Innergex Renewable Energy Inc. and three Mi'gmaq First Nations communities will go ahead with plans to build a $365-million wind farm in the Gaspé Peninsula after signing a 20-year power purchase agreement with Hydro-Québec.
Longueuil, Que.-based Innergex and the Mi'gmawei Mawiomi said on Monday that the wind energy project will generate 150 megawatts of power, with a long-term average annual production of about 515,000 megawatt-hours, sufficient to power more than 30,000 Quebec households.
The Mi'gmawei Mawiomi is an assembly of three Mi'gmaq communities in the Gaspé region.
The project – Mesgi'g Ugju's'n (MU) Wind Farm LP – is a 50-50 partnership between Innergex and the three Mi'gmaq communities of Quebec: Gesgapegiag, Gespeg and Listuguj.
Innergex will manage construction and management of the wind farm, to be located on public lands in the Avignon Regional County Municipality and set for a 2016 launch.
"We are honoured and proud to have been chosen by the Mi'gmaq communities of Quebec to jointly develop this wind energy project, and the signing of a power purchase agreement marks an important milestone in the progression of its development," said Innergex president and chief executive officer Michel Letellier.
"This project is significant to the socio-economic development of the Mi'gmaq communities of Gesgapegiag, Gespeg and Listuguj," said Chief Claude Jeannotte, chairman of the Mi'gmawei Mawiomi.
"It will create wealth and jobs not only for our members, but also for our neighbours in Gaspésie and elsewhere in Quebec."
Under terms of the agreement with Hydro-Québec, the utility will pay 10.12 cents per kilowatt-hour with annual adjustments for inflation. Hydro-Québec plans to build a 26-kilometre transmission line to carry the electricity from the wind farm to its power grid, said Peter Grover, Innergex senior vice-president for project management.
Desjardins Securities analyst Jeremy Rosenfield said in a research note Monday that the project should ultimately be worth between $1 per share and $2 per share to Innergex.
"At this point, we do not believe the shares reflect the future potential value of the project, leaving potential longer-term upside from the new initiative," he said.
RBC Dominion Securities analyst Nelson Ng said in a note that the energy deal with Hydro-Québec is "an important milestone for the project."
Innergex and its partners will share in the returns from the project in varying proportions, based partly on their initial equity investment, they said.
The farm is expected to generate revenues and adjusted EBITDA of about $55-million and $45-millon, respectively, in the first year of operation.
Innergex plans to initially fund a majority of the equity investment and anticipates receiving about 75 per cent of the project's cash flows in the first year.
Over the first 15 years of operation, the Mi'gmaq communities will have the right to gradually increase their stake in the project up to 65 per cent by buying portions of Innergex' equity at a price based on the present value of future cash flows, using a predetermined rate of return.
Beginning in the 16th year, Innergex will receive between 35 and 40 per cent of the annual cash flows for the remaining life of the project.
Pre-construction activities are planned for late 2014 once all authorizations have been received, the partners said.
The estimated $365-million cost of the wind farm will be financed in a proportion of about 80 per cent with non-recourse, fixed-rate project-level debt. The partners say they have started a hedging program to fix the base interest rate through derivatives until project financing closes.
The environmental impact assessment has already been completed and submitted to the provincial ministry and there have been public discussions, they said.
Innergex is also involved in hydroelectric projects and solar farms. It has operations in Quebec, Ontario, British Columbia and Idaho.