FINANCIAL HIGHLIGHTS
Production was 96% of the long-term average ("LTA") for the year ended December 31, 2019.
Revenues increased 16% to $557.0 million for the year ended December 31, 2019.
Adjusted EBITDA rose 16% to $409.2 million for the year ended December 31, 2019, corresponding to an Adjusted EBITDA
Margin of 73.5%.
Adjusted EBITDA Proportionate increased 21% to $516.8 million for the year ended December 31, 2019.
Full commissioning of the Foard City wind farm on September 27, 2019 and the Phoebe solar farm on November 19, 2019.
Signing of a long-term Power Purchase Agreement for the Hillcrest Solar Project in Ohio, USA on November 28, 2019.
On February 6, 2020, Innergex and Hydro-Québec announced a $661 million Private Placement and a Strategic Alliance.
OPERATING RESULTS
Production (MWh)
Revenues
Adjusted EBITDA2
Adjusted EBITDA Margin2
Net (Loss) Earnings From Continuing Operations
Net (Loss) Earnings
Adjusted Net (Loss) Earnings From Continuing Operations2
PROPORTIONATE
Production Proportionate (MWh)2
Revenues Proportionate2
Adjusted EBITDA Proportionate2
COMMON SHARES
Dividends declared on common shares
Weighted Average Number of Common Shares (in 000s)
CASH FLOW AND PAYOUT RATIO
Cash Flow From Operating Activities
Free Cash Flow2,3
Payout Ratio2,3
Adjusted Payout Ratio2,3
Year ended December 311
2018
2017
2019
6,509,622
557,042
409,175
5,086,497
481,418
352,179
4,394,210
400,263
298,728
73.5%
73.2%
74.6%
(53,026)
(31,211)
(25,817)
26,215
25,718
13,963
19,136
19,136
15,662
8,021,758
660,941
516,819
6,361,733
564,686
428,684
4,497,943
411,468
308,343
95,046
134,658
90,215
130,030
71,621
108,427
240,065
93,311
102%
88%
209,390
105,124
192,451
87,207
86%
66%
82%
64%
As at December 31
2018
2019
2017
FINANCIAL POSITION
Total Assets
Total Liabilities
Non-Controlling Interests
Equity Attributable to Owners
1. Results from continuing operations unless otherwise indicated.
2. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings (Loss) from continuing operations, Production Proportionate, Revenues Proportionate,
Adjusted EBITDA Proportionate, Free Cash Flow, Payout Ratio and Adjusted Payout Ratio are not recognized measures under IFRS and therefore may not be
comparable to those presented by other issuers. Production Proportionate is a key performance indicator for the Corporation that cannot be reconciled with an
IFRS measure. Please refer to the "Non-IFRS Measures" section of this MD&A for more information.
6,516,158
5,574,121
312,776
629,261
4,190,456
3,737,194
14,920
438,342
6,372,104
5,756,778
10,942
604,384
3. For more information on the calculation and explanation, please refer to the "Free Cash Flow and Payout Ratio" section.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p3
(in thousands of Canadian dollars, except as noted and amounts per share)
MESSAGE TO SHAREHOLDERS
30 YEARS OF BUILDING A BETTER WORLD
2020 marks our 30th year as custodians of the planet. From day one, our efforts have focused on producing energy
from renewable sources in support of a greener future. We take pride in our contribution in building a better world
thanks to renewable energy, while generating significant, positive benefits for the Three Ps: People, our Planet
and Prosperity. With a net installed capacity of 2,588 MW comprised exclusively of renewable energy, well above
our 2020 objective of 2,000 MW, it is with boundless optimism that we enter this new decade.
2019 may go down in history as the year in which climate change became a fundamental issue. The world’s youth
have mobilized to deliver a strong message which we hope will serve as wake-up call for key decision-makers and
corporations. As for Innergex, we view this message as an urge to pursue our development efforts in harmony
with nature. Our sustainable growth model has produced and continues to generate shareholder value while
delivering benefits that we share with communities. Our Three Ps philosophy, therefore, inspires us to lead this
path.
OUR ACTIONS
The year 2019 was marked by the sale of our participation in HS Orka and the completion of two major projects.
We launched Foard City, our largest wind farm project to date, with an installed capacity of 350 MW, as well as
a massive 250 MW solar farm, Phoebe, in Texas. These two major projects confirmed our ability to deliver projects
on time and on budget. The experience acquired in the solar energy sector will serve us well as we pursue the
development of this technology in the U.S.
We have also begun work on the Innavik hydroelectric generating station in Nunavik, in Quebec's Far North region,
which is expected to be commissioned by 2022. This 7.5 MW project symbolizes everything we believe in. This
generating station is being developed in a 50-50 partnership with the Pituvik Landholding Corporation, an entity
stemming from the Inuit community responsible for undertaking this project, which is in complete harmony with
nature. In addition, this project will act as a lever for the sustainable development of the community.
Solar energy is an increasingly important component in our development prospects. In Ohio, we signed a power
purchase agreement with a major partner for clean energy produced by our 200 MW Hillcrest solar project, which
is currently under construction. In Hawaii, development continues on our Paeahu and Hale Kuawehi integrated
solar and battery storage projects to help decarbonize the energy supply of their respective islands, which are
otherwise supplied by fossil fuel generation.
OUR PROJECTS
The growth that we have experienced over the past few years has allowed us to consolidate our hydro, wind and
solar power expertise in a growing number of markets, and sustainability will continue to be the driving force behind
all future development. In keeping with our diversification strategy, Phoebe has allowed us to substantially increase
our installed solar capacity over the past year. Consequently, we can offer technologies tailored to local renewable
resources and markets, thus compensating for variables such as weather in markets where our activities are
concentrated.
The U.S. represents a vast, growing market, and we plan to develop several solar projects in various regions of
the country. Consequently, we have undertaken initiatives to procure solar panels in the U.S. before the current
tax incentives expire.
We will continue our development initiatives in France, as there are numerous opportunities in wind power and
other renewable energies. Although project development may take longer than in other markets, we strongly believe
in France's potential, given the ambitious green energy objectives that are in place. For example, our partnership
with Vent d'Est allows us to draw on additional wind energy development expertise.
Innergex Renewable Energy Inc.
Annual Report 2019
Message to shareholders p8
(in thousands of Canadian dollars, except as noted and amounts per share)
We also see enormous potential in Chile and elsewhere in Latin America, where a variety of renewable energy
solutions are in demand. Development opportunities in Canada, mainly in provinces other than those where we
are currently active, remain on our agenda, but they are evolving at different speeds according to local imperatives.
In addition to renewable power generation, we are closely monitoring advancements in technology and the evolution
of renewable energy markets. We know that the electricity market will evolve beyond the traditional "production,
transportation and consumption" model. Energy storage, which we are deploying in our Hawaii projects, represents
an important evolution that we intend to master. Costs continue to drop, and the development of new technologies
is steadily progressing, which is very promising. Globally, we are encouraged by the new ways of viewing the
procurement of renewable energy as a means to reduce carbon emissions.
In February 2020, we have announced the creation of a Strategic Alliance with Hydro-Québec. The Alliance will
enable us to realize co-investments to accelerate the development of renewable energy by combining Innergex’s
know-how, notably of international markets, with that of Hydro-Québec, for instance in battery storage. Thanks to
our new main shareholder Hydro-Québec, we have access to extra means that will enable us to realize clean
energy projects that are larger and more diversified, always respecting the sustainable development principles we
hold dear.
OUR PEOPLE
Our 3 Ps philosophy – People, Planet and Prosperity – guides our actions and ensures our sustainable growth.
We are proud to have launched new communication tools in 2019 that detail tangible examples of the steps we
are taking to improve the environment, society and our own governance.
We are fortunate to be able to count on a passionate and talented team whose members work hard, day in and
day out, to build a better world. We promote a culture that creates a safe, healthy and supportive environment for
everyone to grow. Our extended family is comprised of over 410 employees, who enable us to efficiently operate
our high-value assets and continue to evolve. Thank you for your daily efforts.
We also draw inspiration from our numerous, outstanding community partnerships. We believe that sustainable
development, above and beyond the shared respect for the environment, is also about the well-being of host
communities, our partners and all other stakeholders involved in our projects. The positive impact of our facilities
on local communities is a difference maker, which validates the relevance of our approach and values. Thank you
for welcoming us into your homes and placing your trust with us.
Investors are increasingly interested in supporting the growth of renewable energy, a thriving industry. As we reach
the milestone of 8 TWh of clean electricity, we are well positioned to substantially increase our sustainable
development initiatives to the greater benefit of all. We thank you for believing in our development approach.
To all our shareholders, customers, financial partners, suppliers, business partners and all other stakeholders,
thank you for your support and for being part of the solution.
As we celebrate our 30th year of existence, we are more determined than ever to focus on sustainable growth as
a mean to fight climate change. Our mission is clear, and we believe in it. It is time for optimism.
Jean La Couture
Chairman of the Board
Michel Letellier
President and Chief Executive Officer
Innergex Renewable Energy Inc.
Annual Report 2019
Message to shareholders p9
(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 three- and twelve-month periods ended
December 31, 2019, and reflects all material events up to February 27, 2020, 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, 2019.
The audited consolidated financial statements attached to this MD&A and the accompanying notes for the year ended
December 31, 2019, along with the 2018 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 tabular 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
Key Performance Indicators
Business Strategy
Selected Annual Information
2019 Highlights
Operating Results
Geographic Segments
Discontinued Operations
Share Capital Structure
Financial Position
Liquidity and Capital Resources
11
17
17
21
23
27
41
44
46
48
52
Free Cash Flow and Payout Ratio
Projected Financial Performance
Quarterly Financial Information
Related Party Transactions
Non-IFRS Measures
Forward-Looking Information
Risks and Uncertainties
Critical Accounting Estimates
Change in Accounting Policies
Establishment and Maintenance of DC&P and ICFR
Subsequent Events
58
60
61
62
62
69
72
81
82
85
85
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p10
(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 and solar power that benefit from simple, proven technologies.
Discontinued Operations
On May 23, 2019, the Corporation announced completion of the sale of its wholly owned subsidiary Magma Energy Sweden A.B.
(“Magma Sweden”), which owns an equity interest of approximately 53.9% in HS Orka hf (“HS Orka”), owner of two geothermal
facilities in operation, one hydro project in development and prospective projects in Iceland. The Geothermal Power Generation
Segment is now accounted for as discontinued operations. For more information, please refer to the “Discontinued Operations”
section of this MD&A. The figures presented in this MD&A are for the continuing operations unless otherwise indicated.
Segments
As at December 31, 2019, the Corporation has three operating segments and four geographic segments.
Operating Segments
Hydroelectric Power Generation
Wind Power Generation
Solar Power Generation
Geographic Segments
Canada
France
United States
Chile
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p11
(in thousands of Canadian dollars, except as noted and amounts per share)
Portfolio of Assets
As at the date of this MD&A, the Corporation owns interests in three groups of projects at various stages: the Operating Facilities,
the Development Projects and the Prospective Projects.
Operating Facilities
The Corporation owns and operates 68 facilities in commercial operation (the “Operating Facilities”). Commissioned between 1992
and November 2019, the facilities have a weighted average age of approximately 7.0 years.
They mostly sell the generated power under long-term power purchase agreements, power hedge contracts1 and short- and long-
term industrial contracts (each, a “PPA”) to rated public utilities or other creditworthy counterparties or on the open market. The
PPAs have a weighted average remaining life of 15.3 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. In Chile, Operating Facilities sell the power generated
through PPAs to industrial customers or on the open market.
1 A power hedge contract is deemed a PPA regardless of whether it is subjected to hedge accounting or accounted for as a financial derivative at
fair value through earnings (loss).
HYDRO
Canada
United States
Chile
Subtotal
WIND
Canada
France
United States
Subtotal
SOLAR
Canada
United States
Chile
Subtotal
Total
Number of
Operating
Facilities1
Installed Capacity (MW)
Gross2
Net3
33
1
3
37
8
15
3
26
1
3
1
5
68
1,019
10
152
1,181
908
317
754
1,979
27
267
34
328
3,488
713
10
74
797
714
221
554
1,489
27
266
9
302
2,588
1. The number of Operating Facilities includes all facilities owned and operated by the Corporation, including non-wholly owned subsidiaries and joint ventures
and associates.
2. Gross installed capacity is the total capacity of all Operating Facilities of Innergex, including non-wholly owned subsidiaries and joint ventures and associates.
3. Net installed capacity is the proportional share of the total capacity attributable to Innergex based on its ownership interest in each facility.
PPA Renewals
On April 16, 2018, the Corporation and the Sekw’el’was Cayoose Creek Band announced that they reached an agreement with
the British Columbia Hydro and Power Authority (“BC Hydro”) for the renewal of the Walden North Facility’s PPA (the “Walden
PPA”). The renewed Walden PPA became effective as of April 1, 2018 and has a 40-year term. The Walden PPA is subject to
approval by the British Columbia Utilities Commission (“BCUC”).
On April 16, 2018, the Corporation announced that it reached an agreement with BC Hydro for the renewal of the PPA of the Brown
Lake Facility for a 40-year term (the “Brown Lake PPA”). The renewed Brown Lake PPA became effective as of April 1, 2018 and
is subject to approval by the BCUC.
By Order G-278-19, dated November 8, 2019 (“BCUC Order”), in the absence of an updated and approved Integrated Resource
Plan from BC Hydro (“IRP”), the BCUC declined to make any determination with regards to whether the Walden PPA and the
Brown Lake PPA are, as of the date of the BCUC Order, in the public interest. However, the BCUC is prepared to consider accepting
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p12
(in thousands of Canadian dollars, except as noted and amounts per share)
PPA renewals for periods shorter than 40 years to allow for the conclusion of BC Hydro’s next IRP proceeding, at which time there
may be further clarity on BC Hydro’s long-term energy needs and supply alternatives to meet demand. Accordingly, the BCUC
adjourned the Walden PPA and the Brown Lake PPA approval application proceeding for 60 days from the date of the BCUC Order
to allow the parties to the Walden PPA and the Brown Lake PPA to restructure and resubmit to the BCUC new electricity purchase
agreements with a term not to exceed three years from the date of the BCUC Order. At BC Hydro’s request, the BCUC subsequently
extended the adjournment period for an additional 45 days. As of the date of this MD&A, the parties to the Brown Lake PPA are
considering resubmitting to the BCUC a restructured Brown Lake PPA with a term of no more than three years from the date of
the BCUC Order, whereas the parties to the Walden PPA are considering, for the time being, not to resubmit a restructured Walden
PPA to the BCUC.
The first PPA for the Sainte-Marguerite hydro facility, located in Quebec, reached 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 underway.
The first PPA for the Chaudière hydro facility, located in Quebec, reached 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. On August 30, 2019, the renewal
of the PPA was signed for a 20-year term ending in March 2039.
The first PPA for the Montmagny hydro facility, located in Quebec, will reach the end of its initial 25-year term in May 2021 and the
Corporation has sent Hydro-Québec a notice of automatic renewal of the PPA for an additional 25-year term. Discussions on the
renewal terms and conditions will take place during the year.
Development Projects
With the commissioning of the Foard City wind farm and of the Phoebe solar farm, the Corporation now holds interests in seven
projects under development. Two Development Projects are currently under construction. These projects are scheduled to begin
commercial operation between 2020 and 2022 (the “Development Projects”). For more information on the Development Projects,
please refer to the “2019 Highlights” section.
Number of Development
Projects
Installed Capacity (MW)
Gross1
Net2
HYDRO
Quebec
Chile
Subtotal
WIND
France
SOLAR
1
2
3
1
8
125
133
7
4
47
51
5
United States
Total
245
301
1. Gross installed capacity is the total capacity of all Development Projects of Innergex, including non-wholly owned subsidiaries and joint ventures and associates.
2. Net installed capacity is the proportional share of the total capacity attributable to Innergex based on its ownership interest in each facility.
245
385
3
7
Prospective Projects
The Corporation also owns interests in numerous prospective projects 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”). The list of Prospective Projects is
revised annually to add or remove projects, according to their advancement potential.
There is no certainty that any Prospective Project will be realized.
Canada
United States
France
Chile
Total
Prospective Projects
Gross Projected Capacity (MW)1
Hydro
Wind
Solar
Total
730
—
—
191
921
4,343
525
296
9
5,173
320
669
—
32
1,021
5,393
1,194
296
232
7,115
1. Only Gross Installed Capacity is disclosed for Prospective Projects as the net capacity is not yet defined at this stage.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p13
(in thousands of Canadian dollars, except as noted and amounts per share)
Shared Ownership
The Corporation shares ownership of some Operating Facilities, Development Projects and Prospective Projects with a corporate,
financial, local community or Indigenous partner.
Non-Wholly Owned Subsidiaries
Some Operating Facilities have material non-controlling interests and are treated as non-wholly owned subsidiaries. These facilities'
results are included in the Corporation's consolidated results.
Operating Facilities
Gross
Installed
Capacity
(MW)
Net
Installed
Capacity
(MW)
Sources of
Energy
Principal
Place of
Operation
Proportion of
Ownership Interest
and Voting Rights
Held by the
Corporation
December 31, 2019
50.01%
50.00%
1
150
75
Hydro
British
Columbia
50
31
25
15
Hydro
British
Columbia
Hydro
Quebec
50.01%
317
221
Wind
France
69.55%
150
698
75
Wind
Quebec
50.00%
1,2
411
Harrison Hydro Limited
Partnership and its
subsidiaries
Kwoiek Creek Resources
Limited Partnership
Innergex Sainte-Marguerite
S.E.C.
Innergex Europe (2015)
Limited Partnership and its
subsidiaries
Mesgi'g Ugju's'n (MU) Wind
Farm L.P.
Douglas Creek, Fire
Creek, Lamont Creek,
Stokke Creek, Tipella
Creek and Upper Stave
River
Kwoiek Creek
Sainte-Marguerite
15 wind farms located in
France
Mesgi'g Ugju's'n
1. The Corporation owns more than 50% of the economic interest in the subsidiary.
2. The Corporation owns a 50% voting interest and a participation interest of 72.4% in 2019 (participation interest to decline over the years).
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p14
(in thousands of Canadian dollars, except as noted and amounts per share)
Joint Ventures and Associates
Some Operating Facilities are treated as joint ventures and associates and accounted for using the equity method. Innergex's
share of Production, Revenues and Adjusted EBITDA of the joint ventures and associates are included in the Corporation's
proportionate measures. For more information, please refer to the “Non-IFRS Measures” section.
Proportion of
Ownership Interest
and Voting Rights
Held by the
Corporation
December 31, 2019
1
2
2
40.00%
50.00%
51.00%
25.50%
50.99%
50.00%
49.00%
Operating Facilities
Gross
Installed
Capacity
(MW)
Net
Installed
Capacity
(MW)
Sources of
Energy
Principal
Place of
Operation
Toba Montrose General
Partnership
East Toba and Montrose
Creek
Shannon Group Holdings,
LLC
Flat Top Group Holdings,
LLC
Shannon
Flat Top
Dokie General Partnership
Dokie
Jimmie Creek Limited
Partnership
Energía Llaima SpA
Jimmie Creek
Guayacán, Peuchén,
Mampil and Pampa Elvira
Umbata Falls L.P.
Umbata Falls
Parc éolien communautaire
Viger-Denonville, S.E.C.
Viger-Denonville
235
204
200
144
62
186
23
25
94
Hydro
British
Columbia
102
Wind
Texas
102
Wind
Texas
Wind
Hydro
Hydro
Solar
Hydro
British
Columbia
British
Columbia
Chile
Ontario
37
32
84
11
12
Wind
Quebec
50.00%
1. The Corporation holds a 51% voting interest and 40% participating economic interest. In 2046, the Corporation’s economic interest will increase to 51% for no
additional consideration.
2. The Corporation does not consolidate the entity as it does not have complete control over the decision-making process.
1,079
474
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p15
(in thousands of Canadian dollars, except as noted and amounts per share)
Tax Equity Investment
The Corporation owns equity interests in some facilities that are eligible for tax incentives available for renewable energy facilities
in the United States. With its current portfolio of renewable energy facilities, Innergex cannot fully monetize such tax incentives.
To take full advantage of these incentives, the Corporation partners with Tax Equity Investors (“TEI”) who invest in these facilities
in exchange for a share of the tax credits.
Some TEI financing structures include a partial pay as you go ("Pay-go") funding arrangement under which, when the actual annual
MWh production exceeds a certain production threshold, the TEI are obligated to make a cash contribution (“Pay-go Contribution”)
to the Corporation. The Pay-go arrangement resulted in a lower initial investment by the TEI and provides them with some protection
from potential underperformance of the asset.
Innergex recognizes the TEI contributions as long-term loans and borrowings, at an amount representing the proceeds received
from the tax equity investor in exchange for shares of the subsidiary, net of the following elements:
Elements affecting amortized cost of the tax equity financing
Description
Production Tax Credits ("PTC")
Investment Tax Credits ("ITC")
Taxable income (loss), including tax attributes such as
accelerated tax depreciation
Pay-go contributions
Cash distributions
Allocation of PTCs to the tax equity investor derived from the
power generated during the period and recognized in other
(income) expenses as incurred
Allocation of ITCs to the tax equity investor stemming from the
construction activities and recognized as a reduction in the
cost of the assets to which they relate
Allocation of taxable income and other tax attributes to the tax
equity investor recognized in other (income) expenses as
incurred
Additional cash contributions made by the tax equity investor
when the annual production exceeds the contractually
determined threshold
Cash allocation to the tax equity investor
Production Tax Credit Program (“PTC”)
Current United States tax law allows wind energy facilities to receive tax credits that are created for each MWh of generation for
the first 10 years of the facility's operation. The TEIs are allocated a portion of the renewable energy facility's taxable income
(losses) and PTCs produced and a portion of the cash generated by the facility until they achieve an agreed-upon after-tax
investment return (“Flip Point”). After the Flip Point, TEIs will retain a lesser portion of the cash and the taxable income (losses)
generated by the facility.
Commercial
Operation
Date
Expected
TEI Flip
Point1
TEI
Investment
(M$)
Expected
Annual PTC
Generation3 (M
$)
Expected
Annual Pay-go
Contribution
(M$)
TEI Allocation of
Taxable Income
(Loss) and PTCs
(Pre-Flip Point)
TEI Allocation
of Cash
Distributions
(Pre-Flip Point)
2028
2015
Shannon1,2
Flat Top1,2
Foard City2,4
1. Before the Flip Point, TEI cash distributions are based on a quarterly test measurement of cumulative generation for the project since commercial operations date.
Lower production could result in a higher cash allocation to the tax equity investor or a change to the Flip Point. Figures provided are for the year ended December
31, 2019.
64.30%
49.00%
99.00%
99.00%
99.00%
5.00%
267.2
274.2
372.7
2019
2028
2018
2029
28.3
23.1
42.3
4.5
—
—
2. TEIs in U.S. projects generally require certain sponsor guarantees as a condition for their investment. To support the tax equity investments at Shannon, Flat Top
and Foard City, Alterra, a subsidiary of Innergex, executed a guarantee indemnifying the tax equity investors against certain breaches of project-level representations,
warranties and covenants. The Corporation believes these indemnifications cover matters that are substantially within its control, and are very unlikely to occur.
3. Based on the gross estimated LTA and the current credit of US$25/MWh generated for the period from COD to Flip Point, translated into Canadian dollars at 1.2988.
PTCs generation will vary depending on actual production.
4. Average annual Pay-go Contributions estimate is based PTCs generated on gross estimated LTA for each year from COD to Flip Point, translated into Canadian
dollars at 1.2988. Pay-go Contributions will vary depending on actual production in excess of 1,165 GWh per-annum, up to a cumulative maximum of US$36.5
million ($47.4 million).
Investment Tax Credit Program (“ITC”)
Current United States tax law allows wind and solar facilities to receive a one-time federal tax credit, calculated on the basis of
the facility's capital cost. Projects that began construction through 2019 are eligible for 30% ITC. This credit steps down to 26%
for facilities that began construction in 2020, 22% in 2021 and 10% thereafter.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p16
(in thousands of Canadian dollars, except as noted and amounts per share)
Commercial
Operation Date
Expected TEI Flip
Point
TEI Investment
(M$)
TEI Allocation of
Taxable Income
(Loss) and ITC
(Pre-Flip Point)
TEI Preferred
Allocation of Cash
(Pre-Flip Point)
Phoebe1,2,3
1. TEIs in U.S. projects generally require certain sponsor guarantees as a condition for their investment. To support the tax equity investments at Phoebe, Alterra, a
subsidiary of Innergex, executed a guarantee indemnifying the tax equity investors against certain breaches of project-level representations, warranties and covenants.
The Corporation believes these indemnifications cover matters that are substantially within its control, and are very unlikely to occur.
99.0%
244.3
2026
2019
10.62% in excess of
priority distribution
2. Phoebe’s cash distribution amounts to the TEI are fixed and defined within the TEI partnership agreement. All amounts of distributable cash in excess of this defined
threshold are distributed at the rate of 10.62% and 89.38% to the TEI and Innergex respectively.
3. TEI Allocation of Taxable Income (Loss) and ITC are 99% until February 15, 2020, down to 66.67% from February 15, 2020, to December 31, 2024, and then back
to 99.0% until TEI Flip Point.
KEY PERFORMANCE INDICATORS
The Corporation measures its performance using key performance indicators (“KPIs”).
Production KPIs
When evaluating its operating results, a key performance indicator for the Corporation is to compare actual electricity generation
with a long-term average (“LTA”), which is determined to allow long-term forecasting of the expected power generation of each
facility.
Production in comparison with LTA in megawatt/hours (“MWh”) and gigawatt/hours (“GWh”)
Production and Production Proportionate
Financial KPIs
Revenues and Revenues Proportionate
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Proportionate
Adjusted Net Earnings (Loss)
Free Cash Flow
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.
BUSINESS STRATEGY
The Corporation's fundamental goal is to create wealth by efficiently managing our high-quality renewable energy
assets and successfully pursuing our growth.
We are guided by our philosophy that balances investing in people, caring for our planet and generating prosperity
by sharing economic benefits with local communities and creating shareholder value.
Innergex is committed to developing, acquiring, owning and operating renewable energy facilities exclusively that
generate sustainable cash flows, provide an attractive risk-adjusted return on invested capital and enable the
distribution of a sustainable dividend.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p17
(in thousands of Canadian dollars, except as noted and amounts per share)
Produce Renewable Energy
The Corporation is committed to producing energy from sustainable renewable sources exclusively, by balancing economic,
social and environmental considerations. By harnessing the power of the sun's rays, the natural flow of water and the motion
of the air, we work with nature to generate clean energy for a brighter future.
Optimize Operations
Innergex owns interests in 37 hydroelectric facilities drawing on 31 watersheds, 26 wind farms and 5 solar farms. The expertise
and innovation developed by our skilled team in various energies and different locations can be leveraged and shared among
the Corporation to maximize returns from our high-quality assets.
Maintain Diversification of Energy Sources
The Corporation aims 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 and solar irradiation. Lower-than-expected resources in any given year could have
an impact on the Corporation's revenues and hence on its profitability.
Fortunately, the complementary nature of hydroelectric, wind and solar energy production partially offsets any seasonal
variations, as illustrated in the following table:
Consolidated LTA and Quarterly Seasonality1
Q1
Q2
In GWh and %
HYDRO
WIND
SOLAR
Total
1. The consolidated long-term average production is the annualized LTA for the facilities in operation as of February 27, 2020. 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. Production in
comparison to the LTA is a key performance indicator for the Corporation. For more information, please refer to the “Key Performance Indicators” section.
37%
53%
10%
100%
1,002
826
232
2,060
581
1,217
142
1,940
3,018
4,355
776
8,149
1,065
1,014
242
2,321
370
1,298
160
1,828
12%
30%
21%
22%
36%
23%
31%
29%
33%
19%
30%
25%
19%
28%
18%
24%
Q4
Total
Q3
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p18
(in thousands of Canadian dollars, except as noted and amounts per share)
Grow Responsibly
The transition to a carbon-neutral economy will be led by the renewable energy sector. Innergex stands well-positioned to
continue its strategic growth by further developing, acquiring, owning and operating high-quality renewable energy projects
and will continue to champion the advancement of renewable energy solutions.
Nurturing relationships to develop long-term partnerships that support fruitful renewable energy projects is at the core of our
business strategy and values. Our projects flourish with the support of our financial, corporate, Indigenous and municipal
partners. Our values of following our passion, getting involved, driving opportunities, leading with integrity, achieving together,
acting safely and generating prosperity are all ingredients of our success.
Acquisitions are another important component of the Corporation's business strategy. Gaining a foothold in new markets
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
in electricity production and beyond, such as energy storage.
Key Growth Factors
The Corporation's future growth will be subject to the following key factors:
•
•
•
•
•
•
•
•
•
The growing demand for renewable energy, as key to the energy transition to fight climate change, as supported by
international agreements such as the Paris Agreement;
Increasing awareness of the benefits of renewable energy in addressing the impacts of climate change;
The stable and long-term government policies for the procurement of new renewable energy capacity;
The availability of long-term renewable energy purchase contracts with highly creditworthy counterparties;
The implementation of non-discriminatory access to transmission systems, providing independent power producers
with access to certain regional electricity markets;
Its capacity to evaluate and secure the best prospective sites for the development of new projects in cooperation with
local communities;
Its ability to adequately forecast total construction costs, expected revenues and expected expenses for each project,
in a market with rapidly improving cost-competitiveness of renewable energy generation facilities;
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. Among its goals, the plan commits to phasing out coal-fired generation by
2030, and resulted in the implementation of a national price on carbon in 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 the commissioning of the Foard City and Phoebe facilities. It
continues its development with the Hillcrest and two Hawaii solar projects, while assessing potential opportunities in light of
the existence of Federal Tax Credits. Throughout 2019, states continued to advance new commitments to renewable energy
generation. Twenty-nine states, Washington, D.C., and three territories have now adopted a renewable portfolio standard, with
nine jurisdictions including Hawaii requiring 100% clean electricity by 2050 or sooner. In addition, a growing number of cities
and corporations are looking to power their operations with renewable energy exclusively through PPAs, which creates new
opportunities for industry growth. Texas is the leader in installed wind energy with almost 24 GW of wind capacity currently
installed and more than 6 GW under construction. The high levels of direct solar radiation in the central and western parts of
Texas give the state some of the largest solar energy potential in the US and so far almost 2.3 GW of utility-scale solar have
been installed with over 13 GW of growth projected by 2025. The strong project economics of wind and solar generation in the
state point to sustained market momentum. In the PJM interconnection region, which covers all or part of 13 states, including
Ohio and Pennsylvania, renewable energy sources have faced some headwinds as plentiful natural gas supplies drive the
price of electricity down while changes to capacity market rules are under development. The outlook for renewable development
in the 2020s, though, looks strong with 15.3 GW of onshore wind and 62.5 GW of solar with active filings in the interconnection
queue. The Corporation continues to see excellent opportunities for growth in US markets as electricity demand rises and state
governments, corporations and consumers push for increased renewable energy generation.
In 2019, the French government confirmed its target to increase the share of renewable energy in the next 10 years by setting
specific targets by technology. Although France is likely to reduce the availability of its feed-in tariff contracts, it has committed
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p19
(in thousands of Canadian dollars, except as noted and amounts per share)
to extend the RFP system for sourcing additional renewable power. In line with its strategic objectives of reaching 35 GW
onshore wind capacity by 2028, RFPs are expected to call for 1.5 to 2 GW of additional projects every year. Awarded PPAs
would still be offered through a government-backed entity for a long period of time (20 years).
Renewable power continues to increase in Chile. In 2019, the production of solar and wind energy reached a total of 11,186 GWh,
a 22% increase from 2018, representing 14.5% of the total generated power. Meanwhile, hydroelectric facilities continue to
play a significant role, in 2019 they accounted for 27% of total generation (equivalent to 20,793 GWh). Mining, which consumes
about a third of Chile's overall power production, is also the industry that consumes most of the new renewable energy. Since
2014, 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, in 2020, 62 new power facilities will
begin operation, producing about 4,000 MW of additional power, of which 1,504 MW will come from 34 new solar facilities,
1,107 MW from 9 wind facilities and 756 MW from 10 new hydroelectric facilities. Chile has committed to generating 60% of
its energy from renewable sources by 2035, and 70% by 2050, and also intends to phase out coal-fired plants.
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 who share our mission, vision, values and key principles.
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. As of December 31, 2019, the
Corporation employs a team of 327 highly talented individuals to which are added 83 people working for our joint venture partner
Energía Llaima in Chile.
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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p20
(in thousands of Canadian dollars, except as noted and amounts per share)
SELECTED ANNUAL INFORMATION
PRODUCTION
Production (MWh)
LTA (MWh)
Production as percentage of LTA
STATEMENT OF EARNINGS
Revenues
Adjusted EBITDA2
Adjusted EBITDA Margin2
Net (Loss) Earnings From Continuing Operations
Adjusted Net (Loss) Earnings From Continuing Operations2
Net (Loss) Earnings
Net (Loss) Earnings From Continuing Operation Attributable to Owners
of the Parent
($ per common share - basic)
($ per common share - diluted)
Year ended December 311
2018
2017
2019
6,509,622
6,770,170
96%
5,086,497
5,283,616
96%
4,394,210
4,763,836
92%
557,042
409,175
73.5%
(53,026)
(25,817)
(31,211)
481,418
352,179
73.2%
26,215
13,963
25,718
400,263
298,728
74.6%
19,136
15,662
19,136
(47,723)
(0.40)
(0.40)
134,658
31,825
0.20
0.20
130,030
29,475
0.22
0.22
108,427
8,021,758
660,941
516,819
6,361,733
564,686
428,684
4,497,943
411,468
308,343
Weighted average number of common shares (in 000s)
PROPORTIONATE
Production Proportionate (MWh)2
Revenues Proportionate2
Adjusted EBITDA Proportionate2
STATEMENT OF FINANCIAL POSITION
Total Assets
Long-Term Loans and Borrowings, Including the Current Portion
Total Non-Current Liabilities
Total Equity
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 Flow2,3
Payout Ratio2,3
Adjusted Payout Ratio2,3
1. Results from continuing operations unless otherwise indicated.
2. 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.
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.
6,372,104
4,691,669
5,115,425
615,326
6,516,158
4,708,397
4,932,829
942,037
4,190,456
3,153,262
3,490,350
453,262
71,621
87,207
82%
64%
0.902
1.4375
0.70
0.902
1.4375
0.68
0.902
1.4375
0.66
90,215
105,124
95,046
93,311
102%
88%
86%
66%
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p21
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial year 2019
For the year ended December 31, 2019, the increase in Production (MWh), revenues, Adjusted EBITDA and Adjusted EBITDA
Proportionate from continuing operations are attributable mostly to the contribution of the 62% interest in the Cartier Wind
Farms acquired in October 2018 and to the contribution of the facilities commissioned in 2019.
The Corporation recorded $53.0 million in net loss from continuing operations compared with net earnings of $26.2 million in
2018, mainly due to higher deferred income tax expense related to tax attributes and PTCs allocated to tax equity investors,
higher unrealized net loss on financial instruments, finance costs and depreciation and amortization. Those unfavorable elements
were partly offset by other revenues generated by tax attributes and PTCs from the commissioning of Foard and Phoebe, and
by higher Adjusted EBITDA mainly related to the contribution of the Cartier Wind Farms and the facilities commissioned in
2019.
The decrease in total assets is due mainly to the sale of HS Orka that was partially offset by the additional fixed assets of the
Foard City wind facility and Phoebe solar facility that were both commissioned in 2019, and the application of IFRS 16.
The increase in long-term loans and borrowings results mainly from the commissioning of the Phoebe and Foard City facilities.
The equity attributable to owners increased due mainly to the conversion of the convertible debentures and the earnings of
2019 net of the dividends declared.
The decrease in Free Cash Flow is due mainly to greater scheduled debt principal payments and a decrease in cash flows
from operating activities before changes in non-cash working capital items, including the contribution from the discontinued
operations, partly offset by a decrease in the Free Cash Flow attributed to non-controlling interests mainly related to the disposal
of HS Orka hf, as well as below-average water flows in British Columbia affecting certain facilities containing non-controlling
interests. The Corporation's payout ratio was 102% for the year ended December 31, 2019.
Financial year 2018
For the year ended December 31, 2018, the increase in Production (MWh), revenues, Adjusted EBITDA and Adjusted EBITDA
Proportionate from continuing operations are attributable mostly to the contribution of the facilities acquired in 2018.
The Corporation recorded $26.2 million in net earnings from continuing operations 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 loans and borrowings 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 loans and borrowings is also attributable
to the $150 million subordinated unsecured five-year term loan obtained in February 2018 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p22
(in thousands of Canadian dollars, except as noted and amounts per share)
2019 HIGHLIGHTS
Corporate Development
Divestment of HS Orka
• On May 23, 2019, Innergex announced completion of the sale of its wholly owned subsidiary Magma Sweden, which owns
an equity interest of approximately 53.9% in HS Orka for US$297.9 million ($401.5 million) after adjustments to Jarðvarmi
slhf, which exercised its right of first refusal.
The net proceeds were used to reimburse the $228 million one-year credit facility contracted on October 24, 2018 at the time
of the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities and the utilized portion of the
additional borrowing capacity of $100 million that was obtained on April 23, 2019. The proceeds were also used to deleverage
corporate facilities.
•
Solar Development in the United States
• During the year, 125 MW of solar panels were acquired qualifying approximately 650 MW of future solar projects.
Debenture Redemption
• On September 5, 2019, the Corporation issued a notice of redemption and expiry of conversion privilege in respect of the
aggregate outstanding principal amount of $100 million of the 4.25% convertible unsecured subordinated debentures that
were due to mature on August 31, 2020 (the “4.25% Convertible Debentures”). Of that principal amount, $86.7 million was
converted at the holders' request into a total of 5,776,795 Innergex common shares at a conversion price of $15 per share.
The remaining $13.3 million was redeemed on October 8, 2019 at a price of $1,000 per debenture, plus accrued and unpaid
interest up to, but excluding, October 8, 2019, and was financed with drawings under the Corporation's revolving term credit
facility. The debentures were delisted from the TSX on October 8, 2019.
Debenture Offering
• On September 30, 2019, the Corporation completed its bought deal offering of convertible unsecured subordinated debentures
(the “Debentures”) for an aggregate principal amount of $125 million at a price of $1,000 per $1,000 principal amount of
Debenture, bearing interest at a rate of 4.65% per annum, payable semi-annually, in arrears on October 31 and April 30 each
year, commencing on April 30, 2020 (the “4.65% Convertible Debentures”).
The net proceeds of the 4.65% Convertible Debentures offering were used to initially prepay indebtedness under the
Corporation's revolving term credit facility, which was then available to be drawn, as required, to finance the redemption of
all outstanding 4.25% Convertible Debentures. The remaining net proceeds were available to be drawn, as required, to fund
development projects and other growth opportunities or for general corporate purposes.
•
• On October 2, 2019, the Corporation announced that it has issued an additional $18.75 million aggregate principal amount
of 4.65% Convertible Debentures following the exercise in full of the over-allotment option granted (the “Over-Allotment
Option”) to the underwriters in connection with the 4.65% Convertible Debentures offering.
After taking into account the Over-Allotment Option, the Corporation raised aggregate gross proceeds of $143.75 million
under the offering, of which $13.3 million was used to redeem the 4.25% Convertible Debentures.
•
Development Activities
Location
Gross installed
capacity (MW)
Expected COD
Gross estimated
LTA1 (GWh)
PPA term
(years)
HYDRO (Chile)
Frontera
El Canelo
Biobío
Cordillera
109.0
16.0
2022
2022
464.0
90.0
-
-
2
2
SOLAR (United States)
Hale Kuawehi
Paeahu
WIND (France)
Yonne II
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
Hawaii
Hawaii
2022
2022
87.4
41.2
30.0
15.0
France
25
25
2020
11.0
6.9
20
3
3
as at the date of this MD&A.
2. Power to be sold on the open market or through PPAs yet to be signed.
3. Solar project with a battery storage capacity of 120 MWh for Hale Kuawehi and 60 MWh for Paeahu.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p23
(in thousands of Canadian dollars, except as noted and amounts per share)
Frontera
The financing process is progressing.
The construction contract is progressing.
During the next months, depending of the results of the financing process, the Corporation will make a final decision on the
project's fate.
El Canelo
The project is being redesigned to address various issues, which has delayed the issuance of permits.
The project is at a critical point where a decision on its future could be made in the coming months.
Hale Kuawehi
The Public Utilities Commission (“PUC”) approved the PPA.
Environmental and technical studies are ongoing, as are other permitting-related activities.
30% design engineering is underway and will be completed in the first quarter of 2020.
Paeahu
The PUC's PPA review process is ongoing. A contested case hearing took place in the fourth quarter of 2019 to address
concerns from an opposition group that consists of neighboring residents. The PUC is expected to make a decision in the
first quarter of 2020.
Environmental and technical studies are ongoing as are other permitting-related activities. The Special Use Permit application
will be filed in the second quarter of 2020 and will likely face opposition from the same group.
Yonne II
The Yonne II project is an extension of the Yonne wind facility located in Bourgogne-Franche-Comté, France.
Innergex owns 69.55% of the project.
The project is comprised of 3 turbines of a 2.3 MW capacity each.
All authorizations have been granted, are free from recourse, and a fixed price 20-year PPA has been signed with EDF.
Financing is expected to close in Q1 2020 and construction is scheduled to start in Q2 2020.
Construction Activities
Ownership
%
Gross
installed
capacity
(MW)
Expected
COD
Gross
estimated
LTA1 (GWh)
PPA
term
(years)
Total project
cost
Expected first 5-year
average
Estimated1
($M)
Revenues1
($M)
Adjusted
EBITDA1,2
($M)
SOLAR (United States)
Hillcrest
HYDRO (Quebec)
Innavik
Total
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
125.0 3
487.6
8.9 3
23.4
11.0 3
33.1
54.7
464.7
7.5
207.5
362.6 4
14.5 4
22.1 4
410.0
200.0
100.0
2020
2022
50.0
15
40
as at the date of this MD&A.
2. 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.
3. Corresponding to 100% of this facility.
4. Total Estimated Project Cost at US$279.2 million, Expected Revenues at US$17.0 million and Expected Adjusted EBITDA at US$11.2 million translated at a rate
of 1.2988.
Hillcrest
Two limited notice to proceed contracts have been executed with an engineering, procurement and construction firm (EPC),
for the execution of racking and inverter supply agreements, project design and on-site pile testing. The execution of the
EPC agreement should take place in Q1-2020.
On November 28, 2019, the Corporation announced that a long-term PPA was signed with an investment grade rated US
corporation. Sales under the PPA will start upon the facility reaching commercial operation, which is expected in 2020.
Term sheet negotiations are underway with a tax equity investor and a group of lenders, who are performing their due diligence
in parallel. Financial close is targeted for Q2 2020.
Construction mobilization commenced on January 27, 2020.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p24
(in thousands of Canadian dollars, except as noted and amounts per share)
Innavik
A 40-year PPA was signed with Hydro-Québec Distribution on May 27, 2019, with production expected to begin in the fourth
quarter of 2022. The PPA was approved by the Régie de l'énergie du Québec in December 2019.
The first construction equipment was delivered in September and construction is planned to start in Q2 2020.
The on-site workers' camp is ready for the start of construction.
Commissioning Activities
Ownership
%
Gross
installed
capacity
(MW)
COD
Gross
estimated
LTA1 (GWh)
PPA
term
(years)
Total project
cost
Expected first 5-year
average
Estimated1
($M)
Revenues1
($M)
Adjusted
EBITDA1,2
($M)
WIND (United States)
Foard City
SOLAR (United States)
Phoebe
Total
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
28.0 5
39.8
34.9 5
60.5
713.7
2,017.0
250.0
600.3
524.2 3
515.6 5
25.6 3
11.8 3
12 4
1,303.3
1,039.8
350.3
100.0
100.0
2019
2019
12
6
as at the date of this MD&A.
2. 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.
3. Total Estimated Project Cost at US$403.6 million, Expected Revenues at US$19.7 million and Expected Adjusted EBITDA at US$9.1 million translated at a rate of
1.2988.
4. PPA for 300 MW.
5. Total Estimated Project Cost at US$397.0 million, Expected Revenues at US$23.6 million and Expected Adjusted EBITDA at US$18.3 million translated at a rate
of 1.2988.
6. Power hedge contract accounted for as a financial derivative at fair value through earnings (loss).
Foard City
On September 27, 2019, the Corporation began commercial operation of the 350.3 MW Foard City wind farm, a project
consisting of 139 GE wind turbines spread over 31,449 acres in Foard County, Texas. The wind farm benefits from a 12-year
power purchase agreement with Vistra Energy for 300 MW of its installed capacity. The remainder of the project's output will
receive a merchant market price.
Concurrent with the commissioning, the US$236.4 million ($312.2 million) tax equity bridge loan was reimbursed with the
proceeds from the tax equity investor's contribution of US$282.3 million ($372.7 million). The construction loan amounting
to US$23.4 million ($30.9 million) was converted into a 7-year term loan facility.
The project will benefit from 100% of the U.S. PTCs, representing US$25.00 per MWh of electricity produced for the first
10 years of operations. This amounts to an after-tax benefit of approximately US$32.6 million per year ($42.3 million) adjusted
by inflation annually and, coupled with other tax attributes, will support the US$282.3 million ($372.7 million) tax equity
investment.
Foard City is expected to produce a gross estimated long-term average of 1,303 GWh, annual projected revenues of
approximately US$19.7 million ($25.6 million) and annual projected Adjusted EBITDA of approximately US$9.1 million
($11.8 million), excluding Pay-go Contributions.
Final construction costs amounted to US$404.6 million ($525.6 million).
Phoebe
On November 19, 2019, the Corporation announced the full commissioning of the 250 MW Phoebe solar farm, a project
consisting of 768,000 First Solar Series 6 thin film photovoltaic solar panels sited on approximately 3,500 acres of land in
Winkler County, Texas. The solar farm benefits from a fixed price 12-year power hedge agreement for 89% of the energy
produced. The remainder of the project's output will receive a merchant market price.
Concurrent with the commissioning, the US$176.2 million ($232.6 million) tax equity bridge loan was reimbursed with the
proceeds from the tax equity investor's contribution of US$184.6 million ($244.3 million). A portion of the construction loan
facility of US$115.9 million ($152.9 million) was converted into a 7-year term loan facility.
The project is eligible to receive a federal Investment Tax Credit (ITC) sized to approximately 30% of the project's costs, 99%
of which was allocated to the project's tax equity partner during the year ended December 31, 2019.
Previous annual gross estimated LTA of 738.0 GWh, annual projected revenues of approximately US$25.6 million
($33.2 million) and annual projected Adjusted EBITDA of approximately US$19.6 million ($25.5 million) were reviewed to
take into consideration various production factors, including the fact that, from October 1, 2019 onwards, the Phoebe revenues
are recognized on a merchant basis (see "Power hedge" below). Annual gross estimated LTA now stands at 713.7 GWh,
while projected revenues and Adjusted EBITDA stand at US$26.9 million ($34.9 million) and US$21.6 million ($28.0 million)
on average for the first 5 years of operations, respectively, subject to the volatility of the local nodal prices.
Final construction costs amounted to US$397.3 million ($516.0 million).
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p25
(in thousands of Canadian dollars, except as noted and amounts per share)
Power hedge
Through its acquisition of the Phoebe solar project on July 2, 2018, Innergex acquired a 12-year power hedge, effective from July
1, 2019 to June 30, 2031. On the acquisition date, the power hedge was measured at its fair value of US$16.1 million ($21.2
million). As of that date, it was designated for hedge accounting purposes. Subsequent changes in the fair value of the power
hedge were mainly recognized through other comprehensive income. To determine the fair value of the Phoebe power hedge
and support the hedge effectiveness testing for hedge accounting purposes, forward prices of the ERCOT South Hub and the
Phoebe Node were required, however quoted forward market prices at the hub were limited and forward prices unavailable at
the node. The price differential risk between the hub and the node (or “basis differential risk”) had been assumed negligible for
this purpose. The Phoebe facility started delivering energy at the node in June 2019 and commenced delivering energy under
the power hedge on July 1, 2019. While the basis differential behaved relatively as expected during the first months of production,
evidence that changes in the Phoebe Node prices were not closely aligned with changes in the ERCOT South Hub prices
materialized in October 2019. In light of this new information, Management revised, during the fourth quarter of 2019, its
methodology to derive forward node prices in order to more accurately reflect the basis differential risk, which resulted in the
Phoebe power hedge no longer meeting the hedge effectiveness criteria.
Since the forecasted transactions are still expected to occur, the cumulative changes in fair value totaling $36.5 million as at
December 31, 2019, recognized in accumulated other comprehensive income at the hedge relationship cessation date will remain
and be reclassified to revenue over the remaining term of the power hedge. Subsequent changes in the fair value of the derivative
instrument will be recognized in the consolidated statement of earnings, as unrealized net loss (gain) in financial instruments.
From October 1, 2019 onwards, settlements under the power hedge therefore no longer affect revenue. As such, revenues of
the Phoebe solar project are recognized on a merchant basis, subject to the volatility of the local nodal prices.
Basis hedge
As described above, the basis differential risk between the ERCOT South Hub and the Phoebe Node prices was initially assumed
negligible. However, in order to protect the project's returns in the event of a change in the expected price dynamics at the hub
and the node, and in light of the existing transmission congestion prevailing in Texas broadening the basis differential risk at
numerous locations, on August 2, 2019, the Corporation entered into a 2-year basis hedge, effective from November 1, 2019 to
December 31, 2021.
Under the basis hedge, Innergex swaps the ERCOT South Hub and the Phoebe Node prices at a contractual hourly quantity of
100 MW, for 16 hours daily. As supported by the studies carried out by Innergex's external consultants prior to the transaction
being executed, the basis hedge was designed to protect the basis risk associated with the power hedge during the daily generation
period, while the exposure outside of such generation period was expected to be limited.
However, for the period from November 1, 2019 to December 31, 2019, contrary to the initial expectation, the project has been
exposed to large unfavourable basis differentials outside of the generation hours, which contributed to a realized loss of
$11.7 million for the period recorded in the project’s tracking account1 and in reduction of the derivative financial liability as at
December 31, 2019.
The basis hedge is accounted for at fair value, with subsequent changes being recognized in the consolidated statement of
earnings, as unrealized net loss (gain) on derivative financial instruments. The change in fair value recognized as an unrealized
net loss on derivative financial instruments amounted to $48.0 million for the year ended December 31, 2019.
1 Renewable energy projects selling energy under a power/basis hedge structure are exposed to mismatch risks mainly driven by: (1) the risk of
a shortfall in the actual energy produced in comparison to the contractual hourly quantity under the hedges; and (2) a price differential risk between
hub, node, and fixed contractual prices per MW of contracted energy. To cover such temporary unfavourable mismatch, the counterparty provides
the project with a tracking account; a working capital loan that is repaid with subsequent favourable mismatch.
Operating Activities
Glen Miller
On June 15, 2019, a flood incident occurred at the Glen Miller hydro facility in Ontario. Operations were halted for a few weeks
and resumed mid-July. A $1.5 million provision was recorded in other expenses for potential cash outflows related to this event,
including contractual penalties.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p26
(in thousands of Canadian dollars, except as noted and amounts per share)
OPERATING RESULTS
Electricity Production
The Corporation's operating results for the three-month period ended December 31, 2019 are compared with the operating
results for the same period in 2018.
Energy Segment
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec2
France
United States3
Subtotal
SOLAR
Ontario
United States4
Subtotal
Total
GEOTHERMAL5
Iceland
Three months ended December 31
2019
2018
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
162,604
21,937
235,450
2,212
422,203
181,486
21,212
372,987
5,223
580,908
658,213
241,589
338,353
1,238,155
671,037
214,319
331,840
1,217,196
5,179
128,266
133,445
1,793,803
5,621
131,357
136,978
1,935,082
90%
103%
63%
42%
73%
98%
113%
102%
102%
92%
98%
97%
93%
172,318
22,625
333,194
1,897
530,034
659,210
199,116
—
858,326
181,486
21,212
372,988
5,223
580,909
595,124
214,319
—
809,443
4,849
2,857
7,706
1,396,066
5,661
3,732
9,393
1,399,745
95%
107%
89%
36%
91%
111%
93%
—%
106%
86%
77%
82%
100%
—
—
—%
351,642
319,740
110%
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, their electricity production figures have been excluded from the production table.
2. Production and LTA reflects the 62% acquired interest in the Cartier Wind Farms on October 24, 2018. LTAs were revised at the acquisition.
3. Foard City was commissioned on September 27, 2019.
4. The Phoebe solar project was commissioned on November 19, 2019. Before that date, blocks of modules gradually produced energy. LTAs during the gradual
production period were equivalent to production; since commissioning, regular LTAs are used.
5. Production and LTA were nil for the period in 2019 as opposed to a complete period in 2018.
Overall, the hydroelectric facilities produced 73% of their LTA due mostly to:
below-average water flows at the British Columbia facilities; and
below-average water flows at some Quebec facilities.
Overall, the wind farms produced 102% of their LTA due to:
above-average wind regimes in France; and
above-average wind regimes in the United States.
These items were partly offset by:
below-average wind regimes in Quebec.
Overall, the solar farms produced 97% of their LTA mostly due to:
below-average solar irradiation in the United States.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p27
(in thousands of Canadian dollars, except as noted and amounts per share)
Production for the three-month period ended December 31, 2019 was 1,793,803 MWh compared with 1,396,066 MWh for the
same period last year. The 28% increase is due mainly to:
the contribution of the Foard City wind farm commissioned on September 27, 2019;
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019;
higher production in France.
These items were partly offset by:
below-average water flows at the British Columbia facilities.
The Corporation's operating results for the twelve-month period ended December 31, 2019 are compared with the operating
results for the same period in 2018.
Energy Segment
HYDRO
Quebec
Ontario
British Columbia
United States
Subtotal
WIND
Quebec2
France
United States3
Subtotal
SOLAR
Ontario
United States4
Subtotal
Total
GEOTHERMAL5
Iceland
Twelve months ended December 31
2019
2018
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)1
LTA (MWh)
Production
as a % of
LTA
664,458
67,708
1,874,094
37,702
2,643,962
699,930
74,544
2,195,892
46,800
3,017,166
2,436,638
724,267
381,684
3,542,589
2,311,600
739,693
375,171
3,426,464
39,387
283,684
323,071
6,509,622
37,102
289,438
326,540
6,770,170
95%
91%
85%
81%
88%
105%
98%
102%
103%
106%
98%
99%
96%
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
5,086,497
37,363
23,330
60,693
5,283,616
95%
98%
93%
96%
94%
105%
90%
—%
100%
105%
94%
101%
96%
545,424
505,395
108%
1,196,939
1,154,348
104%
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, their electricity production figures have been excluded from the production table.
2. Production and LTA reflect the 62% acquired interest in the Cartier Wind Farms on October 24, 2018. LTAs were revised at the acquisition.
3. Foard City wind farm's production and LTA for the period of September 27, 2019 to December 31, 2019.
4. The Phoebe solar project was commissioned on November 19, 2019. Before that date, blocks of modules gradually produced energy. LTAs during the gradual
production period were equivalent to production; since commissioning, regular LTAs are used.
5. Production and LTA for the period from January 1, 2019, to May 23, 2019 as opposed to a period from February 6 to December 31, 2018.
Overall, the hydroelectric facilities produced 88% of their LTA due mostly to:
below-average water flows at most British Columbia facilities; and
below-average water flows at some Quebec facilities.
Overall, the wind farms produced 103% of their LTA due to:
above-average wind regimes in Quebec; and
above-average wind regimes in the United States.
These items were partly offset by:
below-average wind regimes in France in the three first quarters that were partially offset by above-average wind
regimes in the fourth quarter.
Overall, the solar farms produced 99% of their LTA due mostly to:
below-average solar irradiation in the United States.
Production for the twelve-month period ended December 31, 2019 was 6,509,622 MWh compared with 5,086,497 MWh for
the same period last year. The 28% increase is due mainly to:
the contribution of the 62% interest in the Cartier Wind Farms, acquired in 2018;
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p28
(in thousands of Canadian dollars, except as noted and amounts per share)
the contribution of the Foard City wind farm, commissioned on September 27, 2019;
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019; and
improved wind regimes in France.
These items were partly offset by:
below-average water flows in most of British Columbia facilities.
Production Proportionate1
1. Production Proportionate is a "Key performance indicator" for the Corporation, which cannot be reconciled with an IFRS measure 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 three-month period ended on December 31, 2019, compared with the same period last year
Production Proportionate of the joint ventures' and associates' hydroelectric facilities was 107,020 MWh (89% of their LTA)
in the fourth quarter of 2019, compared with 131,567 MWh (110% of their LTA) for the same quarter last year, a 19% decrease
due mainly to:
lower contribution from the Chile facilities due to below-average water flows; and
lower contribution from the Ontario facility due to below-average water flows.
Production Proportionate of the joint ventures' and associates' wind farms was 241,674 MWh (99% of their LTA) in the fourth
quarter of 2019 compared with 226,936 MWh (93% of their LTA) for the same period last year, a 6% increase due mostly to:
higher contribution of the Shannon and Flat Top facilities in Texas; and
higher contribution of the Dokie facility in British Columbia.
Production Proportionate of the joint ventures' and associates' solar farm was 3,302 MWh (90% of its LTA) in the fourth quarter
of 2019 compared with 3,203 MWh (87% of its LTA) for the same period last year.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
Production Proportionate of the joint ventures' and associates' hydroelectric facilities was 599,527 MWh (98% of their LTA)
for the twelve-month period ended on December 31, 2019, compared with 539,735 MWh (99% of their LTA) for the same period
last year, an 11% increase due mainly to:
the investment in Energía Llaima in July 2018; and
higher contribution from the British Columbia facilities.
Production Proportionate of the joint ventures' and associates' wind farms was 899,509 MWh (98% of their LTA) for the twelve-
month period ended on December 31, 2019, compared with 729,002 MWh (95% of their LTA) for the same period last year, a
23% increase due mainly to:
the contribution of the Flat Top wind farm, commissioned on March 23, 2018; and
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p29
(in thousands of Canadian dollars, except as noted and amounts per share)
the contribution of the Alterra acquisition, achieved on February 6, 2018.
Production Proportionate of the joint ventures' and associates' solar farm was 13,100 MWh (91% of its LTA) for the twelve-
month period ended on December 31, 2019 compared with 6,499 MWh (90% of its LTA) for the same period last year, a 102%
increase due to:
the addition of the Pampa Elvira solar facility, which was part of the investment in Energía Llaima in July 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p30
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial Results
Three months ended December 311
Year ended December 311
2019
2018
Change
2019
2018
Change
143,116
26,308
138,252
23,080
4,864
3,228
4 % 557,042
14 % 98,455
481,418
84,724
75,624
13,731
16 %
16 %
11,235
7,317
3,918
54 % 36,507
27,796
8,711
31 %
2,240
103,333
4,585
103,270
(2,345)
63
(51)% 12,905
— % 409,175
16,719
352,179
(3,814)
56,996
(23)%
16 %
72.2%
74.7%
73.5%
73.2%
61,062
55,020
6,042
11 % 231,766
195,834
35,932
18 %
(102,004)
6,864
(108,868) (1,586)% (104,643)
12,183
(116,826)
(959)%
53,021
42,285
10,736
25 % 194,579
151,256
43,323
29 %
8,184
—
8,184
— %
8,184
—
8,184
— %
(27,276)
(37,320)
10,044
(27)% (36,469)
(47,596)
11,127
(23)%
40,708
(9,061)
49,769
(549)% 49,933
(12,958)
62,891
(485)%
Revenues
Operating expenses
General and
administrative expenses
Prospective project
expenses
Adjusted EBITDA2
Adjusted EBITDA
margin2
Finance costs
Other net (revenues)
expenses
Depreciation and
amortization
Impairment of project
development costs
3
Share of earnings of joint
ventures and associates
Unrealized net loss
(gain) on financial
instruments
Income tax expenses
117,687
26,666
91,021
341 % 118,851
27,245
91,606
336 %
Net (loss) earnings from
continuing operations
Net earnings (loss) from
discontinued operations
(48,049)
18,816
(66,865)
(355)% (53,026)
26,215
(79,241)
(302)%
644
(4,575)
5,219
(114)% 21,815
(497)
22,312 (4,489)%
Net (loss) earnings
(47,405)
14,241
(61,646)
(433)% (31,211)
25,718
(56,929)
(221)%
(Net loss) earnings
attributable to:
Owners of the parent
Non-controlling
interests
Basic and diluted net
(loss) earnings per
share from continuing
operations attributable
to owners ($)
Basic and diluted net
(loss) earnings per
share attributable to
owners ($)
(46,158)
13,690
(59,848)
(437)% (28,041)
31,140
(59,181)
(190)%
(1,247)
(47,405)
551
14,241
(1,798)
(61,646)
(3,170)
(326)%
(433)% (31,211)
(5,422)
25,718
2,252
(56,929)
(42)%
(221)%
(0.35)
0.11
(0.40)
0.20
(0.34)
0.11
(0.25)
0.19
1. Results from continuing operations unless otherwise indicated.
2. 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.
3. 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p31
(in thousands of Canadian dollars, except as noted and amounts per share)
Revenues
Up 4% to $143.1 million for the three-month period ended December 31, 2019
Up 16% to $557.0 million for the twelve-month period ended December 31, 2019
Energy Segment
2019
2018
Change
2019
2018
Change
Three months ended December 31
Twelve months ended December 31
Hydro
Wind
Solar
Revenues
39,949
92,927
10,240
53,348
82,510
2,394
143,116
138,252
(13,399)
10,417
7,846
4,864
218,918
304,724
33,400
238,724
(19,806)
223,579
19,115
81,145
14,285
75,624
557,042
481,418
For the three-month period ended on December 31, 2019, compared with the same period last year
The decrease in revenues from the hydroelectric power generation segment is mainly due to:
lower production at the British Columbia facilities; and
lower average selling price and lower production at some Quebec facilities.
The increase in revenues from the wind power generation segment is mainly due to:
the commissioning of the Foard City wind farm in Texas on September 27, 2019; and
higher revenues at the France and Quebec wind facilities due to higher production.
These items were partly offset by:
lower revenues at the Mesgi'g Ugju's'n facility due to lower production.
The increase in revenues from the solar power generation segment is almost exclusively due to:
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The decrease in revenues from the hydroelectric power generation segment is mainly due to:
lower revenues in British Columbia attributable to a net unfavourable impact of lower production over higher
average selling prices at some facilities; and
lower revenues in Quebec from lower average selling prices at some facilities.
The increase in revenues from the wind power generation segment is mainly due to:
the 62% interest in the Cartier Wind Farms acquired in October 2018;
higher revenues at the France facilities due to higher production; and
the contribution of the Foard City wind farm since its commissioning on September 27, 2019.
The increase in revenues from the solar power generation segment is almost exclusively due to:
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p32
(in thousands of Canadian dollars, except as noted and amounts per share)
Revenues Proportionate1
1. Revenues Proportionate 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 three-month period ended on December 31, 2019, compared with the same period last year
Joint ventures' and associates' hydroelectric facilities contributed $10.9 million to Revenues Proportionate in the fourth quarter
of 2019, compared with a contribution of $13.6 million for the same quarter last year, a 20% decrease due mostly to:
lower revenues from Chile facilities mostly due to lower production.
Joint ventures' and associates' wind farms contributed $15.5 million to Revenues Proportionate in the fourth quarter of 2019,
compared with $9.7 million for the same quarter last year, a 59% increase mainly due to:
higher contribution from the Shannon and Flat Top wind farms in Texas due to a combination of favourable nodal
prices, in part arising from an annual adjustment, and production; and
higher production at the Dokie facility in British Columbia.
Joint ventures' and associates' solar farm contributed $0.6 million to revenues proportionate in the fourth quarter of 2019,
compared with $0.5 million for the same quarter last year.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
Joint ventures' and associates' hydroelectric facilities contributed $64.8 million to Revenues Proportionate for the twelve-
month period ended on December 31, 2019, compared with $53.8 million for the same period last year, a 20% increase due
mostly to:
the investment in Energía Llaima in July 2018; and
higher revenues from British Columbia facilities due to higher production from their favourable location combined
with the effect of higher selling prices.
Joint ventures' and associates' wind farms contributed $37.0 million to Revenues Proportionate for the twelve-month period
ended on December 31, 2019, compared with $28.6 million for the same period last year, a 30% increase mainly due to:
higher production at the Flat Top wind farm commissioned on March 23, 2018;
higher average selling price at the Shannon and Flat Top facilities; and
the contribution of the Alterra acquisition achieved on February 6, 2018.
Joint ventures' and associates' solar farm contributed $2.1 million to Revenues Proportionate for the twelve-month period
ended on December 31, 2019 compared with $0.9 million for the same period last year, a 140% increase due to:
the addition of the Pampa Elvira solar facility, which was part of the investment in Energía Llaima in July 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p33
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EBITDA1
Stable at $103.3 million for the three-month period ended December 31, 2019
Up 16% to $409.2 million for the twelve-month period ended December 31, 2019
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 for more information.
For the three-month period ended on December 31, 2019, compared with the same period last year
The decrease in Adjusted EBITDA in the hydroelectric power generation segment is mainly due to:
lower contribution from the British Columbia facilities attributable to a net unfavourable impact of lower production
despite lower operational expenses due to the favourable settlement of the water rights claim; and
lower revenues at the Quebec facilities.
The increase in Adjusted EBITDA in the wind power generation segment is due mainly to:
higher revenues at the France wind facilities due to higher production;
the commissioning of the Foard City wind farm in Texas on September 27, 2019; and
higher revenues at the Quebec wind facilities due to higher production.
These items were partly offset by:
lower revenues at the Mesgi'g Ugju's'n facility due to a lower production.
The increase in Adjusted EBITDA in the solar power generation segment is mainly due to:
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The decrease in Adjusted EBITDA from the hydroelectric power generation segment is due mainly to:
lower contribution from the British Columbia facilities attributable to a net unfavourable impact of lower production
despite higher average selling prices and lower operational expenses due to water rights claim; and
lower revenues from the Quebec facilities.
The increase in Adjusted EBITDA in the wind power generation segment is due mainly to:
higher revenues in Quebec due mainly to the 62% interest in the Cartier Wind Farms, acquired in October 2018;
higher revenues at the France facilities from higher production; and
the contribution of the Foard City wind farm since its commissioning on September 27, 2019.
The increase in Adjusted EBITDA in the solar power generation segment is mainly due to:
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p34
(in thousands of Canadian dollars, except as noted and amounts per share)
The increase in other operating, general and administrative and prospective expenses is mainly due to:
higher general and administrative expenses related to the acquisitions and investments made in 2018.
This item is mostly offset by:
a recovery for prospective project expenses previously incurred towards the Innavik hydro project and transferred
to the joint venture in exchange for preferred units of the partnership under of an asset transfer agreement
concluded between the parties.
Adjusted EBITDA Margin1
Down from 74.7% to 72.2% for the three-month period ended on December 31, 2019
Up from 73.2% to 73.5% for the twelve-month period ended on December 31, 2019
The decrease for the three-month period is mainly explained by:
lower production at the hydro facilities; and
lower revenues at the Mesgi'g Ugju's'n facility due to lower production.
The increase for the twelve-month period is mainly explained by:
changes in the mix of segments as wind and solar generation now represents a higher proportion of Adjusted
EBITDA. Wind and solar activities typically have a better return on revenues than hydro due to lower operating
costs.
1. Adjusted EBITDA Margin 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.
Adjusted EBITDA Proportionate2
2. Adjusted EBITDA Proportionate 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 three-month period ended on December 31, 2019, compared with the same period last year
The joint ventures' and associates' hydroelectric facilities contributed $7.4 million to the Adjusted EBITDA Proportionate in
the fourth quarter of 2019, compared with $9.1 million for the same quarter last year, a 19% decrease mainly due to:
lower contribution from the Chile facilities; and
lower contribution from the Ontario facility due to lower revenues.
The joint ventures' and associates' wind farms contributed $12.5 million to the Adjusted EBITDA Proportionate for the fourth
quarter of 2019, compared with a $6.1 million contribution in the same quarter last year, a 105% increase mainly due to:
higher revenues at the Flat Top and Shannon facilities.
The proportional PTCs generated by the wind farms contributed $17.8 million in the fourth quarter of 2019, compared with a
$5.8 million contribution in the same quarter last year. The increase is due to:
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p35
(in thousands of Canadian dollars, except as noted and amounts per share)
PTCs generated by the Foard City wind farm following its commissioning on September 27, 2019; and
higher generation at the Shannon and Flat Top wind farms.
The joint ventures' and associates' solar farm contributed $0.3 million to Adjusted EBITDA Proportionate in the fourth quarter
of 2019 compared with a negative contribution of $0.2 million for the same quarter last year, a 259% increase due to:
lower operating costs and higher revenues.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The joint ventures' and associates' hydroelectric facilities contributed $48.0 million to the Adjusted EBITDA Proportionate for
the twelve-month period ended on December 31, 2019, compared with $41.2 million for the same period last year, a 17%
increase mainly due to:
the investment in Energía Llaima in July 2018; and
higher Adjusted EBITDA at the Jimmie Creek and Toba Montrose facilities due to higher revenues.
These items were partly offset by:
lower contribution from the Ontario facility due to lower revenues.
The joint ventures' and associates' wind farms contributed $21.6 million to Adjusted EBITDA Proportionate for the twelve-
month period ended on December 31, 2019, compared with $16.5 million for the same period last year, a 31% increase mainly
due to:
higher revenues at the Flat Top and Shannon wind farms; and
higher contribution from the Dokie facility.
These items were partly offset by:
higher overall operating expenses in joint ventures' and associates' wind facilities.
The proportional PTCs generated by the wind farms contributed $37.1 million in the twelve-month period ended on
December 31, 2019, compared with a $19.1 million contribution in the same period last year. The increase is due to:
higher generation at the Shannon and Flat Top wind farms; and
PTCs generated by the Foard City wind farm following its commissioning on September 27, 2019.
The joint ventures' and associates' solar farm contributed $1.0 million to the Adjusted EBITDA Proportionate for the twelve-
month period ended on December 31, 2019, compared with a negative contribution of $0.2 million for the same period last
year. The Pampa Elvira solar facility was part of the investment in Energía Llaima in July 2018.
Finance Costs
Up 11% to $61.1 million for the three-month period ended December 31, 2019
Up 18% to $231.8 million for the twelve-month period ended December 31, 2019
The increase for the three-month period is mainly due to:
interest expenses related to the Phoebe and Foard City project loans and tax equity financing;
higher interest expenses stemming from the September 2019 4.65% Convertible Debentures offering; and
higher interest expenses on lease liabilities (adoption of IFRS 16).
These items were partly offset by:
the refinancing of the Yonne facility loan at a lower interest rate;
interest on the temporary bridge loan that was fully repaid in the second quarter of 2019.
The increase for the twelve-month period period is due mainly to:
interest expenses related to the acquisitions and investments made in 2018;
interest expenses related to the Phoebe and Foard City project loans and tax equity financing.
The effective all-in interest rate on the Corporation's debt and convertible debentures was 4.49% as at December 31, 2019
(4.48% as at December 31, 2018).
Other Net (Revenues) Expenses
Revenues of $102.0 million for the three-month period ended December 31, 2019
Revenues of $104.6 million for the twelve-month period ended December 31, 2019
The other net revenues for the three-month period are mainly due to:
tax attributes allocated to the tax equity investors at the Foard City wind and Phoebe solar facilities, mainly related
to the accelerated tax depreciation recognized under the U.S. Modified Accelerated Cost Recovery System
("MACRS");
PTCs generated by the Foard City wind facility;
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p36
(in thousands of Canadian dollars, except as noted and amounts per share)
penalty fees to be received for late delivery, by the contractor, of certain project milestones at the Phoebe solar
facility; and
gain on debt modification relating to the Stardale project refinancing.
These items were partly offset by:
foreign exchange loss due to revaluation of monetary assets and liabilities.
The other net revenues for the twelve-month period are mainly due to:
tax attributes allocated to the tax equity investors at the Foard City wind and Phoebe solar projects, mainly related
to the accelerated tax depreciation recognized under the U.S. MACRS;
PTCs generated by the Foard City wind facility;
penalty fees to be received for late delivery, by the contractor, of certain project milestones at the Phoebe solar
facility;
EUR-CAD foreign exchange forward contracts that were settled under favourable conditions during the period,
triggering a realized gain; and
gain on debt modification relating to the Stardale project refinancing.
These items were partly offset by:
restructuring costs related to centralizing the accounting functions at the head office;
a provision for penalty related to the Glen Miller flood incident in the second quarter of 2019;
liquidated damages under certain power purchase agreements in British Columbia; and
foreign exchange loss due to revaluation of monetary assets and liabilities.
Depreciation and Amortization
Up 25% to $53.0 million for the three-month period ended December 31, 2019
Up 29% to $194.6 million for the twelve-month period ended December 31, 2019
The increases for the three- and twelve-month periods are mainly due to:
the 62% acquired interest in the Cartier Wind Farms;
the depreciation and amortization of the Foard City and Phoebe facilities since their commissioning; and
the depreciation on right-of-use assets associated to the lease liabilities (adoption of IFRS 16).
Impairment of project development costs
On December 31, 2019, the Corporation conducted annual impairment tests on project development costs. Based on the results
of these tests, an $8.2 million impairment charge was recognized on the Boswell project for which uncertainties exist regarding
the timing and profitability of any development. For the year ended December 31, 2018, no impairment charge was recognized.
Share of Earnings of Joint Ventures and Associates
Share of earnings of $27.3 million for the three-month period ended December 31, 2019, compared with a share of earnings
of $37.3 million for the corresponding period in 2018
Share of earnings of $36.5 million for the twelve-month period ended December 31, 2019, compared with a share of earnings
of $47.6 million for the corresponding period in 2018
The decrease in the share of earnings of the joint ventures and associates allocated to Innergex for the three-month period is
mainly due to:
a cumulative adjustment related to a reclassification of the tax equity financing as a financial liability during the
fourth quarter of 2019 and the comparative quarter, concurrently affecting the amount of earnings previously
allocated to the tax equity investor; and
a loss allocated to Innergex from the Energía Llaima joint venture compared to an allocation of earnings in 2018
The decrease was partly offset by:
an increase in earnings allocated to Innergex from the Flat Top wind project due to an annual adjustment along
with a favorable movement in the power prices affecting the fair value of the Flat Top power hedge, partly offset
by the decrease in tax attributes allocated to the tax equity investor related to accelerated tax depreciation
recognized under the U.S. Modified Accelerated Cost Recovery System ("MACRS"), which are mainly allocated
in the first year of operations.
The decrease in the share of earnings of the joint ventures and associates allocated to Innergex for the twelve-month period
is mainly due to:
a loss allocated to Innergex from the Umbata Falls facility primarily related to an unrealized loss on financial
instruments compared to an unrealized gain in the same period of 2018;
a decrease in earnings allocated to Innergex from the Shannon wind farm due to an unfavourable movement in
the power prices affecting the fair value of the Shannon power hedge; and
a loss allocated to Innergex from the Energía Llaima joint venture compared to an allocation of earnings in 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p37
(in thousands of Canadian dollars, except as noted and amounts per share)
The decrease was partly offset by:
an increase in earnings allocated to Innergex from the Flat Top wind project due to a favourable movement in the
power prices affecting the fair value of the Flat Top power hedge, partly offset by the decrease in tax attributes
allocated to the tax equity investor related to accelerated tax depreciation recognized under the U.S. Modified
Accelerated Cost Recovery System ("MACRS"), which are mainly allocated in the first year of operations.
Unrealized Net Loss (Gain) on Financial Instruments
Unrealized net loss of $40.7 million for the three-month period ended December 31, 2019, compared with an unrealized net
gain of $9.1 million for the corresponding period in 2018
Unrealized net loss of $49.9 million for the twelve-month period ended December 31, 2019, compared with an unrealized net
gain of $13.0 million for the corresponding period in 2018
Derivatives are used by the Corporation to manage its exposure to interest rate risk on its existing and upcoming debt financing,
to manage its exposure to foreign exchange risk, thereby protecting the economic value of its facilities, and to manage its
exposure to electricity price risk for projects that deliver electricity at variable prices per MWh.
The unrealized net loss on financial instruments for the three-month period ended December 31, 2019 is mainly due to:
an unfavourable impact related to the change in fair value of the Phoebe basis hedge;
This item was partly offset by:
a favourable impact related to the change in fair value of the Phoebe power hedge, as recognized directly in
earnings from October 1, 2019 onwards, following the cessation of hedge accounting as of that date; and
an unrealized loss on the conversion of intragroup loans.
The unrealized net loss on financial instruments for the twelve-month period ended December 31, 2019, is due mainly to:
an unfavourable impact related to the change in fair value of the Phoebe basis hedge;
an unrealized loss on the conversion of intragroup loans; and
the amortization of the accumulated losses from the pre-hedge accounting period.
These items were partly offset by:
a favourable impact related to the change in fair value of the Phoebe power hedge, as recognized directly in
earnings from October 1, 2019 onwards, following the cessation of hedge accounting as of that date;
an unrealized gain on the EUR-CAD foreign exchange forward contracts, mainly derived from the following:
a favourable movement in EUR-CAD forward rates; partially offset by
contracts that were settled during the twelve-month period, triggering a realized gain recorded in other
net (revenues) expenses.
Income Tax Expenses
Income tax expense of $117.7 million for the three-month period ended December 31, 2019
Income tax expense of $118.9 million for the twelve-month period ended December 31, 2019
For the three-month period ended December 31, 2019, the Corporation recorded :
a current income tax recovery of $5.5 million ($4.1 million of current income tax expense for the corresponding
period in 2018); and
a deferred income tax expense of $123.2 million ($22.6 million for the corresponding period in 2018).
The current income tax recovery for the three-month period ended December 31, 2019, is mainly due to:
a downward valuation of the taxable gain on an intercompany transaction related to the introduction of a tax equity
investor in the Phoebe solar project; partly offset by
the decrease in taxable income following the disposition of the Corporation's interest in the Icelandic assets.
The increase in the deferred income tax expense for the three-month period ended December 31, 2019 is mainly due to:
tax attributes and PTCs allocated to tax equity investors by the Foard City wind and Phoebe solar projects, while
less significant amounts were allocated in 2018 to tax equity investors by other tax equity project financings.
For the twelve-month period ended December 31, 2019, the Corporation recorded :
a current income tax expense of $16.8 million ($8.5 million for the corresponding period in 2018); and
a deferred income tax expense of $102.0 million ($18.7 million of deferred income tax recovery for the
corresponding period in 2018).
The increase in the current income tax expenses for the twelve-month period ended December 31, 2019 is mainly due to:
a taxable gain on an intercompany transaction related to the introduction of a tax equity investor in the Phoebe
solar project and the increase in taxable income in France; partly offset by
a decrease in taxable income following the disposition of the Corporation's interest in the Icelandic assets.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p38
(in thousands of Canadian dollars, except as noted and amounts per share)
The increase in the deferred income tax expense for the twelve-month period ended December 31, 2019 is mainly due to:
tax attributes and PTCs allocated to tax equity investors by the Foard City wind and Phoebe solar projects, while
less significant amounts were allocated in 2018 to tax equity investors by other tax equity project financings.
Net (Loss) Earnings from continuing operations
Net loss of $48.0 million for the three-month period ended December 31, 2019
Net loss of $53.0 million for the twelve-month period ended December 31, 2019
For the three-month period ended December 31, 2019, the Corporation recorded a net loss from continuing operations of
$48.0 million (basic and diluted net loss from continuing operations of $0.35 per share), compared with net earnings from
continuing operations of $18.8 million (basic and diluted net earnings from continuing operations of $0.11 per share) for the
corresponding period in 2018.
The $66.9 million variation can be explained by:
a $91.0 million increase in income tax expenses;
a $49.8 million unfavourable variation in unrealized net loss (gain) on financial instruments;
a $10.7 million increase in depreciation and amortization;
a $10.0 million decrease in the share of earnings of joint ventures and associates;
a $8.2 million impairment of project development costs; and
a $6.0 million increase in finance costs.
These items were partly offset by:
a $108.9 million increase in other net revenues; and
a $0.1 million increase in Adjusted EBITDA.
For the twelve-month period ended December 31, 2019, the Corporation recorded a net loss from continuing operations of
$53.0 million (basic and diluted net loss from continuing operations of $0.40 per share), compared with net earnings from
continuing operations of $26.2 million (basic and diluted net earnings from continuing operations of $0.20 per share) for the
corresponding period in 2018.
The $79.2 million variation can be explained by:
a $91.6 million increase in income tax recovery;
a $62.9 million unfavourable variation in unrealized net loss (gain) on financial instruments;
a $43.3 million increase in depreciation and amortization;
a $35.9 million increase in finance costs;
an $11.1 million decrease in the share of earnings of joint ventures and associates; and
an $8.2 million impairment of project development costs.
These items were partly offset by:
a $116.8 million increase in other net revenues; and
a $57.0 million increase in Adjusted EBITDA.
Adjusted Net (Loss) Earnings from continuing operations
Up to $25.4 million for the three-month period ended December 31, 2019
Up to $25.8 million for the twelve-month period ended December 31, 2019
When evaluating its operating results and to provide a more accurate picture of them, a key performance indicator for the
Corporation is Adjusted Net (Loss) Earnings from continuing operations. Adjusted Net (Loss) Earnings from continuing
operations is not a recognized measure under IFRS, has no standardized meaning prescribed by IFRS and therefore may not
be comparable with measures presented by other issuers. Please refer to the "Non-IFRS Measures" section for more information.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p39
(in thousands of Canadian dollars, except as noted and amounts per share)
Impact on net (loss) earnings of financial instruments
Three months ended
December 31
Year ended December 31
2019
2018
2019
2018
Net (loss) earnings from continuing operations
(48,049)
18,816
(53,026)
26,215
Add (Subtract):
Unrealized net loss (gain) on financial instruments
Realized (gain) loss on financial instruments
Impairment of project development costs
Income tax (recovery) expenses related to above
items
Share of unrealized net gain on financial instruments
of joint ventures and associates, net of related
income tax
Adjusted Net (Loss) Earnings from continuing operations
40,708
(241)
8,184
(9,061)
6,914
—
49,933
(12,958)
(2,662)
8,184
6,092
—
4,951
(9,427)
2,896
(10,117)
(16,549)
(25,374)
(10,193)
9,372
(18,129)
(25,817)
(10,337)
13,963
Excluding the impact of loss (gain) on financial instruments, the impairment of project development costs, the related income
taxes and the share of joint ventures and associates on these elements, Adjusted Net Earnings from continuing operations for
the three-month period ended December 31, 2019, would have been $25.4 million, compared with $9.4 million in 2018.
Excluding the impact of loss (gain) on financial instruments, the impairment of project development costs, the related income
taxes and the share of joint ventures and associates on these elements, Adjusted Net Loss from continuing operations for the
twelve-month period ended December 31, 2019, would have been $25.8 million, compared with Adjusted Net Earnings from
continuing operations of $14.0 million in 2018.
Non-controlling Interests
Attribution of losses of $1.2 million for the three-month period ended December 31, 2019, compared with an attribution of losses
of $0.6 million for the corresponding period in 2018
Attribution of losses of $3.2 million for the twelve-month period ended December 31, 2019, compared with an attribution of
losses of $5.4 million for the corresponding period in 2018
Non-controlling interests are related to the non-wholly owned subsidiaries identified in the "Overview" section and to
Creek Power Inc. and subsidiaries ("Creek Power"), which is wholly owned since May 15, 2018.
The attribution of loss from continuing operations to non-controlling interests of $1.2 million for the three-month period ended
December 31, 2019, compared with an attribution of earnings of $3.0 million last year resulted mainly from:
a cumulative adjustment related to a reclassification of the tax equity financing as a financial liability during the
fourth quarter of 2019 and the comparative quarter, concurrently affecting the amount of earnings previously
allocated to the tax equity investor;
an allocation of loss at Harrison Hydro L.P. compared to an allocation of earnings in 2018, mainly stemming from
lower revenues;
a lower allocation of earnings at the Mesgi'g Ugju's'n wind farm mainly due to a decrease in revenues.
These items were partly offset by:
net earnings in Innergex Europe, mostly explained by
The attribution of loss from discontinued operations of nil for the three-month period ended December 31, 2019, compared
with $2.4 million for the corresponding period in 2018 is mainly explained by the completion of the sale of HS Orka in May 2019.
The attribution of loss from continuing operations to non-controlling interests of $5.3 million for the twelve-month period ended
December 31, 2019, compared with $5.6 million last year, resulted mainly from:
the absence of loss allocated to Creek Power due to the acquisition of the remaining ownership interests; partly
offset by
lower revenues at Harrison Hydro L.P. and its subsidiaries; and
The attribution of earnings from discontinued operations to non-controlling interests of $2.1 million for the twelve-month period
ended December 31, 2019, compared with $0.2 million for the corresponding period in 2018, is mainly explained by:
the current period representing the results of 143 days of operation prior to completion of the sale of HS Orka in
May 2019, compared to the comparative period representing the results of 329 days subsequent to the acquisition
of Alterra and its subsidiaries, including HS Orka, in February 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p40
(in thousands of Canadian dollars, except as noted and amounts per share)
GEOGRAPHIC SEGMENTS
As at December 31, 2019, 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 facilities: 29 hydroelectric facilities, six wind farms and
one solar farm in Canada, 15 wind farms in France and one hydroelectric facility, one wind farm and three solar farms in the
United States. The Corporation operates in four principal geographical areas, which are detailed below.
Three months ended December 31
20191
2018
Year ended December 31
20191
2018
Revenues
Canada
France
United States
387,679
96,932
87,016
31,061
6,723
15,123
481,418
143,116
1. The Phoebe solar project contributions take into account ramp-up of production up to its full commissioning on November 19, 2019 and revenues since that.
111,701
26,022
529
138,252
435,069
94,474
27,499
557,042
Non-current assets, excluding derivative financial instruments and
deferred tax assets 1
Canada
France
United States
Chile
1. Includes the investments in joint ventures and associates.
As at
December 31, 2019 December 31, 2018
3,629,942
891,764
1,293,983
142,268
5,957,957
3,757,207
956,214
555,350
154,299
5,423,070
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p41
(in thousands of Canadian dollars, except as noted and amounts per share)
Canada
Revenues down 13% to $96.9 million for the three-month period ended December 31, 2019
Revenues up 12% to $435.1 million for the twelve-month period ended December 31, 2019
Non-current assets, excluding derivative financial instruments and deferred tax assets, down 3% to $3,629.9 million at
December 31, 2019, compared with December 31, 2018
The decrease in Canadian revenues for the three-month period is attributable mainly to:
lower production at the British Columbia facilities;
lower average selling price at some hydro Quebec facilities combined with lower production in few facilities; and
lower revenues at the Mesgi'g Ugju's'n facility due to lower production.
These items were partly offset by:
the 62% acquired interest in the Cartier Wind Farms.
The increase in Canadian revenues for the twelve-month period is attributable mainly to:
the 62% acquired interest in the Cartier Wind Farms.
This item was partly offset by:
lower revenues in British Columbia due to a net unfavourable impact of lower production over higher average
selling prices at some facilities; and
lower revenues at the Quebec hydro facilities due to lower average selling prices at some facilities.
The decrease in non-current assets, excluding derivative financial instruments and deferred income tax assets in Canada, is
attributable mainly to:
depreciation of property, plant and equipment, and amortization of intangible assets.
This item was partly offset by:
an increase in assets due to the adoption of IFRS 16; and
an increase in the asset retirement obligations due to a decrease in interest rate curves.
France
Revenues up 19% to $31.1 million for the three-month period ended December 31, 2019
Revenues up 9% to $94.5 million for the twelve-month period ended December 31, 2019
Non-current assets, excluding derivative financial instruments and deferred tax assets, down 7% to $891.8 million at
December 31, 2019 compared to December 31, 2018
The increases in France revenues for the three- and twelve-month periods are attributable mainly to:
higher production at the France wind facilities.
The decrease in non-current assets, excluding derivative financial instruments and deferred income tax assets in France, is
attributable mainly to:
a decrease in the EUR-CAD exchange rates; and
depreciation of property, plant and equipment, and amortization of intangible assets.
These items were partly offset by:
an increase in assets due to the adoption of IFRS 16; and
an increase in the asset retirement obligations due to a decrease in interest rate curves.
United States
Revenues up to $15.1 million for the three-month period ended December 31, 2019
Revenues up to $27.5 million for the twelve-month period ended December 31, 2019
Non-current assets, excluding derivative financial instruments and deferred tax assets, up 133% to $1,294.0 million at
December 31, 2019, compared with December 31, 2018
The increases in US revenues for the three- and twelve-month periods are attributable mainly to:
the energy produced and sold by the Phoebe solar facility during production ramp-up and the subsequent
completion of commissioning activities on November 19, 2019; and
the contribution of the Foard City wind facility, commissioned on September 27, 2019.
The increase in non-current assets, excluding derivative financial instruments and deferred income tax assets in the United
States is attributable mainly to:
property, plant and equipment additions related to the construction of the Phoebe and Hillcrest solar projects and
the Foard City wind facility;
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p42
(in thousands of Canadian dollars, except as noted and amounts per share)
an increase in assets due to the adoption of IFRS 16; and
new asset retirement obligations created in relation to the construction of the Phoebe solar project and the Foard
City wind facility.
These items were partly offset by:
a decrease in the USD-CAD exchange rates; and
depreciation of property, plant and equipment, and amortization of intangible assets.
Chile
Non-current assets, excluding derivative financial instruments and deferred tax assets, down 8% to $142.3 million at
December 31, 2019, compared with December 31, 2018
The Corporation's investment in Energía Llaima in Chile is accounted for using the equity method; therefore its revenues are
not consolidated.
For the period ended December 31, 2019, the decrease in non-current assets is attributable to:
a foreign exchange loss in the Energía Llaima investment recorded as a comprehensive loss; and
a net loss in Energía Llaima.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p43
(in thousands of Canadian dollars, except as noted and amounts per share)
DISCONTINUED OPERATIONS FINANCIAL RESULTS
Three months ended December 31, 2019
HS Orka2
Innergex1
Total
Three months ended December 31, 2018
HS Orka2
Innergex1
Total
Production
Revenues
Adjusted EBITDA3
Net (loss) earnings
1. Equivalent to continuing operations.
2. Equivalent to discontinued operations.
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-
1,793,803
143,116
103,333
(48,049)
1,793,803
143,116
103,333
(47,405)
1,747,708
166,158
113,102
14,241
1,396,066
138,252
103,270
18,816
351,642
27,906
9,832
(4,575)
—
—
—
644
IFRS Measures" section of this MD&A for more information.
Twelve months ended December 31, 2019
HS Orka2
Innergex1
Total
Twelve months ended December 31, 2018
HS Orka2
Innergex1
Total
Production
Revenues
Adjusted EBITDA3
Net (loss) earnings
1. Equivalent to continuing operations.
2. Equivalent to discontinued operations.
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-
6,509,622
557,042
409,175
(53,026)
1,196,939
95,198
32,902
(497)
7,055,046
597,048
422,466
(31,211)
5,086,497
481,418
352,179
26,215
6,283,436
576,616
385,081
25,718
545,424
40,006
13,291
21,815
IFRS Measures" section of this MD&A for more information.
Consideration received, net of transaction costs:
Cash consideration (US$299,910)
Consideration paid for working capital adjustment (US$2,042)
Transaction costs
Total disposal consideration, net of transaction costs
Carrying amount of net assets sold
Gain on sale before reclassification of foreign currency translation differences
Reclassification of foreign currency translation differences
Gain on sale
Total
CAD
404,219
(2,695)
(6,634)
394,890
331,147
63,743
46,015
17,728
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p44
(in thousands of Canadian dollars, except as noted and amounts per share)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total liabilities
Equity attributable to owners of the parent
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders’ equity
As at May 23, 2019
37,039
855,734
892,773
71,976
228,804
300,780
331,147
260,846
591,993
892,773
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p45
(in thousands of Canadian dollars, except as noted and amounts per share)
SHARE CAPITAL STRUCTURE
Information on Capital Stock
Number of Common Shares Outstanding
Weighted average number of common shares
(in 000s)
139,105
132,753
134,658
130,030
Three months ended December 31
2019
2018
Year ended December 31
2018
2019
Weighted average number of common shares
(in 000s)
Effect of share options issue
Effect of shares held in trust related to the
PSP plan
Shares that may be issued from the following
equity instruments that are excluded from
the potentially dilutive elements (in 000s):
—
556
—
674
—
139,105
203
133,512
—
134,658
203
130,907
Effect of shares held in trust related to the
PSP plan
Share options
Convertible debentures
223
301
13,777
14,301
1. Share options for which the exercise price was below the average market price of common shares are included in the calculation of potentially dilutive equity
instruments. Contingent share issuances have an anti-dilutive effect on loss per share.
—
203
14,167
14,370
203
—
14,167
14,370
301
170
13,777
14,248
The Corporation’s Equity Securities
Number of common shares
Number of 4.75% convertible debentures
Number of 4.65% 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 26, 2020 December 31, 2019 December 31, 2018
132,986,850
150,000
—
100,000
3,400,000
2,000,000
2,782,599
139,405,832
150,000
143,750
—
3,400,000
2,000,000
737,977
174,054,386
150,000
125,000
—
3,400,000
2,000,000
737,977
As at the closing of the market on February 26, 2020, and since December 31, 2019, the increase in the number of common
shares of the Corporation is attributable mainly to the issuance of 34,636,823 common shares to Hydro-Québec under a private
placement of common shares of Innergex as well as the issuance of 11,731 common shares related to the Corporation's
Dividend Reinvestment Plan ("DRIP").
As at December 31, 2019, the increase in the number of common shares since December 31, 2018, was attributable mainly
to the conversion of a portion of the 4.25% Convertible Debentures into 5,776,795 common shares as well as the issuance of
472,737 common shares following the cashless exercise of 2,122,764 options and of 169,450 common shares related to the
DRIP.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p46
(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)
Three months ended December 31
2019
24,396
0.175
767
2018
22,608
0.170
767
0.2255
0.2255
719
719
0.3594
0.3594
Year ended December 31
2018
2019
95,046
90,215
0.700
3,067
0.9020
2,875
1.4375
0.680
3,067
0.9020
2,875
1.4375
1. The increase in dividends declared on common shares is attributable to the increase in quarterly dividend, to the issuance of shares following the exercise of
share options and to the issuance of shares under the DRIP.
The following dividends will be paid by the Corporation on April 15, 2020:
Date of
announcement
02/27/2020
Record date
3/31/2020
Payment date
4/15/2020
Dividend per
common share ($)
0.1750
Dividend per Series A
Preferred Share ($)
Dividend per Series C
Preferred Share ($)
0.2255
0.359375
On February 27, 2020, the Board of Directors increased the quarterly dividend from $0.175 to $0.180 per common share,
corresponding to an annual dividend of $0.72 per common share. This is the seventh consecutive $0.02 annual dividend
increase.
Normal Course Issuer Bid
On May 21, 2019, Innergex announced that it had received approval from the Toronto Stock Exchange (TSX) to proceed with
a normal course issuer bid on its common shares (the "New Bid"). Under the New Bid, the Corporation is authorized to purchase
for cancellation up to 2,000,000 of its common shares, representing approximately 1.5% of the 133,559,963 issued and
outstanding common shares of the Corporation as at May 15, 2019. The New Bid commenced on May 24, 2019 and will
terminate on May 23, 2020. Prior to December 31, 2019, no common shares were neither purchased nor cancelled.
On August 15, 2017, the Corporation announced that it had received approval from the TSX to proceed with a normal course
issuer bid on its Common Shares (the "Bid") which commenced on August 17, 2017, and was terminated on August 16, 2018.
The Corporation was authorized to purchase for cancellation up to 2,000,000 of its Common Shares, representing to
approximately 1.84% of the 108,640,790 issued and outstanding Common Shares as at August 14, 2017. 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p47
(in thousands of Canadian dollars, except as noted and amounts per share)
FINANCIAL POSITION
As at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in joint ventures and associates
Goodwill
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Non-current liabilities
Long-term loans and borrowings
Other non-current liabilities
Total non-current liabilities
Total liabilities
SHAREHOLDERS' EQUITY
Equity attributable to owners
Non-controlling interests
Total shareholders’ equity
December 31, 2019
December 31, 2018
156,224
39,451
109,957
305,632
4,620,025
682,227
511,899
60,666
191,655
6,066,472
6,372,104
79,586
29,981
118,710
228,277
4,470,663
925,009
651,912
109,995
130,302
6,287,881
6,516,158
641,353
641,292
4,281,586
833,839
5,115,425
5,756,778
604,384
10,942
615,326
6,372,104
4,262,469
670,360
4,932,829
5,574,121
629,261
312,776
942,037
6,516,158
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p48
(in thousands of Canadian dollars, except as noted and amounts per share)
Working Capital Items
Current assets
Current assets amounted to $305.6 million as at December 31, 2019, compared with $228.3 million as at December 31, 2018,
an increase of $77.4 million due mainly to:
an increase of $9.5 million in restricted cash, mainly due to the $24.7 million related to the contribution received
from the Corporation's tax equity partner in the Phoebe solar facility; and
an increase of $76.6 million in cash and cash equivalents derived from operating, financing and investing activities.
This increase was partly offset by:
a decrease of $11.6 million in accounts receivable stemming primarily from the sale of HS Orka, partly offset by
higher revenues in December 2019 compared to December 2018.
Current liabilities
Current liabilities amounted to $641.4 million as at December 31, 2019, compared with $641.3 million as at December 31,
2018, a decrease of $0.1 million due mainly to:
a $32.3 million decrease in the current portion of the long-term debt and other liabilities due to:
the repayment of the $228.0 million one-year credit facility contracted on October 24, 2018 at the time
of the acquisition of the remaining interest in the Cartier Wind Farms and Operating Entities; and
the remediation of the Valottes, Porcien and Beaumont project loans following their reclassification as
current liabilities on December 31, 2018 after failing to fulfill the loans' minimum debt service coverage
ratio.
This decrease was partially offset by:
an increase in accounts payable of $11.3 million arising mainly from the construction of the Foard City wind and
Phoebe solar facilities, partly offset by a decrease in accounts payable stemming from the sale of HS Orka; and
an increase in derivative financial instruments of $21.1 million mainly due to the new Phoebe project basis hedge
contracted on August 2, 2019; and
Mesgi'g Ugju's'n loan of $232.1 million reallocated to the current portion of long-term debt.
Working capital was negative at $335.7 million, as at December 31, 2019, with a working capital ratio of 0.48:1.00 (as at
December 31, 2018, working capital was negative at $413.0 million, with a working capital ratio of 0.36:1.00), an improvement
of $77.3 million due to the items explained above.
The Corporation considers its current level of working capital to be sufficient to meet its needs. As at December 31, 2019, the
Corporation had $700.0 million in revolving term credit facilities and had drawn $490.8 million as cash advances, while
$47.1 million had been used to issue letters of credit, leaving $161.9 million available.
Non-current assets
Non-current assets amounted to $6,066.5 million as at December 31, 2019, compared to $6,287.9 million as at December 31,
2018, a decrease of $221.4 million mainly due to:
a $855.7 million decrease stemming from the sale of HS Orka;
depreciation and amortization; and
a strengthening of the Canadian dollar against the Euro and the US dollar.
These items were partly offset by:
a $709.1 million increase in property, plant and equipment due mainly to the construction activities related to the
Foard City and Phoebe facilities;
a $123.9 million increase in property, plant and equipment stemming from the initial application of IFRS 16 (please
refer to the "Change in Accounting Policies" section);
a $68.4 million increase in derivative financial instruments mainly related to the Phoebe power hedge; and
a $13.8 million increase in deferred tax assets primarily related to a deductible temporary difference registered
on ITCs funding for the Phoebe solar facility.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p49
(in thousands of Canadian dollars, except as noted and amounts per share)
Non-current liabilities
Non-current liabilities amounted to $5,115.4 million as at December 31, 2019, compared with $4,932.8 million as at
December 31, 2018, an increase of $182.6 million mainly due to:
a $211.0 million net increase in long-term debt mainly due to:
a $335.8 million funding from tax equity investors of the Foard City and Phoebe facilities, net of ITCs,
PTCs and tax attributes allocated, and cash distributions made; and
a $23.0 million net increase following the refinancing of the Yonne facility long-term debt;
These items were partly offset by:
reimbursements of Phoebe and Foard City construction loans net of additional draws made upon
commissioning of both facilities;
net repayments made on the corporate revolving facilities, including repayments made with the proceeds
received from the sale of HS Orka;
scheduled principal repayments on long-term debt; and
a strengthening of the Canadian dollar against the Euro and the US dollar.
a $117.2 million increase in lease liabilities stemming from the initial application of IFRS 16 (please refer to the
"Change in Accounting Policies" section);
a $118.4 million increase in deferred tax liabilities, mainly related to tax attributes and PTCs allocated to tax equity
investors from the commissioning of the Foard City wind project and other tax equity project financings;
a $32.7 million increase in asset retirement obligations mainly related to the construction activities at the Foard
City and Phoebe facilities, and an increase in fair value of existing asset retirement obligations due to a decrease
in interest rates curves;
a $40.2 million increase in the liability portion of the convertible debentures stemming from the completion of a
$125 million convertible debenture offering and redemption offering for the 4.25% Convertible Debentures.
These items were partly offset by:
a $229.4 million decrease stemming from the sale of HS Orka.
As at December 31, 2019, 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. As at December 31, 2019, Mesgi'g Ugju's'n project was in
default of its credit agreement. A breach was triggered by the bankruptcy of a supplier considered a major project participant
under the credit agreement. A waiver has been obtained and was subsequently extended until March 31, 2020. A plan was put
in place to ensure the continuity of the operations of the project. Ongoing dialogue and reporting are provided to the project
Lenders until this situation is resolved. The project was in compliance of financial covenants. If the waiver is not renewed, the
lender would have the right to request repayment, the $232.1 million loan was reallocated to the current portion of long-term
debt.
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, to manage its exposure to exchange rate fluctuations on the future repatriation of cash flows from
its French operations, and to reduce exposure to the risk of decreasing power prices.
Current Notional
Fair Value After Credit Adjustment
As at September 30, 2019
Currency
Currency of
origin
Interest rate swaps
Interest rate swaps
Interest rate swaps
CAD
USD
EUR
Foreign exchange forward contracts EUR VS CAD
Power and basis Hedges
USD
1,172,186
129,204
104,592
307,897
N/A
CAD
1,172,186
167,811
152,527
535,535
N/A
Currency of
origin
CAD
(50,445)
(12,376)
(11,669)
(24,269)
21,371
(77,388)
(50,445)
(16,074)
(17,017)
(24,269)
27,757
(80,048)
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p50
(in thousands of Canadian dollars, except as noted and amounts per share)
Shareholders' Equity
Shareholders' equity amounted to 615.3 million as at December 31, 2019, compared with 942.0 million as at December 31,
2018, a decrease of $326.7 million mainly due to:
a $260.8 million decrease in non-controlling interests stemming from the sale of HS Orka;
dividends declared on common and preferred shares totaling $100.9 million; and
distributions declared to non-controlling interests of $14.6 million.
These items are partly offset by:
the $(35.4) million total comprehensive income of the period; and
the conversion of convertible debentures into common shares totaling $86.7 million.
Contractual obligation
As at December 31, 2019, the expected schedule of commitment payments is as follows:
Year of expected payment
Long-term loans and borrowings
Interest on long-term loans and borrowings
Lease obligations
Purchase obligations
Operating lease contracts
Total
Under 1 year
1 to 5 years
Thereafter
Total
411,472
250,683
7,841
53,649
8,892
732,537
1,456,851
556,959
39,462
142,182
44,214
2,239,668
2,901,828
1,506,110
155,494
276,622
19,763
4,859,817
4,770,151
2,313,752
202,797
472,453
72,869
7,832,022
Contingencies
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 $3.3 million 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.
On July 26, 2019, the Environmental Appeal Board of British Columbia rendered a decision granting the appeal and ordering
the Comptroller of Water Rights to reimburse to each of the Limited Partnerships its proportionate share of the adjusted water
rental amounts of $3.2 million overcharged to Harrison for the years 2011 and 2012. On November 22, 2019, the Environmental
Appeal Board of British Columbia rendered another decision confirming that the sum will accrue interest starting June 28, 2017
until the date it is refunded to the Appellants. On January 20, 2020, the Comptroller of Water Rights filed with the Supreme
Court of British Columbia a petition for judicial review of the Environmental Appeal Board’s order to return the amount in water
rental fees to the Appellants, with interest. On January 31, 2020, the Comptroller of Water Rights transferred an amount of
$3.3 million, representing the principal of $3.2 million with interest accrued between June 28, 2017 and January 31, 2020, to
a trust account established by the Appellants’ external legal counsel, bearing interest in favour of the Appellants. The Corporation
recognized the amount in the fiscal 2019 consolidated statements of earnings against Operating expenses.
Off-Balance-Sheet Arrangements
As at December 31, 2019, the Corporation had issued letters of credit totaling $161.9 million, including $101.4 million from its
available corporate facilities, to meet its obligations under its various PPAs and other agreements. These letters of credit were
issued as payment securities for various projects under construction and as performance or financial guarantees under PPAs
and other contractual obligations. As at that date, Innergex had also issued a total of $110.4 million in corporate guaranties
used mainly to guarantee the long-term currency hedging instruments of its operations in France. The corporate guaranties
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 wind facility and the Griffin Trail, 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, Phoebe and Foard City, Alterra, a subsidiary of Innergex, has
executed guaranties 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
facility, 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 2019
Management's Discussion and Analysis p51
(in thousands of Canadian dollars, except as noted and amounts per share)
LIQUIDITY AND CAPITAL RESOURCES
Three months ended December 31
2019
2018
Year ended December 31
2018
2019
OPERATING ACTIVITIES
Cash flows from operating activities from
continuing operations before changes in
non-cash operating working capital items
Changes in non-cash operating working
capital items
Cash flows from operating activities from
continuing operations
Cash flows from operating activities from
discontinued operations
FINANCING ACTIVITIES
Cash flows from financing activities from
continuing operations
Cash flows from financing activities from
discontinued operations
INVESTING ACTIVITIES
Cash flows from investing activities from
continuing operations
Cash flows from investing activities from
discontinued operations
Effects of exchange rate changes on cash
and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of year
41,378
30,358
71,736
—
71,736
76,202
—
76,202
39,294
204,541
184,595
(2,674)
22,402
(8,648)
36,620
226,943
175,947
8,636
45,256
13,122
240,065
33,443
209,390
652,279
368,548
960,589
(1,192)
651,087
20,059
388,607
8,382
968,971
(136,331)
(687,145)
(516,997)
(1,130,286)
—
(136,331)
(1,018)
10,589
145,635
156,224
(11,418)
(698,563)
(31,957)
(548,954)
(30,577)
(1,160,863)
(97)
(2,317)
81,903
79,586
(3,080)
76,638
79,586
156,224
174
17,672
61,914
79,586
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p52
(in thousands of Canadian dollars, except as noted and amounts per share)
Cash Flows from Operating Activities from Continuing Operations
Up $35.1 million to $71.7 million for the three-month period ended December 31, 2019
Up $51.0 million to $226.9 million for the twelve-month period ended December 31, 2019
For the three-month period ended on December 31, 2019, compared with the same period last year
The increase in cash flows from operating activities from continuing operations is primarily attributable to:
a $6.9 million decrease in finance costs paid, due in part to the lower average indebtedness during the quarter
and the timing of payments;
a $33.0 million favourable change in non-cash operating working capital items, due mainly to:
–
–
a $20.0 million favourable variation in non-cash operating working capital changes from accounts payable
and other payables; and
a $17.1 million favourable variation in non-cash operating working capital changes from accounts
receivable.
These items were partly offset by:
a $16.1 million realized loss on settlement of financial instruments, $11.7 million of which relates to the Phoebe
basis hedge due to unfavourable basis differentials outside of the generation hours, compared to a $6.1 million
realized loss in the comparative period, mainly related to the settlement of interest rate swaps after restructuring
the Cartier Energie project loan following the acquisition of the Cartier Wind Farms during the fourth quarter of
2018.
Discontinued operations contributed to increasing cash flows from operating activities in the three-month period ended on
December 31, 2018 by $8.6 million, compared with nil in 2019.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The increase in cash flows from operating activities from continuing operations is primarily attributable to:
a $57.0 million increase in Adjusted EBITDA1;
a $31.1 million favourable change in non-cash operating working capital items, due mainly to:
–
a $49.3 million favourable variation in non-cash operating working capital changes from accounts payable
and other payables; partly offset by:
– a $14.6 million unfavourable variation in non-cash operating working capital changes from accounts
receivable
These items were partly offset by:
a $25.0 million increase in finance costs paid, mainly due to the higher average indebtedness during the year;
a $12.6 million increase in income taxes paid, largely related to a payment made toward the current income tax
expense on the taxable gain realized following an intercompany transaction related to the introduction of a tax
equity investor in the Phoebe solar facility; and
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p53
(in thousands of Canadian dollars, except as noted and amounts per share)
a $16.1 million realized loss on settlement of financial instruments, $11.7 million of which relates to the Phoebe
basis hedge due to unfavourable basis differentials outside of the generation hours, compared to a $6.1 million
realized loss in the comparative period, mainly related to the settlement of interest rate swaps after restructuring
the Cartier Energie project loan following the acquisition of the Cartier Wind Farms during the fourth quarter of
2018;
Discontinued operations also contributed to decrease cash flows from operating activities by $20.3 million, from $33.4 million
in 2018 to $13.1 million in 2019.
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 for more information.
Cash Flows from Financing Activities from Continuing Operations
Cash inflow down $576.1 million to $76.2 million for the three-month period ended December 31, 2019
Cash inflow down $592.0 million to $368.5 million for the twelve-month period ended December 31, 2019
For the three-month period ended on December 31, 2019, compared with the same period last year
The decrease in cash flows from financing activities from continuing operations stems mainly from:
a 574.3 million decrease in the net cash inflow from long-term debt, from a $675.8 million net increase in long-term
debt in 2018, to a $101.5 million net increase in long-term debt in 2019.
a $167.0 million net increase in the revolving credit facility; and
a $23.0 million net increase in the Yonne project loan facility following its refinancing.
The $101.5 million net increase in long-term debt in 2019 is mainly attributable to:
–
–
The above increases related to long-term debt were partly offset by:
–
a net decrease of $43.7 million in Phoebe project financing due to the repayment of the construction
loan from the tax equity financing and the conversion of the bridge loan into a term loan; and
scheduled repayments of project loans;
–
a $13.3 million decrease from the redemption of the 4.25% Convertible Debentures;
a $17.2 million increase from the issuance of convertible debentures in the third quarter of 2019, while no issuance
occurred during the same period of 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p54
(in thousands of Canadian dollars, except as noted and amounts per share)
Discontinued operations also contributed to decreasing cash flows from financing activities in the three-month period ended
on December 31, 2018 by $1.2 million, compared with nil in 2019.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The decrease in cash flows from financing activities from continuing operations stems mainly from:
a $552.3 million decrease in the net cash inflow from long-term debt, from a $915.4 million net increase in long-term
debt in 2018, to a $363.1 million net increase in long-term debt in 2019.
The $363.1 million net increase in long-term loans and borrowings in 2019 is mainly attributable to:
–
a net increase of $405.9 million in Foard City project financing due to draws made on the construction
and tax equity bridge loans as construction advanced in 2019, followed by repayment of the construction
loan from the tax equity financing and the conversion of the bridge loans into a term loan; and
a net increase of $192.5 million in Phoebe project financing due to draws made on the Phoebe
construction and tax equity bridge loans as construction advanced in 2019, followed by repayment of
the construction loan from the tax equity financing and the conversion of the bridge loans into a term
loan.
–
The above increases related to long-term debt were partly offset by:
–
–
a $124.4 million net reimbursement of the revolving credit facility; and
scheduled repayments of project loans.
a $15.3 million decrease from dividends paid on common shares mainly stemming from the issuance of
24,327,225 shares on February 6, 2018 related to the Alterra acquisition;
a $13.3 million decrease related to the redemption of the 4.25% Convertible Debentures; and
a $5.9 million decrease from the issuance of convertible debentures, totaling $137.2 million in 2019, net of financing
fees, compared with $143.1 million for the same period in 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p55
(in thousands of Canadian dollars, except as noted and amounts per share)
Discontinued operations also contributed to increasing cash flows from financing activities by $11.7 million, from $8.4 million
in 2018, to $20.1 million in 2019.
Cash Flows from Investing Activities from Continuing Operations
Outflow down $550.8 million to $136.3 million for the three-month period ended December 31, 2019
Outflow down $613.3 million to $517.0 million for the twelve-month period ended December 31, 2019
For the three-month period ended on December 31, 2019, compared with the same period last year
The decrease in cash outflows from investing activities from continuing operations is mainly related to:
a decrease in cash outlays toward business acquisitions, from $620.1 million in 2018 to nil in 2019; and
These items were partly offset by:
increased cash outflows related to property, plant and equipment of $71.7 million, from $72.4 million in 2018 to
$144.1 million in 2019, related primarily to the acquisition of solar panels for the Hillcrest solar project and for
other future solar projects.
Discontinued operations contributed to the decrease in cash outflows from investing activities by $11.4 million, from an outflow
of $11.4 million in 2018 to nil in 2019.
For the twelve-month period ended on December 31, 2019, compared with the same period last year
The decrease in cash outflows from investing activities from continuing operations is mainly related to:
a decrease in cash outlays toward business acquisitions, from $864.3 million in 2018 to nil in 2019;
a $381.0 million cash inflow stemming from the US$297.9 million ($401.5 million) proceeds received from the
sale of HS Orka, net of transaction costs and cash disposed; and
a decrease in cash outlays toward investments in joint ventures, from $134.1 million in 2018 to $13.8 million in
2019. The outlay in 2019 relates to the payment of the remaining investment commitment into Energía Llaima.
These items were partly offset by:
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p56
(in thousands of Canadian dollars, except as noted and amounts per share)
increased cash outflows towards additions to property, plant and equipment of $694.3 million, from $153.4 million
in 2018 to $847.7 million in 2019, related primarily to the construction of the Phoebe solar and the Foard City
wind facilities, and to the acquisition, during the fourth quarter, of solar panels for the Hillcrest solar project and
for other future solar projects; and
a $49.3 million unfavourable change in restricted cash balances, from a $34.4 million decrease in restricted cash
in 2018, to a $14.9 million increase in restricted cash in 2019.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p57
(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
Add (subtract) the following non-recurring elements:
Transaction costs related to realized acquisitions
Realized loss on termination of interest rate swaps
Realized loss on the Phoebe basis hedge4
Recovery of maintenance capital expenditures and prospective project
expenses on sale of HS Orka, net of attribution to non-controlling interests 3
Income tax paid on realized intercompany gain
Free Cash Flow
Dividends declared on common shares
Payout Ratio
Adjust for the following items:
Prospective projects expenses
Adjusted Free Cash Flow
Trailing twelve months ended December
31
2018
2019
2017
240,065
209,390
192,451
(25,634)
(8,752)
(128,691)
(12,679)
(5,942)
266
4,145
11,697
8,242
10,594
93,311
11,019
(9,652)
(86,079)
(27,984)
(5,942)
8,280
6,092
—
—
—
105,124
(23,782)
(3,973)
(67,572)
(10,425)
(5,942)
6,450
—
—
—
—
87,207
95,046
90,215
71,621
102%
86%
82%
12,905
106,216
16,719
121,843
19,574
106,781
Dividends declared on common shares - DRIP adjusted
64%
Adjusted Payout Ratio
1. Free Cash Flow, Adjusted Free Cash Flow, Payout Ratio and Adjusted Payout Ratio are not recognized measures under IFRS and therefore may not be
67,990
93,422
80,497
88%
66%
comparable to those presented by other issuers. Please refer to the "Non-IFRS Measures" section 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. The sale of HS Orka has allowed for the recovery of maintenance capital expenditures and prospective project expenses incurred thereon since the acquisition
of the project in February 2018, totaling $5.7 million and $9.6 million, respectively. An amount of $7.1 million was deducted from the total recovery as it pertains
to non-controlling interests.
4. Due to their limited occurrence (over the remaining contractual period of 2 years), gains and losses on the Phoebe basis hedge are deemed not to represent
the long-term cash generating capacity of Innergex.
Free Cash Flow
For the trailing twelve months ended December 31, 2019, the Corporation generated Free Cash Flow of $93.3 million, compared
with $105.1 million for the corresponding period last year.
The decrease in Free Cash Flow is due mainly to:
greater scheduled debt principal payments, mainly from the Innergex Cartier Energie project loan stemming from
the acquisition of the Cartier Wind Farms during the fourth quarter of 2018, partly offset by the concurrent repayment
of the Anse-à-Valleau, Carleton and Montagne-Sèche project loans;
a decrease in cash flows from operating activities before changes in non-cash working capital items, including
the contribution from the discontinued operations;
These items were partly offset by:
a decrease in the Free Cash Flow attributed to non-controlling interests mainly related to the disposal of HS Orka,
as well as below-average water flows in British Columbia affecting certain facilities containing non-controlling
interests.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p58
(in thousands of Canadian dollars, except as noted and amounts per share)
From these items were added back the following main non-recurring elements:
an $11.7 million realized net loss on the Phoebe basis hedge (2018 - nil);
the $10.6 million income tax paid toward the taxable gain realized following an intercompany transaction related
to the Phoebe solar project concurrent with the initial funding; this transaction is deemed a cash outflow from
investing activities (2018 - nil); and
an $8.2 million recovery of maintenance capital expenditures and prospective project expenses, net of attribution
to non-controlling interests (2018 - nil); and
a $4.1 million realized loss on termination of interest rate swaps stemming from the Yonne project loan refinancing
(2018 - $6.1 million realized loss on termination of interest rate swaps following project loans refinancing concurrent
with the acquisition of the Cartier Wind Farms).
Payout Ratio
For the trailing twelve months ended December 31, 2019, the dividends on common shares declared by the Corporation
amounted to 102% of Free Cash Flow, compared with 86% 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;
an increase in the quarterly dividend;
additional shares issued under the DRIP; and
an $11.8 million decrease in Free Cash Flow as described above.
The Payout Ratio is a measure of the Corporation's ability to sustain current dividends and dividend increases as well as its
ability to fund its growth. The Payout Ratio level reflects the Corporation's decision to invest yearly in advancing the development
of its Prospective Projects, for 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p59
(in thousands of Canadian dollars, except as noted and amounts per share)
PROJECTED FINANCIAL PERFORMANCE
As at December 31, 2019, the Corporation had 68 Operating Facilities with a net installed capacity of 2,588 MW (gross
3,488 MW) and produced, on a consolidated basis, 6,510 GWh.
The increase in installed capacity and in the number of facilities in operation in 2019 is related to the two facilities that were
commissioned in Texas. This increase was partly offset by the sale of the Corporation's participation in HS Orka, which owned
two geothermal facilities.
In 2019, Power Generated was projected to increase 10%, Revenues were expected to increase 7%, Adjusted EBITDA was
expected to increase 11% and Adjusted EBITDA Proportionate was expected to increase 15%. The actual increases were
respectively 12%, 4%, 10% and 15%.
The Corporation makes projections using certain assumption to provide readers with an indication of its business activities and
operating performance. For 2020, projections are based on continuing operations (HS Orka is excluded), the commissioning
of Hillcrest solar project in the fourth quarter of 2020 and the interest saving due to the debt repayment following the private
placement with Hydro-Québec. It does not take into consideration potential acquisitions that could be achieved in 2020.
In 2020, the Corporation expects power generated to increase 25%, Revenues to increase 10%, Adjusted EBITDA to increase
5% and Adjusted EBITDA Proportionate to increase 10%.
Production (GWh)
Revenues
Adjusted EBITDA
2020
Continued
operations1
approx.
+25%
Continued
operations
1
6,510
2019
2018
HS Orka
Total
Projected2 Actual
Total3
Actual
545
7,055
+10% +12 %
6,283
+43%
approx.
+10% 557,042
40,006 597,048
+7% +4 % 576,616
+44%
approx.
+5% 409,175
13,291 422,466
+11% +10 % 385,081
+29%
Adjusted EBITDA Proportionate
approx.
+10% 516,819
13,291 530,110
+9% +15 % 459,107
+49%
Number of facilities in operation
Net installed capacity (MW)
69
2,788
1. Projected financial performance based on the continued operations
2. As disclosed in the Press release issued on March 25, 2019
3. Including continued operations and HS Orka
68
2,588
68
2,082
With two large projects commissioned, Innergex achieved solid growth in 2019. Seven Development Projects were also
advanced, two of which are currently under construction.
Looking ahead, we anticipate achieving commercial operation at the Hillcrest and Yonne II projects in 2020. We will also identify
growth opportunities as part of the Strategic Alliance formed with Hydro-Québec on February 6, 2020. 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p60
(in thousands of Canadian dollars, except as noted and amounts per share)
QUARTERLY FINANCIAL INFORMATION
(in millions of dollars, unless otherwise stated)
Production (MWh)
Revenues
Adjusted EBITDA1
Net (loss) earnings
Net (loss) earnings from continuing operations attributable to
owners of the parent
Net (loss) earnings from continuing operations attributable to
owners of the parent ($ per share – basic and diluted)
Net (loss) earnings attributable to owners of the parent
Net (loss) earnings attributable to owners of the parent ($ per
Dec. 31,
2019
Three months ended
June 30,
Sept. 30,
2019
2019
March 31,
2019
1,793,803
143.1
103.3
(47.4)
1,665,362
142.8
107.4
9.7
1,741,953
144.7
105.2
7.3
1,308,505
126.4
93.2
(0.9)
(46.8)
(0.35)
(46.2)
14.3
0.10
14.1
(7.8)
(7.4)
(0.07)
10.8
(0.07)
(6.7)
share – basic and diluted)
(0.06)
23.4
0.175
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-
Dividends declared on common shares
Dividends declared on common shares, $ per share
(0.35)
24.4
0.175
0.07
23.4
0.175
0.09
23.9
0.175
IFRS Measures" section for more information.
(in millions of dollars, unless otherwise stated)
Production (MWh)
Revenues
Adjusted EBITDA1
Net earnings (loss)
Net earnings (loss) from continuing operations attributable to
owners of the parent
Net earnings (loss) from continuing operations attributable to
owners of the parent ($ per share – basic and diluted)
Net earnings (loss) attributable to owners of the parent
Net earnings (loss) attributable to owners of the parent ($ per
Dec. 31,
2018
Three months ended
June 30,
Sept. 30,
2018
2018
March 31,
2018
1,396,066
138.3
103.3
14.2
1,236,722
116.5
83.7
9.5
1,509,599
124.9
91.7
16.9
15.9
0.12
13.7
8.8
0.06
10.7
10.0
0.06
13.3
944,108
101.8
73.6
(14.8)
(2.9)
(0.04)
(6.6)
share – basic and diluted)
(0.07)
22.5
0.170
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-
Dividends declared on common shares
Dividends declared on common shares, $ per share
0.07
22.6
0.170
0.09
22.5
0.170
0.10
22.6
0.170
IFRS Measures" section for more information.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p61
(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 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. Innergex's share of Revenues of
joint ventures and associates, Revenues Proportionate, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA
Proportionate, Innergex's share of Adjusted EBITDA of joint ventures and associates, Adjusted Net (Loss) Earnings from
continuing operations, Free Cash Flow, Adjusted Free Cash Flow, Payout Ratio and Adjusted Payout Ratio are not measures
recognized by IFRS and have no standardized meaning prescribed by IFRS.
Revenues Proportionate
References in this document to "Innergex's share of Revenues of joint ventures and associates" are to Innergex's equity interest
in the joint ventures and associates' Revenues. Readers are cautioned that Innergex's share of Revenues of joint ventures
and associates should not be construed as an alternative to Revenues, as determined in accordance with IFRS.
References in this document to "Revenues Proportionate" are to Revenues plus Innergex's share of Revenues 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 Revenues Proportionate should not be construed as an
alternative to Revenues, as determined in accordance with IFRS. Please refer to the "Operating Results" section for more
information.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p62
(in thousands of Canadian dollars, except as noted and amounts per share)
Three months ended December 31
2019
2018
Year ended December 31
2019
2018
143,116
138,252
557,042
481,418
Revenues
Innergex's share of Revenues of joint
ventures and associates:
Toba Montrose (40%) 1
Shannon (50%) 1
Flat Top (51%) 2
Dokie (25.5%) 2
Jimmie Creek (50.99%) 2
Umbata Falls (49%)
Viger-Denonville (50%)
Duqueco (50%) 3,5
Guayacán (50%) 3,5
Pampa Elvira (50%) 3,5
26,174
3,087
6,967
4,071
7,679
6,142
8,061
3,832
9,775
955
4,635
1,256
5,862
1,472
12,019
5,036
1,213
532
883
612
83,268
26,995
564,686
170,111
Revenues Proportionate
1. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and February 6, 2018, to December 31, 2018.
2. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and March 23, 2018, to December 31, 2018.
3. Innergex owns a 50% interest in Energía Llaima, which owns the Guayacán (69.47% interest) and the Pampa Elvira (55% interest) facilities and Duqueco, which
2,911
2,134
2,550
3,382
1,208
1,681
1,663
6,896
890
471
23,786
162,038
28,257
9,629
12,447
9,297
10,929
4,029
5,647
19,535
2,011
2,118
103,899
660,941
includes the Mampil (100% interest) and Peuchén (100% interest) facilities.
4. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and for the period from July 3, 2018, or
July 5, 2018, to December 31, 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p63
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EBITDA and Adjusted EBITDA Margin
References in this document to “Adjusted EBITDA” are to net earnings (loss) from continuing operations, to which are added
(deducted) provision (recovery) for income tax expenses, finance cost, depreciation and amortization, other net (revenues)
expenses, share of (earnings) loss of joint ventures and associates and unrealized net (gain) loss on financial instruments.
Other net revenues related to PTCs are included in Adjusted EBITDA. 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.
Three months ended December 31
Year ended December 31
2019
2018
2019
2018
Net (loss) earnings from continuing operations
Provision for income taxes
Finance costs
Depreciation and amortization
Impairment of project development costs
EBITDA
Other net (revenues) expenses
Share of earnings of joint ventures and
associates
Unrealized net loss (gain) on financial
instruments
Adjusted EBITDA
Adjusted EBITDA margin
(48,049)
117,687
61,062
53,021
8,184
191,905
(102,004)
18,816
26,666
55,020
42,285
—
142,787
6,864
(53,026)
118,851
231,766
194,579
8,184
500,354
(104,643)
26,215
27,245
195,834
151,256
—
400,550
12,183
(27,276)
(37,320)
(36,469)
(47,596)
40,708
103,333
72.2%
(9,061)
103,270
74.7%
49,933
409,175
73.5%
(12,958)
352,179
73.2%
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p64
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EBITDA Proportionate
References in this document to "Innergex's share of Adjusted EBITDA of the joint ventures and associates" are to Innergex's
equity interest in the joint ventures and associates' Adjusted EBITDA.
References in this document to "Adjusted EBITDA Proportionate" are to Adjusted EBITDA plus Innergex's share of Adjusted
EBITDA of the operating joint ventures and associates, other revenues related to PTCs, and Innergex's share of the operating
joint ventures and associates' other revenues related to PTCs. 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.
During the year ended December 31, 2019, upon commissioning the Foard City wind project, the Adjusted EBITDA Proportionate
measure was changed to reflect PTC generation from the Corporation' wind facilities and from its joint ventures and associates'
wind facilities. PTCs represent an important factor to a U.S. wind project's financial performance and have been a major driver
to determining their economic feasibility. PTCs are currently used, in most part, as an element of the principal repayment of
the Corporation's tax equity financing.
Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint
ventures and associates:
Toba Montrose (40%) 1
Shannon (50%) 2
Flat Top (51%) 2
Dokie (25.5%) 1
Jimmie Creek (50.99%) 1
Umbata Falls (49%)
Viger-Denonville (50%)
Duqueco (50%) 3,4
Guayacán (50%) 3,4
Pampa Elvira (50%) 3,4
PTCs and Innergex's share of PTCs generated:
Foard City
Shannon (50%) 1
Flat Top (51%) 2
Three months ended December 31
Year ended December 31
2019
2018
2019
2018
103,333
103,270
409,175
352,179
1,667
2,992
5,094
3,221
383
1,056
1,147
3,901
365
289
20,115
11,238
3,017
3,581
17,836
1,326
985
894
2,804
747
1,559
1,389
4,894
557
(182)
14,973
—
2,546
3,291
5,837
21,713
4,229
5,805
7,020
8,661
3,234
4,565
13,016
1,387
954
70,584
11,238
11,323
14,499
37,060
20,209
2,804
2,707
6,109
8,142
4,189
4,834
8,027
595
(244)
57,372
—
9,657
9,476
19,133
428,684
Adjusted EBITDA Proportionate
1. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and February 6, 2018, to December 31, 2018.
2. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and March 23, 2018, to December 31, 2018.
3. Innergex owns a 50% interest in Energía Llaima, which owns the Guayacán (69.47% interest) and the Pampa Elvira (55% interest) facilities, and Duqueco,
516,819
124,080
141,284
which includes the Mampil (100% interest) and Peuchén (100% interest) facilities.
4. For a complete three-month period in 2019 and 2018 and for the period from January 1, 2019, to December 31, 2019, and for the period from July 3, 2018, or
July 5, 2018, to December 31, 2018
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p65
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted Net (Loss) Earnings from continuing operations
References to "Adjusted Net (Loss) Earnings from continuing operations" are to net earnings or losses from continuing operations
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 IFRS 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
(Loss) Earnings from continuing operations 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 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
(Loss) Earnings from continuing operations should not be construed as an alternative to net earnings, as determined in
accordance with IFRS. Please refer to the "Operating Results" section for reconciliation of the Adjusted Net (Loss) Earnings
from continuing operations.
Free Cash Flow and Payout Ratio
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 for the reconciliation of Free Cash Flow.
References to "Adjusted Free Cash Flow" are to Free Cash Flow excluding prospective project expenses and non-recurring
items.
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.
References to "Adjusted Payout Ratio" are to dividends declared on common shares divided by Adjusted Free Cash Flow after
the impact of the DRIP.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p66
(in thousands of Canadian dollars, except as noted and amounts per share)
Production KPIs
Production Proportionate
References in this document to "Innergex's share of Production of the joint ventures and associates" are to Innergex's equity
interest in the joint ventures and associates' Production.
References in this document to "Production Proportionate" are to Production plus Innergex's share of Production of the joint
ventures and associates. Innergex believes that the presentation of this measure enhances the understanding of the
Corporation's operating performance. Please refer to the "Operating Results" section of this MD&A for more information.
(in MWh)
Three months ended December 31
2019
2018
Production
(MWh)
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)
LTA (MWh)
Production
as a % of
LTA
1,793,803
1,935,082
93% 1,396,066
1,399,745
100%
Production
Innergex's share of Production of joint
ventures and associates:
Toba Montrose (40%)
Shannon (50%)
Flat Top (51%)
Dokie (25.5%)
Jimmie Creek (50.99%)
Umbata Falls (49%)
Viger-Denonville (50%)
Duqueco (50%) 1
Guayacán (50%) 1
Pampa Elvira (50%) 1
78%
89%
91%
115%
104%
138%
109%
120%
108%
87%
99%
100%
Production Proportionate
1. Innergex owns a 50% interest in Energía Llaima, which owns the Guayacán (69.47% interest) and Pampa Elvira (55% interest) facilities, and Duqueco, which
24,279
83%
82,718
99%
106,859
93%
26,301
136%
7,135
83%
22,306
103%
11,058
96%
69,692
91%
8,155
82%
3,203
90%
96%
361,706
93% 1,757,772
31,318
92,696
117,260
22,814
6,854
16,188
10,150
58,081
7,530
3,685
366,576
2,301,658
31,318
92,696
117,260
22,814
6,854
16,188
10,150
58,081
7,530
3,685
366,576
1,766,321
25,902
91,956
109,055
30,923
5,659
16,656
9,740
52,591
6,212
3,302
351,996
2,145,799
includes the Mampil (100% interest) and Peuchén (100% interest) facilities.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p67
(in thousands of Canadian dollars, except as noted and amounts per share)
(in MWh)
Production
Innergex's share of Production of joint
ventures and associates:
Toba Montrose (40%) 1
Shannon (50%) 1
Flat Top (51%) 2
Dokie (25.5%) 1
Jimmie Creek (50.99%) 2
Umbata Falls (49%)
Viger-Denonville (50%)
Duqueco (50%) 3,4
Guayacán (50%) 3,4
Pampa Elvira (50%) 3,4
Year ended December 31
2019
2018
Production
(MWh)
LTA (MWh)
Production
as a % of
LTA
Production
(MWh)
LTA (MWh)
Production
as a % of
LTA
6,509,622
6,770,170
96% 5,086,497
5,283,616
96%
269,684
344,892
441,528
75,723
93,603
53,291
37,366
161,752
21,197
13,100
1,512,136
8,021,758
285,545
356,903
444,975
77,261
84,904
53,459
36,200
166,525
23,688
14,398
1,543,858
8,314,028
262,318
94%
308,911
97%
312,408
99%
68,702
98%
88,504
110%
59,498
100%
38,981
103%
117,270
97%
12,145
89%
91%
6,499
98% 1,275,236
96% 6,361,733
281,678
323,319
339,956
67,363
84,594
53,459
36,200
111,850
11,786
7,238
1,317,443
6,601,059
93%
96%
92%
102%
105%
111%
108%
105%
103%
90%
97%
96%
Production Proportionate
1. For the period from January 1, 2019, to December 31, 2019, and February 6, 2018, to December 31, 2018.
2. For the period from January 1, 2019, to December 31, 2019, and March 23, 2018, to December 31, 2018.
3. Innergex owns a 50% interest in Energía Llaima, which owns the Guayacán (69.47% interest) and Pampa Elvira (55% interest) facilities, and Duqueco, which
includes the Mampil (100% interest) and Peuchén (100% interest) facilities.
4. For the period from January 1, 2019 to December 31, 2019 and for the period from July 3, 2018 or July 5, 2018 to December 31, 2018.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p68
(in thousands of Canadian dollars, except as noted and amounts per share)
FORWARD-LOOKING INFORMATION
To inform readers of the Corporation's future prospects, this MD&A contains forward-looking information within the meaning of
applicable securities laws (“Forward-Looking Information”), including the Corporation's power production, prospective projects,
successful development, construction and financing (including tax equity funding) of the projects under construction and the
advanced-stage prospective projects, sources and impact of funding, project acquisitions, execution of non-recourse project-
level financing (including the timing and amount thereof), and strategic, operational and financial benefits and accretion expected
to result from such acquisitions, business strategy, future development and growth prospects (including expected growth
opportunities under the Strategic Alliance), business integration, governance, business outlook, objectives, plans and strategic
priorities, and other statements that are not historical facts. Forward-Looking Information can generally be identified by the use
of words such as “approximately”, “may”, “will”, "could", “believes", “expects", “intends”, "should", "would", “plans”, “potential”,
"project", “anticipates”, “estimates”, “scheduled” or “forecasts”, or other comparable terms 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, the
estimated project costs, projected revenues, projected Adjusted EBITDA and projected Adjusted EBITDA Proportionate,
Projected Free Cash Flow and intention to pay dividend quarterly, the estimated project size, costs and schedule, including
obtainment of permits, start of construction, work conducted and start of commercial operation for Development Projects and
Prospective Projects, The Corporation's intent to submit projects under Requests for Proposals, the qualification of U.S. projects
for PTCs and ITCs 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 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 and receipt of regulatory approvals.
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 the Annual Report and include, without limitation: the ability of the
Corporation to execute its strategy for building shareholder value; its ability to raise additional capital and the state of the capital
markets; liquidity risks related to derivative financial instruments; variability in hydrology, 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; fluctuations 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 acquisitions; integration of the completed and future acquisitions; 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 and solar resources and
associated electricity production; global climate change; natural disasters and force majeure; cybersecurity; sufficiency of
insurance coverage; a credit rating that may not reflect actual performance of the Corporation or a lowering (downgrade) of
the credit rating; reliance on shared transmission and interconnection infrastructure; 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 to rockslides, avalanches, tornadoes, 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 provided as at the
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p69
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Expected production
For each facility, the Corporation determines a long-term average annual level of electricity
production (“LTA”) over the expected life of the facility, based on engineers’ studies that take
into consideration a number of important factors: for hydroelectricity, the historically observed
flows of the river, the operating head, the technology employed and the reserved aesthetic
and ecological flows; for wind energy, the historical wind and meteorological conditions and
turbine technology; and for solar energy, the historical solar irradiation conditions, panel
technology and expected solar panel degradation. Other factors considered 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 Operating Facilities that it consolidates. This consolidation excludes however
the facilities which are accounted for using the equity method.
Principal Risks and Uncertainties
Improper assessment of water, wind and
solar resources and associated electricity
production
Variability in hydrology, wind regimes and
solar irradiation resources
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. 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 that receive revenues based on the market (or spot) price
for electricity, including the Foard City, Shannon and Flat Top wind farms, the Phoebe
solar farm and the Miller Creek hydroelectric facility, which receives a price based on a
formula using the Platts Mid-C pricing indices; and the Horseshoe Bend hydroelectric
facility, for which 85% of the price is fixed and 15% is adjusted annually as determined by
the Idaho Public Utility Commission. In most cases, PPAs 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 the Operating Facilities that it consolidates. The consolidation
excludes however the facilities which are accounted for using the equity method.
See principal assumptions,
uncertainties
Production”
identified under
risks and
“Expected
Reliance on 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 PPAs or renew any PPA
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.
See principal assumptions,
uncertainties
Production” and "Projected Revenues"
identified under
risks and
“Expected
Unexpected maintenance expenditures
Projected Adjusted EBITDA Proportionate
On a consolidated basis, the Corporation estimates annual Adjusted EBITDA
Proportionate by adding to the projected Adjusted EBITDA Innergex's share of Adjusted
EBITDA of the operating joint ventures and associates, other revenues related to PTCs,
and Innergex's share of the other net revenues of the operating joint ventures and
associates' related to PTCs.
See principal assumptions,
uncertainties
Production”,
"Projected Adjusted EBITDA"
risks and
identified under
“Expected
"Projected Revenues" and
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p70
(in thousands of Canadian dollars, except as noted and amounts per share)
Intention to pay dividend quarterly
The Corporation estimates the annual dividend it intends to distribute based on the
Corporation's 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.
Principal Risks and Uncertainties
See principal assumptions,
uncertainties
Production”,
"Projected Adjusted EBITDA".
risks and
identified under
“Expected
“Projected Revenues” and
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
Ability to secure new PPAs or renew any PPA
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 to 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.
Risks related to U.S. PTCs and ITCs, changes
in U.S. corporate tax rates and availability of
tax equity financing
Interest rate fluctuations and financing risk
Natural disaster and force majeure
Higher-than-expected inflation
Regulatory and political risks
Equipment supply
Relationships with stakeholders
Foreign market growth and development risks
Outcome of insurance claims
Social acceptance of
projects
renewable energy
Ability of the Corporation to execute its strategy
of 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
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
Intention to respond to requests for proposals
The Corporation provides indications of its intention to submit proposals in response to
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.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p71
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Risks and Uncertainties
Qualification for PTCs and ITC and expected tax equity investment Flip Point
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. The expected Tax Equity Flip Point for tax equity investment is determined
according to the LTAs and revenues of each such project and is subject in addition to the
related risks mentioned above.
Risks related to U.S. PTCs and ITC, 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
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 currently known to the
Corporation or that are now 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
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 therefore 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 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 occurrence of any of the foregoing could have a material adverse effect on the Corporation’s business, financial condition
and results of operations. The Corporation uses derivative financial instruments to manage its exposure to the risk of an increase
in interest rates on its debt financing, of foreign currency variation or of electricity market price variation. The Corporation does
not own or issue financial instruments for speculation purposes.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p72
(in thousands of Canadian dollars, except as noted and amounts per share)
The nature of the Corporation’s energy and risk management activities creates exposure to financial risks, which include, but
are not limited to: (i) unfavourable movements in commodity prices, interest rates or foreign exchange which could result in a
financial or opportunity loss to the Corporation; (ii) a lack of counterparties, due to market conditions or other circumstances,
could leave the Corporation unable to liquidate or offset a position, or unable to do so at or near the previous market price; (iii)
the Corporation may not receive funds or instruments from counterparties at the expected time or at all; (iv) the counterparty
could fail to perform an obligation owed to the Corporation; (v) loss as a result of human error or deficiency in the Corporation’s
systems or controls; and (vi) loss as a result of contracts being unenforceable or transactions being inadequately documented.
Variability in Hydrology, 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. 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 the 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, 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 overruns may occur in completing the construction of the Development Projects and the development and
construction of Prospective Projects and future projects that the Corporation will undertake. A number of factors which could
cause such delays or cost over-runs include, without limitation, permitting delays, construction pricing escalation, changing
engineering and design requirements, the performance of contractors, labour disruptions, adverse weather conditions and the
availability of financing. Even when complete, a facility may not operate as planned due to design or manufacturing flaws, which
may not all be covered by warranty. Mechanical breakdown could occur in equipment after the period of warranty has expired,
resulting in loss of production as well as the cost of repair. In addition, if the Development Projects are not brought into commercial
operation within the delay stipulated in their PPA, the Corporation may be subject to penalty payments or the counterparty may
be entitled to terminate the related PPA.
Ability to Secure New Power Purchase Agreements or Renew Any Power Purchase Agreement
Securing new PPAs, which is a key component of the Corporation’s growth strategy, is a risk factor in light of the competitive
environment faced by the Corporation. The Corporation expects to continue to enter into 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 contracts 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, the Flat Top Wind Farm, Foard CIty Wind Farm and the
Phoebe Solar Farm are 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 enough 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 operating facilities
that rely, in whole or in part, on merchant prices, such as the Shannon Wind Farm, the Flat Top Wind Farm, the Phoebe Solar
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p73
(in thousands of Canadian dollars, except as noted and amounts per share)
Farm, the Miller Creek Facility or development projects 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. Consequently, 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.
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.
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Annual Report 2019
Management's Discussion and Analysis p74
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial Leverage and Restrictive Covenants Governing Current and Future Indebtedness
The Corporation’s and its subsidiaries’ operations are subject to contractual restrictions contained in the instruments governing
any of their current and future indebtedness. The degree to which the Corporation and its subsidiaries are leveraged could
have important consequences to shareholders, including: (i) the Corporation’s and its subsidiaries’ ability to obtain additional
financing for working capital, capital expenditures, acquisitions or other project developments in the future may be limited; (ii)
a significant portion of the Corporation’s and its subsidiaries’ cash flows from operations may be dedicated to the payment of
the principal of and interest on their indebtedness, thereby reducing funds available for future operations; (iii) certain of the
Corporation’s and its subsidiaries’ borrowings will be at variable rates of interest, which exposes the Corporation and its
subsidiaries to the risk of increased interest rates; and (iv) the Corporation and its subsidiaries may be more vulnerable to
economic downturns and be limited in their ability to withstand competitive pressures.
The Corporation and its subsidiaries are subject to operating and financial restrictions through covenants in certain loan, equity
finance and security agreements. These restrictions prohibit or limit the Corporation’s and its subsidiaries’ ability to, among
other things, incur additional debt, provide guarantees for indebtedness, create liens, dispose of assets, liquidate, dissolve,
amalgamate, consolidate or effect any corporate or capital reorganization, make distributions or pay dividends, issue any equity
interests and create subsidiaries. These restrictions may limit the Corporation’s and its subsidiaries’ ability to obtain additional
financing, withstand downturns in the Corporation’s and its subsidiaries’ business and take advantage of business opportunities.
Moreover, the Corporation and its subsidiaries may be required to seek additional debt or equity financing on terms that include
more restrictive covenants, require repayment on an accelerated schedule or impose other obligations that limit the Corporation’s
or its subsidiaries’ ability to grow the business, acquire assets or take other actions the Corporation or its subsidiaries might
otherwise consider appropriate or desirable.
Possibility that the Corporation May Not Declare or Pay a Dividend
Holders of Common Shares, Series A Shares and Series C Shares do not have a right to dividends on such shares unless
declared by the Board of Directors. The Corporation does not face any restrictions that would prevent it from paying out dividends
or distributions. As of the date of this MD&A, the Corporation does not expect to make any changes to its dividend policy.
However, the declaration of dividends is at the discretion of the Board of Directors even if the Corporation has enough funds,
net of its liabilities, to pay such dividends.
The Corporation may not declare or pay a dividend if the Corporations’ cash available for distribution is not sufficient or if there
are reasonable grounds for believing that (i) the Corporation is, or would after the payment be, unable to pay its liabilities as
they become due, or (ii) the realizable value of the Corporation’s assets would thereby be less than the aggregate of its liabilities
and stated capital of its outstanding shares. No assurance can be given as to whether the Corporation will in the future pay
dividends, or the frequency or amounts of any such dividends.
Failure to Realize the Anticipated Benefits of Completed and Future Acquisitions
The Corporation believes that completed and future acquisitions 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 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, the 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
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p75
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p76
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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. and Latin America make us subject to foreign currency fluctuations.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p77
(in thousands of Canadian dollars, except as noted and amounts per share)
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. 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 and Solar and Associated Electricity Production
The strength and consistency of the water, 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 or solar data accurately reflects
long-term water flows, wind speeds and solar radiation; (ii) the extent to which historical data accurately reflects the strength
and consistency of the water, wind and solar resources in the future; (iii) the strength of the correlation between the site-specific
water, wind and solar 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, 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 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.
Global Climate Change
Global climate change, including the impacts of global warming, represents a physical and a financial risk which could adversely
affect the Corporation’s business, results of operations and cash flows. Variability in hydrology, wind regimes and solar irradiation
and their predictability may be affected by unforeseen climate changes such as hurricanes, wind storms, hailstorms, rainstorms,
ice storms, floods, severe winter weather and forest fires. To the extent weather conditions are affected by climate change,
customers’ energy use could increase or decrease depending on the duration and magnitude of the changes.
The Corporation carefully manages physical risks, including preparing for, and responding to, extreme weather events through
activities such as proactive route selection, asset hardening, regular maintenance, and insurance. The Corporation follows
regulated engineering codes, evaluates ways to create greater system reliability and resiliency and, where appropriate, submits
regulatory applications for capital expenditures aimed at creating greater system reliability and resiliency within the code. When
planning for capital investment or acquiring assets, site specific climate and weather factors, such as flood plain mapping and
extreme weather history, are considered. Prevention activities include wildfire management plans and vegetation management
at electricity transmission and distribution sites. The Corporation maintains in-depth emergency response measures for extreme
weather events.
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 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
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p78
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Sufficiency of Insurance Coverage
While the Corporation maintains insurance coverage, there is no certainty that such insurance will continue to be offered on
an economically feasible basis, nor that all events that could give rise to a loss or liability are insurable, nor that the amounts
of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving our activities or assets.
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 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.
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 enough
amounts of tax equity investment on terms and at rates beneficial to the Corporation and its projects.
Host Country Economic, Social and Political Conditions
Several 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.
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Annual Report 2019
Management's Discussion and Analysis p79
(in thousands of Canadian dollars, except as noted and amounts per share)
Risks Inherent to Rockslides, Avalanches, Tornados, Hurricanes or Other Occurences Outside Corporation's Control
Hazards such as unusual or unexpected geologic formations, pressures, downhole conditions, rockslides, other events
associated with steep terrain, mechanical failures, blowouts, cratering, localized ground subsidence, localized ground inflation,
pollution and other physical and environmental risks can affect our development and production activities. These hazards could
result in substantial losses including injury and loss of life, severe damage to and destruction of property and equipment,
pollution and other environmental damage and suspension of operations.
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.
Reliance on Intellectual Property and Confidential Agreements to Protect our Rights and Confidential Information
The Corporation’s success and competitive position are dependent in part upon our proprietary methods and intellectual property.
Although the Corporation seeks to protect its proprietary rights through a variety of means, it cannot guarantee that the protective
steps it has taken are adequate to protect these rights.
The Corporation also relies on confidentiality agreements with certain employees, consultants and other third parties to protect,
in part, trade secrets and other proprietary information. These agreements could be breached, and the Corporation may not
have adequate remedies for such a breach. In addition, others could independently develop substantially equivalent proprietary
information or gain access to the Corporation’s trade secrets or proprietary information.
Reputational RIsks Arising from Misconduct of Representatives of the Corporation
The Corporation’s success can be impacted by events affecting its reputation. In some cases, the Corporation may be affected
or be held accountable for the actions of directors, officers or employees of the Corporation and those of third parties who act
for or on behalf of the Corporation. Although the Corporation seeks to protect its reputation through Corporation's internal
policies, procedures and controls, there is a risk that events or actions of certain representatives of the Corporation could affect
its reputation. Adverse effects on the Corporation’s reputation could affect its relationships with various stakeholders, partners,
governments, employees, shareholders and the general public. This could, among other things, result in lost business
opportunities, loss of revenue, litigation and reduce the Corporation’s ability to raise additional capital. Reputational harm could
also reduce our ability to attract new talent or retain officers and key employees, decrease social acceptance of renewable
energy projects and affect government support to increase electricity to be generated by independent power producers.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p80
(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, exchange rates, forward prices 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 adjusts 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 respect of the competitive
business environment and the willingness expressed by the governmental authorities to procure 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 that
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., Mesgi'g Ugju's'n (MU) Wind Farm L.P., Kokomo Solar 1, LLC, Spartan PV 1, LLC, Foard City Wind, LLC and
Phoebe Energy Project, LLC.
Asset retirement obligations
The Corporation makes a number of estimates when calculating fair value of the asset retirement obligations that 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 2019
Management's Discussion and Analysis p81
(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 that 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 loss.
CHANGE IN ACCOUNTING POLICIES
New Accounting Standards and Interpretations Adopted During the Year
IFRS 16, Leases
On January 13, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”) which 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. The Corporation adopted this standard retrospectively on January 1, 2019 without restating the figures
for the comparative periods, as permitted under the specific transitional provisions in the standard (modified retrospective
approach).
The following table shows the effects of the application of IFRS 16 on the opening balances on the consolidated statement of
financial position as at January 1, 2019:
Current assets
Prepaid and others
Non-current assets
Right-of-use assets presented in
Property, plant and equipment
Current liabilities
Accounts payable and other
payables
Lease liabilities presented in
other liabilities
Non-current liabilities
Lease liabilities presented in
other liabilities
Hydroelectric
Wind
Solar
Site
development/
Corporate
Total
—
(1,640)
(50)
—
(1,690)
2,775
56,652
839
63,622
123,888
—
50
50
(72)
2,410
2,338
—
12
12
—
2,612
2,612
(72)
5,084
5,012
2,725
52,674
777
61,010
117,186
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p82
(in thousands of Canadian dollars, except as noted and amounts per share)
Tax equity investments
During the year ended December 31, 2019, the Corporation proceeded to a change in the method of accounting for tax equity
financing, as previously recorded as an element of equity, which resulted in a reclassification of the tax equity financing as
financial liabilities. The change was applied during the fourth quarter of 2019. Comparative figures have been adjusted to
conform to the current year's presentation. The change resulted in the following reclassifications:
Consolidated Statements of Financial Position
Property, plant and equipment
Investments in joint ventures and associates
Total assets
Current portion of long-term loans and
borrowings and other liabilities
Long-term loans and borrowings
Deferred tax liabilities
Total liabilities
Deficit
Accumulated other comprehensive income
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders' equity
Consolidated Statements of Earnings
Depreciation
Finance costs
Other net revenues
Share of earnings of joint ventures and
associates
Earnings before income taxes
Deferred income tax expense
Net earnings and net earnings from
continuing operations
Attributable to:
Owners of the parent
Non-controlling interests
As at December 31
2018
(12,265)
47,139
34,874
(208)
(503)
53,109
52,398
(1,552)
1,021
(16,993)
(17,524)
34,874
Year ended December 31
2018
(670)
186
(764)
(22,248)
(23,496)
23,496
—
(1,552)
1,552
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p83
(in thousands of Canadian dollars, except as noted and amounts per share)
Amendments to IFRS 9, Financial Instruments (Interest rate benchmark reform)
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9 Financial
Instruments in relation to Phase 1 of IBOR Reform and its Effects on Financial Reporting project. The amendments are effective
for periods beginning on or January 1, 2020, with early adoption permitted. The Corporation has applied the interest rate
benchmark reform amendments retrospectively to hedging relationships that existed at January 1, 2019 or were designated
thereafter and that are directly affected by the interest rate benchmark reform. These amendments also apply to the gain or
loss recognized in OCI that existed at January 1, 2019.
Non-Wholly Owned Subsidiaries
Prior to its acquisition by the Corporation on February 6, 2018, Alterra was accounting for Kokomo and Spartan as joint ventures
using the equity method. On December 31, 2018, the Corporation completed its review of the various partnership agreements
and concluded it has control over these entities and as such, they should be consolidated. This change has been reflected in
the consolidated financial statements for the year ended December 31, 2018, but these entities were accounted for as joint
ventures using the equity method in all of the 2018 condensed interim consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p84
(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, 2019, and have
concluded that they were effective at the financial year-end. During the period beginning on October 1, 2019 and ended on
December 31, 2019, there was no change to the ICFR that has materially affected, or is reasonably likely to materially affect,
the Corporation's ICFR.
SUBSEQUENT EVENTS
Strategic Alliance and Private Placement with Hydro-Québec
• On February 6, 2020, the Corporation announced that it formed a Strategic Alliance with Hydro-Québec to accelerate its
growth with investments in larger and more diversified projects. Hydro-Québec committed an initial $500 million for future
co-investments with the Corporation.
• Hydro-Québec invested $661 million through a Private Placement of Innergex common shares at a price of $19.08 per
share, representing a premium of 5.0% to the 30-day volume weighted average price as at February 5, 2020 and a total
of 34.6 million shares (the “Private Placement”).
Innergex Renewable Energy Inc.
Annual Report 2019
Management's Discussion and Analysis p85
(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 findings 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, 2020
Innergex Renewable Energy Inc.
Annual Report 2019
Responsibility for Financial Reporting p86
(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
Tel. 514-840-2100
Fax. 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, 2019 and
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, 2019 and 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).
Innergex Renewable Energy Inc.
Annual Report 2019
Independent Auditors' Report p87
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Emphasis of Matter - Change in Accounting Policy
We draw attention to Note 2 to the financial statements which indicates that the Entity has
changed its accounting policy for leases as of January 1, 2019, due to the adoption of IFRS
16, Leases, and has applied that change using a modified retrospective transition approach.
Our opinion is not modified in respect of this matter.
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 “2019 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 “2019 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Independent Auditors' Report p88
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Innergex Renewable Energy Inc.
Annual Report 2019
Independent Auditors' Report p89
(in thousands of Canadian dollars, except as noted and amounts per share)
• 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.
• 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, 2020
Innergex Renewable Energy Inc.
Annual Report 2019
Independent Auditors' Report p90
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31
2019
2018
Revenues
Expenses
Operating
General and administrative
Prospective projects
Earnings before the following:
Depreciation
Amortization
Impairment of project development costs
Earnings before the following:
Finance costs
Other net (revenues) expenses
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 (loss) earnings from continuing operations
Net earnings (loss) from discontinued operations
Net (loss) earnings
Net (loss) earnings attributable to:
Owners of the parent
Non-controlling interests
(Loss) earnings per share from continuing operations
attributable to owners:
Basic net (loss) earnings per share ($)
Diluted net (loss) earnings per share ($)
(Loss) earnings per share attributable to owners:
Basic net (loss) earnings per share ($)
Diluted net (loss) earnings per share ($)
Notes
6
6
6
6,16
6,17
18
7
8
9
10
11
11
5
26
12
12
12
12
557,042
98,455
36,507
12,905
409,175
153,617
40,962
8,184
206,412
231,766
(104,643)
(36,469)
49,933
65,825
16,845
102,006
118,851
(53,026)
21,815
(31,211)
(28,041)
(3,170)
(31,211)
(0.40)
(0.40)
(0.25)
(0.25)
481,418
84,724
27,796
16,719
352,179
111,083
40,173
—
200,923
195,834
12,183
(47,596)
(12,958)
53,460
8,521
18,724
27,245
26,215
(497)
25,718
31,140
(5,422)
25,718
0.20
0.20
0.19
0.19
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Earnings p91
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net (loss) earnings
(31,211)
25,718
Year ended December 31
2019
2018
Notes
Items of comprehensive income (loss) that will be
subsequently reclassified to earnings:
Foreign currency translation differences for foreign operations
Foreign exchange gain (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
Related deferred income taxes
Other comprehensive loss from continuing operations
Other comprehensive income (loss) from discontinued
operations
Other comprehensive loss
Total comprehensive loss
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
24
5
(31,713)
4,021
23,688
(1,872)
(2,197)
(8,073)
3,928
(4,145)
22,786
(6,199)
(49,404)
(59)
11,290
(21,586)
(36,838)
(58,424)
(35,356)
(32,706)
(9,158)
(26,198)
(35,356)
(13,281)
(19,425)
(32,706)
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Comprehensive Income (Loss) p92
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 2019
December 31, 2018
Notes
As at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable
Derivative financial instruments
Prepaid and other
Total current assets
Non-current assets
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
Total non-current assets
Total assets
LIABILITIES
Current liabilities
13
14
10
16
17
18
9
10
11
19
15
Accounts payable and other payables
Derivative financial instruments
Current portion of long-term loans and borrowings and other
liabilities
20
10
21, 22
Total current liabilities
Non-current liabilities
Derivative financial instruments
Long-term loans and borrowings
Other liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
SHAREHOLDERS' EQUITY
Equity attributable to owners
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
10
21
22
11
23
26
156,224
39,451
92,265
5,419
12,273
305,632
4,620,025
682,227
11,135
511,899
78,251
30,264
60,666
72,005
6,066,472
6,372,104
176,157
51,093
414,103
641,353
112,625
4,281,586
292,421
428,793
5,115,425
5,756,778
604,384
10,942
615,326
6,372,104
79,586
29,981
103,886
2,370
12,454
228,277
4,470,663
925,009
30,119
651,912
9,817
16,465
109,995
73,901
6,287,881
6,516,158
164,860
29,999
446,433
641,292
118,002
4,262,469
173,345
379,013
4,932,829
5,574,121
629,261
312,776
942,037
6,516,158
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Financial Position p93
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2019
Common
share
capital
account
Contributed
surplus
Preferred
shares
Convertible
debentures
Deficit
Accumulated
other
comprehensive
income (loss)
Total
Non-
controlling
interests
Total
shareholders’
equity
Equity attributable to owners
Balance January 1, 2019
6,546
1,272,604
131,069
3,976
(750,442)
(34,492)
629,261
312,776
942,037
Net loss
Other comprehensive income (loss)
Total comprehensive (loss) income
—
—
—
Common shares issued through dividend reinvestment plan
2,402
Share-based payments
Common share options exercised
Convertible debentures converted into common shares and
redemption (Note 21)
Convertible debentures issued (net of $279 of deferred
income taxes) (Note 21)
Shares vested - Performance Share Plan
Shares purchased - Performance Share Plan
Buyback of non-controlling interests
Sale of discontinued operations (Note 5)
Dividends declared on common shares
Dividends declared on preferred shares
Distributions to non-controlling interests
Reclassification of defined benefit plan actuarial losses
—
1,323
88,272
—
1,057
(2,385)
—
—
—
—
—
—
—
—
—
—
64
(4,357)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,877)
770
—
—
—
—
—
—
—
—
(28,041)
—
(28,041)
—
(28,041)
(3,170)
18,883
18,883
18,883
(9,158)
(23,028)
(26,198)
—
—
—
—
—
—
—
—
—
(95,046)
(5,942)
—
(378)
—
—
—
—
—
—
—
—
—
—
—
—
378
2,402
64
(3,034)
86,395
770
1,057
(2,385)
—
—
(95,046)
(5,942)
—
—
—
—
—
—
—
(218)
—
—
—
—
(14,572)
—
(31,211)
(4,145)
(35,356)
2,402
64
(3,034)
86,395
770
1,057
(2,385)
(218)
(95,046)
(5,942)
(14,572)
—
(260,846)
(260,846)
Balance December 31, 2019
97,215
1,268,311
131,069
2,869
(879,849)
(15,231)
604,384
10,942
615,326
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Changes in Shareholders' Equity p94
(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
shares
capital
account
Contributed
surplus
Preferred
shares
Convertible
debentures
Deficit
Accumulated
other
comprehensive
(loss) income
Total
Non-
controlling
interests
Total
shareholders’
equity
Equity attributable to owners
Balance January 1, 2018
2,867
940,760
131,069
1,877
(648,160)
9,929
438,342
14,920
453,262
Net earnings (loss)
Other comprehensive income
Total comprehensive income (loss)
Common shares issued on February 6, 2018
Business acquisitions (Note 4)
Common shares issued through dividend reinvestment plan
Reduction of capital on common shares
Buyback of common shares
Share-based payments
Equity portion of convertible debentures issued (net of
$766 of deferred income taxes)
Shares vested - Performance Share Plan
Buyback of non-controlling interests
Investments from non-controlling interests
Dividends declared on common shares
Dividends declared on preferred shares
Distributions to non-controlling interests
Balance December 31, 2018
—
—
—
330,607
—
9,929
—
—
—
—
—
—
(337,785)
337,785
(20)
(6,010)
—
—
948
—
—
—
—
—
69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,099
—
—
—
—
—
—
31,140
—
31,140
—
—
—
—
(3,457)
—
—
—
(33,808)
—
(90,215)
(5,942)
—
—
31,140
(5,422)
(44,421)
(44,421)
(44,421)
(14,003)
(13,281)
(19,425)
—
—
—
—
—
—
—
—
—
—
—
—
—
330,607
—
— 296,536
9,929
—
(9,487)
69
2,099
948
—
—
—
—
—
—
(33,808)
32,108
—
(90,215)
(5,942)
507
—
—
—
(11,870)
25,718
(58,424)
(32,706)
330,607
296,536
9,929
—
(9,487)
69
2,099
948
(1,700)
507
(90,215)
(5,942)
(11,870)
6,546
1,272,604
131,069
3,976
(750,442)
(34,492)
629,261
312,776
942,037
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Changes in Shareholders' Equity p95
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2019
2018
OPERATING ACTIVITIES
Net (loss) earnings
Net (loss) earnings from discontinued operations
Net (loss) earnings from continuing operations
Items not affecting cash:
Depreciation and amortization
Impairment of project development costs
Share of earnings of joint ventures and associates
Unrealized net loss (gain) on financial instruments
Production tax credits and tax attributes allocated to tax equity investors
Other
Finance costs expense
Finance costs paid
Realized loss on financial instruments
Distributions received from joint ventures and associates
Provision for income taxes
Income taxes paid
Effect of exchange rate fluctuations
Changes in non-cash operating working capital items
Cash flows from operating activities from continuing operations
Cash flows from operating activities from discontinued operations
FINANCING ACTIVITIES
Dividends paid on common shares
Dividends paid on preferred shares
Distributions to non-controlling interests
Increase of long-term debt, net of deferred financing costs
Repayment of long-term debt
Payment of lease liabilities
Payment for redemption of convertible debentures
Net proceeds from issuance of convertible debentures
Repurchase of common shares
Payment of payroll deductions on exercise of share options
Cash flows from financing activities from continuing operations
Cash flows from financing activities from discontinued operations
INVESTING ACTIVITIES
Business acquisitions, net of cash acquired
Proceeds from sale of business, net of transaction costs ($6,634) and cash
disposed ($13,877)
Variation in restricted cash
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 of other long-term assets
Proceeds from disposal of property, plant and equipment
Cash flows used in investing activities from continuing operations
Cash flows used in investing activities from discontinued operations
Notes
16,17
18
9
10
8
7
25
10
9
11
25
25
25
22
21
21
4
5
9
Effects of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
The accompanying notes are an integral part of these audited consolidated financial statements.
(31,211)
(21,815)
(53,026)
194,579
8,184
(36,469)
49,933
(99,640)
(4,153)
231,766
(195,915)
(16,050)
19,498
118,851
(17,007)
3,990
204,541
22,402
226,943
13,122
240,065
(90,856)
(5,942)
(11,490)
1,686,972
(1,323,827)
(4,756)
(13,348)
137,214
(2,385)
(3,034)
368,548
20,059
388,607
—
381,013
(14,908)
(6,214)
(847,730)
—
(8,712)
(13,756)
—
(6,706)
16
(516,997)
(31,957)
(548,954)
(3,080)
76,638
79,586
156,224
25,718
497
26,215
151,256
—
(47,596)
(12,958)
(764)
2,533
195,834
(170,960)
—
19,042
27,245
(4,373)
(879)
184,595
(8,648)
175,947
33,443
209,390
(75,599)
(5,942)
(6,843)
2,026,449
(1,111,079)
—
—
143,090
(9,487)
—
960,589
8,382
968,971
(864,345)
—
34,440
(731)
(153,381)
(2,495)
(8,327)
(134,065)
(1,700)
(190)
508
(1,130,286)
(30,577)
(1,160,863)
174
17,672
61,914
79,586
Innergex Renewable Energy Inc.
Annual Report 2019
Consolidated Statements of Cash Flows p96
(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 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, 2020.
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 2. 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p97
(in thousands of Canadian dollars, except as noted and amounts per share)
2. 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
Kwoiek Creek Resources L.P. 1
Ashlu Creek Investments Limited
Partnership
Innergex Inc.
Big Silver Creek Power Limited
Partnership
Own and operate hydroelectric facilities
Canada
50.01%
Own and operate a hydroelectric facility
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
Phoebe Energy Project LLC
Own and operate a solar facility
Foard City Holdings LLC
Own and operate a wind farm
United States
United States
50.01%
50.00%
100.00%
69.55%
100.00%
100.00%
1. The Corporation owns more than 50% of the economic interest in Kwoiek Creek Resources L.P.
2. The Corporation owns more than 50% of the economic interest in Mesgi'g Ugju's'n (MU) Wind Farm L.P.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p98
(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 (loss) 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 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 recognized, 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p99
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
The availability of funds in the restricted cash and short-term investments accounts are restricted by various agreements.
Property, plant and equipment
Property, plant and equipment are comprised mainly of hydroelectric, wind farm and solar 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 on a straight-line basis 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p100
(in thousands of Canadian dollars, except as noted and amounts per share)
The useful lives used to calculate depreciation are summarized as follows:
Type of property, plant and equipment
Hydroelectric facilities
Wind farm facilities
Solar facilities
Other equipments
Leases (policy applicable from January 1, 2019)
Nature of leasing activities
Useful life for the
depreciation period
8 to 75 years
14 to 25 years
15 to 35 years
3 to 10 years
The Corporation typically leases land and offices. Lease agreements are generally made for fixed long-term periods based
on each project's estimated length at inception. Land leases for a given project are usually negotiated jointly, with
governments, for government-owned land, or directly with groups of private landowners for privately-owned land. Office
and other leases are negotiated on an individual basis and contain a wide range of different terms and conditions. Being
negotiated for long-term periods, most land leases provide for additional payments based on changes in inflation. In addition,
leases generally include an option to renew the lease for an additional period after the non-cancellable contract period.
The Corporation assesses at lease commencement whether it is reasonably certain to exercise the extension options.
Generally the corporation aligns lease extension option renewals with estimated life of projects.
Leases are recognized as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is
available for use by the Corporation. Each lease payment is allocated between the lease liability and finance costs. The
finance costs are charged to earnings or loss over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period.
(i) Lease liabilities
Lease liabilities are recognized in other liabilities in the consolidated statement of financial position at the present value
of the future lease payments, discounted using the interest rate implicit in the lease. If that rate cannot be determined, the
lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar economic environment with similar terms and conditions. When determining
the amount of the future lease payments, the Corporation takes the following information into account:
fixed payments, including in-substance fixed payments, less any lease incentives receivable; and
variable lease payment that are based on an index or a rate;
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an
expense in earnings or loss. Short-term leases correspond to lease agreement with a term of 12 months or less.
Lease liabilities are subsequently measured at amortized cost using the effective interest method. A remeasurement of
the lease liabilities occur when there is a change in future lease payments arising from a variation in the relevant index or
rate.
(ii) Right-of-use assets
Right-of-use assets are recognized in property, plant and equipment in the consolidated statement of financial position at
cost, comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the
commencement date and any initial direct costs.
Right-of-use asset are subsequently depreciated on a straight-line basis over the lesser of (i) the estimated useful lives of
the assets or (ii) the lease term, including, when it is reasonably certain that they will be exercised, options to extend the
lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant
and equipment.
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
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p101
(in thousands of Canadian dollars, except as noted and amounts per share)
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 estimates 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
Solar facilities
Project development costs
Useful life for the
amortization period
4 to 75 years
8 to 20 years
20 years
Project development costs are recorded at cost less any impairment losses, as applicable, and represent costs incurred
for the acquisition of prospective projects and for the design and development of hydroelectric, wind farm and solar sites.
Borrowing costs directly attributable to the acquisition or development are capitalized as project development costs.
The Corporation defers project development costs when it becomes probable that the project will be completed and that
it will generate future economic benefits that will flow to the Corporation. The Corporation makes this determination by
taking into consideration various factors, either individually or combined, such as (amongst others):
whether a prospective project has been granted, or whether it is probable that it will be granted, the required permits;
rights of access to the required land have been secured or it is probable that they will be secured;
the announcement, or the probability thereto, that a prospective project is awarded a power-purchase agreement; and
access to an open market if the project is not in a market where it is expected to be awarded a power-purchase agreement.
These costs are transferred to property, plant and equipment or intangible assets at the commencement of construction.
When it is no longer probable that a project will be carried out, the project's development costs deferred to that date are
expensed. Current costs for prospective projects are expensed as incurred.
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 2019
Notes to the Consolidated Financial Statements p102
(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, reserves and
long-term receivables.
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.
Non-current assets held for sale and discontinued operations
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower
of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets and assets arising
from employee benefits, which are specifically exempt from this requirement.
Non-current assets are not depreciated or amortized while they are classified as held for sale. Interest and other expenses
attributable to the liabilities directly associated with the assets classified as held for sale continue to be recognized.
Assets classified as held for sale are presented separately from the other assets in the consolidated statement of financial
position. The liabilities directly associated with the assets classified as held for sale are presented separately from other
liabilities in the consolidated statement of financial position.
A discontinued operation is a component of the Corporation's business that has been disposed of or is classified as held
for sale and that represents a separate major line of business or geographical area of operations and is part of a single
co-ordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations are
presented separately in the consolidated statement of earnings. Comparative figures are adjusted on the consolidated
statement of earnings and on the consolidated statement of comprehensive loss as if the operations had been discontinued
from the beginning of the comparative period.
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
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p103
(in thousands of Canadian dollars, except as noted and amounts per share)
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 at 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
or changes in the discounted rate. 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.
Provision for restructuring
A provision for restructuring is recognized when the Corporation has approved a detailed and formal restructuring plan,
and the restructuring either has commenced or has been announced publicly. Restructuring provisions include only
incremental costs associated directly with the restructuring. Future operating losses and other costs associated with ongoing
activities are not provided for.
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, accounts receivable, and reserve
accounts recognized in other long-term assets 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p104
(in thousands of Canadian dollars, except as noted and amounts per share)
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 accounts payable and other payables, long-term loans and borrowings and
the lease obligations recognized in other long-term liabilities as liabilities measured at amortized cost.
The Corporation owns and operates certain projects in the U.S. under tax equity structures to finance the construction
of solar and wind projects. Such structures are designed to allocate renewable tax incentives, such as investment tax
credits ("ITCs"), production tax credits ("PTCs") and accelerated tax depreciation, to tax equity investors. Generally,
tax equity structures grant the tax equity investors the majority of the project's U.S. taxable earnings and renewable
tax incentives, along with a smaller portion of the projects' cash flows, until they achieve an agreed-upon after-tax
investment return (the "Flip Point"). The Flip Point dates are generally dependent on the projects' respective
performance, however, from time to time, the Flip Point dates may be contractually determined. At all times, both
before and after the projects' Flip Point, the Corporation retains control over the projects financed with a tax-equity
structure. Subsequent to the Flip Point, the Corporation receives the majority of the project's taxable earnings and
renewable tax incentives. In accordance with the substance of the contractual agreements, the amounts paid by the
tax equity investors for their equity stakes are classified as loans and borrowings on the consolidated statements of
financial position until the respective Flip dates of the projects. Subsequent to the Flip Point, the tax investor's equity
investments will be accounted for as non-controlling interests. The amortized cost of the tax equity financing is generally
comprised of the following elements:
Elements affecting amortized cost of the tax equity
financing
Description
Production tax credits (PTCs)
Investment tax credits (ITCs)
Taxable income (loss), including tax attributes such as
accelerated tax depreciation
Pay-go contributions
Cash distributions
Allocation of PTCs to the tax equity investor derived
from the power generated during the period and
recognized in other (income) expenses as incurred
Allocation of ITCs to the tax equity investor stemming
from the construction activities and recognized as a
reduction in the cost of the assets to which they relate
Allocation of taxable income and other tax attributes to
the tax equity investor recognized in other (income)
expenses as incurred
Additional cash contributions made by the tax equity
investor when the annual production exceeds the
contractually determined threshold
Cash allocation to the tax equity investor
(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:
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);
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p105
(in thousands of Canadian dollars, except as noted and amounts per share)
Level 3: valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument
is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
The Corporation recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
Impairment of financial assets
The Corporation 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 under the simplified method. The Corporation recognizes 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
amount in accumulated other comprehensive income is transferred to the statement of earnings as part of the profit or
loss on disposal.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p106
(in thousands of Canadian dollars, except as noted and amounts per share)
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 of the consideration
received or receivable, 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. Penalties for
non-production of electricity are recorded at the time when it is highly probable that the amount will be payable as a
reduction of revenues over the remaining term of the energy sales contract.
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 commissioning of each facility. The Ashlu Creek (ended in November 2019), Douglas Creek
(ended in October 2019), Fire Creek (ended in October 2019), Stokke Creek (ended in October 2019), Tipella Creek (ended
in October 2019), Lamont Creek, Upper Stave River, Umbata Falls (ended in May 2018) and Toba Montrose hydro facilities
and the Carleton (ended in November 2018) 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 $6,417 ($9,301 in 2018) are included in 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
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.
Termination benefits are expensed at the earlier of when the Corporation can no longer withdraw the offer of those benefits
and when the Corporation recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12
months of the reporting date, then they are discounted.
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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p107
(in thousands of Canadian dollars, except as noted and amounts per share)
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
(loss). 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.
The exchange rates for the currencies used in the preparation of the consolidated financial statements were as follows:
Euro
US dollar
Exchange rates as at
Average exchange rates for year
December 31, 2019
1.4583
1.2988
December 31, 2018
1.5613
1.3642
2019
2018
1.4856
1.3269
1.5301
1.2958
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p108
(in thousands of Canadian dollars, except as noted and amounts per share)
The exchange rates related to the Corporation's Icelandic subsidiary, HS Orka, disposed of on May 23, 2019, were as
follows :
Exchange rates as at
Average exchange rates for years
May 23, 2019
0.0109
December 31, 2018
0.0117
2019
2018
0.0111
0.0120
ISK
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.
Change in accounting policies
The Corporation has adopted the following new standards and interpretations, with an initial application date of
January 1, 2019:
IFRS 16, Leases
On January 13, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”) which 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. The Corporation adopted this standard retrospectively on
January 1, 2019 without restating the figures for the comparative periods, as permitted under the specific transitional
provisions in the standard (modified retrospective approach).
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p109
(in thousands of Canadian dollars, except as noted and amounts per share)
The initial adoption of IFRS 16 resulted in the recognition of lease liabilities in the consolidated statement of financial
position, in relation to leases which had previously been classified as operating leases under the principles of IAS 17,
Leases, with the recognition of a corresponding right-of-use asset. The lease liabilities were measured at the present value
of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The
weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 3.79%.
The right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to the corresponding lease agreement recognized in the consolidated statement of
financial position as at December 31, 2018. There were no onerous lease contracts that would have required an adjustment
to the right-of-use assets at the date of initial application.
Upon initial application of IFRS 16, the Corporation has used the following practical expedients permitted by the standard:
reliance on previous assessments on whether leases are onerous;
the accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as
short-term leases;
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;
and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
A reconciliation of the lease liability as at January 1, 2019 is as follows:
Operating lease commitments comprised in the total commitments disclosed
as at December 31, 2018
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Current portion of Lease liability
Non-current portion of Lease liability
Lease liability
As at
January 1, 2019
188,983
122,270
5,084
117,186
122,270
The following table shows the effects of the application of IFRS 16 on the segment opening balances on the consolidated
statement of financial position as at January 1, 2019:
Current assets
Prepaid and others
Non-current assets
Right-of-use assets presented in
Property, plant and equipment
Current liabilities
Accounts payable and other
payables
Lease liabilities presented in
other liabilities
Non-current liabilities
Lease liabilities presented in
other liabilities
Hydroelectric
Wind
Solar
Site
development/
Corporate
Total
—
(1,640)
(50)
—
(1,690)
2,775
56,652
839
63,622
123,888
—
50
50
(72)
2,410
2,338
—
12
12
—
2,612
2,612
(72)
5,084
5,012
2,725
52,674
777
61,010
117,186
The impacts of the application of IFRS 16 on the consolidated statement of earnings are a decrease in operating expenses
(formerly – operating land leases) and general and administrative expenses (formerly – office space operating leases),
offset by an 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 2019
Notes to the Consolidated Financial Statements p110
(in thousands of Canadian dollars, except as noted and amounts per share)
Tax equity investments
During the year ended December 31, 2019, the Corporation proceeded to a change in the method of accounting for tax
equity financing, as previously recorded as an element of equity, which resulted in a reclassification of the tax equity
financing as financial liabilities. The change was applied during the fourth quarter of 2019. Comparative figures have been
adjusted to conform to the current year's presentation. The change resulted in the following reclassifications:
Consolidated Statements of Financial Position
Property, plant and equipment
Investments in joint ventures and associates
Total assets
Current portion of long-term loans and
borrowings and other liabilities
Long-term loans and borrowings
Deferred tax liabilities
Total liabilities
Deficit
Accumulated other comprehensive income
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders' equity
Consolidated Statements of Earnings
Depreciation
Finance costs
Other net revenues
Share of earnings of joint ventures and
associates
Earnings before income taxes
Deferred income tax expense
Net earnings and net earnings from
continuing operations
Attributable to:
Owners of the parent
Non-controlling interests
As at December 31
2018
(12,265)
47,139
34,874
(208)
(503)
53,109
52,398
(1,552)
1,021
(16,993)
(17,524)
34,874
Year ended December 31
2018
(670)
186
(764)
(22,248)
(23,496)
23,496
—
(1,552)
1,552
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p111
(in thousands of Canadian dollars, except as noted and amounts per share)
Amendments to IFRS 9, Financial Instruments (Interest rate benchmark reform)
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9,
Financial Instruments in relation to Phase 1 of IBOR Reform and its Effects on Financial Reporting project. The amendments
are effective for periods beginning on or after January 1, 2020, with early adoption permitted. The Corporation has applied
the interest rate benchmark reform amendments retrospectively to hedging relationships that existed at January 1, 2019
or were designated thereafter and that are directly affected by the interest rate benchmark reform. These amendments
also apply to the gain or loss recognized in OCI that existed at January 1, 2019.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p112
(in thousands of Canadian dollars, except as noted and amounts per share)
3. USE OF JUDGMENTS AND ESTIMATES
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, exchange rates, forward prices
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 adjusts 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 respect of the competitive business environment and the willingness expressed by the governmental authorities to
procure 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 that 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., Mesgi'g Ugju's'n (MU) Wind Farm L.P., Kokomo Solar 1, LLC, Spartan PV 1, LLC, Foard City Wind,
LLC and Phoebe Energy Project, LLC.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p113
(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 that 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 that 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 loss.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p114
(in thousands of Canadian dollars, except as noted and amounts per share)
4. BUSINESS ACQUISITIONS
a. Acquisition of our partner's interest in the Cartier 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 final 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
Goodwill is not deductible for tax purposes.
Final acquisition
accounting
1,414
6,653
2,586
575,995
73,162
11,165
(4,722)
(33,617)
(11,165)
621,471
The transaction costs relating to this acquisition have been expensed in accordance with IFRS 3 (see note 8).
The 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-day period 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.
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
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p115
(in thousands of Canadian dollars, except as noted and amounts per share)
("Svartsengi" and "Reykjanes"), and an indirect 30% interest in Blue Lagoon, which operated 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 a wind farm ("Shannon") located in Texas, a 90% net interest in a solar project ("Kokomo")
located in Indiana and a 100% net interest in 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 loans and borrowings
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
514,837
240,009
19,298
447,130
59,288
16,281
(40,747)
(1,126)
(326,136)
(30,282)
(47,972)
(138,833)
(296,536)
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 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-day period 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 February 5, 2018 would have been $11,471 and $4,578 higher, respectively.
c. Acquisition of the 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 full commercial operation has been reached in the
fourth 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 ($131,791) and was comprised entirely of cash consideration.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p116
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table reflects the fair value of the assets acquired:
Property, plant and equipment
Derivative financial instruments
Total assets acquired
Assets acquired
US$
$
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 2019
Notes to the Consolidated Financial Statements p117
(in thousands of Canadian dollars, except as noted and amounts per share)
5. DISCONTINUED OPERATIONS
In 2019, the Corporation sold its wholly-owned subsidiary Magma Energy Sweden A.B., which owned an equity interest of
approximately 53.9% in HS Orka hf ("HS Orka"), to Jarðvarmi slhf for a sale price of US$297,868 ($401,524). HS Orka
represented both the Corporation's Icelandic geographic segment and geothermal operating segment.
The following table summarizes the details of the sale of discontinued operations:
Consideration received, net of transaction costs:
Cash consideration (US$299,910)
Consideration paid for working capital adjustment (US$2,042)
Transaction costs
Total disposal consideration, net of transaction costs
Carrying amount of net assets sold
Gain on sale before reclassification of foreign currency translation differences
Reclassification of foreign currency translation differences
Gain on sale
The carrying amounts of assets and liabilities as at the date of sale:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity attributable to owners of the parent
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders’ equity
Total
CAD
404,219
(2,695)
(6,634)
394,890
331,147
63,743
46,015
17,728
As at May 23, 2019
37,039
855,734
892,773
71,976
228,804
300,780
331,147
260,846
591,993
892,773
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p118
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table summarizes the net earnings from discontinued operations:
Year ended
December 31, 2019
Period of 329 days
ended December 31,
2018
Revenues
Expenses
Share of earnings of joint ventures and associates
Earnings (loss) before income taxes
Recovery of income taxes
Net earnings from discontinued operations before the following:
Gain on sale of the subsidiary
Net earnings from discontinued operations
Other comprehensive income (loss) from discontinued operations
Total comprehensive income (loss) from discontinued operations
Net earnings (loss) from discontinued operations attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income (loss) from discontinued operations
attributable to:
Owners of the parent
Non-controlling interests
Net earnings (loss) per share from discontinued operations
Basic net earnings (loss) per share ($)
Diluted net earnings (loss) per share ($)
40,006
39,677
(3,718)
4,047
(40)
4,087
(17,728)
21,815
3,928
25,743
19,682
2,133
21,815
42,832
(17,089)
25,743
0.15
0.15
95,198
105,512
(8,762)
(1,552)
(1,055)
(497)
—
(497)
(36,838)
(37,335)
(685)
188
(497)
(24,213)
(13,122)
(37,335)
(0.01)
(0.01)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p119
(in thousands of Canadian dollars, except as noted and amounts per share)
6. EXPENSES BY NATURE
Operating, general and administrative and prospective projects expenses, as reported in the consolidated statements
of earnings, have been grouped by nature of expenses as follows:
Operation and maintenance
Salaries and benefits
Property taxes and royalties
Other expenses
Professional fees
Insurance
Prospective expenses
Administrative expenses
Year ended December 31
2019
2018
55,276
38,109
28,104
6,635
6,248
6,046
5,344
2,105
44,186
31,907
30,458
4,363
4,604
4,632
7,640
1,449
Total of Operating, General and Administrative and Prospective
Projects
147,867
129,239
Depreciation of $153,617 ($111,083 in 2018) and amortization of $40,962 ($40,173 in 2018) 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 corporate and project loans
Interest expense on convertible debentures
Interest expense on tax equity investors financing
Interest on lease liabilities
Inflation compensation interest
Amortization of financing fees
Accretion of long-term loans and borrowings
Accretion expenses on other liabilities
Other
Year ended December 31
2019
2018
181,586
12,014
9,319
2,925
5,171
8,887
2,880
4,496
4,488
231,766
165,712
8,193
186
—
6,798
4,582
2,367
3,265
4,731
195,834
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p120
(in thousands of Canadian dollars, except as noted and amounts per share)
8. OTHER NET (REVENUES) EXPENSES
Tax attributes allocated to tax equity investors
Production tax credits
Other net revenues
Gain on debt modifications (Note 21)
Restructuring costs
Loss on disposal of property, plant and equipment
Transaction costs related to business combinations (Note 4)
Realized loss on derivative financial instruments
Tax attributes allocated to tax equity investors
Year ended December 31
2019
2018
(88,402)
(11,238)
(4,613)
(2,883)
1,823
670
—
—
(104,643)
(764)
—
(1,963)
—
—
538
8,280
6,092
12,183
In tax equity structures, a portion of the tax attributes generated by a renewable project, such as taxable income (loss),
including accelerated tax depreciation under the U.S. Modified Accelerated Cost Recovery System ("MACRS"), are
allocated to the tax equity investors and applied against the related tax equity financing as principal repayment. During
the year ended December 31, 2019, tax attributes allocated to the tax equity investors and applied as principal payment
against the tax equity financing totalled $88,402 and relate to the Foard City wind and the Phoebe solar projects
commissioned during the year, which was subject to accelerated tax depreciation under the MACRS, as well as the Kokomo
and Spartan solar projects (2018 - $764 related to the Kokomo and Spartan solar projects).
Production tax credits
Certain projects are eligible to receive U.S. renewable tax incentives such as PTCs, which are earned as production occurs.
In tax equity structures, the portion of these tax attributes which is allocated to the tax equity investors is applied against
the related tax equity financing as principal repayment. During the year ended December 31, 2019, PTCs earned and
applied as principal payment against the tax equity financing totalled $11,238 and relate to the Foard City wind project
commissioned during the year (2018 - nil).
Restructuring costs
During the third quarter of 2019, the Corporation committed to a plan to restructure its accounting department, under which
the accounting functions are to be centralized in the head office to improve organizational efficiency (the “Plan”). Following
the announcement of the Plan to its employees, the Corporation recognized a provision of $1,823 for restructuring costs,
comprised mainly of employee termination benefits and consulting fees. As at December 31, 2019, the restructuring
activities were ongoing and an amount of $1,237 has been incurred to date. The reorganization is expected to be completed
by the first quarter of 2020.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p121
(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
Joint ventures and
associates
Principal activity
Energia Llaima
Toba Montrose
Shannon
Flat Top
Dokie
Jimmie Creek
Umbata Falls
Viger-Denonville
Blue Lagoon (see
Note 5)
Innavik
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
Develop and construct a
hydroelectric facility
Place of creation
and principal
place of
operation
Chile
British Columbia
Texas
Texas
British Columbia
British Columbia
Ontario
Quebec
Iceland
Quebec
Proportion of ownership interest and
voting rights held by the Corporation
December 31,
2019
December 31,
2018
50%
40%
50%
51% 1
25.5%
1
50.99%
49%
50%
—%
50%
50%
40%
50%
51%
25.5%
50.99%
49%
50%
30%
—%
1. The Corporation doesn’t consolidate these entities as it doesn’t control the decision making.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p122
(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)
Revenues
Operating, general and
administrative expenses
Finance costs
Production tax credits
Tax attributes allocated to tax equity
investors
Other net expenses
(revenues)
Depreciation and amortization
Unrealized net (gain) loss on
financial instruments
Provision for income taxes
Net (loss) earnings
Other comprehensive loss
Total comprehensive (loss) income
Net (loss) earnings attributable to
Innergex
Total comprehensive (loss) income
attributable to Innergex
Year ended December 31, 2019
Energía
Llaima
52,301
24,360
27,941
11,948
—
Toba
Montrose
70,643
16,360
54,283
27,579
—
Shannon
19,257
Flat Top
24,405
10,799
8,458
14,659
(22,646)
13,023
11,382
17,842
(28,430)
Dokie
36,460
8,932
27,528
9,925
—
Jimmie
Creek
21,429
4,447
16,982
9,380
—
Umbata
Falls
8,223
Viger-
Denonville
11,293
1,624
6,599
2,121
—
2,163
9,130
3,309
—
—
—
1,119
(10,890)
—
—
—
—
6,413
14,389
—
3,927
(8,736)
—
(8,736)
(666)
17,716
(1,001)
—
10,655
(3,503)
7,152
359
13,997
(3,886)
—
4,856
—
4,856
(69)
14,687
(703)
10,496
(40,785)
—
59,027
—
59,027
—
—
7,810
—
7,810
769
4,742
—
—
2,091
—
2,091
(3,397)
4,262
2,428
30,104
1,992
1,066
(3,397)
2,861
2,428
30,104
1,992
1,066
(113)
4,010
595
—
(14)
—
(14)
(7)
(7)
(93)
2,712
(459)
—
3,661
(941)
2,720
1,831
(1,810)
1,360
(1,810)
Innavik
—
3,620
(3,620)
—
—
—
—
—
—
—
(3,620)
—
(3,620)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p123
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings and Comprehensive Income (Loss)
Energía
Llaima
(181-day
period)
Toba
Montrose
(329-day
period)
Year ended December 31, 2018
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Blue
Lagoon
(Note 5)
Others
(329-day
period)
(329-day
period)
(329-day
period)
(329-day
period)
Revenues
Operating, general and administrative
expenses
Finance costs
Production tax credits
Tax attributes allocated to tax equity
investors
Other net (revenues) expenses
Depreciation and amortization
Unrealized net loss (gain) on financial
instruments
Provision for income taxes
Net earnings
Other comprehensive (loss)
income
Total comprehensive income
Continuing operations:
Net earnings attributable to Innergex
Total comprehensive income
attributable to Innergex
Discontinued operations:
Net earnings attributable to Innergex
Total comprehensive income
attributable to Innergex
30,739
65,435
13,934
15,057
31,610
19,166
9,459
11,724
172,094
13,855
16,884
6,043
—
14,913
50,522
25,409
8,326
5,608
13,582
— (19,313)
9,750
5,307
14,986
(18,581)
7,655
23,955
9,659
—
3,202
15,964
8,638
—
910
8,549
2,257
—
2,056
9,668
3,423
—
116,793
55,301
1,373
—
—
—
(3,650)
(45,820)
—
—
—
—
—
(3,588)
7,406
(495)
14,988
(785)
8,798
90
10,447
360
11,327
—
1,557
5,466
—
5,466
1,135
—
9,485
—
9,485
(12,454)
—
19,430
(6,315)
—
50,500
—
19,430
—
50,500
2,715
3,794
9,715
25,755
2,715
3,794
9,715
25,755
—
—
—
—
—
—
—
—
—
—
2,609
—
2,609
665
665
—
—
672
4,380
—
—
2,274
—
2,274
(81)
4,011
(715)
—
3,077
—
3,077
(72)
2,517
(768)
—
4,568
1,069
13,656
—
10,025
29,178
(180)
4,388
(20,353)
8,825
1,160
1,508
2,284
1,160
1,508
2,194
—
—
—
—
—
—
—
—
8,762
2,650
—
—
—
—
—
—
—
—
—
—
—
31
31
—
31
—
—
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p124
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partner's equity interest
(deficit)
Non-controlling interests
As at December 31, 2019
Energía
Llaima
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
67,728
535,024
602,752
17,787
236,700
284,532
63,733
602,752
27,427
735,872
763,299
17,921
549,785
195,593
—
763,299
11,435
374,717
386,152
25,447
177,929
182,776
—
386,152
7,090
507,887
514,977
32,884
216,986
265,107
—
514,977
19,116
234,607
253,723
10,897
146,355
96,471
—
253,723
8,699
226,801
235,500
5,141
165,119
65,240
—
235,500
2,199
53,101
55,300
2,782
36,612
15,906
—
55,300
Viger-
Denonville
2,407
53,101
55,508
45,859
7,923
1,726
—
55,508
Innavik
1,795
15,571
17,366
17,385
3,600
(3,619)
—
17,366
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, 2019
Balance January 1, 2019
Business disposal
Increase in investment
Share of (loss) earnings
Share of other
comprehensive loss
Foreign currency
translation differences
Distributions received
Balance December 31,
2019
Energía
Llaima
154,299
—
—
(3,397)
Toba
Montrose Shannon Flat Top
113,355
—
—
30,104
80,976
—
—
4,262
95,052
—
—
2,428
Dokie
24,521
—
—
1,992
Jimmie
Creek
36,535
—
—
1,066
Umbata
Falls
9,406
—
—
(7)
Blue
Lagoon
(Note 5)
Viger-
Denonville
1,453
136,228
— (136,228)
—
—
—
1,831
Total
Innavik Others
87
651,912
— (136,228)
3
3
— 36,469
—
—
—
(1,810)
—
(1,401)
—
—
—
—
—
(471)
(8,636)
—
—
(5,600)
(4,379)
(1,713)
(5,872)
(2,382)
—
(1,913)
—
(4,335)
—
(1,605)
—
(1,950)
142,266
78,237
91,388
135,205
24,600
33,266
7,794
863
—
—
—
—
—
—
—
—
(1,872)
— (18,887)
— (19,498)
(1,810)
90
511,899
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p125
(in thousands of Canadian dollars, except as noted and amounts per share)
As at December 31, 2018
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Partner's equity interest
Non-controlling interests
Energía
Llaima
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
64,598
570,472
635,070
14,897
244,620
308,598
66,955
635,070
22,229
762,471
784,700
15,029
567,230
202,441
—
784,700
9,795
388,332
398,127
30,828
177,195
190,104
—
398,127
13,682
479,499
493,181
50,378
220,538
222,265
—
493,181
14,203
225,788
239,991
10,014
133,815
96,162
—
239,991
10,617
231,632
242,249
4,607
165,990
71,652
—
242,249
3,769
56,872
60,641
3,422
38,023
19,196
—
60,641
Viger-
Denonville
2,950
53,757
56,707
4,151
49,652
2,904
—
56,707
Blue Lagoon
(Note 5)
23,519
538,975
562,494
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 venture recognized in the consolidated financial
statements:
For the year ended December 31, 2018
Energía
Llaima
—
—
144,694
2,715
Toba
Montrose
—
84,182
—
3,794
Shannon
—
80,148
—
9,715
Flat Top
Dokie
—
79,629
2,520
25,755
—
24,366
—
665
Jimmie
Creek
Umbata
Falls
—
37,670
—
1,160
9,688
—
—
1,508
Blue
Lagoon
(Note 5)
Viger-
Denonville
1,272
—
— 141,135
—
—
—
2,284
Total
Others
51
11,011
— 447,130
147,219
5
47,596
—
Balance January 1, 2018
Business acquisitions
Increase in investment
Share of earnings
Share of earnings
reclassified as discontinued
operations
Share of other
comprehensive income
(loss)
Foreign currency translation
differences
Share of other
comprehensive (loss)
reclassified as discontinued
operations
Distributions received
—
—
—
—
—
—
—
—
6,890
7,391
8,683
—
—
—
—
—
—
—
—
—
—
—
—
—
8,762
—
8,762
(90)
—
—
—
—
(6,112)
(7,557)
31
—
—
—
87
(59)
22,964
(6,112)
(26,599)
651,912
—
—
—
—
—
(7,000)
(2,202)
(3,232)
(510)
(2,295)
(1,790)
(2,013)
Balance December 31, 2018
154,299
80,976
95,052
113,355
24,521
36,535
9,406
1,453
136,228
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p126
(in thousands of Canadian dollars, except as noted and amounts per share)
Shannon
The Corporation holds a 50% interest in the Shannon wind facility, with the remaining 50% 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 initial amount of the tax equity financing upon the acquisition of Alterra on February 6, 2018 represents the fair
value of US$144,534 ($181,102). Subsequently, the carrying amount is reduced by the allocation of U.S. renewable
tax incentives (PTCs), taxable income and cash distributions paid to date offset by the effective interest expense. The
Shannon wind project is eligible to receive PTCs related to its wind power generation for the first ten years of the
project’s operations (until 2025). The amortized cost of the tax equity financing as at December 31, 2019 was $157,204
(December 31, 2018 - $179,088) and the liability will be fully repaid at the Flip Point, which is expected to occur in
2028.
The tax equity investors' taxable income (losses), PTCs and cash distributions allocations are detailed in the table
below. After the Flip Point, the Shannon tax equity investors will retain a 5% financial interest in the project which will
be accounted for as non-controlling interests.
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
99.0%
64.3% 1
1. Cash distributions are based on a quarterly test measurement of cumulative generation for the project since commercial operations
date. Lower production could result in a higher cash allocation to the tax equity investor or a change to the Flip Point. The percentage
provided is for the year ended December 31, 2019.
Tax equity investors in U.S. 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% interest in the Flat Top wind facility, with the remaining 49% 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.
The initial fair value of the tax equity financing represents the proceeds received on March 27, 2018 from the tax equity
investor in exchange for Class A shares of the project company, aggregating to US$211,300 ($274,035). Subsequently,
the carrying amount is reduced by the allocation of U.S. renewable tax incentives (PTCs), taxable income and cash
distributions paid to date offset by the effective interest expense. The Flat Top wind project is eligible to receive PTCs
related to its wind power generation for the first ten years of the project’s operations (until 2028). The amortized cost
of the tax equity financing as at December 31, 2019 was $197,121 (December 31, 2018 - $234,756) and the liability
will be fully repaid at the Flip Point, which is expected to occur in 2028.
The tax equity investors' taxable income (losses), PTCs and cash distributions allocations are detailed in the table
below. After the Flip Point, the Flat Top tax equity investors will retain a 5% financial interest in the project which will
be accounted for as non-controlling interests.
Taxable income (losses) and PTCs
Cash distributions
Tax Equity Investors
99.0%
22.0% 1
1. Cash distributions are based on a quarterly test measurement of cumulative generation for the project since commercial operations
date. Lower production could result in a higher cash allocation to the tax equity investor or a change to the Flip Point. The percentage
provided is for the year ended December 31, 2019.
Tax equity investors in U.S. 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
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p127
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
9.2 Commitments of joint ventures and associates
As at December 31, 2019, the Corporation's share of the expected schedule of commitment payments for joint ventures
and associates are as follows:
Year of expected payment
Purchase obligations
Under 1 year
1 to 5 years
Thereafter
Total
8,062
44,079
109,581
161,722
10. DERIVATIVE FINANCIAL INSTRUMENTS
The following tables show a reconciliation from the opening balances to the closing balances for the derivative financial
instruments (refer to Note 28 for financial risk management and fair value disclosures):
Financial assets (liabilities)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Power and
basis
hedges
(Level 3)
Inflation
provisions
(Level 3)
Embedded
derivatives
(Level 2)
Total
As at January 1, 2019
(32,129)
(53,409)
(4,849)
982
(46,409)
(135,814)
Realized financial instruments
—
4,145
11,905
—
Recognized in consolidated
statement of earnings1
Variation in fair value of
derivative financial instruments
recognized in other
comprehensive income
Net foreign exchange differences
Business disposal (Note 5)
As at December 31, 2019
5,917
3,619
(42,145)
(982)
1,943
—
—
(24,269)
(39,318)
1,427
—
(83,536)
63,006
(160)
—
27,757
—
—
—
—
—
—
—
—
46,409
—
16,050
(33,591)
25,631
1,267
46,409
(80,048)
1. The $49,933 unrealized net loss on financial instruments recognized in the consolidated statement of earnings includes a loss of
$16,342 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p128
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial assets (liabilities)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
instruments
(Level 2)
Power
hedge
(Level 3)
Inflation
provisions
(Level 3)
Embedded
derivatives
(Level 2)
Total
As at January 1, 2018
(17,294)
(46,710)
—
1,735
—
(62,269)
Derivatives acquired on business
acquisitions (Note 4)
Recognized in consolidated
statement of earnings1
Recognized in consolidated
statement of earnings as
discontinued operations
Variation in fair value of derivative
financial instruments recognized
in other comprehensive income
Net foreign exchange differences
As at December 31, 2018
—
913
21,241
—
(31,195)
(9,041)
(13,489)
14,143
—
—
—
—
(753)
—
(99)
—
(16,863)
(16,863)
(1,346)
—
(32,129)
(21,644)
(111)
(53,409)
(26,353)
263
(4,849)
—
—
982
—
(49,343)
1,649
(46,409)
1,801
(135,814)
1. The $12,958 unrealized net gain 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.
Reported in the consolidated statements of financial position:
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
December 31, 2019
December 31, 2018
5,419
78,251
(51,093)
(112,625)
(80,048)
2,370
9,817
(29,999)
(118,002)
(135,814)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p129
(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 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, 2019
December 31, 2018
16,830
15
16,845
103,828
(1,357)
(465)
102,006
118,851
8,528
(7)
8,521
19,677
(558)
(395)
18,724
27,245
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, 2019
December 31, 2018
Earnings before income taxes
Canadian statutory income tax rate
Income taxes expenses calculated at the statutory rate
Items affecting the statutory rate
Non-taxable income
Effect of previously unrecognized tax losses balances
used in the year
Amounts attributable to Tax Equity Investors
Change in deferred tax assets not recognized
Income taxable at a different rate than the Canadian
statutory rate
Decrease in deferred income tax rates
Increase (decrease) in taxable temporary differences in
relation to investments in subsidiaries and in joint
ventures
Tax on dividends on preferred shares
Adjustments recognized in the current year in relation to
the current tax of prior years
Adjustments recognized in the current year in relation to
the deferred tax of prior years
Income tax on earnings allocated to minority interests on
non-taxable entities
Others
65,825
26.6%
17,509
(9,064)
(2,599)
131,026
(12,307)
(3,576)
(1,357)
541
166
15
(465)
(839)
(199)
Provision for income taxes recognized in the current year
118,851
53,460
26.6%
14,220
(4,262)
(355)
26,406
1,862
(5,657)
(558)
(2,019)
164
(7)
(395)
(2,025)
(129)
27,245
The tax rate used for 2019 and 2018 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 2019
Notes to the Consolidated Financial Statements p130
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Income taxes recognized in other comprehensive income
December 31, 2019
December 31, 2018
Deferred income taxes
Foreign currency translation differences for foreign
operations
Foreign exchange gain (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
Total income taxes recognized directly in other
comprehensive income
c. Deferred income tax balances
—
540
4,079
(1,488)
(934)
2,197
(205)
(645)
(13,577)
3,287
(150)
(11,290)
The following is the analysis of deferred income tax assets (liabilities) presented in the consolidated statements
of financial position:
Assets
Liabilities
December 31, 2019
December 31, 2018
30,264
(428,793)
(398,529)
16,465
(379,013)
(362,548)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p131
(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
Capitalized investment tax credits
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Disallowed interest carried forward
Others
Tax losses carried forward
As at January 1,
2019
Recognized in
statement of
earnings
Recognized in
other
comprehensive
loss
Discontinued
operations
Recognized
directly in
equity
Net exchange
differences
As at
December 31,
2019
(206,562)
(183,994)
1,927
(148,033)
13,228
3,097
—
—
—
27,913
18,094
18,085
(135,864)
(2,986)
(10,131)
24,520
(1,027)
69,083
2,246
1,372
(928)
3,701
(5,855)
1,431
1,732
628
(452,110)
60
(16,711)
3,212
13,026
(239)
1,632
(1,184)
530
(408)
1,223
(133,553)
89,562
(362,548)
31,547
(102,006)
—
8,480
(546)
—
—
—
—
—
—
—
(2,197)
—
(2,197)
—
(7,987)
(3,576)
—
—
(2,965)
—
—
—
(1,712)
72,372
—
72,372
—
—
—
—
—
—
—
—
(195)
—
—
—
—
—
(195)
—
(195)
2,599
(5,605)
(80)
(324,083)
(158,277)
23,029
2,849
(121,612)
(1,312)
728
(158)
(526)
—
(11)
16
—
(193)
(31)
(1,724)
(2,231)
(3,955)
(2,279)
53,593
1,178
13,872
(1,362)
2,357
(7,023)
1,961
1,131
108
(517,407)
118,878
(398,529)
As at December 31, 2019, the Corporation, its subsidiaries and joint ventures and associates have non-capital losses totaling approximately $440,000 that may be applied
against future taxable income. The non-capital losses in Canada and the United-States expire gradually between 2026 and 2039. 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.
2019 Third Quarter
Notes to the Condensed Consolidated Financial Statements p132
(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
(159,943)
(10,034)
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 loans and borrowings
Capitalized investment tax credits
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Disallowed interest carried forward
Others
Tax losses carried forward
(150,542)
11,403
(826)
8,127
—
—
—
(35,624)
(35,153)
(17,706)
(4,455)
(26,454)
1,225
(103,562)
(1,247)
52,721
(3,836)
—
(358)
521
(4,186)
1,381
—
—
(258,541)
53,698
(204,843)
220
1,987
2,138
63
196
(841)
(1,710)
50
1,732
1,646
(23,706)
4,982
(18,724)
—
9,420
—
—
—
—
—
—
—
—
10,645
645
11,290
—
4,794
3,827
1,309
—
4,021
42
—
—
(965)
(179,017)
29,019
(149,998)
—
—
—
—
—
—
—
—
(766)
—
—
—
—
—
(766)
—
(766)
(961)
2,527
103
(206,562)
(183,994)
1,927
(2,618)
(135,864)
—
161
117
—
—
—
(1)
—
—
(53)
(725)
1,218
493
(1,027)
69,083
2,246
1,372
(928)
3,701
(5,855)
1,431
1,732
628
(452,110)
89,562
(362,548)
Innergex Renewable Energy Inc.
2019 Third Quarter
Notes to the Condensed Consolidated Financial Statements p133
(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, 2019
December 31, 2018
133,899
3,508
477
137,884
292,350
5,920
477
298,747
The unrecognized tax losses-revenue in nature will expire gradually between 2020 and 2039.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p134
(in thousands of Canadian dollars, except as noted and amounts per share)
12. EARNINGS PER SHARE
Basic
Net (loss) earnings attributable to
owners
Dividends declared on preferred
shares
Net (loss) earnings available to
common shareholders
Year ended December 31
2019
Discontinued
operations
Continuing
operations
Total
Year ended December 31
2018
Discontinued
operations
Continuing
operations
Total
(47,723)
19,682
(28,041)
31,825
(685)
31,140
(5,942)
—
(5,942)
(5,942)
—
(5,942)
(53,665)
19,682
(33,983)
25,883
(685)
25,198
Weighted average number of common
shares (in 000s)
134,658
134,658
134,658
130,030
130,030
130,030
Basic net (loss) earnings per share ($)
(0.40)
0.15
(0.25)
0.20
(0.01)
0.19
Diluted
Net (loss) earnings available to
common shareholders (diluted)
Diluted Weighted average number of
common shares (in 000s)
Diluted net earnings (loss) per share
($)
Year ended December 31
2019
Discontinued
operations
Continuing
operations
Total
Year ended December 31
2018
Discontinued
operations
Continuing
operations
Total
(53,665)
19,682
(33,983)
25,883
(685)
25,198
134,658
134,658
134,658
130,907
130,907
130,907
(0.40)
0.15
(0.25)
0.20
(0.01)
0.19
Weighted average number of common shares (in 000s)
Effect of share options issue
Effect of shares held in trust related to the PSP plan
Diluted weighted average number of common shares (in 000s)
Shares that may be issued from the following equity instruments that are excluded
from the potentially dilutive elements (in 000s):
Effect of shares held in trust related to the PSP plan
Share options
Convertible debentures
Year ended December 31
2019
2018
134,658
—
—
134,658
301
170
13,777
14,248
130,030
674
203
130,907
203
—
14,167
14,370
1. Share options for which the exercise price was below the average market price of common shares are included in the calculation of
potentially dilutive equity instruments. Contingent share issuances have an anti-dilutive effect on loss per share.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p135
(in thousands of Canadian dollars, except as noted and amounts per share)
13. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
As at
Restricted cash accounts
Restricted proceeds account
Debt service payment accounts
December 31, 2019
December 31, 2018
3,569
28,654
7,228
39,451
10,397
13,948
5,636
29,981
As required under several projects' credit agreements, the Corporation maintains restricted cash accounts and restricted
proceeds accounts. The unused portion of the loans proceeds are held in restricted proceeds accounts 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. The Corporation
also maintains debt service payment accounts.
14. ACCOUNTS RECEIVABLE
As at
Trade
Advances to related parties
Commodity taxes
Investment tax credits
Income taxes receivable
Other
15. OTHER LONG-TERM ASSETS
As at
Hydrology/ wind power reserve
Major maintenance reserve
Security deposits
Other
December 31, 2019
December 31, 2018
61,539
20,756
1,417
711
757
7,085
92,265
94,437
964
2,241
671
1,163
4,410
103,886
December 31, 2019
December 31, 2018
51,078
6,339
6,207
8,381
72,005
47,030
4,865
22,006
—
73,901
The availability of $56,482 ($51,024 in 2018) in the reserve accounts is restricted by credit agreements.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p136
(in thousands of Canadian dollars, except as noted and amounts per share)
16. PROPERTY, PLANT AND EQUIPMENT
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
Geothermal
facilities
Facilities
under
construction
Other
Total
Cost
As at January 1, 2019
Adoption of IFRS 16 (Note 2)
Adjusted balance as at January 1, 2019
Additions 1
Investment tax credits
Transfer of assets upon commissioning
Business disposal (Note 5)
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2019
Accumulated depreciation
As at January 1, 2019
Depreciation 2
Business disposal (Note 5)
Dispositions
Net foreign exchange differences
As at December 31, 2019
3,095
115,319
118,414
75
—
—
—
—
7,024
2,089,405
97
2,089,502
1,996
—
—
—
—
19
(4,704)
120,809
(483)
2,091,034
2,025,711
—
2,025,711
12,227
—
524,160
—
(1,503)
15,566
(61,727)
2,514,434
—
(4,732)
—
—
60
(4,672)
(270,622)
(39,542)
—
—
164
(310,000)
(236,218)
(97,087)
—
821
4,480
(328,004)
155,130
—
155,130
954
—
318,429
—
—
38
(8,473)
466,078
(40,659)
(10,157)
—
—
223
(50,593)
Carrying amount as at December 31, 2019 3
116,137
1,781,034
2,186,430
415,485
418,317
—
418,317
—
—
—
(418,317)
—
—
—
—
(16,290)
—
16,290
—
—
—
—
336,345
—
336,345
869,184
(179,071)
(845,087)
(62,739)
—
(20)
(15,660)
102,952
17,518
8,472
25,990
4,420
—
2,498
—
(169)
(163)
(114)
32,462
5,045,521
123,888
5,169,409
888,856
(179,071)
—
(481,056)
(1,672)
22,464
(91,161)
5,327,769
—
—
—
—
—
—
(11,069)
(3,489)
—
169
(86)
(14,475)
(574,858)
(155,007)
16,290
990
4,841
(707,744)
102,952
17,987
4,620,025
All of the property, plant and equipment are given as security under the respective project financing or for corporate financing.
1. 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
$20,139 ($8,995 in 2018) of capitalized financing costs incurred prior to commissioning.
2. An amount of $1,390 of the depreciation expense for the land leases is capitalized as a construction cost in facilities under construction.
3.
Included in property, plant and equipment are right-of-use assets with a carrying amount of $120,171 ($112,989, $114 and $7,068 included in Lands, Hydroelectric
facilities and Other, respectively) pursuant to lease agreements.
Innergex Renewable Energy Inc.
2019 Third Quarter
Notes to the Condensed Consolidated Financial Statements p137
(in thousands of Canadian dollars, except as noted and amounts per share)
Cost
As at January 1, 2018
Additions
Business acquisitions (Note 4)
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
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
28,168
(318)
(3)
2,575
155,130
(33,733)
(6,849)
4
(81)
(40,659)
—
13,394
430,305
(164)
—
(25,218)
418,317
—
(16,580)
24
266
(16,290)
—
161,349
165,862
—
—
9,134
336,345
14,476
1,964
1,052
(20)
—
46
17,518
3,634,004
185,660
1,201,382
(1,521)
11,070
14,926
5,045,521
—
—
—
—
—
(8,978)
(1,986)
20
(125)
(11,069)
(445,766)
(127,651)
332
(1,773)
(574,858)
Carrying amount as at December 31, 2018
3,095
1,818,783
1,789,493
114,471
402,027
336,345
6,449
4,470,663
Innergex Renewable Energy Inc.
2019 Third Quarter
Notes to the Condensed Consolidated Financial Statements p138
(in thousands of Canadian dollars, except as noted and amounts per share)
17.
INTANGIBLE ASSETS
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
Geothermal
facilities
Facilities
under
construction
Total
559,853
377,716
10,776
200,802
26,389
1,175,536
—
—
—
8,468
(128)
568,193
(170,470)
(15,281)
—
—
73
(185,678)
26,389
—
(7)
—
(15,338)
388,760
(73,606)
(25,148)
—
7
2,640
(96,107)
—
—
—
—
27
10,803
(3,213)
(533)
—
—
2
(3,744)
—
(200,802)
—
—
—
—
(26,389)
—
—
—
—
—
(3,238)
—
3,238
—
—
—
—
—
—
—
—
—
—
(200,802)
(7)
8,468
(15,439)
967,756
(250,527)
(40,962)
3,238
7
2,715
(285,529)
Cost
As at January 1, 2019
Transfer of assets upon
commissioning
Business disposal (Note 5)
Disposal
Other changes
Net foreign exchange
As at December 31, 2019
Accumulated amortization
As at January 1, 2019
Amortization
Business disposal (Note 5)
Disposal
Net foreign exchange
As at December 31, 2019
Net value as at
December 31, 2019
382,515
292,653
7,059
—
—
682,227
Cost
As at January 1, 2018
Additions
Business acquisitions (Note 4) 1
Disposal
Other changes
Net foreign exchange
As at December 31, 2018
Accumulated amortization
As at January 1, 2018
Amortization
Other changes
Net foreign exchange
As at December 31, 2018
Net value as at
December 31, 2018
Hydroelectric
facilities
Wind farm
facilities
Solar
facility
Geothermal
facilities
Facilities
under
construction
Total
562,756
—
—
(73)
(3,046)
216
559,853
287,861
—
81,517
—
—
8,338
377,716
(152,289)
(18,138)
73
(116)
(170,470)
(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)
389,383
304,110
7,563
197,564
26,389
925,009
1. Includes intangibles acquired through business acquisitions made in 2017 which were subject to purchase price allocation adjustments in
2018. The intangibles resulting from these purchase price allocation adjustments are not included in Note 4.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p139
(in thousands of Canadian dollars, except as noted and amounts per share)
18. PROJECT DEVELOPMENT COSTS
As at
Cost
Beginning of year
Project development cost acquired on business acquisitions (Note 4)
Business disposal (Note 5)
Additions
Impairment of project development costs
Net foreign exchange
End of year
December 31, 2019
December 31, 2018
30,119
—
(17,822)
7,792
(8,184)
(770)
11,135
—
19,298
—
10,048
—
773
30,119
An impairment charge of $8,184 was recognized on a project for which uncertainties exist regarding the timing and profitability
of any development. For the year ended December 31, 2018, no impairment charge was recognized.
19. GOODWILL
Allocation of goodwill to each significant CGU or group of CGUs is as follows:
As at
As at January 1, 2019
Business disposal (Note 5)
Net foreign exchange
As at December 31, 2019
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
HS Orka hf
20,036
—
(2,063)
17,973
42,438
—
—
42,438
93
—
—
93
47,266
(47,266)
—
—
As at
As at January 1, 2018
Business acquisitions (Note 4) 1
Net foreign exchange
As at December 31, 2018
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
8,269
11,767
—
20,036
30,311
11,004
1,123
42,438
HS Orka hf
—
47,266
—
47,266
—
93
—
93
Facilities
under
construction
162
—
—
162
Facilities
under
construction
—
162
—
162
Total
109,995
(47,266)
(2,063)
60,666
Total
38,580
70,292
1,123
109,995
1. Includes goodwill acquired through business acquisitions made in 2017 which were subject to purchase price allocation adjustments in 2018.
The goodwill resulting from these purchase price allocation adjustments are not included in Note 4.
On December 31, 2019, 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 3.89% to 5.96% (4.7% to 5.2% in 2018).
Assumptions used to determine the recoverable amount of assets are the following:
•
•
•
•
The discount rate considers the weighted average between the consolidated cost of debt and the consolidated cost of
equity, adjusted with alpha factors specific to each operating segment and country in which the facility operates.
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 are expected
to approximate actual results.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p140
(in thousands of Canadian dollars, except as noted and amounts per share)
20. ACCOUNTS PAYABLE AND OTHER PAYABLES
As at
December 31, 2019
December 31, 2018
Trade and other payables
Current portion of construction holdbacks
Dividends payable to shareholders
Interest payable
Income taxes payable
Commodity taxes
Salaries and benefits
90,809
31,311
25,882
20,200
4,005
3,394
556
176,157
104,837
3,440
24,093
18,423
8,836
4,310
921
164,860
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p141
(in thousands of Canadian dollars, except as noted and amounts per share)
21. LONG-TERM LOANS AND BORROWINGS
(references to US$ are in thousands)
Currency
Interest rates
Maturity
December 31,
2019
December 31,
2018
Corporate indebtedness
Revolving term credit facility
Subordinated unsecured term loan
Unsecured short-term credit facility term loan
Convertible debentures
4.65% Convertible Debentures
4.75% Convertible Debentures
4.25% Convertible Debentures
Tax equity financing
Wind segment
Foard City
Solar Segment
Phoebe
Others
Project loans
Hydroelectric segment
Rutherford Creek
Ashlu Creek
Sainte-Marguerite
Magpie
Fitzsimmons Creek
Big Silver Creek
Harrison Operating Facilities
Kwoiek Creek
Northwest Stave River
Tretheway Creek
Boulder Creek and Upper Lillooet
Others
Wind segment
Plan Fleury
Les Renardières
Rougemont 1
Rougemont 2
Montjean
Theil Rabier
Beaumont
Yonne
Vaite
Innergex Cartier Energie
Mesgi'g Ugju's'n
Innergex Europe
Foard City
Other
CAD
CAD
CAD
CAD
CAD
CAD
USD
USD
USD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
EURO
EURO
EURO
EURO
EURO
EURO
EURO
EURO
EURO
CAD
CAD
CAD
USD
3.82%-3.97%
5.13%
—
4.65%
4.75%
4.25%
2023
2023
2019
2026
2025
2020
490,996
150,000
—
640,996
136,435
142,392
—
278,827
7.50%1
20292
285,433
7.14%1
20262
8.00% 2022-2023
6.88%
3.72%
2024
2025
7.40%-8.00% 2025-2064
4.34%-4.37% 2025-2031
2.81%
2026
4.57%-4.76% 2041-2056
3.91%-6.58%
2049
5.08%-10.07% 2052-2054
5.30%
4.99%
2053
2055
4.22%-4.46% 2043-2056
—
2019
1.00%-1.65% 2019-2034
1.05%-1.70% 2019-2034
0.56% 2019-2035
0.60% 2019-2035
2.56%-2.95% 2026-2031
2.56%-2.94% 2026-2031
2.16%-2.63% 2027-2031
1.30% 2028-2031
0.76%
3.58%
2035
2032
3.70%-4.28% 2026-2036
8.00%
1.75%-1.88%
2046
2026
53,185
1,332
339,950
23,670
83,631
61,192
46,321
19,312
196,420
447,509
167,257
71,972
92,916
491,643
—
48,740
43,050
70,179
80,096
21,804
21,804
28,922
94,762
72,849
531,889
244,331
77,957
29,072
71,247
387,409
150,000
228,000
765,409
—
140,996
97,652
238,648
—
—
2,289
2,289
28,009
86,606
63,888
49,238
19,786
197,223
451,021
169,043
71,972
92,916
491,643
12
56,383
49,878
80,596
91,425
25,367
25,367
33,464
83,447
83,772
570,408
250,923
77,957
—
84,262
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p142
(in thousands of Canadian dollars, except as noted and amounts per share)
EURO
1.86%-5.73% 2025-2030
(continued)
Solar segment
Stardale
Phoebe
Others
Other
Currency
Interest rates
Maturity
December 31,
2019
December 31,
2018
CAD
USD
USD
3.45%
2032
3.26% 2019-2026
5.35%-5.81% 2023-2026
79,454
144,931
17,840
117,167
—
3,497,937
4,757,710
(66,041)
4,691,669
(410,083)
4,281,586
87,575
204,257
19,603
118,548
96,515
3,761,104
4,767,450
(59,053)
4,708,397
(445,928)
4,262,469
Alterra (including US$21,109 (US$20,775 in 2018))
HS Orka
CAD
EURO
7.65%-7.83%
N/A
2023
—
Total long-term loans and borrowings
Deferred financing costs
Current portion of long-term loans and borrowings
Long-term loans and borrowings
1. The interest rates reflect the internal rate of return required by the respective tax equity investors.
2. The maturity date of these obligations are subject to change and are driven by the dates on which the tax equity investor reaches the agreed
upon target rate of return.
The carrying amount of assets pledged to secure the loans totalled $4,692,241 as at December 31, 2019 ($5,859,950 in 2018).
Letters of credits under revolving term credit facility and project loans amount to $161,850 ($243,602 in 2018).
a. Corporate Indebtedness
Revolving Term Credit Facility
The Corporation has access to a revolving term credit facility maturing in 2023. The available facility amount is $700,000
with an option, subject to the lender’s consent, to increase to a total amount of up to $900,000. The facility has covenants
requiring a minimum interest coverage and a maximum debt coverage ratios. The applicable interest rate on this revolving
credit facility is variable, based on the bank’s prime rate, bankers’ acceptance rates, US Base Rate, LIBOR or EURIBOR
plus a spread which depends on leverage ratio. As of December 31, 2019, an amount of $47,082 has been used to issue
letters of credit.
Moreover, the Corporation has access to a letter of credit facility of an amount of up to $90,000 guaranteed by Export
Development Canada. As of December 31, 2019, letters of credit have been issued for an amount of $54,344.
Subordinated Unsecured Term Loan
The Corporation has a subordinated unsecured term loan maturing in 2023 and repayable in full at maturity.
Unsecured Short-term Credit Facility Term Loan
The Corporation has repaid the unsecured short-term credit facility term loan with the net proceeds from the sale of its equity
interest in HS Orka. The facility was subsequently cancelled following its full repayment.
b. Convertible debentures
Redemption of the 4.25% Convertible Debentures
On September 5, 2019, the Corporation issued a notice of redemption and expiry of conversion privilege regarding the 4.25%
Convertible Debentures, for the aggregate principal amount of $100,000. Of that principal amount, $86,652 was converted
at the holders’ request into 5,776,795 common shares of the Corporation at a conversion price of $15 per share. The remaining
principal amount of $13,348 was redeemed at par on October 8, 2019, at a price of one thousand dollars per convertible
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p143
(in thousands of Canadian dollars, except as noted and amounts per share)
debenture, plus accrued and unpaid interest up to, but excluding, October 8, 2019. The redemption was financed with drawings
under the Corporation’s revolving term credit facility. On October 8, 2019, the 4.25% Convertible Debentures were delisted
from the TSX.
Issuance of 4.65% Convertible Debentures
On September 30, 2019, the Corporation issued an aggregate principal amount of $125,000 of 4.65% Convertible Debentures
at a price of a thousand dollars per convertible debenture, bearing interest at a rate of 4.65% per annum, payable semi-
annually on October 31 and April 30 each year, commencing on April 30, 2020. The convertible debentures are convertible
at the holder’s option into common shares of the Corporation at a conversion price of $22.90 per share, representing a
conversion rate of 43.6681 common shares per each thousand-dollar of principal amount of convertible debentures. The
convertible debentures mature on October 31, 2026. On or after October 31, 2022, and before October 31, 2024, Innergex
may redeem the debentures at par, plus accrued and unpaid interest, in certain circumstances. On or after October 31, 2024,
Innergex may redeem the debentures at par, plus accrued and unpaid interest. On October 2, 2019, the Corporation issued
an additional $18,750 aggregate principal amount of 4.65% Convertible Debentures following the exercise, in full, of the over-
allotment option by the underwriters.
Proceeds from issue of 4.65% convertible debentures
Transaction costs
Net proceeds
Amount classified as equity ($770 net of $279 of deferred income taxes)
Liability component of the convertible debentures at the time of issuance
143,750
(6,536)
137,214
(1,049)
136,165
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.
c. Tax Equity Financing and Project Loans
Tax equity investors in U.S. solar and wind projects generally require sponsor guarantees as a condition to their investment.
To support the tax equity investment in Phoebe and Foard City, 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.
Financing of the Foard City Wind Project and Term Conversion
On May 8, 2019, the Corporation entered into a construction and long-term credit agreement for the Foard City wind project.
Project loan
The credit agreement comprises two facilities:
•
•
A US$23,370 construction loan facility carrying an interest rate of LIBOR + 1.00%. On September 27, 2019, the
construction loan was converted into a term loan carrying an interest rate of LIBOR +1.75% for the first 4 years
following term conversion, and +1.88% thereafter until maturity. All of the variable interest rate exposure has been
hedged through an interest rate swap which became effective on September 30, 2019, resulting in a fixed interest
rate of 2.25%. The term loan is for a period of 7 years with principal payments due upon maturity. As at
December 31, 2019, an aggregate principal amount of US$22,383 ($29,072) was outstanding.
A US$267,540 tax equity bridge loan carrying an interest rate of LIBOR +1.00%. On September 27, 2019, the tax
equity bridge loan, which principal amount then aggregated to US$236,444 ($312,200), was reimbursed with the
proceeds from the tax equity investor’s contribution following the completion of commissioning activities.
Tax equity financing
The amount of the tax equity financing represents the proceeds received from the tax equity investor in exchange for
Class A shares in the subsidiary, aggregating to US$282,280 ($372,723), net of the allocation of U.S. renewable tax incentives
(PTCs), taxable income and cash distributions paid to date. The Foard City wind project is eligible to receive PTCs related
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p144
(in thousands of Canadian dollars, except as noted and amounts per share)
to its wind power generation for the first ten years of the project’s operations (until 2029). The Corporation anticipates the
Flip Point date of the Foard City tax equity financing to occur in 2029, coinciding with the period that the project will benefit
from the PTCs.
The tax equity investors' taxable income (losses), PTCs and cash distributions allocations are detailed in the table below.
After the Flip Point, the Foard City tax equity investors will retain a 5% financial interest in the project which will be accounted
for as non-controlling interests.
Taxable income (losses) and PTCs
Cash distributions
Pay-go contributions
Tax Equity Investors
99.0%
5.0%
Various 1
1. Prior to the Flip Point, pay-go contributions will be made by the tax equity investor at a rate of $25,00 per MWh for annual production
in excess of 1,165 GWh, up to a maximum of US$4,900 per year and an all-time maximum of US$36,485.
Financing of the Phoebe Solar Project and Term Conversion
On July 2, 2018, Innergex acquired Phoebe Energy Project, LLC and concurrently closed a construction and long-term project
financing.
Project loan
The financing agreement comprises two facilities or tranches:
• A US$115,864 construction loan carrying an interest rate of 1-month LIBOR +1.5%. On November 19, 2019, the
construction loan, which principal amount then aggregated to US$115,864 ($152,940) was converted into a term
loan carrying an interest rate of 3-month LIBOR +2.0% for the first four years and LIBOR +2.25% 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 5.32% thereafter); The term loan is for a period of 7 years with principal payments
beginning in 2020 and the remaining 85% of the principal will be due upon maturity on September 30, 2026. As at
December 31, 2019, an aggregate principal amount of US$111,589 ($144,931) was outstanding.
A US$176,225 tax equity bridge loan carrying an interest rate of 1-month LIBOR +1.5%. On November 19, 2019,
the tax equity bridge loan, which principal amount then aggregated to US$176,225 ($232,617), was reimbursed
with the proceeds from the tax equity investor’s contribution following the completion of commissioning activities.
•
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $4,819.
Tax equity financing
The amount of the tax equity financing represents the proceeds received from the tax equity investor in exchange for Class
A shares in the subsidiary, aggregating to US$184,564 ($244,281), net of the allocation of the U.S. renewable tax incentives
(ITCs), taxable income and cash distributions paid to date. During 2019, the construction of the Phoebe solar project has
generated ITCs, which were recognized as a reduction in the cost of the Phoebe property plant and equipment and allocated
to the tax equity investor as a reimbursement of the amount owed. The Corporation anticipates the Flip Point date of the
Phoebe tax equity financing to occur in 2026.
The tax equity investors' taxable income (losses), ITCs and cash distributions allocations are detailed in the table below.
After the Flip Point, the Phoebe tax equity investors will retain a 5% financial interest in the project which will be accounted
for as non-controlling interests.
Taxable income (losses) and ITCs
Cash distributions
Tax Equity Investors
99.0% 1
Various 2
1. Allocation of taxable income (loss) and ITCs will be 99% to the tax equity investor until February 15, 2020, then will be 66.67% from
February 15, 2020, to December 31, 2024, and return to 99.0% until the Flip Point.
2. Phoebe’s cash distribution amounts to the tax equity investor are fixed and defined within the partnership agreement. All amounts of
distributable cash above these fixed and defined distributions are distributed at the rate of 10.62% and 89.38% to the tax equity investor
and the Corporation, respectively.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p145
(in thousands of Canadian dollars, except as noted and amounts per share)
Yonne Project Loan Refinancing
On October 16, 2019, Innergex refinanced the Yonne project loan facilities. The initial loan facilities were comprised of the
following tranches:
•
•
A €14,864 loan bearing a variable interest rate at EURIBOR +1.90%, repayable in quarterly installments and maturing
in 2028. The balance on this loan was of €7,226 ($10,433) as at October 16, 2019.
A €44,600 loan bearing a variable interest rate at EURIBOR +1.95%, repayable in quarterly installments and maturing
in 2031. The balance on this loan was of €42,028 ($60,680) as at October 16, 2019.
Those loan facilities were refinanced into two new tranches:
•
•
A €33,800 ($48,800) loan bearing a fixed interest rate at 1.30%, repayable in quarterly installments and maturing
in 2035.
A €32,585 ($47,046) loan bearing a fixed interest rate at 1.30%, repayable in quarterly installments and maturing
in 2031.
Stardale Refinancing
On December 20, 2019, Innergex amended the Stardale project long-term loan to extend the maturity period by two years
from 2030 to 2032. The loan bears interest at the BA rate plus an applicable credit margin. The principal repayments are
variable and are set at $2,989 for 2020.
The refinancing was accounted for as a debt modification under IFRS 9. 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 of $2,883 was recognized in the consolidated statement
of earnings under Other net (revenues) expenses.
The lenders also agreed to make available a letter of credit facility in an amount not to exceed $7,869.
22. OTHER LIABILITIES
Contingent
considerations
Asset
retirement
obligations
Interests
payable
on SM
S.E.C.
debenture
Future
ownership
rights
Pension
fund
obligations
Below
market
contracts
Lease
liabilities
Total
As at January 1, 2019
1,762
88,659
18,002
21,883
26,926
16,618
— 173,850
Adoption of IFRS 16
(Note 2)
Business disposal
(Note 5)
New obligations
Interest expense
Accretion expense
included in finance
cost
included in finance
cost
Remeasurement
Payment of lease
liabilities
Impact of foreign
exchange fluctuations
As at December 31,
2019
Current portion of other
liabilities
Long-term portion of
other liabilities
—
—
—
—
54
—
—
—
—
—
16,528
—
—
—
—
4,064
3,392
15,582
—
(2,790)
—
—
—
—
—
—
—
—
1,049
8,468
—
—
1,816
121,371
22,066
31,400
(761)
—
—
—
1,055
121,371
22,066
31,400
—
— 122,270
122,270
(26,926)
—
(16,618)
—
— (43,544)
16,528
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,882
4,064
4,495
30,932
(4,756)
(4,756)
(4,608)
(7,398)
— 119,788
296,441
—
(3,259)
(4,020)
— 116,529
292,421
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p146
(in thousands of Canadian dollars, except as noted and amounts per share)
Contingent
considerations
Asset
retirement
obligations
Interests
payable on
SM S.E.C.
debenture
Future
ownership
rights
Pension
fund
obligations
Below
market
contracts
Total
1,950
40,678
13,458
23,921
—
—
80,007
33,617
—
—
4,544
—
—
63
—
—
—
(251)
2,194
11,070
—
—
—
—
1,100
—
—
1,008
(3,046)
—
—
—
—
27,841
20,131
81,589
—
—
—
539
—
—
—
—
—
—
4,544
3,265
8,024
539
(2,381)
(2,381)
—
(251)
(1,454)
(1,132)
(1,486)
—
—
—
—
—
—
1,762
88,659
18,002
21,883
26,926
16,618
173,850
(505)
—
—
—
—
—
(505)
1,257
88,659
18,002
21,883
26,926
16,618
173,345
As at January 1, 2018
Liability assumed as
part of the business
acquisition (Note 4)
Interest expense
included in finance
cost
Accretion expense
included in finance
cost
Remeasurement
Changes 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
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.
The cash flows were discounted at rates between 1.24% and 4.35% as at December 31, 2019 (2.31% to 4.70% in 2018) to
determine the obligations.
c.
Interest payable on SM S.E.C. debenture
In 2014, a debenture was issued by Innergex Sainte-Marguerite L.P. to Régime de Rentes du Mouvement Desjardins (''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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p147
(in thousands of Canadian dollars, except as noted and amounts per share)
d. Future ownership rights
Other liabilities includes various liabilities related to future ownership rights owned by First Nations for the Upper Lillooet River,
Boulder Creek, Big Silver Creek and Tretheway Creek facilities, the counterpart of which is capitalized into the intangible assets.
e. Pension fund obligations and below market contracts
During the year ended December 31, 2019, the Corporation disposed of its ownership interests in the subsidiary HS Orka which
included their pension fund and below market contracts obligations.
f. Lease liabilities
The Corporation enters into various leases for the conduct of its operations. The main portion of the leases relate to the right
of use of land, mainly for the Corporation's installed wind turbines and solar panels. The land leases run for various number of
years, with subsequent options to renew, which the Corporation expects to exercise up to its projects' respective expected
useful lives. The majority of leases provide for additional rent payments that are based on changes in local price indices.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p148
(in thousands of Canadian dollars, except as noted and amounts per share)
23. 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
Issued and fully paid
Beginning of the year
Issued following the Alterra acquisition (Note 4 b)
Issued through dividend reinvestment plan
Exercise of share options
Conversion of debentures (Note 21)
Buybacks
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, 2019
December 31, 2018
132,986,850
—
169,450
472,737
5,776,795
—
139,405,832
(203,416)
(170,000)
72,692
(300,724)
139,105,108
108,608,083
24,327,225
748,754
—
—
(697,212)
132,986,850
(273,762)
—
70,346
(203,416)
132,783,434
On May 21, 2019, 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 New Bid). Under the New Bid, the Corporation could purchase for
cancellation up to 2,000,000 of its common shares, representing approximately 1.5% of the 133,559,963 issued and outstanding
common shares of the Corporation as at May 15, 2019. The Bid commenced on May 24, 2019 and will terminate on May 23,
2020. No common shares have been purchased and cancelled in 2019 (697,212 in 2018).
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.
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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p149
(in thousands of Canadian dollars, except as noted and amounts per share)
For each five-year period after the Initial Fixed Rate Period (each a ”Subsequent Fixed Rate Period”), the holders of the Series
A Preferred Shares will be entitled to receive fixed cumulative preferential cash dividends as and when declared by the Board
of Directors. The dividends will be payable quarterly in an annual amount per Series A Preferred Share equal to the sum of
the yield on a Government of Canada bond with a five-year term to maturity on the applicable fixed rate calculation date, plus
2.79% applicable to such Subsequent Fixed Rate Period multiplied by $25.00.
Each holder of Series A Preferred Shares will have the right, at its option, to convert all or any of its Series A Preferred Shares
into the Series B Preferred Shares of the Corporation on the basis of one Series B Preferred Share for each Series A Preferred
Share converted, subject to certain conditions, on January 15, 2016, and on January 15 every five years thereafter.
The 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) Equity-based compensation
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.
During 2019, 2,122,764 share options were exercised resulting in 472,737 common shares issued. The difference between
the 2,122,764 options exercised and the 472,737 common shares issued is 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 78,142 share options were granted during 2019. The options granted under the share options 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 27, 2026 at
an exercise price of $14.41.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p150
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table summarizes outstanding share options of the Corporation as at December 31, 2019 and 2018:
December 31, 2019
December 31, 2018
Number of options
(000's)
Weighted average
exercise price ($)
Number of options
(000's)
Weighted average
exercise price ($)
Outstanding - beginning of year
Granted during the year
Exercised during the year
Outstanding - end of year
Options exercisable - end of year
2,782
78
(2,122)
738
589
10.14
14.41
9.85
11.52
10.78
2,782
—
—
2,782
2,661
10.14
—
—
10.14
9.94
The following options were outstanding and exercisable as at December 31, 2019:
Year of granting
Number of options
outstanding (000's)
Exercise price ($)
Number of options
exercisable (000's)
Year of maturity
2010
2013
2014
2016
2017
2019
158
134
165
126
77
78
738
8.75
9.13
10.96
14.65
14.52
14.41
158
134
165
94
38
—
589
2020
2020
2021
2023
2024
2026
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 following assumptions were used to estimate the fair value of the options issued to grantees during the year:
Risk-free interest rate
Expected annual dividend per common share
Expected life of options
Expected volatility
December 31, 2019
$
1.57%
0.70
6
20.25%
The weighted average contractual life of the outstanding share options is five years. Expected volatility is estimated by
considering historic average share price volatility.
Performance Share Plan (the ''PSP Plan'')
The goal of the PSP Plan is to motivate the executive officers to create long-term economic value for the Corporation and its
shareholders. This portion of the Equity-Based Incentive Plan focuses executive officers on delivering business performance
over the next three years against the total shareholder value 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p151
(in thousands of Canadian dollars, except as noted and amounts per share)
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, 2019
DSU
PSP
December 31, 2018
DSU
PSP
264
343
(175)
17
449
56
22
—
3
81
368
—
(118)
14
264
28
26
—
2
56
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 $4,613 was recorded during the year ended December 31, 2019 with respect to the PSP and
DSU plan ($2,089 in 2018).
e) Dividend Reinvestment Plan (''DRIP'')
The Corporation implemented a DRIP for its shareholders. The plan allows eligible common shareholders the opportunity to
reinvest a portion or all of the dividends they receive to purchase additional common shares of the Corporation, without paying
fees such as brokerage commissions and service charges. Shares will either be purchased on the open market or issued
from treasury. During the year ended December 31, 2019, 169,450 shares (748,754 shares in 2018) were issued from treasury
under the DRIP.
f) Dividend Declared on common shares
The following dividends were declared on common shares by the Corporation:
Dividends declared on common shares ($/share)
Year ended December 31
2018
2019
0.70
0.68
Dividend Declared on common shares not recognized at the end of the reporting period
The following dividends will be paid by the Corporation on April 15, 2020:
Date of
announcement
02/27/2020
Record date
3/31/2020
Payment date
4/15/2020
Dividend per
common share ($)
0.1750
Dividend per Series A
Preferred Share ($)
Dividend per Series C
Preferred Share ($)
0.2255
0.359375
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p152
(in thousands of Canadian dollars, except as noted and amounts per share)
24. 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
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
Total
Balance as at January 1, 2019
Business disposal (Note 5)
Exchange differences on translation of
foreign operations
Hedging gain (loss) of the reporting
period
Share of non-controlling interest
Related deferred tax
Balance as at December 31, 2019
6,947
17,061
(31,713)
—
449
—
(7,256)
(6,341)
(25,887)
—
—
4,021
(469)
(540)
(3,329)
(61)
—
23,688
3,826
(3,145)
(1,579)
(8,795)
6,112
—
(1,872)
—
1,488
(3,067)
(416)
416
—
—
—
—
—
(34,492)
23,528
(31,713)
25,837
3,806
(2,197)
(15,231)
Foreign currency
translation
differences for
foreign operations
Foreign exchange
(loss) gain on the
designated hedges
on the net
investments in
foreign operations
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
Total
Balance as at January 1, 2018
Discontinued operations
Exchange differences on translation of
foreign operations
Hedging loss of the reporting period
Share of non-controlling interest
Related deferred tax
Balance as at December 31, 2018
1,061
(17,061)
22,786
—
(44)
205
6,947
(1,074)
—
—
(6,199)
287
645
(6,341)
9,279
61
—
(49,404)
450
13,727
(25,887)
663
(6,112)
—
(59)
—
(3,287)
(8,795)
—
(416)
—
—
—
—
(416)
9,929
(23,528)
22,786
(55,662)
693
11,290
(34,492)
Innergex Renewable Energy Inc.
2019 Third Quarter
Notes to the Condensed Consolidated Financial Statements p153
(in thousands of Canadian dollars, except as noted and amounts per share)
25. ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF
CASH FLOWS
a. Changes in non-cash operating working capital items
Accounts receivable
Prepaid and others
Accounts payable and other payables
b. Additional information
Finance costs paid relative to operating activities before interest
on leases
Interest on leases paid relative to operating activities
Capitalized interest relative to investing activities
Capitalized interest on leases relative to investing activities
Total finance costs paid
Non-cash transactions:
Unpaid property, plant and equipment
Unpaid long term assets
Unpaid intangible assets
Unpaid project development costs
Common shares issued through the conversion of convertible
debentures
Common shares issued through share options exercised
Shares vested in PSP plan
Remeasurement of asset retirement obligations
New asset retirement obligations
Remeasurement of lease liabilities
Remeasurement of future ownership rights
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
Investment tax credits
Year ended December 31
2019
2018
(5,315)
(1,509)
29,226
22,402
9,261
2,161
(20,070)
(8,648)
Year ended December 31
2019
2018
(194,726)
(1,189)
(16,438)
(1,949)
(214,302)
21,456
(2,000)
—
(919)
86,652
1,323
1,057
15,582
16,528
6,882
8,468
2,402
—
(13,753)
—
179,071
(170,960)
—
(5,031)
—
(175,991)
5,099
—
(169)
919
—
—
948
11,070
—
—
(3,046)
9,929
330,607
13,154
(507)
—
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p154
(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 year
Reclassified as held for sale
Increase of long-term debt
Repayment of long-term debt
Payment of deferred financing costs
Business acquisitions (Note 4)
Investment tax credits
Tax attributes
Production tax credits
Other non-cash finance costs
Net foreign exchange differences
Long-term debt at end of year
Changes in convertible debentures
Convertible debentures at beginning of year
Issuance of convertible debentures issued
Transaction costs
Redemption of convertible debentures
Convertible debentures converted into common shares
Amount classified as equity
Accretion of convertible debentures
Convertible debentures at end of year
Year ended December 31
2019
2018
4,469,749
(96,515)
1,707,358
(1,323,827)
(20,386)
—
(179,071)
(88,402)
(11,238)
21,860
(66,686)
4,412,842
238,648
143,750
(6,536)
(13,348)
(86,652)
(709)
3,674
278,827
3,153,262
—
2,053,185
(1,111,079)
(26,736)
333,800
—
(764)
—
17,866
50,215
4,469,749
96,246
150,000
(6,910)
—
—
(2,865)
2,177
238,648
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p155
(in thousands of Canadian dollars, except as noted and amounts per share)
26. SUBSIDIARIES
Details of non-wholly-owned subsidiaries that have non-controlling interests
Name of subsidiaries
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
Others
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,
2019
Dec. 31,
2018
Dec. 31,
2019
Dec. 31,
2018
Dec. 31,
2019
Dec. 31,
2018
Canada
49.99%
49.99%
(6,041)
(1,607)
45,235
51,276
Canada
—%
—%
—
(5,192)
—
—
Canada
50.00%
50.00%
(755)
(1,048)
(12,970)
(12,216)
Canada
50.00%
50.00%
8,886
9,156
(6,663)
(3,794)
Canada
49.99%
49.99%
(2,497)
(2,157)
(11,268)
(8,771)
Canada/
Europe
Iceland
Canada
30.45%
30.45%
(4,409)
(5,478)
(3,080)
4,862
—%
Various
46.10%
Various
2,133
(487)
(3,170)
921
(17)
(5,422)
—
(312)
10,942
282,665
(1,246)
312,776
1.The Corporation owns more than 50% of the economic interest in the subsidiary.
2. In 2019, the Corporation sold its wholly-owned subsidiary Magma Energy Sweden A.B. (''Magma Sweden") which owned an equity
interest of approximately 53.9% in HS Orka hf, owner of two operating geothermal power plants in Iceland; Svartsengi and Reykjanes.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p156
(in thousands of Canadian dollars, except as noted and amounts per share)
Summarized financial information in respect of each of the Corporation's subsidiaries that has material non-controlling interests is set out below. The summarized financial
information below represents amounts before intragroup eliminations.
Harrison
Kwoiek
Mesgi'g Ugju's'n
Sainte-Marguerite
Innergex Europe
Year ended December 31, 2019
Summary Statements of Earnings and
Comprehensive income (loss)
Revenues
Expenses
Net (loss) earnings
Other comprehensive loss
Total comprehensive (loss) income
Net (loss) earnings attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
Summary Statements of Cash Flows
Net cash inflow from operating activities
Net cash (outflow) from financing activities
Net cash (outflow) inflow from investing activities
Net increase (decrease) in cash and cash equivalents
40,175
52,259
(12,084)
—
(12,084)
(6,043)
(6,041)
(12,084)
(6,043)
(6,041)
(12,084)
15,807
(10,986)
(626)
4,195
18,014
19,524
(1,510)
—
(1,510)
(755)
(755)
(1,510)
(755)
(755)
(1,510)
5,000
(1,650)
(191)
3,159
62,880
30,717
32,163
—
32,163
23,277
8,886
32,163
23,277
8,886
32,163
46,912
(35,253)
(14,035)
(2,376)
Distributions paid to non-controlling interests
—
—
11,466
9,283
14,277
(4,994)
—
(4,994)
(2,497)
(2,497)
(4,994)
(2,497)
(2,497)
(4,994)
1,132
(527)
(215)
390
—
94,474
108,954
(14,480)
(11,199)
(25,679)
(10,071)
(4,409)
(14,480)
(17,737)
(7,942)
(25,679)
36,509
(17,690)
3,521
22,340
—
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p157
(in thousands of Canadian dollars, except as noted and amounts per share)
Harrison
Kwoiek
Mesgi'g Ugju's'n
Sainte-Marguerite
Innergex Europe
Year ended December 31, 2018
Summary Statements of Earnings and
Comprehensive income (loss)
Revenues
Expenses
Net (loss) earnings
Other comprehensive (loss) income
Total comprehensive (loss) income
Net (loss) earnings attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
Summary Statements of Cash Flows
Net cash inflow (outflow) from operating activities
Net cash (outflow) inflow from financing activities
Net cash (outflow) inflow from investing activities
Net (decrease) increase in cash and cash equivalents
50,509
54,681
(4,172)
—
(4,172)
(2,565)
(1,607)
(4,172)
(2,565)
(1,607)
(4,172)
8,293
(10,537)
(1,585)
(3,829)
17,899
19,995
(2,096)
—
(2,096)
(1,048)
(1,048)
(2,096)
(1,048)
(1,048)
(2,096)
(2,049)
(1,592)
267
(3,374)
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
Distributions paid to non-controlling interests
—
—
9,202
11,246
15,561
(4,315)
—
(4,315)
(2,158)
(2,157)
(4,315)
(2,158)
(2,157)
(4,315)
2,672
(3,070)
(206)
(604)
—
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
—
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p158
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity (deficit) attributable to owners
Non-controlling interests (deficit)
Summary Statements of Financial Position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity (deficit) attributable to owners
Non-controlling interests (deficit)
As at December 31, 2019
Harrison
Kwoiek
Mesgi'g Ugju's'n
Sainte-Marguerite
Innergex Europe
17,201
575,070
592,271
16,700
448,022
82,314
45,235
592,271
5,962
167,091
173,053
7,355
202,354
(23,686)
(12,970)
173,053
21,356
277,945
299,301
248,264
20,641
37,059
(6,663)
299,301
1,522
124,121
125,643
7,688
124,010
5,213
(11,268)
125,643
54,565
888,895
943,460
100,966
898,280
(52,706)
(3,080)
943,460
As at December 31, 2018
Harrison
Kwoiek
Mesgi'g Ugju's'n
Sainte-Marguerite
Innergex Europe
20,642
587,713
608,355
17,480
451,381
88,218
51,276
608,355
4,306
169,408
173,714
5,428
191,784
(11,282)
(12,216)
173,714
23,533
276,142
299,675
12,500
246,394
44,575
(3,794)
299,675
1,542
126,863
128,405
6,550
122,915
7,711
(8,771)
128,405
40,787
957,524
998,311
140,042
888,376
(34,969)
4,862
998,311
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p159
(in thousands of Canadian dollars, except as noted and amounts per share)
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 three 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).
27. RELATED PARTY TRANSACTIONS
a) 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
b) Transactions with partners
Year ended December 31
2019
2018
6,685
853
1,764
64
9,366
6,073
738
1,769
69
8,649
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 22c)
Magpie's convertible debenture to the municipality
Innergex Europe (2015) Limited Partnership's debenture to RRMD
The Corporation's partner made a loan to Kwoiek Creek Resources L.P.
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.
A $77,957 debenture was issued by Innergex Europe (2015) Limited Partenership's to RRMD. 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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p160
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
28. FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES
Fair value disclosures
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable approximation of fair value.
Further, for the current year the fair value disclosure of lease liabilities is also not required. The Corporation determined
that the carrying values of its current financial assets and liabilities, as well as their government-backed securities included
in reserve accounts, was within reasonable proximity of their respective fair values due to their shorter-term maturities and
high liquidity.
Fair value
level
As at December 31, 2019
Carrying
amount
Fair value
As at December 31, 2018
Carrying
amount
Fair value
Level 2
2,000
2,000
—
—
Non-current financial assets measured
at amortized cost
Other investments included in other long-
term assets
Non-current financial liabilities
measured at amortized cost
Long-term loans and borrowings
Level 2
4,691,669
4,808,403
4,708,397
4,875,075
Derivative financial instruments
measured at fair value
Interest rate swaps
Foreign exchange forwards
Power and basis hedges
Inflation provisions
Embedded derivatives
Level 2
Level 2
Level 3
Level 3
Level 2
(83,536)
(24,269)
27,757
—
—
(83,536)
(24,269)
27,757
—
—
(53,409)
(32,129)
(4,849)
982
(53,409)
(32,129)
(4,849)
982
(46,409)
(46,409)
Equity investments
The valuation model is based on market multiples derived from quoted prices of companies comparable to the investee,
adjusted for the effect of the non-marketability of the equity securities, and the revenue and EBITDA of the investee. The
estimate is adjusted for the net debt of the investee.
Other investments
The valuation model considers the present value of expected payments, discounted using a risk-adjusted discount rate.
Long-term loans and borrowings
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
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p161
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Interest rate swaps
The fair value is calculated as the present value of the estimated future cash flows. Estimated cash flows are discounted
using a yield curve constructed from similar sources and which reflects the relevant benchmark interbank rate used by
market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk
adjustment that reflects the credit risk of the Corporation and of the counterparty.
Foreign exchange forwards
The fair value is calculated as the present value of the estimated future cash flows, representing the differential between
the value of the contract at maturity and the value determined using the exchange rate the financial institution would use
if the same contract was renegotiated at the statement of financial position date. The fair value estimate is subject to a
credit risk adjustment that reflects the credit risk of the Corporation and of the counterparty, considering the offsetting
agreements, as applicable.
Power hedges
The fair value calculation of power and basis hedges gives rise to measurement uncertainty as the power price curves are
constructed using various methodologies and assumptions, which consider certain unobservable market data. As at
December 31, 2019, the forward power prices used in the calculation of fair value were as follows:
Power hedge:
ERCOT South hub forward power prices are expected to be in a range of US$8.92 to US$135.37 per MWh
between January 1, 2020 and June 30, 2031.
Basis hedge:
ERCOT South hub forward power prices are expected to be in a range of US$20.74 to US$135.37 per MWh
between January 1, 2020 and December 31, 2021;
Phoebe node forward power prices are derived using a historical spread against the ERCOT South hub of US
$23.87 per MWh.
Further information is provided below with regards to the methodology for constructing the forward power price curves.
Phoebe power hedge: The fair value of the power hedge is derived from forward power prices that are not based on
observable market data for the entirety of the contracted period. The power ERCOT South hub forward price curves are
constructed using various assumptions depending on the following observable market data available as of the valuation
date: (1) observable monthly market prices through December 2025 for the ERCOT South hub; (2) 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 2030, adjusted for seasonality based on calendar year 2019; and (3) the last
year’s monthly prices multiplied by a factor of inflation.
Phoebe basis hedge: The fair value of the basis hedge is derived from observable forward power prices at the ERCOT
South hub for the duration of the contract period and a Phoebe node forward price curve constructed using various
assumptions depending on the following observable market data available as of the valuation date: (1) forward power
prices at the ERCOT South hub for the duration of the contract period; (2) historical spread between the ERCOT South
hub and the Phoebe node prices from July 2019 onwards (“Observable Period”); and (3) historical spread prior to July
2019 between the ERCOT South hub and a proxy to the Phoebe node, adjusted for the average price differential between
the Phoebe node and its proxy during the Observable Period. The fair value estimate is subject to a credit risk adjustment
that reflects the credit risk of the Corporation and of the counterparty.
Financial risk management
The Corporation is exposed to a variety of financial risks: market risk (e.g. interest rate, foreign exchange, and power price
and others), credit risk and liquidity risk. The Corporation’s objective with respect to financial risk management is to secure
the long-term internal rate of return of its energy projects by mitigating uncertainty related to the fluctuation of certain key
variables.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p162
(in thousands of Canadian dollars, except as noted and amounts per share)
Management is responsible for establishing controls and procedures to ensure that financial risks are managed within
acceptable levels. The Corporation does not use derivative financial instruments for speculative purposes.
a. 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 interest rate, foreign exchange, and power price risks.
(i)
Interest rate risk
Interest rate risk is the risk that the future cash flow or fair value of a financial instrument will fluctuate due to changes
in market interest rates. Financial assets and liabilities with variable interest rates expose the Corporation to interest
rate risk with respect to its cash flow. The risk that the Corporation will realize a loss as a result of a decline in the fair
value of any short term securities included in cash and cash equivalents and short-term investments is limited because
these investments, although readily convertible into cash, are generally held to maturity.
The Corporation’s cash flow exposure to interest rate risk relates principally to floating rate long-term loans and
borrowings. Management mitigates this risk by entering into fixed rate financing agreements or interest rate swap
agreements related to its floating rate financing agreements. From time to time, the Corporation may enter into bond
forward contracts to pre-hedge the interest rate risk related to future debt issuances by locking-in an interest rate
during the period leading to the execution of the financing agreement.
The Corporation has designated the following derivative financial instruments as cash flow hedges1:
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p163
(in thousands of Canadian dollars, except as noted and amounts per share)
Project
Corporate
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Alterra
Alterra
Hydroelectric segment
Ashlu Creek
Fitzsimmons Creek
Wind segment
Rougemont 1
Rougemont 2
Rougemont 2
Vaites
Cartier
Mesgi'g Ugju's'n
Yonne
Cholletz
Foard City
Foard City
Solar Segment
Stardale
Phoebe
Phoebe
Kokomo
Spartan
Notional
Currency
2
Variable
rate
Swap
Rate
Maturit
y
Early
terminatio
n option
Notional Amounts
December 31,
2019
December 31,
2018
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
EURO
EURO
EURO
EURO
CAD
CAD
EURO
EURO
USD
USD
CAD
USD
USD
USD
USD
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
CDOR
2.18% 2027
2.33% 2028
2.33% 2028
2.33% 2024
2.30% 2024
4.25% 2031
1.89% 2029
1.92% 2029
2.08% 2034
2.12% 2034
2.24% 2049
2.19% 2049
2.16% 2023
2.32% 2023
CDOR
CDOR
4.61% 2035
2.85% 2041
EURIBOR 1.30% 2032
EURIBOR 1.30% 2032
EURIBOR 1.48% 2032
EURIBOR 1.28% 2032
2.83% 2032
1.91% 2026
EURIBOR 0.78% 2031
EURIBOR 2.64% 2030
2.07% 2029
2.43% 2029
LIBOR
LIBOR
CDOR
CDOR
CDOR
LIBOR
LIBOR
LIBOR
LIBOR
3.60% 2032
2.63% 2019
3.07% 2037
1.85% 2026
2.31% 2024
2023
2023
2023
2019
2019
2020
2023
2023
2029
2023
2029
2029
None
None
2025
2021
None
None
None
None
None
None
None
None
2026
2026
None
None
2026
None
None
20,000
30,000
52,600
20,000
20,000
33,205
20,000
20,000
20,000
20,000
20,000
25,000
29,000
49,000
88,219
17,642
61,822
37,732
34,253
66,178
530,982
84,872
—
12,778
14,956
14,117
71,666
—
135,435
5,603
12,237
20,000
30,000
52,600
20,000
20,000
35,182
—
—
—
—
—
—
29,000
49,000
89,438
18,017
70,201
42,862
38,909
75,336
569,361
91,464
69,128
14,942
—
—
75,141
214,679
142,255
6,200
13,403
1. The Corporation applies a hedge ratio of 1:1 and determines the existence of an economic relationship between the hedging
instrument and hedged item based on the reference interest rates, maturities and the notional amounts. The Corporation assesses
whether the derivative designated in each hedging relationship is expected to be effective in offsetting changes in cash flows of
the hedged item using the hypothetical derivative method.
2. USD swaps are converted at a fixed rate of CAD 1.2988 and EURO swaps are converted at a fixed rate of CAD 1.4583
1,567,297
1,787,118
Interest rate hedging instruments entered into during the year ended December 31, 2019
On May 8, 2019 and June 5, 2019, the Corporation entered into eight US$ denominated interest rate swap agreements
to mitigate the interest rate risk related to the Foard City term loan. The notional amounts of these contracts as at
December 31, 2019 totals US$22,383 ($29,073) and will mature in 2029. The fair value is based on Level 2 valuation
techniques. The Corporation designated the interest rate swaps as cash flow hedges for accounting purposes.
On July 18, 2019 and July 22, 2019, the Corporation entered into six interest rate swap agreements to mitigate the
interest rate risk on the revolving credit facilities held by the Corporation. The notional amounts of these contracts as
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p164
(in thousands of Canadian dollars, except as noted and amounts per share)
at December 31, 2019 totals $125,000 and mature between 2029 and 2049. The fair value is based on Level 2 valuation
techniques. The Corporation designated the interest rate swaps as cash flow hedges for accounting purposes.
On October 9, 2019, Innergex terminated the two interest rate swaps for the Yonne project for a cost of €2,836 ($4,144)
corresponding to its net book value at that date. The loss accumulated in the Other Comprehensive Income will be
amortized until the end of 2031, the period remaining to the swaps prior to termination. As of December 31, 2019, the
unamortized balance aggregates to €2,254 ($3,380).
On December 20, 2019, due to the debt refinancing of the Stardale project, the Corporation terminated the two interest
rate swap agreements relating to this project and entered into two new interest rate swap agreements covering the
extended maturity period of the debt. The fair value of the new interest rate swaps was equivalent to the fair value of
the terminated swaps. The notional amounts of these agreements as at December 31, 2019 total $71,666 and will
mature in 2032. The Corporation designated the interest rate swaps as cash flow hedges for accounting purposes.
Sensitivities
A reasonably possible change of 10 basis points in interest rates at the reporting date would have increased (decreased)
earnings (loss) and other comprehensive income (loss) by the amounts shown below. This analysis assumes that all
other variables remain constant.
Earnings (loss)
Other comprehensive income
(loss)
10 bps
increase
10 bps
decrease
10 bps
increase
10 bps
decrease
600
(719)
9,555
(9,445)
1,044
(1,058)
8,821
(8,849)
December 31, 2019
Interest rate swaps
December 31, 2018
Interest rate swaps
(ii) Foreign exchange risk
Foreign exchange risk is the risk that future cash flows or fair value of a financial instrument will fluctuate because of
changes in foreign exchange rates, namely the U.S. dollar and Euro against the Canadian dollar.
The Corporation is exposed to transactional foreign currency risk to the extent that there is a mismatch between the
currencies in which sales, purchases, receivables and borrowings are denominated and the respective functional
currencies of the Corporation and its subsidiaries. Other than during the construction of renewable energy projects,
such transactional risks are limited given the majority of transactions are made in the respective functional currencies
of the Corporation or its subsidiaries.
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 has designated the following derivative financial instruments as net investment hedges1:
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p165
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Foreign exchange forwards amortizing until
2042, allowing conversion at a fixed rate of CAD
1.7340/Euro
Foreign exchange forwards amortizing until
2041, allowing conversion at a fixed rate of CAD
1.6850/Euro
Foreign exchange forwards amortizing until
2043, allowing conversion at a fixed rate of CAD
1.7654/Euro
Foreign exchange forwards amortizing until
2043, allowing conversion at a fixed rate of CAD
1.7804/Euro
Maturity
Early
termination
option
Notional Amounts
December 31,
2019
December 31,
2018
2020
none
154,653
156,364
2020
none
46,377
47,949
2021
none
103,630
111,945
2021
none
155,873
159,538
2021
none
75,002
535,535
77,896
553,692
1. The applies a hedge ratio of 1:1. The Corporation determines the existence of an economic relationship between the hedging
instrument and hedged item based on the currency and notional amounts. The Corporation assesses whether the derivative
designated in each hedging relationship is expected to be effective in offsetting changes in cash flows of the hedged item using
the hypothetical derivative method.
Sensitivities
A reasonably possible 1% strengthening (weakening) of the Euro against the Canadian Dollar at the reporting date
would have increased (decreased) earnings (loss) and other comprehensive income (loss) by the amounts shown
below. This analysis assumes that all other variables remain constant.
Earnings (loss)
Other comprehensive income
(loss)
1% increase
1% decrease
1% increase
1% decrease
December 31, 2019
Foreign exchange forwards
(4,852)
4,855
535
(537)
December 31, 2018
Foreign exchange forwards
(4,710)
4,705
453
(447)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p166
(in thousands of Canadian dollars, except as noted and amounts per share)
(iii) Power price risk
Power price risk is the risk that future cash flows or fair value of a financial instrument will fluctuate because of changes
in market prices of electricity.
Most sales of electricity are made pursuant to long-term agreements where the offtakers are committed to take and
pay for the total production at pre-determined prices, up to certain annual limits and generally subject to annual inflation.
For some of the Corporation’s facilities, power generated is sold on the open market and supported by power hedges
to address market price risk exposure.
Phoebe power hedge
On July 2, 2018, the Corporation acquired, through its subsidiary, Alterra Power Corp, the assets of the Phoebe solar
project, including a 12-year power hedge, effective from July 1, 2019 to June 30, 2031. On the acquisition date, the
power hedge was measured at its fair value of US$16.1 million. As of that date, it was designated for hedge accounting
purposes. Subsequent changes in the fair value of the power hedge were mainly recognized through other
comprehensive income. To determine the fair value of the Phoebe power hedge and support the hedge effectiveness
testing for hedge accounting purposes, forward prices of the ERCOT South Hub and the Phoebe Node were required,
however quoted forward market prices at the hub were limited and forward prices were unavailable at the node. The
Phoebe project started delivering energy at the node in June 2019 and commenced delivering energy under the power
hedge on July 1, 2019. Until September 30, 2019, the price differential risk between the hub and the node (or “basis
differential” risk) had been assumed negligible for this purpose until evidence that changes in the Phoebe Node prices
were not closely aligned with changes in the ERCOT South Hub prices. In light of this new information, Management
revised, effective October 1, 2019, its methodology to derive forward node prices in order to more accurately reflect
the basis differential risk, which resulted in the Phoebe power hedge no longer meeting the hedge effectiveness criteria.
Since the forecasted transactions are still expected to occur, the cumulative changes in fair value, totaling $36,532
as at December 31, 2019, recognized in accumulated other comprehensive income at the hedge relationship cessation
date will remain and be reclassified to revenue over the remaining term of the power hedge. Subsequent changes in
the fair value of the derivative instrument will be recognized in the consolidated statement of earnings, as unrealized
net loss (gain) on financial instruments.
Sensitivities
A reasonably possible change of 10% in the forward ERCOT South Hub prices at the reporting date would have
increased (decreased) earnings (loss) and other comprehensive income (loss) by the amounts shown below. This
analysis assumes that all other variables remain constant.
December 31, 2019
Power hedge
December 31, 2018
Power hedge
Earnings (loss)
Other comprehensive income
(loss)
10 % increase
10% decrease
10 % increase
10% decrease
(18,249)
18,195
—
—
—
—
(21,069)
21,068
Phoebe basis hedge
On August 2, 2019, the Corporation entered into a 2-year basis hedge, effective November 1, 2019 to December 31,
2021, in order to mitigate the basis differential risk. The basis hedge is accounted for at fair value, with subsequent
changes being recognized in the consolidated statement of earnings as unrealized net loss (gain) on derivative financial
instruments. The change in fair value recognized as an unrealized net loss on derivative financial instruments amounted
$47,977 in fiscal 2019.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p167
(in thousands of Canadian dollars, except as noted and amounts per share)
Sensitivities
A reasonably possible change of 100bps in the spread between the forward ERCOT South Hub and the Phoebe node
prices at the reporting date would have increased (decreased) earnings (loss) and other comprehensive income (loss)
by the amounts shown below. This analysis assumes that all other variables remain constant.
Earnings (loss)
Other comprehensive income
(loss)
100 bps
increase
100 bps
decrease
100 bps
increase
100 bps
decrease
(1,487)
1,487
—
—
—
—
—
—
December 31, 2019
Basis hedge
December 31, 2018
Basis hedge
(iv) Hedge accounting
A fundamental review and reform of major interest rate benchmarks is being undertaken globally. There is uncertainty
as to the timing and the methods of transition for replacing existing benchmark interbank offered rates (IBORs) with
alternative rates. As a result of these uncertainties, significant accounting judgment is involved in determining whether
certain hedge accounting relationships that hedge the variability of foreign exchange and interest rate risk due to
expected changes in IBORs continue to qualify for hedge accounting as at December 31, 2019. IBOR continues to
be used as a reference rate in financial markets and is used in the valuation of instruments with maturities that exceed
the expected end date for IBOR. Therefore, the Corporation believes the current market structure supports the
continuation of hedge accounting as at December 31, 2019.
All the hedging instruments are accounted for in the current or non-current portion of derivative financial instruments
in the consolidated statements of financial position. As at December 31, 2019, the following items were designated
as hedging instruments to mitigate the interest rate risk, the power price risk and the foreign exchange risk:
Cash-flow hedges:
Interest rate risk
Interest rate swaps
Net investment hedges:
Foreign exchange risk
Foreign exchange forwards
Carrying amount of the hedging
instrument
Assets
Liabilities
Notional amount
of the hedging
instrument
1,567,292
2,003
(85,491)
63,775
1,371
(3,767)
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p168
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table summarizes the impact of hedge ineffectiveness and hedging gains or losses as at
December 31, 2019:
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
(38,888)
(792)
430
63,139
1,274
1,133
Cash-flow hedge:
Interest rate risk
Interest rate swaps
Power price risk
Power hedge 1
Hedge of net investment in a foreign operation:
Foreign exchange risk
Foreign exchange forwards
2,138
(39)
195
1. The balance of cash flow hedge reserve relating to power price risk for which hedge accounting is no longer applied is $36,532.
Ineffectiveness is accounted for in the unrealized net loss (gain) on financial instruments in the consolidated statements
of earnings.
For the hedge relationships covering the interest rate risk and the foreign exchange risk, 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.
b. Credit risk
Credit risk is the risk of financial loss to the Corporation that may arise from a party’s failure to meet its contractual
obligations. The maximum exposure to credit risk at the reporting date is the carrying value of the Corporation’s
financial assets.
(i) Cash and cash equivalents, restricted cash and reserves
As at December 31, 2019, the Corporation was holding cash and cash equivalents, restricted cash (Note 13) and
reserves included in other long-term assets (Note 15). The Corporation limits its counterparty credit risk on these
assets by dealing with highly rated, large Canadian financial institutions and, to a lesser degree, at major U.S. and
European financial institutions. The Corporation recorded no impairment on these financial assets.
(ii) Accounts receivable
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. These utility companies are highly rated by the various rating agencies.
Accounts receivable also include commodity taxes and investment tax credits which are receivable from governments,
mainly in relation with the development and construction of projects.
As at December 31, 2019, $3,616 ($62 in 2018) of trade and other receivables were more than 90 days overdue and
a total write-off of impaired receivables of $438 ($314 in 2018) was recorded during the year. Given that expected
credit losses are minimal, the expected credit losses by trade accounts receivable aging have not been presented.
(iii) Derivatives
A counterparty is deemed qualified to transact with the Corporation in interest rate or currency hedging transactions
if and so long as the counterparty is a bank, insurance company, investment dealer, investment bank or other financial
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p169
(in thousands of Canadian dollars, except as noted and amounts per share)
institution, or any affiliate of any of them whose long term debt is rated ‘A-‘(stable) (or its equivalent) or better from
any of (i) Standard & Poor’s Corporation (ii) Moody’s Investor Services Inc. (iii) DBRS Limited or (iv) Fitch Ratings.
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 $335,721 as at December 31, 2019 (negative working capital of
$413,015 in 2018). If necessary, the Corporation can use its revolving credit facilities of which $161,922 was available
as at December 31, 2019 ($143,455 in 2018). 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 15) and
is covered by insurance plans. The Corporation considers its current level of working capital to be sufficient to meet
its needs.
The following table presents the contractual cash flows of the financial liabilities:
Less than 1 year
Between 1 year
and 5 years
Over 5 years
Total
Non-derivatives financial
Accounts payable and other
payables
Long-term loans and borrowings
Other liabilities
Lease liabilities
Derivative financial liabilities
Interests rate swaps
Foreign exchange forwards
Power Hedge
Basis Hedge
Total
176,157
662,155
761
7,841
7,637
31,903
17,398
18,158
922,010
—
2,013,810
1,055
39,462
27,501
54,626
(5,080)
18,108
2,149,482
—
4,407,938
22,066
155,494
22,624
—
(141,112)
—
4,467,010
176,157
7,083,903
23,882
202,797
57,762
86,529
(128,794)
36,266
7,538,502
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p170
(in thousands of Canadian dollars, except as noted and amounts per share)
29. COMMITMENTS AND CONTINGENCIES
a. Power Purchase Agreements
Quebec facilities
Under PPAs with terms varying from 20 to 25 years and expiring between 2021 and 2039, 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, the Corporation and the Sekw’el’was Cayoose Creek Band announced that they reached an
agreement with the British Columbia Hydro and Power Authority (“BC Hydro”) for the renewal of the Walden North
Facility’s electricity purchase agreement (the “Walden PPA”). The renewed Walden PPA became effective as of April
1, 2018 and has a 40-year term. The Walden PPA is subject to approval by the British Columbia Utilities Commission
(“BCUC”).
On April 16, 2018, the Corporation announced that it reached an agreement with BC Hydro for the renewal of the
electricity purchase agreement of the Brown Lake Facility for a 40-year term (the “Brown Lake PPA”). The renewed
Brown Lake PPA became effective as of April 1, 2018 and is subject to approval by the BCUC.
By Order G-278-19, dated November 8, 2019 (“BCUC Order”), in the absence of an updated and approved Integrated
Resource Plan from BC Hydro (“IRP”), the BCUC declined to make any determination with regards to whether the
Walden PPA and the Brown Lake PPA are, as of the date of the BCUC Order, in the public interest. However, the
BCUC is prepared to consider accepting PPA renewals for periods shorter than 40 years to allow for the conclusion
of BC Hydro’s next IRP proceeding. The parties to the Brown Lake PPA are considering resubmitting to the BCUC a
restructured Brown Lake PPA with a term of no more than three years from the date of the BCUC Order, whereas the
parties to the Walden PPA are considering, for the time being, not to resubmit a restructured Walden PPA to the BCUC.
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.
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.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p171
(in thousands of Canadian dollars, except as noted and amounts per share)
Ashlu Creek facility
The ownership of the assets of the project will be transferred to a First Nation in 2049 for a nominal financial
consideration.
Boulder Creek facility
40% of the Corporation's ownership of the project will be transferred to the First Nation partner in 2057 for no financial
consideration.
Big Silver facility
A 50% ownership of the assets of the project will be transferred to one of the First Nations partners in 2056 for no
financial consideration.
Glen Miller facility
Glen Miller Power, Limited Partnership entered into a 30-year lease agreement, ending in December 2035, for the
site that is in commercial operation. The lease has a 15-year extension option upon terms and conditions to be
negotiated.
Glen Miller Power, Limited Partnership is committed to remit the facility to the lessor of the site, at the end of the lease
agreement, for no consideration.
Harrison Hydro L.P.
The ownership of Douglas Creek Project L.P. and Tipella Creek Project L.P. will be transferred to a First Nation in
2069 for no financial consideration.
Kwoiek Creek facility
The Corporation's ownership of the project will be transferred to the First Nation partner in 2054 for no financial
consideration.
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.
Tretheway facility
50% of the Corporation's ownership will be transferred to a First Nation in 2055 for no financial consideration.
Upper Lillooet facility
40% of the Corporation's ownership of the project will be transferred to the First Nation partner in 2057 for no financial
consideration.
(ii) Wind farm facilities
The Corporation and its subsidiaries entered into royalties and other commitments related to amounts to set aside for
the dismantling of wind farm components, commitments to surrounding municipalities and land owners and the
operation of the wind farms.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p172
(in thousands of Canadian dollars, except as noted and amounts per share)
Europe
The French subsidiaries entered into commitments related to land leases, maintenance and management contracts
for the operations of the wind farms.
(iii) Solar facilities
Stardale Solar L.P. and Phoebe Energy Project LLC have entered into contracts for the operations and maintenance
of the respective solar farms.
Hillcrest Solar I, LLC has entered into a transformer engineering, procurement, and supply agreement with GE Prolec
Transformers Inc. to construct the solar project.
c. Summary of commitments
As at December 31, 2019, the expected schedule of commitment payments is as follows:
Year of expected payment
Purchase obligations
Operating lease contracts
Total
d. Contingencies
Under 1 year
1 to 5 years
Thereafter
Total
53,649
8,892
62,541
142,182
44,214
186,396
276,622
19,763
296,385
472,453
72,869
545,322
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.
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.
On July 26, 2019, the Environmental Appeal Board of British Columbia rendered a decision granting the appeal and
ordering the Comptroller of Water Rights to reimburse to each of the Limited Partnerships its proportionate share of
the adjusted water rental amounts of $3,181 overcharged to Harrison Hydro L.P. and its subsidiaries for the years
2011 and 2012. On November 22, 2019, the Environmental Appeal Board of British Columbia rendered another
decision confirming that the sum will accrue interest starting June 28, 2017 until the date it is refunded. On
January 20, 2020, the Comptroller of Water Rights filed with the Supreme Court of British Columbia a petition for
judicial review of the Environmental Appeal Board’s order to return the amount in water rental fees to Harrison Hydro
L.P. and its subsidiaries, with interest. On January 31, 2020, the Comptroller of Water Rights transferred an amount
of $3,318, representing the principal of $3,181 with interest accrued between June 28, 2017 and January 31, 2020,
to a trust account established by Harrison Hydro L.P. and its subsidiaries’ external legal counsel, bearing interest in
favor of the Appellants. The Corporation recognized the amount in the fiscal 2019 consolidated statements of earnings
against Operating expenses.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p173
(in thousands of Canadian dollars, except as noted and amounts per share)
30. 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 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 loans and borrowings and shareholders' equity. Total capital amounts
to $5,311,015 at year-end.
The Corporation uses equity primarily to finance the development of projects. The Corporation uses long-term loans and
borrowings 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, the Corporation needs to maintain a leverage ratio and an interest coverage
ratio. If the ratios are not met, the lender has the ability to recall the facility.
Regarding the respective non-recourse projects financing, some subsidiaries of the Corporation need to maintain minimum
debt coverage ratios. If the ratios of a particular project financing are not met, the lenders could have the ability to recall
the particular debt. Certain financial restrictive clauses could prevent the subsidiaries from making distributions to the
Corporation.
All debt covenants are monitored on a regular basis by the Corporation. As at December 31, 2019, 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. As at December 31, 2019, Mesgi'g Ugju's'n project was in default of its credit
agreement. A breach was triggered by the bankruptcy of a supplier considered a major project participant under the credit
agreement. A waiver has been obtained and was subsequently extended until March 31, 2020. A plan was put in place to
ensure the continuity of the operations of the project. Ongoing dialogue and reporting are provided to the project Lenders
until this situation is resolved. The project was in compliance of financial covenants. As lender has the right to request
repayment, the loan was reallocated to the current portion of long-term loans and borrowings.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p174
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
31. SEGMENT INFORMATION
Operating segments
The Corporation produces and sells electricity generated by its hydroelectric, wind and solar facilities to publicly-owned
utilities or other creditworthy counterparties. The Corporation’s Management analyzes the results and manages
operations based on the type of technology, resulting in different cost structures and skill set requirements for the operating
teams. The Corporation consequently has three operating segments: (a) hydroelectric power generation (b) wind power
generation and (c) solar power generation.
During the year ended December 31, 2019, concurrent with reaching an agreement to sell, and the subsequent sale of,
its ownership interests in HS Orka, the Corporation’s geothermal power generation segment has been reclassified as
discontinued operations (see Note 4).
The Corporation’s Management evaluates the performance of its operating segments based on revenues and Adjusted
EBITDA. During the year, Management revised its operating segments disclosure to better reflect how it evaluates the
performance of its operating segments. Certain corporate allocations (such as general and administrative expenses)
that were previously made were discontinued to enhance discernment of the operating performance from the corporate
performance. In addition, through emphasizing on certain measures, the revised disclosure clarifies how Management
evaluates the performance of its operating segments. The Corporation’s investments in joint ventures and associates
have also increased significantly during 2018 following certain business acquisitions. As such, by including the
contribution from joint ventures and associates to the key performance measures, the revised disclosure better reflects
the Corporation’s recent structural changes. Certain of the comparative figures have been restated to conform with the
revised presentation.
"Revenues Proportionate" are Revenues plus Innergex's share of Revenues of the operating joint ventures and
associates. “Adjusted EBITDA” represents net earnings (loss) before income tax expenses, finance cost, depreciation
and amortization, adjusted to exclude other net expenses, share of (earnings) loss of joint ventures and associates, and
unrealized net (gain) loss on financial instruments. "Adjusted EBITDA Proportionate" represents Adjusted EBITDA plus
the Corporation’s share of Adjusted EBITDA of the operating joint ventures and associates. "Adjusted EBITDA Margin"
represents Adjusted EBITDA divided by revenues. Adjusted EBITDA, Adjusted EBITDA Proportionate and Adjusted
EBITDA Margin are not recognized measures under IFRS and have no standardized meaning prescribed by IFRS. They
may therefore not be comparable to similar measures presented by other issuers. Readers are cautioned that Adjusted
EBITDA, Adjusted EBITDA Proportionate and Adjusted EBITDA Margin should not be construed as an alternative to net
earnings (loss), as determined in accordance with IFRS.
Except for Adjusted EBITDA, Adjusted EBITDA Proportionate and Adjusted EBITDA Margin described above, the
accounting policies for these segments are the same as those described in the significant accounting policies. The
Corporation accounts for inter-segment and management sales at the carrying amount.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p175
(in thousands of Canadian dollars, except as noted and amounts per share)
Year ended December 31, 2019
Operating segments
Hydroelectric
Wind
Solar
Segment
results
Segment revenues
Innergex's share of revenues of joint ventures and
associates
Segment Revenues Proportionate
218,918
304,724
33,400
557,042
64,761
283,679
37,020
341,744
2,118
35,518
103,899
660,941
Segment Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures
and associates
Segment Adjusted EBITDA Proportionate
170,023
253,606
31,034
454,663
48,011
218,034
21,619
275,225
954
31,988
70,584
525,247
Segment Adjusted EBITDA Margin
78%
83%
93%
82%
As at December 31, 2019
Investments in joint ventures and associates
Acquisition of property, plant and equipment during the
period
Transfer of assets upon commissioning
1. Segment totals include only operating projects.
Hydroelectric
Wind
Solar
Segment
totals 1
188,559
228,999
15,582
433,140
2,102
—
12,753
526,658
954
318,429
15,809
845,087
Year ended December 31, 2018
Operating segments
Hydroelectric
Wind
Solar
Segment
results
Segment revenues
Innergex's share of revenues of joint ventures and
associates
Segment Revenues Proportionate
238,724
223,579
19,115
481,418
53,816
292,540
28,569
252,148
883
19,998
83,268
564,686
Segment Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures
and associates
Segment Adjusted EBITDA Proportionate
188,476
186,281
17,604
392,361
41,162
229,638
16,454
202,735
(244)
17,360
57,372
449,733
Segment Adjusted EBITDA Margin
79%
83%
92%
82%
As at December 31, 2018
Hydroelectric
Wind
Solar
Segment
totals 1
Investments in joint ventures and associates
205,483
187,156
17,574
410,213
Acquisition of property, plant and equipment during the
year
1. Segment totals include only operating projects.
8,368
803
386
9,557
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p176
(in thousands of Canadian dollars, except as noted and amounts per share)
Segment Adjusted EBITDA and Adjusted EBITDA Margin are reconciled to the most comparable IFRS measure, namely,
net earnings (loss) from continuing operations, in the following table:
Segment Adjusted EBITDA
Unallocated expenses:
General and administrative
Prospective projects
Adjusted EBITDA
Share of earnings of joint ventures and associates
Unrealized net loss (gain) on financial instruments
Other net (revenues) expenses
EBITDA
Finance costs
Depreciation and amortization
Impairment of project development costs
Provision for income taxes
Net (loss) earnings from continuing operations
Geographic segments
Year ended December 31
2019
2018
454,663
392,361
32,583
12,905
409,175
(36,469)
49,933
(104,643)
500,354
231,766
194,579
8,184
118,851
(53,026)
23,463
16,719
352,179
(47,596)
(12,958)
12,183
400,550
195,834
151,256
—
27,245
26,215
As at December 31, 2019, 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 and one hydroelectric facility, one wind farm and three solar farms in the
United States. The Corporation operates in four principal geographical areas, which are detailed below:
Revenues
Canada
France
United States
As at
Non-current assets, excluding derivatives financial instruments and
deferred tax assets 1
Canada
France
United States
Chile
1. Includes the investments in joint ventures and associates
Year ended December 31
2018
2019
435,069
94,474
27,499
557,042
387,679
87,016
6,723
481,418
December 31,
2019
December 31,
2018
3,629,942
891,764
1,293,983
142,268
5,957,957
3,757,207
956,214
555,350
154,299
5,423,070
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p177
(in thousands of Canadian dollars, except as noted and amounts per share)
Major Customers
A major customer is defined as an external customer whose transactions 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
Hydroelectric generation
Hydroelectric and wind power
generation
Électricité de France
Wind power generation
Year ended December 31
2019
2018
158,197
249,004
91,701
498,902
170,048
185,088
84,484
439,620
32. SUBSEQUENT EVENTS
Strategic Alliance and private placement with Hydro-Québec
On February 6, 2020, the Corporation announced that it formed a Strategic Alliance with Hydro-Québec to accelerate its
growth strategies. Hydro-Québec also committed an initial $500,000 for future co-investments with the Corporation.
Hydro-Québec invested $661,000 through a Private Placement of Innergex common shares at a price of $19.08 per share,
representing a total of 34,637,000 shares. With this Private Placement, Hydro-Québec is now a key strategic investor in the
Corporation holding 19.9% of the issued and outstanding common shares on a non-diluted basis.
On February 7, 2020, the Corporation reimbursed $391,588 of the revolving credit facilities and, on February 14, 2020,
reimbursed the remaining amount of the revolving credit facilities representing $142,547, totaling $534,135.
33. COMPARATIVE FIGURES
Certain reclassifications have been made to the prior year's financial statements to enhance comparability with the current
year's consolidated financial statements.
As a result, certain line items have been amended in the consolidated statement of financial position, consolidated statement
of earnings and other comprehensive loss, consolidated statement of changes in equity and consolidated statements of
cash flows, and the related notes to the financial statements. Comparative figures have been adjusted to conform to the
current year's presentation.
Innergex Renewable Energy Inc.
Annual Report 2019
Notes to the Consolidated Financial Statements p178
(in thousands of Canadian dollars, except as noted and amounts per share)
SHAREHOLDER INFORMATION
Convertible Debentures - TSX: INE.DB.C
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:
AST Trust Company
(Canada)
2001 Robert-Bourassa,
Suite 1600
Montreal QC H3A 2A6
Tel. 1 800 387.0825
416 682.3860
inquiries@astfinancial.com
Common Shares - TSX: INE
Innergex Renewable Energy Inc. had 139,405,832
common shares outstanding as at December 31, 2019,
with a closing price of $16.86 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.
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 dollars of principal amount of debentures. The
debentures will mature on June 30, 2025 and will not
be redeemable before June 30, 2021.
Innergex Renewable Energy
Inc. currently has
convertible debentures outstanding for an aggregate
principal amount of $143.75 million, bearing interest at
a rate of 4.65% per annum, payable semi-annually on
October 31 and April 1 of each year, commencing on
April 30, 2020. The debentures are convertible at the
holder's option into Innergex common shares at a
conversion price of $22.90 per share, representing a
conversion rate of 43.6681 common shares per each
thousand dollars of principal amount of debentures. The
debentures will mature on October 31, 2024 and will
not be redeemable before October 31, 2022.
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, 2020, 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 $0.70 to $0.72, payable
quarterly, reflects the execution of the Corporation's
strategy for building shareholder value. This is the
seventh 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: AST
Trust Company (Canada). Please note that if you wish
to enrol in the DRIP but own your shares indirectly
through a broker or financial institution, you must
contact this intermediary and ask them to enrol in the
DRIP on your behalf.
information about
Independent Auditor
KPMG LLP
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Pour la version papier, écrivez-nous à info@innergex.com