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Innergex targets U.S. renewable energy market with Alterra acquisition

The Stardale solar farm in East Hawksbury, Ont.

Joan Sullivan/Innergex Renewable Energy

Quebec's Innergex Reneweable Energy Inc. is refocusing on the buoyant U.S. renewable energy market after closing its $1.1-billion acquisition of Alterra Power Corp. on Tuesday.

By taking on Alterra's 485 megawatts of power production, Innergex becomes the largest independent power producer in British Columbia and one of the largest in Canada. But it is targeting the United States for strong growth despite the pro-coal rhetoric and skeptical stance on climate change of U.S. President Donald Trump.

"Alterra is part of a bigger strategy of Innergex of growing and getting outside of Canada," chief executive officer Michel Letellier said in an interview. "Alterra had focused on trying to develop the U.S. market and were quite successful, largely in Texas."

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The solar and wind sectors had a scare in December when some Republicans urged elimination of a generous tax credit that Washington provides to investors in renewable power projects so long as they have taxable income in the United States. However, the production tax credit – worth 2.4 US cents a kilowatt – survived in the tax reform legislation signed by Mr. Trump before Christmas.

"Alterra dug in quite heavily on that [tax-based] structure and they were successful in putting it together. So for us, it's opening up this pipeline in the U.S. for the next few years … There will be a lot of activity in the United States for the next two to three years based on that production tax credit."

Innergex – based in Longueuil and traded on the TSX – announced its planned takeover of Alterra in October, and had some stressful days when the production tax credit came under fire in the House of Representatives. While Mr. Trump has proclaimed his support for coal and nuclear electricity, there is strong support for the renewable sector among congressional Republicans, many of whom are from red states that are seeing tremendous growth in low-cost wind and solar generation and related jobs.

In addition to the existing generating assets acquired from Alterra, Innergex will add three advanced-stage projects in the United States with a net capacity of 686 MW, and a pipeline of prospective developments estimated at 4,350 MW.

National Bank analyst Rupert Merer followed both companies and said the deal provides Innergex with a strong growth platform that it had been lacking, acquired at a reasonable price. "If it had a weakness it is that it didn't have a great pipeline for growth and needed a better footprint in the U.S.," Mr. Merer said. "Alterra gives them that."

Renewable power developers should be valued like an infrastructure company, based on strength of cash flow and longevity of the asset base, the analyst said. Both Innergex and Alterra have longer-life assets, on average, than their peers.

Mr. Letellier said there have been dramatic declines in prices for photovoltaic solar power over the past several years and costs will continue to fall, both for large-scale projects and rooftop panels for homes and commercial buildings. Wind energy has seen improvement in capacity utilization – the typical wind turbine now operates at 42 per cent of its nameplate capacity, up from 30 per cent a few years ago – which in turn has driven down costs.

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In a report last month, the International Renewable Energy Agency (IRENA) said the wind energy cost has fallen by 25 per cent since 2010, while the cost of photovoltaic solar power is 73 per cent lower. The best onshore wind and solar projects could be delivering electricity for an equivalent of 3 US cents a kilowatt hour or less within the next two years, it said.

At those levels, renewable power competes with coal, natural gas or nuclear – even if the solar and wind generation needs to be backed up with batteries or other storage options to provide the electricity when it is needed. IRENA forecast that renewable power would be broadly competitive with traditional generation by 2020.

"I think the future for renewable energy is very strong," Mr. Letellier said. "I've been in the business since 1990 and we were struggling at the beginning to be competitive; but now it is not if, but when renewable energy will be competitive all over."

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