ANNUAL REPORT
AT DECEMBER 31, 2020
For more than 30 years now, Innergex Renewable Energy Inc. has believed in a world where
abundant renewable energy promotes healthier communities and creates shared prosperity.
As an independent renewable power producer that develops, acquires, owns and operates
hydroelectric facilities, wind farms, solar farms and energy storage facilities, Innergex is convinced
that renewable energy will lead the way to a better world. Innergex operates in Canada, the
United States, France and Chile and follows a sustainable development philosophy that balances
people, our planet and prosperity. The Corporation’s shares are listed on the Toronto Stock
Exchange (''TSX'') under the symbols INE, INE.PR.A and INE.PR.C and its convertible debentures
are listed under the symbols INE.DB.B and INE.DB.C.
1990
1994
1999
2000
2003
2004
2005
2006
2007
2010
2011
2013
2016
2018
2019
2020
OUR STORY
Founding of Innergex in Canada
First hydro facility in Quebec (Saint-Paulin)
First hydro facility in Ontario (Batawa)
First acquisition in Quebec (Montmagny)
Innergex Power Income Fund First IPO (IEF.UN)
Founding of Cartier Wind Energy partnership and first acquisition in the U.S. (Horseshoe Bend)
First hydro facility in B.C. (Rutherford Creek)
First wind farm in Quebec (Baie-des-Sables)
Innergex Renewable Energy Inc. first IPO (TSX: INE)
IEF.UN merged into TSX: INE
Acquisition of our first solar farm (Stardale)
First community wind farm in partnership with RCM of Rivière-du-Loup (Viger-Denonville)
First acquisition in France (seven wind farms)
Acquisition of Alterra Power Corp, Cartier Wind Farms, and joint venture
with Energía Llaima in Chile (50%)
Commissioning of its largest solar and wind farms in Texas (Phoebe and Foard City)
Strategic Alliance with Hydro-Québec and acquisitions in Chile (Salvador)
and the U.S. (Mountain Air)
CONTENTS
Message to
shareholders
Management’s
discussion
and analysis
Responsibility
for financial
reporting
Independent
auditor’s
report
Consolidated
financial
statements
P4
P20
P82
P83
P90
Notes to the
consolidated
financial
statements
P96
KEY FIGURES
Innergex measures its performance using key performance indicators (“KPIs”). Innergex believes that these indicators
are important, as they provide management and the reader with additional information about its production and cash
generating capabilities, its ability to pay dividends and fund its growth.
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.
PRODUCTION KPIs
Production in comparison with LTA (''long-term
average'') in megawatt/hours (“MWh”) and
gigawatt/hours (“GWh”)
FINANCIAL KPIs
Revenues and Revenues Proportionate
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted
EBITDA Proportionate
Production and Production Proportionate
Adjusted Net Earnings (Loss)
Free Cash Flow
Payout Ratio
OPERATIONAL KEY PERFORMANCE INDICATORS
As at February 25, 2021, the Corporation has four geographic segments and three operating segments.
Gross installed capacity by country (MW)
Chile
6.9%
Canada
52.9%
USA
31.6%
France
8.6%
2016
2017
2018
2019
2020
Gross installed capacity
by source of energy (MW)
0
1,000
2,000
3,000
Hydro
Wind
Solar
* Gross Installed Capacity for continued operations
TOTAL
1,576
2,512
2,888
3,488
3,694
FINANCIAL KEY PERFORMANCE INDICATORS
Ajusted EBITDA Proportionate ($M)
Free Cash Flow ($M)
TOTAL
224.4
308.3
428.7
516.9
560.3
TOTAL
75.7
87.2
105.1
93.3
93.3
500
400
300
200
100
0
100
80
60
40
20
0
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Adj. EBITDA
JV
PTCs
MESSAGE
TO SHAREHOLDERS
30 YEARS OF GROWTH, 30 YEARS OF SUCCESS
In 2020, Innergex celebrated its 30th anniversary. Milestones of this significance
compel us to take a moment to appreciate just how far we have come. From its
humble beginnings as a trailblazer in the emerging renewable energy sector back
in 1990, Innergex now owns and operates a portfolio of 75 facilities spanning three
continents, with a total installed capacity of 3,694 MW. Now that renewable energy,
energy transition and greenhouse gas emission reduction objectives have made it
to the top of every country’s to-do list, Innergex will continue to grow, bolstered by a
strategic alliance with a new partner and main shareholder: Hydro-Québec.
In addition to representing an important milestone, 2020 will primarily be
remembered for the emergence of a global pandemic and its impact on public
health and the global economy. While our primary focus was to ensure the health
and wellbeing of employees at our various operating and construction sites as
well as our office employees, we also managed to maintain our power generation
activities as they were deemed an essential service in all of the regions where we
are present.
Finally, 2020 will also have ushered in a new era of heightened awareness of the
climate threat and the importance of renewable energies. Sustainability will have
taken on an even more significant role in the transition towards a better world.
With a business model based on the 3Ps of sustainability: People, our Planet
and Prosperity, 30-plus years of expertise in the renewable energy sector, and a
capacity for innovation and integration of new technologies, Innergex is ideally
positioned to capitalize on the opportunities generated by this acceleration of the
transition to sustainable power generation.
It would appear that we are all on the same page about
the urgency to act now. We will contribute to this global
endeavour through our mission to build a better world with
renewable energy.
P 4
30TH ANNIVERSARY HIGHLIGHTS
The year started on a high note with the announcement of the Strategic Alliance between Innergex
and Hydro-Québec. Hydro-Québec’s stellar reputation both here and abroad and its high-level of
expertise and desire to extend its reach beyond its borders fit perfectly with our entrepreneurial
culture, operational agility, and knowledge of international markets.
Together, we can become a significant player by leveraging
our respective strengths to accelerate development
in North America, Latin America, and Europe.
In addition to this Strategic Alliance, Hydro-Québec, via a Private Placement of Innergex common
shares, made an investment that enabled us to complete the acquisitions of Salvador solar facility
in Chile and of the Mountain Air wind farms in Idaho. Hydro-Québec’s EVLO subsidiary also won
a request for proposals for the Tonnerre battery storage project in France, which is managed by
Innergex. This first joint venture project will facilitate the launch of Hydro-Québec’s brand-new
patented lithium iron phosphate battery.
Innergex is also pursuing development outside of this alliance. The burgeoning renewable energy
market in the United States provided many opportunities in 2020. The first one is the Hillcrest solar
project in Ohio, for which construction was launched in January and continued throughout the year,
despite the pandemic. It is expected to be fully commissioned in the second quarter of 2021. In
addition, thanks to an extension of renewable energy production tax credits from the U.S. Department
of the Treasury last spring, we kickstarted construction of the Griffin Trail wind project in Texas in
September, wrapped up its financing by December, and anticipate a summer 2021 commissioning.
These two projects are part of a long list of development activities that are moving along quickly,
several of which could begin construction as early as 2021. This is the case for two solar plus battery
storage projects in Hawaii, where construction launch is imminent. Two other projects in the same
region have also been awarded a power purchase agreement in 2020.
After several years of effort, we have begun the construction of our first wind project initiated by
the Innergex team in France, Yonne II, which is scheduled to be commissioned in the first quarter of
2021, in addition to advancing several other Innergex projects in this market. We also resumed the
construction of our hydroelectric facility in Nunavik, Innavik, which began in 2019. Activities were
delayed by the pandemic last Spring, but construction activities have accelerated to the point that
the initial delivery date should be met. Innavik, our 45th Canadian facility, is made possible by our
extensive hydroelectric expertise, but more importantly, by our tradition of taking root and working
with the communities. At Innergex, we know that to make growth more sustainable, we must protect
our planet while contributing to the development of host communities.
GENEROUS RESPONSE TO A HEALTH AND ECONOMIC CRISIS
The COVID-19 pandemic had severe consequences for a staggering number of people’s lives and
livelihoods, while it tested and confirmed the resilience of our business model.
COVID created a major logistical headache for our employees, whose protection was our priority.
Solutions were quickly deployed by our operations teams, who maintained operating activities while
minimizing the risk of transmission of the virus. Essential maintenances were completed, and we are
proud of the professionalism and discipline shown by our employees and subcontractors.
P 5
Our office employees also had to adapt to a new reality, working remotely, which has been in effect
since March and continues to this day. Thanks to their adaptability and professionalism, all tasks and
priorities have been accomplished.
As for the financial implications, the main impact on our activities has been the notices of
curtailment imposed on us by BC Hydro, invoking force majeure, which we are disputing, although
we have complied under protest.
This pandemic did have some upside, including highlighting the generosity of our employees.
Together, we made the decision to allocate funds earmarked for our 30th anniversary celebration to
be reallocated to support the communities in which our facilities and offices operate. Employees also
showed tremendous generosity by launching an initiative to raise extra support, through the “Time
for Solidarity” campaign, to contribute almost $265,000 to support those affected by the public health
and economic crisis.
DOING MORE FOR OUR PLANET
Despite the public health and economic crises we are experiencing, our commitment to our planet
was at the core of all of our activities and decision-making processes in 2020.
We continue to focus on deploying renewable energy
and innovative green technologies to accelerate the
global energy transition.
We know that energy storage is the key to a successful and sustainable energy transition, which
is why we will be transitioning from the exploratory phase to the deployment of battery storage
technologies, such as our Tonnerre and Hawaii projects. We will also be exploring green hydrogen,
which, in addition to offering exciting prospects for energy storage, may well become the green
fuel of the 21st century. We will actively seek innovative partnerships with companies familiar with
hydrogen, which could also benefit from our green power generation expertise – our focus for the
last 30 years.
Our aim is to add value to the green electrons we produce,
knowing that this value may also be found beyond
conventional electricity markets.
We will continue our organic growth activities in the United States and France, where we are
managing several wind, solar and storage projects. In Chile, we will continue to invest in acquisitions
and projects to be developed, both within and outside of the framework of our partnership with
Energía Llaima.
In the Canadian market, we will continue to be on the lookout for new renewable energy development
opportunities, as green economic recovery initiatives will require more clean electricity. The first step
is to make fossil-fuelled electricity a thing of the past across Canada while increasing renewable
generation, even in provinces that already have clean energy while still relying heavily on fossil fuels
for transportation and heating. To achieve this, we seek to partner with communities to develop
renewable energy projects that would generate immediate economic benefits through job creation
while making a significant contribution to meeting our climate goals at home while promoting
sustainable development from coast to coast to coast.
P 6
BUILDING A BETTER WORLD THROUGH OUR PEOPLE
Since Day 1, we have believed that renewable energy promotes healthier communities and creates
shared prosperity. A growing number of partners also share this vision. The Innergex team conceives
innovative renewable energy projects by combining its expertise with its desire to make a positive
impact, with the support of an experienced Board of Directors, which now includes two new directors
who contribute by bringing their knowledge to the table. We are strengthening our governance with
new practices, updated policies and anticipation of trends, for which we thank the directors.
Our skillful and flexible approach, especially in these times of pandemic, eloquently demonstrates
the exceptional talent of our esteemed colleagues. Thank you for your efforts and adaptability, as well
as your tremendous foresight when proposing innovative ideas to support our sustainable growth.
Finally, our projects would not be what they are without the contribution of our investors, partners,
suppliers, and the communities that host them. Thank you for working with us to build a better world.
Michel Letellier
President and CEO
Jean La Couture
Chairman of the Board of Directors
Since its foundation, Innergex has been led
This is the last year that I will serve as
by extraordinary people. Mr. Jean La Couture
Chairman of the Board of Innergex. Over the
is one of the key individuals who has guided
past 15 years, I have seen this company
our Corporation to grow in a sustainable
grow, but more importantly, I have seen its
manner. Mr. La Couture has been a member
management grow in leadership, integrity and
of our Board since the early 2000s and
concern for people.
I am very pleased to have witnessed the
evolution of a Quebec company that is dynamic
and beneficial to the planet.
became its Chairman in 2010. Since then,
he has ensured the Corporation’s exemplary
governance and accountability. Most
fundamentally, thanks to his experience, he
was able to anticipate the complex issues that
arose during our expansion.
On behalf of Innergex’s employees,
shareholders, partners and stakeholders,
I would like to thank Mr. La Couture for his
exceptional commitment that has shaped what
Innergex has become. As President and Chief
Executive Officer, I can attest to the pleasure of
working with an experienced entrepreneur like
him. Innergex will continue to grow by building
on the legacy of this great man.
P 7
GUIDED BY THE THREE P’S OF
SUSTAINABLE DEVELOPMENT TO
CREATE A BETTER WORLD
Innergex is guided by its belief in pursuing sustainable growth that creates a balanced relationship between people, our
planet and prosperity. Our people provide the innovation, drive and expertise behind our success. By remaining focused on
generating and supplying energy exclusively from renewable sources, we promote a healthier planet for all. Generating
prosperity and driving opportunities both internally and externally will ensure we can continue to make a positive impact on
our employees, our communities, and our stakeholders.
PEOPLE
THE HEART OF OUR SUCCESS
Our employees’ diverse skills, experience, and backgrounds has been, and will continue to be, the backbone of our
success. Innergex takes great pride in creating a safe workplace that not only works to foster innovation and inclusion, but
promotes collaboration. With our office staff working from home this year as a safety measure and comprehensive safety
programs developed for our on-site operations staff, we were proud of our team’s adaptability and resilience that allowed
us to continue on our path of growth and not miss a beat during the health pandemic. Our goal is to attract experts in their
field who share a common passion to help make the world a better place while creating economic growth.
IN 2020
Our employees receive fair and
competitive compensation with
$48.6
MILLION IN
EMPLOYEE WAGES
AND BENEFITS
paid out1
1. Compared with $46.0 million in 2019. Includes wages and benefits
expenses capitalized to projects under construction or development, and
wages and benefits expenses recharged to joint ventures and associates.
Promoting equal opportunities for a
more balanced and diverse workplace,
we are proud to have had
28.5%
34.8%
WOMEN
OFFICERS
and
WOMEN IN OTHER
MANAGEMENT
POSITIONS
Launched a
MORE EXTENSIVE
AND BENEFICIAL
Employee and Family Assistance
Program for employees
All office employees have been
working from home since
March 2020 and
COMPREHENSIVE
COVID-19 SAFETY
MEASURES
were put in place in all operating
facilities to protect operators and
other workers on-site
Our employee pulse survey
had a
81%
RESPONSE
RATE
P 8
P 8
PLANET
FOR A CLEANER ENVIRONMENT
For over 30 years, Innergex has been a leader in developing solutions and making a difference in reducing
greenhouse gas (GHG) emissions in the production of energy. Working with nature by harnessing the sun’s rays, the
movement of wind, and the natural flow of rivers, Innergex remains committed to the responsible development of
natural resources. Our long-term vision for sustainable development, combined with helping meet global carbon
emissions targets and reduce emissions to net-zero, will allow Innergex to continue to deliver results and build a
better world. We believe that sustainable development is not just about what we do – producing renewable energy –
but also about how we do it.
IN 2020
Our facilities do not emit significant
amounts of GHGs and produce green
electricity that offsets GHG emissions.
The GHG emissions offset by Innergex’s
production of clean, renewable energy
was approximately
6,780,613
METRIC TONNES OF CO2,
equivalent to
REMOVING
1,464,908
GASOLINE
PASSENGER
VEHICLES
from roads over the year 1
$612,000
WAS DISBURSED TO LONG-
TERM ENVIRONMENTAL
MONITORING PROGRAMS
which study fish, wildlife, and their
habitats in and around our facilities
We supplied the
equivalent of
1,007,462
HOUSEHOLDS
with clean, renewable energy 2
Successfully initiated a program to
manage vegetation growth at our
Phoebe solar facility in Texas with
A FLOCK OF
55-77 SHEEP
throughout
1,395
ACRES
of the facility
1. Based on Innergex’s 2020 Production Proportionate of
9,590,140 MWh and calculated through https://www.epa.gov/
energy/greenhouse-gas-equivalencies-calculator.
2. Based on Innergex’s 2020 Production Proportionate in each
country in which we operate, divided by the local household
average consumption, with data from the World Energy Council
(2014).
P 9
P 9
PROSPERITY
DRIVING THE GREEN ECONOMY
Renewable energy offers a path to economic recovery to emerge from pandemic times to a stronger, more inclusive,
and more sustainable world. The decarbonization of the economy, which supports national and regional climate
frameworks worldwide, presents an unprecedented opportunity for growth going forward. By increasing the world’s
share of green energy, Innergex will continue to lead the way to a more prosperous world for all.
IN 2020
Our sponsorships and
donations program supported
ORGANIZATIONS
that have shared over
134
$731,425
IN FUNDING
Innergex
DECLARED
$125,542,953
IN DIVIDENDS
on common shares
Our collective efforts resulted
in Innergex donating
MORE THAN $227,000
and our employees
contributing a further
$37,225
TO COVID-19
RELIEF EFFORTS
in the countries where
we conduct operations
HYDRO-QUÉBEC
BECAME THE MAIN
SHAREHOLDER
in the Corporation holding
19.9%
of the issued and
outstanding
common shares
on February 6
through a Private
Placement
P 10
P 10
GOVERNANCE
CONTRIBUTING TO A BRIGHTER FUTURE
WITH A CLEAR VISION
Moving ahead requires a clear and comprehensive vision. The Innergex Board of Directors develops and directs the
overall direction of the Corporation to ensure its continued growth while remaining aligned with the interests of its
shareholders, partners, employees and other stakeholders. Each member brings a wealth of experience and expertise
to the table to ensure that not only are all business matters being conducted in an ethical and fair manner, but
decisions are made based upon the best available information.
IN 2020
82%
9 OF 11,
or
INDEPENDENT
of our board
members were
The
AVERAGE AGE
of the Board of Directors
at the end of 2020 was
62
100%
OF EMPLOYEES
participated in a training
and signed the
CODE OF CONDUCT
annual confirmation form
reaffirming their commitment
to uphold its standards
The
COMBINED ATTENDANCE
at Board and committee
meetings was
100%
SEVERAL MEMBERS
of the Board of Directors
are considered
EXPERTS IN
the field of Environmental,
Social and Governance
(ESG)
criteria
P 11
BUSINESS STRATEGY
Innergex develops, acquires, owns and operates renewable power-generating facilities with a focus on hydroelectric,
wind and solar production as well as energy storage technologies.
The Corporation's fundamental goal is to create wealth by efficiently managing its high-quality renewable energy assets
and successfully pursuing its growth.
Innergex is committed to producing energy from sustainable renewable sources exclusively and to providing energy
storage capacity, guided by its 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.
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.
Innergex owns interests in 37 hydroelectric facilities drawing on 31 watersheds, 32 wind farms and 6 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.
SETTING THE COURSE FOR SUSTAINABLE GROWTH
The transition to a carbon-neutral economy will be led by the renewable energy sector. Innergex is well-positioned
to continue its strategic growth and contribute to climate protection by further optimizing and growing its portfolio of
renewable energy facilities. To do so, the Corporation has set four strategic goals to be achieved by 2025:
Grow responsibly: Focus growth on current markets and target opportunities in neighbouring ones
Build expertise: Become an expert in deploying energy storage technologies
Optimize operations: Leverage expertise and innovation to maximize returns from its high-quality assets
Diversify activities: Increase diversification of the Corporation's activities and assets
The Corporation will rely on its experience to pursue acquisitions and the development of new projects. It will adopt and
master new technologies, mainly energy storage, expand its customer base beyond traditional utilities and deploy new
business models through which it will offer more value for the electrons produced or stored.
Innergex has a solid track record, with decades of producing green energy from its quality assets. Its existing renewable
energy facilities are operated by a dedicated team of skilled professionals who will continue optimizing operations and
providing quality maintenance.
With soaring interest in renewable energy development bringing new players to the sector, Innergex will also remain
committed to the approach that has long provided responsible growth. Its belief of nurturing relationships to develop
long-term partnerships with stakeholders and communities, in particular Indigenous ones, has enabled the Corporation
to develop unique, value-creating renewable projects.
A SKILLED AND PASSIONATE TEAM PROVIDING EXPERTISE
Innergex recognizes that what it has accomplished and what is yet to come would not be possible without
its highly skilled team of employees who share its mission, vision, values and key principles.
Their collective knowledge, talent, abilities, experience and sound judgment have always been key to its long-term
success. The management team has a proven track record of delivering projects on-time and on-budget.
Furthermore, a pool of specialized partners provide services outside the Corporation's realm of expertise when
necessary, from engineering firms to environmental monitoring professionals.
P 12
INFORMATION ON COVID-19
COVID-19 has negatively impacted the global economy, disrupted financial markets and supply chains, significantly
reduced travel and interrupted business activity. Federal, state and local governments have implemented mitigation
measures, including travel restrictions, stay at home orders, border closings, social distancing, shelter-in-place
restrictions and limitations on business policies.
Although our business is considered essential services, these government actions have already affected the ability of
Innergex's employees, customers, suppliers and other business partners to conduct business activities as usual, and
this could last for an extended period. This could have a material effect on our operating results, financial condition,
liquidity, capital expenditures and the trading value of our securities, in particular:
Impact of supply chain disruption on the construction activities
Impact on employees and cybersecurity
Impact on liquidity
Impact on capital expenditures and costs
Impact on general electricity demand
Impact on merchant prices
The effects of COVID-19 on business may continue for an extended period, and the ultimate impact on the Corporation
of the pandemic will depend on future developments that are uncertain and cannot be predicted including, and
without limitations, the duration and severity of the pandemic, the duration of government mitigation measures, the
effectiveness of the actions taken to contain and treat the disease, and the length of time it takes for normal economic
and operating conditions to resume.
POWER PRODUCTION: AN ESSENTIAL SERVICE
Power production activities have continued in all segments, as they have been deemed essential services in every
region where the Corporation operates. Innergex's renewable power production is sold mainly through power
purchase agreements, which include sufficient protection to prevent material reduction in demand, to financially solid
counterparties, and no credit issues are anticipated. As such, the Corporation does not intend to make any changes
to its workforce and intends to maintain salaries and benefits. Only BC Hydro sent curtailment notices for some hydro
facilities which are disputed by the Corporation (please refer to the Capital and Liquidity section of the Management's
Discussion and Analysis for more information).
HEALTH AND SAFETY OF OUR EMPLOYEES AND VISITORS
Since March 2020, Innergex has implemented numerous measures to protect employees, suppliers and business
partners from COVID-19.
All Operations teams were split into segregated work groups to reduce risks of contamination across teams. Cleaning
procedures were implemented and continue to be enforced to ensure common surfaces are disinfected. COVID-19
screening protocols and measures were revised and improved specifically for monitoring the health and safety of our
employees. Specific instructions and guidance on COVID-19 health and safety measures were introduced.
All office employees were instructed to work from home. Office presence is limited to essential tasks.
Visitors and contractors must complete a questionnaire before accessing a site or an office and must respect
additional hygiene measures.
IT systems have remained available remotely and multiple controls are in place to ensure overall security while
working remotely.
SUPPORT TO SURROUNDING COMMUNITIES
To support communities surrounding our facilities and projects in all segments, the Corporation launched the
"Time for Solidarity" campaign in March 2020.
The Corporation distributed $264,591 in total to local charities such as food banks, women's shelters and relief
organizations to alleviate the effects of the COVID-19 crisis. Employees contributed to that total by making personal
donations of an amount of $37,225.
P 13
PORTFOLIO OF ASSETS
The Corporation owns interests in three groups of projects at various stages: the Operating Facilities, the
Development Projects and the Prospective Projects.
As at February 25, 2021, the Corporation owns and operates 75 facilities in commercial operation (the
“Operating Facilities”). Commissioned between 1992 and November 2019, the facilities have a weighted
average age of approximately 8.1 years.
The Operating Facilities 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 14.2 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.
The Corporation also holds interest in projects under development which are either at an advanced
development stage or under construction (the "Development Projects").
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).
The table below outlines Operating Facilities and Development Projects as at February 25, 2021.
Number of
Facilities1
Gross2 Installed
Capacity (MW)
Net3 Installed
Capacity (MW)
Storage
Capacity (MWh)
Operating
Facilities
Development
Projects
Operating
Facilities
Development
Projects
Operating
Facilities
Development
Projects
Operating
Facilities
Development
Projects
HYDRO
Canada
United States
Chile
Subtotal
WIND
Canada
France
United States
Subtotal
SOLAR
Canada
United States
Chile
Subtotal
STORAGE
France
Total
33
1
3
37
8
15
9
32
1
3
2
6
—
75
1
—
1
2
—
1
1
2
—
5
—
5
1
10
1,019
10
152
1,181
908
317
892
2,117
27
267
102
396
—
3,694
8
—
109
117
—
7
226
233
—
280
—
280
—
630
713
10
74
797
714
221
640
1,575
27
266
77
370
—
2,742
4
—
41
45
—
5
226
231
—
280
—
280
—
556
—
—
—
—
—
—
—
—
—
—
4
150
150
—
150
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.
4. Capacity related to the hot water storage of the Pampa Elvira thermal solar facility.
5. Battery storage capacity related to Hale Kuawehi (120 MWh), Paeahu (60 MWh), Kahana (80 MWh) and Barbers Point (60 MWh) solar projects.
6. Standalone battery storage project.
A detailed list of Operating Facilities can be obtained in the Annual Information Form of the Corporation. More information on the Corporation's Prospective
Projects is available in the "Prospective Projects" section of the Management's Discussion and Analysis.
—
—
—
—
—
—
—
5
—
320
—
320
6
9
329
P 14
NON-WHOLLY OWNED SUBSIDIARIES
The Corporation shares ownership of some Operating Facilities, Development Projects and Prospective
Projects with corporate, financial, local community or Indigenous partners. 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.
Gross installed capacity attributable to Non-wholly owned subsidiaries represents 22.6% as at
February 25, 2021.
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
Innergex Europe (2015) Limited
Partnership
and its subsidiaries
15 wind farms
located in France
Mesgi'g Ugju's'n (MU) Wind Farm
L.P.
Mesgi'g Ugju's'n
Harrison Hydro Limited
Partnership and its subsidiaries
Mountain Air
Alternatives LLC
Douglas Creek, Fire Creek,
Lamont Creek, Stokke Creek,
Tipella Creek and Upper
Stave River
Cold Springs, Desert
Meadow, Hammett Hill,
Mainline, Ryegrass
and Two Ponds
Kwoiek Creek Resources Limited
Partnership
Kwoiek Creek
Innergex Sainte-Marguerite
S.E.C.
Sainte-Marguerite
317
221
Wind
France
69.55%
150
150
75
75
Wind
Quebec
50.00%
1, 2
Hydro
British
Columbia
50.01%
138
86
Wind
Idaho
62.25%
Hydro
British
Columbia
50.00%
1
Hydro
Quebec
50.01%
50
31
25
15
836
497
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 2020 (participation interest
to decline over the years).
P 15
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.
Gross installed capacity attributable to Joint Ventures and Associates represents 29.2% as at February
25, 2021.
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
Toba Montrose General
Partnership
East Toba and
Montrose Creek
235
94
Hydro
British
Columbia
40.00%
1
Shannon Group Holdings,
LLC
Shannon
204
102
Wind
Texas
50.00%
Flat Top Group Holdings, LLC
Flat Top
Energía Llaima SpA
Guayacán, Peuchén, Mampil
and Pampa Elvira
Dokie General
Partnership
Dokie
Jimmie Creek Limited
Partnership
Jimmie Creek
Parc éolien communautaire
Viger-Denonville, S.E.C.
Viger-Denonville
Umbata Falls L.P.
Umbata Falls
200
186
144
62
25
23
1,079
102
Wind
Texas
51.00%
2
84
37
Hydro
Solar
Wind
32
Hydro
Chile
50.00%
British
Columbia
British
Columbia
25.50%
50.99%
2
12
Wind
Quebec
50.00%
Hydro
Ontario
49.00%
11
474
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.
P 16
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
The Corporation is supported by a Board of Directors which is responsible for the stewardship of the Corporation.
Its mandate is to oversee the management of the business and affairs of the Corporation while taking into account
ESG criteria and shareholders’ interests. Members of the Board are elected at each Annual General Meeting of
Shareholders where other matters are also up to a vote, including appointing the auditor of the Corporation. Each
common share of the Corporation entitles its owner to one vote.
Jean La Couture
Chair of the Board
Independent
Joined: March 2010
Nathalie Francisci
Independent
Joined: May 2017
Monique Mercier
Independent
Joined: October 2015
Daniel Lafrance
Vice-Chair of the Board
Independent
Joined: March 2010
Richard Gagnon
Independent
Joined: May 2017
Ouma Sananikone
Independent
Joined: February 2019
MANAGEMENT TEAM
Ross J. Beaty
Independent
Joined: February 2018
Pierre G. Brodeur
Independent
Joined: May 2020
Dalton McGuinty
Independent
Joined: May 2015
Michel Letellier
Non-Independent
Joined: October 2002
Louis Veci
Non-Independent
Joined: February 2020
Michel Letellier
President and Chief Officer
Joined: 1997
Jean-Francois Neault
Chief Financial Officer
Joined: 2018
Jean Trudel
Chief Investment and
Development Officer
Joined: 2002
Yves Baribeault
Senior Vice President –
Legal Affairs and Secretary
Joined: 2009
Renaud De Batz
Senior Vice President –
Latin America
Joined: 2002
Peter Grover
Senior Vice President –
Operations
Joined: 2005
Jay Sutton
Senior Vice President –
Construction and Engineering
Joined: 2018
Alexandra Boislard-Pépin
Vice President –
Human Resources
Joined: 2020
Colleen Giroux-Schmidt
Vice President –
Corporate Relations
Joined: 2011
Robert Guillemette
Vice President – H&S and
Technological Innovation
Joined: 2018
Matt Kennedy
Vice President –
Environment
Joined: 2011
P 17
SHAREHOLDER INFORMATION
SHARE OWNERSHIP
As at December 31, 2020, Hydro-Québec, a Quebec
Crown corporation that provides utility services,
generates, transmits, and distributes electricity to
customers in Canada is Innergex’s main shareholder
with 19.9% of shares. 1832 Asset Management LP
is one of Canada's largest asset managers and holds
10% of Innergex's shares, the global investment
advisor BlackRock Inc. holds 9.2%, and the Caisse
de dépôt et placement du Québec (CDPQ), a long-
term institutional investor holds 7.4% of Innergex's
shares. More than half of Innergex’s shareholding is
free float and mainly held by institutional and retail
investors.
Other
Institutional
and Retail
(free float)
53.5%
Institutional Investors
Hydro-Québec
19.9%
1832 Asset
Management
10.0%
BlackRock Inc.
9.2%
CDPQ
7.4%
Source: Bloomberg as at December 31, 2020.
STOCK INFORMATION
Innergex's shares are traded on Toronto Stock Exchange ("TSX") with a Total Outstanding Shares of 174,582,586
as at December 31, 2020.
2016
2017
2018
2019
2020
Closing price (in $)
Market Capitalization (in $M)
Year over Year % Change
Average Volume on TSX
14.03
1,517.8
29%
163,361
14.40
1,564.0
3%
134,565
12.54
1,667.7
7%
217,144
16.86
2,350.4
41%
270,191
27.37
4,778.3
103%
458,040
Source: Bloomberg as at December 31, 2020.
SHARE PRICE EVOLUTION
11.33
14.03
14.40
12.54
16.86
27.37
2015
2016
2017
2018
2019
2020
Innergex share price closed the year at $27.37. The share price increased by 62.3% compared to the same period last
year. The market capitalization value of Innergex was $4.8 billion as at December 31, 2020.
The year’s highest trading price of $27.63 was reached on December 29, 2020 and its lowest of $13.97 on March 23,
2020. In 2020, the daily volume average on the TSX was 458,040 shares, an increase of 69.5% compared to last year.
P 18
$
25
20
15
10
5
0
INVESTOR RELATIONS
The Management Team and the Investor Relations Department engage in regular dialogues with investors
and analysts. These dialogues may take the form of quarterly conference calls, roadshows, conferences,
regular meetings with individuals or groups of investors and analysts. The Corporation is covered by twelve
equity analysts.
The dialogues are subject to certain restrictions prior to the publication of financial and operational results.
The publicly available information may be found on the Corporation's website at innergex.com under the Investor
section. This page also contains links to the sustainability reports, investor presentations and other
relevant information.
SELECTED ANNOUNCEMENT IN 2020
FEBRUARY 6, 2020
Innergex and Hydro-Québec announce a Strategic Alliance and a Private Placement
MARCH 27, 2020
Innergex provides an update regarding COVID-19
MAY 7, 2020
MAY 12, 2020
MAY 14, 2020
MAY 22, 2020
JULY 15, 2020
Innergex announces the financial close of the Hillcrest solar project
in Ohio, USA
Innergex advances to final award group with solar and battery storage
projects in Hawaii
Innergex is further diversifying its renewable energy portfolio in Chile
with the acquisition of a 68 MW solar farm
Innergex disputes curtailment notices from BC Hydro
Innergex acquires six operating wind farms in the United States
SEPTEMBER 17, 2020
Innergex signs two long-term power purchase agreements for solar and battery
energy storage projects in Hawaii
NOVEMBER 4, 2020
Innergex closes financing of the Innavik hydro project in Inukjuak, Quebec
DECEMBER 16, 2020
Innergex provides an update on ratings
DECEMBER 29, 2020
Innergex achieves financial close of its Griffin Trail wind project in Texas
FINANCIAL CALENDAR 2021
MAY 11, 2021
MAY 11, 2021
AUGUST 3, 2021
NOVEMBER 9, 2021
Annual General Meeting
2021 First Quarter Results
2021 Second Quarter
and Six-Month Period Results
2021 Third Quarter
and Nine-Month Period Results
P 19
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, 2020, and reflects all material events up to February 25, 2021, 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, 2020.
The audited consolidated financial statements attached to this MD&A and the accompanying notes for the year ended
December 31, 2020, along with the 2019 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
1- Highlights.................................................................
Financial Year 2020 - Operating Performance.....
Financial Year 2020 - Capital and Resources......
Financial Year 2020 - Growth and Development
Initiatives...............................................................
Subsequent Events..............................................
Financial Year 2019..............................................
2- Overview of Operations...........................................
Business Environment..........................................
Operating Facilities...............................................
Corporate Development.......................................
Construction Activities..........................................
Development Activities.........................................
Prospective Projects.............................................
3- Financial Performance and Operating Results........
Hydroelectric Segment.........................................
Wind Segment......................................................
Solar Segment......................................................
Net Earnings (Loss) from Continuing Operations.
Adjusted Net Earnings (Loss) from Continuing
Operations............................................................
Non-Controlling Interests......................................
4- Capital and Liquidity................................................
Capital Structure...................................................
Tax Equity Investment..........................................
20
22
22
23
23
24
24
24
27
29
30
31
32
33
34
35
36
36
38
39
39
40
41
Financial Position.................................................
Cash Flows...........................................................
Free Cash Flow and Payout Ratio........................
Information on Capital Stock................................
Dividends..............................................................
Normal Course Issuer Bid....................................
5- Projected Financial Performance............................
Strategic Plan 2020-2025.....................................
6- Non-IFRS Measures................................................
7- Additional Consolidated Information........................
Geographic Segments..........................................
Related Party Transactions..................................
Historical Quarterly Financial Information.............
Discontinued Operations Financial Results..........
8- Judgments and Estimates, Accounting Policies
and Disclosure Controls.........................................
Critical Judgments and Estimates........................
Significant Accounting Policies.............................
Disclosure Controls and Procedures....................
9- Risks and Uncertainties...........................................
10- Forward-Looking Information.................................
43
47
49
51
51
52
53
54
55
61
61
62
63
64
65
65
66
67
68
78
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p20
(in thousands of Canadian dollars, except as noted and amounts per share)
1- HIGHLIGHTS
OPERATING RESULTS
Production (MWh)
Revenues
Adjusted EBITDA2
Adjusted EBITDA Margin2
Net (Loss) Earnings From Continuing Operations
Net (Loss) Earnings
Adjusted Net Earnings (Loss) From Continuing Operations2
PROPORTIONATE
Production Proportionate (MWh)2
Revenues Proportionate2
Adjusted EBITDA Proportionate2
Adjusted EBITDA Proportionate Margin2
COMMON SHARES
Dividends declared on common shares
Dividends declared on Series A Preferred Shares
Dividends declared on Series C Preferred Shares
Year ended December 311
2019
2020
2018
8,073,914
613,207
422,109
6,509,622
557,042
409,175
5,086,497
481,418
352,179
68.8 %
73.5 %
73.2 %
(29,111)
(29,111)
22,311
9,590,140
781,466
560,328
(53,026)
(31,211)
(26,025)
26,215
25,718
13,963
8,021,758
698,001
516,819
6,361,733
583,819
428,684
71.7 %
74.0 %
73.4 %
125,543
3,067
2,875
95,046
3,067
2,875
90,215
3,067
2,875
Weighted Average Number of Common Shares (in 000s)
170,292
134,658
130,030
CASH FLOW AND PAYOUT RATIO
Cash Flow From Operating Activities 3
Free Cash Flow2,3
Payout Ratio2,3
Adjusted Payout Ratio2,3
FINANCIAL POSITION
Total Assets
Total Liabilities
Non-Controlling Interests
Equity Attributable to Owners
235,108
93,260
240,065
93,311
209,390
105,124
135 %
109 %
102 %
88 %
As at December 31
2019
2020
7,154,232
6,083,300
62,078
1,008,854
6,372,104
5,756,778
10,942
604,384
86 %
66 %
2018
6,516,158
5,574,121
312,776
629,261
1. Results from continuing operations unless otherwise indicated.
2. These measures are not recognized measures under IFRS and therefore may not be comparable to those presented by other issuers. Production and
Production Proportionate are key performance indicators 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.
3. For more information on the calculation and explanation, please refer to the "Free Cash Flow and Payout Ratio" section.
Innergex Renewable Energy Inc.
2020 Third Quarter
Management's Discussion and Analysis p21
(in thousands of Canadian dollars, except as noted and amounts per share)
1- HIGHLIGHTS | Financial Year 2020 – Operating Performance
For the year ended December 31, 2020, Revenues were up 10% to $613.2 million. The hydroelectric power generation
segment recorded an increase in revenues that was mainly due to higher production and higher average selling price at the
British Columbia facilities despite curtailment imposed by BC Hydro on five facilities, notwithstanding the expiration of the
EcoEnergy subsidy program. The commissioning of the Foard City wind farm in Texas on September 27, 2019, and the
Mountain Air Acquisition completed on July 15, 2020, contributed to the increase in revenues in the wind power generation
segment, partly offset by lower revenues at the Quebec wind facilities. The increase in revenues from the solar power
generation segment was due to the commissioning of the Phoebe solar facility on November 19, 2019 and the Salvador
Acquisition completed on May 14, 2020. Revenues Proportionate reached $781.5 million, a 12% increase compared with the
same period last year, explained mainly by the items mentioned above and by higher proportional Production Tax Credits
("PTC") generated in the United States following the commissioning of the Foard City facility on September 27, 2019.
The Adjusted EBITDA from continuing operations was up 3% at $422.1 million compared with the same period last year,
attributable mainly to the contribution of the facilities commissioned in 2019, the Mountain Air Acquisition and the Salvador
Acquisition. The increase in Adjusted EBITDA was partly offset by higher general and administrative expenses to support the
Corporation's growth. The Adjusted EBITDA Proportionate reached $560.3 million, an 8% increase compared with the same
period last year.
Innergex recorded a net loss of $29.1 million ($0.23 loss per share - basic and diluted) for the year ended December 31, 2020,
compared with a net loss from continuing operations of $53.0 million ($0.40 loss per share - basic and diluted) for the same
period in 2019. This was mainly due to a $100.0 million decrease in income tax expense, in most part related to tax attributes
being allocated to tax equity investors in 2019, and a $42.2 million favourable movement in the unrealized portion of change
in fair value of financial instruments.
These items were partly offset by an $18.5 million increase in the impairment of non-current assets, from an $8.2 million
impairment of project development costs in 2019, to a $26.7 million impairment of the investment in Energía Llaima in 2020, a
$39.1 million decrease in other income mainly related to tax attributes allocated to the tax equity investors at the Foard
City wind facility in 2019, largely related to the accelerated tax depreciation primarily in the year of commissioning, partly offset
by an increase in the PTCs generated, a $44.0 million increase in the share of loss of joint ventures and associates, mainly
related to an unfavourable mark to market movement on Shannon and Flat Top's power hedges, and a $33.9 million increase
in depreciation and amortization, mainly related to the recent acquisitions and commissioning activities.
For the year ended December 31, 2020, actual eligible energy revenue that would have been produced at the facilities in the
absence of the curtailment imposed by BC Hydro amounts to $13.0 million ($14.8 million on a Revenues Proportionate1 basis),
respectively. Direct costs related to COVID-19 measures implemented by Innergex and potential savings from reduced travel
have been immaterial.
1- HIGHLIGHTS | Financial Year 2020 – Capital and Resource
The increase in total assets is largely resulting from the construction of the Hillcrest, Griffin Trail and Yonne II projects, as well
as from the Mountain Air and Salvador Acquisitions.
The increase in long-term loans and borrowings, including the current portion thereof, is largely resulting from the construction
activities and from the long-term loans and borrowings assumed in the Mountain Air Acquisition. This was partly offset by the
corporate revolving credit facility repayment made following the Hydro-Québec Private Placement, net of the amounts used
toward the respective purchase price of the Mountain Air and Salvador Acquisitions.
The increase in equity attributable to owners is mainly a result of the Hydro-Québec Private Placement during the first quarter
of 2020, partly offset by dividends declared and the total comprehensive loss attributable to owners of the parent.
Free Cash Flow remained relatively stable. The recent acquisition and commissioning activities have contributed to improving
cash flows from operating activities before changes in non-cash operating working capital items. The decrease in interest
payments on the corporate revolving credit facility concurrent with the Hydro-Québec Private Placement, and the strong
performance of the hydroelectric facilities in British Columbia, also favourably impacted cash flows from operating activities.
However, these items were offset by an increase in debt principal payments stemming from the acquisitions and
commissioning activities, the BC Hydro-imposed curtailment in 2020, citing the COVID-19 pandemic, and by the recovery of
maintenance capital expenditures and prospective project expenses following the sale of HS Orka in 2019. The Corporation's
payout ratio was 135% for the year ended on December 31, 2020; when normalizing for non-recurring items, the Payout Ratio
would have been 109%.
Innergex Renewable Energy Inc.
Annual Report 2020
Introduction p22
(in thousands of Canadian dollars, except as noted and amounts per share)
1- HIGHLIGHTS | Financial Year 2020 – Growth and Development Initiatives
On February 6, 2020, the Corporation announced that it formed a Strategic Alliance with Hydro-Québec that will allow both
corporations to accelerate their respective growth strategies and mutually benefit from their complementary skills and
knowledge. Targeted areas for investment include wind and solar projects with battery storage or transmission, distributed
generation, off-grid renewable energy networks, and other sectors as may be agreed by both parties. Hydro-Québec has
committed an initial $500 million to the Strategic Alliance, which will be entirely and exclusively dedicated to co-investment
projects with Innergex.
Hydro-Québec has also made a $660.9 million investment in Innergex on February 6, 2020, through a private placement of
Innergex common shares at a price of $19.08 per share (“Private Placement”), representing a premium of 5.0% to the 30-day
volume weighted average price as at February 5, 2020.
On May 14, 2020, the Corporation completed the acquisition of the 68 MW PV Salvador SpA (“Salvador”) solar photovoltaic
farm in Chile (the "Salvador Acquisition"), as well as 11-year demand-based power purchase agreements (the “PPAs
Acquisition”) covering a total electricity generation of 54.6 GWh/year. Salvador Acquisition and PPAs Acquisition were acquired
for a total net purchase price of US$66.1 million ($93.0 million).
On July 15, 2020, the Corporation completed the acquisition of all Class B shares of a portfolio of six operating wind farms in
Elmore County, Idaho in the United States (the "Mountain Air Acquisition") for a purchase price of US$56.8 million
($77.3 million). The six 23 MW wind farms, Cold Springs, Desert Meadow, Hammett Hill, Mainline, Ryegrass and Two Ponds,
have a total installed capacity of 138 MW.
The Corporation began or pursued construction on four projects in 2020. Construction started in September 2020 for the
225.6 MW Griffin Trail wind project for which the construction financing and tax equity commitment closed in December 2020.
The Corporation also advanced the construction of the 200.0 MW Hillcrest solar project in the United States, the 7.5 MW
Innavik hydro project in Canada and the 6.9 MW Yonne II wind project in France. These projects are expected to be
commissioned between 2021 and 2022.
Projects under development are progressing well. The selection process for the Engineering, Procurement and Construction
("EPC") agreement is underway for both Peahu and Hale Kuawehi solar and battery storage projects. Paehu's power
purchase agreement ("PPA") was approved by the Public Utilities Commission ("PUC") and the Special Use Permit application
was filed in the fourth quarter. In France, the battery provider has been selected and exclusive negotiations are in progress for
the Tonnerre standalone battery storage project. On September 17, 2020, Innergex signed two 25-year PPAs for the
Barbers Point and Kahana solar and battery storage projects in Hawaii. The Barbers Point solar project is a 15 MW facility
with 4-hour (60 MWh) of battery energy storage, while the Kahana solar project is a 20 MW facility with 4-hour (80 MWh) of
battery energy storage.
The Prospective projects pipeline will allow several opportunities in the years to come, with 12 projects for a total 685 MW
installed capacity currently at an advanced stage.
1- HIGHLIGHTS | Subsequent Events
Repayment of Alterra loans
On January 11, 2021, the Corporation reimbursed the $90.8 million balance of the Alterra term loan, which included a USD
tranche, for an amount of US$21.4 million ($27.2 million) of principal and accrued interest. Also, on the same day, two related
interest rate swaps were unwound for a net cash outflow of $3.2 million.
Dividend Rates on Preferred Shares
The Corporation announced on January 8, 2021, that the applicable dividend rates for its Cumulative Rate Reset Preferred
Shares, Series A and Cumulative Floating Rate Preferred Shares, Series B have been modified. For Series A shares, the
dividend rate for the five-year period commencing on January 15, 2021, to but excluding January 15, 2026, will be 3.244% per
annum, or $0.2027 per share per quarter. For Series B shares, the dividend rate for the Quarterly Floating Rate Period
commencing on January 15, 2021, to but excluding April 15, 2021, will be equal to 2.91% per annum, or $0.181875 per share
per quarter.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p23
(in thousands of Canadian dollars, except as noted and amounts per share)
Weather Conditions in Texas, United States
On February 17, 2021, the Corporation reported that the recent unprecedented extreme winter weather conditions in Texas
had an impact on its ability to produce electricity at its Flat Top wind facility in Mills County, which resumed to normal
operations on February 20, 2021. As for the Shannon wind facility in Clay County, Foard City wind facility in Foard County and
the Phoebe solar facility located in Winkler County, while some power generation has continued, the combined effect of supply
interruptions, abnormal market pricing conditions and contractual obligations to supply a predetermined daily generation under
the power hedges, have had both positive and negative financial impacts depending on varying conditions at different times.
While the higher market price environment has had a net favourable impact on the consolidated revenues and Adjusted
EBITDA, the Corporation estimated the adverse financial impact of the weather events on a consolidated basis to be
approximately $80.0 million, due to the unfavourable impact from the realized losses on the power hedges, and from the
Corporation’s share of loss of joint ventures and associates also related to realized losses on the power hedges. Force
majeure and other mitigating possibilities are being evaluated.
1- HIGHLIGHTS | 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 were 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 unfavourable
elements were partly offset by other revenues generated by tax attributes and PTCs from the commissioning of Foard City 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 was 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 resulted mainly from the commissioning of the Phoebe and Foard City
facilities.
The equity attributable to owners decreased mainly due to the net loss and to the dividends declared, partly offset by the
conversion of $86.7 million of the 4.25% Convertible Debentures.
The decrease in Free Cash Flow was mainly due to greater scheduled debt principal payments, partly offset by a decrease in
the Free Cash Flow attributed to non-controlling interests mainly related to the disposal of HS Orka hf. The Corporation's
payout ratio was 102% for the year ended December 31, 2019.
2- OVERVIEW OF OPERATIONS | Business Environment
Key Growth Factors
Innergex'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;
Stable and long-term government policies for climate change mitigation and adaptation, and 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;
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p24
(in thousands of Canadian dollars, except as noted and amounts per share)
•
•
Its ability to make accretive acquisitions; and
Its ability to finance its growth and to provide firm power with the increasing market readiness and cost effectiveness
of storage technologies.
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. In 2020, the Government
released its updated climate plan, A Healthy Environment and a Healthy Economy, to build on the work under the Pan-
Canadian Framework and exceed Canada’s 2030 greenhouse gas reduction target. The plan envisions that with significant
electrification in all economic sectors, by 2050 Canada will need to produce up to two to three times as much non-emitting
power as it does now. Canada currently generates 80% of its electricity from clean, non-emitting sources, and has set a goal to
increase this percentage to 90% by 2030 and to achieve a net-zero emissions grid before 2050. Towards this end, the plan
commits to a significant increase to the national carbon price from its current $30 per tonne of GHG emissions to $170 per
tonne in 2030.
In the United States, according to the U.S. Energy Information Administration, electricity generation from renewable energy is
expected to rise from 19% in 2019 to 38% by 2050, with approximately 117 GW of new wind and solar photovoltaic capacity
expected to be added from 2020-2023, encouraged by declining capital costs and the availability of tax credits. The wind
energy production tax credit, which was set to expire at the end of 2020, was extended to the end of 2021. In many markets
across the U.S., wind and solar energy are already among the least costly new generation sources, even compared with
currently low-cost natural gas. As electricity demand grows modestly, the primary drivers for new capacity are expected to be
the retirements of older, less-efficient fossil fuel units, the availability of renewable energy tax credits, and the continued
decline in the capital cost of renewable energy sources, especially solar photovoltaic (PV). The U.S. also has a growing portion
of new renewable energy projects being built to meet corporate demand. Low natural gas prices and favourable costs for
renewable energy sources, combined with legislated commitments towards renewable energy at the state level, are expected
to result in natural gas and renewables as the primary sources of new generation capacity in the near term. States have been
very active in adopting and increasing renewable portfolio standards (RPS), policies that require electricity suppliers to source
a certain amount of their electricity from designated renewable resources or eligible technologies. Thirty states, Washington,
D.C., and three territories have now adopted an RPS, and eight states and one territory have set renewable portfolio goals.
Twelve jurisdictions including Hawaii require 100% clean electricity by 2050 or earlier. Over 60% of U.S. electricity retail sales
are in a jurisdiction with legally binding RPS policies.
France continues to be a very attractive market for renewable power. In 2020, the French government confirmed its target to
increase the share of renewable energy in the next 10 years by setting some specific targets by technology. This translates
into a projected 35 GW installed capacity in onshore wind by 2028, which continues to be Innergex's main focus in this market.
In addition, from 2021, the Corporation also intends to address the large-scale solar sector, which also benefit from the same
support with a 40 GW target by 2028. Finally, alongside renewable generation, Innergex intends to pursue opportunities in the
storage market. Although France is likely to reduce the availability of its feed-in tariff contracts, it has committed to extend the
RFP system for sourcing additional renewable power. In line with its strategic objectives of reaching 35 GW 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 Gigawatt hours (“GWh”), a 22% increase from 2018, and representing 14.5% of the total generated power. Meanwhile,
hydroelectric facilities continued to play a significant role in 2019, accounting for 27% of the total generation (equivalent to
20,793 GWh), 11% less than 2018. Mining, which consumes about a third of Chile’s overall power production, is also an
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 consumption expenses.
According to the National Electric Coordinator, 62 power facilities began operations during 2020, which represents about
4,000 MW of additional power (up 100% from 2019). Among those, solar farms represent 34 new farms adding 1,504 MW of
capacity to the system. For their part, wind farms will represent 14 new farms with a total capacity of 1,107 MW. Finally,
10 new hydroelectric facilities began operation in 2020, contributing 756 MW.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p25
(in thousands of Canadian dollars, except as noted and amounts per share)
Seasonality of Operations
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
In GWh and %
HYDRO
WIND
SOLAR
Total
Q1
370
1,364
213
1,947
12 %
29 %
22 %
22 %
Q2
1,065
1,112
276
2,453
36 %
23 %
29 %
29 %
Q3
1,002
916
270
2,188
33 %
20 %
28 %
25 %
Q4
581
1,292
200
2,073
19 %
28 %
21 %
24 %
Total
3,018
4,684
959
8,661
35 %
54 %
11 %
100 %
1. The consolidated long-term average production is the annualized LTA for the facilities in operation as of February 25, 2021. 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 Figures” section.
Global Climate Change
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. 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. Despite all the measures in place to prepare for and respond to extreme weather events, there is no
assurance that there would be no consequences on the Corporation's revenues and profitability.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p26
(in thousands of Canadian dollars, except as noted and amounts per share)
% of productionSeasonality of Production by Energy SourceHydroWindSolarTotalQ1Q2Q3Q4010203040
2- OVERVIEW OF OPERATIONS | Operating Facilities
Energy segment
Location
Three months ended
December 31, 2020
Three months ended
December 31, 2019
Production
(MWh)
Production
as a % of
LTA
Production
(MWh)
Production
as a % of
LTA
Three
months
Production
% change
Year ended
December 31, 2020
Year ended December
31, 2019
Production
(MWh)
Production
as a % of
LTA
Production
(MWh)
Production
as a % of
LTA
Twelve
months
Production
% change
HYDRO
WIND
SOLAR
Quebec
Ontario
British
Columbia
United States
Subtotal
Quebec
France
United
States2,3
Subtotal
Ontario
United
States4
Chile5
Subtotal
TOTAL PRODUCTION1
Innergex's share of production of
joint venture and associates
PRODUCTION PROPORTIONATE
216,240
22,043
457,717
3,113
699,113
663,591
208,113
430,178
1,301,882
5,341
121,587
59,038
185,966
2,186,961
119 %
104 %
162,604
21,937
123 %
60 %
120 %
100 %
97 %
235,450
2,212
422,203
658,213
241,589
104 %
338,353
101 % 1,238,155
5,179
96 %
89 %
102 %
128,266
—
93 %
133,445
106 % 1,793,803
386,397
2,573,358
108 %
351,996
106 % 2,145,799
GEOTHERMAL
Iceland
—
— %
—
90 %
103 %
63 %
42 %
73 %
98 %
113 %
102 %
102 %
92 %
98 %
— %
97 %
93 %
96 %
93 %
— %
33 %
— %
717,839
67,957
103 %
91 %
664,458
67,708
94 % 1,961,283
42,499
41 %
66 % 2,789,578
1 % 2,357,580
711,114
(14) %
27 % 1,424,116
5 % 4,492,810
38,652
3 %
(5) %
— %
637,010
115,864
39 %
791,526
22 % 8,073,914
89 % 1,874,094
37,702
91 %
92 % 2,643,962
102 % 2,436,638
724,267
96 %
99 %
381,684
100 % 3,542,589
39,387
105 %
86 %
103 %
283,684
—
89 %
323,071
96 % 6,509,622
10 % 1,516,226
20 % 9,590,140
99 % 1,512,136
97 % 8,021,758
95 %
91 %
85 %
81 %
88 %
105 %
98 %
102 %
103 %
106 %
98 %
— %
99 %
96 %
98 %
96 %
8 %
— %
5 %
13 %
6 %
(3) %
(2) %
273 %
27 %
(2) %
125 %
— %
145 %
24 %
— %
20 %
—
— %
545,424
108 %
(100) %
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. Foard City was commissioned on September 27, 2019.
3. The Mountain Air Acquisition was completed on July 15, 2020.
4. Phoebe was commissioned on November 19, 2019.
5. The Salvador Acquisition was completed on May 14, 2020.
Production for the three-month period ended December 31, 2020, was 106% of LTA. The variation is mostly explained by above-average water flows in British Columbia
and Quebec, and above-average wind regime in the United States. These items were partly offset by a net unfavourable impact of curtailment required by the distribution
network in Texas at the Phoebe facility partly compensated by above-average irradiation, and production restrictions at some facilities in France. Innergex's share of
Production of joint ventures and associates was 108% of LTA, translating into a Production Proportionate at 106% of LTA.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p27
(in thousands of Canadian dollars, except as noted and amounts per share)
Production for the year ended December 31, 2020, was 96% of LTA, excluding BC Hydro curtailment, production would have reached 99%. The variation is mostly
explained by outages and curtailment required by the distribution network in Texas at the Phoebe facility and below-average wind regimes in the United States in the first
two quarters of the year. These items were partly offset by above-average wind regimes and above-average water flows in Quebec and by above-average wind regimes
in the United States in the last quarter. Innergex's share of Production of joint ventures and associates was 99% of LTA, translating into a Production Proportionate at
97% of LTA.
PPA Renewals
On April 16, 2018, the Corporation and Sekw’el’was Cayoose Creek Band announced that they reached an agreement with BC Hydro for the renewal of the Walden North
Facility’s electricity purchase agreement (the “Walden EPA Renewal”). Cayoose Creek Power Limited Partnership and BC Hydro agreed to terminate the Walden EPA
Renewal pursuant to its terms and to continue to transact pursuant to the terms of the original electricity purchase agreement initially entered into between BC Hydro and
ESI Power Corp., dated August 16, 1990 and the forbearance agreement initially entered into between BC Hydro and ESI Power-Walden Corporation, dated April 1,
2014. The Corporation expects EPA negotiations to resume with BC Hydro upon filing of a new Integrated Resource Plan with the BCUC.
On April 16, 2018, the Corporation announced that it reached an agreement with BC Hydro for the renewal of the EPA of the Brown Lake Facility for a 40-year term (the
“Brown Lake EPA Renewal”). The Corporation and BC Hydro amended the Brown Lake EPA Renewal as suggested by the BCUC so that the Brown Lake EPA Renewal
would have a term no longer than three years and ending on October 31, 2022. The amended Brown Lake EPA Renewal was submitted by BC Hydro to the BCUC for
acceptance. The BCUC’s acceptance of the amended Brown Lake EPA Renewal is still pending.
The PPA for the Ste-Marguerite Facility reached the end of its initial 25-year term in December 2018. The Corporation sent to Hydro-Québec its notice of automatic
renewal for an additional 25-year term. Discussions on the renewal terms and conditions are underway, in accordance with the renewal process of the initial PPA.
The PPA for the Montmagny Facility will reach the end of its initial 25-year term in May 2021. The Corporation sent to Hydro-Québec its notice of automatic renewal for an
additional 25-year term. Discussions on the renewal terms and conditions will begin during the year.
The PPA for the Portneuf Facilities will reach the end of their initial 25-year term in May 2021. The Corporation sent to Hydro-Québec its notice of automatic renewal for
an additional 25-year term. Discussions on the renewal terms and conditions will begin during the year.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p28
(in thousands of Canadian dollars, except as noted and amounts per share)
2- OVERVIEW OF OPERATIONS | Corporate Development
Acquisition of a solar farm in Chile
•
•
•
•
On May 14, 2020, the Corporation completed the Salvador Acquisition, as well as the PPAs Acquisition covering
a total electricity generation of 54.6 GWh/year. The Salvador Acquisition and the PPAs Acquisition were
purchased at a net price of US$47.4 million ($66.7 million) and US$18.7 million ($26.3 million) respectively.
Salvador is expected to generate 182.2 GWh annually and reach an Adjusted EBITDA of US$8.0 million
($10.2 million) in 2021. Salvador was commissioned in 2014 and delivers its total output to the Sistema
Interconectado Central (SIC) power grid, where it receives a merchant market price.
The transaction also includes the transfer of 11-year demand-based PPAs with Empresa Eléctrica ERNC 1 S.A.,
a power trading company, to Innergex. These PPAs, which are volume-regulated on a timeblock basis, could
benefit Energía Llaima SpA, a joint venture of which Innergex owns a 50% interest.
The total net purchase price of US$66.1 million ($93.0 million) was financed entirely from Innergex revolving
credit facilities. The project and the PPAs acquired were free of project debt.
Acquisition of six wind farms in Idaho, United States
•
•
•
•
•
On July 15, 2020, the Corporation completed the Mountain Air Acquisition for a purchase price of US$56.8 million
($77.3 million).
The six 23 MW wind farms, Cold Springs, Desert Meadow, Hammett Hill, Mainline, Ryegrass and Two Ponds,
have a total installed capacity of 138 MW and were fully commissioned in December 2012. The wind turbines are
currently under a full scope Service Maintenance Agreement, and all wind farms have power purchase
agreements with Idaho Power Company, a power utility rated BBB by Standard & Poor’s, for 100% of their
capacity over a remaining period of approximately 12 years.
The Mountain Air Acquisition is expected to produce a gross estimated long-term average of 331 GWh per year
and a US$21.1 million ($26.9 million) projected adjusted EBITDA for 2021.
The Class B shares should provide Innergex with additional cash immediately available for distribution
representing 62.25% of the project free cash flow. Following cash distributions to the tax equity investor, the
distributions receivable by Innergex would be approximately US$6.1 million ($7.8 million). The Class A shares will
remain the property of the tax equity investor.
The existing long-term non-recourse project-level financing amortized over the next 12 years remained in place
and was assumed by the Corporation, as part of the acquisition, at a fair value of US$126.5 million
($172.3 million).
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p29
(in thousands of Canadian dollars, except as noted and amounts per share)
2- OVERVIEW OF OPERATIONS | Construction Activities
The table below outlines the projects that are under construction as at the date of this MD&A.
Name
(Location)
Type
Ownershi
p %
Gross
installed
capacity
(MW)
Gross
estimated
LTA1 (GWh)
PPA
term
(years)
Total project
cost
Expected first 5-year average
Estimated1
($M)
Revenues1
($M)
Adjusted
EBITDA
Proportionate1,2
($M)
Hillcrest
(Ohio, U.S.)
Solar
100
200.0
413.3
15
368.0
3
21.7
3
13.0
Innavik
(QC, Canada)
Hydro
50
7.5
54.7
40
127.8
Wind
69.55
6.9
11.0
20
16.9
4
5
10.8
1.6
4
5
8.6
1.2
Wind
100
225.6
819.0
— 6
362.5
7
17.0
7
34.0
Yonne II
(France)
Griffin Trail
(Texas, U.S.)
Status
Expected
COD
All major work activities are well underway and
the project is approximately 90% complete with
over 400 total personnel on site. Commissioning
work started
in December. Full commercial
operation is scheduled for Q2 2021.
Residential bi-energy conversion program
engineering is completed and the preparation of
RFP is well underway. Bridge to give access to
south shore was delivered and its installation is
almost completed. Construction and long-term
credit agreement of $92.8 million was entered
into on November 4, 2020.
2021
2022
The three wind turbines have been fully installed
and
is ongoing. Full
commercial operation is targeted for March 2021
their commissioning
2021
on
roads,
progress
Construction progressed well on site in Q4 with
significant
turbine
foundations and the operations and maintenance
building. The contractor has over 200 personnel
on site performing the work. Turbine deliveries
commenced in January and are scheduled to
complete in April 2021. Project financing was
completed at the end of December. Commercial
operation is scheduled for Q3 2021.
2021
4
4
5
7
Total
440.0
1,298.0
875.2
51.1
56.8
1. This information is intended to inform readers of the projects' potential impact on the Corporation's results. Actual results may vary. These estimates are up-to-date as at the date of this MD&A.
2. 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.
3. Total Estimated Project Cost at US$289.0 million, Expected Revenues at US$17.0 million and Expected Adjusted EBITDA at US$10.2 million translated at a rate of 1.2732.
4. Corresponding to 100% of this facility.
5. Total Estimated Project Cost at €10.8 million, Expected Revenues at €1.0 million and Expected Adjusted EBITDA at €0.8 million translated at a rate of 1.5608.
6. Power to be sold on the open market.
7. Total Estimated Project Cost at US$284.7 million, Expected Revenues at US$13.3 million, Expected Adjusted EBITDA at US$4.5 million, and Adjusted EBITDA Proportionate of US$26.7 million translated at a rate of
1.2732.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p30
(in thousands of Canadian dollars, except as noted and amounts per share)
Contingency plans and measures are in place at all construction sites to address COVID-19 pandemic. Unless a decree is issued to halt construction, all construction site
should continue as planned.
2- OVERVIEW OF OPERATIONS | Development Activities
Innergex owns a portfolio of Development Projects with a gross installed capacity of approximately 189 MW. The table below outlines their status as at the date of this
MD&A.
Name
(Location)
Frontera
(Chile)
Hale Kuawehi
(Hawaii, U.S.)
Paeahu
(Hawaii, U.S.)
Kahana
(Hawaii, U.S.)
Barbers Point
(Hawaii, U.S.)
Tonnerre
(France)
TOTAL
Type
Gross
installed
capacity
(MW)
Gross
estimated
LTA1 (GWh)
PPA term
(years)
Status
Expected
COD
Hydro
109.0
464.0
— 2 The financing process, the construction contract and permitting are progressing slowly
due to the COVID-19 pandemic. Project schedule is under revision.
Solar
30.0 3
87.4 5
25
Environmental and technical studies are completed. 30% design engineering is
completed. EPC selection and permitting applications are underway.
Solar
15.0 3
41.2 5
25
The PUC approved the PPA. 30% design engineering is completed. EPC request for
proposals is underway. The Special Use Permit application was filed in Q4 2020.
Solar
20.0 3
74.6 5
25
Environmental studies are ongoing as are other permitting-related activities
Solar
15.0 3
37.0 5
25
Environmental studies are ongoing as are other permitting-related activities
Storage
— 4
—
— 6
189
704.2
The battery provider, EVLO, a Hydro-Quebec subsidiary, has been selected and
exclusive negotiations are in progress. The building permit request has been filed in
December 2020.
—
2022
2023
2023
2023
2021
1. This information is intended to inform readers of the projects' potential impact on the Corporation's results. Actual results may vary. These estimates are up-to-date as at the date of this MD&A.
2. 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, 60 MWh for Paeahu, 80 MWh for Kahana and 60 MWh for Barbers Point.
4. Standalone battery storage capacity of 9 MWh.
5. PPA is a fixed lump sum capacity payment for the availability of dispatchable energy.
6. The project has been awarded a 7-year Contract for Difference offering a fixed-price contract for capacity certificate. The French Energy Code sets forth a market-based premium regime. Under a Contract for Difference,
the income of the producer relies on a price obtained on the market and an energy premium that corresponds to the difference between a reference tariff calculated on the basis of the average financing and operation
costs for an efficient and representative installation and the average electricity and capacity market-based prices.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p31
(in thousands of Canadian dollars, except as noted and amounts per share)
2- OVERVIEW OF OPERATIONS | Prospective Projects
Innergex also owns interests in numerous prospective projects at various stages of development. Some projects have secured
land rights, filed an investigative permit application or have submitted or could submit a proposal 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. Prospective projects are categorized in different stages based
on the items below. There is no certainty that any Prospective Project will be realized.
In order to define the stage of each prospective project, their progression is measured according to the permitting maturity
phase leading to obtaining a final notice to proceed combined with a success probability factor that the project will reach the
development stage. Prospective projects are segregated into three different stages, i.e. early, mid and advanced.
Early Stage
Mid Stage
Advanced Stage
The prospective projects in this category have a LOW permitting maturity combined with a LOW success
probability factor; or a MID-stage permitting maturity combined with a MEDIUM success probability
factor.
The prospective projects in this category have a MID-stage permitting maturity combined with a MEDIUM
success probability factor; or a HIGH-stage permitting maturity combined with a MEDIUM success
probability factor.
The prospective projects in this category have a HIGH permitting maturity combined with a HIGH
success probability factor; or a MID-stage permitting maturity combined with HIGH success probability
factor.
Early Stage
Mid Stage
Advanced Stage
Capacity
(in MW)
Number of
projects
Capacity
(in MW)
Number of
projects
Capacity
(in MW)
Number of
projects
Total
Capacity
(in MW)
Total
number of
projects
500
300
3,443
4,243
664
—
664
7
8
20
35
7
—
7
—
—
500
500
370
—
370
—
—
3
3
3
—
3
—
—
—
—
200
320
520
69
7
120
7
162
183
32
—
215
5,191
3
1
—
4
53
—
—
9
9
999
—
—
1
1
14
3
—
—
3
685
—
—
—
—
1
1
2
9
1
—
—
1
12
500
300
3,943
4,743
1,234
320
1,554
351
186
32
9
227
6,875
7
8
23
38
11
1
12
23
4
1
1
6
79
CANADA
Hydro
Solar
Wind
Subtotal
UNITED STATES
Solar
Wind
Subtotal
FRANCE
Wind
CHILE
Hydro
Solar
Wind
Subtotal
Total
1. Only Gross Installed Capacity is disclosed for Prospective Projects as the net capacity is not yet defined at this stage.
Strategic Alliance Pipeline
The Corporation formed a Strategic Alliance with Hydro-Québec on February 6, 2020, to leverage the strong Quebec know-
how in renewable energy and power grid management into global opportunities. Hydro-Québec has committed an initial $500
million to the Strategic Alliance, which will be entirely and exclusively dedicated to co-investment projects with Innergex. Each
party has also committed to presenting investment opportunities in targeted sectors outside of Quebec to each other
exclusively for an initial 3-year period. Targeted areas for investment include wind and solar projects with battery storage or
transmission, distributed generation, off-grid renewable energy networks, and other sectors as may be agreed by both parties.
In the first year of the Strategic Alliance, both entities worked together to build a team responsible for identifying opportunities
to invest. Many opportunities have been assessed while many others are still under review. The current COVID-19 pandemic
has slowed down the market but opportunities still exist and the team is evaluating all of those that make sense for the
Strategic Alliance. In addition, the entities are targeting standalone energy storage facilities with the battery technology
developed by Hydro-Québec.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p32
(in thousands of Canadian dollars, except as noted and amounts per share)
3- FINANCIAL PERFORMANCE AND OPERATING RESULTS
Three months ended December 311
Year ended December 311
2020
2019
Change
2020
2019
Change
167,927
36,510
143,116
26,308
24,811
10,202
17 % 613,207
39 % 131,442
557,042
98,455
56,165
32,987
10 %
34 %
9,979
11,235
(1,256)
(11) % 42,948
36,507
6,441
18 %
3,608
117,830
2,240
103,333
1,368
14,497
61 % 16,708
14 % 422,109
12,905
409,175
3,803
12,934
29 %
3 %
70.2 %
72.2 %
68.8 %
73.5 %
57,443
(7,304)
61,062
(102,004)
(3,619)
94,700
(6) % 233,143
(93) % (65,554)
231,766
(104,643)
1,377
39,089
1 %
(37) %
58,465
53,021
5,444
10 % 228,526
194,579
33,947
17 %
26,659
—
26,659
— % 26,659
—
26,659
— %
—
8,184
(8,184)
— %
—
8,184
(8,184)
— %
(13,874)
(27,276)
13,402
(49) %
7,524
(36,469)
43,993
(121) %
(22,810)
40,708
(63,518)
(156) %
2,025
49,933
(47,908)
(96) %
7,357
117,687
(110,330)
(94) % 18,897
118,851
(99,954)
(84) %
11,894
(48,049)
59,943
(125) % (29,111)
(53,026)
23,915
(45) %
—
11,894
644
(47,405)
(644)
59,299
(100) %
—
(125) % (29,111)
21,815
(31,211)
(21,815)
2,100
(100) %
(7) %
Revenues
Operating expenses
General and administrative
expenses
Prospective project
expenses
Adjusted EBITDA2
Adjusted EBITDA margin2
Finance costs
Other net income
Depreciation and
amortization
Impairment of equity
accounted investment
Impairment of project
development costs
Share of (earnings) losses
of joint ventures and
associates3
Change in fair value of
financial instruments
Income tax expense
Net earnings (loss) from
continuing operations
Net earnings from
discontinued operations
Net earnings (loss)
Net earnings (loss)
attributable to:
Owners of the parent
Non-controlling interests
11,920
(26)
11,894
(46,158)
(1,247)
(47,405)
58,078
1,221
59,299
(126) % (32,628)
3,517
(125) % (29,111)
(98) %
(28,041)
(3,170)
(31,211)
(4,587)
6,687
2,100
16 %
(211) %
(7) %
Basic and diluted net
earnings (loss) per share
from continuing operations
attributable to owners ($)
Basic and diluted net
earnings (loss) per share
attributable to owners ($)
0.06
(0.35)
(0.23)
(0.40)
0.06
(0.36)
(0.23)
(0.25)
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.
On a consolidated basis, the Adjusted EBITDA Margin was down from 72.2% to 70.2% for the three-month period ended on
December 31, 2020, and down from 73.5% to 68.8% for the twelve-month period ended on December 31, 2020.
The decrease for the three-month period is mainly explained by the increased weight of the solar and wind segments for which
margins are lower, due to the recent acquisitions and commissioning activities, partly offset by lower general and
administrative expenses.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p33
(in thousands of Canadian dollars, except as noted and amounts per share)
The decrease for the twelve-month period is mainly explained by the increased weight of the solar and wind segments for
which margins are lower, due to the recent acquisitions and commissioning activities, and by higher general and administrative
expenses to support the Corporation's growth.
On a consolidated basis, Adjusted EBITDA Proportionate Margin was down from 75.2% to 72.4% for the three-month
period ended on December 31, 2020, and down from 74.0% to 71.7% for the twelve-month period ended on
December 31, 2020.
The decrease for the three-month period is mainly explained by a lower Adjusted EBITDA margin and by lower margins at
some wind facilities resulting from lower net selling prices.
The decrease for the twelve-month period is mainly explained by a lower Adjusted EBITDA margin, partly offset by a higher
margin contribution from the Foard City facility's PTCs that directly improves the margin.
3- FINANCIAL PERFORMANCE AND OPERATING RESULTS |
Hydroelectric Segment
Three months ended December 31
Year ended December 31
Hydroelectric Segment
Production (MWh)
LTA (MWh)
Revenues (In $M)
Adjusted EBITDA (In $M) 1
Adjusted EBITDA Margin 1
PROPORTIONATE 1
Production Proportionate (MWh)
Revenues Proportionate (In $M)
Adjusted EBITDA Proportionate (In $M)
2020
699,113
580,908
59,945
43,500
2019
422,203
580,908
39,949
29,126
72.6 %
72.9 %
Change
2020
66 % 2,789,578
— % 3,017,166
229,102
50 %
49 %
173,869
—
75.9 %
2019
2,643,962
3,017,166
218,918
170,023
77.7 %
828,189
74,358
53,854
529,223
50,815
36,498
56 % 3,372,316
293,497
46 %
3,243,489
283,679
48 %
—
223,695
218,034
76.2 %
76.9 %
Change
6 %
— %
5 %
2 %
—
4 %
3 %
3 %
—
Adjusted EBITDA Margin Proportionate
72.4 %
71.8 %
1. These measures are not recognized measures under IFRS and therefore may not be comparable to those presented by other issuers. Production and
Production Proportionate are key performance indicators 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.
For the three-month period ended December 31, 2020, the increase of 49% in Adjusted EBITDA in the hydroelectric segment
compared with the same quarter last year is mainly due to a higher contribution from the facilities in British Columbia. This
higher contribution is mainly attributable to higher revenues derived from a net favourable impact of higher production over
lower selling prices, partly offset by higher operational expenses compared with the 2019 numbers that included a favourable
settlement of the water rights claim. The increase is also attributable to higher production at the Quebec facilities. The
Adjusted EBITDA Margin is down from 72.9% to 72.6%, which is mainly explained by higher operational expenses.
The joint ventures' and associates' hydroelectric facilities contributed $10.4 million to the Adjusted EBITDA Proportionate
for the three-month period ended December 31, 2020, compared with a contribution of $7.4 million for the same quarter last
year, a 40% increase mainly due to a higher contribution from the Jimmie Creek facility due to higher revenues attributable to
higher production and selling price, higher revenues at the Toba Montrose facility due to a favourable impact of higher
production over lower average selling prices, and higher contribution from some facilities in Chile due to higher average selling
prices over lower production.
For the year ended December 31, 2020, the 2% increase in Adjusted EBITDA in the hydroelectric segment compared with
the same period last year, is mainly due to higher contribution from the facilities in British Columbia, explained by higher
revenues from a combined impact of higher production and higher average selling prices at most facilities, notwithstanding the
expiration of the EcoEnergy subsidy program for some facilities. This increase was partly offset by the curtailment imposed by
BC Hydro for five facilities and by higher operational expenses in British Columbia facilities compared with the 2019 numbers
that included a favourable settlement of the water rights claim. The Adjusted EBITDA Margin is down from 77.7% to 75.9%,
which is mainly explained by higher operational expenses.
The joint ventures' and associates' hydroelectric facilities contributed $49.8 million to the Adjusted EBITDA Proportionate
for the year ended December 31, 2020, compared with a contribution of $48.0 million for the same period last year, a 4%
increase mainly due to a higher contribution from Toba Montrose, explained by higher revenues from a favourable impact of
higher production over lower average selling prices. This increase was partly offset by a lower contribution from the Jimmie
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p34
(in thousands of Canadian dollars, except as noted and amounts per share)
Creek facility, explained by lower revenues mostly due to the curtailment imposed by BC Hydro and by a lower contribution
from some facilities in Chile due to a net unfavourable impact of lower production over higher average selling prices and lower
operational expenses.
3- FINANCIAL PERFORMANCE AND OPERATING RESULTS | Wind Segment
Three months ended December 31
Year ended December 31
Wind Segment
Production (MWh)
LTA (MWh)
Revenues (In $M)
Adjusted EBITDA (In $M) 1
Adjusted EBITDA Margin 1
PROPORTIONATE 1
Production Proportionate (MWh)
Revenues Proportionate (In $M)
Adjusted EBITDA Proportionate (In $M)
2020
1,301,882
1,292,026
98,470
78,658
2019
1,238,155
1,217,196
92,927
78,369
79.9 %
84.3 %
Change
2020
5 % 4,492,810
6 % 4,492,522
333,795
6 %
— %
263,945
—
79.1 %
2019
3,542,589
3,426,464
304,724
253,606
83.2 %
1,555,772
127,030
103,164
1,479,829
126,280
108,659
5 % 5,413,583
435,784
1 %
351,262
(5) %
4,442,098
378,804
312,285
Change
27 %
31 %
10 %
4 %
—
22 %
15 %
12 %
— %
Adjusted EBITDA Margin Proportionate
81.2 %
86.0 %
— %
80.6 %
82.4 %
1. These measures are not recognized measures under IFRS and therefore may not be comparable to those presented by other issuers. Production and
Production Proportionate are key performance indicators 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.
For the three-month period ended December 31, 2020, the Adjusted EBITDA in the wind power generation segment was
stable mainly due to the Mountain Air Acquisition in Idaho completed on July 15, 2020, and to the higher contribution from the
Quebec facilities explained by higher production. These items were offset by lower revenues from the Foard City facility due to
an unfavourable net selling price and by higher operational expenses. These items were also partly offset by a lower
contribution from the wind facilities in France, explained by lower revenues due mostly to lower wind regime. The Adjusted
EBITDA Margin was down from 84.3% to 79.9%, which was mainly explained by the weight of the recent acquisition and
commissioned facilities in the United States for which margins are lower.
The joint ventures' and associates' wind farms contributed $4.9 million to the Adjusted EBITDA Proportionate for the
three-month period ended December 31, 2020, compared with a contribution of $12.5 million in the same quarter last year
mainly due to a lower contribution from the Shannon and Flat Top facilities due mostly to lower revenues explained by
unfavourable net selling prices and by an annual favourable adjustment in 2019.
The proportional PTCs generated by the wind farms contributed $19.6 million in the three-month period ended
December 31, 2020, compared with a $17.8 million contribution in the same quarter last year. The increase is due to higher
PTCs earned from higher production at wind farms located in the United States.
For the year ended December 31, 2020, the 4% increase in Adjusted EBITDA in the wind power generation segment is
mainly due to the Mountain Air Acquisition in Idaho completed on July 15, 2020, the commissioning of the Foard City wind farm
in Texas on September 27, 2019, and by a higher contribution from most facilities in France due to higher revenues. These
items were partly offset by a lower contribution from the Quebec facilities explained by lower revenues due to lower production
over lower operational expenses. The variation is also partly offset by a temporary shutdown and production restrictions at
some facilities in France.The Adjusted EBITDA Margin is down from 83.2% to 79.1%, which is mainly explained by the
weight of the recent acquisition and commissioned facilities in the United States for which margins are lower.
The joint ventures' and associates' wind farms contributed $16.8 million to the Adjusted EBITDA Proportionate for the
year ended December 31, 2020, compared with $21.6 million for the same period last year, a 22% decrease mainly due to a
lower contribution from the Shannon and Flat Top facilities explained by lower revenues from unfavourable net selling prices,
partly offset by lower operational expenses. This item was partly offset by a higher contribution from the Dokie facility
explained by higher production.
The proportional PTCs generated by the wind farms contributed $70.5 million for the year ended December 31, 2020,
compared with a $37.1 million contribution in the same period last year. The increase is due to PTCs generated by the Foard
City wind farm following its commissioning on September 27, 2019.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p35
(in thousands of Canadian dollars, except as noted and amounts per share)
3- FINANCIAL PERFORMANCE AND OPERATING RESULTS | Solar Segment
Three months ended December 31
Year ended December 31
Solar Segment
Production (MWh)
LTA (MWh)
Revenues (In $M)
Adjusted EBITDA (In $M) 1
Adjusted EBITDA Margin 1
PROPORTIONATE 1
Production Proportionate (MWh)
Revenues Proportionate (In $M)
Adjusted EBITDA Proportionate (In $M)
2020
185,966
199,786
9,512
8,135
2019
133,445
136,978
10,240
8,796
85.5 %
85.9 %
Change
39 %
46 %
(7) %
(8) %
—
2020
791,526
887,369
50,310
39,214
2019
323,071
326,540
33,400
31,034
77.9 %
92.9 %
189,397
9,967
8,375
136,747
10,852
9,085
39 %
(8) %
804,241
52,185
(8) %
40,290
336,171
35,518
31,988
Adjusted EBITDA Margin Proportionate
84.0 %
83.7 %
— %
77.2 %
90.1 %
Change
145 %
172 %
51 %
26 %
—
139 %
47 %
26 %
— %
1. These measures are not recognized measures under IFRS and therefore may not be comparable to those presented by other issuers. Production and
Production Proportionate are key performance indicators 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.
For the three-month period ended December 31, 2020, the decrease of 8% in Adjusted EBITDA in the solar power generation
segment is mainly due to a lower contribution from the Phoebe solar facility attributable to a net unfavourable impact of lower
net selling prices, partly offset by lower operational expenses. The variation was also partly offset by the Salvador Acquisition
on May 14, 2020. The Adjusted EBITDA Margin was stable.
For the year ended December 31, 2020, the increase of 26% in Adjusted EBITDA in the solar power generation segment is
mainly due to the commissioning of the Phoebe solar facility on November 19, 2019, and to the Salvador Acquisition on
May 14, 2020. The Adjusted EBITDA Margin was down from 92.9% to 77.9%, which is mainly explained by the weight of
recent acquisition and commissioned facilities in the United States and Chile, for which margins are lower.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p36
(in thousands of Canadian dollars, except as noted and amounts per share)
3- FINANCIAL PERFORMANCE AND OPERATING RESULTS |
Net Earnings (Loss) from Continuing Operations
Net earnings of $11.9 million ($0.06 earnings per share - basic and diluted) for the three-month period ended
December 31, 2020, compared with a net loss from continuing operations of $48.0 million ($0.35 loss per share - basic and
diluted) in 2019.
In addition to the hydroelectric, wind and solar segments' respective operating performance previously explained, the
$59.9 million increase in net earnings mainly stems from:
▪
a $110.3 million decrease in income tax expense, mainly related to a decrease in tax attributes being allocated to
tax equity investors, namely the accelerated tax depreciation, PTCs and ITCs, including the impact thereof on the share
of earnings in joint ventures and associates;
a $63.5 million favourable movement in the change in fair value of financial instruments, composed of:
•
◦
◦
a $45.8 million favourable movement in the unrealized portion of change in fair value of financial instruments
mainly related to a mark to market gain on the Phoebe power and basis hedges in 2020, compared with a mark to
market loss in 2019, to a large extent, resulting from the basis hedge; and
a $17.7 million favourable movement in the realized portion of change in fair value of financial instruments mainly
related to a $0.1 million realized loss on the Phoebe basis hedge in 2020, from an $11.7 million loss in 2019.
These items were partly offset by:
•
a $13.4 million decrease in the share of earnings of joint ventures and associates, mainly related to a decrease in the
mark to market gain on Shannon and Flat Top's power hedges in 2020, compared with 2019.
an $18.5 million increase in the impairment of non-current assets stemming from a $26.7 million impairment charge on
our investment in Energía Llaima due to recent changes in market conditions that affected downwards the expectation of
future cash flows from the investment, compared with an $8.2 million impairment of project development costs in 2019;
and
a $94.7 million decrease in other income mainly related to tax attributes allocated to the tax equity investors at the
Foard City wind and Phoebe solar facilities, largely related to the accelerated tax depreciation recognized primarily in the
year of the commissioning.
Net loss of $29.1 million ($0.23 loss per share - basic and diluted) for the year ended December 31, 2020, compared with net
loss from continuing operations of $53.0 million ($0.40 loss per share - basic and diluted) in 2019.
In addition to the hydroelectric, wind and solar segments' respective operating performance previously explained, the
$23.9 million decrease in net loss can be explained by:
▪
a $100.0 million decrease in income tax expense, mainly related to a decrease in tax attributes being allocated to
tax equity investors, namely the accelerated tax depreciation, PTCs and ITCs, including the impact thereof on the share
of earnings in joint ventures and associates;
a $47.9 million favourable movement in the change in fair value of financial instruments, composed of:
•
◦
◦
a $42.2 million favourable movement in the unrealized portion of change in fair value of financial instruments
mainly related to the Phoebe power and basis hedges and the favourable change in the currency translation of
intragroup loans, partly offset by an unfavourable change in unrealized loss on the Corporation's portfolio of foreign
exchange forward contracts; and
a $5.7 million favourable movement in the realized portion of change in fair value of financial instruments mainly
related to realized gains on the Phoebe and Salvador power hedges.
These items were partly offset by:
▪
a $6.4 million increase in general and administrative expenses, stemming mainly from an increase in salaries and
professional fees to support the Corporation's growth;
an $18.5 million increase in the impairment of non-current assets stemming from a $26.7 million impairment of the
investment in Energia Llaima in 2020, compared with an $8.2 million impairment of project development costs in 2019;
a $39.1 million decrease in other net income mainly related to tax attributes allocated to the tax equity investors at
the Foard City wind facility, largely related to the accelerated tax depreciation primarily in the year of the commissioning,
partly offset by an increase in the PTCs generated by the Foard City wind facility;
a $44.0 million increase in the share of loss of joint ventures and associates, mainly related to a mark to market loss
on Shannon and Flat Top's power hedges in 2020, compared with a mark to market gain for the same period in 2019; and
a $33.9 million increase in depreciation and amortization, mainly related to the Salvador and Mountain Air Acquisitions
realized during the second and third quarter of 2020, respectively, and the commissioning of Foard City wind and Phoebe
solar facilities in the fourth quarter of 2019.
•
▪
▪
▪
▪
▪
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p37
(in thousands of Canadian dollars, except as noted and amounts per share)
3- FINANCIAL PERFORMANCE ON OPERATING RESULTS |
Adjusted Net Earnings (Loss) from Continuing Operations
The Adjusted Net Earnings (Loss) from Continuing Operations seeks to provide a measure that eliminates the earnings
impacts of certain derivative financial instruments and non-recurring events, which do not represent the Corporation's
operating performance. Adjusted Net Earnings (Loss) 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.
The table below shows a summary statement of Adjusted Net Earnings (Loss) from Continuing Operations (Please refer to the
"Non-IFRS Measures" for a reconciliation to the Consolidated Statements of Earnings):
Three months ended
December 31
Year ended December 31
2020
2019
2020
2019
Revenues
Operating expenses
General and administrative expenses
Prospective project expenses
Adjusted EBITDA
Finance costs
Other net income
Depreciation and amortization
Share of (earnings) losses of joint ventures and associates
Realized (gains) losses on power hedges
Income tax expense
Adjusted Net Earnings (Loss) from Continuing Operations1
167,927
36,510
9,979
3,608
117,830
57,443
(7,154)
58,465
(3,646)
(1,818)
1,550
12,990
143,116
26,308
11,235
2,240
103,333
61,062
(101,763)
53,021
(5,730)
208
122,117
(25,582)
613,207
131,442
42,948
16,708
422,109
233,143
(63,824)
228,526
(12,465)
(9,232)
23,650
22,311
557,042
98,455
36,507
12,905
409,175
231,766
(101,981)
194,579
(13,472)
208
124,100
(26,025)
1. Adjusted Net Earnings (Loss) from Continuing Operations 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.
Adjusted Net Earnings of $13.0 million for the three-month period ended December 31, 2020, compared with an Adjusted Net
Loss from Continuing Operations of $25.6 million in 2019.
In addition to the hydroelectric, wind and solar segments' respective operating performance previously explained, the
$38.6 million increase in Adjusted Net Earnings from Continuing Operations mainly stems from:
▪
a $120.6 million decrease in income tax expense, mainly related to a decrease in tax attributes being allocated to
tax equity investors, namely the accelerated tax depreciation, PTCs and ITCs, including the impact thereof on the share
of earnings in joint ventures and associates;
Partly offset by:
▪
a $94.6 million decrease in other income mainly related to tax attributes allocated to the tax equity investors at the
Foard City wind and Phoebe solar facilities, largely related to the accelerated tax depreciation recognized primarily in the
year of the commissioning.
Adjusted Net Earnings of $22.3 million for the year ended December 31, 2020, compared with an Adjusted Net Loss from
Continuing Operations of $26.0 million in 2019
In addition to the hydroelectric, wind and solar segments' respective operating performance previously explained, the
$48.3 million increase in Adjusted Net Earnings from Continuing Operations mainly stems from:
▪
a $100.5 million decrease in income tax expense, mainly related to a decrease in tax attributes being allocated to tax
equity investors, namely the accelerated tax depreciation, PTCs and ITCs, including the impact thereof on the share of
earnings in joint ventures and associates;
a $9.4 million favourable movement in the realized portion of change in fair value of financial instruments, related to
realized gains on the Phoebe and Salvador power hedges.
•
These items were partly offset by:
▪
a $6.4 million increase in general and administrative expenses, stemming mainly from an increase in salaries and
professional fees to support the Corporation's growth;
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p38
(in thousands of Canadian dollars, except as noted and amounts per share)
▪
▪
a $38.2 million decrease in other income mainly related to tax attributes allocated to the tax equity investors at the
Foard City wind facility, largely related to the accelerated tax depreciation primarily in the year of the commissioning, partly
offset by an increase in the PTCs generated by the Foard City wind facility; and
a $33.9 million increase in depreciation and amortization, mainly related to the Salvador and Mountain Air Acquisitions
realized during the second and third quarter of 2020, respectively, and the commissioning of Ford City wind and Phoebe
solar facilities in the fourth quarter of 2019.
3- FINANCIAL PERFORMANCE ON OPERATING RESULTS |
Non-Controlling Interests
Non-controlling interests are related to the non-wholly owned subsidiaries identified in the "Portfolio of assets" section.
Attribution of loss of nil to non-controlling interests for the three-month period ended December 31, 2020, compared with a loss
of $1.2 million for the corresponding period in 2019
The $1.2 million increase in loss attributed to non-controlling interests is mainly due to:
•
an unfavourable movement in the unrealized portion of the change in fair value of derivative financial instruments in
Innergex Europe;
Partly offset by:
•
a cumulative adjustment related to a reclassification of the tax equity financing as a financial liability during the fourth
quarter of 2019, concurrently affecting the amount of earnings previously allocated to the tax equity investor; and
the Mountain Air Acquisition, of which 37.75% of net earnings are attributed to non-controlling interests.
•
Attribution of earnings of $3.5 million to non-controlling interests for the year ended December 31, 2020, compared with a loss
of $3.2 million for the corresponding period in 2019
The $6.7 million increase in earnings attributed to non-controlling interests is mainly due to:
•
a favourable movement in the unrealized portion of the change in fair value of derivative financial instruments and to an
increase in revenues in Innergex Europe; and
an increase in revenues from the Harrison Hydro facilities stemming mainly from the increase in production during the
fourth quarter of 2020 for those facilities.
•
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p39
(in thousands of Canadian dollars, except as noted and amounts per share)
4- CAPITAL AND LIQUIDITY | Capital Structure
Our capital structure consists of the following components as shown below:
Equity1
Common shares2
Preferred shares3
Non-controlling interests
Long-term loans and borrowings1
Corporate revolving credit facility
Other corporate debt
Project-level debt
Tax Equity financing
Convertible debentures
Deferred financing costs
As at December 31, 2020
As at December 31, 2019
4,778,325
99,364
62,078
182,996
266,627
3,839,799
315,958
280,075
(71,574)
2,350,382
95,010
10,942
490,996
267,167
3,380,770
339,950
278,827
(66,041)
1.Common and preferred shares are presented at their market value as at December 31, 2020 and 2019, while non-controlling interests and long-term loans and
borrowings are presented at their respective book value.
2.Consists of the number of common shares outstanding as at December 31, 2020 and 2019, multiplied by the prevailing share price of $27.37 (2019 - $16.86) at
the close of markets.
3.Consists of the number of preferred shares outstanding as at December 31, 2020 and 2019, multiplied by the prevailing share price of $14.46 and $25.10 (2019 -
$14.15 and $23.45), for the Series A and Series C preferred shares, respectively at the close of markets.
9,753,648
7,148,003
Innergex'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.
Innergex 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. Generally, equity is the primary source of financing for the development of projects, while long-term loans and
borrowings are used to finance the construction projects. The Corporation expects to finance 70% to 85% of its construction
costs mostly through non-recourse long-term debt financing or tax equity financing for qualifying projects in the United States.
The increase in the number of common shares outstanding is mainly related to the Hydro-Québec Private Placement. The
increase in non-controlling interests stems principally from the Mountain Air Acquisition, net of dividends to non-controlling
interests. The increase in long-term loan borrowings is related to the construction of Hillcrest, Griffin Trail and Yonne II, and to
the acquisition of Mountain Air, partly offset by a repayment of the corporate revolving credit facility concurrent with the Hydro-
Québec Private Placement.
As at December 31, 2020, 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 and 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, 2020 and 2019, the Mesgi'g Ugju's'n
facility 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, 2021. A
plan was put in place to ensure the continuity of the operations of the facility. Ongoing dialogue and reporting are provided to
the facility lenders until this situation is resolved. If the waiver is not renewed, the lenders would have the right to request
repayment. As a result, the $219.0 million ($232.1 million in 2019) portion of the loan that would otherwise be classified as
non-current was reallocated to the current portion of long-term loans and borrowings. As at December 31, 2020, and as at
December 31, 2019, the facility was in compliance with financial covenants.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p40
(in thousands of Canadian dollars, except as noted and amounts per share)
As at December 31, 2020, the Montjean and Theil-Rabier facilities were not meeting their respective targeted debt coverage
ratios, which triggered a default under their respective credit agreement. This was due to two blade incidents, which caused
business interruptions of both Montjean and Theil-Rabier facilities for an extended period which were subsequently followed by
several production restrictions. Assuming the situation is not resolved, the lenders would have the right to request repayment,
and as a result, the €12,331 ($19,246) portion of the loan that would otherwise be classified as long-term of each debt was
reallocated to the current portion of long-term loans and borrowings.
As at December 31, 2020, the Mountain Air facilities were in breach of their credit agreements due to a non respect of a
specific requirement of the insurance clause. A waiver was obtained until March 31, 2021. If the situation is not resolved and
the waiver is not renewed, the lenders would have the right to request repayment, and as a result, the US$115,304 ($146,804)
portion of the loan that would otherwise be classified as long-term was reallocated to the current portion of long-term loans and
borrowings.
The effective all-in interest rate on the Corporation's long-term loans and borrowings was 4.50% as at December 31, 2020
(4.70% as at December 31, 2019).
4- CAPITAL AND LIQUIDITY | 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 results 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
Interest expense
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 net
income as earned and as a reduction in tax equity financing
Allocation of ITCs to the tax equity investor stemming from the
construction activities and recognized as a reduction in both
the cost of the assets to which they relate and the tax equity
financing
Allocation of taxable income and other tax attributes to the tax
equity investor recognized in other net income as earned and
as a reduction in tax equity financing
Interest expense using the effective interest rate method
recognized in finance costs as incurred and as an increase in
tax equity financing
Additional cash contributions made by the tax equity investor
when the annual production exceeds the contractually
determined threshold and recognized as an increase in tax
equity financing
Cash allocation to the tax equity investor, recognized as a
reduction in tax equity financing
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p41
(in thousands of Canadian dollars, except as noted and amounts per share)
Production Tax Credit Program (“PTC”)
Current United States tax law allows wind energy projects to receive tax credits that are earned for each MWh of generation
during the first 10 years of the projects' 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 Point
TEI
Investment
(M$)
Expected
Annual PTC
Generation3
(M$)
Expected
Annual Pay-go
Contribution4
(M$)
TEI Allocation of
Taxable Income
(Loss) and PTCs
(Pre-Flip Point)
TEI Allocation
of Cash
Distributions
(Pre-Flip Point)
Shannon1,2
Flat Top1,2
Foard City1,2,4
2015 Under review5
2018 Under review5
274.2
267.2
2019
2029
372.7
22.7
27.8
41.5
—
—
4.5
21.32 %
99.00 %
99.00 %
64.10 %
21.97 %
5.00 %
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, 2020.
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$25/MWh generated for the period from COD to Flip Point, translated into Canadian dollars at
1.2732. PTCs generation will vary depending on actual production.
4. Average annual Pay-go Contributions estimate is based on PTCs generated on gross estimated LTA for each year from COD to Flip Point, translated into
Canadian dollars at 1.2732. Pay-go Contributions will be earned on actual production in excess of a specified annual threshold, subject to a contractual
cumulative maximum.
5. Due to the adverse financial impacts of the February 2021 extreme whether conditions in Texas (refer to the "Subsequent Events" section of this MD&A for more
information), the Corporation is currently assessing the impacts on the TEI Flip Point dates of its Texas facilities subject to power hedges.
Investment Tax Credit Program (“ITC”)
Current United States tax law allows wind and solar facilities to receive a one-time federal tax credit, calculated on the basis of
the facility's capital cost. Projects that began construction through 2019 are eligible for 30% ITC. This credit steps down to 26%
for facilities that began construction in 2021 and 2022, 22% in 2023 and 10% thereafter.
Commercial
Operation Date
Expected TEI Flip
Point
TEI Investment
(M$)
Phoebe 1,2,3
Hillcrest 1,4,5,6
2019
2021
Under review7
2028
244.3
29.8
TEI Allocation of
Taxable Income
(Loss) and ITC
(Pre-Flip Point)
TEI Preferred
Allocation of Cash
(Pre-Flip Point)
67.00 %
10.62% in excess of
priority distribution
99.00 %
4.23 %
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.
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 67% from February 15, 2020, to December 31, 2024, and then back to
99.0% until TEI Flip Point.
4. Hillcrest Solar Partners received US$22.4 million ($29.8 million) from the tax equity investor in return for its Class A membership interest, representing 20% of
the tax equity investor's total investment. The remaining funding of US$89.7 million ($114.1 million) is to be received upon commissioning of the project.
5. Hillcrest allocation of taxable income (loss) and ITCs is 99% to the tax equity investor. From January 1, 2025 to December 31, 2025, allocation of taxable
income (loss) to the tax equity investor will be 67.00%, and 5% thereafter.
6. Hillcrest’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 4.23% to the tax equity investor, until the Flip Point date.
7. Due to the adverse financial impacts of the February 2021 extreme whether conditions in Texas (refer to the "Subsequent Events" section of this MD&A for more
information), the Corporation is currently assessing the impacts on the TEI Flip Point dates of its Texas facilities subject to power hedges.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p42
(in thousands of Canadian dollars, except as noted and amounts per share)
4- CAPITAL AND LIQUIDITY | Financial Position
As at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Investment tax credits recoverable
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, 2020
December 31, 2019
161,465
67,477
106,353
117,157
452,452
5,053,125
919,323
446,837
75,932
206,563
6,701,780
7,154,232
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
1,036,730
641,353
4,046,714
999,856
5,046,570
6,083,300
1,008,854
62,078
1,070,932
7,154,232
4,281,586
833,839
5,115,425
5,756,778
604,384
10,942
615,326
6,372,104
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p43
(in thousands of Canadian dollars, except as noted and amounts per share)
Working Capital Items
As at December 31, 2020, working capital was negative at $584.3 million, from negative $335.7 million in 2019.
Current assets amounted to $452.5 million as at December 31, 2020, an increase of $146.8 million compared with
December 31, 2019, mainly due to a $106.4 million increase in investment tax credits recoverable relating to the Hillcrest
construction activities, a $28.0 million increase in restricted cash mainly stemming from the proceeds received from the
Hillcrest tax equity initial funding, and a $20.2 million increase in current assets from the Salvador and Mountain Air
Acquisitions. These items were offset by the repayment of outstanding receivables from the Innavik hydroelectric project in
exchange for preferred units of the project, subsequently repaid to the Corporation from the construction financing proceeds.
Current liabilities amounted to $1,036.7 million as at December 31, 2020, an increase of $395.4 million compared with
December 31, 2019, mainly due to a $359.3 million increase in the Salvador and Mountain Air Acquisitions.
Derivative financial instruments also contributed unfavourably to the working capital balance (please refer to the "Financial
Position – Derivative Financial Instruments and Risk Management" subsection below for more information).
The Corporation considers its current level of working capital to be sufficient to meet its needs. A default in the Mesgi'g Ugju's'n
credit agreement, due to the bankruptcy of a supplier considered a major project participant under the agreement, caused the
$219.0 million ($232.1 million in 2019) portion of the loan that would otherwise be classified as long-term to be reallocated to
the current portion of long-term loans and borrowings. In addition, the Montjean and Theil-Rabier facilities were not meeting
their respective targeted debt coverage ratios, due to two blade incidents which caused business interruptions at both facilities,
which caused a €12,331 ($19,246) portion of each loan that would otherwise be classified as long-term to be reallocated to the
current portion of long-term loans and borrowings. The Mountain Air facilities were also in default under their credit agreements
due to a non respect of a specific requirement of the insurance clause, causing the US$115,304 ($146,804) portion of the loan
that would otherwise be classified as long-term to be reallocated to the current portion of long-term loans and borrowings. As
at December 31, 2020, the Corporation had $700.0 million in revolving term credit facilities and had drawn $183.0 million as
cash advances, while $59.2 million had been used to issue letters of credit, leaving $457.8 million available.
Non-current assets
Non-current assets amounted to $6,701.8 million as at December 31, 2020, an increase of $635.3 million compared with
December 31, 2019, mainly due to additions to property, plant and equipment related to the Hillcrest, Griffin Trail and Yonne II
projects under construction, aggregating to $520.4 million, net of the ITC recoverable recognized against the Hillcrest
construction costs. The Salvador and Mountain Air Acquisitions also contributed to increasing non-current assets by
$431.0 million. These increases were partly offset by $228.5 million in depreciation and amortization and a $65.1 million
decrease in investments in joint ventures and associates, due mostly to $21.5 million in distributions received and a
$26.7 million impairment charge on the investment in Energía Llaima due to recent changes in market conditions that affected
downwards the expectation of future cash flows from the investment.
Derivative financial instruments also contributed to increasing non-current assets (please refer to the "Financial Position –
Derivative Financial Instruments and Risk Management" subsection below for more information).
Non-current liabilities
Non-current liabilities amounted to $5,046.6 million as at December 31, 2020, a decrease of $68.9 million compared with
December 31, 2019, mainly due to a $234.9 million decrease in long-term loans and borrowings related in most part to
scheduled principal repayments on long-term loans and borrowings, along with the corporate revolving credit facility repayment
made following the $660.9 million Hydro-Québec Private Placement, net of the amounts used toward the respective purchase
price of Mountain Air and Salvador. The decrease was partly offset by:
•
•
•
the Salvador and Mountain Air Acquisitions, which contributed to increasing non-current liabilities by $212.8 million;
the initial recognition of the lease liabilities and asset retirement obligations at Hillcrest, Griffin Trail and Yonne II,
aggregating to $80.1 million; and
the $29.8 million tax equity initial funding received related to the Hillcrest solar project.
Derivative financial instruments also contributed to increasing non-current liabilities (please refer to the "Financial Position –
Derivative Financial Instruments and Risk Management" subsection below for more information).
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p44
(in thousands of Canadian dollars, except as noted and amounts per share)
Shareholders' Equity
As at December 31, 2020, Shareholders' equity increase of $455.6 million compared with December 31, 2019, was mainly due
to the Hydro-Québec Private Placement of $660.9 million in Innergex common shares, and a $63.2 million increase in non-
controlling interests stemming from the Mountain Air Acquisition. These items were partly offset by dividends declared on
common and preferred shares totaling $131.5 million, and total comprehensive loss of $129.8 million.
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 December 31, 2020
Interest rate swaps
Interest rate swaps
Interest rate swaps
Foreign exchange forward contracts
Power and basis hedges
Currency
CAD
USD
EUR
EUR-CAD
USD
Currency of
origin
1,111,837
224,890
136,811
299,096
CAD
1,111,837
286,329
213,535
516,033
N/A
N/A
Currency of
origin
CAD
(116,925)
(22,987)
(13,975)
(37,113)
42,477
(148,523)
(116,925)
(29,266)
(21,811)
(37,113)
54,082
(151,033)
Current Notional
Fair Value After Credit Adjustment
As at December 31, 2019
Interest rate swaps
Interest rate swaps
Interest rate swaps
Foreign exchange forward contracts
Power and basis hedges
Currency
CAD
USD
EUR
EUR-CAD
USD
Currency of
origin
1,172,187
129,204
104,592
307,897
CAD
1,172,187
182,348
212,763
535,535
N/A
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)
The aggregate fair value of derivative financial instruments amounted to negative $151.0 million as at December 31, 2020, a
decrease of $71.0 million compared with December 31, 2019, mainly due to a general downward shift in interest rate curves,
which unfavourably impacted the interest rate swaps portfolio, and a general upward shift in the EUR-CAD forward curve,
which unfavourably impacted the foreign exchange forward contracts portfolio. These decreases in fair value were partly offset
by an increase in the fair value of the power hedges, mainly arising from the Salvador Acquisition.
Contractual obligation
As at December 31, 2020, the expected schedule of commitment payments is as follows:
Year of expected payment
Under 1 year
1 to 5 years
Thereafter
Total
Long-term loans and borrowings
173,076
1,162,675
3,022,208
4,357,959
Interest on long-term loans and borrowings
142,273
502,881
1,653,606
2,298,760
Lease liabilities
Other liabilities
Purchase obligations
14,380
1,018
64,159
270,669
349,208
843
26,461
28,322
81,220
128,078
253,677
462,975
Variable payments on lease contracts
8,828
44,163
10,654
63,645
Total
420,795
1,902,799
5,237,275
7,560,869
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p45
(in thousands of Canadian dollars, except as noted and amounts per share)
Contingencies
BC Hydro curtailment notices
In May 2020, Innergex received notices from BC Hydro in relation to six of the Corporation’s hydroelectric facilities in British
Columbia stating that BC Hydro would not accept and purchase energy under the applicable Electricity Purchase Agreements
("EPAs") above a specified curtailment level for the period from May 22, 2020, to July 20, 2020. The specified curtailment
levels were 0.0 MW/h for the Jimmie Creek (accounted for using the equity method), Upper Lillooet River, Northwest Stave
River, and Boulder Creek facilities, 2.0 MW/h for the Tretheway Creek facility and 4.0 MW/h for the Big Silver Creek facility.
BC Hydro cites the current COVID-19 pandemic and related governmental measures taken in response to it as constituting a
“force majeure” event under the EPAs, and resulting in a situation in which BC Hydro is unable to accept or purchase energy
under the EPAs. The notices to Innergex follow public statements by BC Hydro regarding measures it is taking to address the
reduced electricity demand during the COVID-19 pandemic and related challenges to the safe operation of its hydroelectric
system.
Innergex disputes that the current pandemic and related governmental measures in any way prevent BC Hydro from fulfilling
its obligations to accept and purchase energy under the EPAs or enable it to invoke “force majeure” provisions under the EPAs
to suspend these obligations. Innergex acknowledges that BC Hydro retains “turn-down” rights under the EPAs, which enable
it to require Innergex to turn down or shut off its facilities in certain circumstances, including in order to avoid a safety or
stability risk. Where BC Hydro exercises this right, it is required under the EPAs to compensate Innergex for energy that would
have been produced at the facilities in the absence of the curtailment. Innergex has complied with BC Hydro’s curtailment
request, but has done so under protest and seeks to enforce its rights under the EPAs on the basis described above. For the
year ended December 31, 2020, actual eligible energy revenue that would have been produced at the facilities in the absence
of the curtailment amounts to $13.0 million ($14.8 million on a Revenues Proportionate1 basis), respectively.
Harrison Hydro L.P. Water Rights
On March 23, 2017, the Comptroller of the Water Rights issued adjusted rental statements to the Harrison Hydro L.P. and its
subsidiaries for the years 2011 and 2012 for an amount of $3.2 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 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 $3.3 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 Harrison Hydro L.P. and its
subsidiaries’ external legal counsel, bearing interest in favour of the Appellants. The Limited Partnerships have filed their
response to petition on April 14, 2020. The hearing took place in Victoria in the last week of September 2020. A decision was
rendered on February 9, 2021, by the Supreme Court of British Columbia, which concluded that the Environmental Appeal
Board's decision was reasonable, and dismissed the Comptroller of Water Rights' petition accordingly. The Corporation
recognized the amount of $3.2 million in the fiscal 2019 consolidated statements of earnings (loss) against Operating
expenses.
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.
Off-Balance-Sheet Arrangements
As at December 31, 2020, the Corporation had issued letters of credit totaling $223.5 million, including $59.2 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 $54.8 million in corporate guaranties used
mainly to guarantee certain activities of prospective projects. The corporate guaranties were also used to support the long-
term currency hedging instruments of its operations in France, and the performance of the Brown Lake and Miller Creek
hydroelectric facilities.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p46
(in thousands of Canadian dollars, except as noted and amounts per share)
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, Flat Top, Kokomo, Spartan, Foard City, Phoebe, Hillcrest, Griffin Trail and Mountain Air, Alterra
Power Corp, 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.
4- CAPITAL AND LIQUIDITY | Cash Flows
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 used in investing activities from continuing
operations
Cash flows used in 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 period
Three months ended
December 31
2020
2019
Year ended December 31
2020
2019
59,609
41,378
242,873
204,541
18,083
30,358
(7,765)
22,402
77,692
71,736
235,108
226,943
—
—
—
13,122
77,692
71,736
235,108
240,065
97,981
76,202
492,478
368,548
—
—
—
20,059
97,981
76,202
492,478
388,607
(169,803)
(136,331)
(725,608)
(516,997)
—
—
—
(31,957)
(169,803)
(136,331)
(725,608)
(548,954)
(765)
5,105
156,360
161,465
(1,018)
10,589
145,635
156,224
3,263
5,241
156,224
161,465
(3,080)
76,638
79,586
156,224
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p47
(in thousands of Canadian dollars, except as noted and amounts per share)
Cash Flows from Operating Activities from Continuing Operations
For the three-month period ended December 31, 2020, cash flows from operating activities from continuing operations
increased by $6.0 million to $77.7 million, compared with $71.7 million in the same period last year. The increase is mainly
related to the Salvador and Mountain Air Acquisitions realized during the second and third quarter of 2020, respectively, and
the commissioning of Foard City wind and Phoebe solar projects in the fourth quarter of 2019. The decrease in interest
payments on the corporate revolving credit facility concurrent with the Hydro-Québec Private Placement, and by the higher
contribution to Adjusted EBITDA and Adjusted EBITDA Proportionate from Innergex's hydroelectric facilities in British
Columbia, notwithstanding the expiration of the EcoEnergy subsidy program for these facilities also contributed to the
increase.
For the year ended December 31, 2020, cash flows from operating activities from continuing operations increased by
$8.2 million to $235.1 million, compared with $226.9 million in the same period last year. The increase is mainly related to the
Salvador and Mountain Air Acquisitions realized during the second and third quarter of 2020, respectively, and the
commissioning of Foard City wind and Phoebe solar projects in the fourth quarter of 2019. The decrease in interest payments
on the corporate revolving credit facility concurrent with the Hydro-Québec Private Placement, and the higher contribution to
Adjusted EBITDA and Adjusted EBITDA Proportionate from Innergex's hydroelectric facilities in British Columbia,
notwithstanding the expiration of the EcoEnergy subsidy program for these facilities, also contributed to the increase. These
items were partially offset by the unfavourable impact to Adjusted EBITDA and Adjusted EBITDA Proportionate stemming from
the BC Hydro-imposed curtailment in 2020, citing the COVID-19 pandemic.
Cash Flows from Financing Activities from Continuing Operations
For the three-month period ended December 31, 2020, cash flows from financing activities from continuing operations
increased by $21.8 million to $98.0 million, compared with $76.2 million in the same period last year. The increase is mainly
due to movements in long-term loans and borrowings related to construction activities.
For the year ended December 31, 2020, cash flows from financing activities increased by $123.9 million to $492.5 million,
compared with $368.5 million in the same period last year. The increase stems mainly from the $660.9 million cash inflow from
the Hydro-Québec Private Placement, partly offset by:
•
•
the concurrent repayment of the corporate revolving credit facility, net of the Salvador and Mountain Air Acquisitions'
respective purchase price; and
the decrease in proceeds received from construction loan draws and convertible debentures issuance.
Cash Flows Used in Investing Activities from Continuing Operations
For the three-month period ended December 31, 2020, cash flows used in investing activities from continuing operations
increased by $33.5 million to $169.8 million, compared with $136.3 million in the same period last year. The increase mainly
relates to the restricted proceeds received from the Hillcrest tax equity initial funding during the last quarter of 2020, while the
restricted proceeds related to the Phoebe tax equity initial funding were released in the same period last year. This was partly
offset by the proceeds received from the Innavik joint venture hydroelectric project to repay their outstanding preferred shares,
concurrent with the closing of the construction financing on November 4, 2020.
For the year ended December 31, 2020, cash flows used in investing from continuing operations increased by $208.6 million to
$725.6 million, compared with $517.0 million in the same period last year. The increase is mainly related to the Salvador and
Mountain Air Acquisitions, net of cash acquired, and to a decrease in proceeds received from a business disposal in 2019,
related to the sale of HS Orka. These items were partly offset by a decrease in additions to property, plant and equipment.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p48
(in thousands of Canadian dollars, except as noted and amounts per share)
4- CAPITAL AND LIQUIDITY | 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:
Realized loss on the Phoebe basis hedge3
Realized loss on contingent considerations
Transaction costs related to realized acquisitions
Income tax paid on realized intercompany gain
Recovery of maintenance capital expenditures and prospective project
expenses on sale of HS Orka, net of attribution to non-controlling
interests4
Realized loss on termination of interest rate swaps
Free Cash Flow
Dividends declared on common shares
Payout Ratio
Adjust for the following items:
Prospective projects expenses
Adjusted Free Cash Flow
Year ended December 31
2019
2018
2020
235,108
240,065
209,390
7,765
(2,828)
(151,623)
(13,491)
(5,942)
(25,634)
(8,752)
(128,691)
(12,679)
(5,942)
19,586
3,021
1,664
—
—
—
93,260
11,697
—
266
10,594
8,242
4,145
93,311
11,019
(9,652)
(86,079)
(27,984)
(5,942)
—
—
8,280
—
—
6,092
105,124
125,543
135 %
95,046
102 %
90,215
86 %
16,708
109,968
12,905
106,216
16,719
121,843
Dividends declared on common shares - DRIP adjusted
Adjusted Payout Ratio
120,069
93,422
80,497
109 %
88 %
66 %
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
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. Due to their limited occurrence (over the remaining contractual period of 12 months), gains and losses on the Phoebe basis hedge are deemed not to represent
the long-term cash-generating capacity of Innergex.
4. 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.
Free Cash Flow
For the year ended December 31, 2020, the Corporation generated Free Cash Flow of $93.3 million, compared with
$93.3 million for the corresponding period last year.
While Free Cash Flow remained constant compared with 2019, cash flows from operating activities before changes in non-
cash operating working capital items increased from $214.4 million to $242.9 million, mainly due to the Salvador and Mountain
Air Acquisitions realized during the second and third quarters of 2020, the commissioning activities of late-2019, namely
Phoebe and Foard City, and the higher contribution from Innergex's hydroelectric facilities in British Columbia, notwithstanding
the expiration of the EcoEnergy subsidy program for these facilities. The decrease in interest payments on the corporate
revolving credit facility concurrent with the Hydro-Québec Private Placement also contributed to the increase in cash flows
from operating activities before changes in non-cash operating working capital items.
These items were partly offset by the BC Hydro-imposed curtailment in 2020, the sale of Innergex's ownership interests in HS
Orka in May 2019, a lower contribution from the Quebec wind facilities and higher general and administrative expenses to
support the Corporation's growth.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p49
(in thousands of Canadian dollars, except as noted and amounts per share)
Free Cash Flow was also negatively impacted by an increase in debt principal payments stemming from the acquisitions and
commissioning activities, and by the recovery of maintenance capital expenditures and prospective project expenses following
the sale of HS Orka in 2019.
Payout Ratio
For the year ended December 31, 2020, the dividends on common shares declared by the Corporation amounted to 135% of
Free Cash Flow, compared with 102% for the corresponding period last year.
The following table summarizes elements to add or subtract to derive a normalized Free Cash Flow and Payout Ratio:
(in millions of Canadian dollars)
Free Cash Flow and Payout Ratio
Add (subtract) the following items:
BC Hydro curtailment
Decrease in corporate revolving facilities interest payment
Hydro-Québec additional dividend
Free Cash Flow and Payout Ratio - Normalized
Year ended December 31, 2020
Free Cash Flow
Dividends
Payout Ratio
93
15
(15)
—
93
126
—
—
(25)
101
135 %
109 %
The Corporation considers the Payout Ratio of 135% not to represent the current cash-generating capacity.
•
The above table normalizes the Free Cash Flow and Payout Ratio for the following items:
•
an unfavourable impact on the Adjusted EBITDA Proportionate stemming from the BC Hydro-imposed curtailment during
2020; and
an increase in quarterly dividends mainly related to the issuance of 34,636,823 common shares following the Hydro-
Québec Private Placement, while a large portion of the funds have yet to be invested in cash-generating projects, or have
been used toward recent acquisitions whose contributions to the Corporation's Free Cash Flow have not yet fully
materialized.
These items were partly offset by a decrease in the corporate revolving facilities interest expense concurrent with the Hydro-
Québec Private Placement.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p50
(in thousands of Canadian dollars, except as noted and amounts per share)
4- CAPITAL AND LIQUIDITY | Information on Capital Stock
The Corporation’s Equity Securities
Number of common shares
Number of 4.75% convertible debentures
Number of 4.65% convertible debentures
Number of Series A Preferred Shares
Number of Series C Preferred Shares
Number of stock options outstanding
As at
February 24, 2021 December 31, 2020 December 31, 2019
139,405,832
150,000,000
143,750,000
3,400,000
2,000,000
737,977
174,692,091
148,023,000
142,056,000
3,400,000
2,000,000
233,539
174,582,586
148,635,000
143,750,000
3,400,000
2,000,000
233,539
As at the closing of the market on February 24, 2021, and since December 31, 2020, the increase in the number of common
shares of the Corporation is attributable mainly to the conversion of $0.6 million of the 4.75% Convertible Debentures into
30,600 common shares, the conversion of $1.7 million of the 4.65% Convertible Debentures into 73,969 common shares, as
well as the issuance of 4,936 common shares related to the Corporation's Dividend Reinvestment Plan ("DRIP").
As at December 31, 2020, the increase in the number of common shares since December 31, 2019, was attributable mainly to
the issuance of 34,636,823 common shares to Hydro-Québec under a private placement of common shares of Innergex as
well as the conversion of a portion of the 4.25% Convertible Debentures into 68,250 common shares. In addition, the increase
was attributable to the issuance of 192,033 common shares following the cashless exercise of 553,660 options and to the
issuance of 279,648 common shares related to the DRIP.
Dividends
The Corporation's dividend policy is determined by its Board of Directors and is based on the Corporation's operating results,
cash flows, financial condition, debt covenants, long-term growth prospects, solvency test imposed under corporate law for the
declaration of dividends and other relevant factors.
The following dividends were declared by the Corporation:
Dividends declared on common shares1
Dividends declared on common shares ($/
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
2020
2019
Year ended December 31
2019
2020
31,425
24,396
125,543
95,046
0.180
0.175
767
767
0.720
3,067
0.700
3,067
0.2255
0.2255
0.9020
0.9020
719
719
2,875
2,875
0.3594
0.3594
1.4375
1.4375
1. The increase in dividends declared on common shares was attributable mainly to the issuance of 34,636,823 common shares to Hydro-
Québec under a private placement as well as the increase in quarterly dividend, the issuance of common shares following the exercise of
options and to the issuance of shares under the DRIP.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p51
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation announced on January 8, 2021, that the applicable dividend rates for its Cumulative Rate Reset Preferred
Shares, Series A and Cumulative Floating Rate Preferred Shares, Series B have been modified. For Series A shares, the
dividend rate for the five-year period commencing on January 15, 2021, to but excluding January 15, 2026, will be 3.244% per
annum, or $0.2027 per share per quarter. For Series B shares, the dividend rate for the Quarterly Floating Rate Period
commencing on January 15, 2021, to but excluding April 15, 2021, will be equal to 2.91% per annum, or $0.181875 per share
per quarter.
The following dividends will be paid by the Corporation on April 15, 2021:
Date of
announcement
Record date
Payment date
Dividend per
common share
Dividend per
Series A
Preferred Share
Dividend per
Series B
Preferred Share
Dividend per
Series C
Preferred Share
February 25, 2021 March 31, 2021
April 15, 2021
$0.1800
$0.2027
$0.181875
$0.359375
The Board of Directors has decided to maintain the annual dividend at $0.72 per common share for 2021, in light of the
foreseeable growth plan both in terms of acquisitions and greenfield development.
4- CAPITAL AND LIQUIDITY | Normal Course Issuer Bid
On May 21, 2020, the Corporation 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 1.15% of the 174,234,629 issued and outstanding common
shares of the Corporation as at May 21, 2020. The Corporation could also purchase for cancellation up to 68,000 of its
Series A Preferred Shares, representing approximately 2% of the 3,400,000 issued and outstanding shares of the Corporation
as at May 21, 2020. And finally, the Corporation could purchase for cancellation up to 40,000 of its Series C Preferred Shares,
representing approximately 2% of the 2,000,000 issued and outstanding shares of the Corporation as at May 21, 2020. The
New Bid commenced on May 24, 2020, and will terminate on May 23, 2021. No common or preferred shares have been
purchased and cancelled as at December 31, 2020.
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 12, 2020. This resulted in a
decrease of the shareholders' capital account of $754.4 million and an equivalent increase of the contributed surplus.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p52
(in thousands of Canadian dollars, except as noted and amounts per share)
5- PROJECTED FINANCIAL PERFORMANCE
As at February 25, 2021, the Corporation had 75 Operating Facilities with a net installed capacity of 2,742 MW (gross
3,694 MW). For the twelve-month period ended December 31, 2020, the Corporation produced, on a consolidated basis,
8,074 GWh.
The increase in the installed capacity and number of Operating Facilities in 2020 is related to the Salvador Acquisition in Chile
and to the Mountain Air Acquisition in Idaho in the United States.
In 2020, Power Generated was projected to increase 25%, Revenues were expected to increase 10%, Adjusted EBITDA was
expected to increase 5% and Adjusted EBITDA Proportionate was expected to increase 10%. The actual increases were
respectively 24%, 10%, 3% and 8%.
The Corporation makes projections using certain assumptions to provide readers with an indication of its business activities
and operating performance. For 2021, projections are based on the commissioning of Yonne II wind farm in the first quarter of
2021, the commissioning of Hillcrest solar project in the second quarter of 2021 and the commissioning of the Griffin Trail wind
project in the third quarter of 2021. It does not take into consideration potential acquisitions that could be achieved in 2021 nor
the potential impact of the recent weather event in Texas nor the potential impact of future waves of COVID-19.
2021
Projected
2020
Actual1
Projected
2019
Actual1
Production (GWh)
Revenues
Adjusted EBITDA
Adjusted EBITDA Proportionate
Number of facilities in operation
Net installed capacity (MW)
approx.
approx.
approx.
approx.
78
3,172
1. Results from continuing operations unless otherwise indicated.
+15 %
+12 %
+12 %
8,074
613,207
422,109
+12 %
560,328
+24 %
+10 %
+3 %
+8 %
+25 %
+10 %
+5 %
6,510
557,042
409,175
+10 %
516,819
+12 %
+4 %
+10 %
+15 %
75
2,742
68
2,588
With two acquisitions completed during the year, Innergex pursued its growth in 2020. Ten Development Projects were also
advanced, four of which are currently under construction.
Looking ahead, the Corporation anticipates achieving commercial operation at the Hillcrest, Griffin Trail and Yonne II projects
in 2021. The Corporation 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 consolidate
its position in regions where it already operates and to gain a foothold in new markets.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p53
(in thousands of Canadian dollars, except as noted and amounts per share)
5- PROJECTED FINANCIAL PERFORMANCE | Strategic Plan 2020-2025
The success of this Strategic Plan will be evaluated based on a set of qualitative and quantitative criteria. Success will not be
measured in terms of MW but on the Corporation's ability to increase shareholder return while efficiently managing its
high-quality assets and successfully pursuing its growth.
As part of its Strategic Plan, the Corporation aims to achieve a 10% compound annual growth rate of its Adjusted EBITDA
Proportionate and a 12% compound annual growth rate of its Free Cash Flow per share by 2025. Innergex's continued growth
will come from a balanced strategy of developing greenfield projects with a deferred cash contribution profile and strategic
acquisitions in current markets with nearer cash contributions. The projected figures above do not take into consideration
potential transactions or projects that could be achieved or developed as part of the Strategic Alliance with Hydro-Québec.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p54
(in thousands of Canadian dollars, except as noted and amounts per share)
6- 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 Innergex's production and cash generation capabilities, its ability to sustain current dividends 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, Innergex's share of Adjusted EBITDA of joint ventures and associates, Adjusted EBITDA Proportionate, Adjusted EBITDA Margin Proportionate,
Adjusted Net Earnings (Loss) 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.
Production, Revenues, Adjusted EBITDA, and corresponding Margin and Proportionate measures
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 "Innergex's share of Revenues of joint ventures and associates" are to Innergex's equity interest in the joint ventures and associates'
Revenues. References in this document to "Revenues Proportionate" are to Revenues, plus Innergex's share of Revenues of the joint ventures and associates, other
income related to PTCs, and Innergex's share of the operating joint ventures' and associates' other income related to PTCs.
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 expense, finance costs, depreciation and amortization, other net income, share of (earnings) loss of joint ventures and associates and unrealized net (gain) loss on
financial instruments. References in this document to "Innergex's share of Adjusted EBITDA of 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 joint ventures and associates, other income related to PTCs, and Innergex's share of other income related to PTCs of the joint ventures and associates.
References in this document to "Adjusted EBITDA Margin" are to Adjusted EBITDA divided by revenues. References in this document to "Adjusted EBITDA Margin
Proportionate" are to Adjusted EBITDA Proportionate, divided by Revenues Proportionate.
Innergex believes that the presentation of these measures enhances the understanding of the Corporation's operating performance. Readers are cautioned that
Innergex's share of Revenues of joint ventures and associates, and Revenues Proportionate, should not be construed as an alternative to Revenues, as determined in
accordance with IFRS. Readers are also cautioned that Adjusted EBITDA, Innergex's share of Adjusted EBITDA of joint ventures and associates, Adjusted EBITDA
Proportionate, Adjusted EBITDA Margin, and Adjusted EBITDA Margin Proportionate, should not be construed as an alternative to net earnings, as determined in
accordance with IFRS. Please refer to the "Financial Performance and Operating Results" section for more information.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p55
(in thousands of Canadian dollars, except as noted and amounts per share)
Three months ended December 31
Year ended December 31
2020
2019
2020
2019
Production
(MWh)
Revenues Adjusted
EBITDA
Production
(MWh)
Revenues Adjusted
EBITDA
Production
(MWh)
Revenues Adjusted
EBITDA
Production
(MWh)
Revenues Adjusted
EBITDA
Consolidated
2,186,961 167,927 117,830
1,793,803 143,116 103,333
8,073,914 613,207 422,109
6,509,622 557,042 409,175
Innergex's share of
joint ventures and
associates:
Hydro
Wind
Solar
PTCs and Innergex's
share of PTCs
generated:
Foard City
Shannon (50%)
Flat Top (51%)
129,076
253,890
3,431
386,397
14,413 10,354
4,861
240
23,783 15,455
8,915
455
107,020
241,674
3,302
351,996
10,866 7,372
15,517 12,454
289
26,995 20,115
612
582,738
920,773
12,715
1,516,226
64,395 49,826
31,512 16,840
1,076
97,782 67,742
1,875
599,527
899,509
13,100
64,761 48,011
37,020 21,619
954
1,512,136 103,899 70,584
2,118
12,569 12,569
3,130
3,946
19,645 19,645
3,130
3,946
11,238 11,238
3,017 3,017
3,581 3,581
17,836 17,836
43,850 43,850
11,616 11,616
15,011 15,011
70,477 70,477
11,238 11,238
11,323 11,323
14,499 14,499
37,060 37,060
Proportionate
2,573,358 211,355 152,930
2,145,799 187,947 141,284
9,590,140 781,466 560,328
8,021,758 698,001 516,819
Adjusted EBITDA
Margin
Adjusted EBITDA
Margin Proportionate
70.2 %
72.4 %
72.2 %
75.2 %
68.8 %
71.7 %
73.5 %
74.0 %
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p56
(in thousands of Canadian dollars, except as noted and amounts per share)
Below is a reconciliation of the non-IFRS measures to their closest IFRS measures:
Revenues
Innergex's share of Revenues of joint ventures and associates
PTCs and Innergex's share of PTCs generated
Revenues Proportionate
Net earnings (loss) from continuing operations
Income tax expense
Finance costs
Depreciation and amortization
Impairment of equity accounted investment
Impairment of project development costs
EBITDA
Other net income
Share of (earnings) loss of joint ventures and associates
Change in fair value of financial instruments
Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures and associates
PTCs and Innergex's share of PTCs generated
Adjusted EBITDA Proportionate
Three months ended December 31
2020
2019
Year ended December 31
2019
2020
167,927
23,783
19,645
211,355
11,894
7,357
57,443
58,465
26,659
—
161,818
(7,304)
(13,874)
(22,810)
117,830
15,455
19,645
152,930
143,116
26,995
17,836
187,947
(48,049)
117,687
61,062
53,021
—
8,184
191,905
(102,004)
(27,276)
40,708
103,333
20,115
17,836
141,284
613,207
97,782
70,477
781,466
(29,111)
18,897
233,143
228,526
26,659
—
478,114
(65,554)
7,524
2,025
422,109
67,742
70,477
560,328
557,042
103,899
37,060
698,001
(53,026)
118,851
231,766
194,579
—
8,184
500,354
(104,643)
(36,469)
49,933
409,175
70,584
37,060
516,819
Adjusted EBITDA Margin
Adjusted EBITDA Margin Proportionate
70.2 %
72.4 %
72.2 %
75.2 %
68.8 %
71.7 %
73.5 %
74.0 %
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p57
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted Net Earnings (Loss) from Continuing Operations
References to "Adjusted Net Earnings (Loss) from Continuing Operations" are to net earnings or losses from continuing operations of the Corporation, to which the
following elements are added (subtracted): unrealized portion of the change in fair value of financial instruments; realized portion of the change in fair value of the Phoebe
basis hedge, realized loss on the termination of interest rate swaps, realized gain on foreign exchange forward contracts, impairment charges, income tax expense
(recovery) related to these items, and the share of change in fair value of financial instruments of joint ventures and associates, net of related tax.
The Adjusted Net Earnings (Loss) from Continuing Operations seeks to provide a measure that eliminates the earnings impacts of certain derivative financial instruments
and non-recurring events, which do not represent the Corporation's operating performance. Innergex uses derivative financial instruments to hedge its exposure to
various risks. Accounting for derivatives requires that all derivatives are marked-to-market. When hedge accounting is not applied, changes in the fair value of the
derivatives is recognized directly in net earnings (loss). Such unrealized changes have no immediate cash effect, may or may not reverse by the time the actual
settlements occur and do not reflect the Corporation’s business model toward derivatives, which are held for their long-term cash flows, over the whole life of a project. In
addition, the Corporation uses foreign exchange forward contracts to hedge its net investment in its French subsidiaries. Management therefore believes realized gains
(losses) on such contracts does not reflect the operations of Innergex.
Innergex believes that presentation of this measure enhances the understanding of the Corporation's operating performance. Readers are cautioned that Adjusted Net
Earnings (Loss) 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 Earnings (Loss) from Continuing Operations.
Below is a reconciliation of Adjusted Net Earnings (Loss) from Continuing Operations to its closest IFRS measure:
Adjusted Net Earnings (Loss) from Continuing Operations
Net earnings (loss) from continuing operations
Add (Subtract):
Unrealized portion of the change in fair value of financial instruments
Realized portion of the change in fair value of the Phoebe basis hedge
Realized loss on termination of interest rate swaps
Realized gain on foreign exchange forward contracts
Impairment of project development costs
Impairment of equity accounted investment
Income tax expense (recovery of) related to above items
Share of unrealized portion of the change in fair value of financial instruments of joint
ventures and associates, net of related income tax
Adjusted net Earnings (Loss) from continuing operations
Three months ended
December 31
2020
2019
Year ended December 31
2020
2019
11,894
(48,049)
(29,111)
(53,026)
(21,125)
133
—
(150)
—
26,659
3,514
(7,935)
12,990
24,658
11,697
4,145
(241)
8,184
—
(9,427)
(16,549)
(25,582)
(8,329)
19,586
—
(1,730)
—
26,659
(486)
15,722
22,311
33,883
11,697
4,145
(2,662)
8,184
—
(10,117)
(18,129)
(26,025)
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p58
(in thousands of Canadian dollars, except as noted and amounts per share)
Below is a reconciliation of Adjusted Net Earnings (Loss) from Continuing Operations adjustments to each line item of the consolidated statements of earnings:
Three months ended December 31
Year ended December 31
IFRS
2020
Adj.
Non-IFRS
IFRS
2019
Adj.
Non-IFRS
IFRS
2020
Adj.
Non-IFRS
IFRS
2019
Adj.
Non-IFRS
Revenues
Operating expenses
General and
administrative
expenses
Prospective project
expenses
Adjusted EBITDA
Finance costs
Other net income
Depreciation and
amortization
Impairment of equity
accounted investment
Impairment of project
development costs
Share of (earnings)
losses of joint
ventures and
associates
Change in fair value of
financial instruments
Income tax expense
Net earnings (loss)
from continuing
operations
167,927
36,510
— 167,927 143,116
26,308
—
36,510
— 143,116 613,207
26,308 131,442
—
— 613,207 557,042
98,455
— 131,442
— 557,042
98,455
—
9,979
—
9,979
11,235
—
11,235
42,948
—
42,948
36,507
—
36,507
3,608
117,830
57,443
(7,304)
3,608
2,240
—
— 117,830 103,333
57,443
61,062
—
(7,154) (102,004)
150
2,240
16,708
—
— 103,333 422,109
61,062 233,143
—
(65,554)
241 (101,763)
16,708
12,905
—
— 422,109 409,175
— 233,143 231,766
(63,824) (104,643)
1,730
12,905
—
— 409,175
— 231,766
2,662 (101,981)
58,465
—
58,465
53,021
—
53,021 228,526
— 228,526 194,579
— 194,579
26,659
(26,659)
—
—
—
—
26,659
(26,659)
—
—
—
—
—
—
8,184
(8,184)
—
—
—
—
8,184
(8,184)
—
—
(13,874)
10,228
(3,646)
(27,276)
21,546
(5,730)
7,524
(19,989)
(12,465)
(36,469)
22,997
(13,472)
(22,810)
20,992
(1,818)
40,708
(40,500)
208
2,025
(11,257)
(9,232)
49,933
(49,725)
208
7,357
(5,807)
1,550 117,687
4,430 122,117
18,897
4,753
23,650 118,851
5,249 124,100
11,894
1,096
12,990
(48,049)
22,467
(25,582)
(29,111)
51,422
22,311
(53,026)
27,001
(26,025)
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p59
(in thousands of Canadian dollars, except as noted and amounts per share)
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, the portion of Free Cash Flow attributed to non-controlling interests, and preferred
share dividends declared, plus or minus other elements that are not representative of the Corporation's long-term cash-generating capacity, such as gains and losses on
the Phoebe basis hedge due to their limited occurrence over the next 12 months, realized gains and losses on contingent considerations related to past business
acquisitions, transaction costs related to realized acquisitions, realized losses or gains on derivative financial instruments used to hedge the interest rate on project-level
debt or the exchange rate on equipment purchases.
The Payout Ratio is a measure of the Corporation's ability to sustain current dividends 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 believes that presentation of this
measure enhances the understanding of the Corporation's cash generation capabilities, its ability to sustain current dividends 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.
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 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 2020
Management's Discussion and Analysis p60
(in thousands of Canadian dollars, except as noted and amounts per share)
7- ADDITIONAL CONSOLIDATED INFORMATION | Geographic Segments –
Non-current Assets
Non-current assets, excluding derivative financial instruments and
deferred tax assets 1
Canada
United States
France
Chile
As at
December 31, 2020 December 31, 2019
3,504,403
1,990,997
922,330
166,881
6,584,611
3,629,942
1,293,983
891,764
142,268
5,957,957
1. Includes the investments in joint ventures and associates.
7- ADDITIONAL CONSOLIDATED INFORMATION | Geographic Segments –
Revenues
Revenues
Canada
France
United States
Chile
Year ended December 31
2019
2020
439,224
95,485
73,802
4,696
613,207
435,069
94,974
27,499
—
557,542
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p61
(in thousands of Canadian dollars, except as noted and amounts per share)
7- ADDITIONAL CONSOLIDATED INFORMATION | Related Party Transactions
Related party transactions conducted in the normal course of operations are measured at an exchange amount, which
is the amount established and agreed to by the related parties, unless specific requirements within IFRS require
different treatment.
Transactions with partners
The Corporation's subsidiaries have entered into the following transactions with partners:
•
•
•
•
•
•
•
Strategic Alliance and Private Placement with Hydro-Québec (please refer to the "Capital and Liquidity |
Financial position - Shareholders' Equity" section of this MD&A for more information)
Sales made under PPAs with Hydro-Québec
Battery storage project with EVLO, a subsidiary of Hydro-Québec (below)
Debenture issued by Sainte Marguerite L.P. to Régime de Rentes du Mouvement Desjardins ("RRMD")
Convertible debenture issued by Magpie Limited Partnership to the municipality (below)
Debenture issued by Innergex Europe (2015) Limited Partnership to RRMD (below)
Loan by the Corporation's partner to Kwoiek Creek Resources L.P (below).
Tonnerre Energie SAS signed a Memorandum of understanding with EVLO, a Hydro-Québec subsidiary, for the 9 MWh
standalone energy storage project in France.
A $3.0 million convertible debenture was issued by Magpie Limited Partnership to Minganie Regional County
Municipality, and 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 $78.0 million debenture was issued by Innergex Europe (2015) Limited Partenership 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.
The Corporation's partner in the Kwoiek Creek project made a $3.7 million loan to Kwoiek Creek Resources L.P. Under
the project agreements, both partners can participate in the project financing. The loan bears a fixed interest rate of
10.07% and matures in 2054.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p62
(in thousands of Canadian dollars, except as noted and amounts per share)
7- ADDITIONAL CONSOLIDATED INFORMATION | Historical Quarterly Financial Information
(in millions of dollars, unless otherwise stated)
Dec 31,
2020
Sept 30,
2020
June 30,
2020
March 31,
2020
Dec 31,
2019
Sept 30,
2019
June 30,
2019
March 31,
2019
Three months ended
Production (MWh)
Revenues
Adjusted EBITDA1
Net earnings (loss)
Net earnings (loss) from continuing operations
attributable to owners of the parent
Net earnings (loss) from continuing operations
attributable to owners of the parent ($ per share –
basic and diluted)
Net earnings (loss) attributable to owners of the
parent
Net earnings (loss) attributable to owners of the
parent ($ per share – basic and diluted)
Dividends declared on common shares
Dividends declared on common shares, $ per
share
2,186,961 2,021,559 2,185,793 1,679,598 1,793,803 1,665,362 1,741,953 1,308,505
126.4
93.2
(0.9)
150.5
105.3
(1.6)
162.7
108.5
7.5
167.9
117.8
11.9
132.1
90.4
(46.9)
142.8
107.4
9.7
143.1
103.3
(47.4)
144.7
105.2
7.3
11.9
11.7
(2.5)
(53.7)
(46.8)
14.3
(7.8)
(7.4)
0.06
0.06
(0.02)
(0.35)
(0.35)
0.10
(0.07)
(0.07)
11.9
11.7
(2.5)
(53.7)
(46.2)
14.1
10.8
(6.7)
0.06
31.4
0.06
31.4
(0.02)
31.4
(0.35)
31.3
(0.35)
24.4
0.09
23.9
0.07
23.4
(0.06)
23.4
0.180
0.180
0.180
0.180
0.175
0.175
0.175
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-IFRS Measures" section for more information.
The Corporation's production, revenues, net earnings and cash flows are variable with each season, depending on the geography and source of energy. Please refer to
the "Overview of Operations | Business Environment - Seasonality of Operations" section of this MD&A for more information on seasonality.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p63
(in thousands of Canadian dollars, except as noted and amounts per share)
7- ADDITIONAL CONSOLIDATED INFORMATION |
Discontinued Operations Financial Results
Three months ended December 31, 2020
HS Orka2
Innergex1
Total
Three months ended December 31, 2019
HS Orka2
Innergex1
Total
Production
Revenues
Adjusted EBITDA3
Net earnings (loss)
2,186,961
167,927
117,830
11,894
—
—
—
—
2,186,961
167,927
117,830
11,894
1,793,803
143,116
103,333
(48,049)
—
—
—
644
1,793,803
143,116
103,333
(47,405)
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-
IFRS Measures" section of this MD&A for more information.
Year ended December 31, 2020
HS Orka2
Total
Innergex1
Year ended December 31, 2019
HS Orka2
Total
Innergex1
Production
Revenues
Adjusted EBITDA3
Net (loss) earnings
8,073,914
613,207
422,109
(29,111)
—
—
—
—
8,073,914
6,509,622
613,207
422,109
(29,111)
557,042
409,175
(53,026)
545,424
40,006
13,291
21,815
7,055,046
597,048
422,466
(31,211)
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-
IFRS Measures" section of this MD&A for more information.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p64
(in thousands of Canadian dollars, except as noted and amounts per share)
8- JUDGMENTS AND ESTIMATES, ACCOUNTING POLICIES AND
DISCLOSURE CONTROLS | Critical Judgments and 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 determination of control, joint control or significant influence over an investee, fair value calculation
of the assets acquired and liabilities assumed in business acquisitions, useful lives, impairment of assets, asset retirement
obligations, fair value of financial assets and liabilities including derivatives, tax equity financing and effectiveness of hedging
relationships. 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.
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. In particular, the Corporation
exercises judgement in determining whether non-wholly owned subsidiaries are controlled by the Corporation, which involves
assessing: (i) how the decisions about the relevant activities of the investee are made; (ii) whether the rights of other co-
investors are protective or substantive in nature; and (iii) the Corporation's ability to influence the returns of the investee.
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 based
on discounted future cash flows. Future cash flows may be influenced by a number of assumptions 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.
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 determining 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 assumptions such as electricity production, duration of the projects, selling prices, costs to operate, capital expenditures,
growth rate and the discount rate.
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.
Financial instruments measured at fair value
In measuring financial instruments at fair value, the Corporation makes estimates and assumptions, including estimates and
assumptions about forward electricity prices, interest rates, credit spreads and exchange rates.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p65
(in thousands of Canadian dollars, except as noted and amounts per share)
Tax equity financing
When a tax equity partnership is formed, the Corporation exercises judgement in assessing whether it retains control over the
entity, and in assessing the appropriate classification of the tax equity investor's contribution, which generally bears the
characteristics of a liability as the arrangements are made so that the contribution is repaid over time until the tax equity
investor has attained an agreed-upon rate of return. Judgment is also exercised in assessing the nature of the tax equity
investor's interest after it has attained the agreed-upon rate of return, which generally bears the characteristics of equity as it
retains entitlement to a portion of the partnership's variable returns and shares a residual interest in the net assets of the
partnership.
Tax equity investors generally require a specified allocation of the project's cash distributions and tax attributes such as
production tax credits, investment tax credits and taxable income or loss, including accelerated tax depreciation. Estimates are
made when determining the amount and allocation of cash distributions and tax attributes to the tax equity investors, which
may be influenced by a number of assumptions such as electricity production, selling prices, costs to operate and tax amounts.
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.
Specifically, the Corporation may, from time to time, enter into long-term power hedge agreements. 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 statements of
earnings (loss).
8- JUDGMENTS AND ESTIMATES, ACCOUNTING POLICIES AND
DISCLOSURE CONTROLS | Significant Accounting Policies
New Accounting Standards and Interpretations Adopted During the Year
On January 1, 2020, the Corporation adopted the following new standards and interpretations:
Amendments to materiality definition
On October 31, 2018, the IASB issued Definition of Material (Amendments to IAS 1, Presentation of Financial Statements and
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors) to clarify the definition of ‘material’ and to align the
definition used in the Conceptual Framework and the standards themselves.
Amendments to References to the Conceptual Framework
Together with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to References
to the Conceptual Framework in IFRS Standards.
Amendments to IFRS 3 Business Combinations
On October 22, 2018, the IASB issued Definition of a Business (Amendments to IFRS 3, Business Combinations) aimed at
resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets.
Performance Share Plan
During the year ended December 31, 2020, the Corporation proceeded to a change in the method of accounting for its PSP
under IFRS 2, which was previously recorded as a cash-settled share-based compensation plan. Under the revised
methodology, the PSP was reassessed as equity-settled, which resulted in the reclassification of the January 1, 2020, PSP
reserve of $6.3 million, from accounts payable and other payables, to contributed surplus. The change was applied during the
fourth quarter of 2020 and comparative figures have not been adjusted.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p66
(in thousands of Canadian dollars, except as noted and amounts per share)
New accounting standards and interpretations issued but not yet adopted
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to clarify the classification
of liabilities as current or non-current. On July 15, 2020, the IASB issued an amendment to defer the effective date by one
year. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The
impact for the Corporation is being assessed by management.
Amendments to IAS 16, Property, Plant and Equipment — Proceeds before Intended Use
On May 14, 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16).
The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items
produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner
intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those
items, in profit or loss. The amendments are effective for annual reporting periods commencing on or after January 1, 2022.
Early adoption is permitted, however the Corporation does not expect to avail itself of that option. The application of this
standard is not expected to have a material impact for the Corporation.
Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IFRS 7, and IFRS 16)
On August 27, 2020, the IASB finalized its response to the ongoing reform of inter-bank offered rates and other interest rate
benchmarks by issuing a package of amendments to IFRS Standards. The amendments complement those issued in 2019 as
part of Phase 1 amendments and mainly relate to:
•
changes to contractual cash flows: a company will not have to derecognize the carrying amount of financial instruments
for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative
benchmark rate;
hedge accounting: a company will not have to discontinue its hedge accounting solely because it makes changes required
by the reform, if the hedge meets other hedge accounting criteria; and
disclosures: a company will be required to disclose information about new risks arising from the reform and how it
manages the transition to alternative benchmark rates.
•
•
The amendments are effective for annual periods beginning on or after January 1, 2021. Early adoption is permitted. The
impact for the Corporation is being assessed by management.
8- JUDGMENTS AND ESTIMATES, ACCOUNTING POLICIES AND
DISCLOSURE CONTROLS | Disclosure Controls and Procedures
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 certified that they have designed,
or caused it 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, 2020, and have
concluded that they were effective at the financial year-end. During the period from October 1, 2020, to December 31, 2020,
there was no change to the ICFR that has materially affected, or is reasonably likely to materially affect, the Corporation's
ICFR.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p67
(in thousands of Canadian dollars, except as noted and amounts per share)
9- RISKS AND UNCERTAINTIES
Risk Management
The Corporation is committed to proactive strong risk governance and oversight practices supported by the Board of Directors
and members of the management. The Board of Directors is responsible to review and assess material risks associated with
the Corporation’s business, which may adversely affect it, its activities, its financial condition or reputation. More specifically,
the Board of Directors ensures that the Corporation has implemented systems to effectively identify, manage and monitor the
principal risks associated with its business and to mitigate or reduce their potential negative impacts. The oversight of certain
risks may be delegated to certain Board Committees that report to the Board of Directors. Responsibility for risk management
is shared across the organization from each segment of activities. Risk oversight also occurs at the level of operating
subsidiaries of the Corporation, to ensure that risks are efficiently managed at every level of its corporate structure. New risks
or important risks are identified and reported together with mitigation plans and the risk tolerance related to such risks is
communicated and discussed across all levels of the Corporation’s corporate structure. The risks that have been identified,
which may affect certain aspects of the activities of the Corporation or which are encountered in decision-making process, are
presented to the Board of Directors at each meeting, either by its committees or the officers of the Corporation. Such risks are
presented to the Board of Directors in relation to conjuncture, strategy and risk tolerance and in relation to any proposed
transactions presented to the Board of Directors. The Board of Directors takes an active role discussing risk management with
its committees to ensure that risks are properly identified, assessed and effectively managed at all levels of the Corporation’s
activities. Internal audit is an additional tool to validate the effectiveness and efficiency of risk management across all aspects
of the Corporation’s business. The Corporation maintains policies and a Code of conduct, applicable to all directors, officers
and employees of the Corporation and those of its subsidiaries. Such policies and Code of conduct are reviewed at least
annually by the Board of Directors. These policies and the Code of conduct aim to promote sound risk management
throughout the Corporation, to delegate authority appropriately among its officers and to set limits for authorizations required to
approve and execute certain business transactions. As part of such policies, the officers of the Corporation are responsible for
maintaining effective communication with the Board of Directors and the employees of the Corporation, to implement and
promote a culture of efficient risk management throughout the Corporation’s activities. Through strategic planning approved by
the Board of Directors, the officers are also responsible to assess the risk management activities and align them with the
Corporation’s risk tolerance parameters, adopted by the Board of Directors. The Board of Directors’ risk management
oversight aims to ensure that risks are identified, reduced and mitigated, where possible. However, these risks cannot always
be identified or be completely eliminated from the Corporation’s activities.
The Corporation is exposed to various risks and uncertainties and has outlined below those that it considers material. 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.
Risks Related to Operations
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 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 irradiation, 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 that could
cause such delays or cost overruns include, without limitation, permitting delays, construction pricing escalation, changing
engineering and design requirements, the performance of contractors, labour disruptions, adverse weather conditions and the
availability of financing. Even when complete, a facility may not operate as planned due to design or manufacturing flaws,
which may not all be covered by warranty. Mechanical breakdown could occur in equipment after the period of warranty has
expired, resulting in loss of production as well as the cost of repair. In addition, if the Development Projects are not brought into
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p68
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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
currently 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.
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.
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, Idaho Power Company and other purchasers of electricity under PPAs is an important
determinant of the Corporation’s revenues. If one of the Corporation’s facilities delivers less than the required quantity of
electricity in a given contract year or is otherwise in default under its respective PPA, penalty payments may be payable to the
relevant purchaser by the Corporation. The payment of any such penalties by the Corporation could adversely affect the
revenues and profitability of the Corporation.
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.
Equipment Supply
The Corporation’s development and operation of power generating facilities is dependent on the supply of equipment from
third parties. Equipment pricing may rapidly increase depending, among other things, on equipment availability, raw material
prices and on the market for such products. 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.
Regulatory and Political Risks
The development and operation of power generating facilities are subject to changes in governmental regulatory requirements
and the applicable governing statutes, including regulations related to the environment, unforeseen environmental effects,
general economic conditions and other matters beyond the control of the Corporation.
Moreover, the operation of power generating facilities is subject to extensive regulation by various government agencies at the
municipal, provincial, state and federal levels. There is always the risk of changes being made in government policies and
laws, which may result in increased rates, such as for water rentals, and for income, capital and municipal taxes.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p69
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation holds permits and licences from various regulatory authorities for the construction and operation of its
facilities. These licences and permits are critical to the operation of the Corporation’s business. Most of these permits and
licences are long-term in nature, reflecting the anticipated useful life of the facilities. In some cases, these permits may need to
be renewed prior to the end of the anticipated useful life of such facilities and there is no guarantee that such renewals will be
granted or on which conditions they will be renewed. These permits and licences require the Corporation’s compliance with the
terms thereof.
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 Quebec, BC, Ontario, Idaho in the 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.
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.
Assessment of Water, Wind and Solar Resources 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 irradiation; (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 climate
change; (v) the accuracy of assumptions on a variety of factors, including but not limited to weather, ice build-up on wind
turbines and snow accumulation and soiling on solar panels, site access, wake and transmission 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 risk that 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 and the Corporation's power generation could increase or decrease depending on the duration and
magnitude of the changes.
Natural Disasters and Force Majeure
The Corporation’s facilities, operations and projects 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
events. The occurrence of a significant event that disrupts or delays the ability of the Corporation’s power generation assets to
produce or sell power for an extended period, including events that 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, power hedges 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, making access for repair of damage difficult.
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 the Corporation's 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p70
(in thousands of Canadian dollars, except as noted and amounts per share)
Pandemics, Epidemics or Other Public Health Emergencies
The Corporation’s business, results of operations, financial condition, cash flows and stock price can be adversely affected by
pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic. In March 2020, the World Health
Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has resulted in governments around the world
implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place”
and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. In addition,
governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to
counteract the impacts of COVID-19. Although certain governments have begun the process of easing their respective
restrictions on individuals and businesses, there is material variation in the requirements to lift and reimpose restrictions and
the pace at which those restrictions are being lifted and reimposed between jurisdictions. In some jurisdictions, increases in
new cases of COVID-19 have led to reinstatement of restrictions on individuals and businesses. Current business disruptions
could impact our suppliers, which in turn could impact the operating results of the Corporation. Should the outbreak become
more widespread, procurement of equipment and spare parts may be impacted and construction, operation and maintenance
of the Corporation’s assets may be halted or delayed and negatively impact the business, financial condition and results of
operations of the Corporation.
All of the Corporation’s facilities continue to operate as expected and preventative measures remain in place in accordance
with the Corporation’s emergency response plan and applicable local government directives. Management continues to
actively monitor the situation, which remains uncertain, and may take further actions as required or recommended by
authorities.
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. Such attacks on our information base systems through theft, alteration or destruction could
generate unexpected expenses to investigate and repair security breaches or system damage and could lead to litigation,
fines, other remedial action, heightened regulatory scrutiny and damage to our reputation. A breach of our cyber/data security
measures could have a material adverse effect on the Corporation’s business, operations, financial condition and operating
results.
Reliance on Shared Transmission and Interconnection Infrastructure
The six Harrison Operating Facilities, the Northwest Stave River Facility, the Tretheway Creek Facility and the Big Silver Creek
Facility (the “Sharing Facilities”) all share or will share joint transmission and interconnection infrastructure to transmit their
electrical energy generation to a joint substation, which then interconnects to the common point of interconnection for the
Sharing Facilities at the adjacent BC Hydro Upper Harrison terminal substation. Therefore, damage to or a failure of the
shared transmission and interconnection infrastructure may result in the Sharing Facilities being unable to deliver their
electrical energy generation to the point of interconnection with BC Hydro’s transmission system in accordance with the
requirements for sale of energy under the PPAs with BC Hydro in respect of the six Harrison Operating Facilities, the
Northwest Stave River Facility, the Tretheway Creek Facility and the Big Silver Creek Facility. All six Harrison Operating
Facilities also share one common interconnection agreement with BC Hydro and act as agent for the Northwest Stave Facility,
the Tretheway Creek Facility and the Big Silver Creek Facility. Therefore, a default by any one of the Sharing Facilities of its
obligations under the interconnection agreement may result in BC Hydro disconnecting all the Sharing Facilities from the BC
Hydro transmission system.
Risks Related to Growth Strategy
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 realize the benefits of completed or
future acquisitions, raise additional capital and/or lower the debts of the Corporation.
The successful execution of this strategy requires careful timing and business judgment, the resources to complete the
development of power generating facilities, as well as an accurate assessment of the assets of the Corporation and the value
that it would receive in exchange for their divestiture. The Corporation may underestimate the costs necessary to bring power
generating facilities into commercial operation, may be unable to quickly and efficiently integrate new acquisitions into its
existing operations, inaccurately evaluate the value of its assets or be unable to find a purchaser therefor in a manner that
supports the Corporation’s strategy in a timely fashion.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p71
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Ability to Secure New PPAs or Renew Any PPA
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 operating
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, the Foard City Wind Farm, the
Phoebe Solar Farm and the Salvador 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 during such time the Corporation is forced to sell electrical power generated at market price,
or increase significantly, when the Corporation is forced to purchase third party power at merchant prices, 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 Foard City Wind Farm, the Phoebe Solar Farm, the Salvador Solar 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 or increase in such prices, as applicable, 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, the Flat Top Wind Farm and the Phoebe Solar Farm.
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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p72
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 could 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.
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 that 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.
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.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p73
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Risks Related to Financing
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.
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.
Interest Rate Fluctuations and Refinancing
Interest rate fluctuations are of particular concern to a capital-intensive industry such as the electric power business. The
Corporation faces interest rate and debt refinancing risk in respect of floating-rate bank credit facilities used for construction
and long-term financings. The Corporation’s ability to refinance debt on favourable terms is dependent on debt capital market
conditions, which are inherently variable and difficult to predict. Interest rate fluctuation and refinancing risks could affect the
Corporation’s ability to raise additional capital.
Financial Leverage and Restrictive Covenants Governing Current and Future Indebtedness
The Corporation’s and its subsidiaries’ operations are subject to contractual restrictions contained in the instruments governing
any of their current and future indebtedness. The degree to which the Corporation and its subsidiaries are leveraged could
have important consequences to shareholders, including: (i) the Corporation’s and its subsidiaries’ ability to obtain additional
financing for working capital, capital expenditures, acquisitions or other project developments in the future may be limited; (ii) a
significant portion of the Corporation’s and its subsidiaries’ cash flows from operations may be dedicated to the payment of the
principal of and interest on their indebtedness, thereby reducing funds available for future operations; (iii) certain of the
Corporation’s and its subsidiaries’ borrowings will be at variable rates of interest, which exposes the Corporation and its
subsidiaries to the risk of increased interest rates; and (iv) the Corporation and its subsidiaries may be more vulnerable to
economic downturns and be limited in their ability to withstand competitive pressures.
The Corporation and its subsidiaries are subject to operating and financial restrictions through covenants in certain loan, equity
finance and security agreements. These restrictions prohibit or limit the Corporation’s and its subsidiaries’ ability to, among
other things, incur additional debt, provide guarantees for indebtedness, create liens, dispose of assets, liquidate, dissolve,
amalgamate, consolidate or effect any corporate or capital reorganization, make distributions or pay dividends, issue any
equity interests and create subsidiaries. These restrictions may limit the Corporation’s and its subsidiaries’ ability to obtain
additional financing, withstand downturns in the Corporation’s and its subsidiaries’ business and take advantage of business
opportunities. Moreover, the Corporation and its subsidiaries may be required to seek additional debt or equity financing on
terms that include more restrictive covenants, require repayment on an accelerated schedule or impose other obligations that
limit the Corporation’s or its subsidiaries’ ability to grow the business, acquire assets or take other actions the Corporation or
its subsidiaries might otherwise consider appropriate or desirable.
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 a 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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p74
(in thousands of Canadian dollars, except as noted and amounts per share)
Adjusted EDITDA and free cash flow may be lower than expected or reduced, which would respectively impact the payout
ratio.
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.
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.
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 and solar 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.
Other Risks
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.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 Corporation's 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.
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.
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p75
(in thousands of Canadian dollars, except as noted and amounts per share)
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. 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.
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 are extremely complex and often require the Corporation to make subjective determinations. The
computation of taxes involves many factors, including the interpretation of tax legislation in various jurisdictions in which the
Corporation is or may become subject to tax assessments. The Corporation’s estimate of tax related assets, liabilities,
recoveries and expenses incorporates significant assumptions. These assumptions include, but are not limited to, the tax rates
in various jurisdictions, the effect of tax treaties between jurisdictions and taxable income projections. To the extent that such
assumptions differ from actual results, the Corporation may have to record additional tax expenses and liabilities, including
interest and penalties.
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.
Sufficiency of Insurance Coverage
While the Corporation maintains insurance coverage it believes would be maintained by a prudent owner/operator of similar
facilities or projects, 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 or insured, nor that the amounts of insurance will be
sufficient to cover each and every loss or claim that may occur involving our activities or assets. Insurance coverage of project
assets and facilities may be prescribed by project financing agreements and/or PPAs. In addition, the Corporation may
undertake construction or pursue acquisitions where obtaining insurance may be difficult, not economically feasible or
otherwise insufficient to cover each and every loss or claim that may occur involving the new assets or activities.
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 Cumulative Rate Reset Preferred Shares, Series A and Cumulative
Redeemable Fixed Rate Preferred Shares, Series C (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, which 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.
Host Country Economic, Social and Political Conditions
Several of the Corporation’s principal assets are located in foreign domiciles. Although the operating environments in these
jurisdictions are considered favourable compared to those 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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p76
(in thousands of Canadian dollars, except as noted and amounts per share)
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 unfavourable 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.
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 the Corporation's 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 the 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 loss of
business opportunities, loss of revenue, litigation and a reduction in 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 2020
Management's Discussion and Analysis p77
(in thousands of Canadian dollars, except as noted and amounts per share)
10- 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 projected financial
performance, 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
with Hydro-Québec), 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, Projected Free Cash Flow per Share 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
variability in hydrology, wind regimes and solar irradiation; the delays and cost overruns in the design and construction of
projects; health, safety and environmental risks, equipment failure or unexpected operations and maintenance activity; the
variability of installation performance and the related penalties; the performance of major counterparties; equipment
supply; the regulatory and political risks; the increase in water rental cost or the changes to regulations applicable to water
use; the availability and the reliability of the transmission systems; the assessment of water, wind and solar and the
associated electricity production; global climate change; natural disasters and force majeure; pandemics, epidemics or
other public health emergencies; cybersecurity; the reliance on shared transmission and interconnection infrastructure; the
ability of the Corporation to execute its strategy for building shareholder value; the ability to raise additional capital and the
state of the capital market; the ability to secure new PPAs or renew any PPA; the fluctuations affecting prospective power
prices; uncertainties surrounding development of new facilities; the obtainment of permits; the failure to realize the
anticipated benefits of completed and future acquisitions; the integration of the completed and future acquisitions; the
changes in governmental support to increase electricity to be generated from renewable sources by independent power
producers; social acceptance of renewable energy projects; the relationships with stakeholders; the ability to secure
appropriate land; foreign market growth and development risks; the liquidity risks related to derivative financial
instruments; the interest rate fluctuations and refinancing risk; the financial leverage and restrictive covenants governing
current and future indebtedness; the changes in general economic conditions; the foreign exchange fluctuations; the risks
related to U.S. production and investment tax credits, changes in U.S. corporate tax Rates and availability of tax equity
financing; the possibility that the Corporation may not declare or pay a dividend; the ability to attract new talent or to retain
officers or key employees; litigation; the exposure to many different forms of taxation in various jurisdictions; the reliance
on various forms of PPAs; the sufficiency of insurance coverage; the credit rating not reflecting the actual performance of
the Corporation or a lowering (downgrade) of the credit rating; the variation of the revenues from certain facilities based on
the market (or spot) price of electricity; the host country economic, social and political conditions; the adverse claims to
property title; unknown liabilities; the reliance on intellectual property and confidential agreements to protect the
Corporation’s rights and confidential information; the 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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p78
(in thousands of Canadian dollars, except as noted and amounts per share)
provided as at the date of this MD&A, and the Corporation does not undertake any obligation to update or revise any
Forward-Looking Information, whether as a result of events or circumstances occurring after the date hereof, unless so
required by law.
Forward-Looking Information in this MD&A
The following table outlines the Forward-Looking Information contained in this MD&A, which the Corporation considers
important to better inform readers about its potential financial performance, together with the principal assumptions used
to derive this information and the principal risks and uncertainties that could cause actual results to differ materially from
this information.
Principal Assumptions
Principal Risks and Uncertainties
Expected production
For each facility, the Corporation determines a long-term average annual level of electricity
production (“LTA”) over the expected life of the facility, based on engineers’ studies that
take into consideration a number of important factors: for hydroelectricity, the historically
observed flows of the river, the operating head, the technology employed and the reserved
aesthetic and ecological flows; for wind energy, the historical wind and meteorological
conditions and turbine technology; and for solar energy, the historical solar irradiation
conditions, panel technology and expected solar panel degradation. Other factors
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 that are accounted for using the equity method.
Projected revenues
For each facility, expected annual revenues are estimated by multiplying the LTA by a price
for electricity stipulated in the 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 and
Salvador solar farms 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 that are accounted for using the equity method.
Projected Adjusted EBITDA
For each facility, the Corporation estimates annual operating earnings by adding
(deducting) to net earnings (loss) income tax expense (recovery), finance costs,
depreciation and amortization, other net income, share of (earnings) loss of joint ventures
and associates and change in fair value of financial instruments.
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
identified under
risks and
“Expected
See principal assumptions,
uncertainties
Production”
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
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 income related to PTCs, and
Innergex's share of the other net income 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 2020
Management's Discussion and Analysis p79
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
Principal Risks and Uncertainties
Projected Free Cash Flow, Projected Free Cash Flow per Share and Intention to pay
dividend quarterly
The Corporation estimates Projected Free Cash Flow as projected cash flows, from
operating activities before changes in non-cash operating working capital items, less
estimated maintenance capital expenditures net of proceeds from disposals, scheduled
debt principal payments, preferred share dividends declared and the portion of Free Cash
Flow attributed to non-controlling interests, plus or minus other elements that are not
representative of
long-term cash generating capacity, such as
transaction costs related to realized acquisitions (which are financed at the time of the
acquisition), realized losses or gains on derivative financial instruments used to hedge the
interest rate on project-level debt or the exchange rate on equipment purchases. The
Corporation estimates the annual dividend it intends to distribute based on the
Corporation'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.
the Corporation's
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 storage 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.
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.
See principal assumptions,
uncertainties
Production”,
"Projected Adjusted EBITDA".
risks and
identified under
“Expected
“Projected Revenues” and
Possibility
declare or pay a dividend
that
the Corporation may not
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
Higher-than-expected inflation
Equipment supply
Interest rate fluctuations and financing risk
Risks related to U.S. PTCs and ITCs,
changes in U.S. corporate tax rates and
availability of tax equity financing
Regulatory and political risks
Natural disaster and force majeure
Relationships with stakeholders
Foreign market growth and development risks
Social acceptance of renewable energy
projects
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
COVID-19 restrictive measures
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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p80
(in thousands of Canadian dollars, except as noted and amounts per share)
Principal Assumptions
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
Innergex Renewable Energy Inc.
Annual Report 2020
Management's Discussion and Analysis p81
(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 25, 2021
Innergex Renewable Energy Inc.
Annual Report 2020
Responsibility for Financial Reporting p82
(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 statements of financial position as at December 31, 2020 and December 31, 2019;
the consolidated statements of earnings (loss) for the years then ended;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years 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, 2020 and December 31, 2019, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our
auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.
Evaluation of the acquisition date fair values of intangible assets and property, plant and equipment related to
business acquisitions
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p83
(in thousands of Canadian dollars, except as noted and amounts per share)
Description of the matter
We draw attention to Notes 2, 3 and 4 to the financial statements. On May 14, 2020, the Entity acquired PV Salvador SpA
("Salvador"), a solar photovoltaic farm in Chile, for a total cash consideration of $92,953. On July 15, 2020, the Entity acquired
Mountain Air Alternatives LLC ("Mountain Air") which owns a portfolio of six operating wind farms in Elmore County, Idaho, in
the United States, for a total cash consideration of $77,272. In connection with these transactions, the Entity recorded
intangible assets of $4,676 and $282,125, respectively, and property, plant and equipment of $61,022 and $22,614,
respectively.
The fair value of the intangible assets of Mountain Air, which consist in a power purchase agreement, was calculated by the
Entity using, under an income approach, the lost profits (or "with and without") method. The fair value of the intangible assets
of Salvador, which consist in operating licenses and permits, and of property, plant and equipment, was established by the
Entity using a discounted cash flow approach.
The Entity makes a number of assumptions when determining the acquisition date fair values of intangible assets and
property, plant and equipment including:
• Future cash flows which may be influenced by a number of assumptions such as electricity production and selling prices
• Discount rates
Why the matter is a key audit matter
We identified the evaluation of the acquisition date fair values of the intangible assets and the property, plant and equipment
related to business acquisitions as a key audit matter. This matter represented an area of significant risk of material
misstatement given the magnitude of intangible assets and property, plant and equipment. Further, there was a high degree of
estimation uncertainty in determining the fair value of the intangible assets and the property, plant and equipment since the
discounted cash flow model included significant forward-looking assumptions that could be affected by future economic and
market conditions. In addition, significant auditor judgment and specialized skills and knowledge were required in evaluating
the results of our audit procedures due to the sensitivity of the Entity’s determination of the fair value of intangible assets and
property, plant and equipment to minor changes to certain significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We evaluated the appropriateness of the future cash flows significant assumptions used by the Entity in its valuation
methodologies by:
•
•
Comparing the estimated future electricity production assumption to historical electricity production. We took into account
changes in conditions and events affecting the intangible assets and property, plant and equipment to assess the
adjustments, or lack of adjustments, made by the Entity in arriving at future electricity production.
Comparing the future selling price assumption to long-term power purchase agreements and forecasts specific to the
regions.
We involved our valuation professionals with specialized skills and knowledge who assisted in:
•
•
Evaluating the appropriateness of discount rates by comparing inputs into the discount rate to publicly available market
data for comparable entities
Evaluating the appropriateness of the valuation models used by the Entity to calculate the fair value of intangible assets
and property, plant and equipment based on the knowledge of the valuation professional
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p84
(in thousands of Canadian dollars, except as noted and amounts per share)
Evaluation of the fair values of level 3 power and basis hedges derivative financial instruments
Description of the matter
We draw attention to Notes 2, 3, 10 and 28 to the financial statements. The fair value of level 3 power and basis hedges
derivative financial instruments is $54,082. The fair values of the level 3 power and basis hedges are calculated by the Entity
using a discounted cash flow model. Such fair value calculation gives rise to measurement uncertainty as the power price
curves are constructed by the Entity using various methodologies and assumptions, which consider certain observable and
unobservable inputs including:
• Observable forward power prices
• For forward power prices that are not observable for the entirety of the contracted period: extrapolated prices based on the
observable NYMEX natural gas futures prices growth rate
• For unobservable forward power prices:
•
•
Observable forward prices at another location adjusted for historical spreads
Future power price forecasts based on historical market prices adjusted for certain unobservable market factors such as
supply, demand and congestion volumes, as well as econometric models
In addition, in determining the fair value of certain level 3 power and basis hedges derivative financial instruments for which
notional volume is not contractually fixed, the Entity’s estimated volume is determined using various assumptions such as the
expected demand and volume of power to be successfully settled through the market bidding process.
Why the matter is a key audit matter
We identified the evaluation of the fair value of level 3 power and basis hedges derivative financial instruments as a key audit
matter. This matter represented an area of significant risk of material misstatement given the high degree of estimation
uncertainty in determining the fair value of level 3 power and basis hedges derivative financial instruments because the
valuation methodologies included significant assumptions for which there was limited observable market information. In
addition, significant auditor judgment was required in evaluating the results of our audit procedures due to the sensitivity of the
calculated fair value to minor changes to these significant assumptions. Further, professionals with specialized skills and
knowledge were needed to assess the appropriateness of the Entity’s valuation methodologies.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
• We evaluated the observable and unobservable underlying inputs used by the Entity in its valuation methodologies to
determine the fair value of level 3 power and basis hedges derivative financial instruments by comparing to market or
third party data, such as published forward power prices for similar commodities and third party future power price
forecasts.
• We evaluated the methodologies and assumptions made by the Entity to adjust certain observable inputs by
comparing to historical spreads.
•
For the level 3 power and basis hedges derivative financial instruments for which notional volume is not contractually
fixed, we evaluated the appropriateness of the significant assumptions used by the Entity in its valuation
methodologies by comparing the estimated future electricity volume expected to be settled to historical settlement
data.
• We took into account changes in conditions and events to assess the adjustments, or lack of adjustments, made by
the Entity in arriving at future electricity volume expected to be settled.
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p85
(in thousands of Canadian dollars, except as noted and amounts per share)
• We involved valuation professionals with specialized skills and knowledge who developed an independent valuation
discounted cash flow model based on their knowledge by using the Entity’s significant assumptions and underlying
data inputs. We compared the resultant output of the independent fair value calculation prepared by the valuation
professionals to the amounts recorded by the Entity for level 3 power and basis hedges derivative financial
instruments, to assess the appropriateness of the Entity’s discounted cash flow model.
Assessment of the recognition and measurement of tax equity financing
Description of the matter
We draw attention to Notes 2, 3, 7, 8, 9 and 21 to the financial statements. The Entity has recognized an amount of $315,958
of tax equity financing presented as long-term loans and borrowings relating to certain projects in the U.S. under tax equity
structures to finance the construction of solar and wind projects.
When a tax equity partnership is formed, the Entity exercises judgement in assessing whether it retains control over the entity,
and in assessing the appropriate classification of the tax equity investor's contribution, which generally bears the
characteristics of a liability as the arrangements are made so that the contribution is repaid over time until the tax equity
investor has attained an agreed-upon rate of return. Judgement is also exercised by the Entity in assessing the nature of the
tax equity investor's interest after it has attained the agreed-upon rate of return, which generally bears the characteristics of
equity as it retains entitlement to a portion of the partnership's variable returns and shares a residual interest in the net assets
of the partnership.
Tax equity investors generally require a specified allocation of the project's cash distributions and tax attributes such as
production tax credits, investment tax credits and taxable income or loss, including accelerated tax depreciation. Estimates are
made by the Entity when determining the amount and allocation of cash distributions and tax attributes to the tax equity
investors, which may be influenced by a number of assumptions such as electricity production, selling prices and tax amounts.
Why the matter is a key audit matter
We identified the assessment of the recognition and measurement of tax equity financing as a key audit matter. This matter
represented an area of significant risk of material misstatement given the high degree of estimation uncertainty in determining
the measurement of the tax equity financing liabilities. In addition, significant auditor judgment and specialized skills and
knowledge were required to evaluate the results of our audit procedures regarding the Entity’s significant judgments and
assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
• We read the agreements related to the investments made in the current year in U.S. renewable energy projects with
tax equity investors
• We assessed the appropriateness of the Entity’s identification and evaluation of the contractual terms and conditions
in their assessment of the recognition of the investors’ contributions.
• We analyzed the models used by the Entity for the measurement of the tax equity financing liabilities to evaluate that
the methodology used was consistent with the contractual allocation provisions of the agreements.
• We evaluated the appropriateness of the future flows significant assumptions in the Entity’s models by:
◦
◦
Comparing the estimated future electricity production assumption to historical electricity production. We took
into account changes in conditions and events affecting the projects subject to tax equity financing to assess
the adjustments, or lack of adjustments, made by the Entity in arriving at future electricity production.
Comparing the future selling prices assumption to long term power purchase agreements and forecasts
specific to the regions.
• We involved our tax professionals with specialized skills and knowledge who assisted in evaluating the
appropriateness of the Entity’s expected amounts and timing of tax credits and other tax attributes in the models by
assessing the Entity’s estimated outcome of applicable tax laws.
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p86
(in thousands of Canadian dollars, except as noted and amounts per share)
Evaluation of the impairment analysis for non-financial assets of facilities subject to market price risk exposure
Description of the matter
We draw attention to Notes 2 and 3 to the financial statements. The Entity has property, plant and equipment of $5,053,125,
intangible assets of $919,323 and investments in joint ventures and associates of $446,837. A portion of these non-financial
assets are related to facilities that are subject to market price risk exposure.
At the end of each reporting period, the Entity 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. If the recoverable amount of an asset or cash-generating unit ("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).
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 by the Entity 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. Future cash flows may be influenced by a
number of assumptions such as selling prices.
Why the matter is a key audit matter
We identified the evaluation of impairment analysis for non-financial assets of facilities subject to market price risk exposure as
a key audit matter. This matter represented an area of significant risk of material misstatement given the magnitude of the non-
financial assets of facilities subject to market price risk exposure and the high degree of estimation uncertainty in determining
the recoverable amount of such non-financial assets. In addition, significant auditor judgement and specialized skills and
knowledge were required in evaluating the results of our audit procedures due to the sensitivity of the Entity’s determination of
recoverable amount to minor changes to significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We evaluated the appropriateness of the Entity's future selling price assumptions by comparing to forecasts specific to the
regions.
We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of
the Entity's discount rates assumptions by comparing the inputs into the discount rate to publicly available market data for
comparable entities.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in the 2020 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 "2020 Annual
Report" document.
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 the 2020 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 “2020 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 2020
Independent Auditors' Report p87
(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.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's
internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p88
(in thousands of Canadian dollars, except as noted and amounts per share)
•
•
•
•
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
Determine, from the matters communicated with those charged with governance, those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this auditors’ report is Girolamo Cordi.
Montréal, Canada
February 25, 2021
*CPA auditor, CA, public accountancy permit No. A109612
Innergex Renewable Energy Inc.
Annual Report 2020
Independent Auditors' Report p89
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Revenues
Expenses
Operating
General and administrative
Prospective projects
Earnings before the following:
Depreciation
Amortization
Impairment of equity accounted investment
Impairment of project development costs
Earnings before the following:
Finance costs
Other net income
Share of loss (earnings) of joint ventures and associates
Change in fair value of financial instruments
(Loss) earnings before income tax
Income tax expense
Current
Deferred
Net loss from continuing operations
Net earnings from discontinued operations
Net loss
Net loss attributable to:
Owners of the parent
Non-controlling interests
Loss per share from continuing operations attributable to
owners:
Basic net loss per share ($)
Diluted net loss per share ($)
Loss per share attributable to owners:
Basic net loss per share ($)
Diluted net loss per share ($)
Year ended December 31
2019
2020
Notes
613,207
557,042
6
6
6
15
16
9
17
7
8
9
10
11
11
5
26
12
12
12
12
131,442
42,948
16,708
422,109
178,440
50,086
26,659
—
166,924
233,143
(65,554)
7,524
2,025
(10,214)
7,326
11,571
18,897
(29,111)
—
(29,111)
(32,628)
3,517
(29,111)
(0.23)
(0.23)
(0.23)
(0.23)
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)
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2020
Consolidated Statements of Earnings (loss) p90
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS)
INCOME
Year ended December 31
2020
2019
Notes
Net loss
(29,111)
(31,211)
Items of comprehensive income (loss) that will be
subsequently reclassified to earnings:
Foreign currency translation differences for foreign operations
24
(27,032)
(31,713)
Change in fair value of financial instruments designated as net
investment hedges
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 tax
Other comprehensive loss from continuing operations
10
10
9
24
Other comprehensive income from discontinued operations
5
Other comprehensive loss
(2,128)
4,021
(89,549)
23,688
(5,148)
23,142
(100,715)
—
(100,715)
(1,872)
(2,197)
(8,073)
3,928
(4,145)
Total comprehensive loss
(129,826)
(35,356)
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
(129,093)
(733)
(129,826)
(9,158)
(26,198)
(35,356)
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2020
Consolidated Statements of Comprehensive Income (Loss) p91
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable
Derivative financial instruments
Investment tax credits recoverable
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
Accounts payable and other payables
Derivative financial instruments
Current portion of long-term loans and borrowings and other
liabilities
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
December 31, 2020
December 31, 2019
Notes
13
14
10
15
15
16
17
9
10
11
18
19
20
10
21, 22
10
21
22
11
23
26
161,465
67,477
92,746
9,039
106,353
15,372
452,452
5,053,125
919,323
14,092
446,837
92,040
25,129
75,932
75,302
6,701,780
7,154,232
190,333
72,958
773,439
1,036,730
179,154
4,046,714
397,513
423,189
5,046,570
6,083,300
1,008,854
62,078
1,070,932
7,154,232
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
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2020
Consolidated Statements of Financial Position p92
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Equity attributable to owners
For the year ended December 31, 2020
Common
share
capital
account
Contributed
surplus
Preferred
shares
Convertible
debentures
Deficit
Accumulated
other
comprehensive
loss
Total
Non-
controlling
interests
Total
shareholders’
equity
Balance January 1, 2020
Reclassification of Performance Share Plan (Note 2)
Adjusted balance January 1, 2020
97,215 1,268,311 131,069
—
97,215 1,274,651 131,069
6,340
—
—
—
—
—
—
—
—
Net (loss) earnings
Other comprehensive loss
Total comprehensive loss
—
—
—
Common shares issued on February 6, 2020: private
placement (Note 23)
Issuance fees (net of $672 of deferred income tax)
660,870
(1,842)
Business acquisition (Note 4)
Common shares issued through dividend
reinvestment plan
Reduction of capital on common shares (Note 23)
Share-based payments and Performance Share
Plan
Stock options exercised
Convertible debentures converted into common
shares and redemption
Shares vested - Performance Share Plan
Shares purchased - Performance Share Plan
Dividends declared on common shares (Note 23)
Dividends declared on preferred shares (Note 23)
Distributions to non-controlling interests (Note 26)
—
5,474
(754,355) 754,355
—
394
1,900
(2,343)
1,391
1,046
(6,008)
—
—
—
—
(2,148)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,869
—
2,869
(879,849)
—
(879,849)
(15,231)
—
(15,231)
604,384
6,340
610,724
10,942
—
10,942
615,326
6,340
621,666
—
—
—
(32,628)
—
(32,628)
—
(32,628)
3,517
(29,111)
(96,465)
(96,465)
(96,465)
(129,093)
(4,250)
(733)
(100,715)
(129,826)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(26)
—
—
—
—
—
—
—
—
(125,543)
(5,942)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
660,870
(1,842)
—
—
660,870
(1,842)
—
63,169
63,169
5,474
—
1,900
(1,949)
—
—
—
—
5,474
—
1,900
(1,949)
1,365
(1,102)
(6,008)
(125,543)
(5,942)
—
—
—
—
—
—
(11,300)
1,365
(1,102)
(6,008)
(125,543)
(5,942)
(11,300)
Balance December 31, 2020
4,185 2,026,415 131,069
2,843 (1,043,962)
(111,696) 1,008,854
62,078 1,070,932
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2020
Consolidated Statements of Changes in Shareholders' Equity p93
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Equity attributable to owners
For the year ended December 31, 2019
Common
shares
capital
account
Contributed
surplus
Preferred
shares
Convertible
debentures
Deficit
Accumulated
other
comprehensive
(loss) income
Total
Non-
controlling
interests
Total
shareholders’
equity
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
Share-based payments
Stock options exercised
Common shares issued through the conversion of
convertible debentures (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
Disposition of non-controlling interests
Dividends declared on common shares (Note 23)
Dividends declared on preferred shares (Note 23)
Distributions to non-controlling interests
Reclassification of defined benefit plan actuarial
losses
Balance December 31, 2019
—
—
—
2,402
—
—
—
—
—
64
1,323
(4,357)
—
—
—
—
—
—
88,272
—
1,057
(2,385)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
97,215 1,268,311 131,069
—
— (28,041)
—
—
—
18,883
(28,041)
18,883
(3,170)
(23,028)
(31,211)
(4,145)
— (28,041)
18,883
(9,158)
(26,198)
(35,356)
—
(1,877)
—
—
—
770
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,402
64
(3,034)
—
86,395
770
1,057
(2,385)
—
—
—
—
—
—
—
—
—
—
—
2,402
64
(3,034)
86,395
770
1,057
(2,385)
(218)
(260,846)
(218)
—
— (260,846)
— (95,046)
—
—
(5,942)
—
—
(95,046)
—
(95,046)
—
—
(5,942)
—
—
(14,572)
(5,942)
(14,572)
—
(378)
2,869 (879,849)
378
—
(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 2020
Consolidated Statements of Changes in Shareholders' Equity p94
(in thousands of Canadian dollars, except as noted and amounts per share)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2020
2019
Notes
5
15,16
9
17
9
10
8
7
25 b)
9
11
25 a)
25 c)
25 c)
22
25 c)
25 c)
4
5
OPERATING ACTIVITIES
Net loss
Net earnings from discontinued operations
Net loss from continuing operations
Items not affecting cash:
Depreciation and amortization
Impairment of equity accounted investment
Impairment of project development costs
Share of loss (earnings) of joint ventures and associates
Unrealized portion of change in fair value of financial instruments
Production tax credits and tax attributes allocated to tax equity
investors
Other
Finance costs
Finance costs paid
Distributions received from joint ventures and associates
Income tax expense
Income tax 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 and 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
Net proceeds from issuance of common shares
Purchase of common shares under the Performance Share Plan
Payment of payroll withholding on exercise of stock options and PSP
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)
Change in restricted cash
Additions to property, plant and equipment, net
Additions to project development costs
Investments in joint ventures and associates
Change in other long-term assets
Cash flows used in investing activities from continuing operations
Cash flows used in 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 year
Cash and cash equivalents, end of year
(29,111)
—
(29,111)
228,526
26,659
—
7,524
(8,329)
(64,900)
717
233,143
(185,720)
21,504
18,897
(9,277)
3,240
242,873
(7,765)
235,108
—
235,108
(118,982)
(11,300)
983,168
(1,005,864)
(3,841)
—
—
658,356
(6,008)
(3,051)
492,478
—
492,478
(161,792)
—
(22,756)
(518,602)
(32,127)
(277)
9,946
(725,608)
—
(725,608)
3,263
5,241
156,224
161,465
(31,211)
(21,815)
(53,026)
194,579
—
8,184
(36,469)
33,883
(99,640)
(4,153)
231,766
(195,915)
19,498
118,851
(17,007)
3,990
204,541
22,402
226,943
13,122
240,065
(96,798)
(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)
(847,714)
(8,712)
(13,756)
(12,920)
(516,997)
(31,957)
(548,954)
(3,080)
76,638
79,586
156,224
Additional information is presented in Note 25.
The accompanying notes are an integral part of these audited consolidated financial statements.
Innergex Renewable Energy Inc.
Annual Report 2020
Consolidated Statements of Cash Flows p95
(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 and energy storage 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 25, 2021.
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 that are measured at fair value.
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 2020
Notes to the Consolidated Financial Statements p96
(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
Upper Lillooet Limited Partnership
Innergex Inc.
Big Silver Creek Power Limited
Partnership
Innergex Sainte-Marguerite, S.E.C.
Innergex Europe (2015) Limited
Partnership, and its subsidiaries
Innergex Cartier Energy LP
Mountain Air Alternatives LLC, and its
subsidiaries
Own and operate hydroelectric facilities
Canada
Own and operate a hydroelectric facility Canada
Own and operate a hydroelectric facility Canada
Own and operate hydroelectric and wind
Canada
facilities
Own and operate a hydroelectric facility Canada
Own and operate a hydroelectric facility Canada
Own and operate wind facilities
Canada/Europe
Own and operate wind facilities
Canada
Own and operate wind farms
United States
Mesgi'g Ugju's'n (MU) Wind Farm L.P. 2 Own and operate a wind facility
Canada
Foard City Holdings, LLC
Phoebe Energy Project, LLC
Hillcrest Solar I, LLC
Griffin Trail Wind, LLC
Own and operate a wind farm
Own and operate a solar facility
Construction of a solar facility
Construction of a wind facility
United States
United States
United States
United States
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.
50.01%
50.00%
100.00%
100.00%
100.00%
50.01%
69.55%
100.00%
62.25%
50.00%
100.00%
100.00%
100.00%
100.00%
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
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p97
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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 statements 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p98
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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
Nature of leasing activities
Useful life for the
depreciation period
8 to 75 years
14 to 30 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p99
(in thousands of Canadian dollars, except as noted and amounts per share)
(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 payments 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 agreements 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 assets 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. Intangible assets are amortized using the straight-
line method over a period ending on the maturity date of the permits, licenses or agreements of each facility. The
estimated useful lives reflect the respective Power Purchase Agreements' (''PPA'') renewable rights periods, since it is the
Corporation's intention to exercise its option to renew its PPAs where allowable. They are recorded at cost less
accumulated amortization and accumulated impairment losses. Amortization starts when the related facility becomes
ready for its intended use.
The Corporation recognizes an intangible asset arising from a service concession arrangement when it has the right to
charge for usage of the concession infrastructure. An intangible asset received as consideration for providing construction
or upgrade services in a service concession arrangement is measured at fair value upon initial recognition. Subsequent to
initial recognition, the intangible asset is measured at cost, which includes capitalized borrowing costs, less accumulated
amortization and accumulated impairment losses.
Intangible assets related to facilities under construction are not amortized until the related facilities are ready for their
intended use.
The estimated useful lives and amortization methods are reviewed at the end of each reporting period, with the effect of
any changes in estimates being accounted for on a prospective basis.
The useful lives used to calculate amortization are 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p100
(in thousands of Canadian dollars, except as noted and amounts per share)
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):
◦
◦
◦
◦
agreement.
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
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).
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 as well as long-term investments.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p101
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation holds three types of reserve accounts designed to help ensure its financial stability. The first is the
hydrology/wind reserve established at the start of commercial operations of a facility to compensate for the variability of
cash flows related to fluctuations in hydrology or wind conditions as well as 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 the 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.
Discontinued operations
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 statements of earnings (loss). Comparative figures are adjusted on the
consolidated statements of earnings (loss) and on the consolidated statement of comprehensive income (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 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 discount 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.
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.
•
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p102
(in thousands of Canadian dollars, except as noted and amounts per share)
The Corporation currently classifies its cash and cash equivalents, restricted cash, accounts receivable, investment
tax credits recoverable 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.
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, the
lease obligations recognized in other long-term liabilities and its tax equity liabilities as liabilities measured at
amortized cost.
Tax equity liabilities
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. Subsequent to the
Flip Point, the Corporation receives the majority of the project's taxable earnings and renewable tax incentives.
When a tax equity partnership is formed, the Corporation assesses whether the project company should be
consolidated based on the Corporation's right to variable returns and its ability to influence financial and operational
decisions impacting those returns. Due to the operational and financial nature of the projects, and the protective
nature of the rights normally given to tax equity investors, the Corporation typically has the influence to consolidate
the entity.
The terms of the tax equity partner's contribution are evaluated to determine the accounting treatment. The
contribution generally has the characteristics of a liability as the initial contribution is repaid, including an agreed upon
return, and the partner does not share in the risks of the project in the same way as a shareholder. As such, the
contribution is accounted for as loans and borrowings on the consolidated statements of financial position and
measured at amortized cost until the Flip date of the project. The amortized cost of the tax equity financing is
generally comprised of the following elements:
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p103
(in thousands of Canadian dollars, except as noted and amounts per share)
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
Interest expense
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 net income as earned and as a
reduction in tax equity financing
Allocation of ITCs to the tax equity investor stemming
from the construction activities and recognized as a
reduction in both the cost of the assets to which they
relate and the tax equity financing
Allocation of taxable income and other tax attributes to
the tax equity investor recognized in other net income
as earned and as a reduction in tax equity financing
Interest expense using the effective interest rate
method recognized in finance costs as incurred and as
an increase in tax equity financing
Additional cash contributions made by the tax equity
investor when the annual production exceeds the
contractually determined threshold, as an increase in
tax equity financing
Cash allocation to the tax equity investor, recognized
as a reduction in tax equity financing
Subsequent to the Flip Point, the tax equity partner will share in the risks and rewards in the project as a shareholder
and will be accounted for as a non-controlling interest.
(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);
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
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p104
(in thousands of Canadian dollars, except as noted and amounts per share)
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 statements
of earnings (loss) 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 (loss) as part of
the profit or loss on disposal.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition
of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are
not measured at fair value through profit or loss.
Non-controlling interests
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Corporation's
equity therein. The interest of non-controlling shareholders may be initially measured either at fair value 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p105
(in thousands of Canadian dollars, except as noted and amounts per share)
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 (ended in April 2020), Upper Stave River (ended in April 2020) and Toba
Montrose hydro facilities (ended in September 2020) as well as the Dokie wind farm are entitled to the subsidies. Gross
EcoEnergy subsidies of $427 ($6,417 in 2019) are included in revenues.
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.
Current United States tax law allows wind energy projects to receive production tax credits that are earned for each MWh
of generation during the first 10 years of the projects' operation, which are recognized in other net income.
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.
Equity-settled share-based payment
Stock option plan
The Corporation measures equity-settled stock option awards using the fair value method. Expense is measured at the
grant date at the fair value of the award and is recognized over the vesting period based on the Corporation's estimate of
the number of options that will eventually vest. Each equity-settled stock option award that vests in installments is
accounted for as a separate award with its own distinct fair value measurement. The fair value of options is amortized to
earnings over the vesting period with an offset to share-based payment in equity. For options that are forfeited before
vesting, the compensation expense that had previously been recognized and the offset to share-based payment in equity
are reversed. When options are exercised, the corresponding share-based payment in equity and the proceeds received
by the Corporation are credited to share capital.
Performance share plan (“PSP”)
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, based on the Corporation's estimate of the number of performance share rights that will
eventually vest. It is the Corporation's practice to have the fiduciary purchase that same number of shares on the
secondary market at the grant date. The corresponding fair value is debited to common shares capital. The share-based
payment expense is subsequently recognized over the vesting period with a corresponding amount to contributed surplus.
For shares that are forfeited before vesting, the expense that had previously been recognized is reversed. On the vesting
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p106
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
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's 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 of
Directors 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 foreign exchange forwards to hedge its investment in its Euro functional
currency foreign operations. Translation gains or losses on the portion of the 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 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 Euro functional currency 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, 2020
1.5608
1.2732
December 31, 2019
1.4583
1.2988
2020
2019
1.5537
1.3030
1.4856
1.3269
The exchange rates related to the Corporation's Icelandic subsidiary, HS Orka, disposed of on May 23, 2019, were as
follows :
ISK
lncome taxes
Exchange rate as at
May 23, 2019
Average exchange rate for the period
ended
May 23, 2019
0.0109
0.0111
Current and deferred income taxes are recognized in earnings except to the extent that they relate 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.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p107
(in thousands of Canadian dollars, except as noted and amounts per share)
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
stock options, if dilutive. The number of additional shares is calculated by assuming that convertible debentures were
converted and that outstanding stock options were exercised and that the proceeds from such exercises were used to
acquire shares at the average market price during the year.
Changes in accounting policies
On January 1, 2020, the Corporation adopted the following new standards and interpretations which did not have a
significant impact on these audited consolidated financial statements:
Amendments to materiality definition
On October 31, 2018, the IASB issued Definition of Material (Amendments to IAS 1, Presentation of Financial Statements
and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors) to clarify the definition of ‘material’ and to
align the definition used in the Conceptual Framework and the standards themselves.
Amendments to References to the Conceptual Framework
Together with the revised Conceptual Framework published in March 2018, the IASB also issued Amendments to
References to the Conceptual Framework in IFRS Standards.
Amendments to IFRS 3, Business Combinations
On October 22, 2018, the IASB issued Definition of a Business (Amendments to IFRS 3, Business Combinations) aimed
at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets.
Performance Share Plan
During the year ended December 31, 2020, the Corporation proceeded to a change in the method of accounting for its
PSP under IFRS 2, which was previously recorded as a cash-settled share-based compensation plan. Under the revised
methodology, the PSP was reassessed as equity-settled, which resulted in the reclassification of the January 1, 2020 PSP
reserve of $6,340, from accounts payable and other payables, to contributed surplus. The change was applied during the
fourth quarter of 2020 and comparative figures have not been adjusted.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p108
(in thousands of Canadian dollars, except as noted and amounts per share)
New accounting standards and interpretations issued but not yet adopted
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial Statements, to clarify the
classification of liabilities as current or non-current. On July 15, 2020, the IASB issued an amendment to defer the
effective date by one year. The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted. The impact for the Corporation is being assessed by management.
Amendments to IAS 16, Property, Plant and Equipment - Proceeds before Intended Use
On May 14, 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use (Amendments to
IAS 16). The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from
selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in
the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of
producing those items, in profit or loss. The amendments are effective for annual reporting periods commencing on or
after January 1, 2022. Early adoption is permitted, however the Corporation does not expect to avail itself of that option.
The application of this standard is not expected to have a material impact for the Corporation.
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IFRS 7, and IFRS 16)
On August 27, 2020, the IASB finalized its response to the ongoing reform of inter-bank offered rates and other interest
rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments complement those issued in
2019 as part of Phase 1 amendments and mainly relate to:
•
•
•
changes to contractual cash flows: a company will not have to derecognize the carrying amount of financial
instruments for changes required by the reform, but will instead update the effective interest rate to reflect the
change to the alternative benchmark rate;
hedge accounting: a company will not have to discontinue its hedge accounting solely because it makes changes
required by the reform, if the hedge meets other hedge accounting criteria; and
disclosures: a company will be required to disclose information about new risks arising from the reform and how
it manages the transition to alternative benchmark rates.
The amendments are effective for annual periods beginning on or after January 1, 2021. Early adoption is permitted. The
impact for the Corporation is being assessed by management.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p109
(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 determination of control, joint control or significant influence over an
investee, fair value calculation of the assets acquired and liabilities assumed in business acquisitions, useful lives,
impairment of assets, asset retirement obligations, fair value of financial assets and liabilities including derivatives, tax
equity financing and effectiveness of hedging relationships. 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
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. In particular, the
Corporation exercises judgement in determining whether non-wholly owned subsidiaries are controlled by the Corporation,
which involves assessing: (i) how the decisions about the relevant activities of the investee are made; (ii) whether the
rights of other co-investors are protective or substantive in nature; and (iii) the Corporation's ability to influence the returns
of the investee.
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 based on discounted future cash flows. Future cash flows may be influenced by a number of assumptions
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.
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 determining 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 assumptions such as electricity production, duration of the projects, selling prices, costs to
operate, capital expenditures, growth rate and the discount rate.
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 2020
Notes to the Consolidated Financial Statements p110
(in thousands of Canadian dollars, except as noted and amounts per share)
Financial instruments measured at fair value
In measuring financial instruments at fair value, the Corporation makes estimates and assumptions, including estimates
and assumptions about forward electricity prices, interest rates, credit spreads and exchange rates. See Note 28 –
Financial Risk Management and Fair Value Disclosures for further details.
Tax equity financing
When a tax equity partnership is formed, the Corporation exercises judgement in assessing whether it retains control over
the entity, and in assessing the appropriate classification of the tax equity investor's contribution, which generally bears
the characteristics of a liability as the arrangements are made so that the contribution is repaid over time until the tax
equity investor has attained an agreed-upon rate of return. Judgment is also exercised in assessing the nature of the tax
equity investor's interest after it has attained the agreed-upon rate of return, which generally bears the characteristics of
equity as it retains entitlement to a portion of the partnership's variable returns and shares a residual interest in the net
assets of the partnership.
Tax equity investors generally require a specified allocation of the project's cash distributions and tax attributes such as
production tax credits, investment tax credits and taxable income or loss, including accelerated tax depreciation.
Estimates are made when determining the amount and allocation of cash distributions and tax attributes to the tax equity
investors, which may be influenced by a number of assumptions such as electricity production, selling prices, costs to
operate and tax amounts.
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.
Specifically, the Corporation may, from time to time, enter into long-term power hedge agreements. 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
statements of earnings (loss).
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p111
(in thousands of Canadian dollars, except as noted and amounts per share)
4. BUSINESS ACQUISITIONS
a. Acquisition of Mountain Air Alternatives LLC
On July 15, 2020, the Corporation acquired all the outstanding class B shares of Mountain Air Alternatives LLC ('Mountain
Air") which owns a portfolio of six operating wind farms in Elmore County, Idaho, in the United States. Mountain Air class B
shares were acquired for a total cash consideration of US$56,751 ($77,272), financed entirely from the Corporation's
revolving credit facilities. The Mountain Air acquisition added an additional gross installed capacity of 138 MW to the
Corporation's portfolio.
The acquisition gave rise to transaction costs of $861 which were expensed as incurred in other net income in the
consolidated statements of earnings (loss).
The investment was accounted for as a business combination and the results have been included in the consolidated
statements of earnings (loss) since the date of the acquisition. The revenues and net earnings included in the
consolidated statements of earnings (loss) are $16,995 and $2,815, respectively for the 169-day period ended
December 31, 2020. Had the acquisition taken place on January 1, 2020, revenues and net earnings for the period from
January 1, 2020 to December 31, 2020 would have been $19,656 and $2,942 higher, respectively.
The following table reflects the recognized amounts of assets acquired and liabilities assumed, on a fair value basis, at the
acquisition date:
Cash and cash equivalents
Restricted cash
Accounts receivable
Prepaid and other
Property, plant and equipment
Intangible assets
Goodwill
Accounts payable and other payables
Derivative financial instruments
Long-term loans and borrowings
Other liabilities
Deferred tax liabilities
Non-controlling interests
Net assets acquired
Acquisition accounting
US$
CA$
3,864
4,544
1,482
188
16,608
207,201
10,378
(816)
(1,520)
(126,507)
(1,900)
(10,378)
(46,393)
56,751
5,261
6,187
2,018
256
22,614
282,125
14,131
(1,111)
(2,070)
(172,252)
(2,587)
(14,131)
(63,169)
77,272
The fair value of the intangible assets, which consist in a power purchase agreement, was calculated using, under an
income approach, the lost profits (or "with and without") method. The fair value of property, plant and equipment was
established using a discounted cash flow approach. The long-term loans and borrowings were valued using a discounted
cash flow approach.
The goodwill arises from the recognition of deferred tax liabilities. No amount of goodwill is expected to be deductible for
tax purposes.
The non-controlling interests are held by the original tax equity partner, which is entitled, as the project was acquired after
the flip date, to 37.75% of the cash distributions. The fair value of the non-controlling interest in Mountain Air Alternatives
LLC, an unlisted company, was estimated by applying an income approach.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p112
(in thousands of Canadian dollars, except as noted and amounts per share)
b. Acquisition of PV Salvador SPA
On May 14, 2020, the Corporation acquired all the outstanding shares of PV Salvador SpA (“Salvador”), a solar
photovoltaic farm in Chile, including 11-year demand-based power hedge agreements covering a total electricity
generation of 54.6 GWh/year. Salvador was acquired for a total cash consideration of US$66,051 ($92,953), financed
entirely from the Corporation's revolving credit facilities. The Salvador acquisition added an additional gross installed
capacity of 68 MW to the Corporation's portfolio.
The acquisition gave rise to transaction costs of $803 which were expensed as incurred in other net income in the
consolidated statements of earnings (loss).
The investment was accounted for as a business combination and the results have been included in the consolidated
statements of earnings (loss) since the date of the acquisition. The revenues and net earnings included in the
consolidated statements of earnings (loss) are $4,649 and $3,599, respectively for the 231-day period ended
December 31, 2020. Had the acquisition taken place on January 1, 2020, revenues and net earnings for the period from
January 1, 2020 to December 31, 2020 would have been $5,422 and $253 higher, respectively.
The following table reflects the recognized amounts of assets acquired and liabilities assumed, on a fair value basis, at the
acquisition date:
Cash and cash equivalents
Accounts receivable
Prepaid and other
Property, plant and equipment
Intangible assets
Derivative financial instruments
Deferred tax assets
Accounts payable and other payables
Other liabilities
Deferred tax liabilities
Net assets acquired
Acquisition accounting
US$
CA$
2,254
2,527
1,253
43,361
3,323
18,694
5,048
(2,279)
(3,082)
(5,048)
66,051
3,172
3,555
1,764
61,022
4,676
26,308
7,104
(3,207)
(4,337)
(7,104)
92,953
The fair value of the intangible assets, which consist in operating licenses and permits, was calculated using a discounted
cash flow approach. The fair value of property, plant and equipment was established using a discounted cash flow
approach.
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p113
(in thousands of Canadian dollars, except as noted and amounts per share)
5. DISCONTINUED OPERATIONS
On May 23, 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. The closing adjustments to the sale were
finalized in July 2019.
The following table summarizes the net earnings from discontinued operations:
Revenues
Expenses
Share of earnings of joint ventures and associates
Earnings before income tax
Recovery of income tax
Net earnings from discontinued operations before the following
Gain on sale of the subsidiary
Net earnings from discontinued operations
Other comprehensive income from discontinued operations
Total comprehensive income from discontinued operations
Net earnings from discontinued operations attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income from discontinued operations attributable to:
Owners of the parent
Non-controlling interests
Net earnings per share from discontinued operations:
Basic net earnings per share ($)
Diluted net earnings per share ($)
Year ended
December 31
2019
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
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p114
(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
Property taxes and royalties
Salaries and benefits
Insurance
Professional fees
Prospective expenses
Other expenses
Administrative expenses
Year ended December 31
2020
2019
72,733
41,764
39,615
10,503
8,889
8,844
6,711
2,039
55,276
28,104
38,109
6,046
6,248
5,344
6,635
2,105
Total of Operating, General and Administrative and Prospective
Projects
191,098
147,867
7. FINANCE COSTS
Interest expense on long-term corporate and project loans
Interest expense on tax equity financing
Interest expense on convertible debentures
Amortization of financing fees
Accretion expenses on other liabilities
Interest on lease liabilities
Inflation compensation interest
Accretion of long-term loans and borrowings
Interest income on preferred shares of equity-accounted investees
Other
Year ended December 31
2019
2020
171,877
25,169
13,800
9,453
5,112
4,040
1,797
1,493
(4,975)
5,377
233,143
181,586
9,319
12,014
10,760
4,495
2,925
5,171
1,007
—
4,489
231,766
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p115
(in thousands of Canadian dollars, except as noted and amounts per share)
8. OTHER INCOME
Production tax credits
Tax attributes allocated to tax equity investors
Liquidated damages
Realized loss on contingent considerations
Transaction costs related to business acquisitions
Restructuring costs
Gain on debt modifications
Others, net
Year ended December 31
2019
2020
(43,850)
(21,050)
(5,762)
3,021
1,664
1,157
—
(734)
(65,554)
(11,238)
(88,402)
(2,950)
—
266
1,823
(2,883)
(1,259)
(104,643)
9. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
9.1 Details of material joint ventures and associates
Joint ventures and
associates
Principal activity
Place of creation
and principal
place of operation
Proportion of ownership interest and
voting rights held by the Corporation
December 31, 2020 December 31, 2019
Energia Llaima
Toba Montrose
Shannon
Flat Top 1
Dokie
Jimmie Creek 1
Umbata Falls
Viger-Denonville
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
Develop and construct a
hydroelectric facility
Chile
British Columbia
Texas
Texas
British Columbia
British Columbia
Ontario
Quebec
Quebec
1. The Corporation does not consolidate these entities as it does not control the decision making.
50 %
40 %
50 %
51 %
25.5 %
50.99 %
49 %
50 %
50 %
50 %
40 %
50 %
51 %
25.5 %
50.99 %
49 %
50 %
50 %
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p116
(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 (Loss) 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 (income)
Depreciation and amortization
Net (gain) loss on financial
instruments
Provision for income taxes
Energía
Llaima 1
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Innavik
46,524
77,602
12,808
16,620 42,569
20,133
7,834
11,554
—
Year ended December 31, 2020
15,956
30,568
10,037
—
—
8,482
14,874
—
8,646
17,371
60,231
23,268
—
—
(158)
20,799
11,419
1,389
14,562
(23,231)
392
1,315
13,250
11,302
9,258
5,318 33,311
6,831
—
16,599
(29,433)
462
(4)
—
(295)
15,971 14,270
44
—
5,118
—
24,680
—
—
—
3,401
16,732
9,342
—
—
(25)
4,176
—
—
1,677
6,157
1,949
—
—
444
3,991
2,931
—
1,675
9,879
3,107
—
—
(38)
2,730
730
(730)
—
—
—
(25)
—
(422)
—
1,685
—
Net (loss) earnings
(11,471)
16,278
(10,017)
(22,957) 12,505
3,239
(3,158)
4,502
(2,390)
Other comprehensive loss
Total comprehensive (loss) income
—
(11,471)
(9,537)
6,741
—
(10,017)
—
—
(22,957) 12,505
—
3,239
—
(3,158)
(2,666)
1,836
—
(2,390)
Net (loss) earnings attributable to
Innergex
Total comprehensive (loss) income
attributable to Innergex
(4,673)
6,511
(5,009)
(11,708)
3,189
1,652
(1,547)
2,251
1,810
(4,673)
2,696
(5,009)
(11,708)
3,189
1,652
(1,547)
918
1,810
1.For the year ended December 31, 2020, net loss attributable to the owners of Energia Llaima was $9,345 ($6,794 in 2019) and net loss attributable to non-controlling interests was
$2,126 ($1,942 in 2019).
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p117
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Earnings (Loss) and Comprehensive Income (Loss)
Year ended December 31, 2019
Energía
Llaima
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Innavik
Revenues
Operating, general and administrative expenses
Finance costs
Production tax credits
Tax attributes allocated to tax equity investors
Other net expenses (income)
Depreciation and amortization
Change in fair value of financial instruments
Provision for income taxes
Net (loss) earnings
52,301
24,360
27,941
11,948
—
—
6,413
14,389
—
3,927
(8,736)
70,643
16,360
54,283
27,579
—
—
(666)
17,716
(1,001)
—
10,655
19,257
10,799
8,458
14,659
(22,646)
1,119
359
13,997
(3,886)
—
4,856
24,405
13,023
11,382
17,842
(28,430)
(10,890)
(69)
14,687
(40,785)
—
59,027
36,460
8,932
27,528
9,925
—
—
(703)
10,496
—
—
7,810
21,429
4,447
16,982
9,380
—
—
769
4,742
—
—
2,091
8,223
1,624
6,599
2,121
—
—
(113)
4,010
595
—
(14)
11,293
2,163
9,130
3,309
—
—
(93)
2,712
(459)
—
3,661
—
3,620
(3,620)
—
—
—
—
—
—
—
(3,620)
Other comprehensive loss
Total comprehensive (loss) income
—
(8,736)
(3,503)
7,152
—
4,856
—
59,027
—
7,810
—
2,091
—
(14)
(941)
2,720
—
(3,620)
Net (loss) earnings attributable to Innergex
Total comprehensive (loss) income attributable
to Innergex
(3,397)
4,262
2,428
30,104
1,992
1,066
(7)
1,831
(1,810)
(3,397)
2,861
2,428
30,104
1,992
1,066
(7)
1,360
(1,810)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p118
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
Energía
Llaima
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Innavik
As at December 31, 2020
Current assets
Non-current assets
57,011
500,573
557,584
31,216
710,886
742,102
32,500
342,995
375,495
9,308
453,659
462,967
18,089
213,872
231,961
8,520
223,301
231,821
Current liabilities
Non-current liabilities
Partner's equity interest (deficit)
Non-controlling interests
14,479
210,225
271,273
61,607
557,584
18,397
542,369
181,336
—
742,102
45,360
161,432
168,703
—
375,495
37,012
193,307
232,648
—
462,967
9,140
129,095
93,726
—
231,961
3,955
163,988
63,878
—
231,821
2,012
49,178
51,190
5,614
35,475
10,101
—
51,190
3,841
50,743
54,584
43,647
10,175
762
—
54,584
44,808
53,961
98,769
9,062
95,717
(6,010)
—
98,769
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, 2020
Balance January 1, 2020
Increase in investment
Share of (loss) earnings
Share of other comprehensive
loss
Impairment of equity
accounted investment
Foreign currency translation
differences
Distributions received
Balance December 31, 2020
Energía
Llaima
142,266
—
(4,673)
Toba
Montrose Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Innavik 1
Others
Total
78,237
—
6,511
91,388 135,205
—
(11,708)
—
(5,009)
24,600
—
3,189
33,266
—
1,652
7,794
—
(1,547)
863
—
2,251
(1,810)
—
1,810
90 511,899
277
(7,524)
277
—
—
(3,815)
(26,659)
—
—
—
—
—
—
—
—
—
—
(1,333)
—
—
(1,957)
—
108,977
—
(8,400)
72,533
(1,171)
(718)
(1,392)
(3,454)
84,490 118,651
—
(3,889)
23,900
—
(2,346)
32,572
—
(1,297)
4,950
—
(1,400)
381
—
—
—
—
—
—
(5,148)
—
(26,659)
16
—
(4,504)
(21,504)
383 446,837
1.Unrecognized share of loss of $3,005 in Innavik for the year ended December 31, 2020.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p119
(in thousands of Canadian dollars, except as noted and amounts per share)
As at December 31, 2019
Energía
Llaima
Toba
Montrose
Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Innavik
Current assets
Non-current assets
67,728
535,024
602,752
27,427
735,872
763,299
11,435
374,717
386,152
7,090
507,887
514,977
19,116
234,607
253,723
8,699
226,801
235,500
Current liabilities
Non-current liabilities
Partner's equity (deficit) interest
Non-controlling interests
17,787
236,700
284,532
63,733
17,921
549,785
195,593
—
25,447
177,929
182,776
—
32,884
216,986
265,107
—
10,897
146,355
96,471
—
5,141
165,119
65,240
—
2,199
53,101
55,300
2,782
36,612
15,906
—
2,407
53,101
55,508
45,859
7,923
1,726
—
1,795
15,571
17,366
17,386
3,600
(3,620)
—
602,752
763,299
386,152
514,977
253,723
235,500
55,300
55,508
17,366
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture recognized in the consolidated financial
statements:
Energía
Llaima
Toba
Montrose Shannon
Flat Top
Dokie
Jimmie
Creek
Umbata
Falls
Viger-
Denonville
Blue
Lagoon
(Note 5)
Innavik
Others
Total
For the year ended December 31, 2019
154,299 80,976 95,052 113,355 24,521 36,535
—
—
1,066
—
—
2,428 30,104
—
—
(3,397)
—
—
4,262
—
—
1,992
—
—
9,406
—
—
(7)
1,453 136,228
— (136,228)
—
—
—
1,831
—
—
—
(1,810)
87 651,912
— (136,228)
3
3
— 36,469
—
(1,401)
—
—
—
—
—
(471)
—
—
—
(1,872)
Balance January 1, 2019
Business disposal
Increase in investment
Share of (loss) earnings
Share of other
comprehensive loss
Foreign currency translation
differences
Distributions received
—
(5,600)
(1,713)
(2,382)
(1,913)
(4,335)
(1,605)
(1,950)
Balance December 31, 2019 142,266 78,237 91,388 135,205 24,600 33,266
7,794
863
(8,636)
—
(4,379)
(5,872)
—
—
—
—
—
—
—
—
—
— (18,887)
— (19,498)
(1,810)
90 511,899
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p120
(in thousands of Canadian dollars, except as noted and amounts per share)
Shannon and Flat Top
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 and Flat Top, Alterra Power Corp., a subsidiary of Innergex, executed a
guarantee, respectively,
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.
investors against certain breaches of project
indemnifying
tax equity
the
Due to the adverse financial impacts of the February 2021 extreme whether conditions in Texas (refer to Note 35.
Subsequent Events for more information), the Corporation is currently assessing the impacts on the TEI Flip Point
dates of its Texas facilities subject to power hedges.
Umbata Falls
On December 4, 2020, Innergex amended the Umbata Falls project long-term loan to extend the maturity period by
eight years from 2020 to 2028. The loan bears interest at the BA rate plus an applicable credit margin. The principal
repayments are variable and are set at a total of $3,280 for 2021.
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 loss represented by the difference between the original contractual cash flows
and the modified cash flows discounted at the original effective interest rate. The loss of $488 was recognized in the
consolidated statement of earnings under Other net income. The lenders also agreed to make available a letter of
credit facility in an amount not to exceed $470.
Innavik
On November 4, 2020, Innavik Hydro Limited Partnership entered into a $92,840 construction and long-term credit
agreement for the Innavik hydroelectric project. On the same day, the bond forward, with a notional amount of
$58,000 previously entered into to mitigate the risk of interest rate fluctuations during the negotiation process, has
been unwound, resulting in a realized net loss of $1,685. The construction term loan bears interest at 3.95%.
Following completion of construction, the remaining balance of the aforementioned loan will be converted into a long-
term loan bearing the same fixed interest rate and maturing in 2062.
Energía Llaima
On December 31, 2020, the Corporation recognized an impairment charge of US$20,400 ($26,659) on its investment
in Energía Llaima due to recent changes in market conditions that affected downwards the expectation of future cash
flows from the investment.
9.2 Commitments of joint ventures and associates
As at December 31, 2020, 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
8,568
43,786
99,123
151,477
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p121
(in thousands of Canadian dollars, except as noted and amounts per share)
10. DERIVATIVE FINANCIAL INSTRUMENTS
a. Financial position
The following table shows a reconciliation from the opening balances to the closing balances for the derivative financial
instruments (refer to Note 28 – Financial risk management and fair value disclosures for details about key inputs,
judgements, assumptions and estimates involved in calculating fair values):
Financial assets (liabilities)
Foreign
exchange
forwards
(Level 2)
Interests
hedging
derivatives
(Level 2)
Power and
basis
hedges
(Level 3)
Currency
translation
of
intragroup
loans1
Total
As at January 1, 2020
(24,269)
(83,536)
27,757
—
(80,048)
Derivatives acquired on business acquisition
(Note 4)
Unrealized portion of change in fair value recognized
in earnings (loss) 2
Change in fair value recognized in other
comprehensive income (loss)
Amortization of accumulated other comprehensive
income recognized in revenue
Net foreign exchange differences
As at December 31, 2020
—
(2,070)
26,308
—
24,238
(10,716)
2,839
2,664
13,542
8,329
(2,128)
(86,085)
(3,464)
—
(91,677)
—
—
—
3,464
—
3,464
850
(2,647)
(13,542)
(15,339)
(37,113)
(168,002)
54,082
—
(151,033)
1. A gain of $13,542 results from the revaluation, into Canadian dollars, of foreign currency-denominated intragroup loans. On
consolidation, although the intragroup loans are eliminated from the consolidated statement of financial position, the foreign
subsidiaries' financial positions, including their loan balances towards the Corporation, are converted into Canadian dollars, with
currency translation differences being recorded within other comprehensive (loss) income, therefore not eliminating the gain
recognized in earnings (loss).
2. Refer to Note 10b for a reconciliation to the change in fair value recognized in earnings (loss).
Financial assets (liabilities)
As at January 1, 2019
Unrealized portion of change
in fair value recognized in
earnings (loss) 2
Change in fair value
recognized in other
comprehensive income
(loss)
Net foreign exchange
differences
Business disposal (Note 5)
As at December 31, 2019
Foreign
exchange
forwards
(Level 2)
Interests
hedging
derivatives
(Level 2)
Power and
basis
hedges
(Level 3)
Currency
translation
of
intragroup
loans1
Inflation
provisions
(Level 3)
Embedded
derivatives
(Level 2)
Total
(32,129)
(53,409)
(4,849)
—
982
(46,409)
(135,814)
5,917
7,764
(30,240)
(16,342)
(982)
—
(33,883)
1,943
(39,318)
63,006
—
—
—
(24,269)
1,427
—
(83,536)
(160)
—
27,757
16,342
—
—
—
—
—
—
—
25,631
—
46,409
—
17,609
46,409
(80,048)
1. A loss of $16,342 results from the revaluation, into Canadian dollars, of foreign currency-denominated intragroup loans. On
consolidation, although the intragroup loans are eliminated from the consolidated statement of financial position, the foreign
subsidiaries' financial positions, including their loan balances towards the Corporation, are converted into Canadian dollars, with
currency translation differences being recorded within other comprehensive (loss) income, therefore not eliminating the loss recognized
in earnings (loss).
2. Refer to Note 10b for a reconciliation to the change in fair value recognized in earnings (loss).
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p122
(in thousands of Canadian dollars, except as noted and amounts per share)
Reported in the consolidated statements of financial position:
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
December 31, 2020
December 31, 2019
9,039
92,040
(72,958)
(179,154)
(151,033)
5,419
78,251
(51,093)
(112,625)
(80,048)
b. Change in fair value of financial instruments recognized in the consolidated statements of
earnings (loss)
Recognized in the consolidated statements of earnings (loss):
Unrealized portion of change in fair value of financial instruments
(8,329)
33,883
(Gain) loss
Year ended December 31
2020
2019
Realized portion of change in fair value of financial instruments:
Realized loss on the interest rate swaps
Realized (gain) loss on the power hedges
Realized loss on Phoebe basis hedge
Change in fair value of financial instruments recognized in earnings
(loss)
—
(9,232)
19,586
2,025
4,145
208
11,697
49,933
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p123
(in thousands of Canadian dollars, except as noted and amounts per share)
11. PROVISION FOR INCOME TAXES
a. Income taxes recognized in the consolidated statements of earnings (loss)
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 the consolidated statements of earnings (loss)
December 31, 2020
December 31, 2019
(Loss) earnings before income taxes
Canadian statutory income tax rate
Income tax expense calculated at the statutory rate
Items affecting the statutory rate
Non-taxable income
Deferred tax asset not recognized on impairment of
investment
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
(Decrease) increase in taxable temporary differences in
relation to investments in subsidiaries and in joint ventures
Tax on dividends on preferred shares
Adjustments recognized in the current year in relation to the
current tax of prior years
Adjustments recognized in the current year in relation to the
deferred tax of prior years
Income tax on earnings allocated to minority interests on
non-taxable entities
Others
Provision for income taxes recognized in the current year
Current income taxes
Deferred income taxes
(10,214)
26.6 %
(2,717)
(329)
7,091
(344)
20,141
(192)
(1,317)
(314)
(568)
35
(306)
(938)
(2,149)
804
18,897
7,326
11,571
65,825
26.6 %
17,509
(9,064)
—
(2,599)
131,026
(12,307)
(3,576)
(1,357)
541
166
15
(465)
(839)
(199)
118,851
16,845
102,006
The tax rate used for 2020 and 2019 reconciliations above is the average combined corporate tax rate payable by
corporate entities in Canada on taxable profits under federal and provincial tax laws.
b. Deferred income tax balances
The following is the analysis of deferred income tax assets (liabilities) presented in the consolidated statements of
financial position:
Assets
Liabilities
December 31, 2020
December 31, 2019
25,129
(423,189)
(398,060)
30,264
(428,793)
(398,529)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p124
(in thousands of Canadian dollars, except as noted and amounts per share)
As at January 1,
2020
Recognized in
statement of
earnings
Recognized in
other
comprehensive
loss
Acquired in
business
acquisition
Recognized
directly in
equity
Net exchange
differences
As at
December 31, 2020
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 loans and borrowings
Capitalized investment tax credits
Convertible debentures
Other liabilities
Financing fees
Share-based payment
Disallowed interest carried forward
Others
(324,083)
(158,277)
23,029
(39,983)
10,241
4,432
—
—
—
10,018
(10,987)
—
(121,612)
1,655
974
—
(2,279)
53,593
1,178
13,872
(1,362)
2,357
(7,023)
1,961
1,131
108
(517,407)
967
(3,597)
(382)
(1,354)
699
1,731
981
601
—
—
(24,009)
—
22,168
—
—
—
—
—
—
—
—
23,142
—
(7,104)
(6,756)
—
—
698
—
—
—
—
(14,131)
Tax losses carried forward
118,878
(398,529)
12,438
(11,571)
—
23,142
—
(14,131)
—
—
—
—
—
—
—
—
—
—
672
—
—
—
672
—
672
4,335
(6,704)
(23)
1,156
1,312
767
558
(245)
2
(152)
(62)
1
(19)
(105)
821
1,536
2,357
(349,713)
(165,727)
27,438
(117,827)
—
65,827
(5,402)
12,273
(661)
4,634
(5,432)
2,563
1,112
3
(530,912)
132,852
(398,060)
As at December 31, 2020, the Corporation, its subsidiaries and joint ventures and associates have non-capital losses totaling approximately $508,000 that may be
applied against future taxable income. The non-capital losses in Canada and the United-States expire gradually between 2021 and 2040. 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.
Annual report 2020
Notes to the Consolidated Financial Statements p125
(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 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
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)
(148,033)
(183,994)
1,927
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)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p126
(in thousands of Canadian dollars, except as noted and amounts per share)
c. Unrecognized deductible temporary differences, unused tax losses and unused tax
credits
Non-capital tax losses
Capital tax losses
Transaction costs
December 31, 2020
December 31, 2019
138,429
927
477
139,833
133,899
3,508
477
137,884
The unrecognized tax losses will expire gradually between 2021 and 2040.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p127
(in thousands of Canadian dollars, except as noted and amounts per share)
12. EARNINGS (LOSS) PER SHARE
Basic
Net loss attributable to owners of the parent
Dividends declared on preferred shares
Net loss attributable to common shareholders
Weighted average number of common shares
Basic net loss per share ($)
Diluted
Year ended December 31
2020
2019
Continuing operations 1
(32,628)
(5,942)
(38,570)
(47,723)
(5,942)
(53,665)
170,292,471
134,658,336
(0.23)
(0.40)
Year ended December 31
2020
2019
Continuing operations 1
Net loss attributable to common shareholders
(38,570)
(53,665)
134,658,336
Diluted weighted average number of common shares
Diluted net loss per share ($)
(0.40)
1 Net earnings from discontinued operations attributable to owners of the parent for the year ended December 31, 2019
was $19,682, and $0.15 per share. Total net loss attributable to common shareholders for the year ended
December 31, 2019 was $(33,983), and total diluted net loss per share was $(0.25).
170,292,471
(0.23)
Instruments that are excluded from the dilutive elements:
Stock options
Shares held in trust related to the Performance Share Plan
Convertible debentures
Year ended December 31
2020
2019
233,539
557,091
13,709,043
14,499,673
737,977
300,724
13,777,293
14,815,994
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p128
(in thousands of Canadian dollars, except as noted and amounts per share)
13. RESTRICTED CASH
As at
Restricted cash accounts
Restricted proceeds account
Debt service payment accounts
December 31, 2020
December 31, 2019
9,802
20,049
37,626
67,477
3,569
28,654
7,228
39,451
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
Income taxes receivable
Interest receivable on preferred shares
Other
December 31, 2020
December 31, 2019
63,746
9,463
3,445
703
4,975
10,414
92,746
61,539
20,756
1,417
757
—
7,796
92,265
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p129
(in thousands of Canadian dollars, except as noted and amounts per share)
15. PROPERTY, PLANT AND EQUIPMENT
Cost
As at January 1, 2020
Additions 1
Investment tax credits 2
Business acquisitions (Note 4)
Transfer from project development costs
Dispositions
Other changes
Net foreign exchange differences
As at December 31, 2020
Accumulated depreciation
As at January 1, 2020
Depreciation 3
Dispositions
Net foreign exchange differences
As at December 31, 2020
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar facilities
Facilities
under
construction
Other
Total
120,809
71,538
—
660
—
—
(14,224)
(1,952)
176,831
2,091,034
637
—
—
—
(128)
(7)
(191)
2,091,345
2,514,434
1,347
—
22,614
—
(871)
20,274
38,835
2,596,633
(4,672)
(5,884)
—
74
(10,482)
(310,000)
(38,004)
62
(167)
(348,109)
(328,004)
(112,824)
381
(5,449)
(445,896)
466,078
1,620
—
60,362
—
1,509
(12,580)
516,989
(50,593)
(19,363)
—
574
(69,382)
102,952
535,053
(114,341)
—
28,110
—
—
(22,290)
529,484
32,462
599
—
—
—
—
916
(7)
33,970
5,327,769
610,794
(114,341)
83,636
28,110
(999)
8,468
1,815
5,945,252
—
—
—
—
—
(14,475)
(3,739)
—
(44)
(18,258)
(707,744)
(179,814)
443
(5,012)
(892,127)
Carrying amounts as at December 31, 2020
166,349
1,743,236
2,150,737
447,607
529,484
15,712
5,053,125
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 $9,426 ($20,139 in 2019) of
capitalized financing costs incurred prior to commissioning.
The Corporation accrued for US$83,532 ($114,341) in investment tax credits recoverable in relation to the construction of the Hillcrest solar project, which were recognized as a
reduction in the cost of the Hillcrest property, plant and equipment. As at December 31, 2020, the balance of investments tax credits recoverable amounts to US$83,532 ($106,353).
An amount of $1,374 ($1,390 in 2019) of the depreciation expense for the land leases is capitalized as a construction cost in facilities under construction.
2.
3.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p130
(in thousands of Canadian dollars, except as noted and amounts per share)
Cost
As at January 1, 2019
Adoption of IFRS 16
Adjusted balance as at January 1, 2019
Additions 1
Investment tax credits 2
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 3
Business disposal (Note 5)
Dispositions
Net foreign exchange differences
As at December 31, 2019
Lands
Hydroelectric
facilities
Wind farm
facilities
Solar
facilities
Geothermal
facilities
Facilities
under
construction
Other
Total
3,095 2,089,405 2,025,711
115,319
—
118,414 2,089,502 2,025,711
12,227
—
1,996
—
75
—
97
—
—
—
7,024
—
—
—
19
524,160
—
(1,503)
15,566
(4,704)
(61,727)
120,809 2,091,034 2,514,434
(483)
155,130
—
155,130
954
—
318,429
—
—
38
(8,473)
466,078
418,317
—
418,317
—
—
—
(418,317)
—
—
—
—
336,345
—
336,345
869,184
(179,071)
(845,087)
(62,739)
—
(20)
(15,660)
102,952
8,472
17,518 5,045,521
123,888
25,990 5,169,409
888,856
(179,071)
4,420
—
2,498
—
(169)
(163)
—
(481,056)
(1,672)
22,464
(114)
(91,161)
32,462 5,327,769
—
(4,732)
—
—
60
(4,672)
(270,622)
(39,542)
—
—
164
(310,000)
(236,218)
(97,087)
—
821
4,480
(328,004)
(40,659)
(10,157)
—
—
223
(50,593)
(16,290)
—
16,290
—
—
—
—
—
—
—
—
—
(11,069)
(3,489)
—
169
(86)
(14,475)
(574,858)
(155,007)
16,290
990
4,841
(707,744)
Carrying amounts as at December 31, 2019
116,137 1,781,034 2,186,430
415,485
—
102,952
17,987 4,620,025
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p131
(in thousands of Canadian dollars, except as noted and amounts per share)
Included in property, plant and equipment are right-of-use assets pursuant to lease agreements. Below is a reconciliation of the carrying amounts:
Cost
As at January 1, 2020
Additions
Business acquisition
Other changes
Net foreign exchange differences
As at December 31, 2020
Accumulated depreciation
As at January 1, 2020
Depreciation
Net foreign exchange differences
As at December 31, 2020
Land
Hydroelectric
facilities
Other
Total
117,660
71,542
660
(14,224)
(1,968)
173,670
(4,672)
(5,884)
74
(10,482)
116
—
—
(7)
—
109
(2)
(2)
—
(4)
8,252
—
—
916
(2)
9,166
(1,183)
(1,275)
(349)
(2,807)
126,028
71,542
660
(13,315)
(1,970)
182,945
(5,857)
(7,161)
(275)
(13,293)
Carrying amounts as at December 31, 2020
163,188
105
6,359
169,652
Cost
Adoption of IFRS 16 as at January 1, 2019
Other changes
Net foreign exchange differences
As at December 31, 2019
Accumulated depreciation
Depreciation
Net foreign exchange differences
As at December 31, 2019
Land
Hydroelectric
facilities
Other
Total
115,319
7,024
(4,683)
117,660
(4,732)
60
(4,672)
97
19
—
116
(2)
—
(2)
8,472
(161)
(59)
8,252
(976)
(207)
(1,183)
123,888
6,882
(4,742)
126,028
(5,710)
(147)
(5,857)
Carrying amounts as at December 31, 2019
112,988
114
7,069
120,171
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p132
(in thousands of Canadian dollars, except as noted and amounts per share)
16.
INTANGIBLE ASSETS
Cost
As at January 1, 2020
Business acquisitions (Note 4)
Other changes
Net foreign exchange
As at December 31, 2020
Accumulated amortization
As at January 1, 2020
Amortization
Net foreign exchange
As at December 31, 2020
Carrying amounts as at
December 31, 2020
Cost
As at January 1, 2019
Transfer of assets upon
commissioning
Business disposal (Note 5)
Dispositions
Other changes
Net foreign exchange
As at December 31, 2019
Accumulated amortization
As at January 1, 2019
Amortization
Business disposal (Note 5)
Other changes
Net foreign exchange
As at December 31, 2019
Carrying amounts as at
December 31, 2019
Hydroelectric
facilities
Wind farm
facilities
Solar facilities
Total
568,193
—
7,394
(51)
575,536
388,760
282,125
—
(3,053)
667,832
(185,678)
(15,576)
(41)
(201,295)
(96,107)
(33,503)
(3,432)
(133,042)
10,803
4,676
—
(470)
15,009
(3,744)
(1,007)
34
(4,717)
967,756
286,801
7,394
(3,574)
1,258,377
(285,529)
(50,086)
(3,439)
(339,054)
374,241
534,790
10,292
919,323
Hydroelectric
facilities
Wind farm
facilities
Solar
facility
Geothermal
facilities
Facilities
under
construction
Total
559,853
377,716
10,776
200,802
26,389 1,175,536
—
—
—
8,468
(128)
568,193
26,389
—
(7)
—
(15,338)
388,760
—
—
—
—
27
10,803
—
(200,802)
—
—
—
—
(26,389)
—
—
—
—
—
—
(200,802)
(7)
8,468
(15,439)
967,756
(170,470)
(15,281)
—
—
73
(185,678)
(73,606)
(25,148)
—
7
2,640
(96,107)
(3,213)
(533)
—
—
2
(3,744)
(3,238)
—
3,238
—
—
—
—
—
—
—
—
—
(250,527)
(40,962)
3,238
7
2,715
(285,529)
382,515
292,653
7,059
—
—
682,227
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p133
(in thousands of Canadian dollars, except as noted and amounts per share)
17. PROJECT DEVELOPMENT COSTS
As at
Cost
Beginning of year
Business disposal (Note 5)
Additions
Transfer to property, plant and equipment
Impairment of project development costs
Net foreign exchange
End of year
18. GOODWILL
Allocation of goodwill to each significant CGU or group of CGUs is as follows:
December 31, 2020
December 31, 2019
11,135
—
32,273
(28,110)
—
(1,206)
14,092
30,119
(17,822)
7,792
—
(8,184)
(770)
11,135
As at January 1, 2020
Business acquisition (Note 4)
Net foreign exchange
As at December 31, 2020
As at January 1, 2019
Business disposal (Note 5)
Net foreign exchange
As at December 31, 2019
Hydroelectric
facilities
Wind farm
facilities
Total
20,291
—
—
20,291
40,375
14,131
1,135
55,641
60,666
14,131
1,135
75,932
Hydroelectric
facilities
Wind farm
facilities
HS Orka hf
Total
20,291
—
—
20,291
42,438
—
(2,063)
40,375
47,266
(47,266)
—
—
109,995
(47,266)
(2,063)
60,666
On December 31, 2020, the Corporation conducted its annual goodwill impairment tests. Based on the result of these tests,
no impairment charge was required.
The recoverable amount of each CGU was determined based on a value in use calculation which uses cash flow
projections based on financial budgets approved by management covering a period extending to the lesser of 50 years or
the period for which the Corporation owns its rights on the site and discount rates of 4.22% to 8.75% (3.89% to 5.96% in
2019).
Key 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 2020
Notes to the Consolidated Financial Statements p134
(in thousands of Canadian dollars, except as noted and amounts per share)
19. OTHER LONG-TERM ASSETS
As at
Hydrology/ wind power reserve
Major maintenance reserve
Security deposits
Other
December 31, 2020
December 31, 2019
53,757
8,125
5,929
7,491
75,302
51,078
6,339
6,207
8,381
72,005
The availability of $61,047 ($56,482 in 2019) in the reserve accounts is restricted by credit agreements.
20. ACCOUNTS PAYABLE AND OTHER PAYABLES
As at
Trade and other payables
Construction holdbacks
Dividends payable to shareholders
Interest payable
Income taxes payable
Commodity taxes
Salaries and benefits
December 31, 2020
December 31, 2019
84,796
35,317
32,910
24,326
2,400
3,995
6,589
190,333
85,701
31,311
25,881
20,200
4,005
3,394
5,665
176,157
Innergex Renewable Energy Inc.
2020 Second Quarter
Notes to the Consolidated Financial Statements p135
(in thousands of Canadian dollars, except as noted and amounts per share)
21.
LONG-TERM LOANS AND BORROWINGS
Currency
Interest rates
Maturity
December 31,
2020
December 31,
2019
Corporate indebtedness
Revolving term credit facility
Subordinated unsecured term loan
Alterra (including US$21,109 (US$21,109 in 2019))
Convertible debentures
4.65% Convertible Debentures3
4.75% Convertible Debentures4
Tax equity financing1,2
Wind segment
Foard City
Solar Segment
Hillcrest
Phoebe
Others
Project loans
Hydroelectric segment
Boulder Creek and Upper Lillooet
Harrison Operating Facilities
Big Silver Creek
Kwoiek Creek
Tretheway Creek
Ashlu Creek
Northwest Stave River
Sainte-Marguerite
Magpie
Rutherford Creek
Fitzsimmons Creek
Wind segment
Innergex Cartier Energie
Mesgi'g Ugju's'n
Innergex Europe
Yonne
Rougemont 2
Vaite
Rougemont 1
Plan Fleury
Les Renardières
Beaumont
Montjean
Theil Rabier
Yonne II
Griffin Trail
Foard City
Mountain Air
Others
CAD
CAD
CAD
CAD
CAD
USD
USD
USD
USD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
EURO
EURO
EURO
EURO
EURO
EURO
EURO
EURO
EURO
EURO
USD
USD
USD
1.82 % - 3.05 %
5.13 %
5.97 %-6.24 %
2023
2023
2023
4.65 %
4.75 %
2026
2025
182,996
150,000
116,627
449,623
137,592
142,483
280,075
490,996
150,000
117,167
758,163
136,435
142,392
278,827
7.50 %
2029
259,498
285,433
5.15 %
2028
20265
8.00 % 2022-2023
7.14 %
4.22 %-4.46 % 2043-2056
3.64 %-5.56 %
2049
4.57 %-4.76 % 2041-2056
5.08 %-10.07 % 2052-2054
4.99 %
1.89 %
5.30 %
2055
2025
2053
7.40 %-8.00 % 2025-2064
6.36 %-15.5 % 2025-2031
6.88 %
2.40 %
2024
2026
28,751
26,575
1,134
315,958
491,643
440,054
195,056
165,514
92,327
80,451
71,569
58,222
43,274
19,022
18,829
—
53,185
1,332
339,950
491,643
447,509
196,420
167,257
92,916
83,631
71,972
61,192
46,321
23,670
19,312
1.98 %
2032
3.57 %-5.98 % 2026-2036
489,991
232,088
531,889
244,331
8.00 %
2046
1.30 % 2028-2031
0.88 %
0.88 %
0.88 %
2035
2035
2035
1.65 % 2032-2034
1.70 % 2032-2034
2.42 %-3.78 % 2027-2031
1.15 %-2.73 % 2026-2031
1.15 %-2.73 % 2026-2031
0.38 %
0.90 %
2.01 %
2029
2021
2026
3.51 %-6.00 % 2029-2032
77,957
93,944
80,401
72,928
70,469
48,037
42,377
28,273
21,299
21,299
9,282
204,436
24,922
159,708
67,449
77,957
94,762
80,096
72,849
70,179
48,740
43,050
28,922
21,804
21,804
—
—
29,072
—
71,247
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p136
(in thousands of Canadian dollars, except as noted and amounts per share)
EURO
1.48 %-4.75 % 2025-2030
(continued)
Solar segment
Hillcrest
Phoebe
Stardale
Others
Total long-term loans and borrowings
Deferred financing costs
Current portion of long-term loans and borrowings
Long-term loans and borrowings
Currency
Interest rates
Maturity
December 31,
2020
December 31,
2019
USD
USD
CAD
USD
1.90 %
2.25 %
1.86 %
2021
2026
2032
3.72 % 2024-2026
187,212
137,688
77,430
16,648
3,839,799
4,885,455
(71,574)
4,813,881
(767,167)
—
144,931
79,454
17,840
3,380,770
4,757,710
(66,041)
4,691,669
(410,083)
4,046,714
4,281,586
1.
2.
3.
4.
The interest rates reflect the internal rate of return required by the respective tax equity investors.
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 4.65% Convertible Debentures are convertible at the holder’s option into common shares of the Corporation at a conversion price
of $22.90 per share.
The 4.75% Convertible Debentures are convertible at the holder’s option into common shares of the Corporation at a conversion price
of $20.00 per share.
5. Due to the adverse financial impacts of the February 2021 extreme whether conditions in Texas (refer to Note 35. Subsequent Events
for more information), the Corporation is currently assessing the impacts on the TEI Flip Point dates of its Texas facilities subject to
power hedges.
The carrying amount of assets pledged to secure the loans totalled $4,814,218 ($4,692,241 in 2019).
Letters of credit under revolving term credit facility and project loans amount to $223,474 ($161,850 in 2019).
Tax equity investors in U.S. wind projects generally require sponsor guarantees as a condition to their investment. To
support the tax equity investments, the Corporation executed guarantees 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.
As at December 31, 2020, the Corporation and its subsidiaries have met all material financial and non-financial conditions
related to their credit agreements, except for the following:
•
the Mesgi'g Ugju's'n project was in breach of its credit agreement as at December 31, 2020 and as at
December 31, 2019. 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, 2021. 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. If the waiver is not renewed, the lenders would have the right to
request repayment. As a result, the $219,007 ($232,088 in 2019) portion of the loan that would otherwise be
classified as long-term was reallocated to the current portion of long-term loans and borrowings. As at
December 31, 2020 and as at December 31, 2019, the project was in compliance with financial covenants;
As at December 31, 2020, the Montjean and Theil-Rabier facilities were not meeting their respective targeted debt
coverage ratios, which triggered a breach under their respective credit agreement. This was due to two blade
incidents, which caused business interruptions of both Montjean and Theil-Rabier facilities for an extended period
which were subsequently followed by several production restrictions. Assuming the situation is not resolved, the
lenders would have the right to request repayment, and as a result, the €12,331 ($19,246) portion of the loan that
would otherwise be classified as long-term of each debt was reallocated to the current portion of long-term loans and
borrowings.
As at December 31, 2020, the Mountain Air facilities were in breach under their credit agreements due to a non
respect of a specific requirement of the insurance clause. A waiver was obtained until March 31, 2021. If the situation
is not resolved and the waiver is not renewed, the lenders would have the right to request repayment, and as a result,
the US$115,304 ($146,804) portion of the loan that would otherwise be classified as long-term was reallocated to the
current portion of long-term loans and borrowings.
•
•
a. Corporate Indebtedness
Revolving Term Credit Facility
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p137
(in thousands of Canadian dollars, except as noted and amounts per share)
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, 2020, an amount of $59,198 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, 2020, letters of credit have been issued for an amount of $60,695.
Subordinated Unsecured Term Loan
The Corporation has a subordinated unsecured term loan maturing in 2023 and repayable in full at maturity.
b. Financing of the Hillcrest Solar Project
On May 7, 2020, the Corporation entered into a construction and long-term credit agreement for the Hillcrest solar project.
Project loan
The credit agreement comprises two facilities:
•
a US$82,033 ($104,444) construction loan bearing interest at LIBOR +1.75% maturing in 2021. As at
December 31, 2020, an amount of US$82,033 ($104,444) has been drawn. Following the commencement of
commercial operations, the construction facility will be converted into a 7-year term loan bearing interest at LIBOR
+2.25% for the first four years and at LIBOR +0.125% thereafter until maturity in 2027. All of the variable interest rate
exposure has been fixed through an interest rate swap which became effective on December 31, 2020, resulting in a
fixed interest rate of 0.945%; and
a US$109,784 ($139,777) tax equity bridge loan bearing interest at LIBOR +1.75% maturing in 2021. As at
December 31, 2020, an amount of US$65,008 ($82,768) has been drawn. Following the commencement of
commercial operations, the tax equity bridge loan will be repaid with the proceeds from the tax equity investor’s
contribution.
•
The aggregate outstanding balance as at December 31, 2020 is US$ 147,041 ($187,212).
Tax equity financing
The tax equity investor’s total commitment is US$112,025 ($143,953). On October 29, 2020, Hillcrest Solar Partners
received US$22,374 ($29,809) from the tax equity investor in return for its Class A membership interest, representing 20%
of the tax equity investor's total investment. The remaining funding is to be received upon commissioning of the project.
The interest in the Class A shares is accounted for as a debt instrument by the Corporation. The outstanding balance as at
December 31, 2020 is US$22,582 ($28,751). The Corporation anticipates the Flip Point date of the Hillcrest tax equity
financing to occur in 2028.
The tax equity investors' taxable income (losses), ITCs and cash distributions allocations are detailed in the table below.
After the Flip Point, the Hillcrest tax equity investors will retain a 3% financial interest in the project which will be
accounted for as non-controlling interests.
Taxable income (losses) and ITCs
Cash distributions
Tax Equity Investor
99.0 % 1
Various 2
1.
Allocation of taxable income (loss) and ITCs is 99.0% to the tax equity investor. From January 1, 2025 to December 31, 2025,
allocation of taxable income (loss) to the tax equity investor will be 67.0%, and 5.0% thereafter.
2. Hillcrest’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 4.23% to the tax equity investor, until the
Flip Point date.
c. Financing of the Yonne II Wind Project
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p138
(in thousands of Canadian dollars, except as noted and amounts per share)
On May 26, 2020, the Corporation's subsidiary, Éoles-Yonne S.A.S., entered into an amendment to its credit agreement
for the financing of the Yonne II wind farm project, an extension of the Yonne wind farm. The Yonne II project loan, for a
total loan commitment of €12,767 ($19,927), comprises :
•
a €5,425 loan bearing a fixed interest rate of 1.45%, repayable in quarterly installments beginning in December 2021
and maturing in March 2039;
a €5,425 loan bearing a fixed interest rate of 1.65%, repayable in quarterly installments beginning in December 2021
and maturing in March 2039;
a €1,600 short term revolving credit facility to finance the value added taxes during the construction phase; and
additional credit and guarantees on the original credit agreement of €317.
•
•
•
The outstanding balance as at December 31, 2020 is €5,947 ($9,282).
d. Financing of the Griffin Trail Wind Project
On December 29, 2020, the Corporation entered into a construction financing and tax equity commitment for the Griffin
Trail wind project.
Project loan
The credit agreement comprises two facilities:
•
•
a US$90,029 ($114,625) construction loan bearing interest at LIBOR +0.88% maturing in 2021. As at
December 31, 2020, an amount of nil has been drawn. Following the commencement of commercial operations, the
construction facility will be repaid in full;
a US$166,171 ($211,569) tax equity bridge loan bearing interest at LIBOR +0.75% maturing in 2021. As at
December 31, 2020, an amount of US$160,569 ($204,436) has been drawn. Following the commencement of
commercial operations, the tax equity bridge loan will be repaid with the proceeds from the tax equity investor’s
contribution.
The aggregate outstanding balance as at December 31, 2020 is US$160,569 ($204,436).
Moreover, the Corporation has access to a letter of credit facility of an amount of US$20,000 ($25,464). As of
December 31, 2020, letters of credit have been issued for the full amount.
Tax equity financing
The tax equity investor’s total commitment is US$171,311 ($218,113). The funding from the tax equity partner is to be
received upon commissioning of the project. The interest in the Class A shares is accounted for as a debt instrument by
the Corporation.The Corporation anticipates the Flip Point date of the Griffin Trail tax equity financing to occur in 2031.
The tax equity investors' taxable income (losses), PTCs and cash distributions allocations are detailed in the table below.
After the Flip Point, the Griffin Trail 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 Investor
Various 1
5.0 %
1.
Allocation of taxable income (loss) and PTCs is 93.75% to the tax equity investor during 2021. From January 1, 2022 to Flip Point,
allocation of taxable income (loss) to the tax equity investor will be 99.0%, and 5.0% thereafter.
e. Acquisition of Mountain Air
As part of the acquisition of Mountain Air, the Corporation assumed the related loan facilities for a total fair value of
US$126,507 ($172,252), which are comprised of:
• US$94,011 ($128,005) senior secured notes (the “Notes”) bearing interest at an annual rate of 6.00% and maturing on
June 30, 2032. The Notes are collateralized by the Mountain Air wind farm facilities. The Notes were accounted for at
their fair market value of US$109,407 ($148,969) for an effective interest rate of 3.80%; and
a US$17,100 ($23,283) term loan bearing interest at LIBOR + 3.00% and maturing on November 30, 2029. The loan
was accounted for at its book value which was considered representative of the fair value of the remaining debt.
•
The outstanding balance as at December 31, 2020 is US$125,438 ($159,708).
Innergex Renewable Energy Inc.
Annual Report 2020
Notes to the Consolidated Financial Statements p139
(in thousands of Canadian dollars, except as noted and amounts per share)
22. OTHER LIABILITIES
As at January 1, 2020
Liabilities assumed as part of the
business acquisitions (Note 4)
New obligations
Interest expense included in finance costs
Accretion expense included in finance
costs
Remeasurement
Payment of lease liabilities
Impact of foreign exchange fluctuations
As at December 31, 2020
Current portion of other liabilities
Long-term portion of other liabilities
Contingent
considerations
Asset
retirement
obligations
Interest
payable on
SM S.E.C.
debenture
Future
ownership
rights
Lease
liabilities
Total
1,816
121,371
22,066
31,400
119,788
296,441
—
—
—
6,259
8,598
—
—
—
4,395
—
—
—
665
6,924
71,542
80,140
—
4,395
45
—
—
—
1,861
(1,018)
843
3,830
21,783
—
784
162,625
—
162,625
—
—
—
—
26,461
—
26,461
1,237
7,394
—
—
40,031
—
40,031
—
(13,315)
(3,841)
(2,032)
172,807
(5,254)
167,553
5,112
15,862
(3,841)
(1,248)
403,785
(6,272)
397,513
Contingent
considerations
Asset
retirement
obligation
s
Interest
payable on
SM S.E.C.
debenture
Future
ownership
rights
Pension
fund
obligation
s
Below
market
contracts
Lease
liabilities
Total
As at January 1, 2019
Adoption of IFRS 16
Business disposal
(Note 5)
New obligations
Interest expense
included in finance
costs
Accretion expense
included in finance
costs
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
1,762
—
88,659
—
18,002
—
21,883
—
26,926
—
16,618
— 173,850
— 122,270 122,270
—
—
—
16,528
—
—
—
—
(26,926)
—
(16,618)
—
—
—
(43,544)
16,528
—
—
4,064
—
—
—
—
4,064
54
—
—
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
—
—
—
—
—
—
—
—
—
—
6,882
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 2020
Notes to the Consolidated Financial Statements p140
(in thousands of Canadian dollars, except as noted and amounts per share)
a. 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, after
exercising its term renewal options, at least 25 years after the signing date.
The cash flows were discounted at rates between 0.57% and 4.88% as at December 31, 2020 (1.24% to 4.35% in
2019) to determine the obligations.
b.
Interest payable on SM S.E.C. debenture
This debenture carries an interest rate of 8.00%; it has no predetermined repayment schedule and matures in 2064.
The partner, Régime de Rentes du Mouvement Desjardins (''RRMD''), is considered a related party. Unpaid interests
are compounded and are recorded in other long-term liabilities.
c. Future ownership rights
Other liabilities include various liabilities related to future ownership rights owned by First Nations for the Upper
Lillooet River, Boulder Creek, Big Silver Creek and Tretheway Creek facilities, the counterpart of which is capitalized
into the intangible assets.
d. 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 2020
Notes to the Consolidated Financial Statements p141
(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'').
Issued and outstanding shares
As at
Number of common shares
Number of Series A Preferred Shares
Number of 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 Strategic Alliance with Hydro-Québec
Issued through dividend reinvestment plan
Exercise of stock options
Conversion of debentures
End of year
Held in trust under the Performance Share Plan
Beginning of the year
Purchased
Distributed
End of year
Common shares outstanding at end of the year
Buyback of common shares and preferred shares
December 31, 2020
December 31, 2019
174,582,586
3,400,000
2,000,000
139,405,832
3,400,000
2,000,000
December 31, 2020
December 31, 2019
139,405,832
34,636,823
279,648
192,033
68,250
174,582,586
(300,724)
(317,777)
61,410
(557,091)
174,025,495
132,986,850
—
169,450
472,737
5,776,795
139,405,832
(203,416)
(170,000)
72,692
(300,724)
139,105,108
On May 21, 2020, the Corporation received the 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 1.15% of the 174,234,629 issued and
outstanding common shares of the Corporation as at May 21, 2020. The Corporation could also purchase for
cancellation up to 68,000 of its Series A Preferred Shares, representing approximately 2% of the 3,400,000 issued and
outstanding shares of the Corporation as at May 21, 2020. And finally, the Corporation could purchase for cancellation
up to 40,000 of its Series C Preferred Shares, representing approximately 2% of the 2,000,000 issued and outstanding
shares of the Corporation as at May 21, 2020.The New Bid commenced on May 24, 2020 and will terminate on May 23,
2021. No common or preferred shares have been purchased and cancelled as at December 31, 2020.
Strategic Alliance and private placement with Hydro-Québec
On February 6, 2020, Hydro-Québec invested $660,870 through a private placement in common shares of the
Corporation at a price of $19.08 per share, representing a total of 34,636,823 shares (19.9% of the then-issued and
outstanding common shares on a non-diluted basis).
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p142
(in thousands of Canadian dollars, except as noted and amounts per share)
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 12, 2020. This
resulted in a decrease of the shareholders' capital account of $754,355 and an equivalent increase of the contributed
surplus.
b) Preferred shares
Series A Preferred Shares
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 each year. The annual dividend rate for the five-year period starting January 15, 2021, equals $0.8110 per
share.
At its option, each holder of Series A Preferred Shares has the right 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, 2021, and every five years thereafter. In
addition, the Corporation has the right to redeem all or any number of the outstanding Series A Preferred Shares on
January 15, 2021, and every five years thereafter.
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
The holders of Series C 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 each year at an annual rate equal to $1.4375 per share. The Corporation has the right to redeem all or any
number of the outstanding Series C Preferred Shares.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p143
(in thousands of Canadian dollars, except as noted and amounts per share)
Equity-based compensation
a) Stock option plan
The Corporation has a stock option plan providing for the granting of options by the Board of Directors to employees,
officers, directors and certain consultants of the Corporation and its subsidiaries to purchase common shares. Options
granted under the stock option plan will have an exercise price of not less than the market price of the common shares
at the date of grant of the option, calculated as the volume weighted average trading price of the common shares on the
Toronto Stock Exchange for the five trading days immediately preceding the date of grant. The maximum number of
common shares of the Corporation available for issuance pursuant to options granted under the share option plan is
4,064,123. Any common shares subject to an option that expires or terminates without having been fully exercised may
be subject to a further option. The number of common shares issuable to non-executive directors of the Corporation
under the stock option plan cannot at any time exceed 1% of the issued and outstanding common shares. Options must
be exercised during a period established by the Board of Directors, which may not be greater than 10 years after the
date of grant. Options granted under the stock option plan vest in equal amounts on a yearly basis over a period of four
to five years following the grant date.
December 31, 2020
December 31, 2019
Number of options
Weighted average
exercise price ($)
Number of options
Weighted average
exercise price ($)
Outstanding - beginning of year
Granted during the year
Exercised during the year
Cancelled during the year
Outstanding - end of year
Options exercisable - end of year
737,977
51,895
(553,660)
(2,673)
233,539
129,286
11.52
20.52
10.53
20.52
15.78
14.56
2,782,599
78,142
(2,122,764)
—
737,977
589,815
10.14
14.41
9.85
—
11.52
10.78
The following options were outstanding as at December 31, 2020:
Year of granting
Number of options
outstanding
Exercise price ($)
Number of options
exercisable
Year of maturity
2016
2017
2019
2020
56,531
54,411
73,375
49,222
233,539
14.65
14.52
14.41
20.52
56,531
54,411
18,344
—
129,286
2023
2024
2026
2027
The weighted average contractual life of the outstanding stock options is five years.
A compensation expense of $76 was recorded during the year ended December 31, 2020 with respect to the stock
option plan ($64 in 2019).
Exercised
During the year ended December 31, 2020, 553,660 options were exercised, resulting in 192,033 shares issued. The
difference between the options exercised and the shares issued is the result of a cashless exercise by the holders, and
the payroll withholding assumed by the Corporation, as authorized by the stock option plan and the Board of Directors.
Granted
During the year ended December 31, 2020, 51,895 options were granted. The options granted vest in four equal
tranches until March 2, 2024 and must be exercised before March 2, 2027 at an exercise price of $20.52.
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p144
(in thousands of Canadian dollars, except as noted and amounts per share)
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, 2020
$
1.14 %
0.72
6
19.84 %
Expected volatility is estimated by considering historic average share price volatility.
b) Performance Share Plan (the ''PSP'') and Deferred Share Unit Plan (the “DSU”)
Performance Share Plan
The goal of the PSP is to motivate the key employees and officers to create long-term economic value for the
Corporation and its shareholders. This portion of the Equity-Based Incentive Plan focuses key employees and officers
on delivering business performance over the next three years against the total shareholder value and relative to a peer
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 years
thereafter. The fair value of the performance share rights is determined on the grant date, based on the Corporation's
estimate of the number of performance share rights that will eventually vest. 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.
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. These shares are held in Trust for
the benefit of the beneficiaries until the Performance share rights become vested or cancelled. The cost of these
purchases has been deducted from share capital.
Deferred Share Unit Plan
Under the Corporation’s DSU, directors receive a portion of their compensation in DSUs in lieu of cash compensation.
Officers may elect to receive all or a portion of their bonus in DSU 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 and
the officer's DSU account is credited with additional DSUs equivalent to the dividend paid.
DSUs cannot be redeemed for cash or shares until the director or the officer leaves the Corporation. 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.
Summary
Balance beginning of year
Granted during the year
Paid out during the year
Expired during the year
Dividend reinvestment during the year
Balance end of year
December 31, 2020
DSU
PSP
December 31, 2019
DSU
PSP
462,559
152,994
(121,028)
(7,393)
16,872
504,004
81,498
35,513
(2,601)
—
4,080
118,490
264,337
330,940
(145,322)
(4,842)
17,446
462,559
56,876
21,533
—
—
3,089
81,498
A compensation expense of $3,268 was recorded during the year ended December 31, 2020 with respect to the PSP
and DSU plan ($4,613 in 2019).
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p145
(in thousands of Canadian dollars, except as noted and amounts per share)
Dividends
a) Dividend Reinvestment Plan (''DRIP'')
The Corporation implemented a DRIP for its shareholders. The plan allows eligible common shareholders the
opportunity to reinvest a portion or all of the dividends they receive to purchase additional common shares of the
Corporation, without paying fees such as brokerage commissions and service charges. Shares will either be purchased
on the open market or issued from treasury. During the year ended December 31, 2020, 279,648 shares (169,450
shares in 2019) were issued from treasury under the DRIP.
b) Dividend Declared
The following dividends were declared by the Corporation:
Dividends declared on common shares
Dividends declared on Series A preferred shares
Dividends declared on Series C preferred shares
Year ended December 31
2020
($/share)
0.7200
0.9020
1.4375
Total
125,543
3,067
2,875
2019
($/share)
Total
0.7000
0.9020
1.4375
95,046
3,067
2,875
Dividend Declared not recognized at the end of the reporting period
The following dividends will be paid by the Corporation on April 15, 2021:
Date of
announcement
Record date
Payment date
Dividend per
common
share
Dividend per
Series A
Preferred
Share
Dividend per
Series B
Preferred
Share
Dividend per
Series C
Preferred
Share
February 25, 2021 March 31, 2021
April 15, 2021
$
0.1800 $
0.2027 $
0.181875 $
0.359375
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p146
(in thousands of Canadian dollars, except as noted and amounts per share)
24. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency
translation
differences for
foreign operations
Changes in fair
value of financial
instruments
designated as net
investment hedges
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
Total
Balance as at January 1, 2020
Exchange differences on translation of foreign operations
Hedging loss
Share of non-controlling interest
Related deferred tax
Balance as at December 31, 2020
(7,256)
(27,032)
—
1,994
—
(32,294)
(3,329)
—
(2,128)
648
—
(4,809)
(1,579)
—
(89,549)
1,608
22,168
(67,352)
(3,067)
—
(5,148)
—
974
(7,241)
(15,231)
(27,032)
(96,825)
4,250
23,142
(111,696)
Foreign currency
translation
differences for
foreign operations
Changes in fair
value of financial
instruments
designated as net
investment hedges
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
Discontinued operations
Exchange differences on translation of
foreign operations
Hedging gain (loss)
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)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p147
(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 other
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:
Change in unpaid property, plant and equipment
Investment tax credits
Change in long-term assets
Change in unpaid project development costs
Change in investments in joint ventures and associates
Remeasurement of other liabilities
Initial measurement of other liabilities
Common shares issued through the conversion of convertible
debentures
Common shares issued through equity based compensation
Common shares issued through dividend reinvestment plan
Year ended December 31
2020
2019
(6,977)
(1,313)
525
(7,765)
(5,315)
(1,509)
29,226
22,402
Year ended December 31
2020
2019
(182,960)
(2,760)
(7,836)
(1,632)
(195,188)
10,756
114,341
12,892
146
—
15,862
80,140
1,365
1,440
5,474
(194,726)
(1,189)
(16,438)
(1,949)
(214,302)
21,456
179,071
(2,000)
(919)
(13,753)
30,932
16,528
86,652
2,380
2,402
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p148
(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
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
2020
2019
4,412,842
—
998,639
(1,005,864)
(15,471)
172,252
—
(21,050)
(43,850)
35,642
666
4,533,806
278,827
—
—
—
(1,365)
—
2,613
280,075
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
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p149
(in thousands of Canadian dollars, except as noted and amounts per share)
26. NON-WHOLLY-OWNED SUBSIDIARIES
Name of subsidiaries
Harrison Hydro L.P. 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
Mountain Air Alternatives
LLC, 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,
2020
Dec. 31,
2019
Dec. 31,
2020
Dec. 31,
2019
Dec. 31,
2020
Dec. 31,
2019
Canada
49.99 %
49.99 %
(1,270)
(6,041)
43,965
45,235
Canada
50.00 %
50.00 %
(443)
(755)
(13,413)
(12,970)
Canada
50.00 %
50.00 %
9,006
8,886
(8,671)
(6,663)
Canada
49.99 %
49.99 %
(2,673)
(2,497)
(13,941)
(11,268)
Canada/
Europe
United
States
Iceland
Canada
30.45 %
30.45 %
(2,001)
(4,409)
(5,035)
(3,080)
37.75 %
— %
Various
— %
— %
Various
1,063
—
(165)
3,517
—
59,804
—
2,133
(487)
(3,170)
—
(631)
62,078
—
(312)
10,942
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p150
(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
Mountain Air
Year ended December 31, 2020
Summary Statements of Earnings (Loss) 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
Cash flows from (used in) operating activities
Cash flows used in financing activities
Cash flows used in investing activities
Effects on exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
47,985
50,526
(2,541)
—
(2,541)
(1,271)
(1,270)
(2,541)
(1,271)
(1,270)
(2,541)
17,577
(11,564)
(832)
—
5,181
18,990
19,875
(885)
—
(885)
(442)
(443)
(885)
(442)
(443)
(885)
(2,746)
(1,742)
(127)
—
(4,615)
61,401
28,806
32,595
(3,117)
29,478
23,589
9,006
32,595
21,333
8,145
29,478
49,351
(45,254)
(4,805)
—
(708)
Distributions paid to non-controlling interests
—
—
10,153
10,066
15,413
(5,347)
—
(5,347)
(2,674)
(2,673)
(5,347)
(2,674)
(2,673)
(5,347)
2,547
(2,384)
(167)
—
(4)
—
95,485
102,057
(6,572)
154
(6,418)
(4,569)
(2,001)
(6,570)
(4,456)
(1,955)
(6,411)
41,268
(35,406)
(3,810)
2,981
5,033
16,995
14,180
2,815
(8,695)
(5,880)
1,752
1,063
2,815
(3,662)
(2,218)
(5,880)
8,157
(8,971)
—
(441)
(1,255)
—
1,147
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p151
(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, 2019
Summary Statements of Earnings (Loss) 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
Cash flows from operating activities
Cash flows used in financing activities
Cash flows (used in) from investing activities
Net change 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 2020
Notes to the Consolidated Financial Statements p152
(in thousands of Canadian dollars, except as noted and amounts per share)
Summary Statements of Financial Position
As at December 31, 2020
Harrison
Kwoiek
Mesgi'g Ugju's'n
Sainte-Marguerite
Innergex Europe
Mountain Air
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity (deficit) attributable to owners
Non-controlling interests (deficit)
20,670
562,075
582,745
20,288
437,471
81,021
43,965
582,745
7,348
167,201
174,549
9,145
200,457
(21,640)
(13,413)
174,549
22,571
265,911
288,482
242,088
23,311
31,754
(8,671)
288,482
1,173
121,361
122,534
8,673
125,262
2,540
(13,941)
122,534
As at December 31, 2019
60,268
917,529
977,797
158,016
882,068
(57,252)
(5,035)
977,797
14,314
292,767
307,081
158,851
18,331
70,095
59,804
307,081
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity (deficit) attributable to owners
Non-controlling interests (deficit)
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
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p153
(in thousands of Canadian dollars, except as noted and amounts per share)
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
2020
2019
6,258
1,026
1,294
76
8,654
6,685
853
1,764
64
9,366
Related party transactions conducted in the normal course of operations are measured at an 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:
•
•
•
•
•
•
•
Strategic alliance and private placement with Hydro-Québec (see Note 23 - Shareholders' Capital)
Sales made under PPAs with Hydro-Québec (see Note 33 - Major Customers)
EVLO, a subsidiary of Hydro-Québec, to provide battery at energy storage project (below)
Sainte Marguerite L.P.'s debenture to RRMD (see Note 22b)
Magpie Limited Partnership's convertible debenture to the municipality (below)
Innergex Europe (2015) Limited Partnership's debenture to RRMD (below)
The Corporation's partner made a loan to Kwoiek Creek Resources L.P (below).
Tonnerre Energie SAS signed a Memorandum of understanding with EVLO, a Hydro-Québec subsidiary, for the 9 MWh
stand-alone energy storage project in France.
A $3,000 convertible debenture was issued by Magpie Limited Partnership to Minganie Regional County Municipality,
and 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 Partnership 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.
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p154
(in thousands of Canadian dollars, except as noted and amounts per share)
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. 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, 2020
Carrying
amount
Fair value
As at December 31, 2019
Carrying
amount
Fair value
Non-current financial assets measured at
amortized cost
Other investments included in other long-term
assets
Level 2
Non-current financial liabilities measured at
amortized cost
—
—
2,000
2,000
Long-term loans and borrowings
Level 2
4,813,881
5,289,788
4,691,669
4,808,403
Derivative financial instruments measured
at fair value
Interest rate swaps
Foreign exchange forwards
Power and basis hedges
Level 2
Level 2
Level 3
(168,002)
(168,002)
(83,536)
(83,536)
(37,113)
(37,113)
(24,269)
(24,269)
54,082
54,082
27,757
27,757
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 payments represent the
sum of future expected levels of the reference interest rate index and the instrument’s quoted margin, whereas discount
rates represent the sum of future expected levels of the reference index and an appropriate discount margin. Appropriate
yields to maturity and discount margins are estimated utilizing the available quoted or indicative pricing of individual debt
instruments or indices whose credit is deemed comparable to the debt instruments being evaluated.
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p155
(in thousands of Canadian dollars, except as noted and amounts per share)
Power hedges
The fair values of the power and basis hedges are calculated using a discounted cash flow model. 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 inputs. As at December 31, 2020, the
forward power prices used in the calculation of fair value were as follows:
With respect to the Phoebe power hedge, ERCOT South Hub forward power prices are expected to be in a range of
US$15.16 to US$96.65 per MWh between January 1, 2021 and June 30, 2031.
With respect to the Salvador power hedges, Polpaico node future power prices are expected to be in a range of US $4.99
to US$67.03 per MWh between January 1, 2021 and December 31, 2030.
With respect to the Phoebe basis hedge, ERCOT South Hub forward power prices are expected to be in a range of
$18.00 to US$96.65 per MWh between January 1, 2021 and December 31, 2021, while Phoebe node forward power
prices are derived using a historical spread against the ERCOT South Hub of US$30.37 per MWh.
Further information is provided below with regard 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) a combination of observable exchange prices and over-the-counter broker quotes obtained through November
2030; (2) for the seven remaining months until June 2031, extrapolated prices based on the growth rate implicit in traded
NYMEX Natural Gas Futures prices.
Salvador power hedges: The fair value of the power hedges is derived from future power price forecasts that are not
based on observable market data. Such forecasts are constructed using various assumptions depending on historical
market prices, supply, demand and congestion volumes observed on the Chilean grid, as well as econometric models. In
addition, as the notional volume of the power hedges is not contractually fixed, the estimated volume is determined using
various assumptions such as the expected demand and volume of power to be successfully settled through the market
bidding process.
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 estimates are subject to a credit risk adjustment that reflects the credit risk of the Corporation or of the
counterparty.
The changes in the fair value of the derivative instrument are recognized in the consolidated statements of earnings (loss),
as change in fair value of financial instruments.
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.
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p156
(in thousands of Canadian dollars, except as noted and amounts per share)
(i)
Interest rate risk
Interest rate risk is the risk that the future cash flows 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 flows. 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:
Project
Notional
Currency 2
Variable
rate
Swap
Rate
Maturity
Early
termination
option
Notional Amounts
December 31,
2020
December 31,
2019
Corporate
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Innergex
Alterra
Alterra
Hydroelectric segment
Ashlu Creek
Ashlu Creek
Fitzsimmons Creek
Wind segment
Rougemont 1
Rougemont 2
Rougemont 2
Vaites
Cartier
Mesgi'g Ugju's'n
Cholletz
Foard City
Foard City
Mountain Air
Solar Segment
Stardale
Phoebe
Kokomo
Spartan
Hillcrest
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
CAD
EUR
EUR
EUR
EUR
CAD
CAD
EUR
USD
USD
USD
CAD
USD
USD
USD
USD
CDOR
CDOR
CDOR
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
4.61% 2035
4.60% 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 2.64% 2030
2.07% 2029
2.43% 2029
2.03% 2029
LIBOR
LIBOR
LIBOR
CDOR
CDOR
CDOR
LIBOR
LIBOR
LIBOR
LIBOR
3.60% 2032
3.07% 2037
1.85% 2026
2.31% 2024
0.95% 2040
2023
2023
2023
None
None
2022
2023
2023
2029
2023
2029
2029
None
None
2025
2025
2021
None
None
None
None
None
None
None
2026
2026
None
None
2026
None
None
2028
20,000
30,000
52,600
20,000
20,000
31,105
20,000
20,000
20,000
20,000
20,000
25,000
29,000
49,000
41,406
41,406
17,244
62,240
37,970
34,469
66,423
489,216
76,735
12,433
13,275
11,647
20,821
69,125
129,939
5,190
11,458
93,999
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
44,110
44,110
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
—
1,611,701
1,567,298
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p157
(in thousands of Canadian dollars, except as noted and amounts per share)
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 1.2732 and EURO swaps are converted at a fixed rate of CAD 1.5608.
Interest rate hedging instruments entered into during the year ended December 31, 2020
Hillcrest: On May 12, 2020, the Corporation entered into three US$ denominated interest rate swap agreements to
mitigate the interest rate risk related to the Hillcrest term loan. The notional amounts as at December 31, 2020 total
US$73,829 ($93,999) in the aggregate. The contracts will mature in 2040. The fair value is based on Level 2 valuation
techniques. The Corporation designated the interest rate swaps as cash flow hedges for accounting purposes.
Mountain Air: On July 15, 2020, the Corporation acquired, as part of Mountain Air, an interest rate swap agreement
aimed at mitigating the interest rate risk on a term loan assumed by Mountain Air. The notional amount as at
December 31, 2020 amounts to US$16,353 ($20,821). The contract matures in 2029.
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
51
(46)
10,795
(11,462)
600
(719)
9,555
(9,445)
December 31, 2020
Interest rate swaps
December 31, 2019
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 Euros. 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 2020
Notes to the Consolidated Financial Statements p158
(in thousands of Canadian dollars, except as noted and amounts per share)
Contracts
Maturity
Early
termination
option
Notional Amounts
December 31,
2020
December 31,
2019
Contracts used to hedge the foreign exchange
risk
Foreign exchange forwards amortizing until 2041,
allowing conversion at a fixed rate of
CAD 1.7220/Euro
Foreign exchange forwards amortizing until 2042,
allowing conversion at a fixed rate of
CAD 1.7196/Euro
Foreign exchange forwards amortizing until 2041,
allowing conversion at a fixed rate of
CAD 1.6650/Euro
Foreign exchange forwards amortizing until 2043,
allowing conversion at a fixed rate of
CAD 1.7516/Euro
Foreign exchange forwards amortizing until 2043,
allowing conversion at a fixed rate of
CAD 1.7698/Euro
2022
none
150,505
154,653
2022
none
44,353
46,377
2023
none
99,822
103,630
2023
none
149,247
155,873
2023
none
72,106
516,033
75,002
535,535
1. The Corporation 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.
December 31, 2020
Foreign exchange forwards
December 31, 2019
Foreign exchange forwards
Earnings (loss)
Other comprehensive income
(loss)
1% increase
1% decrease
1% increase
1% decrease
(3,948)
3,997
(742)
695
(4,852)
4,855
535
(537)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p159
(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
The Corporation is subject, under the Phoebe solar project, to a 12-year power hedge, effective from July 1, 2019 to
June 30, 2031. The power hedge was designated for hedge accounting purposes until September 30, 2019. In light of
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. The Phoebe power hedge is accounted for at fair value, with changes
recognized as changes in fair value of financial instruments. The unrealized net loss recognized as change in fair
value of financial instruments amounts to a $11,210 for the year ended December 31, 2020.
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, 2020
Power hedge
December 31, 2019
Power hedge
Earnings (loss)
10 % increase
10% decrease
(18,541)
18,541
(18,249)
18,195
Salvador power hedges
On May 14, 2020, the Corporation acquired, when it acquired Salvador, a portfolio of synthetic power purchase
agreements ("PPA"), which act as power hedges. Salvador power hedges are accounted for at fair value, with
subsequent changes being recognized as change in fair value of derivative financial instruments. The unrealized net
gain recognized as change in fair value of financial instruments amounts to $815 for the year ended December 31,
2020.
Sensitivities
A reasonably possible change of 10% in the Polpaico node projected 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, 2020
Power hedge
Earnings (loss)
10 % increase
10% decrease
(1,065)
1,065
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p160
(in thousands of Canadian dollars, except as noted and amounts per share)
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 change in fair value of financial instruments.
The unrealized net gain recognized as change in fair value of financial instruments amounts to $13,059 for the year
ended December 31, 2020.
Sensitivities
A reasonably possible change of 100 basis points 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.
December 31, 2020
Basis hedge
December 31, 2019
Basis hedge
(iv) Hedge accounting
Earnings (loss)
100 bps
increase
100 bps
increase
(742)
742
(1,487)
1,487
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, 2020. 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, 2020.
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, 2020 the following items were designated as
hedging instruments to mitigate the interest rate 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
1,599,268
1,774
(169,577)
87,741
1,411
(5,905)
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p161
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table summarizes the impact of hedge ineffectiveness and hedging gains (losses) as at
December 31, 2020:
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
(86,108)
(1,417)
(23)
—
—
3,464
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
2,128
672
(203)
1. The balance of cash flow hedge reserve relating to power price risk for which hedge accounting is no longer applied is $33,069.
Ineffectiveness is accounted for in the change in fair value of 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, 2020, 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, 2020, $9,547 ($3,616 in 2019) of trade and other receivables were more than 90 days overdue
and a total write-off of impaired receivables of $176 ($438 in 2019) 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
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p162
(in thousands of Canadian dollars, except as noted and amounts per share)
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 $584,278 as at December 31, 2020 (negative working capital of
$335,721 in 2019). If necessary, the Corporation can use its revolving credit facilities of which $457,806 was available as
at December 31, 2020 ($161,922 in 2019). 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 19) 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-derivative financial liabilities
Accounts payable and other payables
Long-term loans and borrowings1
Other liabilities
Lease liabilities
Derivative financial liabilities
Interests rate swaps
Foreign exchange forwards
Power Hedge
Basis Hedge
Total
190,335
315,349
1,018
14,380
46,333
18,180
7,355
22,582
615,532
—
1,665,556
843
64,159
—
4,675,814
26,461
270,669
126,320
40,255
18,543
—
1,915,676
65,951
—
35,679
—
5,074,574
190,335
6,656,719
28,322
349,208
238,604
58,435
61,577
22,582
7,605,782
1. As disclosed in note 21, certain long-term loans and borrowings are subject to financial and non-financial conditions which could result
in certain contractual cash flows to be payable significantly earlier than indicated in the table above.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p163
(in thousands of Canadian dollars, except as noted and amounts per share)
29. COMMITMENTS
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.
The PPA for the Ste-Marguerite facility reached the end of its initial 25-year term in December 2018. The Corporation sent
to Hydro-Québec its notice of automatic renewal for an additional 25-year term. Discussions on the renewal terms and
conditions are underway, in accordance with the renewal process of the initial PPA.
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.
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 regard 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 Corporation and BC Hydro amended the Brown Lake PPA Renewal as suggested by the BCUC
so that the Brown Lake PPA Renewal would have a term no longer than three years and ending on October 31, 2022.
Cayoose Creek Power Limited Partnership and BC Hydro agreed to terminate the Walden PPA Renewal pursuant to its
terms and to continue to transact pursuant to the terms of the original electricity purchase agreement initially entered into
between BC Hydro and ESI Power Corp., dated August 16, 1990 and the forbearance agreement initially entered into
between BC Hydro and ESI Power-Walden Corporation, dated April 1, 2014. As of December 31, 2020, the BCUC's
acceptance of the amended Brown Lake PPA Renewal is still pending.
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 the Kokomo and Spartan solar facilities.
Under a PPA with a 15-year term and expiring in 2034, a client agreed to purchase all of the electricity produced by the
Hillcrest solar facility.
Under a PPA with a 20-year term and expiring in 2033, Idaho Power Company agreed to purchase all of the electricity
produced by the Mountain Air wind farm facilities.
b. Other Commitments
(i) Hydroelectric facilities
The Corporation and its subsidiaries entered into royalties and other commitments related to surrounding municipalities,
land owners and the operation of the hydroelectric facilities.
Ashlu Creek facility
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p164
(in thousands of Canadian dollars, except as noted and amounts per share)
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.
Griffin Trail Wind, LLC has entered into a balance of plant agreement to construct the wind power facility project.
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 to construct the
solar project.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p165
(in thousands of Canadian dollars, except as noted and amounts per share)
c. Summary of commitments
As at December 31, 2020, the expected schedule of commitment payments is as follows:
Year of expected payment
Purchase obligations
Variable payments on lease contracts
Total
Under 1 year
1 to 5 years
Thereafter
Total
81,220
8,828
90,048
128,078
44,163
172,241
253,677
10,654
264,331
462,975
63,645
526,620
30. CONTINGENCIES
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.
BC Hydro curtailment notices
In May 2020, Innergex received notices from BC Hydro in relation to six of the Corporation’s hydroelectric facilities in
British Columbia stating that BC Hydro would not accept and purchase energy under the applicable electricity purchase
agreements (“EPAs”) above a specified curtailment level for the period from May 22, 2020 to July 20, 2020. The specified
curtailment levels were 0.0 MW/h for the Jimmie Creek (accounted for using the equity method), Upper Lillooet River,
Northwest Stave River, and Boulder Creek facilities, 2.0 MW/h for the Tretheway Creek facility and 4.0 MW/h for the Big
Silver Creek facility.
BC Hydro cites the current COVID-19 pandemic and related governmental measures taken in response to it as
constituting a “force majeure” event under the EPAs, and resulting in a situation in which BC Hydro is unable to accept or
purchase energy under the EPAs. The notices to Innergex follow public statements by BC Hydro regarding measures it is
taking to address the reduced electricity demand during the COVID-19 pandemic and related challenges to the safe
operation of its hydroelectric system.
Innergex disputes that the current pandemic and related governmental measures in any way prevent BC Hydro from
fulfilling its obligations to accept and purchase energy under the EPAs or enable it to invoke “force majeure” provisions
under the EPAs to suspend these obligations. Innergex acknowledges that BC Hydro retains “turn-down” rights under the
EPAs, which enable it to require Innergex to turn down or shut off its facilities in certain circumstances, including in order
to avoid a safety or stability risk. Where BC Hydro exercises this right, it is required under the EPAs to compensate
Innergex for energy that would have been produced at the facilities in the absence of the curtailment. Innergex has
complied with BC Hydro’s curtailment request, but has done so under protest and seeks to enforce its rights under the
EPAs on the basis described above. For the year ended December 31, 2020, actual eligible energy revenue that would
have been produced at the facilities in the absence of the curtailment amounts to $13,031 ($14,758 on a Revenues
Proportionate1 basis), respectively.
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 Note 17, Segment Information, for more information.
Harrison Hydro L.P. Water Rights
On March 23, 2017, the Comptroller of the Water Rights issued adjusted rental statements to the Harrison Hydro L.P. and
its subsidiaries for the years 2011 and 2012 for an amount of $3,181 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
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p166
(in thousands of Canadian dollars, except as noted and amounts per share)
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 Limited Partnerships have filed
their response to petition on April 14, 2020. The hearing took place in Victoria in the last week of September 2020. A
decision was rendered on February 9, 2021 by the Supreme Court of British Columbia, which concluded that the
Environmental Appeal Board's decision was reasonable, and dismissed the Comptroller of Water Rights' petition
accordingly. The Corporation recognized the amount of $3,181 in the consolidated statements of earnings (loss) during
the year ended December 31, 2019.
31. COVID-19
To combat the spread of the COVID-19, authorities in all regions where the Corporation operates have put in place
restrictive measures for businesses. However, with the exception of the curtailment notices received from BC Hydro, as
described in Note 30, Contingencies, these measures have not impacted the Corporation in a material way to date, as
electricity production has been deemed an essential service in every region where the Corporation operates. The
renewable power production is sold mainly through power purchase agreements with public utilities and corporate entities
with high credit ratings.
It is not excluded that current or future restrictive measures might have an adverse effect on the financial stability of the
Corporation’s suppliers and other partners, or on the Corporation’s operating results, financial position, liquidity or capital
expenditures. The issuance of permits and authorizations, negotiations and finalizations of agreements with regard to
development and acquisition projects, construction activities and procurement of equipment could be adversely impacted
by the COVID-19 restrictive measures. The full potential impact of COVID-19 on the Corporation's business is unknown as
it may continue for an extended period and will depend on future developments that are uncertain and cannot be predicted
including, and without limitations, the duration and severity of the pandemic, the duration of government mitigation
measures, the effectiveness of the actions taken to contain and treat the disease, and the length of time it takes for normal
economic and operating conditions to resume.
Construction activities at the Innavik hydro site, which, after a slight delay, started, on July 7, 2020, have since been
moving forward uninterrupted, and are expected to resume next spring according to schedule. Construction activities at
the Griffin Trail wind site, which started in the third quarter of 2020, and at the Hillcrest solar site, have continued without
interruption through the fourth quarter, and are expected to continue uninterrupted through 2021. Construction of Yonne II
wind project, which started in the third quarter of 2020, has hardly been impacted by the COVID-19 restrictive measures
taken by the French Government, and the construction has been completed in December 2020, subject to commissioning
and testing.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p167
(in thousands of Canadian dollars, except as noted and amounts per share)
32. CAPITAL MANAGEMENT
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 $5,884,813 as at December 31, 2020.
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 or, for qualifying projects in the United States, through tax
equity 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, 2020, 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, 2020, Mesgi'g Ugju's'n, Mountain Air, Theil-Rabier and
Montjean facilities were in breach of their credit agreements (See Note 21 – Long-term loans and other borrowings for
details).
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.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p168
(in thousands of Canadian dollars, except as noted and amounts per share)
33. 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.
"Revenues Proportionate" are Revenues plus Innergex's share of Revenues of the operating joint ventures and
associates, other incomes related to PTCs, and Innergex's share of the operating joint ventures and associates' other
incomes related to PTCs. “Adjusted EBITDA” represents net earnings (loss) before income tax expense, finance costs,
depreciation and amortization, adjusted to exclude other net income, share of earnings (loss) of joint ventures and
associates, and change in fair value of financial instruments. "Adjusted EBITDA Proportionate" represents Adjusted
EBITDA plus the Corporation’s share of Adjusted EBITDA of the operating joint ventures and associates, other incomes
related to PTCs, and Innergex's share of the operating joint ventures and associates' other incomes related to PTCs.
Revenues Proportionate, Adjusted EBITDA and Adjusted EBITDA Proportionate 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 Revenues Proportionate, Adjusted EBITDA and Adjusted EBITDA
Proportionate should not be construed as an alternative to net earnings (loss), as determined in accordance with IFRS.
Except for Revenues Proportionate, Adjusted EBITDA and Adjusted EBITDA Proportionate 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.
Year ended December 31, 2020
Operating segments
Hydroelectric
Wind
Solar
Revenues
Innergex's share of revenues of joint ventures and
associates
PTCs and Innergex's share of PTCs generated
Revenues Proportionate
229,102
333,795
50,310
64,395
—
293,497
31,512
70,477
435,784
1,875
—
52,185
Segment
results
613,207
97,782
70,477
781,466
Segment Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures and
associates
PTCs and Innergex's share of PTCs generated
Segment Adjusted EBITDA Proportionate
173,869
263,945
39,214
477,028
49,826
—
223,695
16,840
70,477
351,262
1,076
—
40,290
67,742
70,477
615,247
Segment Adjusted EBITDA Margin
75.9 %
79.1 %
77.9 %
77.8 %
As at December 31, 2020
Hydroelectric
Wind
Solar
Segment
totals 1
Investments in joint ventures and associates
Property, plant and equipment acquired through business
acquisitions (Note 4)
Acquisition of property, plant and equipment during the year
1. Segment totals include only operating projects.
150,009
227,422
12,732
390,163
—
637
22,614
1,347
61,022
1,620
83,636
3,604
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p169
(in thousands of Canadian dollars, except as noted and amounts per share)
Year ended December 31, 2019
Operating segments
Hydroelectric
Wind
Solar
Segment
results
Revenues
Innergex's share of revenues of joint ventures and
associates
PTCs and Innergex's share of PTCs generated
Revenues Proportionate
218,918
304,724
33,400
557,042
64,761
—
283,679
37,020
37,060
378,804
2,118
—
35,518
103,899
37,060
698,001
Segment Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures and
associates
PTCs and Innergex's share of PTCs generated
Segment Adjusted EBITDA Proportionate
170,023
253,606
31,034
454,663
48,011
—
218,034
21,619
37,060
312,285
954
—
31,988
70,584
37,060
562,307
Segment Adjusted EBITDA Margin
77.7 %
83.2 %
92.9 %
81.6 %
As at December 31, 2019
Hydroelectric
Wind
Solar
Segment
totals 1
Investments in joint ventures and associates
Acquisition of property, plant and equipment during the year
Transfer of assets upon commissioning
188,559
2,102
—
252,055
12,753
526,658
15,582
954
318,429
456,196
15,809
845,087
1. Segment totals include only operating projects.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p170
(in thousands of Canadian dollars, except as noted and amounts per share)
The following table presents a reconciliation of the non-IFRS measures to their closest IFRS measures:
Revenues
Innergex's share of Revenues of joint ventures and associates
PTCs and Innergex's share of PTCs generated
Revenues Proportionate
Net loss from continuing operations
Income tax expense
Finance costs
Depreciation and amortization
Impairment of equity accounted investment
Impairment of project development costs
EBITDA
Other net income
Share of (earnings) loss of joint ventures and associates
Change in fair value of financial instruments
Adjusted EBITDA
Unallocated expenses:
General and administrative
Prospective projects
Segment Adjusted EBITDA
Innergex's share of Adjusted EBITDA of joint ventures and associates
PTCs and Innergex's share of PTCs generated
Segment Adjusted EBITDA Proportionate
Year ended December 31
2019
2020
613,207
97,782
70,477
781,466
(29,111)
18,897
233,143
228,526
26,659
—
478,114
(65,554)
7,524
2,025
422,109
38,211
16,708
477,028
67,742
70,477
615,247
557,042
103,899
37,060
698,001
(53,026)
118,851
231,766
194,579
—
8,184
500,354
(104,643)
(36,469)
49,933
409,175
32,583
12,905
454,663
70,584
37,060
562,307
Segment Adjusted EBITDA Margin
77.8 %
81.6 %
Geographic segments
As at December 31, 2020, 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, seven wind farms and three solar farms in
the United States, and one solar farm in Chile. The Corporation operates in four principal geographical areas, which are
detailed below:
Revenues
Canada
France
United States
Chile
Year ended December 31
2019
2020
439,224
95,485
73,802
4,696
613,207
435,069
94,974
27,499
—
557,542
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p171
(in thousands of Canadian dollars, except as noted and amounts per share)
As at
Non-current assets, excluding derivative financial instruments and
deferred tax assets 1
December 31, 2020 December 31, 2019
Canada
United States
France
Chile
1. Includes the investments in joint ventures and associates
Major Customers
3,504,403
1,990,997
922,330
166,881
6,584,611
3,629,942
1,293,983
891,764
142,268
5,957,957
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
Hydro-Québec
British Columbia Hydro and Power authority
Électricité de France
Hydroelectric and wind
Hydroelectric generation
Wind
Year ended December 31
2020
2019
244,505
172,722
92,261
509,488
249,004
158,197
91,701
498,902
34. COMPARATIVE FIGURES
Certain reclassifications have been made to the prior year's consolidated 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 cash flows and the related notes to the
financial statements. Comparative figures have been adjusted to conform to the current year's presentation.
35. SUBSEQUENT EVENTS
Repayment of Alterra loans
On January 11, 2021, the Corporation reimbursed the $90,839 balance of the Alterra term loan, which included a USD
tranche, for an amount of US$21,359 ($27,194) of principal and accrued interests. Also, on the same day, two related
interest rate swaps were unwound for a net cash outflow of $3,154.
Dividend Rates on Preferred Shares
The Corporation announced on January 8, 2021, that the applicable dividend rates for its Cumulative Rate Reset
Preferred Shares, Series A and Cumulative Floating Rate Preferred Shares, Series B have been modified. For Series A
shares, the dividend rate for the five-year period commencing on January 15, 2021, to but excluding January 15, 2026,
will be 3.244% per annum, or $0.2027 per share per quarter. For Series B shares, the dividend rate for the Quarterly
Floating Rate Period commencing on January 15, 2021, to but excluding April 15, 2021, will be equal to 2.91% per annum,
or $0.181875 per share per quarter.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p172
(in thousands of Canadian dollars, except as noted and amounts per share)
Weather Conditions in Texas, United States
On February 17, 2021, the Corporation reported that the recent unprecedented extreme winter weather conditions in
Texas had an impact on its ability to produce electricity at its Flat Top wind facility in Mills County, which resumed to
normal operations on February 20, 2021. As for the Shannon wind facility in Clay County, Foard City wind facility in Foard
County and the Phoebe solar facility located in Winkler County, while some power generation has continued, the
combined effect of supply interruptions, abnormal market pricing conditions and contractual obligations to supply a
predetermined daily generation under the power hedges, have had both positive and negative financial impacts depending
on varying conditions at different times.
While the higher market price environment has had a net favourable impact on the consolidated revenues, the
Corporation estimated the adverse financial impact of the weather events on a consolidated basis to be approximately
$80,000, due to the unfavourable impact from the realized losses on the power hedges, and from the Corporation’s share
of loss of joint ventures and associates also related to realized losses on the power hedges. Force majeure and other
mitigating possibilities are being evaluated.
Innergex Renewable Energy Inc.
Annual report 2020
Notes to the Consolidated Financial Statements p173
(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
inverstorrelations@innergex.com
Transfer Agent and Registrar
For information
concerning share
certificates, dividend
payments, a change of
address, or electronic
delivery of shareholder
documents, please
contact:
Computershare Investor
Services Inc.
1500 Robert-Bourassa
Blvd, Suite 700
Montreal QC H3A 3S8
Tel. 1 800 564.6253
514 982.7555
service@computershare.com
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
BB+
B+/P-4 (High)
B+/P-4 (High)
Common Shares - TSX: INE
Credit Rating by Fitch Rating
Innergex Renewable Energy Inc. had 174,582,586
common shares outstanding as at December 31,
2020, with a closing price of $27.37 per share.
Innergex Renewable Energy Inc.
Series A Preferred Shares
Series C Preferred Shares
BBB-
BB
BB
Series A Preferred Shares - TSX: INE.PR.A
Innergex Renewable Energy
Inc. currently has
3,400,000 Series A preferred shares outstanding, with
a nominal value of $25 and a fixed cumulative
preferential annual cash dividend of $0.8108 per
share, payable quarterly on the 15th day of January,
April, July and October. Series A preferred shares are
redeemable by the Corporation since January 15,
2021.
Series C Preferred Shares - TSX: INE.PR.C
Innergex Renewable Energy
Inc. currently has
2,000,000 Series C preferred shares outstanding,
fixed-rate
with a nominal value of $25 and a
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
Innergex
the holder's option
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.
into
Dividend Reinvestment Plan (DRIP)
Innergex Renewable Energy Inc. offers a Dividend
Reinvestment Plan (DRIP) for its shareholders of
common shares. This plan enables eligible holders of
common shares to acquire additional common shares
of the Corporation by reinvesting all or part of their
cash dividends. For more information about the
Corporation's DRIP, please visit our website at
innergex.com or contact the DRIP administrator:
Computershare Trust Company of Canada. Please
note that if you wish to enrol in the DRIP but own your
financial
shares
institution, you must contact this intermediary and ask
them to enrol in the DRIP on your behalf.
through a broker or
indirectly
Independent Auditor
KPMG LLP
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