Statements p130
(in thousands of Canadian dollars, except as noted and amounts per share)
Deferred income tax assets (liabilities) in relation to:
Property, plant and equipment
Intangible assets
Project development costs
Investments into subsidiaries and in joint ventures and
associates
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
(Restated Note 2.1)
(159,667)
(115,461)
14,992
(3,664)
(1,225)
53,549
(5,644)
(486)
560
(4,268)
1,205
(220,109)
53,676
(166,433)
1,575
1,394
(3,589)
(559)
(22)
92
(432)
128
(39)
468
176
(808)
(2,152)
(2,960)
—
—
—
(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
(3,836)
(358)
521
(4,186)
1,381
(258,541)
53,698
(204,843)
Innergex Renewable Energy Inc.
2018 Second Quarter
Notes to the Consolidated Financial Statements p131
(in thousands of Canadian dollars, except as noted and amounts per share)
d. 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, 2018
December 31, 2017
292,350
5,920
477
298,747
4,468
8,584
477
13,529
The unrecognized tax losses-revenue in nature will expire gradually between 2019 and 2038.
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) 1, 2
Diluted weighted average number of common shares (in 000s)
Diluted net earnings per share ($)
Year ended December 31
2018
2017
32,692
(5,942)
26,750
130,030
0.21
130,030
877
130,907
0.21
(Restated Note 2.1)
29,475
(5,942)
23,533
108,427
0.22
108,427
820
109,247
0.22
1. Share options for which the exercise price was below the average market price of common shares are included in the calculation of
diluted weighted average number of shares outstanding.
2. A total of 203,416 shares held in trust related to the PSP are included in 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):
Share options
Convertible debentures
Year ended December 31
2018
2017
203
14,167
203
6,667
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p132
(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 payments
14. EMPLOYEE BENEFITS
Year ended December 31
2018
2017
6,073
738
1,769
69
8,649
5,642
700
1,503
390
8,235
The expenses that the Corporation recognized for its employee benefits is composed of salaries and short-term benefits.
Employee benefits were included in the following categories:
Operating expenses
General and administrative
Prospective projects expenses
Transaction costs
Capitalized in Property, plant and equipment
Capitalized in Project development costs
Year ended December 31
2018
2017
5,991
23,316
8,218
1,941
1,006
148
40,620
5,287
9,815
6,942
1,538
2,306
—
25,888
15. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
As at
Restricted cash accounts
Restricted proceeds account
Debt service payment accounts
December 31, 2018
December 31, 2017
10,397
13,948
5,636
29,981
24,586
27,037
7,053
58,676
As required under several projects' credits agreements, the Corporation maintains restricted cash accounts and restricted
proceeds accounts. The unused portion 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 holdback amounts that will be released at the end of the construction of the respective projects.
Included in restricted cash are funds related to a grant that HS Orka is participating in and administering, which was
received and is to be distributed to the grant partners.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p133
(in thousands of Canadian dollars, except as noted and amounts per share)
16. ACCOUNTS RECEIVABLE
As at
Trade
Commodity taxes
Investment tax credits
Others
December 31, 2018
December 31, 2017
94,437
2,241
671
5,374
102,723
52,196
25,110
2,418
7,776
87,500
The Corporation establishes an allowance for credit losses that represents an estimate of expected credit losses of trade
and other receivables.
Most of the Corporation's trade receivables relate to electricity sold to public utilities including Hydro-Québec, British
Columbia Hydro and Power Authority, Hydro One Inc. and its affiliates, Idaho Power Company and Électricité de France.
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 the obligation of Hydro One
Inc. and of its affiliates 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. HS Orka’s exposure to credit risk is influenced mainly by the individual characteristics of
each customer. Over 34% of the HS Orka revenue is attributable to sales transactions with two customers. HS Orka has
set a credit policy where all new customers are evaluated with respect to payment history and other factors and credit
limits are set. Customers that are behind in payments are prohibited to make further transactions with the Corporation
until they settle their debt or the HS Orka's collection department approves further transactions based on an agreement.
At December 31, 2018, $62 of trade and other receivables were more than 90 days overdue and a total write-off of impaired
receivables of $314 was recorded during the year.
Commodity taxes and investment tax credits are receivable from governments, mainly in relation with the development
and construction of projects.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p134
(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, 2018
Reserves acquired on business acquisitions
(Note 5)
Net (withdrawals from) investments in the
reserves
Impact of foreign exchange fluctuations
Reserves – end of year
Less: Current portion
Long-term portion
45,914
873
(78)
321
47,030
—
47,030
4,056
—
809
—
4,865
—
4,865
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
49,970
873
731
321
51,895
—
51,895
49,489
85
396
49,970
—
49,970
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 $51,024 ($49,180 in 2017) in the reserve accounts is restricted by credit agreements.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p135
(in thousands of Canadian dollars, except as noted and amounts per share)
18. PROPERTY, PLANT AND EQUIPMENT
Cost
As at January 1, 2018
Additions
Business acquisitions (Note 5)
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2018
Accumulated depreciation
As at January 1, 2018
Depreciation
Dispositions
Net foreign exchange differences
As at December 31, 2018
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facilities
Geothermal
facilities
Facilities
under
construction
Other
equipments
Total
3,055
69
—
(46)
—
17
3,095
—
—
—
—
—
2,081,857
7,887
1,410,294
611
—
(824)
—
575,995
(149)
11,073
485
2,089,405
27,887
2,025,711
(230,616)
(40,019)
280
(267)
(270,622)
(172,439)
(62,217)
4
(1,566)
(236,218)
124,322
386
37,517
(318)
(3)
3,369
165,273
(33,733)
(7,519)
4
(81)
(41,329)
—
13,394
430,305
(164)
—
(25,218)
418,317
—
(16,580)
24
266
(16,290)
—
164,141
165,862
—
—
9,134
339,137
—
—
—
—
—
14,476
1,964
1,052
(20)
—
46
17,518
(8,978)
(1,986)
20
(125)
(11,069)
3,634,004
188,452
1,210,731
(1,521)
11,070
15,720
5,058,456
(445,766)
(128,321)
332
(1,773)
(575,528)
Carrying amount as at December 31,
2018
3,095
1,818,783
1,789,493
123,944
402,027
339,137
6,449
4,482,928
All of the property, plant and equipment are given as securities under the respective project financing or for corporate financing.
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. Additions in the current period include $8,995
of capitalized financing costs incurred prior to commissioning.
The cost of the facilities were reduced by investment tax credits of $3,003 ($3,003 as at December 31, 2017).
Innergex Renewable Energy Inc.
2018 Second Quarter
Notes to the Consolidated Financial Statements p136
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities
under
construction
Other
equipments
Total
3,011
4
40
—
—
—
1,613,017
17,870
—
453,495
(2,001)
—
876,569
12,147
340,396
156,086
(178)
3,215
124,303
12
—
—
—
7
426,059
61,319
122,203
(609,581)
—
—
—
3,055
(524)
2,081,857
22,059
1,410,294
—
124,322
—
—
—
—
—
—
(194,633)
(37,400)
1,212
—
205
(230,616)
(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
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 lives 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 12 months following the change in estimates.
Innergex Renewable Energy Inc.
2018 Second Quarter
Notes to the Consolidated Financial Statements p137
(in thousands of Canadian dollars, except as noted and amounts per share)
19.
INTANGIBLE ASSETS
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
Geothermal
facilities
Facilities
under
construction
Total
562,756
—
—
(73)
(3,046)
216
559,853
(152,289)
(18,138)
73
(116)
(170,470)
287,861
—
81,517
—
—
8,338
377,716
(51,102)
(21,504)
—
(1,000)
(73,606)
9,538
—
1,220
—
—
18
10,776
(2,683)
(531)
—
1
(3,213)
—
2,597
211,679
—
—
(13,474)
200,802
—
(3,303)
—
65
(3,238)
—
—
26,389
—
—
—
26,389
860,155
2,597
320,805
(73)
(3,046)
(4,902)
1,175,536
—
—
—
—
—
(206,074)
(43,476)
73
(1,050)
(250,527)
Cost
As at January 1, 2018
Additions
Business acquisitions (Note 5)
Disposal
Other changes
Net foreign exchange
As at December 31, 2018
Accumulated amortization
As at January 1, 2018
Amortization
Disposal
Net foreign exchange
As at December 31, 2018
Net value as at
December 31, 2018
389,383
304,110
7,563
197,564
26,389
925,009
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
December 31, 2017
Hydroelectric
facilities
Wind farm
facilities
Solar facility
Facilities
under
construction
Total
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)
—
—
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)
410,467
236,759
6,855
—
654,081
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p138
(in thousands of Canadian dollars, except as noted and amounts per share)
20. PROJECT DEVELOPMENT COSTS
As at
Cost
Beginning of year
Project development cost acquired on business acquisitions (note 5)
Additions
Net foreign exchange
End of year
December 31, 2018
December 31, 2017
—
19,298
10,048
773
30,119
—
—
—
—
—
On December 31, 2018, the Corporation conducted annual impairment tests on project development costs. Based on the result
of these tests, no impairment charge was required.
21. GOODWILL
The carrying amount of goodwill allocated to each CGU is not significant in comparison with the Corporation's total
carrying amount of goodwill, with the exception of goodwill allocated to the HS Orka hf CGU. As such, the Corporation
presents its goodwill by groups of units. Allocation of goodwill to each significant CGU or group of units is as follows:
As at
As at January 1, 2018
Business acquisitions
(Note 5)
Net foreign exchange
As at December 31, 2018
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
HS Orka hf
8,269
30,311
11,767
—
20,036
11,004
1,123
42,438
—
93
—
93
—
47,266
—
47,266
Facilities
under
construction
—
162
—
162
Total
38,580
70,292
1,123
109,995
As at
As at January 1, 2017
Business acquisitions (Note 5)
Net foreign exchange
As at December 31, 2017
Hydroelectric
facilities
Wind farm
facilities
Total
8,269
—
—
8,269
—
29,771
540
30,311
8,269
29,771
540
38,580
On December 31, 2018, the Corporation conducted its annual goodwill impairment tests. Based on the result of these tests,
no impairment charge was required.
The recoverable amount of each CGU was 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 4.7% to 5.2% (4.1% to 5.4% in 2017).
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p139
(in thousands of Canadian dollars, except as noted and amounts per share)
22. ACCOUNTS PAYABLE AND OTHER PAYABLES
As at
Trade and other payables
Current portion of construction holdbacks
Interest payable
Commodity taxes
December 31, 2018
106,332
3,440
18,057
4,310
132,139
December 31, 2017
63,487
9,104
15,523
2,918
91,032
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p140
(in thousands of Canadian dollars, except as noted and amounts per share)
23. LONG-TERM DEBT
(references to US$, € and ISK are in thousands)
Interests rate
2018
Maturity
December 31,
2018
December 31,
2017
Unsecured short-term credit facility term loan
a)
Innergex
4.02%-4.36%
2019
228,000
—
Revolving credit facilities including LIBOR advances of US$149,035
(Restated
Note 2.1)
a)
Innergex
Subordinated unsecured term loan
a)
Innergex
Project and other loans
b) Phoebe (US$149,727)
c) Plan Fleury (€36,113)
d) Les Renardières (€31,946)
e) Rougemont 1 (€51,621)
f) Rougemont 2 (€58,557)
g) Montagne-Sèche
h) HS Orka (€59,425) (ISK199,869)
h) Alterra (including US$20,775)
i) Spartan (US$9,825)
j) Rutherford Creek
k) Valottes (€9,515)
l) Ashlu Creek
m) Sainte-Marguerite
n) Antoigné (€5,000)
o) Longueval (€5,869)
p) Porcien (€5,989)
q)
Innergex Champagne et Innergex Lorraine (€9,050)
r) Bois d'Anchat (€8,977)
s) Magpie
t) L’Anse-à-Valleau
u) Fitzsimmons Creek
v) Kokomo (US$4,545)
w) Montjean (€16,247)
x) Theil Rabier (€16,247)
y) Mesgi'g Ugju's'n
z) Carleton
aa) Beaumont (€21,433)
bb) Yonne (€53,447)
cc) Stardale
dd) Cholletz (€9,570)
ee)
Innergex Cartier Energie
ff) Vaite (€53,655)
gg) Big Silver Creek
hh)
Innergex Europe
4.02%-4.36%
2023
387,409
281,438
5.13%
2023
150,000
765,409
—
281,438
4.02% 2019-2026
204,257
1.00%-1.80% 2019-2034
1.05%-1.80% 2019-2034
0.64% 2019-2035
0.68% 2019-2035
—
—
3.15% 2022-2031
8.06%-8.56%
6.31%
6.88%
2023
2023
2024
1.80%-2.69% 2024-2026
3.95%
2025
7.40%-8.00% 2025-2064
2.67%
1.69%-1.86%
1.66%-1.86%
7.25%
2025
2025
2025
2025
2.25%-3.20% 2025-2030
4.34%-4.37% 2025-2031
—
2.98%
6.31%
—
2026
2026
2.56%-2.95% 2026-2031
2.56%-2.94% 2026-2031
56,383
49,878
80,596
91,425
—
96,515
118,548
13,403
28,009
14,856
86,606
63,888
7,806
9,163
9,350
14,129
14,016
49,238
—
19,786
6,200
25,367
25,367
—
68,353
60,471
79,695
89,158
22,300
—
—
—
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
3.92%-4.28% 2026-2036
250,923
257,515
—
—
2.16%-2.63% 2027-2031
1.08%-1.54% 2028-2031
3.92%
2.64%
3.81%
0.84%
2030
2030
2032
2035
4.57%-4.76% 2041-2056
8.00%
2046
—
33,464
83,447
87,575
14,942
570,408
83,772
197,223
77,957
38,802
34,558
86,325
93,427
15,537
—
83,031
197,223
77,957
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p141
(in thousands of Canadian dollars, except as noted and amounts per share)
Project and other loans - continued
ii) Harrison Operating Facilities
jj) Kwoiek Creek
kk) Northwest Stave River
ll) Tretheway Creek
Interests rate
2018
Maturity
December 31,
2018
December 31,
2017
3.91%-6.58%
2049
5.08%-10.07% 2052-2054
5.30%
4.99%
2053
2055
451,021
169,043
71,972
92,916
452,513
170,635
71,972
92,916
mm) Boulder Creek and Upper Lillooet
4.22%-4.46% 2043-2056
491,643
491,643
Other loans with various interest rates
2019
12
11
Total long-term debt
Deferred financing costs
Current portion of long-term debt
Long-term portion
a.
Innergex
3,761,104
2,905,175
4,526,513
3,186,613
(56,261)
(33,351)
4,470,252
3,153,262
(445,928)
(109,875)
4,024,324
3,043,387
Unsecured short-term credit facility term loan
On October 24, 2018, the Corporation executed a one-year term credit facility of $228,000 to be reimbursed through
the strategic divestment of selected assets. As at December 31, 2018, Bankers' Acceptances (“BA”) rate advances
totaling $228,000 were due under this facility. The loan bears a 4.03% interest rate.
Revolving term credit facility
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.
On February 6, 2018 the Corporation announced that it had increased its revolving credit facilities by $225,000 to
$700,000 and added a new lender to the syndicate of lenders.
On December 19, 2018, the Corporation executed a Seventh Amended and Restated Credit Agreement. These
amendments reflect the changes following the new Cartier Credit Facility. The Corporation also extended its revolving
term from 2022 to 2023 to provide greater financing flexibility.
As at December 31, 2018, the Bankers' Acceptances (“BA”) rate advances and prime rate advances totaling $184,096
along with a LIBOR rate advance of $203,313 (US$149,035) were due under this facility. The all-in effective interest rate
was 4.35% after accounting for the interest swaps. An amount of $169,136 has been used to secure letters of credit.
Thus, the unused and available position of the facility was $143,455.
The carrying value of assets of the Corporation and subsidiaries given as securities under this facility totals approximately
$478,000.
Moreover, the Corporation also has a Letter of Credit Facility of an amount of up to US$15,000 guaranteed by Export
Development Canada in place. A letter of credit has been issued for an amount of $20,463 (US$15,000) as of
December 31, 2018 and none in 2017 under this facility.
Subordinated unsecured term loan
On February 1, 2018, the Corporation closed a $150,000 subordinated unsecured 5-year term loan. The loan bears a
5.13% interest rate, is repayable in semi-annual installments and matures in 2023. The loan is repayable in full at maturity.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p142
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Phoebe
On July 2, 2018, Innergex acquired Phoebe Energy Project, LLC and concurrently closed a construction and long-term
project financing.
The financing agreement comprises two facilities or tranches:
• A US$115,864 construction loan carrying an interest rate of 1-month LIBOR +1.5% (approximately 90% fixed
through an interest rate swap entered into on July 3, 2018 resulting in a fixed interest rate of 4.13%). As at
December 31, 2018, the full amount of US$115,864 had been drawn from this tranche; following the start of the
facility commercial operation, it will be replaced with a term loan carrying an interest rate of 3-month LIBOR +2.0%
for the first four years and LIBOR +2.5% thereafter (approximately 90% fixed through an interest rate swap entered
into on July 3, 2018 resulting in a fixed interest rate of 5.07% for the first four years and 5.57% thereafter); The
term loan is for a period of 7 years with principal payments beginning in 2021 and the remaining 85% of the
principal will be due upon maturity on September 30, 2026.
• A US$176,225 tax equity bridge loan carrying an interest rate of 1-month LIBOR +1.5% (approximately 90% fixed
through an interest rate swap entered into on July 3, 2018 resulting in a fixed interest rate of 4.13%); following
the start of the facility commercial operation, it is expected that the tax equity bridge loan will be repaid with the
proceeds from a Tax Equity Investor. As at December 31, 2018, an amount of US$33,863 had been drawn from
this tranche.
The lenders also agreed to make available a letter of credit facility . As at December 31, 2018 an amount of
US$67,763 ($92,442) had been used to secure two letters of credit.
This debt is secured by the assets of Phoebe Energy Project, LLC with a carrying value of $193,301 (US$141,695).
c.
Plan Fleury
As part of the acquisition of Plan Fleury in 2017, 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 was 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 in 2017.
• A €27,688 loan bearing a fixed interest rate at 1.65% for the first 10 years and a variable rate thereafter, repayable
in quarterly installments starting in 2020 and maturing in 2032.
• A €5,273 loan bearing a fixed interest rate at 1.65% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2020 and maturing in 2034.
• A €4,145 loan bearing a fixed interest rate at 1% for 3 years, repayable in quarterly installments and maturing in
2019. The principal repayments are set to €2,005 for 2019.
• A €642 loan bearing a variable interest rate at EURIBOR+1.8%, repayable in semi annual installments and maturing
in 2019. As at December 31, 2018, the effective interest rate was 1.8%. The principal repayments are set to €502
for 2019. Following the acquisition, the debt increased by €395 in 2017.
• 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, 2018, no funds have been drawn from this facility.
The debt is secured by the assets of Éole de Plan Fleury with a carrying value of approximately €58,166.
d.
Les Renardières
As part of the acquisition of Les Renardières in 2017, 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 was 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 in 2017.
• A €24,769 loan bearing a fixed interest rate at 1.70% for the first 10 years and a variable rate thereafter, repayable
in quarterly installments starting in 2020 and maturing in 2032.
• A €4,394 loan bearing a fixed interest rate at 1.70% for the first 10 years and a variable rate thereafter, repayable in
quarterly installments starting in 2020 and maturing in 2034.
• A €3,762 loan bearing a fixed 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 2019.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p143
(in thousands of Canadian dollars, except as noted and amounts per share)
• A €643 loan bearing a variable interest rate at EURIBOR+1.8%, repayable in semi-annual installments and maturing
in 2019. As at December 31, 2018, the effective interest rate was 1.8%. The principal repayments are set to €416
for 2019. Following the acquisition, the debt increased by €188 in 2017.
• 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, 2018, no funds have been drawn from this facility.
The debt is secured by the assets of Les Renardières with a carrying value of approximately €47,858.
e.
Rougemont 1
As part of the Rougemont 1-2 and Vaite Acquisition in 2017, 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 was 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 in 2017.
• 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 €2,855 for 2019. The loan was accounted for at its fair
market value of €50,948 for an effective rate of 0.81%. As at December 31, 2018, the all-in effective interest rate was
2.03% (1.97% in 2017) after accounting for the interest swap. Following the acquisition, the debt increased by €3,345
in 2017.
• 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, 2018, 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, 2018 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 €65,202.
f.
Rougemont 2
As part of the Rougemont 1-2 and Vaite Acquisition in 2017, 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. At at December 31, 2018,
the effective interest rate was 0.76%. 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 in 2017.
• A €31,096 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 €1,754 for 2019. The loan was accounted for at its fair
market value of €31,688 for an effective rate of 0.81%. As at December 31, 2018, the all-in effective interest rate was
2.09% (1.99% in 2017) after accounting for the interest swap. Following the acquisition, the debt increased by €840
in 2017.
• 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 €1,593 for 2019. The loan was accounted for at its fair
market value of €9,341 for an effective rate of 0.84%. As at December 31, 2018, the all-in effective interest rate was
2.19% (1.25% in 2017) after accounting for the interest swap. Following the acquisition, the debt increased by €17,975
in 2017.
• 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, 2018, 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, 2018 an amount of €861 has been used to secure letters of credit related to the decommissioning
guarantee.
The debt is secured by the assets of Énergies du Plateau Central 2 with a carrying value of approximately €77,710.
g. Montagne-Sèche
In May 2014, the Corporation renegotiated the loan to extend the maturity to June 2021. The loan consisted of a 7-year
term loan, amortized over a 16-year period starting in May 2014. The loan bore interest at the BA rate plus an applicable
margin. The amount borrowed was repaid in full during the last quarter of 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p144
(in thousands of Canadian dollars, except as noted and amounts per share)
The 2014 renegociation was accounted for as a debt modification under the October 2017 amendment to IFRS 9. Upon
initial application of IFRS 9 (2014), the loan was remeasured at the original effective interest rate, resulting in a gain
represented by the difference between the original contractual cash flows and the modified cash flows discounted at the
original effective interest rate. The gain was applied retrospectively with restatement of the prior period, yielding a $1,060
decrease in the loan amount as at December 31, 2017 (see note 2.1).
h. HS Orka and Alterra
As part of the acquisition of Alterra, the Corporation assumed the related loan facilities for a total fair value of $305,045.
• A $112,991 loan facility with three tranches (Tranche A: $67,295, Tranche B: $22,455, Tranche C: US$21,110) and
an interest rate from 7.91% to 8.56% after accounting for the interest swap. The loan facility has no scheduled payments
of principal prior to maturity of 2023.
The loan facility is secured by future cash flow, and indirect equity investments in Toba Montrose, Dokie, Jimmie Creek
and Flat Top with a carrying value of approximately $232,000
• A $76,919 (€49,641) HS Orka corporate loan. The loan carries an initial term of five years with options to extend the
loan's term up to 18 years. The interest rate on the facility is the Euro Interbank Offered Rate ("EURIBOR") plus 3.15%.
As at December 31, 2018, the effective interest rate was 3.15%. Primary uses of loan proceeds include construction
of the Brúarvirkjun hydro project, as well as drilling and other field development activities at Reykjanes. The loan will
fund in tranches upon the fulfillment of certain conditions precedent. The loan was accounted for at its fair market
value of $79,784 for an effective rate of 3.6%. Following the acquisition, the debt increased by $13,565 (€8,688) in
2018.
• A $2,864 (ISK230,618) HS Orka corporate loan with an interest rate of 5.6% maturing in 2031. The loan was accounted
for at its fair value of $2,805. Following the acquisition, the debt increased by $525 (ISK59,020) in 2018.
The loans are secured by the operating assets of HS Orka, Reykjanes expansion and the Brúarvirkjun project, with
a carrying value of approximately $865,000 (€555,000).
• A $48,155 (US$38,431) holding company bond owed by the subsidiary Magma Energy Sweden A.B ("Magma
Sweden"). Under the terms of the bond, it became immediately payable upon the delisting of Alterra shares from the
TSX as a result of the acquisition. Consequently the bond was settled in full on February 6, 2018 following completion
of the acquisition of Alterra.
• A $44,010 (US$35,124) holding company bond owed by Magma Sweden. The holding company bond was secured
by shares in HS Orka, had an interest rate of 8.5% per annum and a maturity date of October 23, 2021. The bond
was repaid in full during the first quarter of 2018 (see note 31).
• A $17,300 short-term revolving credit facility. The facility had a borrowing amount of $20,000 with funds made available
on a revolving basis at an interest rate of 8% per annum compounded and payable monthly. The amount borrowed
was repaid in full during the first quarter of 2018 and the facility expired on March 31, 2018 (see note 31).
i.
Spartan
As of the date of the acquisition of Alterra, Spartan had total loan facilities of US$10,029.
On December 22, 2017, Spartan entered into a US$10,200 ($12,984), 6-year senior secured term loan with a floating
interest rate and a balloon payment based on a 6-year maturity and 20 year amortization. The floating interest rate is
based on three month LIBOR plus a spread of 3.5% per annum. The principal repayments are set to US$550 for 2019.
As at December 31, 2018, the all-in effective interest rate was 5.81% after accounting for the interest rate swap.
The loan is secured by the assets of Spartan PV1, LLC, with a carrying value of approximately US$21,000.
j.
Rutherford Creek
The loan bearing fixed interest of 6.88% is amortized over a 20-year period starting in 2004. This debt is repayable by
monthly blended payments of principal and interest totaling $511. The principal repayments are variable and are set at
$4,340 for 2019.
The loan is secured by the assets of Rutherford Creek Power Limited Partnership, with a carrying value of approximately
$71,964.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p145
(in thousands of Canadian dollars, except as noted and amounts per share)
k.
Valottes
The loan comprises two facilities:
• A €4,749 loan bearing a fixed interest rate at 2.69%, repayable in quarterly installments and maturing in 2024. The
principal repayments are set to €601 for 2019.
• A €7,273 loan bearing a fixed interest rate at 5.34%, repayable in quarterly installments and maturing in 2026. The
principal repayments are set to €727 for 2019. The term loan was accounted for at its fair market value of €8,502 for
an effective rate of 1.80%.
The debt is secured by the assets of Energie des Valottes with a carrying value of approximately €19,535.
On December 31, 2018, owing to low production during the year, the Corporation did not fulfill the minimum debt service
coverage ratio of the loan. The lender is therefore contractually entitled to request for immediate repayment of the
outstanding loan amount. Consequently, the outstanding balance is presented as current liability as at December 31,
2018. The lender has not requested early repayment of the loan as of the date when these financial statements were
approved by the Board of Directors.
l.
Ashlu Creek
The loan consists of a 15-year term loan, maturing in September 2025 and amortized over a 25-year period ending in
September 2035. 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 $3,211 for 2019. As at December 31, 2018, the all-in
effective interest rate was 6.26% (6.14% in 2017) 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, 2018 an amount of $1,288 had been used to secure a letter of credit.
The loan is secured by the assets of Ashlu Creek hydroelectric facility with a carrying value of approximately $147,818.
m. 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 and maturing in 2025. The principal repayments for 2019 are set at $2,039. 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 $128,957.
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. Unpaid interests are compounded and are recorded in other long-term
liabilities (see note 24).
n. Antoigné
The loan consists of a €6,964 term loan, bearing interest at a fixed rate of 2.67%, repayable in quarterly installments
and maturing in 2025. The principal repayments are set to €714 for 2019.
The loan is secured by the assets of Energie Antoigné with a carrying value of approximately €12,326.
o.
Longueval
The loan comprises two facilities:
• A €6,069 loan bearing interest at a fixed rate of 1.86%, repayable in quarterly installments and maturing in 2025. The
principal repayments are set to €639 for 2019.
• A €1,812 loan bearing interest at a fixed rate of 5.73%, repayable in semi-annual installments and maturing in 2025.
The principal repayments are set to €216 for 2019. The term loan was accounted for at its fair market value of €2,186
for an effective rate of 1.72%.
The debt is secured by the assets of Eoliennes de Longueval with a carrying value of approximately €13,310.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p146
(in thousands of Canadian dollars, except as noted and amounts per share)
p. Porcien
The loan comprises two facilities:
• A €6,069 loan bearing interest at a fixed rate of 1.86%, repayable in quarterly installments and maturing in 2025. The
principal repayments are set to €639 for 2019.
• A €2,047 loan bearing interest at a fixed rate of 5.73%, repayable in semi-annual installments and maturing in 2025.
The principal repayments are set to €214 for 2019. The term loan was accounted for at its fair market value of €2,454
for an effective rate of 1.67%.
The debt is secured by the assets of Energie du Porcien with a carrying value of approximately €13,492.
On December 31, 2018, owing to low production during the year, the Corporation did not fulfil the minimum debt service
coverage ratio of the loan. The lender is therefore contractually entitled to request for immediate repayment of the
outstanding loan amount. Consequently, the outstanding balance is presented as a current liability as at December 31,
2018. The lender had not requested early repayment of the loan as of the date when these financial statements were
approved by the Board of Directors.
q.
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 in February 2025.
r.
Bois d'Anchat
The loan comprises two facilities:
• A €1,005 loan bearing interest at a fixed rate of 3.20%, repayable in quarterly installments and maturing in 2025. The
principal repayments are set to €49 for 2019.
• A €10,200 loan bearing interest at a fixed rate of 2.25%, repayable in quarterly installments and maturing in 2030.
The principal repayments are set to €703 for 2019.
The debt is secured by the assets of Société d'Exploitation du Parc Éolien du Bois d'Anchat with a carrying value of
approximately €19,808.
s. 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, bearing interest at a fixed rate of 15.5%, entitles the Minganie Regional County 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 $55,882 term loan amortizing until 2031, bearing interest at a fixed rate of 6.36%, 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
$2,052 for 2019.
The bridge loan and the term loan are secured by the assets of Magpie L.P. with a carrying value of approximately
$90,165.
t.
L'Anse-à-Valleau
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p147
(in thousands of Canadian dollars, except as noted and amounts per share)
The loan consisted of an 18.5-year term loan starting in December 2007 and amortized over an 18.5-year period. The
loan bore interests at the BA rate plus an applicable margin. The term loan was repayable in quarterly installments. The
amount borrowed was repaid in full during the last quarter of 2018.
u.
Fitzsimmons Creek
A term loan maturing in 2026 and amortized over a remaining 25-year period ending in January 2042. The loan advances
bear interest at the BA rate plus an applicable margin. The principal repayments are variable and are set at $375 for
2019. As at December 31, 2018, the all-in effective interest rate was 3.58% (3.59% in 2017) after accounting for the
interest rate swap.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $150 and a hydrology
reserve letter of credit in an amount not to exceed $310. As at December 31, 2018, amounts of $50 and $310 respectively,
had been used to secure two letters of credit.
This debt is secured by the assets of Fitzsimmons Creek Hydro L.P. with a carrying value of approximately $22,782.
v.
Kokomo
As of the date of the acquisition of Alterra, Kokomo had total loan facilities of US$4,489 ($5,625).
On December 30, 2016, Kokomo entered into a US$5,000 ($6,265), 10-year senior secured term loan with a floating
interest rate and a balloon payment based on a 10 year maturity and a 18 year amortization. The floating interest rate
is based on three month LIBOR plus a spread of 3.5% per annum. The principal repayments are set to US$231 for 2019.
As at December 31, 2018, the all-in effective interest rate was 5.35% after accounting for the interest rate swap.
The debt is secured by the assets of Kokomo Solar I, LLC with a carrying value of approximately US$10,000.
w. Montjean
The loan comprises 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
2019. The unused and available position of this credit facility was €2,320 at acquisition and nil as at December 31,
2018. The term loan was accounted for at its fair market value of €11,054 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
principal repayments are set to €413 for 2019. The loan was accounted for at its fair market value of €4,062 for an
effective rate of 1.46%.
• A €700 loan facility for a debt service reserve, bearing interest at a fixed rate of 2.00%, repayable in quarterly
installments starting in 2022 and maturing in 2031. This loan was accounted for at its fair market value of €675 for
an effective rate of 2.73%.
The debt is secured by the assets of Montjean Energies with a carrying value of approximately €28,306.
x.
Theil-Rabier
The loan comprises facilities for a total value of €23,897.
• A €1,234 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. 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 2019. The
unused portion of this credit facility was €2,028 at acquisition and nil as at December 31, 2018. The loan was accounted
for at its fair market value of €11,345 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
principal repayments are set to €413 for 2019. The loan was accounted for at its fair market value of €4,062 for an
effective rate of 1.46%.
• A €700 loan facility for a debt service reserve, bearing interest at a fixed rate of 2.00%, repayable in quarterly
installments starting in 2022 and maturing in 2031. This loan was accounted for at its fair market value of €676 for
an effective rate of 2.73%.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p148
(in thousands of Canadian dollars, except as noted and amounts per share)
The debt is secured by the assets of Theil Rabier Energies with a carrying value of approximately €28,075.
y. Mesgig'g Ugju's'n
The construction loans 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 2019.
• 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 $8,484. As at December 31,
2018, an amount of $8,460 had been used to secure a letter 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
$300,000.
z.
Carleton
The loan consisted of a 14-year term loan starting in June 2013 and amortized over a 14-year period. The term loan
bore interest at the BA rate plus an applicable margin. The term loan was repayable in quarterly installments. The amount
borrowed was repaid in full during the last quarter of 2018.
aa. Beaumont
The loan comprises three facilities:
• A €3,649 loan bearing interest at a fixed rate of 3.78%, repayable in quarterly installments and maturing in 2027. The
principal repayments are set to €112 for 2019. The term loan was accounted for at its fair market value of €3,999 for
an effective rate of 2.16%.
• A €902 loan bearing interest at a fixed rate of 2.63%, repayable in quarterly installments and maturing in 2027. The
principal repayments are set to €57 for 2019.
• A €20,500 loan bearing interest at a fixed rate of 2.42%, repayable in quarterly installments and maturing in 2031.
The principal repayments are set to €1,390 for 2019.
The debt is secured by the assets of Eoles Beaumont S.A.S. with a carrying value of approximately €44,463.
On December 31, 2018, owing to low production during the year, the Corporation did not fulfill the minimum debt service
coverage ratio of the loan. The lender is therefore contractually entitled to request for immediate repayment of the
outstanding loan amount. Consequently, the outstanding balance is presented as current liability as at December 31,
2018. The lender has not requested early repayment of the loan as of the date when these financial statements were
approved by the Board of Directors.
bb. Yonne
As part of the Yonne Acquisition in 2017, the Corporation assumed the related loan facilities for a total of €70,814.
•
A €11,350 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 €649 for 2019. 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
in 2031. The principal repayments are set to €2,997 for 2019. The loan was accounted for at its fair market value of
€46,075 for an effective rate of 1.54%. As at December 31, 2018, the all-in effective interest rate was 2.32% (idem
in 2017) after accounting for the interest rate swap.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p149
(in thousands of Canadian dollars, except as noted and amounts per share)
The debt is secured by the assets of Éoles-Yonne S.A.S. with a carrying value of approximately €98,138.
cc. 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 $5,042 for 2019.
The 2016 refinancing was accounted for as a debt modification under the October 2017 amendment to IFRS 9. Upon
initial application of IFRS 9 (2014), the loan was remeasured at the original effective interest rate, resulting in a gain
represented by the difference between the original contractual cash flows and the modified cash flows discounted at the
original effective interest rate. The gain was applied retrospectively with restatement of the prior period, yielding a $3,136
decrease in the loan amount as at December 31, 2017 (see note 2.1).
As at December 31, 2018, the all-in effective interest rate was 5.06% (4.97% in 2017) 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, 2018, 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 $94,497.
dd. Cholletz
The loan comprises two facilities:
• 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 a fixed rate of 2.64% 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 €808 for
the 2019.
The debt is secured by the assets of Energie des Cholletz with a carrying value of approximately €19,345.
ee.
Innergex Cartier Energie
On December 19, 2018, the Corporation closed a $570,400 loan. The loan consists of a 14-year term loan, amortized
over a 14-year period starting in March 2019. 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 $38,518 for 2019. As
at December 31, 2018, the all-in effective interest rate was 4.33% 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 $39,200. As at
December 31, 2018 an amount of $32,160 has been used to secure letters of credit.
The debt is secured by the assets of Innergex Cartier Energie S.E.C. with a carrying value of approximately $815,522.
ff.
Vaite
As part of the Rougemont 1-2 and Vaite Acquisition in 2017, 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 was 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
and maturing in 2035. The principal repayments are set to €3,192 for 2019. The loan was accounted for at its fair
market value of €54,023 for an effective rate of 0.81%. As at December 31, 2018, the all-in effective interest rate
was 2.21% (1.99% in 2017) after accounting for the interest swap. Following the acquisition, the debt increased by
€2,820 in 2017.
• 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, and 2018 no funds have been drawn from this facility.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p150
(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 €1,000. As at
December 31, 2018 and 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 €67,648.
gg. Big Silver Creek
The construction loan was converted into a 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. The principal repayments are set to $803 for 2019.
• A $128,311 construction loan carrying a fixed interest rate of 4.76%; in 2017 it was converted into a 39.5-year term
loan. 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 $206,855.
hh.
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.
ii.
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 ($6,932 including CPI adjustment in 2018). In
December 2031, the payment amount decreases to $4,481 before CPI adjustment, where it remains until maturity. For
2019, the principal repayments are set at $6,601.
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 2019, the principal repayments are set at
$3,865.
The Harrison Operating Facilities Junior Real Return Rate bond bears interest at 4.27% adjusted by an inflation ratio
and an inflation compensation interest factor. Both inflation adjustments are based on the CPI, which is not seasonally
adjusted. Payments on this bond are due quarterly and the bond matures in September 2049. Quarterly interest payments
amount to $389 before CPI adjustment ($465 including CPI adjustment in 2018). Principal repayment are set at $512
for 2019.
The bonds are secured by the Harrison Operating Facilities. The carrying value of the property and assets of the Harrison
Operating Facilities totals approximately $602,671.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p151
(in thousands of Canadian dollars, except as noted and amounts per share)
Balance – January 1, 2018
Inflation compensation interest
Principal repayment
Amortization of revaluation
Balance – December 31, 2018
Senior Real
Return Bond
Senior Fixed
Rate Bond
Junior Real
Return Bond
Total
221,415
6,030
(6,391)
1,345
222,399
202,135
—
(3,658)
803
199,280
28,964
767
(487)
99
29,343
452,514
6,797
(10,536)
2,247
451,022
The compensation interest is a result of the CPI rate change over the reference period.
jj. Kwoiek Creek
The $168,500 construction term loan bearing fixed interest rate of 5.08% is 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
$1,786 for 2019. The loan is secured by the assets of Kwoiek Creek Resources L.P. with a carrying value of approximately
$173,714.
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%
and matures in 2054. The partner is considered a related party.
kk.
Northwest Stave River
The loan bearing fixed interest of 5.30% is amortized over a 38-year period starting in 2015. 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 $78,846.
ll.
Tretheway Creek
The construction loan bearing fixed interest rate of 4.99% was converted into a 39-year term loan in April 2016 and is
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
$102,806.
mm. Boulder Creek and Upper Lillooet River
The construction loan was converted into a term loan on June 29, 2018.
The loan comprises three facilities or tranches:
• A $191,643 construction loan was converted into a 25-year term loan amortized over a 22-year period. The term
loan will be repayable in semi-annual installments starting in 2021 and maturing in 2043. The term loan carries a
fixed interest rate of 4.22%.
• A $250,000 construction loan was converted into a 38-year term loan amortized over a 13-year period. The term
loan will be repayable in semi-annual installments starting in 2043 and maturing in 2056. The term loan carries a
fixed interest rate of 4.46%.
• A $50,000 construction loan was converted into a 38-year term loan. The term loan carries a fixed interest rate of
4.46%. The principal will be repayable at maturity in 2056.
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 $487,088.
Principal repayments
The principal repayments for the next years, excluding the revaluations and deferred financing costs, will be as follows:
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p152
(in thousands of Canadian dollars, except as noted and amounts per share)
2019
2020
2021
2022
2023
Thereafter
Principal repayments
Corporate and
other loans
Project loans
Amortization
of revaluation
Deferred
financing costs
Long-term
debt
228,000
—
—
—
655,957
—
883,957
227,440
129,964
145,593
223,984
152,026
2,792,053
3,671,060
2,170
(826)
(881)
(1,097)
(1,310)
(26,559)
(28,503)
(11,682)
(5,359)
(4,591)
(4,420)
(4,024)
(26,186)
(56,262)
445,928
123,779
140,121
218,467
802,649
2,739,308
4,470,252
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p153
(in thousands of Canadian dollars, except as noted and amounts per share)
24. OTHER LIABILITIES
As at January 1, 2018
Liability assumed as part of
the business acquisitions
(note 5)
Interest expense included
in finance cost
Accretion expense included
in finance cost
Revisions in estimated
cash flows
Change in pension fund
obligations
Amortization of below
market contract
Payment of contingent
considerations
Impact of foreign exchange
fluctuations
As at December 31, 2018
Current portion of other
liabilities
Long-term portion of other
liabilities
Contingent
considerations
Asset
retirement
obligations
Interests
payable
on SM
S.E.C.
debenture
(note 23
m)
Future
ownership
rights
Pension
fund
obligations
Below
market
contracts
Total
1,950
40,678
13,458
23,921
—
—
80,007
—
—
63
—
—
—
(251)
—
1,762
33,617
—
4,544
2,194
11,070
—
—
—
—
—
—
—
—
—
—
1,008
(3,046)
—
—
—
27,841
20,131
81,589
—
—
—
539
—
—
—
—
—
4,544
3,265
8,024
539
(2,381)
(2,381)
—
(251)
1,100
88,659
—
18,002
—
21,883
(1,454)
26,926
(1,132)
16,618
(1,486)
173,850
(505)
—
—
—
—
—
(505)
1,257
88,659
18,002
21,883
26,926
16,618
173,345
Contingent
considerations
Asset
retirement
obligations
Interests
payable on
SM S.E.C.
debenture
(note 23 m)
Future
ownership
rights
Total
As at January 1, 2017
2,949
15,256
9,256
—
27,461
Liability assumed as part of the business
acquisition (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
—
—
—
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
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p154
(in thousands of Canadian dollars, except as noted and amounts per share)
a. Contingent considerations
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 in 2017, 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.
b. Asset retirement obligations
Asset retirement obligations primarily arise from obligations to retire wind farms and the solar facilities upon expiry of
the site leases. The wind farms and solar facilities were constructed on sites held under leases expiring at least 25
years after the signing date. During the year, the estimate of the expected costs to settle the liability were revised for
the wind farms in Quebec. 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
2038
2039
2040
2041
2042
18,168
16,941
18,946
1,961
1,777
12,896
34,759
7,955
3,058
1,235
22,911
21,871
162,478
The cash flows were discounted at rates between 2.31% and 4.7% as at December 31, 2018 (1.94% to 4.45% in
2017) to determine the obligations.
c. 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.
d. Pension fund obligations
The Corporation records a pension fund obligation from HS Orka's defined benefit plan. Certain employees of HS Orka
performed services for a third party, HS Veitur, and the two companies share the funding of HS Orka’s pension plans.
HS Orka has recognized HS Veitur’s share of the pension obligation and a corresponding long-term receivable from
HS Veitur in the amount of $9,749 at December 31, 2018. Actuarial gains and losses relating to HS Veitur's share of
the pension liability are recognized in profit and loss as they are reimbursable by HS Veitur (see note 33 f).
According to actuarial assessments, the Corporation’s accrued pension obligation amounted to $26,926 at
December 31, 2018, discounted at a rate of 2%, taking into account the share in the net assets of the pension fund.
The portion of the increase in the pension fund related to HS Veitur’s share is $1,130 during the year.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p155
(in thousands of Canadian dollars, except as noted and amounts per share)
Pension fund obligations February 6, 2018
Contributions during the year
Current service cost
Interest expense
Actuarial changes HS Orka
Actuarial changes HS Veitur charged to profit and loss
Foreign exchange
Pension fund obligations December 31, 2018
The pension obligations are as follows:
The pension fund for State employees
The pension fund for Municipality of Hafnarfjörður employees
The pension fund for Municipality of Vestman Islands employees
Pension fund obligations December 31, 2018
e. Below market contracts
$
$
$
$
27,841
(1,608)
47
450
520
1,130
(1,454)
26,926
12,973
8,030
5,923
26,926
Following the acquisition of HS Orka, existing long-term power sales contracts in place at the time of acquisition of
control were recognized at fair value by comparing the contracted prices with the prevailing market prices. The contracted
prices were lower than the prevailing market prices. As a result, these pre-existing contracts were considered to be
below market and a liability was recognized at fair value as part of the purchase price allocation for HS Orka.
The Corporation amortizes the fair value of below market sales contracts over the remaining contract term and records
the amount in other net expenses (revenues).
At December 31, 2018, HS Orka has two below market contracts remaining (expiring in 2019 and 2026).
25. CONVERTIBLE DEBENTURES
On June 12, 2018, the Corporation issued an aggregate principal amount of $150,000 of 4.75% convertible debentures
at a price of a thousand dollars per convertible debenture, bearing interest at a rate of 4.75% per annum, payable semi-
annually on June 30 and December 31 each year, commencing on December 31, 2018. The convertible debentures will
be convertible at the holder’s option into common shares of the Corporation at a conversion price of $20.00 per share,
representing a conversion rate of 50 common shares per each thousand dollars of principal amount of convertible
debentures. The convertible debentures will mature on June 30, 2025 and will not be redeemable before June 30, 2021,
except in certain limited circumstances. On or after June 30, 2021, and before June 30, 2023, Innergex may redeem the
debentures at par, plus accrued and unpaid interest, in certain circumstances. On or after June 30, 2023, Innergex may
redeem the debentures at par, plus accrued and unpaid interest.
Proceeds from issue of 4.75% convertible debentures
Transaction costs
Net proceeds
Amount classified as equity
Liability component of convertible debentures at the time of issuance (effective interest rate of
6.08%)
150,000
(6,910)
143,090
(2,865)
140,225
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 are redeemable since August 31, 2018. On
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p156
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
26. SHAREHOLDERS' CAPITAL
Authorized
The authorized capital of the Corporation consists of an unlimited number of common shares and an unlimited number of
preferred shares, non-voting, retractable and redeemable. This includes up to 3,400,000 Cumulative Rate Reset Preferred
Shares, Series A (the "Series A Preferred Shares"), up to 3,400,000 Cumulative Floating Rate Preferred Shares, Series
B (the "Series B Preferred Shares") and up to 2,000,000 Cumulative Redeemable Fixed Rate Preferred Shares, Series C
(the ''Series C Preferred Shares'').
a) Common shares
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 following the Alterra acquisition (note 5 b)
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
Distributed
End of year
Common shares outstanding at end of the year
Buyback of common shares
December 31, 2018
December 31, 2017
108,608,083
24,327,225
748,754
—
(697,212)
132,986,850
(273,762)
—
70,346
(203,416)
132,783,434
108,181,592
—
361,195
121,378
(56,082)
108,608,083
—
(273,762)
—
(273,762)
108,334,321
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 could 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. The Bid commenced on August 17, 2017
and terminated on August 16, 2018. As at December 31, 2017, 56,082 common shares have been purchased and
cancelled at an average price of $13.85. During the year ended December 31, 2018, an additional 697,212 common
shares have been purchased and cancelled at an average price of $13.60.
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 15, 2018. This
resulted in a decrease of the shareholders' capital account of $337,785 and an equivalent increase of the contributed
surplus from reduction of capital on common shares account.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p157
(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, equals $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 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 B Preferred Shares
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.
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 payments
Share option plan
The Corporation has a share 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 share 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 share 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 share 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 share 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 2018
Notes to the Consolidated Financial Statements p158
(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 share option plan and the Board of Directors.
Also 77,167 share options were granted during the 2017 year. The options granted under the share 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 $14.52.
The following table summarizes outstanding share options of the Corporation as at December 31, 2018 and 2017:
December 31, 2018
December 31, 2017
Number of options
(000's)
Weighted average
exercise price ($)
Number of options
(000's)
Weighted average
exercise price ($)
Outstanding - beginning of
year
Granted during the year
Exercised during the year
Canceled during the year
Outstanding - end of year
Options exercisable - end of
year
2,782
—
—
—
2,782
2,661
10.14
—
—
—
10.14
9.94
3,457
77
(752)
—
2,782
2,512
10.23
14.52
11.00
—
10.14
9.80
The following options were outstanding and exercisable as at December 31, 2018:
Year of granting
Number of options
outstanding (000's)
Exercise price ($)
Number of options
exercisable (000's)
Year of maturity
2011
2012
2010
2013
2014
2016
2017
770
397
618
397
397
126
77
2,782
9.88
10.70
8.75
9.13
10.96
14.65
14.52
770
397
618
397
397
63
19
2,661
2018 1
2019
2020
2020
2021
2023
2024
1. Maturity has been extended according to the share option plan. When the date on which an option expires occurs during or within
10 days after the last day of a black out period under a black out policy of the Corporation, the expiry date of the option will be the
last day of such 10-day period.
Fair value is determined at the date of the grant and each tranche is recognized on a graded-vesting basis over the
period during which the options vest and is measured using the Black-Scholes pricing model taking into account the
terms and conditions upon which the options were granted.
The weighted average contractual life of the outstanding share options is five years. Expected volatility is estimated
by considering historic average share price volatility.
e) Dividend Reinvestment Plan (''DRIP'')
The Corporation implemented a DRIP for its shareholders. The plan allows eligible common shareholders the opportunity
to reinvest a portion or all of the dividends they receive to purchase additional common shares of the Corporation,
without paying fees such as brokerage commissions and service charges. Shares will either be purchased on the open
market or issued from treasury. During the year ended December 31, 2018, 748,754 shares were issued from treasury
under the DRIP.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p159
(in thousands of Canadian dollars, except as noted and amounts per share)
f) Dividend Declared on common shares
The following dividends were declared on common shares by the Corporation:
Dividends declared on common shares ($/share)
g) Performance Share Plan and Deferred Share Unit Plan
Performance Share Plan (the ''PSP Plan'')
Year ended December 31
2017
2018
0.68
0.66
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 and relative to a peers group. 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 fluctuates based on share 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 (the “DSU Plan”)
Under the Corporation’s 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 years 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, 2018
DSU
PSP
December 31, 2017
DSU
PSP
368
—
(118)
14
264
28
26
—
2
56
325
135
(113)
21
368
4
23
—
1
28
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 $2,089 was recorded during the year ended December 31, 2018 with respect to the PSP
and DSU plan (2017- $1,695).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p160
(in thousands of Canadian dollars, except as noted and amounts per share)
27. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency
translation differences
for foreign operations
Foreign exchange
(loss) gain on the
designated hedges on
the net investments in
foreign operations
Net currency
translation
reserve
Cash flow
hedge -
interest rate
and power
price risks
Share of cash
flow hedge of joint
ventures and
associates -
interest rate and
power price risks
Defined
benefit plan
actuarial
losses
Balance as at January 1, 2018
Exchange differences on
translation of foreign
operations
Hedging (loss) gain of the
reporting period
Related deferred tax
Balance as at December 31,
2018
1,061
(1,074)
(13)
9,279
(14,757)
—
(14,757)
—
—
205
(5,912)
645
(5,912)
850
(48,743)
13,577
663
—
13,246
(3,287)
(13,491)
(6,341)
(19,832)
(25,887)
10,622
—
—
(520)
104
(416)
Foreign currency
translation differences
for foreign operations
Foreign exchange (loss)
gain on the designated
hedges on the net
investments in foreign
operations
Net currency
translation
reserve
Cash flow
hedge -
interest rate
and power
price risks
Share of cash
flow hedge of
joint ventures
and associates -
interest rate and
power price risks
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
Total
9,929
(14,757)
(41,929)
11,244
(35,513)
Total
(1,743)
27
15,931
(4,286)
9,929
Innergex Renewable Energy Inc.
2018 Second Quarter
Notes to the Consolidated Financial Statements p161
(in thousands of Canadian dollars, except as noted and amounts per share)
28. ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF
CASH FLOWS
a. Changes in non-cash operating working capital items
Accounts receivable and income tax receivable
Prepaid and others
Accounts payable and other payables and income tax payable
b. Additional information
Year ended December 31
2018
2017
9,682
2,161
(22,864)
(11,021)
59,271
(1,844)
(33,645)
23,782
Year ended December 31
2018
2017
Interest paid (including $5,031 capitalized interest (2017- $6,882))
(174,024)
(132,707)
Non-cash transactions:
Unpaid property, plant and equipment
Unpaid other liabilities
Unpaid intangible assets
Shares vested in PSP plan
Unpaid project development costs
Common shares issued through share options exercised
Remeasurement of asset retirement obligations
Common shares issued through dividend reinvestment plan
Common shares issued upon the acquisition of Alterra
Unpaid investment in joint venture and associates
Investment from non-controlling interests in subsidiaries
Loan to partners in exchange of non-controlling interests in
subsidiaries
2,394
—
(169)
948
919
—
11,070
9,929
330,607
13,154
(507)
—
(49,845)
23,041
(23,041)
—
—
101
3,220
5,135
—
—
—
(4)
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p162
(in thousands of Canadian dollars, except as noted and amounts per share)
c. Changes in liabilities arising from financing activities
Changes in long-term debt
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 non-cash finance costs
Net foreign exchange differences
Long-term debt at end of the period
Changes in convertible debentures
Convertible debentures at beginning of the period
Increase of convertible debentures issued
Transaction costs
Amount classified as equity
Accretion of convertible debentures
Convertible debentures at end of the period
Year ended December 31
2018
2017
(restated)
3,153,262
2,070,430
(1,114,449)
(26,736)
331,414
17,102
39,229
4,470,252
96,246
150,000
(6,910)
(2,865)
2,177
238,648
2,601,711
668,856
(576,187)
(1,161)
432,351
8,403
19,289
3,153,262
94,840
—
—
—
1,406
96,246
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p163
(in thousands of Canadian dollars, except as noted and amounts per share)
29. 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,
2018
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2017
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
HS Orka hf 2
Spartan LLC3
Kokomo LLC4
Others
Canada
49.99%
49.99%
(1,607)
(2,828)
51,276
52,884
Canada
—%
33.33%
(5,192)
(4,533)
—
(27,065)
Canada
50.00%
50.00%
(1,048)
(445)
(12,216)
(11,169)
Canada
50.00%
50.00%
9,156
6,030
(3,794)
(3,699)
Canada
49.99%
49.99%
(2,157)
(1,052)
(8,771)
(6,614)
Canada/
Europe
Iceland
United
States
United
States
Canada
30.45%
46.10%
Various
Various
Various
30.45%
(5,478)
(7,168)
4,862
10,561
—%
—%
—%
Various
921
(530)
(211)
(828)
(6,974)
—
—
—
(343)
(10,339)
282,665
11,547
4,804
(604)
329,769
—
—
—
22
14,920
1.The Corporation owns more than 50% of the economic interest in the subsidiary.
2. As part of the acquisition of Alterra, the Corporation owns a 53.9% ownership interest in HS Orka hf which owns two operating geothermal
power plants in Iceland; Svartsengi and Reykjanes.
3.The Corporation holds 100% of the sponsor equity interest in the Spartan solar facility while the tax equity interest is held by a third party.
4.The Corporation holds 90% of the sponsor equity interest in the Kokomo solar facility, while the remaining 10% sponsor equity interest
and tax equity interest are held by third parties.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p164
(in thousands of Canadian dollars, except as noted and amounts per share)
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 and comprehensive loss
Net loss and comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
Summary Statements of Cash Flows
Net cash inflow from operating activities
Net cash outflow from financing activities
Net cash outflow from investing activities
Net decrease in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2018
December 31, 2017
20,642
587,713
608,355
17,480
451,381
88,218
51,276
608,355
13,376
601,105
614,481
17,163
453,647
90,787
52,884
614,481
Year ended December 31
2018
2017
50,509
54,681
(4,172)
(2,565)
(1,607)
(4,172)
8,293
(10,537)
(1,585)
(3,829)
—
50,891
57,689
(6,798)
(3,970)
(2,828)
(6,798)
15,486
(21,878)
(1,287)
(7,679)
5,998
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p165
(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, 2018
December 31, 2017
4,306
169,408
173,714
5,428
191,784
(11,282)
(12,216)
173,714
7,335
172,223
179,558
7,919
193,480
(10,672)
(11,169)
179,558
1. Non-current liabilities include $39,752 of preferred units owned by Innergex and $3,662 subordinated debt owned 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 from operating activities
Net cash outflow from financing activities
Net cash inflow (outflow) from investing activities
Net decrease in cash and cash equivalents
Distributions paid to non-controlling interests
Year ended December 31
2018
2017
17,899
19,995
(2,096)
(1,048)
(1,048)
(2,096)
(2,049)
(1,592)
267
(3,374)
—
19,016
19,906
(890)
(445)
(445)
(890)
(97)
(1,530)
(175)
(1,802)
—
1. Expenses include $4,113 (2017- $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 $2,017 (2017- $3,294).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p166
(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
Other comprehensive (loss) income
Total comprehensive income
Net earnings attributable to:
Owners of the parent
Non-controlling interest
Total comprehensive income 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 (decrease) in cash and cash equivalents
December 31, 2018 December 31, 2017
23,533
276,142
299,675
12,500
246,394
44,575
(3,794)
299,675
21,727
283,271
304,998
16,004
247,867
44,826
(3,699)
304,998
Year ended December 31
2017
2018
62,592
29,455
33,137
(174)
32,963
23,981
9,156
33,137
23,855
9,108
32,963
51,709
(39,901)
(6,312)
5,496
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)
Distributions paid to non-controlling interests
9,202
1,460
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p167
(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 owned 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 (decrease) increase in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2018
December 31, 2017
1,542
126,863
128,405
6,550
122,915
7,711
(8,771)
128,405
2,794
129,614
132,408
8,085
121,067
9,870
(6,614)
132,408
Year ended December 31
2017
2018
11,246
15,561
(4,315)
(2,158)
(2,157)
(4,315)
2,672
(3,070)
(206)
(604)
—
12,755
14,859
(2,104)
(1,052)
(1,052)
(2,104)
3,768
(2,928)
(217)
623
—
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 $276.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p168
(in thousands of Canadian dollars, except as noted and amounts per share)
Innergex Europe (2015) Limited Partnership and its subsidiaries
As at
Summary Statement of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deficit attributable to owners
Non-controlling interest
Summary Statement 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 interests
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
Summary Statement of Cash Flows
Net cash (outflow) inflow from operating activities
Net cash inflow from financing activities
Net cash outflow from investing activities
Net increase in cash and cash equivalents
December 31, 2018 December 31, 2017
40,787
957,524
998,311
140,042
888,376
(34,969)
4,862
998,311
76,091
967,260
1,043,351
119,935
934,396
(21,541)
10,561
1,043,351
Year ended
December 31, 2018
Year ended
December 31, 2017
87,016
105,005
(17,989)
1,130
(16,859)
(12,511)
(5,478)
(17,989)
(11,602)
(5,257)
(16,859)
(52,272)
58,451
(2,676)
3,503
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
Distributions paid to non-controlling interests
—
640
1. Expenses include $7 ($1,883 in 2017) of acquisition costs, $6,653 ($4,999 in 2017) of interest payable to RRMD on the $77,957 ($77,957
in 2017) debenture, $15,181 ($11,496 in 2017) of preferred return payable to Innergex on the $178,059 ($178,059 in 2017) preferred units
and $32 ($51 in 2017) of interest payable to Innergex on a temporary bridge loan. Expenses also include non-cash expenses such as
depreciation and amortization of a total amount of $47,811 ($31,679 in 2017).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p169
(in thousands of Canadian dollars, except as noted and amounts per share)
HS Orka hf
As at
Summary Statement of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the parent
Non-controlling interests
Summary Statement of Earnings and Comprehensive Income
Revenues
Expenses 1
Net earnings
Other comprehensive loss
Total comprehensive loss
Net earnings 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 outflow from financing activities
Net cash outflow from investing activities
Net decrease in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2018
33,526
832,290
865,816
36,620
205,088
341,443
282,665
865,816
Period of 329 days
ended December 31,
2018
95,198
93,200
1,998
(36,711)
(34,713)
1,077
921
1,998
(18,710)
(16,003)
(34,713)
9,990
(1,193)
(11,393)
(2,596)
2,668
1. Expenses also include non-cash expenses such as depreciation and amortization totalling $19,774 and unrealized net loss on financial
instruments related to embedded derivatives totalling $16,863 for the 329-day period ended December 31, 2018.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p170
(in thousands of Canadian dollars, except as noted and amounts per share)
Spartan
As at
Summary Statement of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Tax equity interest
Sponsor equity interest
Summary Statement of Earnings and Comprehensive Income
Summary Statement of Earnings and Comprehensive Income
Revenues
Expenses
Net loss
Other comprehensive income
Total comprehensive income
Net loss attributable to:
Tax equity investor
Sponsor
Total comprehensive income attributable to:
Tax equity investor
Sponsor
Summary Statement of Cash Flows
Net cash inflow from operating activities
Net cash outflow from financing activities
Net cash inflow from investing activities
Net increase in cash and cash equivalents
Distributions paid to non-controlling interests
December 31, 2018
1,012
28,342
29,354
882
12,687
11,547
4,238
29,354
Period of 329 days
ended December 31,
2018
1,781
2,225
(444)
1,641
1,197
(530)
86
(444)
483
714
1,197
1,280
(747)
138
671
258
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p171
(in thousands of Canadian dollars, except as noted and amounts per share)
Kokomo
Statement of Financial Position
As at
Summary Statement of Financial Position
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
Tax equity interest
Sponsors equity interest
Summary Statement of Earnings and Comprehensive Income
Revenues
Expenses
Net loss
Other comprehensive income
Total comprehensive income
Net loss attributable to:
Tax equity investor
Sponsors
Total comprehensive income attributable to:
Tax equity investor
Sponsors
Summary Statement 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, 2018
94
66
160
13,318
13,478
278
318
596
5,546
4,804
2,532
13,478
Period of 329 days
ended December 31,
2018
844
1,095
(251)
636
385
(211)
(40)
(251)
182
203
385
317
(253)
(51)
13
208
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p172
(in thousands of Canadian dollars, except as noted and amounts per share)
29.1 Acquisition of minority interest in Creek Power Inc.
Creek Power Inc.
On May 15, 2018, Innergex acquired the 33.3% interest of Ledcor Power Ltd in Creek Power Inc., a company that indirectly
owns the Fitzsimmons Creek, Boulder Creek and Upper Lillooet River hydro facilities located in British Columbia as well as
a portfolio of prospective projects for a total consideration of $1,700. Innergex already owned the remaining 67.7% interest
in Creek Power Inc. Innergex also owned all the preferred equity and received virtually all of the cash flows generated by
the 3 facilities.
The negative amount of $32,108 previously recorded in non–controlling interest was eliminated as the Corporation now owns
100% of Creek Power Inc. Since the change in ownership did not result in a change of control, the difference between the
adjustment to non–controlling interest and the consideration paid was recorded directly in deficit ($33,808).
29.2 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. ("Mi'gmawei
Mawiomi"), the other partner, can participate in the financing of the equity for an amount up to a maximum of $2,300.
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. Mi'gmawei Mawiomi invested a total of $2,300 in units of the Mesgi'g Ugju's'n (MU) Wind farm
L.P.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p173
(in thousands of Canadian dollars, except as noted and amounts per share)
30. 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,
2018
December 31,
2017
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%
1. The Corporation owned through the Limited Partnerships a 38%ownership interest in the assets, liabilities, revenues and expenses
of the wind farms, and 50% voting rights of the joint operations as of December 31, 2017. On October 24, 2018, the Corporation completed
the acquisition of the remaining 62% interest in the assets, liabilities, revenues and expenses of the wind farms, and the remaining 50%
voting rights of the joint operations. The Corporation thereon wholly owns the wind farms and the operators.
31. RELATED PARTY TRANSACTIONS
Related party transactions conducted in the normal course of operations are measured at exchange amount 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 23 m)
Magpie's convertible debenture to the municipality (see note 23 s)
Innergex Europe (2015) Limited Partnership's debenture to RRMD (see note 23 hh)
The Corporation's partner made a loan to Kwoiek Creek Resources L.P. (see note 23 jj)
As part of the Alterra acquisition, the following debts were assumed: (i) in 2011, Ross J. Beaty, chairman of the Board of
Directors and a large shareholder of Alterra, entered into a revolving credit facility with Alterra (the “Credit Facility”). The
Credit Facility had a borrowing capacity amount of $20,000 and made 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, were payable in cash. The Credit
Facility matured on March 31, 2018. Alterra had borrowed $17,300 under the Credit Facility; and (ii) in October 2016,
Ross J. Beaty loaned through a five-year term bond US$35,700 to Alterra’s subsidiary Magma Energy Sweden A.B (the
“Bond”). The Bond paid 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 was collateralized by 15% of the outstanding shares in HS Orka. In order to optimize its treasury
management, the Corporation repaid both the Credit Facility and the Bond in the first quarter (see Note 23 h).
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p174
(in thousands of Canadian dollars, except as noted and amounts per share)
32. FINANCIAL INSTRUMENTS
a. Fair value disclosures
Fair value estimates are made at specific points in time using available information about the financial instrument in
question. These estimates are subjective in nature and often cannot be determined precisely.
As at December 31, 2018, 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, 2018, the Corporation determined that the carrying values of its short-term investments and
government-backed securities included in reserve accounts approximated their fair values due to these instruments'
short-term maturity.
The fair value of each debt instrument is estimated utilizing standard financial industry practices where future expected
cash flows are discounted at discount rates based on the interest rate and credit conditions prevailing in the financial
markets as of the valuation date. Notably, for fixed rate instruments, contractual cash flows are discounted at an
appropriate yield to maturity. For floating rate instruments, future expected contractual interest rates represent the
sum of future expected levels of the reference interest rate index and the instrument’s quoted margin whereas discount
rates represent the sum of future expected levels of the reference index and an appropriate discount margin.
Appropriate yields to maturity and discount margins are estimated utilizing the available quoted or indicative pricing
of individual debt instruments or indices whose credit is deemed comparable to the debt instruments being evaluated.
The carrying values of long-term debts and the debentures are approximately $166,678 higher than their estimated
fair values based on the swap interest curve on December 31, 2018. 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 power hedge and level 2 for interest rate swap, bond forward contracts and foreign exchange
forwards contracts.
b. 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.
c. 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 $413,223 as at December 31, 2018 (negative working capital of
$25,234 in 2017). If necessary, the Corporation can use its revolving credit facilities, as described in Note 23 a, of
which $143,455 was available as at December 31, 2018 ($149,904 in 2017). 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. The Corporation considers its current level of working
capital to be sufficient to meet its needs, considering that Innergex intends to divest selected assets or portions of
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p175
(in thousands of Canadian dollars, except as noted and amounts per share)
existing assets and that the tax equity bridge loan for the construction of the Phoebe solar project will be reimbursed
through the tax equity investment at commercial operation.
The following table presents the maturities of the financial liabilities:
Less than 1 year
Between 1 year
and 5 years
Over 5 years
Total
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
24,093
132,139
8,836
29,999
445,928
505
641,500
24,093
132,139
8,836
29,999
445,928
505
118,002
4,024,324
156,727
238,648
5,179,201
59,469
1,285,016
9,703
97,652
1,451,840
58,533
2,739,308
147,024
140,996
3,085,861
The maturities are determined based on the expected terms of the payments. The principal repayments are net of
amortization of debt revaluations and deferred financing costs. Other liabilities excludes the below market contracts
in an amount of $16,618.
d. 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.
Most sales of electricity are 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. For some of the
facilities, power generated is sold on the open market supported by financial or physical power hedges to address
market price risk exposure or to a number of commercial and retail customers.
(i) 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.
(ii) Foreign exchange risk
The foreign exchange risk relates to fluctuations in the U.S. dollar, the Icelandic krona, the Swedish krona, 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. Repatriated funds that are not used
to service the Euro denominated foreign exchange forwards are converted into Canadian dollars at the exchange rate
in effect on the conversion date. The Corporation's statement of financial position has the following foreign currency
net exposure as at December 31, 2018 of $186,788. The Corporation's net risk is estimated to be $2,917 for each 1%
increase in the value of the Canadian dollar against the Euro. The Corporation uses a portion of its Euro denominated
foreign exchange forwards to hedge its investment in its subsidiaries, as described in Note 10.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p176
(in thousands of Canadian dollars, except as noted and amounts per share)
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 statement of financial position has the following foreign currency net
exposure as at December 31, 2018 of US$172,412. The Corporation's net risk is estimated to be $2,352 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.
The Corporation has subsidiaries in Iceland and Sweden for which the revenues, net of the expenses incurred, are
repatriated to Canada. A portion of the Corporation's debts is denominated in Icelandic krona. Repatriated funds that
are not used to service the Icelandic krona denominated debt are converted into Canadian dollars at the exchange
rate in effect on the conversion date. The Corporation's statement of financial position has the following foreign
currency net exposure as at December 31, 2018 of ISK296,965,293. The Corporation's net risk is estimated to be
$3,506 for each 1% increase in the value of the Canadian dollar against the Icelandic krona.
33. COMMITMENTS AND CONTINGENCIES
In addition to the commitments of the Joint Ventures 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 2019 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. Expiring PPA's are being renegotiated under the renewal rights of the
Corporation.
British Columbia facilities
Under PPAs with terms varying from 20 to 40 years and expiring between 2023 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.
On April 16, 2018, Innergex announced the renewal of the electricity purchase agreement for the Brown Lake hydro
facility. The renewed agreement is for a 40-year term and is effective as of April 1, 2018. The agreement is subject to
approval by the British Columbia Utilities Commission.
On April 16, 2018, Innergex and Sekw'el'was Cayoose Creek Band announced the renewal of the electricity purchase
agreement for the Walden North hydro facility. The renewed agreement is for a 40-year term and is effective as of
April 1, 2018. The agreement is subject to approval by the British Columbia Utilities Commission.
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.
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.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p177
(in thousands of Canadian dollars, except as noted and amounts per share)
HS Orka sells power to a number of commercial and retail customers including power sold under two long-term PPA's
that expire in 2019 and 2026 respectively.
USA facilities
Under a PPA 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.
Under PPAs with terms of 20 to 25 years expiring between 2036 and 2042, clients agreed to purchase all of the
electricity produced by Kokomo and Spartan.
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.
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.
Rutherford Creek facility
Rutherford L.P. agreed to make payments to the former owners, following the expiry of the Rutherford Creek PPA in
2024. This payment is based on the difference between the then selling price of electricity and the last selling price
of electricity under the agreement, adjusted annually following the expiry of the agreement by 50% of the increase or
decrease in the CPI over the previous 12 months. This amount will correspond to 35% of the gross revenues attributable
to the difference for the 20-year period following the expiry of the power purchase agreement. After the 20-year period,
that portion of the payment will correspond to 30% of the gross revenues attributable to the difference. This commitment
is secured by the Rutherford L.P. facility but is subordinated to the term loan described in Note 23 j.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p178
(in thousands of Canadian dollars, except as noted and amounts per share)
Tretheway facility
50% of the Corporation's ownership will be transferred to a First Nation in 2055 for no financial consideration.
Upper Lillooet facility
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.
Europe
The French subsidiaries entered into commitments related to land leases, maintenance and management contracts
for the operations of the wind farms.
(iii) Solar facilities
Stardale Solar L.P. 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 2019 and 2028.
c. Summary of commitments
As at December 31, 2018, the expected schedule of commitment payments is as follows:
Year of expected payment
2019
2020
2021
2022
2023
Thereafter
Total
d. Contingencies
Hydroelectric
Generation
Wind Power
Generation
Solar
Generation
Site
Development
Total
1,032
1,066
965
953
955
20,445
25,416
19,870
20,113
20,416
21,976
22,795
188,125
293,295
225
231
236
242
—
—
934
2,108
2,088
2,043
2,053
2,066
8,102
18,460
23,235
23,498
23,660
25,224
25,816
216,672
338,105
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.
e. Notice to appeal on water rights
On March 23, 2017, the Comptroller of the Water Rights issued adjusted rental statements to the Harrison Hydro L.P.
and its subsidiaries for the years 2011 and 2012 for an amount of $3,300 in aggregate regarding water rental rates
to be charged under the Water Act. The amount claimed was paid under protest and Harrison Hydro L.P. and its
subsidiaries filed a notice of appeal of the decision to the Environmental Appeal Board, which was stayed until August
2018. This appeal will now go forward.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p179
(in thousands of Canadian dollars, except as noted and amounts per share)
f. First Court rules in favor of HS Orka
In February 2016, HS Orka issued a legal letter to HS Veitur hf demanding full payment of a long-term receivable
related to the shared pension liability. A $9,547 claim was filed and is included under accounts receivable on the
statement of financial position. This was following receipt of a termination notice by HS Veitur of an agreement regarding
payments of the pension liability, sent on December 31, 2015. The two companies had reached an agreement on HS
Veitur’s share in 2011 and, based on this agreement, HS Orka considers its claim to be fully valid. Negotiations have
not settled the matter. The court proceedings took place in March 2018. On April 17, 2018, the First Court of Iceland
ruled in favor of HS Orka. HS Veitur filed an appeal to the Court of Appeal, which is a court of second instance. The
trial of the case took place on February 21, 2019 and a judgement is expected within four weeks from the hearing
date.
34. CAPITAL DISCLOSURES
The Corporation's strategy in managing its capital is: (i) to develop or acquire high-quality renewable 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 geothermal
facilities and solar farms; and
Acquiring and developing new renewable 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 farms which may be required to preserve the
Corporation's generating capacity.
The Corporation determines the amount of capital required, and its allocation between debt and equity, for the acquisition
and development of new electricity-generating facilities by considering the specific characteristics of stability and growth
of each facility. This determination is made in order to distribute a stable dividend while maintaining an acceptable level
of indebtedness.
The Corporation has a hydrology/wind power reserve. This reserve could be used in the event that the net available cash
for any given year is less than expected, due to normal changes in hydrology or wind conditions or other unpredictable
factors.
The Corporation's capital is composed of long-term debt, convertible debentures and shareholders' equity. Total capital
amounts to $5,668,461 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 23 a, the Corporation needs to maintain a leverage
ratio and an interest coverage ratio. If the ratios are not met, the lender has the ability to recall the facility.
Regarding the respective non-recourse projects financing, some subsidiaries of the Corporation need to maintain minimum
debt coverage ratios. If the ratios of a particular project financing are not met, the lenders could have the ability to recall
the particular debt. Certain financial restrictive clauses could prevent the subsidiaries from making distributions to the
Corporation.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p180
(in thousands of Canadian dollars, except as noted and amounts per share)
All debt covenants are monitored on a regular basis by the Corporation. As at December 31, 2018, the Corporation and
its subsidiaries have met all material financial and non-financial conditions, unless indicated below, related to their credit
agreements, trust indentures and PPAs. Were they not met, certain financial and non-financial covenants included in the
credit agreements, trust indentures, PPAs 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. Financial ratios were not met for the Valottes, Porcien and Beaumont credit
agreements due to low production. As lenders have the right to request a payment, the three loans were reallocated to
the current portion of long-term debt.
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.
35. SEGMENT INFORMATION
Geographic segments
As at December 31, 2018, excluding its investments in joint ventures and associates which are accounted for as equity
method, the Corporation had interests in the following operating assets: 29 hydroelectric facilities, six wind farms and one
solar farm in Canada, 15 wind farms in France, two geothermal facilities in Iceland and one hydroelectric facility and two
solar farms in the United States. The Corporation operates in four principal geographical areas, which are detailed below:
Revenues
Canada
France
Iceland
United States
Year ended December 31
2018
2017
387,679
87,016
95,198
6,723
576,616
344,440
52,300
—
3,523
400,263
As at
Non-current assets, excluding derivatives financial instruments
and deferred tax assets 1
December 31, 2018
December 31, 2017
Canada
France
Iceland 2
United States 3
Chile
3,757,207
956,214
832,289
526,716
154,299
6,226,725
2,977,859
973,740
—
7,052
—
3,958,651
1. Includes the investments in joint ventures and associates
2. Includes the Bruarvirkjun hydro project under construction.
3. Includes the Phoebe solar project under construction and the Foard City wind project under construction.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p181
(in thousands of Canadian dollars, except as noted and amounts per share)
Major Customers
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
Year ended December 31
2018
2017
170,048
185,088
84,484
439,620
155,807
154,360
49,987
360,154
Operating segments
The Corporation has five operating segments: (a) hydroelectric generation (b) wind power generation (c) geothermal power
generation, (d) solar power generation and (e) site development.
Through its hydroelectric, wind power, geothermal power and solar generation segments, the Corporation sells electricity
produced by its hydroelectric, wind farm, geothermal and solar facilities mainly to publicly owned utilities or other creditworthy
counterparties. Through its site development segment, it analyzes potential sites and develops hydroelectric, wind,
geothermal 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, other net (revenues) expenses, share of (earnings) loss of joint ventures and associates and unrealized net
(gain) loss on financial instruments. The Corporation accounts for inter-segment and management sales at carrying amount.
Any transfers of assets from the site development segment to the hydroelectric, wind power generation, geothermal power
generation or solar power generation segments are accounted for at carrying amount.
The operations of the Corporation’s operating segments are conducted by different teams, as each segment has different
skill requirements.
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p182
(in thousands of Canadian dollars, except as noted and amounts per share)
For the year ended December 31, 2018
Operating segments
Hydroelectric
Wind
Geothermal
Solar
Site
development
Total
Revenues
Expenses:
Operating
General and administrative
Prospective projects
Earnings (loss) before finance
costs, income taxes,
depreciation, amortization,
other net expenses, share of
earnings of joint ventures and
associates and unrealized net
loss on financial instruments
Finance costs
Other net expenses
Earnings before income taxes,
depreciation, amortization,
share of earnings of joint
ventures and associates and
unrealized net loss on financial
instruments
Depreciation
Amortization
Share of earnings of joint
ventures and associates
Unrealized net loss on financial
instruments
Earnings before income taxes
238,724
223,579
95,198
19,115
—
576,616
49,746
10,815
—
33,755
16,487
—
53,149
6,114
—
1,222
673
—
—
—
19,574
137,872
34,089
19,574
178,163
173,337
35,935
17,220
(19,574)
385,081
199,804
15,273
170,004
128,321
43,476
(34,110)
3,905
28,412
As at December 31, 2018
Operating segments
Hydroelectric
Wind
Geothermal
Solar
Site
development
Total
Goodwill
Total assets
Total liabilities
Acquisition of property, plant
and equipment during the
period
20,036
2,577,675
2,313,816
42,438
2,442,365
2,438,536
47,266
913,081
275,956
93
156,166
146,844
162
391,997
346,571
109,995
6,481,284
5,521,723
8,368
803
13,394
386
165,501
188,452
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p183
(in thousands of Canadian dollars, except as noted and amounts per share)
For the year ended December 31, 2017
Operating segments
Hydroelectric
Wind
Solar
Site
development
Total
Restated
Note 2.1
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
associates 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
associates and unrealized net gain on
financial instruments
Depreciation
Amortization
Share of earnings of joint ventures and
associates
Unrealized net gain on financial
instruments
Earnings before income taxes
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
147,492
2,453
148,783
92,762
36,667
(4,638)
(2,245)
26,237
As at December 31, 2017 (Restated Note 2.1)
Goodwill
Total assets
Total liabilities
Acquisition of property, plant and
equipment during the year
8,269
2,425,646
2,093,158
30,311
1,651,537
1,515,468
—
101,449
102,765
—
11,824
25,803
38,580
4,190,456
3,737,194
18,804
352,968
12
185,884
557,668
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p184
(in thousands of Canadian dollars, except as noted and amounts per share)
36. SUBSEQUENT EVENTS
a. Dividends declared by the Board of Directors
Date of
announcement
Record date Payment date
Dividend per
common share ($)
Dividend per Series
A Preferred Share ($)
Dividend per Series
C Preferred Share ($)
02/27/2019
03/29/2019
04/15/2019
0.1750
0.2255
0.359375
Innergex Renewable Energy Inc.
Annual Report 2018
Notes to the Consolidated Financial Statements p185
(in thousands of Canadian dollars, except as noted and amounts per share)
SHAREHOLDER INFORMATION
Convertible Debentures - TSX: INE.DB.A
Head Office
1225 St-Charles West,
10th floor
Longueuil QC J4K 0B9
Tel. 450 928.2550
Fax 450 928.2544
innergex.com
Investor Relations
Jean-François Neault
Chief Financial Officer
Tel. 450 928.2550 x1207
jfneault@innergex.com
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
As of March 1, 2019, the transfer agent and registrar of
the Corporation will be AST Trust Company (Canada)
for the Common Shares, the Series A shares, the Series
B Shares and the Series C Shares. Computershare
Trust Company of Canada will continue to be the agent
and registrar of the Corporation for the 4.25%
Convertible Debentures and the 4.75% Convertible
Debentures. AST Trust Company (Canada) can be
reached
or
at
1 800 387.0825.
inquiries@astfinancial.com
Common Shares - TSX: INE
Innergex Renewable Energy Inc. had 132,799,509
common shares outstanding as at December 31, 2018,
with a closing price of $12.54 per share.
Series A Preferred Shares - TSX: INE.PR.A
Inc. currently has
Innergex Renewable Energy
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
Inc. currently has
Innergex Renewable Energy
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.
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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 are 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 are
redeemable, in certain circumstances, since August 31,
2018.
Convertible Debentures - TSX: INE.DB.B
Innergex Renewable Energy
Inc. currently has
convertible debentures outstanding for an aggregate
principal amount of $150.0 million, bearing interest at
a rate of 4.75% per annum, payable semi-annually on
June 30 and December 31 of each year, commencing
on December 31, 2018. The debentures are convertible
at the holder's option into Innergex common shares at
a conversion price of $20.00 per share, representing a
conversion rate of 50 common shares per each
thousand of dollars of principal amount of debentures.
The debentures will mature on June 30, 2025 and will
not be redeemable before June 30, 2021.
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 27, 2019, 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 $0.68 to $0.70, payable
quarterly, reflects the execution of the Corporation's
strategy for building shareholder value. This is the sixth
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
dividends. For more
the
Corporation's DRIP, please visit our website at
innergex.com or contact the DRIP administrator:
Computershare Trust Corporation of Canada. Please
note that if you wish to enrol in the DRIP but own your
shares indirectly through a broker or financial institution,
you must contact this intermediary and ask them to
enrol in the DRIP on your behalf. Please note that the
DRIP administrator will be AST Trust Company
(Canada) as of March 1, 2019.
information about
Independent Auditor
KPMG LLP