Cautionary statement on forward-looking information

To inform readers of Innergex Renewable Energy Inc.’s (“Innergex”) future prospects, this website contains forward-looking information within the meaning of applicable securities laws (“Forward-Looking Information”).

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 terminology that state that certain events will or will not occur. It represents the projections and expectations of Innergex, relating to future events or results, as of the date of its publication.

Future-Oriented Financial Information: Forward-Looking Information includes future-oriented financial information or financial outlook within the meaning of securities laws, including information regarding Innergex’s expected production, projected revenues, Projected Free Cash Flows (defined below) and intention to pay dividends quarterly, the estimated project size, costs and schedule, including expected obtainment of permits, start of construction, work conducted and start of commercial operation for development projects and prospective projects 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 Innergex’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 expectations and assumptions made by Innergex, including, without restriction, those concerning production, hydrology, wind regimes, geothermal resources and solar irradiation, performance of operating facilities, project performance, economic, financial and financial market conditions, Innergex’s success in developing and constructing new facilities, expectations and assumptions concerning availability of capital resources, economic and financial conditions, timely performance by third parties of contractual obligations, receipt of regulatory approvals and Innergex’s ability to execute its strategy for building shareholder value.

Risks and Uncertainties: Forward-Looking Information involves risks and uncertainties that may cause Innergex’s 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 “Risk Factors” section below and include, without limitation: the ability of Innergex to execute its strategy for building shareholder value; variability in hydrology, wind regimes, solar irradiation and geothermal resources; delays and cost overruns in the design and construction of projects; the ability to secure new power purchase agreements or renew any power purchase agreement (also referred to as “PPAs”, as further defined below); fluctuations affecting prospective power prices; health, safety and environmental risks; uncertainties surrounding the development of new facilities; obtainment of permits; equipment failure or unexpected operation and maintenance activity; interest rate fluctuations and financing risk; financial leverage and restrictive covenants governing current and future indebtedness; the possibility that Innergex may not declare or pay a dividend; 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; variability of installation performance and related penalties; litigation; performance of major counterparties; social acceptance of renewable energy projects; relationships with stakeholders; equipment supply; exposure to many different forms of taxation in various jurisdictions; changes in general economic conditions; regulatory and political risks; ability to secure appropriate land; reliance on various forms of PPAs (further defined below); availability and reliability of transmission systems (including due to reliance on third parties); foreign market growth and development risks; foreign exchange fluctuations; assessment of water, wind, solar and geothermal resources and associated electricity production; natural disasters and force majeure; cybersecurity; a credit rating that may not reflect actual performance of Innergex or a lowering (downgrade) of the credit rating; revenues from certain facilities will vary based on the market (or spot) price of electricity; risks related to U.S. production and investment tax credits, changes in U.S. corporate tax rates and availability of tax equity financing; risks inherent in geothermal resources; adverse claims to property title; and reputational risks arising from misconduct of representatives of Innergex.

Although Innergex 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 made as at the date of its publication on this Website (unless an earlier date is indicated) and Innergex 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.

The following table outlines the Forward-Looking Information contained in this Website, which Innergex 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 AssumptionsPrincipal Risks and Uncertainties
Expected production

For each facility, Innergex determines a long-term level of electricity production 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; for solar energy, the historical solar irradiation conditions, panel technology and expected solar panel degradation and for geothermal power facilities, the historical geothermal resources, natural depletion of geothermal resources over time, the technology used and the potential of energy loss to occur before delivery. Other factors taken into account 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 long-term level of electricity production.

For the purpose of this Website, Innergex estimates its consolidated long-term level of electricity production by adding together the expected long-term production of all its facilities in operation.

Improper assessment of water, wind, solar and geothermal resources and associated electricity production
Variability in hydrology, wind regimes, solar irradiation and geothermal resources
Risks inherent in geothermal resources
Equipment supply
Equipment failure or unexpected operation and maintenance activity
Natural disasters and force majeure
Regulatory and political risks affecting production
Health, safety and environmental risks affecting production
Variability of installation performance and related penalties
Availability and reliability of transmission systems
Litigation
Projected revenues

For each facility, expected annual revenues are estimated by multiplying the long-term level of electricity production, by a price for electricity stipulated in each facility’s power purchase agreement (“PPA”), secured with a public utility or other creditworthy counterparty mainly. For the purpose hereof, a “PPA” includes power purchase agreements, electricity supply agreements, electricity purchase agreements, renewable energy supply contracts, power hedges or contracts for difference.

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. In most cases, power purchase agreements also contain an annual inflation adjustment based on a portion of the Consumer Price Index.

The above excludes facilities, which receive revenues, based on the market (or spot) price for electricity, for which revenues are estimated based on prospective power prices, general economic conditions and the market (or spot) price of electricity.

For the purpose of this Website, Innergex estimates its consolidated revenues by adding together the projected revenues of all the facilities in operation.

See principal assumptions, risks and uncertainties identified under “Expected Production”
Reliance on various forms of 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 Power Purchase Agreements or renew any Power Purchase Agreement
Exposure to many different forms of taxation in various jurisdictions
Projected Free Cash Flow and intention to pay dividend quarterly

Innergex estimates “Projected Free Cash Flows” 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 flows attributed to non-controlling interests, plus or minus other elements that are not representative of Innergex’s long-term cash generating capacity, such as transaction costs related to realized acquisitions (which are financed at the time of the acquisition), realized losses or gains on derivative financial instruments used to hedge the interest rate on project-level debt or the exchange rate on equipment purchases. Innergex estimates the annual dividend it intends to distribute based on Innergex 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.

See principal assumptions, risks and uncertainties identified under “Expected Production” and “Projected Revenues”
Interest rate fluctuations and financing risk
Financial leverage and restrictive covenants governing current and future indebtedness
Equipment failure or unexpected operation and maintenance activity
Foreign exchange fluctuations
A credit rating that may not reflect actual performance of Innergex or a lowering (downgrade) of the credit rating
Exposure to many different forms of taxation in various jurisdictions
Possibility that Innergex may not declare or pay a dividend
Estimated project size, costs and schedule, including expected obtainment of permits, start of construction, work conducted and start of commercial operation for development projects and prospective projects.

For each development project and prospective project, Innergex may provide (where available) an estimate of potential installed capacity, estimated project costs, project financing terms and each project’s development and construction schedule, based on its extensive experience as a developer, in addition to information directly related 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 contractor retained for the project.

Innergex 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 Innergex evaluates based on its experience as a developer.

 

Uncertainties surrounding the 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
Social acceptance of renewable energy projects
Ability to secure new power Purchase Agreements or renew any Power Purchase Agreement
Relationships with stakeholders
Adverse claims to property title
Equipment supply
Interest rate fluctuations and financing risk
Risks related to U.S. production and investment tax credits, changes in U.S. corporate tax rates and availability of tax equity financing
Regulatory and political risks
Higher-than-expected inflation
Natural disaster
Ability of Innergex to execute its strategy for building shareholder value
Failure to realize the anticipated benefits of completed and future acquisitions
Changes in governmental support to increase electricity to be generated from renewable sources by independent power producers
Regulatory and political risks
Foreign market growth and development risks
Outcome of insurance claims
Reputational risks arising from misconduct of representatives of Innergex

Risk Factors

The following are certain risk factors relating to Innergex. This list is not exhaustive and only represents a summary of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Website.

Ability of Innergex to Execute Its Strategy for Building Shareholder Value

Innergex’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 Innergex 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 Innergex 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 Innergex.

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 Innergex and the value that it would receive in exchange for their divestiture. Innergex may underestimate the costs necessary to bring power generating facilities into commercial operation may be unable to quickly and efficiently integrate new acquisitions into its existing operations, inaccurately evaluate the value of its assets or be unable to find a purchaser therefore in a manner which timely supports Innergex’s strategy.

Variability in Hydrology, Wind Regimes, Solar Irradiation and Geothermal Resources

The amount of energy generated by Innergex’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. Innergex’s revenues may be significantly affected by events that impact the hydrological conditions of Innergex’s hydroelectric project facilities such as low and high-water flows within the watercourses on which Innergex’s hydroelectric facilities are located. In the event of severe flooding, Innergex’s hydroelectric facilities may be damaged. Geothermal resources by their nature deteriorate over time. There is no certainty that there will be sufficient geothermal fluids to maintain the resource or that generation of power will permit maintenance of the resource as presently anticipated. Similarly, the amount of energy generated by Innergex’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 Innergex’s revenues and profitability. Finally, the amount of energy to be generated by Innergex’s solar farms will depend on the availability of solar radiation, which is naturally variable. Lower solar irradiation levels at the location of Innergex’s solar farms over an extended period may reduce the production from such facilities and Innergex’s revenues and profitability. Variability in hydrology, geothermal resources, 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 Innergex will undertake. A number of factors which 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 commercial operation within the delay stipulated in their PPA, Innergex may be subject to penalty payments or the counterparty may be entitled to terminate the related PPA.

The Ability to Secure New Power Purchase Agreements or Renew Any Power Purchase Agreement

Securing new PPAs, which is a key component of Innergex’s growth strategy, is a risk factor in light of the competitive environment faced by Innergex. Innergex 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, Innergex faces competitors ranging from large utilities to small independent power producers, some of which have significantly greater financial and other resources than Innergex. There is no assurance that Innergex will be selected as power supplier following any particular request for proposals in the future, that Innergex 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 Innergex is unable to secure or renew PPAs for its development assets or maintain or renew PPAs for its producing assets or contract for the sale of 100% of generation, Innergex may be forced to sell electrical power generated at market price. Although, most of the output of Innergex is sold under PPAs, output not sold under PPAs is and will be subject to merchant prices. If Innergex is unable to produce sufficient power to meet its contractual obligations under its PPAs, Innergex will be forced to purchase third-party power at merchant prices. If the settlement point of Innergex’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 Innergex 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 Innergex’s output within any given block is insufficient to meet its contractual commitments, it may be required to purchase third party power at merchant prices to meet its commitments. This potential risk is referred to as a “shape risk”.

The market price of power in individual jurisdictions can be volatile and may be incapable of being controlled. If the price of electricity should drop significantly, in each of the cases described above, the economic prospects of the operational properties that rely, in whole or in part, on merchant prices or development properties in which Innergex has an interest, could be significantly reduced or rendered uneconomic. A material reduction in such prices, or a non-material reduction in such prices coupled with the impact of the aggregate risks described above, could have a material adverse effect on Innergex’s financial condition.

Health, Safety and Environmental Risks

The ownership, construction and operation of Innergex’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 Innergex’s business. Innergex 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, Innergex 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. As a consequence, no assurances can be given that additional environmental and workers’ health and safety issues relating to presently known or unknown matters will not require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) material to its business and operations.

Uncertainties Surrounding Development of New Facilities

Innergex 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. Innergex 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, Innergex could be adversely affected.

Obtainment of Permits

Innergex does not currently hold all the approvals, licences and permits required for the construction and operation of the development projects or the prospective projects, including environmental approvals and permits necessary to construct and operate the development projects or the prospective projects. The failure to obtain or delays in obtaining all necessary licences, approvals or permits, including renewals thereof or modifications thereto, could result in construction of the development projects or the prospective projects being delayed or not being completed or commenced. There can be no assurance that any one prospective project will result in any actual operating facility.

In addition, delays may occur in obtaining necessary government approvals required for future power projects.

From time to time, and to secure long lead times required for ordering equipment, Innergex may place orders for equipment and make deposits thereon or advance projects prior to obtaining all requisite permits and licences. Innergex 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 Innergex.

Environmental permits to be issued regarding any of the development projects or the prospective projects may contain conditions that need to be satisfied prior to obtaining a PPA, to start construction, during construction and during and after the operation of the development projects. It is not possible to predict the conditions imposed by such permits or the cost of any mitigating measures required by such permits.

Equipment Failure or Unexpected Operations and Maintenance Activity

Innergex’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, Innergex’s business, operating results, financial condition or prospects could be adversely affected.

Interest Rate Fluctuations and Financing Risk

Interest rate fluctuations are of particular concern to a capital-intensive industry such as the electric power business. Innergex faces interest rate and debt financing risk in respect of floating-rate bank credit facilities, used for construction and long-term financings. Innergex’s ability to finance debt on favourable terms is dependent on debt capital market conditions, which are inherently variable and difficult to predict. Interest rate fluctuation and financing risks could affect Innergex’s ability to raise additional capital.

Financial Leverage and Restrictive Covenants Governing Current and Future Indebtedness

Innergex’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 Innergex and its subsidiaries are leveraged could have important consequences to shareholders, including: (i) Innergex’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 Innergex’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 Innergex’s and its subsidiaries’ borrowings will be at variable rates of interest, which exposes Innergex and its subsidiaries to the risk of increased interest rates; and (iv) Innergex and its subsidiaries may be more vulnerable to economic downturns and be limited in their ability to withstand competitive pressures.

Innergex 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 Innergex’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 Innergex’s and its subsidiaries’ ability to obtain additional financing, withstand downturns in Innergex’s and its subsidiaries’ business and take advantage of business opportunities. Moreover, Innergex 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 Innergex’s or its subsidiaries’ ability to grow the business, acquire assets or take other actions Innergex or its subsidiaries might otherwise consider appropriate or desirable.

Possibility that Innergex May Not Declare or Pay a Dividend

The declaration of dividends is at the discretion of the Innergex’s board of directors even if Innergex has sufficient funds, net of its liabilities, to pay such dividends.

Innergex may not declare or pay a dividend if Innergex’s cash available for distribution is not sufficient or if there are reasonable grounds for believing that (i) Innergex is, or would after the payment be, unable to pay its liabilities as they become due, or (ii) the realizable value of Innergex’s assets would thereby be less than the aggregate of its liabilities and stated capital of its outstanding shares.

Failure to Realize the Anticipated Benefits of Completed and Future Acquisitions

Innergex believes that completed and future acquisitions will provide benefits for Innergex. 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 Innergex. The realization of such benefits may be affected by many factors, many of which are beyond the control of Innergex.

Changes in Governmental Support to Increase Electricity to be Generated from Renewable Sources by Independent Power Producers

Development and growth of renewable energy is dependent on governmental support, policies and incentives. Many governments have introduced portfolio standards, tax credits and other incentives to increase the portion of renewable energy in their electricity generation supply mix to reduce greenhouse gas emissions over time. There is a risk that governmental support providing incentives for renewable energy could change at any time and that additional increase in the procurement of renewable energy projects from independent power producers be reduced or suspended at any time. As a result, Innergex may face reduced ability to develop its prospective projects and may suffer material write-offs of prospective projects.

Variability of Installation Performance and Related Penalties

The ability of Innergex’s facilities to generate the maximum amount of power which can be sold to purchasers of electricity under various forms of PPAs is an important determinant of Innergex’s revenues. If one of Innergex’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 Innergex. The payment of any such penalties by Innergex could adversely affect the revenues and profitability of Innergex.

Litigation

In the normal course of its operations, Innergex 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. Innergex maintains adequate provisions for its outstanding or pending claims, including those identified under section “Legal Proceedings and Regulatory Actions”. The final outcome with respect to outstanding, pending or future actions cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on the financial position or results of operation of Innergex in a particular quarter or financial year.

Performance of Major Counterparties

Innergex 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 Innergex. Failure of any equipment supplier, contractor or transmission provider to meet its obligations to Innergex may result in Innergex not being able to meet its commitments and thus lead to potential defaults under PPAs.

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

Innergex enters into various types of arrangements with communities or joint venture partners for the development of its projects. Certain of these partners may have or develop interests or objectives which are different from or even in conflict with the objectives of Innergex. Any such differences could have a negative impact on the success of Innergex’s projects. Innergex 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 Innergex to complete any given project on time or at all.

Equipment Supply

Innergex’s development and operation of power facilities is dependent on the supply of equipment from third parties. Equipment pricing may rapidly increase depending, among others, on the equipment availability, the raw material prices and on the market for such product. Any significant increase in the price of supply of equipment could negatively affect the future profitability of Innergex’s facilities and Innergex’s ability to develop other projects. There is no guarantee that manufacturers will meet all their contractual obligations. Failure of any supplier of Innergex to meet its commitments would adversely affect Innergex’s ability to complete projects on schedule and to honour its obligations under PPAs.

Exposure to Many Different Forms of Taxation in Various Jurisdictions

Innergex is subject to many different forms of taxation in various jurisdictions throughout the world, including but not limited to, income tax, withholding tax, tax on capital, property tax, sales tax, transfer tax, social security and other payroll related taxes, which may be amended or may lead to disagreements with tax authorities regarding the application of tax law. Tax law and administration is extremely complex and often requires Innergex to make subjective determinations. The computation of taxes involves many factors, including the interpretation of tax legislation in various jurisdictions in which Innergex is or may become subject to tax assessments. Innergex’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, Innergex may have to record additional tax expenses and liabilities, including interest and penalties.

Changes in General Economic Conditions

Changes in general economic conditions could have an effect on the assessment of the value of Innergex’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 Innergex have fixed price adjusted annually for inflation on a CPI formula basis. If the inflation is lower than expected or if it decreases, Innergex’s projected revenues and free cash flow may be lower than expected or reduced which would respectively impact the payout ratio.

Regulatory and Political Risks

The development and operation of power generating facilities are subject to changes in governmental regulatory requirements and the applicable governing statutes, including regulations related to the environment, unforeseen environmental effects, general economic conditions and other matters beyond the control of Innergex.

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 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 Innergex’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 Innergex’s compliance with the terms thereof. 

Ability to Secure Appropriate Land

There is significant competition for appropriate sites for new power generating facilities. Optimal sites are difficult to identify and obtain given that geographic features, legal restrictions and ownership rights naturally limit the areas available for site development. There can be no assurance that Innergex will be successful in obtaining any particular site in the future.

Reliance on Various Forms of PPAs

The power generated by Innergex 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, Innergex’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, Innergex may be subject to penalty payments or the counterparty may be entitled to terminate the related PPA or power hedges.

Availability and Reliability of Transmission Systems

Innergex’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 Innergex’s ability to deliver electricity to its various counterparties or to the point of interconnection, thereby affecting Innergex’s business, operating results, financial condition or prospects.

Foreign Market Growth and Development risks

Innergex may, regarding any international expansion of its activities, face risks related to (i) its ability to effectively consummate future acquisitions, create new partnerships and develop, construct and operate projects in an unfamiliar regulatory and procurement market (ii) competing with more established competitors, (iii) foreign exchange fluctuations, (iv) lack of knowledge of foreign market and (v) changes in international and local taxation.

Foreign Exchange Fluctuations

Innergex occasionally purchases equipment from foreign suppliers. As such, Innergex 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., Iceland 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.

Assessment of Water, Wind, Solar and Geothermal Resources and Associated Electricity Production

The strength and consistency of the water, geothermal, wind and solar resources at power facilities of Innergex may vary from what Innergex anticipates. Electricity production estimates of Innergex are based on assumptions and factors that are inherently uncertain, which may result in actual electricity production being different from the estimates of Innergex, including (i) the extent to which the limited time period of the site-specific hydrological, wind, geothermal or solar data accurately reflects long-term water flows, wind speeds, geothermal resources and solar radiation; (ii) the extent to which historical data accurately reflects the strength and consistency of the water, wind, solar and geothermal resources in the future; (iii) the strength of the correlation between the site-specific water, wind, solar and geothermal data and the longer-term regional data; (iv) the potential impact of climatic factors and climatic change; (v) the accuracy of assumptions on a variety of factors, including but not limited to weather, icing and soiling of water and wind turbines and snow on solar panels, site access, wake and line losses, replenishment and maintenance of geothermal resources 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.

Natural Disasters and Force Majeure

Innergex’s facilities, operations and project under development are exposed to potential damage, partial or full loss, resulting from environmental disasters (e.g. floods, high winds, fires, and earthquakes), equipment failures or other unforeseen events. The occurrence of a significant event which disrupts or delay the ability of Innergex’s power generation assets to produce or sell power for an extended period, including events which preclude existing customers under PPAs from purchasing electricity, could have a material negative impact on the business of Innergex. Innergex’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 Innergex from performing its obligations pursuant to PPAs or other agreements with third parties. Furthermore, force majeure events affecting our assets could result in damages to the environment or harm third parties. In addition, many of Innergex’s projects are located in remote areas which make access for repair of damage difficult.

Cybersecurity

Innergex is dependent on various information technologies to carry out multiple business activities. A successful cyber intrusion, such as, and not limited to, unauthorized access, malicious software or other violations on the system that control generation and transmission at any of our offices or facilities could severely disrupt or otherwise affect business operations or diminish competitive advantages. These attacks on our information base systems through theft, alteration or destruction could 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 Innergex’s business, operations, financial condition and operating results.

Credit Rating May Not Reflect Actual Performance of Innergex or a Lowering (Downgrade) of the Credit Rating

The credit ratings applied to Innergex (the “Credit Ratings”) are an assessment, by the rating agencies, of Innergex’s ability to pay its obligations. The Credit Ratings are based on certain assumptions about the future performance and capital structure of Innergex that may or may not reflect the actual performance or capital structure of Innergex. Changes in the Credit Ratings in the future may affect the market price or value and the liquidity of the securities of Innergex. There is no assurance that any Credit Ratings will remain in effect for any given period of time 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, revenues from such facilities on the electricity market or under the applicable power purchase agreement will vary.

Risks related to U.S. Production and Investment Tax Credits (respectively “PTCs” and “ITCs”), Changes in U.S. Corporate Tax Rates and Availability of Tax Equity Financing

Innergex owns interest in projects for which on and off-site project activities are or were performed to qualify for U.S. renewable tax incentives. 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) in the U.S. may jeopardize or otherwise impede the effectiveness of such on and off-site project activities qualifying such projects for the full value of PTCs.

Qualification of the projects for PTCs or ITCs is critical to obtaining tax equity financing for wind projects. The inability to qualify the projects for PTCs or ITCs, in whole or in part, would adversely affect the financing options for those projects. If the qualification of a project for PTCs or ITCs is not successful, there may be a material impairment of Innergex’s investment in that project.

Other government actions could be taken that could, directly or indirectly, inhibit Innergex’s ability to raise tax equity financing.

Risks Inherent in Geothermal Resources

Until a geothermal resource is actually accessed and tested by production wells, the temperature and composition of underground fluids must be considered estimates only. In addition, estimates as to the percentage of heat that can be expected to be recovered at the surface and the efficiency of converting the heat into electrical energy are subject to a number of assumptions including, but not limited to, resource base temperature, areal extent of the geothermal reservoir, thickness of the geothermal reservoir, percentage of resource recovery and the expected lifetime of the geothermal reservoir. All statements as to MW capacity and expected generation, even in operational geothermal power facilities, are therefore necessarily subject to natural fluctuations. If any of these assumptions proves to be materially incorrect, it may affect the generation capacity of a property.

Adverse Claims to Property Title

Although Innergex 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 Innergex’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. Innergex’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. Innergex cannot guarantee that title to its properties will not be challenged. Title insurance is not always available, or available on acceptable terms, and Innergex’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 Innergex being unable to operate on its properties as permitted or being unable to enforce its rights with respect to its properties.

Reputational Risks Arising From Misconduct of Representatives of Innergex

Innergex’s success can be impacted by events affecting its reputation. In some cases, Innergex may be affected or be held accountable for the actions of directors, officers or employees of Innergex and those of third parties who act for or on behalf of Innergex. Although Innergex seeks to protect its reputation through Innergex’s internal policies, procedures and controls, there is a risk that events or actions of certain representatives of Innergex could affect its reputation. Adverse effects on Innergex’s reputation could affect its relationships with various stakeholders, partners, governments, employees, shareholders and the general public. This could, among other things, result in lost business opportunities, loss of revenue, litigation and reduce Innergex’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.