Alterra Power's (MGMXF) CEO John Carson on Q2 2016 Results - Earnings Call Transcript

| About: Alterra Power (MGMXF)

Alterra Power Corp. (OTCPK:MGMXF) Q2 2016 Earnings Conference Call August 10, 2016 11:30 AM ET

Executives

Ross Beaty - Executive Chairman

John Carson - Chief Executive Officer

Lynda Freeman - Chief Financial Officer

Jay Sutton - Vice President, Hydro Power

Paul Rapp - Vice President, Wind and Geothermal Power

Asgeir Margeirsson - Chief Executive Officer, HS Orka

Analysts

Rupert Merer - National Bank

Jonathan Lo - Raymond James

Marin Katusa - KCR Funds

Mac Whale - Cormark Securities

Operator

Good morning, ladies and gentlemen and welcome to the Alterra Power Second Quarter Results Conference Call. [Operator Instructions] Please note that the conference is being recorded today, Wednesday, August 10, 2016. And I would like to turn the conference over to Mr. Ross Beaty. Please go ahead, sir.

Ross Beaty

Thank you very much, operator and good morning ladies and gentlemen. Welcome to the Alterra Power Corp. Second Quarter 2016 Financial and Operating Results Call. I would like to, first of all, point out we are going to be making some forward-looking statements today and direct your attention to the disclosure statement at the beginning of the presentation in our MD&A and website.

This presentation is also available to everybody online. If you enter the Alterra Power site, you will be able to find it easily and follow through with it as we go today. Both John Carson and I are both remote from the office, so I hope this will work reasonably well today and the best of our management team is in Vancouver and will be making presentations from there.

So, without further ado, I would like to introduce John Carson, our Chief Executive Officer who will take us through the results and quarterback the other members of our management team to present our results. Over to you, John.

John Carson

Thanks, Ross. It’s a good time in our company with the addition of the Shannon wind asset in the USA and the Jimmie Creek Hydro asset in British Columbia. We really have effectively completed large growth rates for the company. I am very excited about it personally and our team is. And so it’s an exciting time in the company and I hope you will sense some of that as we hear from various management members on this call. First, I would like to turn the call over to Lynda Freeman, our Chief Financial Officer, who will take us through the slide, which on the presentation that Ross had mentioned just a moment ago from Slide 4. Lynda, over to you.

Lynda Freeman

Thanks, John. Good morning, everyone. As is the norm at Alterra, so far, it’s been quite a year. With Jimmie Creek commencing commercial operations at the beginning of this month, the acquisition of Flat Top, the development of the solar portfolio in the U.S. and the start of the Shannon hedge on June 1 to name the major highlights. Although not all these major achievements have had a direct impact on our financial statements on June 30, this will be seen over the coming months and years. We have recorded the acquisition of Flat Top in the quarter with recognition of cash and contingent payments as well as the security that was placed with the project transmission provider in the period. On top of advancement in development and construction assets in the quarter, the company’s operating assets continued to perform well. The results of our operating assets are shown in our June 30 income statement with consolidated revenues and expenses reflecting 100% of HS Orka and all other operating assets accounted for as equity investments.

Turning to Slide 4 of our presentation, our consolidated results show revenue up marginally on the comparative quarter of 2015 and an adjusted EBITDA down $1 million. This is largely due to increased development spend in the year as we continue to look for new growth opportunities predominantly in the U.S. and in Iceland. Management continues to monitor performance of our operating assets on a net interest basis, with Slides 5 and 6 reflecting the quarterly results.

Generation was up at Toba Montrose and Dokie 1. However, the impact of a weakening Canadian dollar quarter-on-quarter reduced the impact on revenue and EBITDA for those assets. Generation was down at HS Orka. This was predominantly due to a 5-year maintenance shutdown in the quarter. However, revenue and EBITDA was sustained due to the strengthening of the Icelandic krona in the quarter. This is the second full quarter of operations from Shannon. And although the asset is performing extremely well, the results for the quarter suffered from a low wind period in fact reflecting the lowest wind speeds recorded in the last 20 years. This has had a direct impact on revenue and adjusted EBITDA.

Moving on to the balance sheet on Slide 7, our assets increased 3% to $610 million, largely reflecting the impact of the Flat Top acquisition as well as favorable movements in foreign exchange with both the Canadian dollar and the Icelandic krona strengthening since December. This line exchange impact naturally also impacted liabilities. And this, together with changes in fair values to short-term bonds plus recognition of the contingent payment related to Flat Top, which is payable on financial close and not from working capital, resulted in a 5% increase in liabilities. Our working capital continues to be reflected as a negative balance. This is largely due to Sweden holding company bonds, which are due in December 2016 and July 2017.

As seen on Slide 8, the bonds are secured on 44.8% of shares in HS Orka. Subsequent to the quarter, the Icelandic krona bonds, which was due in July 2016 was extended for 12 months. There was no change in collateral or principal just an increase in interest rate from 3.5% to 5% to this 1-year extension. Management expects to resume talks with the bondholders later in the year. The U.S. dollar bonds are due in December and management is working with a number of parties on refinancing efforts and we are expecting to complete the financing before they are due. Net cash flow from operations for the 6-month period remained consistent with the prior period at $9 million. And subsequent to the quarter, the company received project dividends of just over $7.5 million. These funds will be used to fund upcoming working capital and ongoing development spend.

Slide 9 documents our long-term debt on a net interest basis. Consistent with previous periods, I can confirm the company was in compliance with all debt covenants at June 30. With the exception of the revolving credit agreement, all debt is non-recourse to Alterra other than our remaining investment in the projects. I do refer you to Appendix 1 for further information on debt. Finally, I would like to also refer you to Appendix 2. This slide is included to provide a little extra guidance in relation to tax equity transactions. With the increase in U.S. production tax credits to 2020, the use of tax equity is likely to be a key source of financing for future transactions for the company and we wanted to ensure our investors had a full understanding of this unique form of financing.

That concludes my presentation and I will hand you back to John.

John Carson

Thanks for that, Lynda. And again, for any questions that you may have to those who have joined us today, we will have a period for you to ask any questions and answers you would like at the end of the presentation.

With that, I would like to turn it over to Jay Sutton, our head of Hydro operations to tell us where we are with the Toba Montrose and Jimmie Creek assets. Jay?

Jay Sutton

Thanks, John. So, we are referring to Slide 10, Toba Montrose had a successful second quarter of 2016 producing 275 gigawatt hours of energy versus our forecast of 227 gigawatt hours, so a 121% of plan. Our July generation was 95% of forecast due to slightly than lower forecast inflows. But for the year up to the end of July, we are 110% of plan over 40 gigawatt hours ahead of our forecast. The plan also achieved 97% utilization. Utilization is the measure of how much of the available resource we capture, so it reflects some of our maintenance outage time that we had in the spring.

We completed our annual maintenance work in April and the total plants continue to run well with no significant outages or operating issues. We continue to strive to reduce our operating costs and are now focusing on performing more work with internal resources to drive down these costs and increase our distributions further. Our crews continue to operate and maintain the plant safely and within our environmental commitments and we are now approaching 3 years without a recordable incident for our employees or our contractors. That’s it for Toba. John, back to you.

John Carson

Thanks, Jay. I would just like to point out in that last call on Slide 10 that it is the Toba Montrose operations team that will also handle the operations for Jimmie Creek. Those two plants are very close to each other. They are basically adjacent. And the highly skilled people we have had at Toba Montrose that Jay was just able to mention, are also going to be handling Jimmie Creek. So, it’s a good way to approach the future at Jimmie Creek.

With that, turning over to you, Paul for the Shannon highlights.

Paul Rapp

Sure. Thanks, John. Shannon continues to operate very well in Q2 and we had no safety, environmental or equipment issues. We continue to remain very high wind turbine availability and utilization. And GE who is doing the wind turbine operation and maintenance and the balance and plant maintenance is exceeding their contractual targets and is really working hard to minimize any downtime. As Lynda mentioned, April, May and June saw historically low wind speeds throughout the area of Texas, in which Shannon is located. And in fact, 2 of the 3 months of the lowest wind speeds on record. These wind speeds were very anomalous and led to a generation of 67% of plan for the quarter. Wind speeds rebounded in July and we produced 122% of planned generation.

Moving on to Dokie, Dokie also continues to operate very well. We completed our annual scheduled maintenance and expansion outage in late May and the facility is in top shape. Production year-to-date is slightly behind plan at 89% primarily due to lower than planned wind in July and January. All the months of the year have met or exceeded their budget targets for this year. Vestas continues to maintain the turbines well and is achieving very high turbine availability and utilization. And the Alterra and Vestas staff at site are continuing to operate with no safety or environmental issues.

Moving on to Slide 13, I will touch on our Icelandic operations. The combined generation from the Svartsengi and Reykjanes plants is at 98% of plan for the quarter and year-to-date and their resource utilization continues to be high. Highlights of the Svartsengi plant include that work will be completed this month in the next few weeks to connect the recently drilled new production hole, Svartsengi 25 to the plant, which will provide additional steam production. Once that hole is hooked up, we will move over to the second well of this drilled in the last year Svartsengi 26 and it will be tested in September. Early indications continue to be positive for this hole and we think it will be another good addition to production. It would be hooked into the plant later this year to early 2017. The new discharge system that we have talked about previously is – will be completed in the next few weeks, in late August at Svartsengi and this will allow for more steam utilization and generation at the plant by allowing more throughput of fluids for the plant.

Over at Reykjanes, we completed scheduled overhaul of Unit 1 in June and the unit was found to be in excellent condition. The most exciting thing happened at Reykjanes right now is the start of our deep drilling program that we have previously mentioned on these calls. The drill is on site and assembled and we expect drilling to commence in the next day or two days. This program will deepen an existing well in the field from its current depth of about 2.5 kilometers to 5 kilometers. It’s the first for Iceland and could result in very, very strong production well for the plant as well as providing the consortium that’s participating in the project with very valuable information on drilling at these extreme depths and temperatures.

That’s it for me. John, I will pass it back over to Jay to talk about Jimmie Creek.

Jay Sutton

Thanks Paul. So now referring to Slide 14, I am very pleased to say that construction of Jimmie Creek project is now complete and have transitioned the plant into operations. The installation of turbine generators was completed in June and testing and commissioning was performed through June and July, with our final performance test performed in last week of July. The plant generated electricity intermittently throughout the testing and we are able to sell that power to Powerex up until 1 August, when we achieved our commercial operation date. At the 1 August, our energy purchase agreement came into effect and we are now selling our power to BC Hydro under a 40-year agreement that expires in 2056. All the contractors have been demobilized from site and we are in the process of closing out the last few commercial items and efficiencies on the project. The final remaining work on site is the dismantling of the camp, which is underway and expected to be complete by next week.

The transition from construction to operations was seamless and the project is now being operated by the same crews that operate the East Toba and Montrose plants, as John mentioned earlier. Up to this morning, our generation is 103% of our prorated forecast for August and we are looking forward to continued strong generation of the plants through out the four months. I would like to thank the Jimmie Creek team here at Alterra and all of our contractors that worked so hard over the past 2 years to build this another high quality asset at Tobin Valley.

With that I will pass it back to you, John.

John Carson

Thanks Jay. And I echo your thanks to the team and to you Jay, for your leadership on this project. It’s just a fantastic addition to our renewable power portfolio. And I have been up to the plant very recently myself and it’s quite astounding to see what has been constructed there over these last couple of years. We are very happy that it’s now operating at full power, generating most days recently at 62 megawatts full output, so very exciting times and completing a growth leg for our company.

Let’s now turn to the last page of the presentation on Slide 15. Looking ahead, the first thing I would point you to there is a photograph of our small solar project that we have been working on. So first of it, two project portfolio. This is just a 7 megawatt project in Kokomo, Indiana where I actually lived at one point in my childhood, so it’s neat for me to go back there. I just paid the site visit and see some of the places where I have been and to see our company putting up a small plant there. In addition to that 20 megawatt solar portfolio, we also publicized the acquisition of a development project of 200 megawatts wind project in Texas called Flat Top.

Flat Top has one of the best renewable profile – generation profiles that we could find in Texas having streamed many, many projects. It has very high wind, higher than Shannon and it fits astride of three separate power markets to sell into. It’s been very attractive to commercial and industrial power purchasers with whom several of them we are in dialogue at this point and also several hedge providers have approached. A hedge is what we used on Shannon where we sell the bulk of the power under our contract for 13 years. But as I have stated, we may also be able to get the power purchase agreement for Flat Top, so exciting times there. We are also deepening equipment procurement conversations for that project. So all the development items are coming together, it’s going well.

Moving along to the second bullet, we have also advanced several other additional development stage projects. We haven’t publicized these as much. Once they become near-term pipeline, we certainly will publicize them. The reason we are focusing our efforts in the USA is that there is a 4-year tax incentive runway, goes all the way through 2020. This is an area which Alterra itself has deep expertise in executing, arranging and modeling these sophisticated tax transactions. It’s something that we have a lot of corporate experience and we have done well. So I am glad that we have invested the time and the team efforts to get to this place of expertise because with the recent extensions of those tax incentives, we stand to profit well.

We have also seen the second sub-bullet there, increased corporate and industrial appetite for renewable power. This is important and it is unique. In former days, these types of projects would sell their power to old school utilities and we are very happy when we are able to sell our power to utilities. But recently, we have seen corporate and industrial entities trying to green up their own power procurement portfolio and renewable projects have benefited from that. Now the pulling sound that you would hear industry wise is not from the utilities, it is from these corporate industrial off-takes. So this has changed the dynamic and it’s also changed the level of contractual opportunities that our projects face. So again because of this, we are at the right place at the right time having thoroughly ensconced ourselves into the USA market.

On the third bullet there, we have further advanced our Icelandic projects. Future projects there remain Reykjanes 4, which is a small secondary steam unit that requires no further drilling and also a 10 megawatt hydro plant called Brúarvirkjun. Ross and I plan to be in Iceland next week. We are going to observe the beginning of the deep drilling project and we will also be visiting the Brúarvirkjun project while we are there. Lastly, I would like to tell that we are still fording our small hydro development program in BC featured with the Tahumming project, which we publicized here before. We have gotten our full applications in and we are just attempting to move that forward as quickly as we can to take advantage of the BC Hydro standing offer program. So it’s exciting days for us. We have a lot on our tray and it’s all good and the company is – the people within our company are very excited. The team members have really caught that excitement and its good days around here at Alterra.

With that Ross, I would like to turn it back to you.

Ross Beaty

Okay, John. Thank you for that. And I think you have said it all. We had a good quarter. We have got a strong development pipeline remaining and we have had our success with Shannon and Jimmie Creek right behind us, so lots and lots of runway for continuing growth in the future and better results.

With that operator, I would like to turn the call over to questions. Thank you very much.

Question-and-Answer Session

Operator

Thank you, Sir. [Operator Instructions] And your first question will be coming from Rupert Merer at National Bank. Please go ahead.

Rupert Merer

Hi, good morning everyone and congratulations on your progress. Just to start out with looking at your growth projects or development projects, can you confirm that in this environment and the PPAs or hedges that you may be looking at that you are able to achieve your levered after tax IRRs in the double-digits or if you can give some more color on thoughts on returns on growth?

Ross Beaty

Thank you, Rupert. I will turn that question over to John. But for the benefit of any listeners and any people that would like to ask questions, I also want to remind people we do have our CEO of our Icelandic business, HS Orka on the line, Asgeir Margeirsson and he is available as well to answer your questions specific to Iceland that we are – we want to turn over to him, so John, can you take Rupert’s question, please?

John Carson

Sure. When we close a project like Shannon, like Flat Top, we certainly would Rupert, forecast double-digit return numbers. And we can certainly say that, that remains the case at both projects. So yes, whether we would go with a traditional PPA, which we are certainly exploring for a hedge at the Flat Top project given when that it’s even better than Shannon and given a pricing environment that is even better than Shannon close that we certainly would achieve those double-digit types of returns. So, I hope that, that clarifies enough for your questions?

Rupert Merer

Yes, great. And you gave some color on the market for PPAs and interest from corporates for PPAs, how competitive is that market now? Are you seeing pricing on these PPAs that is more attractive than what you might have seen from utilities over the last number of years?

John Carson

I would have to say probably yes to that and it’s only because there are more opportunities to sell power now, so we were seeing during the utility areas just rock-bottom prices from people who repeatedly had come back and back and back to the market again. Proportionately to where gas is pricing today and to where power is pricing today, I would say we are just a small turn above those days. So, I would say informally I do detect positive effects from that supply and demand change that we have seen. It’s very interesting though. It’s just not black and white in pricing. There are different aspects of PPAs these days. Some PPAs are more hedge-like and therefore, you always have to weigh out the pricing you get under a hedge left PPA or a hedge versus the pricing you would get from a traditional PPA. And traditional PPA means that the off-take is procuring every megawatt hour you produce rather than the hedged transaction where they are taking the bulk of the power that you produce. So, you would value that PPA power pricing a little higher, which means you would be willing to sustain a slightly lower price. So, that’s kind of where I am seeing the pricing fallout today. Of course, I won’t really be able to answer that question with definitiveness until we sign that next PPA.

Rupert Merer

Okay, great. And then looking at the capital requirements for these projects, in the past, you have worked successfully with private equity. We are seeing lot of equity – of private equity chasing infrastructure assets like this today. Are you in discussions again with some of those same participants and in private equity for financing your growth projects?

John Carson

Yes. I would say, first of all, just with respect to the project financing itself, i.e. the project lenders and tax equity providers, definitely there is a short and preferred list there of folks and we continue to remain in contact with. We haven’t really engaged though in the private equity type of discussions with much bigger at all yet. We certainly have the ability to build and own all of the 200 megawatts Flat Top project ourselves and we may do that. However that said, we have experienced some good and strong interest from known partners to enter into Texas for the first time. So, it is possible that we might sell 50% of the project, for example, at the beginning of construction. That will remain to be seen and the full dynamic of the transaction.

Rupert Merer

Okay, excellent. Thanks for the color. I will get back into queue.

John Carson

Thank you.

Operator

Thank you. Next question will be from Jonathan Lo at Raymond James. Please go ahead.

Jonathan Lo

Hi, thanks for taking my question. On the three wind projects in the U.S. with the 500 million megawatt potential, are these fully owned and would be qualified for the tax incentives?

John Carson

Yes. We fully own the Flat Top project and we fully own a few other wind development projects. As to whether they are fully qualified to PTCs, we feel that some of them are. Some of them there would still be work left to do this calendar year to make sure that we qualify for that full year tax incentive program. So, I would say ask me that question again at the end of the year with terms of the PTC qualification, the answer should be a yes. It’s a very modest expansion and a modest amount of work that’s required to qualify, but with respect to ownership, yes, we own a growing portfolio of 100% owned U.S. wind assets.

Jonathan Lo

And how much equity would you need to complete these projects?

John Carson

Yes, generally count on about 30% to 35% equity for the projects. That’s assuming tax equity-only refinancing. Now, stepping back from the project where we had the 30% to 35% equity that I just mentioned, it’s very common to have back leverage structures above the project to provide further debt financing for the project. So, while I told you that typically the equity is 30% to 35% in the end, our full equity if we were to back-lever might only be, say, 15% or 20% of the total project cost.

Jonathan Lo

And would taking the project cost for Shannon be a good representation to these other projects as well?

John Carson

It depends on how you measure it. So, I will just answer that first by saying if you measure it on dollars per kilowatt constructed or dollars per megawatt constructed, then yes, it will roughly be close to the same. It won’t vary a lot. If you measure and I will just let you know that as we are analyzing new projects dollars per KW or per megawatt is a very rough metric. It’s a first discussion metric, but the real number that you need to have for any project is the dollars per megawatt hour produced. This will reflect not only the strength and a resource it will also reflect the suitability of the particular turbine equipment for that wind resource. So, we really dig deeply on our team in terms of analysis to understand what is the cost per dollars, per megawatt hour produced for that project and there you would see that Flat Top will have a much lower cost per megawatt hour produced in Shannon and that reflects the higher wind and also the higher power prices now frankly that we are seeing there. So, that’s just a return enhancer for us. So, Flat Top is a well situated project and even excels Shannon on that metric.

Jonathan Lo

And so how many of these projects can you do? And is the constraint more on capital side or is it human resources?

John Carson

Yes, it’s the latter. It’s the latter. So, as we look at constraints for the projects, first of all, let me tell you that on the Flat Top side we have had many discussions with financiers around the project. They have all been very positively received by those financiers. Everyone wants to be in on the project in other words. We haven’t had a single person say anything remotely close to my desk is too full. Right now, so we have detected that there aren’t a lot of deals hitting the market at the moment. So, Flat Top stands alone in that respect. So with that, I think that the capital for the project is not a significant constraint. What about our equity capital? I have told you ways in which we can minimize the amount of equity capital that we put into a particular project, but that likewise we don’t see as a particularly constraining factor given our ability to either back lever or to raise equity funds through other means. We are not seeing that as a constraint. There could come a point where we get to a human constraint within the company, i.e., we have let’s say Flat Top, the solar portfolio, a couple of other transactions that we are in execution mode on and we just really could use another hand or two. We have been acutely aware of that possibility and frankly that would be a great problem for us to have. We are in contact not only with project financiers, but also with project development folks that we think could be relatively fast additions to our team. We don’t want to add team members too quickly or ahead of time. So, we are really trying to do a hedge staff on a just-in-time basis and I think we have been successful at doing that so far. When the time comes, when we have that good problem of another project, you will see us hiring more people.

Jonathan Lo

Great. And my last question if you were to initiate a dividend, would you consider a share consolidation first?

John Carson

That is something which we are discussing. We have certainly pondered that for quite a long time, Jonathan and we do – it does come up quite frequently both internally and with investor meetings and with our board. And when we make a call on that definitively, we will certainly make the announcement and you will hear about it, but it’s something which we do consider, yes.

Jonathan Lo

Great, thanks for taking my questions.

Operator

Thank you. Next question will be from Marin Katusa at KCR Funds. Please go ahead.

Marin Katusa

Great work, guys. Look forward to Iceland next week. Just to add on to Jonathan’s question. Looking at the financials with the arbitration, any news on the arbitration in Iceland and also timing on the arbitration news and also potentially where we are at with the concept of a U.S. listing and the dividend, do we see that in 2016 calendar year or more of a 2017?

Ross Beaty

That was good. I will start the answer on that and John if you had any adds you can pick that up. First, on the arbitration, we expect some news on the arbitration decision sometime this fall, Marin, like the end of October, I think possibly, unless they are extended as sometimes they do. So, that’s roughly when we expect just like that, that news. In terms of dividend, also as I mentioned to Jonathan, we – this comes up very frequently. It’s something we do want to work towards. We made that public many times. And as we grow our cash, free cash flow and as we grow our operations, obviously the time that we are going to be able to initiate that is coming sooner and sooner. So we certainly expect I mean in the next while and what that means to the extent that our Board is comfortable with initiating the dividend, we will do it. As far as I am concerned, it can’t come too soon. And I have made that comment many times as you know. What was the other question?

Marin Katusa

The timing of a possible U.S. listing?

Ross Beaty

Right. The U.S. listing, so we have been talking about that as well over – for quite a while. And the discussions are really the pluses and the minuses. The pluses are of course we have a broader exposure to particularly retail investors. We discussed that point with a number of our institutional investors very recently and you could see unanimous view is that it doesn’t matter, it’s our Canadian listing is very good. It’s very easy for them to trade-in on the Toronto Stock Exchange. And it doesn’t add anything particularly especially if there is any cost involved. There is a cost, it’s one of the negatives. It’s not huge, but it’s not insignificant and then there is certain potential liability and certainly, more baggage for our legal team, which has already – the long suffering with existing securities regulations in Canada. So there is – it’s not a huge cost. It’s not a huge amount of baggage. But – and as there are some benefits, but it’s a decision we have to think of carefully. And right now, we haven’t got enough positives to outweigh the negatives. So it’s not something we are looking to do in the near future. This may change in the future, particularly as we grow our assets in the U.S. Currently we only have Shannon in the U.S. The rest of generation is in Canada or Iceland. And if we – we are producing today north of 800 megawatts. If we had a couple of more sort of Shannon sized projects, now they are a couple of hundred and let’s say another 400 megawatt of U.S. wind, but assume we go from 800 and change, 830 or so to 1,230 increase of 50%, but 600 of that would come from the U.S., so that makes it more sensible I think to have a U.S. that we naturally become more of a U.S centric company. But for the moment, we are not and so that’s on the sidelines for now.

Marin Katusa

Thanks guys.

Operator

Thank you. And your next question will be from Mac Whale at Cormark Securities. Please go ahead.

Mac Whale

Hi, John. When you look at with a 4-year runway on the tax incentive and you have got these corporates coming and but with interests and off-takes, what does the pipeline of projects look like in terms of quality, are there a lot of I guess, the short question is there is a lot of Flat Top, 200 megawatt Flat Top that was there, can you just give some sort of indication of what the sort of development supplies like?

John Carson

Sure. 200 is usually the larger end of the project sizes that we would see. Out of our other wholly owned wind assets, we have got one that may be as much as 300, 350, but we might face that one into the 200 or may be 150. So just to characterize it, let’s call 200 the upper size of the bandwidth. Past that, we are now looking at one that is 150 megawatts, a little bit away from Texas. We are also looking at a couple of smaller opportunities, a 50-plus megawatt opportunity, 75 megawatt opportunity and then lastly a development stage opportunity that we have been working on for some time that would be one of our largest ones at 320 megawatts. So it was a pretty broad range. I would say the general range of expectation will be from a 40 megawatt minimum up to a 300, 320 megawatt maximum, that’s what we expect to see. And then looking at the 4-year runway, I would hope that we would get to four to six projects like this at least over that runway. That’s our goal. And I would love to beat that goal. But right now, we would love to have a good strong handful of those larger wind projects to be developed within our company during these next years.

Mac Whale

And so when you aim for that number over that timeframe, how many sort of I call them, deals or how many particular projects do you expect to look at and do a deep dive on to get – to pare it down to that number of successful ones?

John Carson

Yes. We become quite good at triaging the projects and determining which ones are in, which ones are out. There are some linger where we are trying to work hard to win a project which may it would stay on our dashboard a little bit longer than that, but by necessity, we have directed our actions in a very focused way towards the projects with the highest likelihood for success. So we are hopefully not wasting our time on something that’s not going to hit in the end. So again, I would probably say that half dozen of solid and large transactions over this next 4-year runway and we would very much like to beat that. As mentioned before, I would love to be hiring new team member to handle new transaction streams to make those incremental projects happen. I really feel like this is the beginning of a good growth one for us with all of these open windows here in the USA.

Mac Whale

And can you just give an indication of what’s the level of wind data that you typically require, I am trying to get also an idea of this sort of the investment by the time you enter in, is it $1 million or is it a lot more or less than that by the time you start looking at it?

John Carson

Sure. By the time, we have actually spent anywhere like $1 million. We have done a lot of verifying and confirming work and feel very good about the project. There is really only one project we have done so for in the USA, which is now the Flat Top project. Our other projects that we have in the USA are other fully held wind projects we spent much, much less than $1 million. It doesn’t cost much money. It maybe $50,000 etcetera to put an array for wind data collection, it is area specific. So, that’s just a general number there. But the amount of data that you would need, it would also be a function of the contour of the land. It was more complex land, you will need more tariffs. If it’s generally flatter land like in the prairies or in Texas, then you will need only a couple of wind towers especially if you have good surrounding reference stations. So I think the short answer to the question is as soon as we have started collecting some on-site data and get several months and are able to coordinate that several month data would nearby reference stations, you can feel good about the wind resource at that project. By the time you are done and by the time you are financed, you will have collected 2 years of data on that project, but you have made your decision prior to that time. You don’t have to wait 2 years, in other words, to start your project financing. You can already see the light by the reference station correlation. That hopefully made sense?

Mac Whale

Yes.

Ross Beaty

And I’d like to add some in there as well. I mean John makes it sound very easy and very cheap, but it is – I would say the devil is in the detail, not just wind speed, you need your permitting issues with all these different species, to the extent, no endangered species or any environmental issues involved, social issues you have got, you have got transmission issues that are resolved, so there is a lot of legwork you have got to do, it’s not as quite as simple as you might have understood from John’s comment or [indiscernible]. This is always an issue for us as a small growing company. It’s coming back to the dividend that we have a couple of questions on today. How much do you dedicate to returning capital to shareholders from existing operations versus returning to the ground to add – if you build a bigger growth profile, in this business, the cost of capital is so critical and that tends to decrease as you get bigger. The focus on growth is really our biggest focus. But at the same time, as a growing operator and having seven operations running in different – wind, hydro and geothermal technologies, we do want to graduate to the point that we do produce a dividend as soon as possible, but also have most of our existing cash deployed for growing our business. And as John said as well that the main direction today is on U.S. wind and to some degree, a lot of growth in Iceland that we are working hard on and that will cost money. It’s hard work, it requires a skilled team and it does require a fair bit of money, but not ridiculous amounts. I think John has given you the description on that.

Mac Whale

Well and that makes sense. I mean you have – given the fact that you figure the money is better in your hands developing new projects and leveraging your G&A than it would be necessary to give it back to the market, I mean we can argue about valuation and things, the lift that you might get. But arguably, when you have got boots on the ground in a couple of states, you want to be able to leverage those activities. It’s on the work you have done on regulations, on environment, on transmission grids and that type of thing you really want to be able to leverage that, so it makes sense. And then what I am trying to get a picture of is how that’s evolving and whether – and I think John has done a good job in articulating that. And I think – I don’t think really investors yet really grasp the opportunity that you have in front of you. So, it’s in any sort of my advice would be any sort of more detail on how that market is evolving is helpful. And then just lastly, John, on hydro in the U.S., is there any change at all there that you see that over the next several years?

John Carson

Not a fundamental change. There are a few isolated opportunities that present themselves now and again. And we have spoken with a few potential partners on projects against smaller megawatt opportunities. Usually, these are projects that are built around old, old hydro assets, but our new generation opportunities. So, it’s just a much more complex subject there. They are not considered to be in many jurisdictions purely renewable. You don’t receive the same types of renewable credits etcetera. So, you may see us working on hydro transaction and we have streamed several, but stay tuned on that one. I just don’t consider that there will be a rush of those projects like we expect to see on the wind and hopefully, the solar as well.

Mac Whale

Okay. Okay, great. Thanks, guys.

John Carson

Thank you.

Operator

Thank you. Next is a follow-up from Rupert at National Bank. Please go ahead.

Rupert Merer

Thanks. So, Ross, you mentioned potential for some growth in Iceland. If we could just dive into that a little bit, you have got some new wells that have been drilled, can you give us some color on how the performance in Iceland could trend versus historic levels on the production side? And what’s the potential production you could see versus your current nameplate on those facilities?

Ross Beaty

Sure. I suggest we let Asgeir give some thoughts to that and he is our wonderful CEO in Iceland and tremendous guy and a wonderful manager. So Asgeir, how about if you tackle that and if we have any comments that Paul or John can add some further color?

Asgeir Margeirsson

Sure, Ross. First of all, geothermal operations are something that you have to learn to deal with in each field and we have a difference in our experience with the Svartsengi and Reykjanes, the two different fields that partly relate to the time that we have been operating those. In Svartsengi, we have quite a long time ago developed reinjection and changed the trend, the pressure trend of the field to stabilize it. In Reykjanes, however, we have about 10 years of history whereas we have 40 years in Svartsengi. We have now just recently commissioned the reinjection system earlier this year and we expect that to improve the situation and we will also as we go learning where to reinject, where to drill and how to improve and production is dealing with fixed debts on the Reykjanes production this year through the injection and the deep drilling project. I guess these are the main points.

John Carson

And then of course our growth in Iceland, I think he also alluded to both in geothermal and hydro, Asgeir.

Asgeir Margeirsson

Yes, absolutely. An important part of the development opportunities in essence relates to a governmental framework master plan where to allow for development or not. And we do have very interesting and exciting projects both in geothermal and hydro that are classified for development and we are working on both. And we expect to move forward shortly, as John said earlier, like the Reykjanes 4 project. Then of course, we have the [indiscernible] projects and then some hydro projects that we are dealing with both the [indiscernible] and also bigger hydro that are very, very interesting.

Rupert Merer

Great, thanks.

Asgeir Margeirsson

So, we have a pipeline of couple of hundred megawatts or even more.

Rupert Merer

Great. And give us more color on the Icelandic power market, how is the supply demand balance today and what’s the outlook for the next few years?

John Carson

It’s actually clearly a seller’s market now that stands, remarkably over the last 5 years or so and there is a lot of demand for power. The prices have been coming up like for industrial and datacenters, etcetera. Vehicle prices are gradually increasing in a slower pace. So, we have almost recently Bas are the ones with the highest prices and we expect that to continue the main demand product in the market now is for silica industries. Two of those projects have already started construction by getting close to commissioning and two of those are still in the development phase. And then the data centers are pacing up a bit more power, but on a smaller scale. The silica projects are something like 40, 50 up to 70, 80 megawatts each. Data sectors are 10, 20 each and then grow gradually.

Rupert Merer

Excellent. Thanks for your color.

John Carson

Thank you.

Operator

Thank you. [Operator Instructions] And at this time, Mr. Beaty, it appears that we have no other questions, sir.

Ross Beaty

Thank you very much operator and thanks everyone for the call. We will end there then and appreciate your interest in our company. Thank you all.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourselves a great day.

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