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Christian Langman: [00:00:00] Fantastic. Rob, it is 12:01 PM, and I believe it is time for us to get started on the presentation. So, everybody, welcome today to our presentation with Rob Stein, the President of Clean Energy Fund. I’m Christian Langman. I’m the Head of Institutional Relationships here at Skyline. And today we have a great webinar where we’re going to go through a few updates on Skyline Clean Energy Fund as well as, you know, speaking about the clean energy sector in general. So, I have Rob here. He is our President of the Clean Energy Fund, and he has 15 years of experience in the Canadian clean energy sector across many facets of the business, including development, construction, operations, maintenance, and has also been involved in buying and selling systems across Canada. Rob has been the President of the Clean Energy Fund since inception in 2018. And today we’re going to discuss kind of the overall clean energy sector, why investors should look to add clean energy into the asset allocation model. And then lastly, we’ll speak to Q&A that come in during the presentation. I do have to run through a quick slide here just over the disclaimer. Give a few seconds just to quickly read through it. Fantastic. So, Rob, just to get us started, can you tell us a little bit more about the current state of the clean energy market in Canada and your outlook in the sector?
Rob Stein: [00:01:23] Yeah. First of all, thanks for having me on the call today. I appreciate it. I know it’s over lunchtime, so hopefully everyone has gotten a lunch into them early there. But we appreciate your time today. We’re really excited about the energy outlook in Canada. We see our product as clean infrastructure, energy infrastructure, which is essential towards the growth of Canada. Immigration is on the rise. We see a lot of demand for our real estate portfolios. And with all of that new construction and new immigration, there is an increase in demand for energy. And so we happen to have the right product that can really maximize those opportunities there. As you can see through the slide, we expect energy to increase over 44% by 2015, uh 2050, sorry. And this is just boding well towards new energy infrastructure being created and generated in Canada. There’s a big push towards decarbonization of our grids. And so, you know, Canada has been largely focused on, you know, coal and natural gas and a bunch of these type of generators. And the shift is really to hit our decarbonization goals or our net neutral goals there, we have to really add new clean electrical infrastructure to the grid, and that’s from coast to coast. And so we’re seeing that mandate from the Federal government down. And really that’s through the expansion of, you know, new solar PV and biogas. And so we happen to have a product right now that’s in great demand and that will really allow us and the Federal government to hit their energy goals as the population continues to grow and, you know, as more energy is needed. So, we’re in the right place at the right time right now. We see SCEF as positioning to help Canada transition to this low-carbon future through biogas and through the solar PV. So, we’re seeing this through federal government programs and we’re excited about where that goes there. But that’s really where we see the energy market trending.
Christian Langman: [00:03:20] Amazing. Thanks for that, Rob. And just quickly, the Clean Energy Fund is really a combination of Skyline sustainability focus now offered through a fund structure for investors to participate in that renewable infrastructure space within Canada. Its focus is on acquiring large-scale, income-producing clean energy assets within Canada, and each asset must be backed by a government contract or a private contract. So FIT or PPA agreements. The Fund was established in 2018. It is an equity growth fund, so the Fund does not pay out a distribution or distributions kind of go towards accretive acquisitions within the Fund. We have two types of asset classes within the Fund. We have solar and biogas. And really, the revenue is kind of split 50/50 between the two. And, you know, we can speak just quickly on the strategy of the Fund, Rob, and what is your focus going forward within the Fund?
Rob Stein: [00:04:13] Yeah, our strategy in the Fund has sort of been the foundation of the Fund since inception. We buy, you know, credit-worthy assets in predictable energy markets. We make sure all our assets are operating assets. So, we have historical generation where, you know, we can take the historical production of the asset and run a discounted cash flow model, really project out what we think the cash flow is going to be through the life of the asset. We do that through using, you know, 100-year-plus-old weather data, so we can use historical weather data to really build our models out, build our inputs out, and really size the generation going forward. Then we usually use our operating expertise. We’re a real “boots on the ground” type of fund where we know how to optimize assets to utilize the latest technology and to make sure we’re leveraging our assets to their fullest potential. And so the goal is really to buy operating assets with predictable cash flows and energy markets we understand, and to really use our operating expertise to make sure we’re getting the most out of those assets. And it’s really quite simple, right? We own commercial-scale solar PV and you need to make sure those systems are operational when the sun is shining.
Rob Stein: [00:05:23] And so we have to do major CapEx items or operations things. We do it in the tail months, the months where we don’t expect as much generation there. We make sure we do our capital projects then, so they’re up and running for our prime generating months. And so it’s really quite simple in making sure that we’re optimizing the seasons to make sure that our sites are performing at their fullest potential there. In the biogas space, you know, we underwrite these assets in perpetuity. We know there’s a waste problem in Canada and an energy problem in Canada. So, we’re happy we’re targeting both of those issues and know that we have assets that can really help manage those issues. So we’re signing long-term contracts in the biogas space with municipalities and large commercial users of waste and we’re generating into a usable form of power. So, the goal is really to buy operating assets that we know how they’re going to generate and we can predict out sort of the cash flow going forward, use our operating expertise to find efficiencies there, and to make sure that we’re just operating a really clean portfolio.
Christian Langman: [00:06:27] Yeah. Thank you for that, Rob. And how do you kind of, you know, how do you generate high returns and improve efficiencies within the portfolio as it is? You know, maybe speak about asset optimization and some of those points?
Rob Stein: [00:06:38] Yeah. So we have two big pillars, as you mentioned at the beginning, Christian, in our fund. We focus on solar PV as an asset class and biogas as an asset class. So we optimize in different ways based on the asset class. So, in solar PV, oftentimes we’re left with, you know, a commercial solar system on a rooftop or a large-scale ground-mount system. And the system is pretty simple. It’s made up of a module, a set of racking, and an inverter, and making sure that we’re getting the most out of the systems is important. So, as new technology comes in, we make sure that, you know, if we can underwrite that new technology to have a return in the contracted life, we often do capital projects all the time. And so, you know, we built an asset two years ago in the Fund, repowered an asset. Technology’s gotten substantially better in the last couple of years, and we’re looking at repowering that asset now. So, we’re literally taking off those old modules that, you know, were the best modules at the time. They might be 250-watt modules and we’re replacing them with 500-watt modules now. And so we’re seeing that increase in energy generation. What we’re trying to really do is because we have to make, you know, hay when the sun’s shining, we need to make sure our systems are producing when the sun’s out.
Rob Stein: [00:07:49] So, what we try to do is, if a system is sized to 100 kilowatts, for example, we try and get up to that 100 kilowatts of generation as quickly in the day as possible and run flat lines. So, we might be producing over 100 kilowatts, but we’re capped at our contract capacity at 100 kilowatts. So, we try and get there as quickly as we can in the morning. We run at our nameplate capacity throughout the day and we don’t get any really curtailing of the system. We don’t get any reduction in power there. And so what we try to do is we look to optimize the best technology for those sites specifically, we do capital projects to make sure we have the best technology and usable energy on there, and we want to maximize our contracts on the solar side of things. So, we’re doing capital projects all the time on the solar PV side of it. On the biogas side of it, when we got into our first acquisition in Elmira, the system had been operating for about eight years and it was operating at basically full capacity. But there’s a huge waste problem in Canada. They’ve been talking about, you know, diverting, you know, organics out of landfills for the last couple of years.
Rob Stein: [00:08:50] But they’re going to regulate that in the next year or so, where they are going to actually reduce the amount of organic waste that can go to a landfill. So where else can that waste go? It has to go and be sent to another facility that can actually use that material. So, in biogas, what we’re doing is we’re taking that material, we’re processing it into a usable fuel, either Renewable Natural Gas or electricity, running a CHP engine, and generating electricity through that. And so, you know, what we’re doing there is making sure that we’re using all of our inputs in an efficient way. But because there’s such a huge demand for it, we see an opportunity to optimize our Elmira plant where we’re actually going to double that system size in the next two years. So we can take twice as much capacity because there’s a need for it. And what we’re going to do in that facility is in that facility we’re generating, we’re taking the gas, we’re running two combined heat power engines, generating electricity out of that. We’re actually seeing that if we actually generate Renewable Natural Gas with that fuel, we’ll actually generate more revenue. And so we are going to convert that facility from an electricity generating facility to a Renewable Natural Gas generating facility.
Rob Stein: [00:09:54] And so just by using our inputs, the infrastructure that we currently have more efficiently, and doing a capital project there, we’ll expect to double generation at that facility. So really, the key is to make sure that we have a good team that understands the latest in technology, that understands how to get the most out of these facilities and constantly, you know, spend money on those things. And we got lucky with the biogas when we were doing that acquisition. The original developer, owner, and operator of that facility, the Martins, through the transaction, decided to stay in as a 20% equity participant and operate the facility. So, we’re linked at the hip through operations of that facility. They have the operating expertise we need to continue to develop that system and to make sure we’re getting the most out of it. And so really having good operating experience to really focus on the key things that are going to drive returns is important for us. So, we have a really good team on the biogas side, and through my experience and our team’s experience on the solar side, to make sure we’re driving returns through, you know, well operated systems.
Christian Langman: [00:10:58] Thank you for that, Rob. And yeah, you just touched on kind of both the solar and the biogas sides. And, you know, we mentioned that all of these assets kind of generate revenues from fixed price contracts. Can you maybe speak to some of the additional revenue sources within the solar and then the biogas side?
Rob Stein: [00:11:14] Yeah. To separate it a little bit, I think – oh, you have the slide up here. Yeah. So, our assets are basically split down the middle. We have about, you know, 53% of our assets are made up of solar PV, of our revenue is made up of solar PV, and 46% is biogas. We have different contracts in each of those asset classes. So in solar, we really built the Fund based on the creditworthiness of the provincial government contracts in Ontario. So, the FIT program came out in 2009 to really take advantage of the new Green Energy Act. And the goal was to create 50,000 new jobs and a new industry and to really push green energy in Ontario. So, the provincial government created a pretty rock-solid contract that’s bankable, that has built, you know, over 30,000 systems in Ontario and generated megawatts of power. And so what we’ve done is we’ve just acquired operating assets. So, a developer would have built a solar system, would operate it for 5 or 6 years. The Fund has gone and acquired about 80 of those assets right now. And all backed with provincial government contracts that have make-whole provisions and lender step-in rights that make it a really good solid contract. And so all of our solar assets right now, 100% of them, are backed by Ontario government FIT contracts. Those contracts were released over about a ten-year period.
Rob Stein: [00:12:37] And, oh, there you go. So, we have FIT 1, 2, 3, 4 and 5 contracts. We also have the contracts that predated the program called RESOP. And what we like is we like this breakup of contract types. So we don’t have any, you know, 25% of the portfolio renewing in a single year. All of these assets sort of stagger through their contracted life. And it gives us time to sort of figure out what we’re doing with that asset next. Are we signing a private PPA? Are we selling that power to the open market? Are we disposing of that asset? What are we doing there? So, it allows us to have a really good long-term approach to our asset class. And on the solar PV side, we have about 12.5 years of average contract life left with these FIT contracts. So, really comfortable with those revenue streams, obviously they’re bankable. We’re adding about $53 million of debt to those assets right now. It’s been done through a private placement bond placement and we just locked in a 12-year rate at 5.66% on $53 million. And so that just sort of is a signal that, you know, these institutional investors and the banks are still really keen on solar, FIT contract solar projects in Ontario. And we’ve got some of the, you know, the best yields out there. So, we’re really excited about that. On the biogas stage, we’re shifting routes a little bit there.
Rob Stein: [00:13:59] We own two facilities and they’re very different in how they manage. In Ontario, our Elmira facility is backed by a FIT 2 government contract for the offtake of the electricity. We have about 12 years left on that contract. Right now, we’re at this natural inflection point, like I previously answered, where we actually see that the generation or the revenue we’re generating from electricity in Ontario is pretty much at par with what we’d make on an RNG contract. And so we have 12 years left on our FIT contract to generate electricity, we can sign a 20-year RNG contract, so at a higher rate right now. And so we are looking to change, you know, stances in Ontario and move to generating Renewable Natural Gas with, with our inputs there. But right now in the biogas space, we have about $3 million coming out of FIT contract revenue. In Lethbridge, we generate Renewable Natural Gas with our digestate and our fuel there. And we generate about $5.66 million. That’s on a 20-year contract with FortisBC with escalators and the ability to generate more gas if we produce more gas. Half of the revenue in that business comes from tipping fees, which is when we receive a fee for actually receiving organic material. We often do these on long-term contracts.
Rob Stein: [00:15:24] So, some of our vendors are the York and Peel and Simcoe municipalities. We take their organic green box program, they pay us a fee to do that on a long-term contract. We then use that material to process into a usable fuel there. We deal with a lot of ICI industrial waste providers, grocery store chains. They like to understand where the waste is going. They have to manage their carbon footprint and so they track that. So, they want to know that it’s going to a place that’s going to turn into something usable, which helps with their GHG goals as well. And so, you know, a large portion of our revenue comes from tipping fees, which, you know, the average contract, depending on the facility, is anywhere from 5 to 15 years. And every year we’re trying to renew more of those. We’re bidding on a couple of municipal tenders right now for ten-year contracts that allow us to go and put, you know, sophisticated debt on those facilities and give us a really long lead approach to how we manage our cash there. The last little revenue stream that we generate in the biogas space is we own the environmental attributes, the carbon credits, the off-puts there. We own the digestate, which is the material that’s left over after we take all the usable energy out of the material. We’re left with this really rich fertilizer called digestate. We actually have an organic fertilizer permit for it and we sell it back to the farmers.
Rob Stein: [00:16:42] The farmers then use it to plant crops and the cycle starts over again. The farmers grow the crops, the crops go to the cities, they consume the food, and the waste product comes back to our facility. We turn that into a usable fuel and the off-put is then sent back to the farmer. So it’s this nice closed-loop process that we can really manage that and we actually make money by selling that liquid fertilizer or digestate. I mentioned the environmental attributes or the carbon credits. This is a big trending topic. Ontario now is contemplating a carbon market where we actually exchange and verify carbon credits on the open market, which will really create a lot of validity behind that. Right now, we sell through a third-party vendor, and they often pair us up with someone that needs carbon credits and someone that’s generating carbon credits. And that revenue right now is about $65 a tonne. That’s going to continue to increase to about $170 a tonne by 2030. So, that little revenue line item there is going to grow substantially over the next seven years for us. And that’s a good place to be. When a new carbon market comes out, we want to be there with carbon offputs and to make sure that we’re selling that at fair market value there.
Christian Langman: [00:17:53] Amazing. Thanks for that, Rob. And you know, you mentioned the biogas side is a closed-loop space, or closed loop – you know, we provide, you know, Renewable Natural Gas from the input of organic waste. So, it really provides the overall environment a more efficient way to get rid of that waste. And just quickly, what is the difference between, you know, letting organic waste go to a land site or a landfill versus a biogas facility? What’s the kind of net impact to the overall environment?
Rob Stein: [00:18:20] Yeah, the math on that is if you take your organic green box program and that goes to a landfill and it decomposes naturally, it has about 25 times more carbon impact on the environment. So that off-putting gas gets put in the atmosphere and we can actually manage that, we can actually measure that, that carbon input. As opposed to if that comes to our facility, we can then use, we can speed up that decomposing process there. We can take that off-gassing and create another lifetime to it, a lifespan to it. It’s an important thing. So, we can reduce the GHG of organic waste by 25 times if we can use that material. Where that becomes really important is – people don’t realize, but the Federal government and Provincial government and the municipalities all have mandates to reduce their GHG through the Paris Accord. And so if you’re in a municipality, like York, for example, and you’re saying, hey, I have X tons of organic waste, I have to figure out a way to divert that from a landfill to make sure I’m hitting my greenhouse gas goals there. And so we see that trending. Biogas isn’t a new technology. It’s been around for over 20 years. And a lot of municipalities controlled that in the past. They would build these expensive facilities, they would operate it pretty inefficiently. And they were trying to figure out really how to make a go at biogas. And over the last five, six years, private businesses got involved in biogas through programs like the FIT program. And we really started to see those costs come down. I’ll give you an example. We were bidding on a tender through Peel, and they were asking to propose a full turnkey new facility.
Rob Stein: [00:19:51] The average bid was going to be about $750 million to build that facility, which would create a per-tonne cost of about $250 a tonne to process that waste. Well, we ended up pulling out and saying, hey, that’s sort of crazy. We have the ability to take your tonnage in our facility in Elmira and we’ll charge you $130, $140 a tonne for the next 20 years. So they sort of scratched their head, said, why would we put that much CapEx out and pay more on an ongoing basis to manage our waste as opposed to just letting a private business take it on? And the reason we can do that is because we have a built facility. We have a bunch of different clients that we can, you know, manage all of their consumption. We can build a larger facility. We can hire the most technical experts in the industry to manage their waste more efficiently. And we care about returns. So, we run that as a business opposed to municipality. So, we see this shift away from these municipally run digesters into privately run digesters. And so we really see this shift in that market knowledge shifting towards private business. And so, you know, we’re really bullish on where that’s going. Plus, you know, you add on the federal mandates to reduce their GHG and provincially and municipally, and they have to trend this way. And so, you know, it’s a way to sort of manage all of our goals to reduce our carbon footprints. And we do it in a way we can actually make a decent return doing it.
Christian Langman: [00:21:13] Yeah. Fantastic. It seems like diverting waste to the biogas facility is not only productive for the overall environment, but it also helps, you know, investors of SCEF generate a return and a yield that way. Maybe Rob, just speak to briefly some of the, you know, the valuations, or how you value, you know, both the solar assets and then the biogas assets. It’s a question that does come up a lot. And I think that, you know, maybe you can run through that briefly.
Rob Stein: [00:21:37] Yeah, we value our unit value on a quarterly basis and we take the total equity and divide it by the units outstanding. That’s sort of like the theoretical way we come up with a unit value. What we do practically is when we buy an asset, we take historical generation since inception. So, we might buy a solar asset that’s been generating for eight years. We take what that asset’s been generating and all its inputs, you know, operating costs and insurance and taxes and property taxes and all those things. We take those inputs and we build it into our model. And our model has been built over the last 15 years of operating and building solar systems and biogas facilities. And we say, hey, what would we manage this facility for and are we leveraging it to its fullest potential? So, we take historical information. We say, are we going to generally manage it the same sort of way it’s been done, or can we make any kind of improvements there? We then put into a discounted cash flow model and we project out through the last 100 years of weather data what we think the generation is going to be on the solar side, and we come up with a fairly, you know, accurate way to measure yields and what we project there. Then, on a quarterly basis, we basically take our unit value model and say, hey, did we trend to where we thought we were going to trend? And I’ll give you an example.
Rob Stein: [00:22:51] Q1 of this year was the worst irradiance in 75 years. And so the sunlight hitting the ground was measured and it was the worst in 75 years in Q1. And we were only 2% off our model there. And, you know, from our perspective, that’s not a problem, right? On a quarterly basis, we take our value and what we think the assets are going to generate. We have about a 10% contingency because our assets fluctuate based on seasonality. We want to make sure we have a buffer there that we can true up. If, you know, we have an odd quarter where generation is down a little bit there, we can manage our returns that way. And so what we do is we take really good historical information. We take, you know, accurate operating experience from these assets and we project out a return there that, you know, we’re within a percent. Last year, we hit about 99% of our budgeted operating revenue there, which was huge. And we make sure that we’re ahead of the curve with technology and making sure we’re making those capital improvements before they’re needed.
Christian Langman: [00:23:57] Thank you for that, Rob. And then maybe just touch briefly on, you know, how we leverage Skyline’s kind of vertical integration. You mentioned that, you know, we purchased a biogas facility and we kind of kept the mind and matter and rolled them into Skyline employees or any other areas that are accretive to the Fund as it stands.
Rob Stein: [00:24:15] Yeah, on the biogas side, that was pretty interesting. We actually had one of our larger unitholders, you know, approach me personally and said, “Hey, I’m in green energy.” And I said, “Oh, what does that mean?” And he’s like, “I own a portion of a biogas facility.” So he said, “Do you want to tour it?” So I said, “I’d love to tour it.” By the end of the tour, I thought, hey, this is something we want to be a part of. It’d be great for our unitholders. So that’s how that actually worked. But to answer your question, the Clean Energy Fund really benefits from Skyline Group of Companies. So, Skyline Group of Companies is just over a thousand people, you know, just over $8.7 billion of assets under management. We have over $2.5 billion of equity under management. And with that size of vehicle, we get, you know, really good people around the table. We have, you know, a full legal department of over 30 people. We have, you know, HR and IT and Marketing and Corporate Finance and, you know, all these individuals that sort of, you know, help with all of the products which is beneficial for us. We don’t have to have – you know, we could probably couldn’t afford to have a bunch of these sophisticated people on our team, but we get the benefit of them through the shared service model that we have.
Rob Stein: [00:25:21] So, you know, we often use internal counsel for, you know, daily day-to-day corporate work. We outsource most of our transactional stuff just so we always have, you know, an energy expert or a gas expert to help manage our transactions, there. You know, Corporate Finance, we have a couple people on our team, that’s all they do is the day-to-day operations of the assets. It’s a lot to do with, you know, 80 assets there and these sophisticated assets there. So, you know, we’re really lucky to have Skyline Group of Companies, we get some of the best people in the industry in their respective fields and we can usually utilize their experience there. We also have – which people don’t really know, we have an operating company, a sister company called Anvil Crawler Development Corp., and it’s made up of about 25 electricians and mechanical subs. So, for the Fund, this is fantastic, because, you know, we have ongoing maintenance. We have scheduled maintenance, which we usually do before prime generating months where we go and do your oil, lube, and filter changes. That’s the best way to describe it, and that’s just an ongoing, you know, maintenance of these systems that we do scheduled every single year. And then we have unscheduled stuff, right? We have a weird storm that will come through and take down a power line or, you know, cause an issue or a surge in a system and an inverter will go down.
Rob Stein: [00:26:32] You know, we had a competitor in the biogas space that that big windstorm at the beginning of the year actually blew off the bubble, the actual lid of their biogas facility. So, you know, there’s always maintenance that has to get done on these things, and with Anvil Crawler, we have real good technical expertise that come in. We’re connected at the hip because it’s a sister company to Skyline and they help manage our assets like they own them because they feel like they’re unitholders and they take that you know, that really important role there. On the biogas side, we have the Martins that you know, obviously built the facility and have a real personal tie to it. We’re also connected to a group on the biogas side that’s called Cornerstone Renewables. And what it is, it’s made up of 13 or 14 commercial biogas facilities that all share knowledge and expertise and, you know, spare parts sometimes. And so, you know, people sort of, you know, undervalue that. But that’s a really important thing for us, is to make sure that we have redundancy and we have people in the industry that, you know, if we have to divert a couple loads of waste, we don’t have to pay fines on that.
Rob Stein: [00:27:35] We can send that to, you know, one of our members of this Cornerstone Renewables. They’ll take that load for us, there’s no fee, no damage. And oftentimes that’s reciprocal because we have one of the larger facilities around. We often help out, you know, a bunch of these smaller producers that, you know, increase our generation there as well. So, we’re really lucky to have Skyline’s sort of, you know, full suite of services within the shared service model here. We’re also really lucky to have, you know, some of these external experts in their industries with ACD, the Martin’s business and this Cornerstone Renewables; it allows us to sort of manage the biggest risk we have in the Fund which is operating these assets. And so, you know, we consider ourselves sort of a blue-collar fund where we understand the operations of these assets thoroughly, and we need to surround ourselves with the people that know how to operate these assets, you know, to their fullest. So, we’re excited and lucky to have good partners there, and you can tell through our generation numbers we’re generally up most of the time 98, 99% of the time where we have an uptime. So, a lot of our vendors have uptime guarantees. And so we’re able to manage the downside risk of not generating in these facilities, so.
Christian Langman: [00:28:44] Amazing. Thanks for that, Rob. And maybe we can just touch on some of the synergies that are created between the other REIs and, you know, some potential going forward for the Fund in terms of, you know – Skyline has, you know, a very large apartment REIT. We have a retail REIT and an infrastructure REIT – or industrial REIT – and obviously there’s a lot of roof space that’s available and and even on the retail side, a lot of food waste and the apartment side, you know, disposal of waste. So, is there anything that, you know, we’re looking to do to incorporate the, or leverage the existing shelf that we have.
Rob Stein: [00:29:17] Yeah, totally. Before I do that, the slide isn’t relevant to what we’re talking about right now, so don’t get distracted with that. But yeah, what we’re doing is the Fund- one of the original sort of, um, genesis of the Fund was really to maximize the REITs, right? So, we have a bunch of, you know, infrastructure in critical areas where power is moving towards this decentralization model. So, right now in Ontario, we have three big nuclear facilities that provide the lion’s share of the power we need in Ontario and the government and the provincial government needs to decentralize this. They want to make sure that the power is being generated where it’s being consumed. And so with the REITs, I had met the Skyline team probably ten years ago in 2009 as a developer and builder of solar, and really saw their rooftops as an opportunity to add capacity there to manage their own energy demand and to really manage the carbon risk going forward. And so I got to know them through that process. And when we decided to start the Clean Energy Fund, like I said, one of the genesis was, you know, how do we leverage the existing portfolios? And so if we take the Apartment REIT, for example, there’s just over 20,000 suites there coast to coast, and probably about 400 buildings in that portfolio there. And so, you know, these buildings are located in places like Windsor. Windsor, you know, has a ton of electrical capacity. Most of the buildings that Skyline owns in Windsor are electrically heated, which means you can’t submeter them.
Rob Stein: [00:30:50] You can’t charge, you know, disproportionate. People can’t decide if they’re going to pay you their electricity bill to have heat. And so that’s a provincially mandated thing. And so, you know, we’re targeting that with them. So, the Clean Energy Fund and the Apartment REIT and partnership are working on a rollout of a program that’s going to deploy solar from coast to coast on their apartment buildings. And the premise of that is how do we generate the power where it’s being consumed? So, we’ll put it on their buildings, we’ll go into a private PPA. So, a contract just like any other contract that manages the inputs and the outputs, that manages the cost going forward. So, the Apartment REIT could fix their costs with a specific utility rate. They can own the environmental attributes and then they can set a reasonable margin for them to charge between what they’re generating power and what they’re going to sell it to their tenant at. So, it creates another revenue stream for them. So, you’re taking an underutilized asset in their rooftop. You’re adding some generation and a revenue stream for the REIT. The Clean Energy Fund gets to deploy more solar PV on buildings and energy markets it understands with a contract backed by covenants we understand and we’re very comfortable with. From the Apartment REIT’s perspective as well, if they can reduce their operating costs for every dollar of reduction in operating costs at about $20 of value through cap rate to that building. So, if we put up a $100,000 solar system for them and you offset, you know, $10,000 of power for them, you’re really generating about $2 million of value for that REIT.
Rob Stein: [00:32:24] And so if we can do that on a large scale, that’s a really valuable way to sort of leverage all of the infrastructure that we have in place at Skyline there. We’re also doing [work] with the other REITs. Mike Bonneveld, Industrial REIT, there’s a big push to be net zero buildings. And so most of the new buildings he’s building are net zero ready or net zero. So, we’re doing that through electric vehicle chargers and solar PV on the rooftops. And some of these rooftops are absolutely massive. You know, we’re looking at a facility right now that has 1 million square feet in Calgary and that’s tied to a large multi-national company that need the power and will buy the power on a long-term contract. And so, you know, there’s the opportunities that are opening up because we’re part of the bigger Skyline Group of Companies. We have a set of expertise that doesn’t exist in the market and we’re able to understand, you know, what it is to be a good tenant for, you know, a REIT, which is an important thing. They want to make sure that, you know, how the REITs make money is having, you know, infrastructure there that they can either, you know, rent out, or, you know, create a really nice home for someone to live in. So, we want to make sure we’re not, you know, changing the use case of those buildings, but really just optimizing it there.
Rob Stein: [00:33:35] We had an interesting one last year with the Retail REIT. The Retail REIT has several Rexall’s in their portfolio in Ontario and they were doing an expansion in Elmira. So, with Gord there, we were able to help design a solar facility there where it would offset about 35% of the Rexall’s energy consumption in that building, which they could go to their unitholders and say, hey, we’re buying clean energy at a fixed rate on a long-term basis. The Retail REIT actually own that generation at the time. And we were able to help with that and build that out and employ more solar in the market. So we’re really finding win-win-win scenarios here, and through the federal mandate to push towards new energy, we’re seeing this market get bigger and bigger. Through the March federal budget update -not a lot of people realize, but the provincial or federal government released these ITCs, these tax credits, investment tax credits that really incentivize businesses to deploy money into green infrastructure. And so there’s a 30% tax rebate right now. So, you know, it gives you a couple examples. We’re finding returns and paybacks between 5 and 7 years total return. And so, you know, we’re seeing a massive boom and push towards deploying more money into clean infrastructure there. So, we’re basically sizing Skyline REITs, buildings. We’re figuring out the best use cases for those buildings and we’re looking at deploying solar PV onto them.
Rob Stein: [00:35:05] The second thing we’re seeing is – sorry to cut you off there – we’re seeing this trend towards, you know, providing power at all times of the day and so right now, you know, solar power is produced when the sun is shining. Well, you know, by adding a small battery storage to that, you can store the excess power and feed it to the grid any time of day. And so this is an opportunity for us to sort of find a way to put batteries on some of these locations, charge those batteries overnight with our utility rates cheaper, and sell it back to the grid during the day when the price of utility is more expensive there. We’re seeing that in Ontario: they’ve just come out with this ultra-low overnight rate, which is going to drop the rate to 2.4 cents overnight. That’s really to target EV drivers to incentivize them to charge their EVs overnight. But really where there’s a little bit of a gap is if we can add batteries to our facilities there, buy power at night for 2.4 cents and use it during the day and offset the 24-cent rate. That is a huge, you know, hedge against that for the REITs and we can really create and drive real value there. So, we’re looking at opportunities like that every day and through some of these provincial and federal and municipal mandates there. The trend towards energy, green energy being deployed in Canada is huge. And so we expect billions of dollars to be spent in that market in the coming years.
Christian Langman: [00:36:28] Fantastic, Rob, yeah, with the battery storage and the ITC coming out, it makes, you know, the future for clean energy look even that much more bright. And just speaking to Skyline specifically and investors or advisors should, you know, look at Skyline for their impact or clean energy investing. We’ve seen, you know, obviously a growth of ESG investing within the last, say, ten years. How does, you know, Skyline Clean Energy Fund differ from a regular ESG fund in that it’s impact investing, it’s investing in Canadian renewable infrastructure. And, you know, it’s helping the decarbonization of our fuel going forward. So can you maybe speak to some of your outlook and some of the things that you see in the market within the next 3 to 5 years?
Rob Stein: [00:37:14] Yeah. I actually see a bunch of our unitholders that I’ve had this conversation in depth with, and we have a unique product in the market. We own tangible assets. They’re assets that generate power and energy infrastructure in critical areas. And so, you know, if I look at some of our competitors, they’re buying, you know, environmental attributes or they’re trading carbon credits or they’re buying into, you know, ESG-centric companies. What I think we’re doing differently is we’re actually owning the underlying asset that generates that power and those environmental attributes, which you want to own the access to the environmental attributes. You want to own access to that clean energy. You want to actually own that infrastructure. That’s the most important thing. That’s why we buy hard real estate, hard assets, and we’re buying hard assets that have, you know, critical value there. So, you know, in the market right now, we don’t see too many private opportunities that exist like us. If, you know, you wanted to buy into, you know, a renewables company, Canada is really rich in those. We have a bunch of international power producers, companies like Brookfield Renewables and, you know, Algonquins, and all of those organizations where you can go and they’re publicly traded. You can invest in them based on their long-term plans. They do something different than us. They’re buying, you know, $1 billion assets in Africa and deploying in underdeveloped markets right now because that’s where it has the best returns for them.
Rob Stein: [00:38:37] We’re not interested in buying, you know, a water project in Africa or a wind project off the coast of some country there. What we’re looking at is we’re looking at owning, you know, real tangible infrastructure in Canada, in our backyards, where we know we need that energy. That’s where our real estate is located. That’s where our tenants are, and that’s where we can go and really utilize our expertise there. So, I think we have something different in the market where, where we are generating that raw form of power. We own the environmental attributes for it and we’re doing it in the markets that we understand. And from a private perspective, there’s not too many of our funds that exist. There’s a couple private funds. There’s, you know – our biggest competitor is probably Potentia, which is a Power Corp company, and they’re divesting a lot of their assets in Ontario right now. They’re moving into larger power infrastructure globally. So that’s just their mandate that’s changed and it’s creating a great opportunity for us to own this infrastructure where we’re not looking at it as if it has, you know, 12 years left on a contract as a 12-year asset. We’re saying, hey, you know, the 12 years is great to sort of underwrite and pay that asset off and its contracted life. But really, the value of these assets are post-contract and we really want to be there to leverage that going forward. You know, we talk about post-contract value all the time, and we don’t add it to our unit value until it’s tangible, until we say, what are we going to do with that asset after its contracted life? But really, that’s when things start getting exciting.
Rob Stein: [00:40:05] We think there’s a ton of opportunity. One you know, around the world there’s something called virtual power plants which, you know, is where you build a solar system basically to generate as much power as that building- or, you know, is needed at that location. And it’s always been tied to one. You had to build that solar facility on that roof that you were using it. While virtual power plants let you build a facility where it’s, you know, the best use case of that facility is, and you can offset power anywhere. And so if I take that example we talked about in the Apartment REIT, all these electrically heated buildings in Windsor that are huge power hogs, and we can offset that with our utility-scale solar facility in Napanee, as long as it’s done and we have a regulator that can approve it, we can actually offset that bill, we can actually sell them power at a reasonable cost, probably below market value on a long-term basis. And so we actually see power trending towards that because we have a couple assets that are seven, eight years out from the contract expiring, we’re talking to the provincial government right now, IESO, on doing these things called blend and extend, which they’re saying, hey, you know, we’ll give you another 15-year extension on your contract at a little bit lesser rate, but we can underwrite to that and say, yeah, we’ll either do that, or no, we’d rather sell onto the open market because we think power price is going to be more at that stage.
Rob Stein: [00:41:23] So there’s lots to do with our assets. What people don’t realize is we own the connection point. And so once you own that connection point and you’re generating 2 megawatts of power at the connection point, you can do that forever. And so if technology gets better, there’s a better use case for it, you know, we have the ability to provide power. And that power is critical. The power demands are only going up. And so we want to own those connection points and we want to be there when contracts expire to say, what do we want to do with this power? Are we going to sell it to our own REITs? Are we going to sell it to the open market? Are we going to repurpose it into these, you know, these special vehicles that will offset other products? What do we want to do with it? So, in my opinion, it’s an exciting place to be. Once those assets or those opportunities are tangible, we’ll add that value to our unit value. But right now, we’ve underwrote to make sure that we’re only utilizing the revenue that’s generated in the contract life.
Christian Langman: [00:42:16] Fantastic. Yeah. So, when the contracts expire, it actually provides us a good opportunity to create value in the Fund and maybe engage in PPA agreements with private organizations. And who would you say is looking to – you mentioned Rexall earlier – which kinds of organizations are looking to kind of reduce their carbon offput or some of the decarbonization of their power output?
Rob Stein: [00:42:42] Oh, almost everyone. It’s interesting, you know. RBC just made a big splash last year. They bought into one of the largest solar facilities being built in North America. And they want to manage their own carbon footprint. And so they want to manage the carbon offputs coming out of that and they want to buy that at a discount. So, they’ve invested into that actual infrastructure so they could have those offputs coming off. RBC, we’re talking to the likes of the big grocery store chains. We’re talking to Canadian Tire on their distribution facilities right now. We’re talking to, you know, other banks, mutual fund trusts. We’re talking a couple of the pension plans right now that want to manage their carbon footprints. Basically anyone and everyone in the industry is starting to come up with some kind of ESG target and a way to reduce their carbon footprint. And yes, you can buy environmental attributes, you can buy carbon credits, but eventually that will be greenwashing. That will be a superficial way to manage your carbon. You’ll have to actually own some underlying asset. There’ll be something tangible you need to point to. And so we’re really targeting those types of assets. Last year, we bought the rights to a new facility that should be constructed next year called Bassano in Alberta. That’s a 12-megawatt facility that will be on a private PPA and we’ll own the environmental attributes of it. So, we’re talking the likes of some big banks and some pension funds that want those environmental attributes on a long-term basis. And so we’re excited about those opportunities.
Rob Stein: [00:44:13] So, those will come up more and more as, you know, people have to start controlling their own consumption. You know, we get calls on a weekly basis from, you know, some of the biggest energy companies in the world, the Shells and the FortisBCs and the Enbridges, because on the biogas side of our business we’re generating something that’s really rare in the market right now, and they want in, and those barriers to entry are long, you know, just to build a new biogas facility. Just the permitting takes 5 or 6 years. And so, you know, we might see investments through companies like Shell that want to get into the market and just have to acquire something in the coming years because the barrier of entry is so great. But, you know, right now the push towards ESG and towards green energy is large. I know green energy is sort of a dirty word in some circles, but it’s really a big push to saying we need more power. The reason there’s such a push towards green energy is because it’s generating power at the lowest cost you can generate power. And so when they compare green energy to, you know, our solar PV, to nuclear or coal or to any of these other type of facilities, it’s just a cheaper way to generate power. So, although it’s green, it’s important to make sure that the economics of this new facility get built. So, green energy is really here to stay: one, because it’s the lowest cost we can generate power; and two, it’s in the greenest form we can generate power with the knowledge we have right now.
Christian Langman: [00:45:35] Fantastic. Yeah. No, definitely. So, clean energy, or what we like to call internally renewable infrastructure, is going to be obviously the forefront of the economy. And Canada is, you know – can you maybe speak to Canada’s, you know, situation in the globe in terms of – are we, you know, at the forefront of kind of this clean revolution? I know in Europe there’s large amounts of kind of clean energy on the grid. Are we still far behind from some of our, you know, allies out west?
Rob Stein: [00:46:02] Yeah, we’re really far behind. You know, a couple things. The green energy program in Ontario is actually based on the German program. But Germany, you know, a couple of years ago had that mandate to reduce nuclear, and I actually think that was an error, a huge error. They had energy independence in Germany, and they ended up getting rid of technology that made them dependent on other countries. And so it was actually an error. So, you know, Ontario, we have good infrastructure built, and yes, it’s made up of natural gas generators and nuclear and solar PV and wind. And we need this cross-section of energy to make up our energy demand. You know, we have a well-run, you know, nuclear facility. Well, we should utilize that for its lifecycle, that’s an important thing to do. You don’t get rid of that energy mix just so we spend more money on clean energy. We need this energy to mix. But, you know, in Canada, Ontario was at the forefront for a little while and then the federal government and provincial government pulled the foot off the gas. And so for the last couple of years, we’ve sort of been sitting in limbo.
Rob Stein: [00:46:59] And that’s why, you know, Alberta is taking off, and Saskatchewan is taking off in renewables. The best thing that happened to the renewable market in Canada last year was this Inflation Reduction Act in the US, where they’re going to spend trillions of dollars on renewable energy to really make sure they’re controlling their energy demand and to put a bunch of money in the market. Well, when the US government did that, the federal government in Canada said, hey, we’re going to be really behind the scenes if we don’t create a program. So that’s why they created this ITC, this investment tax credit to really incentivize big business to get involved in renewables in Canada. So, I think we’re in, you know, the perfect space right now. I think the next ten years in renewables is absolutely going to be crazy. It’s going to be hard to keep up in that. And really, the market conditions, the regulatory conditions are perfect to really drive more renewables. So, we’re excited that we have a product right here. We don’t have a lot of competition and we have the right expertise to really drive home some real value for our unitholders.
Christian Langman: [00:48:00] Fantastic. And then, we have ten minutes to 1:00PM, Rob. If anyone has any questions, please type them into the Q&A box towards the top of your screen and we’ll go through them as they come in. But, you know, Rob, maybe I can just touch on a few things while kind of a couple questions do roll in, if they do. You know, we touched on this with the biogas facility. You know, why doesn’t the Canadian government get more involved in kind of hands-on building and operating, you know, clean energy assets? Why is it – yeah, why are they not doing that?
Rob Stein: [00:48:31] Yeah. They’ve been trying to stay away from too much government intervention. You know, they want to create a market condition that allows private businesses to get involved. But private business can run so much faster than any government out there. And so they’re seeing that, you know, Saskatchewan’s a good example. Saskatchewan hasn’t had really a remote renewable market and they’ve sort of watched the, you know, other provinces, you know, do it over the last ten years. And this year is the first year they came out and they said, hey, we’re going to take all this information we’ve learned from programs that are in Canada and we’re going to build our own program around it. So the first one they launched is a 100-megawatt one-contract tender, and they said, we’re going to provide the land, we’re going to provide the connection point. We’re going to tell you exactly where we need the power, and we’re going to tell you exactly where. So all the developers said, we don’t have to do any work. We just have to bid the lowest cost of power.
Rob Stein: [00:49:19] And so that is currently on there right now. And it’s going to be a real market teller for the industry to say, you know, once the government can open up a condition for, you know, renewables to be deployed, then let private businesses go and say, where can we build a facility? How can we drive down costs and how can we make sure that costs are as low for the ratepayers as possible? And so, you know, that market conditions are changing right now, but we see through the ITC, through this carbon credit, you know, exchange that’s coming up through, you know, some of these programs. They’ve created a perfect environment, that the role government should play is to create this environment and let private business run. And that’s currently where we’re at right now. And we’re really leveraging that. And that’s the role that government should play. We don’t want them to compete with us. We want them to open up conditions and allow us to run.
Christian Langman: [00:50:11] No, definitely. And then, yeah – do you have anything else to mention, Rob?
Rob Stein: [00:50:16] No.
Christian Langman: [00:50:16] Thought I cut you off. Sorry. You know, maybe I can touch on this: why investors and advisors and portfolio managers and, really, anyone should look to Skyline, and more specifically, the Clean Energy Fund. You know, as we’ve talked about today, Skyline Clean Energy Fund, all the assets are backed by predictable or backed by government or private contracts. So, they provide a predictable income stream backed by long-term contracts. We reinvest the distributions back into the Fund and then look for accretive acquisitions. And holding the Fund is very tax-efficient. We don’t pay out the distribution, so there’s no income being derived on the Fund. So, investors can really get that growth trajectory within the Fund without any kind of tax implications. For now, we are potentially looking to provide a distribution at some point. Maybe, Rob, you can touch on, you know, if there’s a distribution potentially coming from the Fund, when it would be likely, and why or why not we should do it.
Rob Stein: [00:51:13] You want me to answer that?
Christian Langman: [00:51:14] Yeah. Just – maybe just quickly, yeah.
Rob Stein: [00:51:15] Sure, sure. Yeah, we get this question all the time, to be honest. Right now, we’re an equity growth fund where we’re redeploying all the capital that we generate or we raise into new accretive assets, and we’re seeing this compounding effect on our unit value. We have such a full pipeline right now, it’s sort of hard to look at a distribution. But we have a distribution model built. Our Trustees require it to make sure that we’re always doing a market check to say, hey, you know, like a utility, which we’re basically building a private utility. A lot of utilities will make a 4% distribution and there’ll be, you know, the rest of it will go to growth through unit value growth there. So, we’re looking at it constantly. Right now, we don’t have a plan to make distributions. We have a bunch of accretive opportunities that we need to deploy capital into. But we’ll keep managing investor expectations there to make sure that we’re looking at a distribution model there. But yeah, right now it’s not in the near future, just based on the quality of assets we have in the pipeline and the demand we’re getting from our unitholders. You know, the other REITs, you know, have a distribution built in. So, we’re finding that, you know, certain type of unitholders are attracted to our asset base, you know. They like the tax efficiency that we have. Right now, we have about eight, nine years of capital cost allowance – UCC. And so, you know, we’re not paying taxes. Investors aren’t getting, you know, tax slips there. And so, you know, we’ve created this really tax-efficient vehicle where as we deploy, you know, new assets and new accretive opportunities, we’re seeing that growth. And the whole purpose of the Fund is to really grow, you know, a good value and to make sure we’re growing people’s equity as much as we can.
Christian Langman: [00:52:57] Amazing. Well, Rob, I think we’re through with the questions. I didn’t see any come up here. But, you know, just touching on a couple of items you mentioned during the presentation, you know, the growing trend of ESG is apparent within the kind of investing sphere. SCEF provides that impacting investing focus, meaning investors should feel good about what they’re investing in, knowing it has a positive impact to the overall environment and making above average returns in a very predictable and consistent way. I have heard that there potentially is a question here, so – oh yeah, so who do we normally sell natural gas to? Maybe you can speak to kind of the biogas facilities and some of the PPA agreements that we have there or FIT contracts.
Rob Stein: [00:53:37] Yeah. Right now our contract in BC is with FortisBC. They’re the off-taker of our gas on a 20-year contract at fixed rates with escalators and things like that. Actually, there’s a natural hedge built into that contract where if fuel costs go up or input costs go up, we can actually flow that through. But FortisBC is the off-taker of our gas in our Lethbridge facility. We are going to start converting our Ontario facility to a Renewable Natural Gas generator. And we’re talking to the likes of the Enbridges out there. That will be the off-taker of that gas. What we’re trying to figure out right now is if we need a middleman – if we’re going to sell that gas, give them the rights to sell it, what do we do with our environmental attributes? So, the devil’s in the details there. But in Alberta, FortisBC is the off-taker of our gas, and Ontario will probably be Enbridge. Companies like Shell, some of the big gas guys in the US are really interested in getting into this market. For them to have to sell gas in their primary markets, they have to manage their own ESG. And so it’s becoming a huge topic. So, we’re seeing a bunch of the the oil and energy guys, natural gas guys move into the biogas space because they want the environmental attributes.
Christian Langman: [00:54:58] Fantastic. Thank you for that, Rob. And then just lastly, just wanted to quickly touch on Skyline Clean Energy Fund is registered account available – eligible, I should say. There is one requirement, four month minimum hold, but the Fund does provide monthly liquidity to investors, both in terms of purchases and redemptions. We are 100% Canadian: real Canadian assets split among biogas and solar. We don’t provide any or we don’t have any redemption fees. Everything is redeemed at NAV and the Funds are now offered through Fundserv, so speak with your advisor, or if you are an advisor, please reach out and we can speak to you about potential approvals and how we can get the trade kind of completed. But Rob, do you have any lasting questions or do you have any lasting comments for today?
Rob Stein: [00:55:49] Thanks for logging in. I know that was a full hour there over lunch, so we really do appreciate it. We’re open for investment right now. We have – we’re repowering a bunch of our own assets there for our existing investors that are currently in. There’s going to be, you know, good value created there. So, we’re thankful for that. And, yeah, we’re excited about where this future is going with this. We have the right team and the right assets right now to sort of leverage it. So, I appreciate it. Thanks for letting us talk about the Fund. I love this stuff. So any time we get an opportunity to talk about it, I’m thankful. So, thank you very much for your time.
Christian Langman: [00:56:21] Thank you, everybody, for logging in. Hope you have a great rest of the day. If you have any questions, feel free to reach out to me and I’ll get back to you. And if you have any questions for Rob, direct them through me and I’ll send them to Rob and we can go that way.
Rob Stein: [00:56:33] Awesome. Thanks, Christian.
Christian Langman: [00:56:34] Thank you, Rob.
Rob Stein: [00:56:35] Have a great day.