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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and
results of operations for the three months ended
Overview
We are a global independent power producer ("IPP"). We develop, own and operate
solar PV parks that connect directly to national power grids. Our current
revenue streams are generated from long-term, government-mandated, fixed price
supply contracts with terms of between 15-20 years in the form of government
Feed-In-Tariffs ("FiT") and other energy incentives. Our current contracts
deliver annual revenues, of which approximately 75% are generated from these
sources with the remaining 25% deriving from revenues generated under contracted
Power Purchase Agreements ("PPA") with other energy operators and by sales to
the general energy market in the countries we operate. In general, these
contracts generate an average sales rate for every kWh of green energy produced
by our solar parks. Our current focus is on the European solar PV market.
However, we are also actively exploring opportunities in other countries outside
of
The Company is not a manufacturer of solar panels or other related equipment but generates 100% of its revenues from energy sales under long term contracts as described above. By design, we currently focus exclusively on energy generation and as a result, we are technology agnostic and can therefore customize our solar parks based on local environmental and regulatory requirements and continue to take advantage of falling component prices over time.
Overall, the current proforma annual revenues contracted by our owned projects
is approximately
We use annual contracted revenues as a key metric in our financial management of the business as we feel it better reflects the long-term stability of operations. Annual contracted revenues is defined as the estimated future revenue based on the remaining term, price and estimated production of the offtake contract of the solar park. It must be noted that the actual revenues reported by the Company in a particular year may be lower than the annual contracted revenues because not all parks may be revenue generating for the full year in their first year of operation, and also to allow for timing of acquisitions that take place throughout the financial year.
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Our goal is to grow our asset base and within our operations provide sufficient liquidity for recurring growth capital expenditures and general purposes. We expect to achieve this growth and deliver returns by focusing on the following initiatives:
Value-Oriented Acquisitions:
We focus on sourcing off-market transactions at more attractive valuations than tender processes. We believe that targeting smaller solar projects 1MW to 20 MWs and working with in country developer partners allows us to acquire high quality assets at attractive relative values. We continue to develop an acquisition pipeline across our scope of operations.
Margin Enhancements:
We believe there is significant opportunity to enhance our cash flow through optimizing the performance of our existing assets. As our recently announced long-term service agreement with BayWa r.e., such agreements provide reduction in operations and maintenance expense, provide 24/7 monitoring of our assets and increase revenue through deployment of technology.
Factors that Significantly Affect our Results of Operations and Business
We expect the following factors will affect our results of operations:
Offtake contracts
Our revenue is primarily a function of the volume of electricity generated and
sold by our renewable energy facilities as well as, where applicable, the sale
of green energy certificates and other environmental attributes related to
energy generation. Our current portfolio of renewable energy facilities is
generally contracted under long-term FiT program or PPAs with creditworthy
counterparties. As of
We also generate RECs as we produce electricity. RECs are accounted for as governmental incentives and are considered operational revenue as part of the solar facilities. These RECs are currently sold pursuant to agreements with third parties and the revenue is recognized as the underlying electricity is generated.
Project operations and generation availability
Our revenue is a function of the volume of electricity generated and sold by our renewable energy facilities. The volume of electricity generated and sold by our renewable energy facilities during a particular period is impacted by the number of facilities that have achieved commercial operations, as well as both scheduled and unexpected repair and maintenance required to keep our facilities operational.
The costs we incur to operate, maintain and manage our renewable energy facilities also affect our results of operations. Equipment performance represents the primary factor affecting our operating results because equipment downtime impacts the volume of the electricity that we are able to generate from our renewable energy facilities. The volume of electricity generated and sold by our facilities will also be negatively impacted if any facilities experience higher than normal downtime as a result of equipment failures, electrical grid disruption or curtailment, weather disruptions, or other events beyond our control.
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Seasonality and resource variability
The amount of electricity produced and revenues generated by our solar
generation facilities is dependent in part on the amount of sunlight, or
irradiation, where the assets are located. As shorter daylight hours in winter
months result in less irradiation, the electricity generated by these facilities
will vary depending on the season. Irradiation can also be variable at a
particular location from period to period due to weather or other meteorological
patterns, which can affect operating results. As the majority of our solar power
plants are located in the Northern Hemisphere (
Interest rates on our debt
Interest rates on our senior debt are mostly fixed for the full term of the finance at interest rates ranging from 1.8% to 6.3%. The relative certainty of cash flows and the fixed nature of the senior debt payments provide sufficient coverage ratios. Additionally, our senior financing is project specific with no cross-collateralization and with no recourse to the parent. In this environment all free cash flows therefore are available to cover corporate costs and for reinvestment in new projects.
In addition to the project specific senior debt, we use a small amount of
promissory notes that reduces, and in some cases eliminates, the requirement for
us to provide equity in the acquisition of the projects. As of
Cash distribution restrictions
In certain cases, we obtain project-level or other limited or non-recourse
financing for our renewable energy facilities which may limit our ability to
distribute funds to the parent company,
Renewable energy facility acquisitions and investments
Our long-term growth strategy is dependent on our ability to acquire additional renewable power generation assets. This growth is expected to be comprised of additional acquisitions across our scope of operations both in our current focus countries and new countries.
Renewable power has been one of the fastest growing sources of electricity generation globally over the past decade. We expect the renewable energy generation segment in particular to continue to offer growth opportunities driven by:
? the continued reduction in the cost of solar and other renewable energy technologies, which we believe will lead to grid parity in an increasing number of markets; ? distribution charges and the effects of an aging transmission infrastructure, which enable renewable energy generation sources located at a customer's site, or distributed generation, to be more competitive with, or cheaper than, grid-supplied electricity; ? the replacement of aging and conventional power generation facilities in the face of increasing industry challenges, such as regulatory barriers, increasing costs of and difficulties in obtaining and maintaining applicable permits, and the decommissioning of certain types of conventional power generation facilities, such as coal and nuclear facilities; ? the ability to couple renewable energy generation with other forms of power generation and/or storage, creating a hybrid energy solution capable of providing energy on a 24/7 basis while reducing the average cost of electricity obtained through the system; 21 Table of Contents ? the desire of energy consumers to lock in long-term pricing for a reliable energy source; ? renewable energy generation's ability to utilize freely available sources of fuel, thus avoiding the risks of price volatility and market disruptions associated with many conventional fuel sources;
? environmental concerns over conventional power generation; and
? government policies that encourage development of renewable power, such as country, state or provincial renewable portfolio standard programs, which motivate utilities to procure electricity from renewable resources. Access to capital markets
Our ability to acquire additional clean power generation assets and manage our other commitments will likely be dependent on our ability to raise or borrow additional funds and access debt and equity capital markets, including the equity capital markets, the corporate debt markets and the project finance market for project-level debt. We accessed the capital markets several times in 2019 and 2020, including in connection with long-term project debt, and corporate loans and equity. Limitations on our ability to access the corporate and project finance debt and equity capital markets in the future on terms that are accretive to our existing cash flows would be expected to negatively affect our results of operations, business and future growth.
Foreign exchange
Our operating results are reported in
Engineer, Procurement and Construction costs for Solar Projects
EPC costs for solar projects include the costs of construction, connection and procurement. The most significant contributor to EPC costs is the cost of components such as modules, inverters and mounting systems. Our supplier and technology, agnosticism, our strong supply chain management and our strong relationships with equipment suppliers have enabled us to historically purchase equipment at relatively competitive technical performance, prices, terms and conditions.
In recent years, the prices of modules, inverters and mounting systems have decreased as a result of oversupply and improving technology. As the costs of our components have decreased, our solar parks have become more cost competitive and our profitability has increased. As a result, our solar parks have begun to offer electricity at increasingly competitive rates, which has increased the attractiveness of our investment return and our revenue. We expect the cost of components will continue to gradually decrease. Moreover, newly commercialized PV technologies are expected to further drive down EPC costs and increase the energy output of PV systems, which will further increase the competitiveness of our solar parks and allow solar energy to achieve grid parity in more and more markets.
Key Metrics Operating Metrics
We regularly review a number of operating metrics to evaluate our performance, identify trends affecting our business, formulate financial projections and make certain strategic decisions. We consider a solar park operating when it has achieved connection and begins selling electricity to the energy grid.
22 Table of Contents Operating Nameplate capacity
We measure the electricity-generating production capacity of our renewable energy facilities in nameplate capacity. We express nameplate capacity in direct current ("DC"), for all facilities. The size of our renewable energy facilities varies significantly among the assets comprising our portfolio.
We believe the combined nameplate capacity of our portfolio is indicative of our
overall production capacity and period to period comparisons of our nameplate
capacity are indicative of the growth rate of our business. The table below
outlines our operating renewable energy facilities as of
As of As of March 31, December 31, MWs (DC) Nameplate Capacity by Country 2020 2019 Romania 6.1 6.1 Italy 7.9 7.9 Germany 1.4 1.4 Netherlands 11.8 11.8 Total 27.2 27.2 Megawatt hours sold
Megawatt hours ("MWh") sold refers to the actual volume of electricity sold by
our renewable energy facilities during a particular period. We track kWh sold as
an indicator of our ability to realize cash flows from the generation of
electricity at our renewable energy facilities. Our kWh sold for renewable
energy facilities for the three months ended
MWhs by Country 2020 2019 Romania 1,584.2 1,074.6 Italy 1,058.1 528.8 Germany 169.4 108.4 Netherlands 1,631.9 - Total 4,443.6 1,711.8
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