RBC -updateMay 11, 2020 Algonquin Power & Utilities Corp. Improving utility risk profile and potential upside for 2021/22 wind developments Our view: Despite unfavourable weather impacting Q1/20 results, we see positive near-term developments that could benefit Algonquin, including the decoupling of volume risk in Missouri and the potential 1-year extension of tax credits to wind/solar developments. We are reiterating our Outperform rating and favour the company's strong growth profile and attractive renewable platform. Key points: Potential safe harbor extension could improve development pipeline economics. Due to disruptions caused by COVID-19, a bipartisan group of senators have been pushing for an extension of the continuity safe harbor from four years to five years for projects that began construction in 2016 or 2017 under both the PTC and ITC. As a result, the U.S. Treasury "plans to modify the relevant rules in the near future". This would mitigate the potential impact of a delay for projects that were previously scheduled to be completed in 2020, and improve the economics for projects scheduled to be completed in 2021/22. Algonquin has several wind projects planned for 2021/22 completion that could benefit. Utility risk profile set to improve. Algonquin's utility segment is currently ~50% decoupled (i.e., takes no volume risk primarily due to weather). On April 15, 2020, a non-unanimous settlement agreement was reached for Empire Electric (Missouri system) that would provide rate decoupling for residential and small commercial customers starting this June. Management estimates that it would improve Algonquin's overall utility risk profile to being ~80% decoupled. Board shake-up at Atlantica Yield could lead to positive changes. Algonquin owns a ~44% interest in Atlantica Yield (covered by RBC Capital Markets, LLC analyst Shelby Tucker). On May 6, 2020 Atlantic Yield announced that all four directors standing for re-election failed to gain the necessary votes (a fifth member, the Chairman, voluntarily departed). Following these departures, the remaining three board members (two of which are Algonquin representatives) appointed five new directors. As for potential implications, we wonder whether another "strategic review"-esque arrangement for Atlantica Yield may be on the table, given Algonquin's past comments about the benefits of AY going private. Reducing estimates. We have reduced our 2020 and 2021 Adjusted EPS estimates to $0.65 and $0.79, respectively (from $0.67 and $0.81, respectively). The reduction to our estimates primarily reflect weaker- than-expected Q1/20 results, a delay (refiling) in the Energy North Gas System rate case, and higher financing costs (fees related to the securing of $1.6 billion in additional liquidity). Our 2020E EPS forecast of $0.65 is consistent with the low end of management's updated 2020 EPS guidance. Price target/base case Our base case price target of $15 is derived using a sum-of- the-parts valuation with an implied EV/EBITDA multiple to our 2021E EBITDA of roughly 13x. The implied valuation multiple is a slight premium to the peer group due to Algonquins attractive growth profile. Upside scenario Our upside scenario value of $17.00 assumes that Algonquin successfully builds investor support for its international investment and development activities, and executes on a number of projects in its $7.7 billion capital plan over the next several years, as well as captures some of the embedded upside in EDEs rate base growth. Our sum-of-the- parts valuation implies a 14x EV/EBITDA multiple to our 2021E EBITDA. Downside scenario Our downside scenario value of $9.00 is based on the assumption that long-term interest rates increase significantly (e.g., 200-300 basis points), potentially making development projects uneconomic, and significantly capping Algonquins growth profile. Our sum-of-the-parts valuation implies a 10x EV/EBITDA multiple to our 2021E EBITDA Other highlights from the quarter COVID-19 delays construction and increases receivables. Management noted that some of the policies put in place (e.g., suspended disconnection activities for non-payment, and waived late payment charges) have resulted in an increase in overdue utility bills. As at April 30, 2020, accounts receivable greater than 60 days overdue increased to ~8% of total accounts receivable, compared to ~5% a year ago. To the extent that bad debt expense rises to levels higher than what has been allowed for in rates, Algonquin intends to seek recovery of these costs in future rate reviews. Construction delay at Maverick not expected to have a material financial impact. Algonquin has three sets of wind projects under construction with a planned completion date by the end of 2020, including Sugar Creek (202 MW), the greening Empire District Electric's generation (600 MW), and Maverick (492 MW). The first two projects are on track for 2020 completion, but 16 of Maverick's 127 total wind turbine installations may slip into early 2021 due to overseas manufacturing shutdowns and similar supply chain disruptions. Despite the delay, management expects Maverick to quality for 100% of the production tax credit subsidy by meeting the "continuous efforts" requirement rather than the current 4-year safe harbor deadline (December 31, 2020). Deferring $100-300 million of capex and securing $1.6 billion of liquidity. The company reduced its 2020 capex plan to $1.301.75 billion, deferring $100300 million of capex that was originally planned for 2020 into 2021. We believe it will not have a material impact on earnings. The company also secured an additional $1.6 billion of liquidity, ensuring that the company can continue to move forward with its updated 2020 capital plan without needing to access the capital markets. Management reiterated its 5-year investment plan totaling $9.2 billion that was originally put forward at the companys investor day in December. Planning incremental cost savings. Management is targeting expense reductions of at least $15 million in 2020. Management is looking at a broad range of activities including deferring some operational and maintenance expenses where it is safe to do so. Low end of guidance reduced. In light of the unfavourable weather impact in Q1/20 and the impact of COVID-19, the company has reduced the low end of its 2020 Adjusted EPS guidance to $0.650.70 (from $0.680.70). 10% dividend increase as expected. The company increased the quarterly dividend to $0.1551/share ($0.6204/share annualized) from $0.141/share ($0.564/share annualized). This is consistent with its target dividend growth rate of 10% through 2021. Pending acquisitions are progressing as planned. The regulatory process continues to move forward on the pending Bermuda Electric Company (BELCO) acquisition, with the regulatory authority in Bermuda completing its public consultation on May 4. Management remains confident that they will receive regulatory approval in the coming months. With respect to the purchase of American Waters New York assets, management noted that the transaction continues to progress as they have filed a joint petition with the New York State Public Service Commission in February and a procedural conference has been scheduled for early June.