INE Innergex Renewable Energy Inc

Innergex Renewable Energy Inc. (TSX: INE) (“Innergex” or the “Corporation”) announces it has entered into an agreement to acquire 100% of the ordinary shares of Aela Generación S.A. and Aela Energía SpA (together “Aela”), a 332 MW portfolio of three newly-built operating wind assets in Chile, for a purchase price of US$686 million ($871 million) (the “Acquisition”), including the assumption of US$386 million ($490 million) of existing debt, subject to customary closing adjustments.2

Aela’s portfolio consists of the Sarco wind farm (170 MW), the Aurora wind farm (129 MW) and the Cuel wind farm (33 MW) (collectively, the “Facilities”). Revenues from these facilities are anchored by two forms of power purchase agreements (“PPAs”) with 25 Chilean distribution companies, maturing at the end of 2036 and 2041.

“I am very excited to announce today the acquisition of Aela, a leading wind power portfolio in Chile, which will significantly expand our overall presence in the country to 655 MW with meaningful technological and geographical diversification. The Acquisition will extend our leadership position in Chile, an attractive energy market” said Michel Letellier, President and Chief Executive Officer of Innergex. “The Acquisition is a continuation of Innergex’s disciplined growth strategy in Chile that we’ve executed on since we entered the market in 2018 and offers an opportunity to unlock the full value of our current Chilean portfolio as these newly-constructed, high-quality assets combined with our current portfolio yield accretive refinancing opportunities, additional flexibility to service our clients under PPAs, and other operational enhancements.”

Chile: An Attractive Renewable Energy MarketChile represents an attractive market for investment. It is the first South American country to become a member of the Organization for Economic Co-operation and Development and maintains a strong investment grade rating as assessed by S&P (A), Moody’s (A1) and Fitch (A-). Chile leads Latin American countries with the highest Gross Domestic Product (“GDP”) per capita and lowest public debt to GDP when compared to the largest economies in the region.

The Chilean government has set national decarbonization plans including the complete phase-out of coal-fired generation with an initial step of retiring 3.5 GW by 2025 and the objective of achieving carbon neutrality by 2050. The Chilean national power grid coordinator, Coordinador Eléctrico Nacional (“CEN”), forecasts electricity demand will increase at a 3.4% cumulative average growth rate from 2021 to 2041, and the average power price at the major Polpaico node in Chile has averaged US$80/MWh over 2021. These decarbonization goals and positive market fundamentals will require significant investment in the renewable energy sector in the coming years and Innergex is well positioned to participate in the ensuing growth.

Portfolio Underpinned by Newly-Constructed Long-Term USD Contracted AssetsThe Acquisition adds 332 MW of operational wind capacity with over 90% of the capacity installed in 2020. The Facilities have a long-term average (“LTA”) of 954 GWh per year and diversified revenue streams anchored by two attractive forms of long-term PPAs for up to 856 GWh per year, which can be settled on a portfolio-basis including Innergex’s other Chilean assets. The 20-year PPAs, awarded in 2015 and 2016 and effective in 2017 and 2022 respectively, have 16 years of remaining weighted average contracted life. The US-denominated contracts have an average rate for the first twelve months following closing of US$93/MWh and benefit from full US consumer price index (“CPI”) escalation, providing an inflation hedge.

Sales under the PPAs are with 25 local distribution companies (“DisCos”), 97% of which are represented by three investment grade blue-chip offtakers with investment grade credit profiles. Amounts sold under the PPAs are dependent on the regulated demand from the DisCos. In the first twelve months following closing, volumes sold under the PPAs are expected to be approximately 58% of the maximum output available under the PPA. Volumes sold under the PPAs are expected to increase to nearly 90% in the coming years due to a combination of higher demand and lower supply of the remaining PPAs, as some will expire before 2027. The CEN expects regulated electricity demand growth to increase at a 3.4% cumulative average growth rate from 2021 to 2041. The Comisión Nacional de Energía (“CNE”) expects regulated supply serving DisCos to decline by 37% from 2022 to 2027 as legacy supply contracts reach the end of their terms, and has communicated that no new DisCo PPA supply will be procured until 2027.

The Facilities also benefit from other sources of contracted revenues, including entitlement to receive annual capacity revenue payments based on capacity eligibility and pricing calculated by the CNE. The Facilities also generate Non-Conventional Renewable Energy credits, and a portion of these credits are sold under a 15-year offtake contract. Remaining non-contracted energy is sold on the spot market.

Enhances Innergex’s Portfolio in ChileThe Acquisition marks Innergex’s sixth investment in Chile since 2018, initially with the acquisition of a 50% interest in Energía Llaima and the 140 MW Duqueco hydroelectric complex. Since acquiring full control of Energía Llaima in 2021, Innergex has been focused on increasing operational efficiency, adding technological and geographical diversification to be better positioned to seize opportunities and further advancing greenfield project development and M&A opportunities. Over time, Innergex has developed a full complement of in-country operating and development capabilities in Chile through a team of over 80 employees, overseeing the operations of its portfolio of assets. The acquisition of Aela will reinforce Innergex as one of the country’s leading pure play renewable power producers with 655 MW of multi-technology operating capacity and several avenues for growth.

The Acquisition diversifies Innergex’s portfolio in Chile with multi-technology assets including wind, hydro and solar, and an increased geographical reach. In addition, the Facilities and PPAs increase the overall contractedness of Innergex’s Chilean portfolio from 61% to 69%, with all of the PPAs benefiting from full CPI escalation.

The increased size and breadth of Innergex’s Chilean portfolio creates opportunities to realize scale benefits for its operations, including operational synergies. Innergex’s existing Chilean generation profile also complements the generation profile of the Facilities providing greater supply optionality and portfolio-effect diversification benefits. In addition, by having access to a large and growing diversified generation mix, Innergex is able to supply large industrial customers on a 24/7 basis using clean renewable power, unlocking potential contracting and recontracting opportunities on existing assets and new development opportunities in hydro, solar and storage through its growing portfolio of development assets.

Strong Financial ContributionThe Facilities have an attractive cash flow profile and are expected to generate revenues of US$67 million ($85 million) for the first twelve months following closing based on the expected LTA generation of 954 GWh, sales under the PPAs of 498 GWh (representing 58% of the maximum output available under the PPAs) and operating, general and administrative expenses of US$23 million ($29 million) during the same period. Sales under the PPAs are expected to increase to nearly 90% of the maximum output available under the PPAs over the next five years, which, in conjunction with US CPI-linked price escalation, is expected to underpin incremental total annual revenues of US$24 million ($30 million), compared to the expected revenues for the first twelve months following closing.

Assuming the implementation of the financing plan described below, the Acquisition is expected to be immediately accretive to Free Cash Flow per Share3 with mid to high single digit accretion in the first twelve months post-closing and further upside through increased sales under the PPAs in the coming years as noted above.

Prudent Financing PlanInnergex’s financing plan for the Acquisition is designed to be consistent with Innergex’s investment grade corporate credit rating, while optimizing the mix of corporate equity and corporate and portfolio-level non-recourse debt. The net purchase price of US$300 million ($381 million) after assumption of US$386 million ($490 million) of existing debt, will be financed as follows:

• $150 million of gross proceeds via a concurrent bought deal equity offering, before the over-allotment option;
• $37 million of gross proceeds via a concurrent private placement to an affiliate of Hydro-Québec; and
• The remaining financing requirements will be financed by net proceeds from a combined refinancing of the non-recourse debt at the Facilities and at Innergex’s existing Chilean projects, expected to be arranged in Q2 2022.

A portion of the financing plan is supported by acquisition debt facilities provided by CIBC.Approvals and TimelineThe Acquisition is expected to close in Q2 2022 and is subject to the regulatory approval of the Chilean Antitrust Agency (Fiscalía Nacional Económica), as well as customary closing conditions.

Concurrent Equity Offering and Private PlacementInnergex has entered into an agreement with a syndicate of underwriters led by CIBC Capital Markets, National Bank Financial Inc., BMO Capital Markets and TD Securities Inc. (collectively the “Underwriters”), pursuant to which the Underwriters have agreed to purchase on a bought deal basis, an aggregate of 8,451,000 common shares at an offering price of $17.75 per share (the “Offering Price”) for aggregate gross proceeds to the Corporation of approximately $150 million (the “Offering”). In connection with the Offering, Innergex has granted the Underwriters an over-allotment option, exercisable in whole or in part, at any time for a period of 30 days following the closing of the Offering, to purchase up to an aggregate of an additional 1,267,650 common shares at the Offering Price.

Innergex has also entered into a subscription agreement with HQI Canada Holding Inc., a subsidiary of Hydro-Québec (“HQI”) to purchase 2,100,000 common shares at the Offering Price, for gross proceeds to the Corporation of approximately $37 million through a private placement (the “Private Placement”) as part of HQI’s rights contained in the Investor Rights Agreement between Innergex and HQI, dated February 6, 2020. As part of the Private Placement, HQI has the option, exercisable following the exercise of the over-allotment option by the Underwriters and prior to the expiry of the Underwriters’ over-allotment option, to purchase additional common shares under the Private Placement at the Offering Price as to allow HQI to maintain a 19.9% ownership of the common shares following the exercise of the Underwriters’ over-allotment option. The common shares offered in the Private Placement are being sold directly to HQI without an underwriter or placement agent.

The net proceeds of the Offering and Private Placement will be used to fund a portion of the purchase price of the Acquisition. Should the Acquisition not successfully close, the net proceeds of the Offering and Private Placement will be used for general corporate purposes including future growth initiatives.

In connection with the Offering, Innergex will file via SEDAR (www.sedar.com) a preliminary short form prospectus in all provinces of Canada by February 9, 2022. The Offering and Private Placement are subject to all standard regulatory approvals, including that of the Toronto Stock Exchange, and are expected to close on or about February 22, 2022.

The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This news release does not constitute an offer to sell or the solicitation of any offer to buy, nor will there be any sale of these securities, in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction.

Reaffirmation of Projected Financial PerformanceOn February 23, 2022, Innergex is expected to release its financial results for the quarter and year ending December 31, 2021. Based on currently available, preliminary information, results are estimated to be in line with Innergex’s November 2021 projections for revenues, Adjusted EBITDA and Adjusted EBITDA Proportionate and ahead on Free Cash Flow per Share4 for 2021, excluding the impacts of the February 2021 Texas events.

Financial AdvisorsSMBC Nikko Securities Americas, Inc. and CIBC Capital Markets acted as financial advisors to Innergex.

Conference Call and PresentationInnergex will make available an audio conference and support material relative to this announcement on its website at www.innergex.com/investors/.

About Innergex Renewable Energy Inc.For over 30 years, Innergex has believed in a world where abundant renewable energy promotes healthier communities and creates shared prosperity. As an independent renewable power producer which develops, acquires, owns and operates hydroelectric facilities, wind farms, solar farms and energy storage facilities, Innergex is convinced that generating power from renewable sources will lead the way to a better world. Innergex conducts operations in Canada, the United States, France and Chile and manages a large portfolio of high-quality assets currently consisting of interests in 80 operating facilities with an aggregate net installed capacity of 3,152 MW (gross 3,852 MW) and an energy storage capacity of 150 MWh, including 40 hydroelectric facilities, 32 wind farms and 8 solar farms. Innergex also holds interests in 9 projects under development, two of which are under construction, with a net installed capacity of 171 MW (gross 209 MW) and an energy storage capacity of 329 MWh, as well as prospective projects at different stages of development with an aggregate gross capacity totaling 7,281 MW. Its approach to building shareholder value is to generate sustainable cash flows, provide an attractive risk-adjusted return on invested capital and to distribute a stable dividend.

Cautionary Statement Regarding Forward-Looking InformationTo inform readers of the Corporation's future prospects, this press release contains forward-looking information within the meaning of applicable securities laws (“Forward-Looking Information”), including anticipated completion of the Aela Acquisition, the Offering and the Private Placement and timing for such completion, the integration of Aela and the resulting synergies including in light of the contemplated Chilean projects debt refinancing, the performance of the Aela wind facilities, the Corporation’s targeted financial performance (including by taking into account the targeted financial performance of Aela), sources and impact of funding, project acquisitions, financial benefits and accretion expected to result from such acquisitions, business strategy, future development and growth prospects, business integration, and other statements that are not historical facts. Forward-Looking Information can generally be identified by the use of words such as “approximately”, “may”, “will”, "could”, “believes”, “expects”, “intends”, "should”, "would”, “plans”, “potential”, "project”, “anticipates”, “estimates”, “scheduled” or “forecasts”, or other comparable terms that state that certain events will or will not occur. It represents the projections and expectations of the Corporation relating to future events or results as of the date of this press release.

Future oriented financial information: Forward-Looking Information includes future-oriented financial information or financial outlook within the meaning of securities laws including information regarding the Corporation's expected production, targeted Free Cash Flow and targeted Free Cash Flow per Share (including on a combined basis with Aela), Aela’s expected production, expected electricity demand, targeted revenues, targeted operating, general and administrative expenses and other statements that are not historical facts. Such information is intended to inform readers of expected results, of the potential financial impact of completed and future acquisitions and of the Corporation's ability to sustain current dividends and to fund its growth. Such information may not be appropriate for other purposes.

Assumptions: Forward-looking Information is based on certain key assumptions made by the Corporation, including, without restrictions, assumptions concerning project performance, economic, financial and financial market conditions, expectations and assumptions concerning availability of capital resources and timely performance by third-parties of contractual obligations, receipt of regulatory approvals, the expected closing of the Aela Acquisition, of the Offering and the Private Placement, the expected performance of the Aela wind facilities (including in light of electricity production and demand under the PPAs) and the resulting synergies from its integration.

Risks and uncertainties: Forward-Looking Information involves risks and uncertainties that may cause actual results or performance to be materially different from those expressed, implied or presented by the Forward-Looking Information. These are referred to in the "Risks and Uncertainties" section of the Annual Report and include, without limitation: the improper assessment of wind resources and associated electricity production, the variability in wind resources; the equipment supply risk, including failure or unexpected operations and maintenance activity; the natural disasters and force majeure; the regulatory and political risks affecting production; the health, safety and environmental risks affecting production; the variability of installation performance and related penalties; the availability and reliability of transmission systems; litigation; the unexpected maintenance expenditures, the possibility that the Corporation may not declare or pay a dividend; the reliance on PPAs and ability to secure new PPAs or renew any PPA; the fact that revenues from certain facilities will vary based on the market (or spot) price of electricity; the fluctuations affecting prospective power prices, changes in general economic conditions, availability of the capital, regulatory and political risks, performance of counterparties, the ability of the Corporation to complete the successful integration of its acquisitions (including the Aela Acquisition) and to achieve the contemplated synergies.

Although the Corporation believes that the expectations and assumptions on which Forward-Looking Information is based are reasonable under the current circumstances, readers are cautioned not to rely unduly on this Forward-Looking Information, as no assurance can be given that it will prove to be correct. Forward-Looking Information contained herein is provided as at the date of this press release, and the Corporation Principal Risks and Uncertainties does not undertake any obligation to update or revise any Forward-Looking Information, whether as a result of events or circumstances occurring after the date hereof, unless so required by law.

The following table outlines the Forward-Looking Information contained in this press release, which the Corporation considers important to better inform readers about its potential financial performance, together with the principal assumptions used to derive this information and the principal risks and uncertainties that could cause actual results to differ materially from this information.

Principal Assumptions	Principal Risks and Uncertainties
Expected ProductionThe Corporation determines a long-term average annual level of electricity production (“LTA”) over the expected life of the facility, based on engineers’ studies that take into consideration a number of important factors including for wind energy the historical wind and meteorological conditions and turbine technology. Other factors considered include, without limitation, site topography, installed capacity, energy losses, operational features and maintenance. Although production will fluctuate from year to year, over an extended period it should approach the estimated LTA.	Improper assessment of wind resources and associated electricity production Variability in wind regimesEquipment supply risk, including failure or unexpected operations and maintenance activityNatural disasters and force majeureRegulatory and political risks affecting productionHealth, safety and environmental risks affecting productionVariability of installation performance and related penaltiesAvailability and reliability of transmission systemsLitigation
Targeted RevenuesFor each facility, expected annual revenues are estimated by multiplying the LTA by a pricefor electricity stipulated in the PPA secured with a public utility or other creditworthy counterparty. In most cases, these PPAs stipulate a base price for electricity produced and, in some cases, a price adjustment depending on the month, day and hour of its delivery. In most cases, PPAs also contain an annual inflation adjustment based on a portion of the Consumer Price Index. This excludes facilities that receive revenues based on the market (or spot) price for electricity. For these facilities, expected annual revenues are estimated by multiplying the LTA with forward market prices, which are based on observable market data or constructed using various assumptions depending on historical market prices, supply, demand and congestion volumes observed, as well as econometric models.In the context of the Aela Acquisition, the average sale price under the PPAs for the next twelve months following closing is established at US$93/MWh. The sales increase estimates under the PPAs are based on market assumptions and a CPI indexed between 2 and 3.5% and at 58% to nearly 90% of the maximum output available under the PPAs. PPA volumes are demand-driven, but are sculpted to avoid production deficits under normal operating circumstances. In addition, the projects are subject to price differential adjustments between the point of injection on the grid and the point of withdrawal under the PPAs. Approximately 12% of the revenues are expected to be exposed the merchant market for the 2022-2031 period.	See principal assumptions, risks and uncertainties identified under “Expected Production” Revenues from certain facilities will vary based on the market (or spot) price of electricityFluctuations affecting prospective power pricesChanges in general economic conditionsAbility to secure new PPAs or renew any PPA
Targeted Free Cash Flow per Share The Corporation estimates Targeted Free Cash Flow as projected cash flows from operating activities before changes in non-cash operating working capital items, less estimated maintenance capital expenditures net of proceeds from disposals, scheduled debt principal payments, preferred share dividends declared and the portion of Free Cash Flow attributed to non-controlling interests, plus or minus other elements that are not representative of the Corporation's long-term cash generating capacity, such as transaction costs related to realized acquisitions (which are financed at the time of the acquisition), realized losses or gains on derivative financial instruments used to hedge the interest rate on project-level debt or the exchange rate on equipment purchases. Targeted Free Cash Flow per Share is obtained by dividing Targeted Free Cash Flow by the weighted average number of common shares.	See principal assumptions, risks and uncertainties identified under “Expected Production” and “Targeted Revenues”Unexpected maintenance expenditures
Expected closing of the Aela Acquisition, of the Offering and the Private PlacementThe Corporation reasonably expects that the closing conditions will be completed within the deadlines	Availability of the capitalRegulatory and political risksPerformance of counterparties

Cautionary Statement Regarding Non-IFRS measuresInnergex reports its financial results in accordance with International Financial Reporting Standards (“IFRS”). This press release contains references to certain financial measures which do not have a standardized meaning under IFRS and are not likely to be comparable to similarly designated measures reported by other issuers. Innergex believes that these indicators are important, as they provide management and the reader with additional information about the Corporation's production and cash generation capabilities, its ability to sustain current dividends and dividend increases and its ability to fund its growth. These indicators also facilitate the comparison of results over different periods. Adjusted EBITDA, Adjusted EBITDA Proportionate and Free Cash Flow per Share are not measures recognized by IFRS and have no standardized meaning prescribed by IFRS. Please refer to the "Non-IFRS Measures" section of the Management's Discussion and Analysis for the three- and nine-month periods ended September 30, 2021 which is available on www.innergex.com and have been filed with SEDAR at www.sedar.com.

In this press release, references to “Free Cash Flow” are to cash flows from operating activities before changes in non-cash operating working capital items, less maintenance capital expenditures net of proceeds from disposals, scheduled debt principal payments, the portion of Free Cash Flow attributed to non-controlling interests, and preferred share dividends declared, plus or minus other elements that are not representative of the Corporation's long-term cash-generating capacity, such as gains and losses on the Phoebe basis hedge due to their limited occurrence over the next 12 months, realized gains and losses on contingent considerations related to past business acquisitions, transaction costs related to realized acquisitions, realized losses or gains on derivative financial instruments used to hedge the interest rate on project-level debt or the exchange rate on equipment purchases. References to Free Cash Flow per Share is obtained by dividing the Free Cash Flow by the weighted average number of common shares. The determination of the accretion to Free Cash Flow per Share in the first twelve months following the closing is based on the financial synergies to be unlocked by the expected refinancing of the Chilean debt portfolio.

Additional information about Innergex, the Forward-Looking Information contained in this press release and the non-IFRS measures used in this press release are available in its audited consolidated financial statements for the fiscal year ended December 31, 2020 and related Management’s Discussion and Analysis, its unaudited condensed interim consolidated financial statements for the three- and nine-month periods ended September 30, 2021 and related Management’s Discussion and Analysis and its Annual Information Form for the fiscal year ended December 31, 2020 at www.innergex.com and on Innergex’s SEDAR profile at www.sedar.com.

External DataThis press release includes political engagement, external data and other statistical information that we have obtained from political sources, independent industry publications and other independent sources. Some data is also based on management’s good faith estimates. Such publications and reports generally state that the information contained therein has been obtained from sources believed to be reliable. Although management of Innergex believes these publications and reports to be reliable, we have not independently verified any of the data or other statistical information contained therein, nor have we ascertained the underlying economic or other assumptions relied upon by these sources. Innergex does not provide any representation or assurance as to the accuracy or completeness of the information or data, or appropriateness of the information or data for any particular analytical purpose and, accordingly, disclaims any liability in relation to such information and data. We have no intention and undertake no obligation to update or revise any information or data, whether as a result of new information, future events or otherwise.

CurrencyIn this press release, unless otherwise specified or the context requires otherwise, all dollar amounts are expressed in Canadian dollars.

For information

Jean-François Neault                                        Chief Financial Officer                                        450 928-2550, ext. 1207                                 investorrelations@innergex.com                         www.innergex.com

Karine VachonSenior Director – Communications450 928-2550, ext. 1222kvachon@innergex.com 

                                                          

1 Free Cash Flow per Share is a non-IFRS ratio. See “Cautionary Statement Regarding Non-IFRS Measures”.2 Based on CAD / USD rate of 1.27.3 Free Cash Flow per Share is a non-IFRS ratio. See “Cautionary Statement Regarding Non-IFRS Measures”.4 Adjusted EBITDA and Adjusted EBITDA Proportionate are non-IFRS measures and Free Cash Flow per Share is a non-IFRS ratio. See “Cautionary Statement Regarding Non-IFRS Measures”.