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With largest solar project in the state, Innergex bets on Texas

Quebec-based developer Innergex Renewable Energy Inc. is betting that power prices in the volatile Texas electricity market will provide healthy profits for its renewable projects there, including what's planned as the largest solar farm in the state.

Michel Letellier, president and CEO, told investors during an Aug. 14 earnings call that the company plans to develop projects in-house, rather than purchase them through M&As and pay a premium to initial developers.

"We're hoping to create value from our own team," Letellier said.

Texas is seeing volatility in prices as the Electric Reliability Council Of Texas experiences record-low reserve margins. The day before the earnings call, ERCOT, for the first time since January 2014, was forced to issue a low-level energy emergency alert as reserves dropped below 2,300 MW. Average real-time energy prices reached the $9,000-MW offer cap for the second time in the grid operator's history.

Texas is the largest wind power producer in the nation, and solar power is poised to take off as well. There are currently 1,873 MW of operating solar capacity in ERCOT, but the grid operator's July interconnection queue status report, released Aug. 13, lists a total of 8,974 MW of solar project proposals in the queue for 2021, roughly an 80% increase from current capacity.

Innergex's projects under construction in the state include the 350-MW Foard City Wind Project in northern Texas, owned by subsidiary Alterra Power Corp., and the 250-MW Phoebe Energy Project, west of Odessa, which will be the state's largest solar project. The company expects first full-year revenues of $21.8 million for the Foard City project and $25.6 million for the Phoebe project.

The Phoebe project, which qualified for an investment tax credit, will sell 100% of its output to the ERCOT power grid and receive a fixed price on 89% of the energy produced under a 12-year power purchase agreement, the company said. Construction costs are $337.7 million, and it is expected to begin commercial operation by the end of September.

Power prices will likely stabilize in the state, Letellier said.

"Natural gas prices have been quite low lately, and the price of electricity is you know fairly good," he said. "So my view is that ten years from now, in terms of pricing, we're viewing the price anywhere between $30-$40/MWh, and on that basis projects are pretty healthy financially."

The company reported second-quarter 2019 adjusted EBITDA of C$105.2 million, an increase from C$91.7 million in the year-ago period, missing the S&P Global Market Intelligence consensus estimate of C$126.40 for the most recent quarter.