MONTREAL - Innergex Renewable Energy and three Mi'kmaq First Nations communities in Quebec are moving ahead with plans to build a wind farm in the Gaspe Peninsula after striking a 20-year power purchase agreement with Hydro-Quebec.
The $365-million project will generate 150 megawatts of power. Annual production is estimated at 515,000 megawatt hours, which can power 30,000 homes.
The Mesgi'g Ugju's'n wind farm is expected to begin operation at the end of 2016.
Innergex (TSX:INE) and three Mi’kmaq communities in Gaspe — the Gesgapegiag, Gespeg and Listuguj — share control over the project 50-50.
"We are honoured and proud to have been chosen by the Mi'kmaq communities of Quebec to jointly develop this wind energy project, and the signing of a power purchase agreement marks an important milestone in the progression of its development," Innergex CEO Michel Letellier said Monday.
The company expects the project to deliver revenues of $55 million and adjusted earnings before interest, taxes, depreciation and amortization of $45 million in the first year of operation.
Hydro-Quebec will pay 10.12 cents per kilowatt hour with annual inflation adjustments. The public utility plans to build a 25-kilometre transmission line to connect the wind farm to the provincial power grid.
Innergex says it expects to fund the majority of the investment and receive about 75 per cent of the project's cash flows in the first year, while the Mi’kmaq communities will be able to gradually increase their equity stake over 15 years to 65 per cent. As of the 16th year, the company will receive between 35 and 40 per cent of the annual cash flows for the remaining life of the project.
Chief Claude Jeannotte, chairman of the Mi'gmawei Mawiomi said the project will be a significant contributor to the development of the three participating First Nations.
"It will create wealth and jobs not only for our members, but also for our neighbours in Gaspesie and elsewhere in Quebec. We see great opportunities for the future," he stated in a release.
Construction on the wind farm is scheduled to begin in 2015, after it receives certain pre-construction authorizations later this year.
The environmental impact study has been submitted to the Quebec government and an information session was held last month. Negotiations are underway with potential turbine suppliers.
Analyst Jeremy Rosenfield of Desjardins Capital Markets said the project should contribute $1 to $2 per share to Innergex, providing upside for its share price.
"At this point, we do not believe the shares reflect the future potential value of the project, leaving potential longer term upside from the new initiative," he wrote in a report.
Analyst Nelson Ng of RBC Capital Markets also noted the Hydro-Quebec agreement will be "modestly positive" on Innergex shares.
"Although Innergex has previously released details of the project economics, we believe the actual signing of the power purchase agreement as an important milestone for the project."
Innergex owns and operates 25 run-of-river hydroelectric facilities, six wind farms and one solar power farm in Quebec, Ontario and British Columbia and in Idaho. It has a net installed capacity of 672 MW that is expected to grow by 210 MW from five projects under developments.
Note to readers: This is a corrected story: A previous version misspelled Mi'kmaq