Transcript
Watch the Clean Energy Fund – Fund President Q1 2023 Update
Ray Punn: [00:00:25] I’m pleased to provide you with Skyline Clean Energy’s update for Quarter One, 2023. Today, I’m joined by Rob Stein, President of Skyline Clean Energy Fund, and Matt Kennedy, Director of Skyline Clean Energy Fund. Thank you both for joining me today.
Matt Kennedy: [00:00:38] Thanks for having us.
Rob Stein: [00:00:38] Yeah, thank you.
Ray Punn: [00:00:40] Matt, can you walk our investors through the Fund’s financial summary and provide some insights for the last quarter?
Matt Kennedy: [00:00:45] Absolutely. Q1 was a really exciting quarter for the team, although we missed budgets by about 10% on net operating income. The team really performed well in ensuring that the effective availability of our systems was near 100%. What that means is our systems were operating all the time. If there was energy to collect from the sun, we collected it and turned that into revenue for the benefit of our investors and the Fund. The reason for the shortfall in revenue in the solar portfolio was mainly due to lower irradiance in Q1. It was the lowest irradiance year we’ve had in 75 years in Ontario. And what that means is we just had less sun. So, for those of you thinking it was a cloudy, snowy, and gray winter, it was – the most in the last 75 years. On the biogas side of the portfolio, really exciting to report that we hit budgets. We’re right on budgets. We did have a blip on one of our systems. We lost a CHP engine, but the team was able to replace that lost revenue through increasing feedstock at the sites and really realizing on some of the synergies and efficiencies we’ve created in our biogas portfolio, now having one asset in Ontario and another in Alberta. So, really seeing the fruits of our labour on those assets and the biogas portfolio, and then again on the solar portfolio. The operating team’s really been able to control the costs coming in under budget on OpEx for Q1.
Ray Punn: [00:02:13] Thanks, Matt. Rob, is there anything that you’d like to add?
Rob Stein: [00:02:17] Yeah, just a couple of things to touch on. In Q1, we really focused on increasing operating performance. It’s a good time to do it when not as much irradiance is happening. And so, if we have to do system shut-offs or critical repairs to systems, those are great times to do it because it doesn’t affect the generation as much as if we did it in June or July, our prime months. And so, we did focus on that through Q1. We’ve been running for the last five years so hard. Matt and I started the Fund on May 1st, 2018, which is our five-year inception now, and we’ve been excited about what we’ve grown to date. But when you’re growing, and you’re running so fast trying to acquire as much as you can that has a good return for our Unitholders, oftentimes you have these little projects you want to work on. So, we spent a lot of time in Q1 working through those projects, cleaning up our processes and the way we document repairs and assets, and building a really good forward plan. And we used Q1 to really optimize our assets, which is part of our strategic direction, making sure we’re getting the most out of our systems as we can when lower irradiance times happen. So, just that.
Ray Punn: [00:03:21] Matt, in the current economic environment, what is the outlook for the Fund for the rest of the year and going into 2024?
Matt Kennedy: [00:03:26] Well, it’s really exciting. I think what we’ve shown over the last couple of years is the Fund is very resilient to those external pressures we see in the market. A big part of that is the way we place debt financing in the Fund, and really how the lenders and banks are now prioritizing renewable infrastructure and sustainable infrastructure in the market, and really wanting to increase that in their portfolio as well. And we’ve really seen the benefit of that. How we place debt, we term it out based on the remaining life of the Feed-In-Tariff contracts or those offtake contracts that we have, whether that’s for the sale of electricity, or now in Alberta for the sale of Renewable Natural Gas. So, we’re able to fix the term and amortization schedules of those debt financing placements all the way up to the end of the contract, which protects us against those volatile swings. Other economic impacts that could have some pressure on the Fund or supply chain. We’ve shown that we can weather that storm pretty well. We’ve implemented a new strategy in the Fund to hold a greater supply of spare parts and inventory to protect against the increasing cost of those. And also just the lead time. We saw the benefit of that in Q1 with what I mentioned earlier, a lot of uptime. The effect of availability of the systems was there near 100%, which shows our ability to swap out different pieces of equipment. Lastly, what we’ve done to sort of curb the pressure on inflation and rising costs is we’ve internalized some of our operations and maintenance to the Fund to hedge against that and be able to control the costs. And we came in just below about 2.5% below OpEx, which I think is a good indication and results of showing the success we’ve had there.
Ray Punn: [00:05:11] Thanks for sharing that, Matt. Rob, are there any final remarks that you’d like to make?
Rob Stein: [00:05:15] Well, just a couple of things to add to Matt’s point. In our biogas side of the business, our feedstock contracts have a natural hedge built in. We can actually charge more for the tipping fees we get based on if we see inflation rising. So, we have a natural hedge against inflationary risks like that. We also have a way to charge for fuel surpluses and additional costs like that. So, we’re able to control that. Some of the things we’re doing that are really exciting is the federal government came out in March with a new federal budget, and they’re introducing an international tax credit, which will allow us to get a 30% rebate from capital expenditures. So, if we spend $100 million on a solar facility, the year after, we can claim a 30% ITC or tax credit. So, it’s making solar and renewables a lot more lucrative in Canada, and it’s really off the heels of the US program. So the Fund is really hunkering down, making sure that we’re investing good dollars into new projects, into new opportunities. And we haven’t seen these types of returns since the early FIT days, which we’re excited about, and we’re going to monetize. The other program we’re really looking at is in Ontario. The provincial government, through the Independent Electrical System Operator or IESO, has introduced a carbon tax program where they’re going to verify and create a market to sell carbon tax, so our carbon credits. And so, what we’re looking at is right now on our solar systems in Ontario, we don’t own the carbon credits; the provincial government does. But on other assets, we do. And now, we have a forum that we can actually monetize that. We can sell these carbon credits, have a really long-term plan of where carbon is going, and we’re excited about that revenue stream.
Rob Stein: [00:06:51] To give you an example, the carbon price today is about $65 a tonne, and by 2030 it’s going to be $170 a tonne. So, that’s a small revenue stream for us now. But as that price goes up, it’s going to become much larger. So, we’re looking at ways to sort of optimize that and monetize those credits, and that’s just another thing we’re doing there. We’re excited about our growth plan. We have a full pipeline. Matt and the team have a couple of biogas acquisitions in the pipeline, a couple solar acquisitions in the pipeline. We have a couple of non-core assets through our investment in Better Battery Co. and the Barbados solar project that we’re excited about. And so, all of these things need capital. And so, we’re actively raising right now for our Class A and Class F Unitholders. We’re getting a lot of uptake right now, but we do have a big need for capital. And so, it’s great because we can pair that need for capital with some really good accretive projects, and we’re excited about where it’s going. So, through 2024, we are going to keep our heads down. We’re going to try and optimize our assets, we’re going to try to knock down our pipeline, add more accretive assets to the Fund, and we’re really going to target some of these government programs that we think are really lucrative right now and completely fit our mandate. So, we’re going to keep raising some money, and we’re going to keep deploying it into good projects. So, that’s what Matt and I and the team are doing through 2024.
Ray Punn: [00:08:05] Well, I’d like to thank you both for joining me today.
Rob Stein: [00:08:07] Thanks for having us. We appreciate the support that Wealth gives us. And I know you guys are crushing it right now, so we appreciate that.
Matt Kennedy: [00:08:12] Thank you. Thanks, Ray.
Ray Punn: [00:08:12] Skyline Clean Energy Fund is currently open for new investment. If you have any questions, connect with your Skyline Wealth Management representative or simply email us at Invest@SkylineWealth.ca. Thanks for watching.