Disappointment in NY, but plenty of other opportunities
Our view: The market appears to have shrugged off the fact that BLX was unsuccessful in NYSERDA's expedited RFP, where BLX bid 240 MW into the process. Some investors viewed management as being disciplined on returns, while others felt that a big win could lead to funding pressures. We believe that although it is a setback, previously having ~740 MW of capacity potentially under contract in New York, there are plenty of development opportunities, particularly in Canada where BLX may have home turf advantage.
Key points:
Capitalizing on being the first mover in Ontario battery storage. Boralex has been successful in winning battery storage projects in Ontario, being one of the first movers in the region. They have secured all procurement for their Hagersville and Tilbury projects, including batteries from Tesla and balance of plant contracts. The total project cost for the two Ontario projects is ~$800 million. BLX also recently won a 125 MW battery storage project in Ontario. Management believes that being a first mover in the region and establishing good relationships with stakeholders, including its First Nations partners, has given them a competitive advantage.
Competition may be heating up in New York. In January 2024, Boralex rebid 240 MW of developments that were no longer economic (due to higher interest rates and cost inflation) into NYSERDA's expedited RPP, but none of its projects were selected. Management felt that their assumptions were not too conservative, and will need to review the details to fully understand the situation. Management emphasized that they will remain disciplined in their bidding strategy, and will not pursue projects that do not meet their return hurdles (low teens). Management expects NYSERDA to launch another RFP in May 2024, providing BLX with another opportunity to bid.
Plenty of other opportunities to deploy capital. Boralex is actively preparing for upcoming RFPs in its core markets, including Canada (upcoming tenders in Quebec and Ontario), France, and the U.K. Management indicated that they have two assets in Texas and New Mexico that they could optimize (e.g., repower or recontract). With respect to M&A, they believe the market is interesting with more sellers than buyers, potentially leading to attractive valuations, but management continues to favour organic developments (higher returns).
Increasing estimates. We revised our 2024 and 2025 Adjusted EBITDA (Combined) estimates to $710 and $727 million, respectively (from $683 and $704 million, respectively). Our updated estimates reflect the higher- than-expected Q1/24 results and higher contribution from assets in France that benefited from higher merchant/contract power prices