IPPBC - Independent Power Producers Association of BC - Innergex expands in hydro and wind power.

On Wednesday, the fund will hold its annual general meeting to tell its unit holders that wind power holds part of the key to future renewable electricity generation. Its partner company, Innergex Renewable Energy, also will continue to develop wind farms as it expands its vocation as a producer of hydroelectricity in Quebec and two other provinces.

"Our strategy was to establish ourselves and get experience in the field here in Quebec and once we had done that, we'd expand to British Columbia and Ontario, first with hydro and then wind," says Michel Letellier, the company's president and CEO.

Innergex opted into power generation in 1990 when Quebec opened the electricity generation market to private enterprise.

"We've been doing this for a long time," Jean Trudel, vice- president of finance and investor relations, said during an interview in the company's head office in Longueuil. "We were exploring wind power in 1999 and 2000. We were ahead of the game."

But not really a household name in the province, which may stem from the complexity of its bifurcated corporate structure and the fact one of its corporate entities has been publicly traded only since last December.

When accountant Gilles Lefrançois launched Innergex, it was with the financial backing of four institutional investors: TD Capital and three Quebec-based pension funds. The company built five run-of-river (non-reservoir) hydro projects on Quebec waterways between 1994 and 1999.

"By 2001, the institutional investors had completed their program in Innergex and the money they had committed had been spent," Trudel said. "So we created Innergex 2, this time with investment from Desjardins, TD Capital, the Caisse de dépot, Sunlife and the Kruger Pension Fund because we had a lot more projects we wanted to introduce."

The original corporate entity was turned into an income trust in 2003. Its holdings comprise 12 operating projects, 10 of them run-of-river hydroelectric facilities and two wind farms. In all, they generate 834 gigawatt hours of electricity per year, enough electricity to power about 60,000 homes.

"It was in 2003 that the income trust structure was becoming hot," Trudel said. "Then came the government's decision in 2006 to tax income funds."

Suddenly, he said, income trusts were no longer a flavour-of-the-month investment vehicle.

"The government's decision didn't really affect our income fund. But it affected the way the business community perceives income trusts," he said. "And it affected the appetite for income trusts, which diminished. But it's a nice investment and we feel there will still be a demand for that kind of investment instrument."

As the rivers flow, so does the money.

"We have a set of hydroelectric projects that are making money and we have power purchase agreements in place for an average of another 17 years so there is a predictable cash flow," Trudel said.

But for investors who have fallen out of love with income trusts, there is always Innergex Renewable Energy, the corporate entity that evolved out of Innergex 2. It went public last December and trades on the Toronto Stock Exchange.

"By 2007, Innergex 2 was reaching the end of its investor commitment of five or six years," Trudel said. "By the early part of last year, the investors were looking to monetize their investment so we went public and changed the company name to Innergex Renewable Energy, which manages the income trust."

So that's it. Two separate but connected corporate entities. For instance, Innergex 2 built two Gaspé wind farms in 2006 and 2007 and sold them to the income fund last year in exchange for a 16-per-cent interest in the fund.

Innergex Renewable Energy is the entity that develops new electricity generating facilities while it also manages the fund. Currently, it has nine such projects for which it has been awarded power purchase agreements from large provincial hydro utilities. This year, the company will continue construction of power generating facilities in Quebec, B.C. and Ontario, including a wind farm in Carleton.

Innergex does no research and development, Trudel said, because it's dealing with well-

established technologies.

"Wind power is a new technology but it's been around for 25 years," he said.

Wind also is the power source of the future, he said, because "hydro has been there for 100 years so all the good sites have been developed, although there are still opportunities to develop sites in B.C. along with a few in Quebec."

There also is the not inconsiderable question of citizen opposition to the damming of rivers in Quebec. In 2002, the provincial government scaled back its intention to allow the damming of 24 rivers down to two in response to opposition from a coalition of environmental groups, recreational associations and tourism groups, which decried the environmental impact of damming rivers.

Still, Innergex is moving forward with river projects outside of Quebec, both in B.C. and Ontario. "We have about 1,600 megawatts of prospective projects for which we don't yet have power purchase agreements," Trudel said.

And until the Canadian market is saturated, there is no plan to move the company's expertise abroad.

"There is a potential for developing hydro in developing countries, possibly India, Argentina and Chile," Letellier said. "Not necessarily the technology, because that's been around a long time, but the know-how on how to build facilities. But right now, we're really busy in Canada and as long as we stay busy here, we're not looking abroad."

Meanwhile, Innergex Income Fund has tripled its production capacity since 2003.

"When we took the fund public, we had 65 megawatts," Letellier said. "With the wind farm acquisition, the fund now has close to 200 megawatts."

The Innergex Income Fund annual general meeting will take place Wednesday at 3 p.m. at Club Saint-Denis, 257 Sherbrooke St. E.