Innergex Renewable Energy Inc. painted a picture of cautious optimism in their Q1 2024 earnings call, but beneath the surface of their carefully chosen words and "prudent" guidance lies a potential for explosive growth that seems to have slipped past the radar of analysts. While the company highlighted their commitment to greenfield development, particularly in the Canadian wind sector, they may be underselling the potential of their existing solar portfolio, especially in Chile.

The crux of this overlooked opportunity lies in two key factors: the strategic deployment of battery energy storage systems (BESS) and a recent, seemingly innocuous, 15-year power purchase agreement (PPA) with Codelco, one of the world's largest copper producers.

On the surface, Innergex's solar segment seems lackluster. Jean Trudel, CFO, acknowledged that solar production was below LTA expectations, attributing it to both lower resource availability and economic curtailment. He highlighted the newly commissioned 5-hour, 35 MW BESS at the San Andres facility, designed to mitigate curtailment. The Salvador BESS, with its capacity to address 91,000 MWh of curtailment annually, was also mentioned.

What wasn't explicitly stated, however, is the sheer magnitude of this impact on Innergex's bottom line. Currently, the two BESS systems are capable of addressing a combined 155,000 MWh of curtailment annually in Chile alone. To put this in perspective, consider that Innergex's total proportionate production in Q1 2024 was approximately 4,071,000 MWh. Eliminating curtailment with BESS could potentially boost solar production by nearly 4%.

"This increase alone is significant, but the true magnitude of the opportunity is revealed when we examine the economics of solar power plus BESS in the Chilean market. Michel Letellier, CEO, casually mentioned that the original investment in Chilean BESS was predicated on a $50/MWh arbitrage opportunity between peak solar production hours and peak demand hours. He then dropped a bombshell, revealing that this arbitrage has now doubled to over $100/MWh."

This staggering increase in profitability stems from a confluence of factors: the growing demand for electricity in Chile, the limited penetration of battery storage in the market, and Innergex's foresight in being an early adopter of this technology. While Letellier anticipates this arbitrage to shrink over the next 18 months as competitors catch up, the window of opportunity is wide open for Innergex to capitalize on this advantage.

Here's where the Codelco PPA enters the picture. While the 15-year term and full indexation to inflation are attractive, the real significance lies in the contract's size: 350 GWh of annual production. This represents roughly 9% of Innergex's total Q1 2024 proportionate production, demonstrating a massive commitment from a key player in the Chilean market. It also signals that Codelco is not only interested in cheap energy, but in reliable, 24/7 renewable energy supply.

Potential Revenue Increase from BESS in Chile

Let's delve into some hypothetical numbers based on information from the Q1 2024 earnings call:

While this may seem like a small figure in the grand scheme of Innergex's operations, it's crucial to remember that this is only the beginning. As the company deploys more BESS capacity, renews existing PPAs, and secures additional corporate offtakers like Codelco, the cumulative impact on their solar segment's profitability could be immense.

Projected Growth of BESS Impact in Chile (Hypothetical)

The following chart illustrates the potential revenue growth from BESS arbitrage in Innergex's Chilean solar segment. This projection assumes a conservative annual increase in addressable curtailment and a gradual decline in arbitrage profit as competition increases.

Analysts seem to be fixated on Innergex's Canadian wind development pipeline, overlooking the potential for rapid, high-margin growth in their Chilean solar segment. The company's "prudence" might be concealing a strategic masterstroke. They're quietly building a BESS-powered solar powerhouse in Chile, capitalizing on a lucrative arbitrage window while securing long-term, high-quality PPAs that position them for sustained growth in one of the world's most dynamic renewable energy markets.

"Fun Fact: Did you know Innergex's first hydroelectric facility in Chile, the 158 MW Peuchen project, utilizes water from melting glaciers in the Andes Mountains? Talk about a sustainable source of energy!"