Alterra Power Announces Results for the Year Ended December 31, 2016

(under IFRS and all amounts in US dollars unless otherwise stated)

VANCOUVER, March 15, 2017 /CNW/ - Alterra Power Corp. (TSX: AXY) ("Alterra" or the "Company") is pleased to report its financial and operating results for the year ended December 31, 2016. For further information on these results please see Alterra's Consolidated Financial Statements and Management's Discussion and Analysis ("MD&A").

At December 31, 2016, Alterra consolidated 100% of the results of operations from its Icelandic subsidiary HS Orka, while Alterra's interests in the Toba Montrose, Jimmie Creek, Dokie 1, Shannon and Kokomo renewable power projects were accounted for as equity investments. In certain statements in this news release, Alterra's results are disclosed as Alterra's "net interest", by which the Company means the effective portion of operating results that the Company would have reported if each of HS Orka (66.6%), Toba Montrose (40%), Jimmie Creek (51%), Dokie 1 (25.5%), Shannon (50% sponsor equity interest), Kokomo (93.8% sponsor equity interest), and Soda Lake (100% until Soda Lake was sold on January 30, 2015) had been reported in accordance with Alterra's actual share of ownership at December 31, 2016 and for the year then ended. Management believes that net interest reporting, although a non-IFRS measure, provides the clearest view of Alterra's performance. Refer to our MD&A for further information on non-IFRS measures. The Company also has disclosed information below regarding Adjusted EBITDA, another non-IFRS measure. Please refer to the Company's definition of Adjusted EBITDA and further commentary thereto, which is incorporated in the Financial Results table below.

Highlights for the year and subsequent period include:

  • Revenue and Adjusted EBITDA: Consolidated revenue increased by 5% to $60.8 million and net interest revenue increased by 12% to $80.1 million due to the addition of the Shannon and Jimmie Creek projects as well as foreign exchange. Adjusted EBITDA increased by 5% on a consolidated and net interest basis to $48.5 million and $39.0 million respectively, primarily due to the addition of the Shannon and Jimmie Creek projects.

  • Reduced resource in 2016: Hydro generation was well above plan again in 2016; however, significantly lower than average wind speeds across much of North America affected the Shannon and Dokie 1 projects, combined with reduced resource availability at the Reykjanes field, resulted in net interest generation of 92.7% of budget.

  • Iceland results:

    • Potential high output well at Reykjanes field: A deep drilling program at Reykjanes was completed in January 2017, reaching a depth of 4,650 meters, making it the deepest drilled well in Iceland. Based on initial well readings, if the well is able to be utilized for electric production, it may produce as much as 30-50 MW of output, which would be directed to the Reykjanes plant. The final potential will not be known until late 2018, following further tests and research.
    • Favourable arbitration results: In November 2016, HS Orka received positive results from an arbitration concerning the validity of a power purchase agreement with Norðurál Helguvík ehf. The arbitration panel determined that the power purchase agreement has lapsed due to certain circumstances, and therefore is at an end. HS Orka is now free to develop other projects and sell generation under new PPAs.
    • Financing activities:
      • Extension of holding company bond: In July 2016, the Company reached an agreement with the bondholders of an ISK-denominated bond ($60.0 million as of December 31) to extend the maturity of the bond by one year to July 2017, with an increase in coupon from 3.5% to 5.0%.
      • Refinancing of OR bond: In October, the Company refinanced the $71.7 million bond originally held by Reykjavik Energy ("OR") into two tranches. In the first tranche, held by OR, the principal was reduced to $36.0 million, with an increase in coupon from 1.5% to 5%, and maturity was extended to April 2018. The second $35.7 million tranche, maturing in 2021, was issued to Alterra's Executive Chairman, Ross J. Beaty, and carries an 8.5% coupon. Both tranches carry no amortization and have no recourse to the Company, with security consisting solely of approximately 17% and 15% of the outstanding shares of HS Orka respectively.
      • Retirement of other bonds: In December, the Company retired two smaller bonds held by Icelandic municipalities totaling $2.5 million.

  • Jimmie Creek commercial operations achieved: Jimmie Creek commenced commercial operations on August 1 on time and under budget by approximately $4.0 million. The project is now selling 100% of its power to the British Columbia Hydro and Power Authority under a 40-year power purchase agreement ("PPA") that expires in 2056.

  • Kokomo commercial operations achieved: On December 29, the 7 MWDC Kokomo solar project commenced commercial operations and is now selling 100% of its output under a 20-year PPA with Duke Energy Indiana, Inc. Alterra owned 93.8% of the project at December 31 along with its partner, a subsidiary of Inovateus Solar, LLC ("Inovateus").

  • 200 MW Flat Top wind project:

    • Turbine purchase / service agreement: Alterra completed agreements with Vestas Systems A/s ("Vestas") under which Vestas will supply 100 V110-2.0 MW wind turbines and provide maintenance services for 10 years.
    • Construction contractor: The Company completed a construction services agreement with Blattner Energy, Inc., a top-tier EPC contractor with local area familiarity.
    • Offtake: Alterra is currently negotiating a power hedge as Flat Top's primary revenue contract, and anticipates agreement on terms shortly.
    • Project financing: The Company has agreed to terms and entered exclusivity with three lenders and a tax equity provider to provide 100% of the Flat Top project financing. The Company also plans on selling a 49% project partnership interest in conjunction with closing project financing, and has advanced to late-stage negotiations with select parties.
    • Interconnection security: In 2016, the Company placed a total of $7.6 million in security deposits in preparation for construction of the project substation (with the same transmission service provider as Shannon).
    • Commencement of construction: In December 2016, the Company commenced certain on- and off-site construction activities designed to qualify the project for production tax credits ("PTCs").

  • 13.5 MWDC Spartan PV 1 solar project: In October 2016, the Company and Inovateus completed a partnership agreement to develop a 13.5 MWDC solar project in East Lansing, Michigan ("Spartan PV 1"), with Alterra expected to hold a minimum ownership of 85%. Spartan PV 1 will sell 100% of its power to the Board of Trustees of Michigan State University for 25 years. The project commenced preliminary construction in March 2017 and is expected to achieve commercial operations later in the year.

  • USA wind projects: In 2016, the Company commenced on-site and off-site early-stage construction activities intended to qualify several wind projects for PTCs, with the estimated generation capacity for the qualifying projects between 1,200-1,700 MW, including Flat Top. The group of projects consist of projects fully owned by Alterra as well as projects owned by other wind developers with whom Alterra is working toward project acquisition or partnership.

  • Completion of equity financings: In October, the Company completed two equity financings, consisting of a bought deal and concurrent private placement, issuing 11,322,463 common shares at a price of C$6.00 per share, with gross proceeds of C$67.9 million.

  • Distributions: The Company received distributions during the year from equity investments of $15.1 million and another C$2.1 million subsequent to year end.

  • Commencement of dividends to shareholders: The Company's Board of Directors approved a shareholder dividend plan in August 2016, under which the Company plans to issue C$0.05 per common share each year, on a quarterly basis (C$0.0125 per share per quarter). The first quarterly dividend was paid in December, and the second dividend has been approved for payment on or about March 15, 2017 (record date: February 28, 2017).

Financial Results

The following table shows Alterra's net interest in select operating and financial results for the year, in addition to key financial information extracted from the consolidated results.










For the year ended
December 31, 2016(a)

HS Orka

(66.6)%

Toba
Montrose

(40%)

Dokie 1

(25.5%)

Shannon

(50%)

Jimmie
Creek

(51%)

Development
and Head
Office

Net interest
total

Consolidated
Results

Generation (MWh)

747,544

291,779

71,258

340,039

41,514

1,492,134

1,122,438

Total revenue

40,517

22,383

6,299

6,049

4,886

80,134

60,837

Gross profit (loss)

7,986

15,068

3,250

(2,747)

3,674

27,231

11,992

Adjusted EBITDA(b)

18,993

17,043

4,385

998

4,135

(6,567)

38,987

48,515

 










For the year ended
December 31, 2015(a)

HS Orka
(66.6%)

Toba
Montrose

(40%)

Dokie 1
(25.5%)

Shannon
(50%)

Soda
Lake

(100%)

Development
and head
office

Net interest
total

Consolidated
Results

Generation (MWh)

818,488

316,976

86,648

19,192

6,991

1,248,295

1,235,951

Total revenue

38,219

24,738

7,906

273

449

71,585

57,835

Gross profit

10,632

16,915

4,368

486

167

32,568

16,131

Adjusted EBITDA(b)

18,800

18,825

5,735

35

152

(6,564)

36,983

46,410



(a) 

Here and elsewhere, all tabular amounts (except generation) are expressed in thousands of US dollars.

(b)

Here and elsewhere, adjusted EBITDA ("Adjusted EBITDA") is defined by the Company as earnings before interest, taxes, foreign exchange, depreciation and amortization, as well as adjustments for changes in the fair value of holding company bonds (Sweden) and derivatives, write-offs of development costs, other income (expense) except business interruption insurance proceeds, amortization of below market contracts, value assigned to options granted, share of results of equity investments, the Company's proportionate interest in Adjusted EBITDA of its equity investments, research and development costs for deep drilling program and non-recurring items (insurance deductibles, litigation and arbitration costs). Adjusted EBITDA has been calculated on a consistent basis with the comparative year. The Company discloses Adjusted EBITDA as it is a measure used by analysts and by management to evaluate the Company's performance. As Adjusted EBITDA is a non-IFRS measure, it may not be comparable to Adjusted EBITDA calculated by others. In addition, Adjusted EBITDA is not a substitute for net earnings. Readers should consider net earnings in evaluating the Company's performance. For a reconciliation of consolidated Adjusted EBITDA to Alterra's consolidated financial statements refer to the Company's Management's Discussion and Analysis for the year ended December 31, 2016 available on SEDAR at www.sedar.com.

Consolidated Results

Revenue was $60.8 million for the year, up 5% from the comparative year predominantly due to foreign exchange movements.

The Company recorded a net loss of $1.1 million, an improvement from the comparative year ($17.3 million loss), primarily due to non-cash changes including the fair value of derivatives, foreign exchange and tax expense.

Consolidated cash and cash equivalents at December 31, 2016 was $31.6 million of which $0.3 million is held in the Company's Icelandic subsidiary ($10.3 million and $6.4 million, respectively at December 31, 2015).  The increase in consolidated cash was primarily due to funds raised from the October 2016 equity financings and operating earnings, partially offset by development spend and repayment of loans at HS Orka.

The Company's consolidated working capital deficit at December 31, 2016 was $62.3 million compared to a working capital deficit of $123.3 million at December 31, 2015.  The working capital deficit was primarily due to a $60.0 million ISK denominated holding company bond being classified as short-term (the bond is set to mature in July) and a $9.8 million developer fee for the Flat Top project, which is expected to be payable at financial close with proceeds from project financing.  Excluding these items, the Company would have had a positive working capital balance of $7.5 million at December 31, 2016. The Company has retained an advisor and is currently in refinancing discussions for the ISK denominated holding company bond.  Should the Company be unable or elect not to refinance the bond, and returns the shares held as collateral, the Company would own 53.9% of HS Orka and would continue to consolidate its results.

Net Interest Results

Alterra's net interest revenue increased by $8.5 million to $80.1 million primarily due to generation from Shannon and Jimmie Creek, and foreign exchange movements. Net interest Adjusted EBITDA increased 5% to $39.0 million primarily due to earnings from Shannon and Jimmie Creek.

The net interest cash position at December 31, 2016 was $44.4 million.

Operating Results

The Company achieved 92.7% of its budgeted generation for the year (99.6% in 2015), reflecting lower resource availability across the assets in 2016.





2016 Generation (MWh)



Total

Net Interest


Facility

Budget


Actual


Budget


Actual


% of Budget

Reykjanes

667,390


606,186


444,482


403,720


90.8%

Svartsengi

542,705


516,252


361,442


343,824


95.1%

Toba Montrose

710,988


729,448


284,395


291,779


102.6%

Jimmie Creek

74,287


81,400


37,886


41,514


109.6%

Dokie 1

331,000


279,442


84,405


71,258


84.4%

Shannon

794,000


680,077


397,000


340,039


85.7%

TOTAL

3,120,370


2,892,805


1,609,610


1,492,134


92.7%


  • Budgeted amounts include planned maintenance outages.
  • Jimmie Creek generation is from commencement of operations on August 1, 2016; the plant produced and sold an additional 31,471 MWh prior to commencement of operations.
  • Kokomo produced and sold 276 MWh in 2016, including 41 MWh sold after commencement of operations on December 29 (not included above).

 

Outlook

For the 2017 and 2018, management expects the Company to achieve (net interest):





2017

2018

Generation (GWh)

1,595

2,046

Total revenue

90,659

100,719

Adjusted EBITDA

49,154

56,610

Outlook notes:

1.

Forecasts 2017 and 2018 generation for hydro, wind and solar projects are based on resource assessments of average annual generation at each project, adjusted for planned maintenance outages. Forecast generation for geothermal facilities is based on budget, assuming the field maintenance work that is currently underway at Reykjanes increases generation to 75 and 85 MW by the end of 2017 and 2018 respectively.  The 2017 outlook reflects a full year of generation from the existing eight operating projects.

2.

The 2017 projections for revenue and Adjusted EBITDA are based on internal budgets and models for revenue and costs for all operating projects (prepared in accordance with IFRS). Shannon now sells the majority of its power under a long-term hedge; however recently observed lower merchant prices due to low natural gas prices and other factors have been reflected in the revenue and Adjusted EBITDA estimates.  Anticipated head office cost and development spend has been included in Adjusted EBITDA and reflects budgeted spend for the year. Blue Lagoon is not included in forecasted revenue.

3.

HS Orka projected revenue and Adjusted EBITDA reflects forecasted aluminum prices for a portion of revenue (22.3% in 2016), as well as lower generation in 2017 than 2018, as the anticipated positive impact from the field maintenance work at Reykjanes is not expected to be substantially realized until late 2017 and 2018.  Until the Reykjanes field returns to an output of 85 MW, additional power purchases will be necessary to meet demand.  Such purchases (and accompanying sales), while still profitable, achieve a lower gross margin than if such sales resulted from power generated by our power plants.

4.

The 2018 outlook for revenue and Adjusted EBITDA (other than for HS Orka, discussed above) reflects modest inflation and a full year of operations and earnings from Spartan PV1 (assumed 85% ownership) and Flat Top (assumed 51% ownership) from April 1, 2018. Flat Top assumed to sell the majority of the power produced under a long-term hedge, estimates for revenue reflect latest hedge and merchant pricing observed.  

5.

Revenue and Adjusted EBITDA projections have been converted from their originating currency at a rate of C$1.34, ISK110 and €0.94 per US dollar for both 2017 and 2018.

 

"Though lower resource availability was a headwind for us last year, we were pleased to continue our company growth by commencing operations at Jimmie Creek and completing our first full year at Shannon" said John Carson, Alterra's CEO. "We plan to continue this rapid growth in 2017, as we expect to begin primary construction for Flat Top and other projects and we continue to advance our other development assets."

Alterra will host a conference call to discuss financial and operating results on Thursday, March 16, 2017 at 11:30 am ET (8:30 am PT).

North American participants dial 1-888-390-0546 and International participants dial 1-416-764-8688; the conference ID is 45402481

 

The call will also be broadcast live on the Internet at
http://event.on24.com/r.htm?e=1370453&s=1&k=896E95957CDD4D93295F7B65060EF6AF

The call will be available for replay for one week after the call by dialing 1-416-764-8677 and entering replay PIN 402481#

 

Cautionary Note Regarding Forward-Looking Statements and Information

Certain of the statements and information included in this news release constitute forward-looking statements and information within the meaning of applicable securities laws. All statements, other than statements of historical fact, are forward-looking statements or information. This information may involve known and unknown risks, assumptions and uncertainties, and other factors which may cause the Company's actual results, performance or achievements to be materially different from the future results, performance or achievements implied by such statements or information. Specifically, forward-looking statements within this news release relate to, among other things: successful development, financing (including construction debt, tax equity and sponsor interest sales) and construction of our pre-operational projects and properties, Alterra's successful acquisition from or partnership with the owners of projects currently owned by other developers, the success of Alterra's project acquisition, development and expansion programs and greenfield development efforts, all statements regarding the Company's plans and expectations for the declaration of future dividends, including the timing and amount thereof, whether the wind development projects actually or ultimately qualify for all, or a portion of, the production tax credits, prospective generation, results of operations, and financial position, and the information found under the heading "Outlook".

These statements and information reflect the Company's current views with respect to future events and are necessarily based upon a number of assumptions that, while considered reasonable by the Company, are inherently subject to significant operational, business, economic and regulatory uncertainties and contingencies. These assumptions include, among others, the expected power generation from our operations, the success and timely completion of planned development, expansion and construction programs, and modeling and budgeting based on historical trends, whether Alterra's on-site and off-site early-stage construction activities will be sufficient to qualify the wind development projects for the full value of the PTCs; rules, regulation or other guidance may be promulgated pursuant to the Internal Revenue Code of 1986 (as the same may be amended, updated or otherwise modified from time to time) that could jeopardize or otherwise impede the effectiveness of such on-site and off-site early-stage construction activities qualifying such projects for the full value of the PTCs and securing tax equity financing on such basis, our use of proceeds from any equity financings is as currently forecasted, the expected timing for realizing the output capacity of the well, if any, due to the conceptual nature of the deep drilling preliminary output potential, the risk that there has been insufficient testing to define geothermal resource, assumptions concerning temperature and underground fluids, current conditions and expected future developments. Forward-looking statements and information also involve known and unknown risks that may cause actual results to differ materially from those expressed by such statements or information, and the Company has made assumptions and estimates based on or related to many of these factors. These risks include volatility of renewable energy resources, inherent risks in operating and constructing power plants and development programs related to the same, contractual risks related to credit facilities, partnership and power purchase agreements, prospective power, currency and commodity price fluctuations, the implementation of lower corporate tax rates may impede our ability to obtain sufficient amounts of tax equity investment or achieve desired economic returns, successful closing of the acquisition of certain of the wind development projects including without limitation successful completion of due diligence on such projects, negotiation of definitive purchase agreements, satisfaction or waiver of all conditions precedent thereto and the approval of Alterra's Board of Directors, future issuances of equity securities, health, safety, social and environmental risks and risks related to reliance on third parties.  Additional risks, assumptions and influential factors are set out in the Company's management discussion analysis and Alterra's most recent annual information form, copies of which are available on SEDAR at www.sedar.com.

Although the Company has attempted to identify important factors that could cause actual results to differ materially, given the inherent uncertainties in such forward-looking statements and information, there may be other factors that cause results not to be as anticipated, estimated, described or intended. Investors are cautioned against undue reliance on any such forward-looking statements or information, which apply only as of their dates. Other than as specifically required by law, Alterra undertakes no obligation to update any forward-looking statements or information to reflect new information.

Cautionary Note Regarding Forward-Looking Financial Information

The information provided in the "Outlook" section of this news release constitutes forward-looking financial information within the meaning of applicable securities laws. Management has provided this information as of the date of this news release in order to assist readers to better understand the expected results and impact of the Company's operating and construction projects expected to be commissioned in the near term. Readers are cautioned that this information may not be appropriate for any other purpose, including investment purposes, and consequently, should not place undue reliance on this information. Forward-looking financial information also constitutes forward-looking statements within the context of applicable securities laws and as such, is subject to the same risks, uncertainties and assumptions as are set out above.

SOURCE Alterra Power Corp.

For further information: Peter Lekich, Corporate Communications, Alterra Power Corp., Phone: 604.235.6719, Email: info@alterrapower.ca

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