Alterra Power (TSX:AXY) announced its financial and operating results for the year ended December 31, 2016.
As quoted in the press release:
At December 31, 2016, Alterra consolidated 100% of the results of operations from its Icelandic subsidiary HS Orka, while Alterra’s interests in the Toba Montrose, Jimmie Creek, Dokie 1, Shannon and Kokomo renewable power projects were accounted for as equity investments. In certain statements in this news release, Alterra’s results are disclosed as Alterra’s “net interest”, by which the Company means the effective portion of operating results that the Company would have reported if each of HS Orka (66.6%), Toba Montrose (40%), Jimmie Creek (51%), Dokie 1 (25.5%), Shannon (50% sponsor equity interest), Kokomo (93.8% sponsor equity interest), and Soda Lake (100% until Soda Lake was sold on January 30, 2015) had been reported in accordance with Alterra’s actual share of ownership at December 31, 2016 and for the year then ended. Management believes that net interest reporting, although a non-IFRS measure, provides the clearest view of Alterra’s performance. Refer to our MD&A for further information on non-IFRS measures. The Company also has disclosed information below regarding Adjusted EBITDA, another non-IFRS measure. Please refer to the Company’s definition of Adjusted EBITDA and further commentary thereto, which is incorporated in the Financial Results table below.
Highlights for the year and subsequent period include:
Revenue and Adjusted EBITDA: Consolidated revenue increased by 5% to $60.8 million and net interest revenue increased by 12% to $80.1 million due to the addition of the Shannon and Jimmie Creek projects as well as foreign exchange. Adjusted EBITDA increased by 5% on a consolidated and net interest basis to $48.5 million and $39.0 million respectively, primarily due to the addition of the Shannon and Jimmie Creek projects.
Reduced resource in 2016: Hydro generation was well above plan again in 2016; however, significantly lower than average wind speeds across much of North America affected the Shannon and Dokie 1 projects, combined with reduced resource availability at the Reykjanes field, resulted in net interest generation of 92.7% of budget.
- Potential high output well at Reykjanes field: A deep drilling program at Reykjanes was completed in January 2017, reaching a depth of 4,650 meters, making it the deepest drilled well in Iceland. Based on initial well readings, if the well is able to be utilized for electric production, it may produce as much as 30-50 MW of output, which would be directed to the Reykjanes plant. The final potential will not be known until late 2018, following further tests and research.
- Favourable arbitration results: In November 2016, HS Orka received positive results from an arbitration concerning the validity of a power purchase agreement with Norðurál Helguvík ehf. The arbitration panel determined that the power purchase agreement has lapsed due to certain circumstances, and therefore is at an end. HS Orka is now free to develop other projects and sell generation under new PPAs.
- Financing activities:
- Extension of holding company bond: In July 2016, the Company reached an agreement with the bondholders of an ISK-denominated bond ($60.0 million as of December 31) to extend the maturity of the bond by one year to July 2017, with an increase in coupon from 3.5% to 5.0%.
- Refinancing of OR bond: In October, the Company refinanced the $71.7 million bond originally held by Reykjavik Energy (“OR”) into two tranches. In the first tranche, held by OR, the principal was reduced to $36.0 million, with an increase in coupon from 1.5% to 5%, and maturity was extended to April 2018. The second $35.7 million tranche, maturing in 2021, was issued to Alterra’s Executive Chairman, Ross J. Beaty, and carries an 8.5% coupon. Both tranches carry no amortization and have no recourse to the Company, with security consisting solely of approximately 17% and 15% of the outstanding shares of HS Orka respectively.
- Retirement of other bonds: In December, the Company retired two smaller bonds held by Icelandic municipalities totaling $2.5 million.
Jimmie Creek commercial operations achieved: Jimmie Creek commenced commercial operations on August 1 on time and under budget by approximately $4.0 million. The project is now selling 100% of its power to the British Columbia Hydro and Power Authority under a 40-year power purchase agreement (“PPA”) that expires in 2056.
Kokomo commercial operations achieved: On December 29, the 7 MWDC Kokomo solar project commenced commercial operations and is now selling 100% of its output under a 20-year PPA with Duke Energy Indiana, Inc. Alterra owned 93.8% of the project at December 31 along with its partner, a subsidiary of Inovateus Solar, LLC (“Inovateus”).
200 MW Flat Top wind project:
- Turbine purchase / service agreement: Alterra completed agreements with Vestas Systems A/s (“Vestas”) under which Vestas will supply 100 V110-2.0 MW wind turbines and provide maintenance services for 10 years.
- Construction contractor: The Company completed a construction services agreement with Blattner Energy, Inc., a top-tier EPC contractor with local area familiarity.
- Offtake: Alterra is currently negotiating a power hedge as Flat Top’s primary revenue contract, and anticipates agreement on terms shortly.
- Project financing: The Company has agreed to terms and entered exclusivity with three lenders and a tax equity provider to provide 100% of the Flat Top project financing. The Company also plans on selling a 49% project partnership interest in conjunction with closing project financing, and has advanced to late-stage negotiations with select parties.
- Interconnection security: In 2016, the Company placed a total of $7.6 million in security deposits in preparation for construction of the project substation (with the same transmission service provider as Shannon).
- Commencement of construction: In December 2016, the Company commenced certain on- and off-site construction activities designed to qualify the project for production tax credits (“PTCs”).
13.5 MWDC Spartan PV 1 solar project: In October 2016, the Company and Inovateus completed a partnership agreement to develop a 13.5 MWDC solar project in East Lansing, Michigan (“Spartan PV 1”), with Alterra expected to hold a minimum ownership of 85%. Spartan PV 1 will sell 100% of its power to the Board of Trustees of Michigan State University for 25 years. The project commenced preliminary construction in March 2017 and is expected to achieve commercial operations later in the year.
USA wind projects: In 2016, the Company commenced on-site and off-site early-stage construction activities intended to qualify several wind projects for PTCs, with the estimated generation capacity for the qualifying projects between 1,200-1,700 MW, including Flat Top. The group of projects consist of projects fully owned by Alterra as well as projects owned by other wind developers with whom Alterra is working toward project acquisition or partnership.
Completion of equity financings: In October, the Company completed two equity financings, consisting of a bought deal and concurrent private placement, issuing 11,322,463 common shares at a price of C$6.00 per share, with gross proceeds of C$67.9 million.
Distributions: The Company received distributions during the year from equity investments of $15.1 million and another C$2.1 million subsequent to year end.
Commencement of dividends to shareholders: The Company’s Board of Directors approved a shareholder dividend plan in August 2016, under which the Company plans to issue C$0.05 per common share each year, on a quarterly basis (C$0.0125 per share per quarter). The first quarterly dividend was paid in December, and the second dividend has been approved for payment on or about March 15, 2017 (record date: February 28, 2017).