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Innergex to find sweet spot with expansion into US solar, wind markets

Innergex Renewable Energy Inc. will start its U.S. expansion into solar and wind industries through joint ventures and acquisitions, working toward building its own development pipeline, the company's CEO said. The Longueuil, Québec-based company's U.S. operations will be based in San Diego, CEO and president Michel Letellier said during Innergex's second quarter earnings call on Aug. 4.

"The wind regime in the Midwest and Texas is very good," he said. "There is definitely good opportunity over there. Solar is very interesting in that area, but that doesn't mean we won't be focused on other areas."

Letellier said he hopes to have five to six employees based in the U.S. by the end of the year, depending on the success of its operations there. The company's sweet spot is 150 MW to 200 MW projects, Letellier said in an interview with S&P Global Market Intelligence, though he and his management team are open to projects of any size.

"If we do a joint venture, we don't have any problems looking at 200, 300 MW wind farms in the United States and solar farms in the range of 200, 300 MW," he said.

While the smaller projects may provide an easier avenuge into the U.S. market, what is more important is a potential project's profitability, Letellier added. Innergex recently entered the French market after completing its €51.4 million acquisition of three wind projects in the Bourgogne-Franche-Comté region. The projects have a combined capacity of about 119.5 MW. Innergex is also exploring moving into hydropower projects in Latin America.

Second-quarter revenues increased 25%, to C$109.5 million, from the same period the year before. Net earnings were C$14.1 million in the second quarter after the company recorded a net loss of C$2.3 million in the first quarter. But year-over-year, Innergex's second-quarter net profits fell by about C$1.6 million.

For the rest of the year, Letellier said during the earnings call, Innergex looks to recover from "some hiccups" with commissioning new hydro facilities. Innergex must make mechanical adjustments on the deflector of its 25.3MW Boulder (Pebble) Creek Hydro facility during the winter. At the 81.4MW Upper Lillooet River facility, in British Columbia, the river's sediment has caused some damage to the plant's shaft seal.

Uncertain about U.S. regulations

One of Innergex's concerns with the U.S. renewable energy industry is what will happen to prices after the federal investment and production tax credits expire at the end of 2019. Letellier said streamlining the permitting process and adding a carbon tax would help renewables.

"[Purchase power agreements] are being signed at very low costs at around 2 cents[/kWh] in many states and the tax equity gets 2 cents, so it makes roughly 4 cents in project revenue," he said. "But if you have the PTC gone, you have PPAs being signed around 3.5 to 4 cents and we could use project finance. It would probably be easier and less cumbersome than putting a tax equity structure in place."

Also influencing renewable energy prices will be how the federal and state governments will provide incentives for nuclear plants to keep operating.

"This is a big unknown for the electricity market, because we know there is a lot of natural gas available at a reasonable price and natural gas with renewable energy can do a lot of good compared to using coal," Letellier said. "But once coal is gone, the next question is how long the nuclear plants will be competitive in the new reality going forward."