The French government is preparing to make its tax on the surplus profits of energy producers even more severe, a decision that could affect the revenues of the Quebec company Boralex.
As soaring energy prices are hitting European households hard, France announced in August that it would impose a retroactive tax on the surplus profits of energy producers made since 1er January 2022.
However, France is now preparing to tighten the screw even more than the ceiling provided for by the European Union of 180 euros per megawatt-hour (MWh). French elected officials are discussing the possibility of raising this ceiling to 100 euros per MWh for wind, solar, hydroelectric and nuclear energy. This cap would be retroactive from July 2022.
If it goes into effect unchanged, the decision will have an impact on Boralex’s revenues, said Nelson Ng of RBC Capital Markets. “The proposed cap would eliminate all gains related to high prices in France,” he says.
The analyst previously estimated that a cap of 180 euros per MWh would still allow Boralex to generate an increase linked to the high price of 240 million in earnings before tax, interest and amortization (EBITDA). With the reduction of the ceiling to 100 euros, this gain would only be 50 million.
The French measures come at a time when it would be better to support energy producers, argues the president and CEO of Boralex, Patrick Decostre. “It is the retroactive aspect of these provisions that makes them particularly severe,” he laments in an email.
The French policy contrasts with the American approach where tax incentives have been granted, deplores the leader. “The implementation of the proposed measures in France is detrimental to its attractiveness and tarnishes the confidence of investors who, deprived of visibility on the stability of the markets in which they invest, could be led to divert their investments from French territory, at the very moment when this one is most needed by developers of green energy projects. »
Before the rate was lowered to 100 euros per MWh, the Quebec company had already warned that the retroactive profit recovery measure in France could have a financial impact on its results. The company recorded a provision of 57 million in this regard, during its third quarter results released in early November.
The company had also indicated that this provision, which would represent the entire portion of the revenues that could potentially be affected by the tax, would be set aside. It warned that it plans to disclose another provision in this regard in the fourth quarter.
“It means that we will register the (surplus) income, but we will set it aside immediately thereafter, unless the government publishes the thresholds (from which the asking prices would be considered as surplus)”, explained Chief Financial Officer, Bruno Guilmette.
The announcement is an “unpleasant surprise”, but does not encourage Ben Pham, of BMO Capital Markets, to reconsider his optimistic thesis. “The important thing to remember is that the price increase was a plus, but it was not the main reason to buy the stock,” comments the analyst.
Mr. Pham points out that Boralex continues to record organic growth in its activities and that its balance sheet is solid with cash reserves of 654 million.
The BMO Capital Markets analyst points out that the company plans to launch 134 megawatts in project in France 2023. “Our understanding is that the cap in France will not apply on new projects in order to encourage the construction of new projects . »
The stock lost 34 cents, or just under 1%, on Monday, closing at $35.90 on the Toronto Stock Exchange.