innergex renewable energy analysis
TRANSCRIPT
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INNERGEX RENEWABLE
ENERGY INC.
(INE)
December 2, 2014
Team 3 The Button downs:
Jacob Gudewicz Bhavya Shah Brandon Zimmerman Abdulaziz Aljneibi
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I. Table of Contents
I. Table of Contents……………………………………...………………...2
II. Executive Summary…………………………………………………...3-6
III. Recommendations………………..…………………………….……6-8
IV. Company Background………………………….……………..…….8-11
V. SWOT Analysis for the Company…………………………...….…...11-13
VI. PEST Analysis for the Company…………………………………....13-17
VII. VIRO Analysis for the Company…………………………………..17-19
VIII. Fishbone Cause - Effect Diagram……………………………….…....20
IX. Company Thinking Model…………………………………………........21
X. Industry Background……………………………………………..….21-31
XI. Financial Overview with Trends…………………………..…..…….32-37
XII. Competitor Background……………………………………………37-47
XIII. Competitor Analysis………………………………………………47-62
XIV. Strategic Group Map and Moves……………………....…………..63-65
XV. Porter’s Five Forces Model…………………………………....……66-70
XVI. Current Global Business Development……………………………70-73
XVII. Strategic Analysis, Planning, and Recommendations…………...…74-79
XVIII. Research and Raw Data…………………….………………....…80-88
XIX. Citations…………………………………………………………...89-93
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II. Executive Summary
Innergex Renewable Energy is one of Canada’s leading independent renewable power producers.
Founded in 1990, Innergex has been successful from the beginning. Having a skilled and
knowledgeable workforce has kept Innergex being successful for over two decades. Innergex
has acquired a reputation as a pioneer in the Canadian renewable energy industry. Innergex has
a diverse set of power plants in the renewable energy industry. There are a total of thirty-three
facilities that Innergex is operating that has a total net energy output of 687MW.
Innergex renewable resources has positive financial data. Innergex renewable resources stock
price over the last 52 weeks ranges from 8.51 to 11.43. Over the past three years they have had
an average net income of 3.01 million Canadian Dollars. The company in the past year had a net
income over 48.17 million. However, the previous years they were receiving negative values for
net income resulting in a lower average. The company has been increasing assets each year at a
greater rate than liabilities annually. This is positive for the company because it decreases its
debt ratio. The net sales for the company have also been increasing at a steady rate this means
the company has an increasing returns of sales. The positive movement in returns of sales shows
that the company is growing efficiently. Another positive note for investors is that the return of
equity is also increasing over the course of the companies past three years. Innergex’s renewable
resources are on a steady pace of positive growth. Using, Porters Generic Strategies, Innergex
should use the differentiation method for maximum profits.
Even with this steady pace of positive growth, Innergex has more strengths, weaknesses,
opportunities, and threats. Some of the strengths that Innergex has to deal with are the
company’s size. Innergex Renewable Energy is a larger firm in the renewable energy industry.
Weaknesses of Innergex relate to how expensive the renewable energy market and industry can
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be. Factors such as weather and the increase of raw materials can have negative effects on the
company. With Canada being so large of a country, Innergex Renewable Energy is in the perfect
area to expand their business with the abundant amount of rivers around Canada. Innergex has
countless opportunities and options where the business can look and expand if financial factors
cooperate. A major threat of Innergex is the success of nonrenewable sources of energy at this
moment in time.
{12}Google Finance
This company had a dip in the stock market during the Great Recession like many other
businesses. The astonishing thing is how Innergex Renewable Energy was able to recover from
this obstacle. They stuck to their long-term goals of investing in future facilities and making
sure that each of their current energy facilities was producing at its maximal output. Innergex
Renewable Energy has since had a growing stock market and business. It now produces 687
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MW (Megawatts) of power to provide energy to many North Americans. All of this power uses
renewable and clean energy unlike many energy companies who are polluting and destroying the
environment.
Innergex Renewable Energy has plenty of competition in their field of being an energy company
such as, TransAlta Renewables, Capital Power Corporation, and Northland Power. By looking at
this competition, Innergex Renewable Energy still has a lot of room to grow as a company. The
business has been investing in new projects such as Boulder Creek and Big Silver Creek. Both
of these new projects are hydroelectric plants and will open in 2016. Innergex Renewable
Energy is more diverse than its competitors because of its production of energy through
hydroelectricity, wind energy, and solar energy. Innergex only produces one hundred percent
clean renewable energy, while many other competitors are still incorporating oil and coal. Listed
in this report are the company’s top ten competitors and a small excerpt about those companies.
The company’s top three competitors are also asserted in this report where there is a larger report
about the size and growth of these companies. PEST analysis and VIRO analysis are reported on
the company’s top three competitors. A strategic group map shows which energy commodities
are mostly used in the world today and how expensive they are. In the report, there are reactions
of what Innergex’s competitors can do after Innergex’s actions from the recommendations. The
future for this company is looking extremely promising compared to many other energy
companies in North America.
From the Porter’s 5 forces model, the company is able to compare threats from their buyers,
suppliers, substitutes, and new entrants. These forces can be rated on a scale from 1 to 10 to
excess the extent of each threat. The energy industry can compare their key success factors with
their competitors to see their position in the energy industry. These can be rated on a weighted
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and an un-weighted scale. By weighting them you can better understand what factors are the
priorities. By looking into the present and future of a company, you can determine the
attractiveness/unattractiveness of it. The present shows how they look to buyers and investors,
and the future terms show their attractiveness/unattractiveness after different factors have been
implemented.
Innergex will be opening a sales office in Germany, and they will be purchasing materials from
Brazil. The report will detail the strategies the company needs to follow in order to properly
negotiate with these clients, such as the languages, greetings, attire, etc..
Currently, hydroelectricity is the most promising source of renewable energy. It is the most
promising because Canada has a large amount of rivers and lakes where Innergex and other firms
can get their energy. Hydroelectric power provides around sixty percent of Canada’s electricity.
Not only is Innergex thriving on hydro electricity, they focus on solar and wind energy. Unlike,
Innergex’s competition, they are focused on alternatives and are looking towards the future. If
we were investors, we would invest in Innergex Renewable Energy.
III. Recommendations
Although, Innergex is doing well right now in the Toronto Stock Market, they could still use
improvement. Below are our top three recommendations on how Innergex can improve their
company:
1. Expansion in the Growing Markets
The renewable energy market has been increasing over the past decade with new
discoveries in technology. Innergex only has facilities in North America so Innergex can explore
their options oversees. Many places in the world, such as Western Europe, have been making a
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strong commitment towards renewable energy. Innergex has an opportunity to grow as a
company, especially internationally. There are many places other than Canada where Innergex
can expand their hydro, wind, and solar facilities. For example, New Zealand is known for being
a very windy country. Innergex Renewable Energy can explore their options and search what is
available in New Zealand for wind-powered facilities. Another example and place for them to
expand is southwestern United States. Innergex has an opportunity to see what is available in the
solar industry in the southwestern part of the United States where it is usually always sunny.
Innergex Renewable Energy can turn a profit as soon as a contract is made during expansion.
2. Marketing and Promotion
With a lesser focus on marketing, Innergex Renewable Energy can generate commercials and
advertisements that can give positive statistics on renewable energy and Innergex as a company.
These commercials can be advertised on the radio or television. Innergex needs to get their
name out there in the world. This has the potential to spread the word of Innergex and their
commitment to renewable energy. Since Innergex is based out of Canada, advertisements can be
placed in strategic places in big cities such as Toronto and Montreal and as well as small towns,
such as Peterborough and Acton Vale. The better the brand of Innergex, the better the chances
of an increase in revenue and profit.
3. Invest in Solar Energy
Currently, Innergex Renewable Energy only has one solar facility located outside Montreal in a
town called St. Eugene. There is room to expand in this business. Presently, the demand for
solar energy is greater than the supply. Solar power does not have to be just created from a large
solar plant. In the future, solar panels will be a standard feature for newly constructed homes
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and commercial buildings. Solar panels could even be used for cars and other forms of
transportations in the future [22]. By 2015, the residential solar PV market in the United States is
projected to be worth around 3.7 billion U.S. dollars. It is a growing market that Innergex has to
chance to invest and develop this product. If Innergex invests in solar energy, not just solar
plants, the company will be seeing profits in the future [23].
According to current fiscal conditions and competitive nature of modern markets, implementing
the mentioned recommendations and commencing full operations would take approximately five
years. However, the progress depends on corporation’s capacity and the efforts of the
management, bilateral trade agreements, and restrictions. Specifically, extension into new
markets of New Zealand, and the Southwestern part of America requires substantial investments
in human resources and equipment. Therefore, establishing market presence will take one and
half years. Equally, installation of solar collectors is a process that needs adequate time and
outlay. Hence, investing in solar energy will take two years for completion. Finally, marketing
seems to be an instant event. The choice of relevant media requires full dedication of the
marketing department and patience. Consequently, it will take Innergex five months to form a
persuasive strategy and an additional one-year to attract a massive audience. Thus, Innergex
Renewable Energy requires five years at most to achieve the commendations.
IV. Company Background
Gilles Lefrançois, whose mission was to develop, build, own, and operate hydroelectric facilities
in Canada, founded Innergex in 1990. Innergex Renewable Energy Inc. is a leading Canadian
independent renewable power producer. They develop, own, and operate run-of-river
hydroelectric facilities, wind farms, and solar photovoltaic farms, with operations in Quebec,
Ontario, British Columbia and Idaho, USA. Innergex’s mission is to increase production of
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renewable energy by developing and operating high quality facilities while respecting the
environment and serving the best interests of the host communities, their partners and investors.
[1]
Innergex has thirty-three sites operating all throughout the northeast including parts of Canada
and Idaho, USA. They have four in construction currently and lastly, one in development. Out of
the thirty-three sites, Innergex operates twenty-six run-of-river power plants, six wind farms and
one solar farm for a total net installed capacity of 687 MW.
The first of the three types of energy Innergex has is hydroelectric. According to Innergex,
Hydroelectricity is now the main energy source in the country, accounting for close to 60% of
national production. There are two main kinds of hydroelectric stations, reservoir and ROR (run-
of-river). A generating station with reservoir uses a dam to create an artificial lake. Water is
collected seasonally and used to meet sudden, significant and ongoing demands for electricity. A
run-of-river generating station has no reservoir but offers the advantage of producing electricity
without having to store the water. [2]
The second type of energy Innergex uses to produce electricity is wind energy and use of wind
turbines. Wind energy is clean and it is also renewable. It essentially produces energy by
converting the wind’s kinetic energy into electricity. Furthermore, the wind turbines have a rotor
on the top and have blades attached to it. When the wind blows it turns the blades and the
rotation generates electricity. The main amount of energy produced depends on three factors,
wind speed, air density and lastly, the area swept by the blades. [3]
The third and final kind of energy Innergex uses to produce electricity is solar energy. Solar
energy is produced as a result of nuclear fusion within the sun. [4] The photovoltaic panels use
silicon crystals, which have free electrons, and when it is struck by light it causes them loose.
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This means, as the solar panel absorbs more light the more energy it produces. Solar energy is a
very effective way to produce electricity. It is clean and renewable producing very little to no
pollution.
[5]
Innergex Product Life Cycle:
Hydro energy:
Hydroelectric energy is Innergex's main source of renewable energy for Canada and accounts for
60% of national production. There are two main kinds of hydroelectric sites. Resovoir and run-of
river (ROR). The life expectancy of hydroelectric can be anywhere from 50-100 years. Innergex
has a competitive advantage by having 26 run-of-river power plants all throughout Canada and
Idaho, USA. Innergex started with hydroelectric energy in 1990 and are still thriving on it today.
They have four additional sites in construction.
Wind energy:
Wind energy is Innergex's second source of renewable energy for Canada. Wind energy emits no
pollutants and is very effective. They run on wind turbines producing power converting the
wind's kinetic energy into electricity. Innergex first introduced wind energy in 2006 and
introduced three more in 2007, 2008 and 2011. Innergex Renewable Energy sees the future in
wind energy as they have one more in development. It is expected to open in 2016. The life
expectancy for wind energy is about 25 years.
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Solar energy:
Solar Energy is Innergex's third source of renewable energy for Canada. Solar energy is
produced as a result of nuclear fusion with the sun. When the photovoltaic panels are struck by
light. They emit electricity. Many companies are now starting to invest in solar energy. Innergex
is already ahead of the game having one solar energy plant in Ontario, Canada. The solar power
plant opened up in 2012. Innergex only has one power plant but they are looking to develop
more in the future. The life expectancy for solar energy is about 25 years as well.
V. SWOT Analysis
Innergex Renewable Energy:
Strengths: There are ample amount strengths within Innergex Renewable Energy. One of these
strengths is a skilled labor force. Innergex needs knowledgeable employees to operate and
maintain the facilities, manage the financials, and sell the clean energy to customers. Another
strength of Innergex is that they are very diverse with the different types of energy they generate.
Innergex has twenty-six run-of-river power plants; six wind farms and one solar farm. Also,
Innergex Renewable Energy is expanding their business and adding more sites. Innergex has
four hydroelectric plants in construction and one wind powered plant in development [24].
Weaknesses: The costs of running and maintaining some sources of renewable energy can get
quite expensive. For example, hydroelectric dams, Innergex’s main source of renewable energy,
are very costly. Most forms of renewable energy are more expensive than forms of
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nonrenewable energy. These extra costs are passed along to the consumers, who must pay
higher payments if they want to use renewable energy. Innergex is still being an underdog in the
energy business in Canada. Firms that produce energy from natural gas, coal, and petroleum are
still the top energy producers in Canada. Due to the excessive amounts of natural gas, coal, and
petroleum lying beneath Canada’s surface, using these products is cheaper for them to use than
renewable energy [25].
Opportunities: Even with these weaknesses, there are many opportunities for Innergex. Even
though Innergex has some projects in development, there is still more room for growth. Canada
has an ample amount of lakes and rivers that can be used to harness energy using hydroelectric
energy. Innergex has the potential to expand and grow using what is given to them in Canada. If
Innergex expands the company, this could potentially mean more profitability. Currently,
Innergex has one hydroelectric facility located in Idaho, USA. Many major energy companies
expand their company internationally. If Innergex expands internationally, then they can work
with other firms in international markets. Another opportunity that Innergex has that many other
energy firms do not have is government funding for environmental technologies. The Canadian
government has committed to provide funding for environmental technologies in 2004 [24].
Threats: One of the major threats for Innergex Renewable Energy is the weather. All of
Innergex’s energy is affected from the weather. If there is not a lot of sunlight, then the solar
energy plant will not do as well as it could have with a good amount of sunlight. If there is not a
lot of wind, then the wind energy plants will not do as well as they could have with a good
amount of wind. A natural disaster such as an earthquake could have a negative effect on the
energy plants that are operated by Innergex. Company assets and inventory could be damaged if
a natural disaster did occur. Another threat to Innergex Renewable Energy is that the prices of
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natural gas, coal, and oil could decrease. Therefore, if the prices of these goods decreased, then
the demand for these goods would increase. This would result in a negative effect on renewable
energy firms, such as Innergex Renewable Energy. Rising costs of the materials used to make
renewable energy plants could be a potential threat to Innergex [25].
VI. PEST Analysis
Political:
Renewable energy provides about 1,900 petajoules of Canada’s primary energy supply, which is
about 16.5%. Canada is a world leader in renewable energy compared to the OECD average of
6.1% and the U.S.’s 5.2%. Hydroelectric power provides about 60% of Canada’s electricity. [13]
Because of this, the Canadian government is involved with renewable energy companies, such as
Innergex. In 2004, the Canadian government had a budget of $1 billion over seven years in
support of environmental technologies. Of this amount, $800 million over five years (beginning
in 2006/07) will be invested to support the development and commercialization of promising
environmental technologies in such key areas as renewable energy, alternative fuels, clean coal,
carbon dioxide sequestration, and cellulose ethanol technologies. [14] The government also
created two tax incentives aimed mainly at promoting investment in renewable energy projects.
The Capital Cost Allowance Class 43.1 in the Income Tax Act, and the Canadian Renewable
Conservation Expense (CRCE). Class 43.1 provides an accelerated rate of write-off (30 per cent
per year, on a declining balance basis) for investments that produce heat for use in an industrial
process or electricity by using renewable energy sources. The purpose of Class 43.1 is to assist
such investments by allowing businesses to write-off the capital cost of these assets at a rate
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faster than would be the case if the costs were written-off over the useful life of the assets, thus,
improving the after-tax rate of return on these investments. [15]
Economic:
The economic status of Canada could be described as stable. It has gone down but now it has
getting better gradually over time. According to the 2014 Index of Economic Freedom, over the
20-year history of the Index, Canada has advanced its economic freedom score by 10.7 points,
the third biggest improvement among developed economies. Canada recently has a 1.5%
inflation rate. And unemployment rate in Canada decreased to 6.80 percent in September of 2014
from 7.3 percent in August of 2014. [16] This certainly helps the economy because as more people
are getting jobs, the more people will spend helping the economy. Below is a chart showing the
unemployment rate in Canada from October 2013 to October 2014 [17].
The Gross Domestic Product (GDP) in Canada expanded 2.45 percent in the second quarter of
2014 over the same quarter of the previous year. GDP Annual Growth Rate in Canada averaged
3.29 Percent from 1962 until 2014, reaching an all-time high of 8.80 Percent in the first quarter
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of 1962 and a record low of -3.70 Percent in the fourth quarter of 1982. [18] Below is a chart
showing Canada’s GDP annual growth rate over a couple of years. [19]
This relates to Innergex because they are part of the Toronto Stock Exchange. Innergex just
turned profitable and started paying regular dividends two years ago. Revenue has increased
since 2009, rising 12% to $198.3 million last year. [20] Innergex’s economic status has been
relatively stable. Their stock dropped in 2013, but they have come back from that in 2014.
According to Reuters.com, Innergex’s stock is $10.11 Canadian dollars currently. If I were an
investor I would hold on to my stocks and sell them later to make a profit.
Social:
With the current economic status of Canada being generally higher at the moment. Opportunities
for sales will increase, which is very beneficial to Innergex.
Innergex now also has a Dividend reinvestment plan (DRIP). It enables the shareholders to
reinvest all or part of their cash dividends into additional shares of the corporation in and
16
efficient and cost effective manner. And according to Innergex, as of May 13, 2014, “plan shares
purchased under the DRIP will be issued from treasury and their purchase price will be the
weighted-average trading price of its common shares on the Toronto Stock Exchange during the
five business days immediately preceding the dividend payment date, less a discount of 2.5%.”
[21] This is good because it gives the option for shareholders to reinvest while getting a discount
keeping both the company and shareholder happy.
Technological:
Innergex Renewable Energy has much technological advancement. They focus on hydropower,
solar and wind energy. They sell electricity that generates from 25 hydroelectric power plants,
six wind energy farms and one solar photovoltaic farm. It sells to customers in Quebec, Ontario,
British Columbia and Idaho in the U.S. As mentioned earlier, hydroelectric is the main source of
energy in Canada accounting for 60% of national production. Hydroelectric energy uses a
generating station with reservoir using a dam to create an artificial lake. Water is collected
seasonally and used to meet sudden, significant and ongoing demands for electricity or run-of-
river generating station has no reservoir but offers the advantage of producing electricity without
having to store the water. Wind energy uses wind turbines that have a rotor on the top and blades
attached to it. When the wind blows it turns the blades and rotation generates electricity. Lastly,
solar energy uses solar panels. The solar panels are photovoltaic which use silicon crystals,
which have free electrons, and when it is struck by light, it generates electricity.
Although the three sources of energy have many “pros” such as being friendly to the
environment and being renewable, they also have “cons” which affect Innergex. For example,
hydroelectric energy has high initial capital costs. It is very expensive to build a hydro power
plant and its associated dams. Next is wind energy, some disadvantages of wind energy include,
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wind is unpredictable and the availability of wind energy is not constant. Another disadvantage
is although the costs of wind turbines have gone down and are relatively cheaper than
hydroelectric and solar energy. Investments of wind energy breakeven typically take 10-20 years.
Lastly is solar energy, some disadvantages of solar energy include the initial cost being so large.
The prices of highly efficient solar cells can be well above $1000. Another example is like wind
energy, the weather plays a role affecting the efficiency of solar cells because of its
unpredictability.
VII. VIRO Analysis
Service
Offered
Valuable? Rare? Difficult
to
Imitate?
Supported by
Organization?
Competitive
Implications
Performance
ROR Hydro
Electric
Yes
No
Yes
Yes
Competitive
Advantage
Above
Normal
Photovoltaic
panels
Yes
No
No
Yes
Competitive
Parity
Normal
Wind Farms
Yes
No
No
Yes
Competitive
Parity
Normal
Rolling
Gate
Yes
Yes
Yes
Yes
Competitive
Advantage
Above
Normal
ROR (Run-of-River) Hydroelectric - Innergex Renewable Energy has 28 functioning run-of
river hydroelectric plants. These facilities are implemented on moving bodies of water and
generate energy that is transmitted to nearby energy distribution centers. This product is an
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advantage to Innergex Renewable Energy because of the company’s efficient ability to maintain
these facilities.
Wind Turbines – Innergex Renewable Energy has 6 functioning wind farms throughout
Canada. These large constructed towers with rotating blades generate vast amounts of energy
utilizing only the wind.
Solar Farm – Innergex has only constructed one solar farm to date. This solar farm utilizes
photovoltaic panels to harness sunlight and generate energy. The photovoltaic panels are a
competitive parity due to the fact that they are the same technology used in the majority of solar
farms around the world.
Rolling Gate – Rolling Gates are constructed on Run of River Hydroelectric systems where
heavy boat traffic occurs. The rolling gate regularizes downstream flow from the plant during
turbine stops and starts, preventing distribution of boat traffic. This product is an advantage to
Innergex because it allows them to construct their energy system without much backlash from
populous.
Important Financial Ratios of Innergex Renewable Energy:
(Calculated Financial ratios can be found in section XI. Vertical Analysis and Horizontal
Analysis can be found in section XIII.)
1. Quick Ratio – Quick ratio measures the dollar amount of liquid assets available for each
dollar of current liabilities. Innergex has a quick ration of 0.71 meaning it has .71 cents
of assets to pay off every dollar of liability. Since the value is below 1, Innergex cannot
pay their current liabilities. This value may be below 1 due to the fact that Innergex is in
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the process of constructing 4 run of river hydroelectric systems, meaning their capital is
invested in project that are not yet producing revenue.
2. Receivables Turnover - Receivables Turnover measures a company’s efficiency in
utilizing its assets. Innergex has a receivable turnover value of 4.92. This value shows
that Innergex collects its receivables efficiently.
3. Gross Profit Margin – The Gross Profit Margin shows how much a company retains on
each dollar of sales after its other costs and obligations in a percentage. Innergex has a
Gross Profit Margin of 82%. This value is high meaning that Innergex retains a great
value of its sales and has low output cost compared to what they receive.
4. Debt-to-equity Ratio – Debt-to-equity ratio indicates what proportion of equity and debt
Innergex uses to finance its assets. Innergex has a debt-to-equity ratio of .719. This
value shows that Innergex has managed their long-term debt and that they don’t have to
rely completely on investors for projects.
5. Return on Equity – Return on equity measures a firm’s profit they receive from using
shareholders investments. Innergex has a return on equity of 0.068. This value is quite
low implying that returns per dollar invested in the company stocks are low. This
correlates to the above debt-to-equity ratio. Since Innergex does not rely heavily on
investors for production, investors are not receiving high returns.
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VIII. Fishbone Cause and Effect Diagram
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IX. Company Thinking Model
X. Industry Background
Innergex Renewable Energy Inc. is a Canadian Corporation that is involved with the generation
of hydroelectricity. For this to happen, the company owns several run-of-river facilities that
generate power, with energy farms, as well as the solar photovoltaic (PV) farms. The corporation
has focused its operations in North America with various operations taking place in Quebec,
Ontario, Idaho, and in British Columbia. The company has three main divisions that ensure
production of power. They are the hydroelectric power generation segment, wind power
22
generation, and the division involved with site development. After generating power using its
hydroelectric and wind generation divisions, it sells to public utilities, which in return sale it to
the public. The company has enjoyed growth and expansion over time with the latest being its
acquisition of Desjardins Group Pensions Plan, which completed in June 2014. This section of
the paper examines the background of the energy industry, competitors to Innergex Renewable
Energy Inc., risks it encounters, and other macroeconomic factors affecting its operations.
Industry Background
From the global context, renewable energy is increasingly becoming popular across different
countries. According to the International energy agency, China was the ranked number one in the
renewable energy production in 2011 at 17%. Canada was ranked 7th globally with 3%
production after India, U.S., Brazil, Nigeria and Indonesia as shown in the table 1below.
Table 1: Global renewable energy ranking in 2011 (Energy Information, 2014).
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This ranking can be broken down into specific renewable energy sources such as solar,
hydroelectric power and wind energy as shown in the tables below.
Table 2: Solar energy ranking globally by capacity in 2012 (Energy Information, 2014)
Table 3: Global wind energy capacity ranking in 2012 (Energy Information, 2014)
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Table 4: Global hydroelectricity production ranking in 2011 (Energy Information, 2014)
In 2011, Canada was ranked 7th in the world in terms renewable energy production capacity by
the International energy agency as shown in table 1above. The country has a great potential for
solar energy production although it was still ranked at position 7 in the world in terms of
capacity in 2012 as shown in table 2 above. By 2012, the country had a cumulative solar capacity
of 765 Megawatts of solar energy. This was a remarkable increase from only 1 megawatt
capacity in 2000 as shown in bar graph 1 below.
25
Graph 1: Installed solar capacity trend in Canada since 200 (Energy Information, 2014).
Canada also has great capacity for wind energy production. This capacity has been increasing
since 2000. In 2012, the country’s wind power capacity was about 6,200 megawatts up from only
36 megawatts in 2000n as shown in the bar graph 2 below.
26
Graph 2: Installed wind power capacity trends in Canada since 2000 (Energy Information, 2014)
Canada’s greatest source of renewable energy is hydroelectricity. The country’s production has
been on the increase from 355 terawatt hours in 2000 to 372 terawatt hours in 2011 as shown
below in the bar graph below.
27
Graph 3: Hydroelectricity production trend in Canada since 2000 (Energy Information, 2014).
From the trends above, it is clear that hydroelectricity is the greatest source of renewable energy
supply followed by wind. Other key sources include wood waste, wind, bio-gasoline, municipal
waste, industrial waste, solar photovoltaic and tidal energy. The last source is the smallest source
of energy. Table five below shows a breakdown of these sources.
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Table 5: Supply of renewable energy in Canada by source in 2011 (Energy Information, 2014)
The above information can be presented in the pie chart as shown below
Pie chart 1: Renewable energy supply in Canada by source in 2011(Energy Information, 2014)
29
Risks within the Industry
The Canadian energy industry has some weaknesses and issues that threaten future growth and
sustainability of renewable energy sector. Although the sector has the opportunity of exploiting
renewable energy, full exploitation of the project calls for formulation of effective policies. The
first factor affecting the industry is environmental extremis. According to McCarthy (2014),
Canada faces many environmental extremists pose a clear and present criminal threat to the
energy sector given that they are more likely to strike at critical infrastructure than expected. He
further notes that the oil sector is one of the sectors that have attracted considerable opposition
because acts as a major sector contributing significantly toward emission of greenhouse gases
that threaten the environment. Continued efforts by extremists could see the industry minimize
its energy output to cater for environmental benefits. Although the move is good, the shift toward
renewable energy is gradual and is not as fast as expected by environmental extremists. The
comparison of energy transportation cost with cheap energy imports indicate threaten the
industry. Interprovincial transport infrastructure provides for costly transportation of energy
across Canada, yet production of non-renewable energy sources such as crude oil is cheaper.
A related threat is that the country produces a lot of crude oil whose production costs are
relatively lower than the renewable energy sources. This is a risk to the growth of the renewable
energy industry. With regard to crude oil, its production has been on the increase in Canada since
much of it is produced every year as indicated in graph 4 below.
30
Graph 4: Canadian crude oil production (The National Energy Board, 2014)
According to McCarthy (2014), nonconventional sources are vulnerable to environmental
regulations, which minimize their extraction because they end up being costly. The cost of
investments in the energy sector is high because of low population density. Companies have to
either capital-intensive equipment or outsource labor from elsewhere, which is costly. Last, the
global economic slowdown also affects consumption and demand of energy, hence slowing
down its production. After considering all these threats, it is important that vital policy
regulations be established to protect the industry and enhance its growth (Bahn, Villancourt, &
Fertel, 2013).
Macroeconomic Factors
Macroeconomic factors affecting the energy sector in Canada are many and include political and
environmental issues. According to Bahn, Villancourt and Fertel (2013), Canada has two main
levels of governments that affect the energy sector: the federal and provincial governments.
31
Provinces own natural resources, except those originating aboriginal lands and certain federal
lands such as natural parks. Therefore, provinces develop and implement policies within their
borders. In addition, they manage resources, as well as power plants in their borders. On its part,
the federal government takes charge of interprovincial and international trade in relation to
resources. It establishes policies and programs for the interest of the entire national development,
energy security, and public health. This brings in the National Energy Board that is responsible
for managing all energy resources at the national level, as well as making any regulatory
measures. The above background information indicates the influence that political factors have
on energy production and consumption in Canada (Bahn, Villancourt, & Fertel, 2013).
Legal regulations are binding for all competitors in the sector, and could result in increased
energy production or decrease. The policies could occur at either the federal or the provincial
level. Examples of provincial policies affecting energy production include establishment of the
British Columbia carbon tax, Alberta carbon levy, Ontario coal phase out in place of generation
of electricity, and building code regulations. At the federal level, some of the regulations include
regulation for passenger automobile and light truck emissions, electricity performance standards,
standards strengthening energy efficiency, and establishment of ecoENERGY measures in
Canada (McCarthy, 2014).
Other macroeconomic factors include the Canadian climate policies that have influenced
productivity of renewable energy compared to fossil fuels. For instance, the country has specific
regional targets of GHG emission reduction.
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XI. Financial Overview with Trends
Innergex Renewable Energy Inc. is a Canadian corporation operating in the energy sector with
specific focus on renewable energy. The firm is involved with development and ownership of
hydroelectric facilities in North America. Its division is in four segments that comprise of
generation of solar power, wind energy, hydroelectricity, and development of sites. Following its
continued dominance in the industry, many investors are interested in investing in it. This report
undertakes a financial analysis of the corporation with specific focus on ratio analysis,
horizontal, and vertical analyses.
Financial Ratio Analysis of Innergex Renewable Energy Inc.
According to Innergex (2013), financial ratios depict the performance of an organization in
different situations. The calculated ratios can be used to establish the trends of the organization
compared to its historical performance and other competitors in the industry. In this regard,
financial ratio analysis of Innergex Renewable Energy Inc. will involve examination of ratios
related to liquidity, turnover of assets, financial leverage, profitability, and those depicting the
dividend policy of the firm.
Ratios indicating Liquidity
Ratios of liquidity in relation to Innergex Renewable Energy Inc. indicate the ability of the
corporation to pay its obligations arising from its short-term operations. Individuals interested in
the short-term credit such as suppliers are usually interested in these ratios.
Current Ratio: it indicates the ratio of currents assets in relation to the current liabilities of the
company.
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Current Ration:
Current Ratio = Current Assets
Current Liabilities
= $125,108/$106,051 = 1.179
This is a high value, which is a preference for all short-term creditors because it minimizes risks.
Although investors value a lower ratio due to their interest for the growth of the business, the
high value will still be favorable. The disadvantage of this ratio is that it the company’s
inventory could include many items that may be difficult for quick liquidation. Innergex has a
current ratio above one which shows that it is capable of paying off its obligation.
Quick Ratio: it indicates liquidity and it is established by:
Quick Ratio =
Current Assets - Inventory
Current Liabilities
Quick ratio = ($125108-$49,745)/$106,051
= 0.71
Innergex has a Quick ratio of .71, which means it has .71 cents of assets to pay off every dollar
of liabilities. The company should strive to focus on bringing that up above one.
Cash Ratio: It also measures liquidity of Innergex Renewable Energy Inc.
Cash Ratio =
Cash + Marketable Securities
Current Liabilities
Cash Ratio = $34,276/$106,051 = 0.32
Ratios indicating Turnover of Assets
They are a measure of the efficiency of Innergex Renewable Energy Inc. in utilizing its assets.
Receivables turnover: It indicates the speed with which Innergex Renewable Energy Inc. collects
its receivables.
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Receivables Turnover =
Annual Credit Sales
Accounts Receivable
= 4.92
Average Collection Period:
Average Collection Period =
365
Receivables Turnover
= 60.04
Inventory turnover: it indicates the period that the inventory is converted to income.
Inventory Turnover =
Cost of Goods Sold
Average Inventory
The company had no inventories
Total Asset turnover: It indicates income generated on assets.
= sales revenue/total Assets
= $198,259/$2,377,074 = 0.083
Ratios indicating Financial Leverage
They indicate long run solvency of the corporation through measurement of the extent to which
an organization utilizes it long-term debt.
Debt Ratio:
Debt Ratio =
Total Debt
Total Assets
Debt ratio = $1,711,139/$2,377,074
= 0.719
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The high ratio implies that the company is more leveraged than expected, an issue that possess
more risks for the corporation.
Debt to equity ratio:
Debt-to-Equity Ratio =
Total Debt
Total Equity
= $1,711,139/$665,935
= 2.56
The ratio is high implying that the company needs to minimize its credit funding. Many of the
company’s investments are financed by debt as compared to equity of owners. The ratio needs to
be lowered by increased equity funding (Reuters, 2014).
Ratios indicating Profitability
The ratios indicate the profit an organization generates over a given period.
The Gross profit Margin:
Gross Profit Margin =
Sales - Cost of Goods Sold
Sales
= ($198,259 – $33,947)/$198,259
= 0.828 or 82.8%
Return on Assets:
Return on Assets =
Net Income
Total Assets
= $45,431/$2377074
= 0.019
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Return on Equity:
Return on Equity =
Net Income
Shareholder Equity
= $45,431/$665,935
= 0.068
The ratio indicates the profits that shareholders earn on each Dollar they have invested in the
stock of the company. The ratio is low, which implies that returns per Dollar investment in
company stocks is low (Reuters, 2014).
Dividend Policy Ratios
Dividend yield: it establishes the rate of income on investors’ investments in the corporation.
Dividend Yield =
Dividends Per Share
Share Price
= 3.041/10.37
= 0.2932
The dividend yield is high, which translates to high returns on invested funds in future.
Payout ratio: Is used in conjunction with other ratios such as earnings per share and dividend
growth in order to establish the ability of an organization to manage its capital and growth
effectively.
Payout Ratio =
Dividends Per Share
Earnings Per Share
= $3.041/$0.43
= 7.07
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The ratio is high and it implies he prospects of paying higher returns for investors in the
company.
Vertical Analysis
It analyzes financial data when items are indicated as a percent of the other. For instance,
concerning income statement, every item is stated as a percent of the gross sales while items on
the balance sheet are stated as a percent of total assets. This form of analysis is significant in
establishing relative proportions of annual balances of the finances of the corporation.
Financial Trends: (2011 - 2014)
Innergex has been receiving increasing value of net income over the 4-year
period.
Innergex has been experiencing increasing assets at a greater rate than liabilities
for the past 4 years as well.
The company’s sales have been increasing as well.
The average inventory for the company has remained the same for the time
period.
Owners’ equity has remained the same as well.
XII. Competitor Background
In the energy business, companies have an ample amount of competition. Specifically, the top
three competitors for Innergex Renewable Energy are TransAlta Renewables, Capital Power
Corporation, and Northland Power. TransAlta Renewables is an energy company that produces
hydro and wind energy. Just like Innergex, TransAlta has most of their plants in Canada and one
in Wyoming, USA. TransAlta operates seventeen wind facilities and twelve hydro facilities [6].
Capital Power Corporation is an energy company that produces renewable and nonrenewable
38
energy. This company has facilities in Canada and North Carolina, USA. Capital Power
Corporation operates natural gas, coal, and wind facilities. Northland Power is another Canadian
company that produces renewable energy [7]. The company has eighteen facilities in Canada and
one in Germany. Northland Power’s facilities consist of wind, solar, and thermal energy. Each
one of these companies is competing strongly with Innergex Renewable Energy [8].
Industry Information
Innergex Renewable Energy uses three types of renewable energy, hydroelectricity, wind energy,
and solar energy. In total, Innergex currently controls thirty-three power plants that have a total
net installed capacity of 687 MW (Megawatts). The company is mainly focused with
hydroelectric energy because it operates twenty-six run-of-river power plants. Innergex controls
six wind farms and one solar farm. Innergex Renewable Energy operates all of their plants in
Canada except for one hydroelectric plant that is located on the Payette River in Idaho, USA near
Horseshoe Bend, Idaho. [9]
There are many influencing factors overtime describing the success of Innergex Renewable
Energy. Whether, they be from government or from climatic changes. From today’s date. There
is an increased influence of top industry influencing factors. More people are getting concerned
with the environment and renewable energy is in large demand.
Innergex has a vast amount of experience compared to its competitors. They started in 1990 with
their first hydroelectric facility. Now they have over twenty all throughout Canada and looking
to develop more in the future. They are continuing to keep innovating and developing
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[10]
Market Shares from 2008 – 2009
40
Innergex Renewable Energy entered the public stock market at the end of 2007.
The stock market trend has been relatively stable over the past four years. One can see from the
graphs that are given that Innergex’s stock market fell dramatically during 2008 and part of
2009. During 2008, Innergex stock fell drastically over ten points. At this same moment in
history, the Great Recession happened due in the world due to the U.S. housing market crashed
and large amounts of mortgage backed securities lost significant value. The whole energy
market took a major blow financially from the Great Recession. These companies suffered
because clients were saving more than consuming. There is a correlation between Innergex
Renewable Energy stock market drop and the recession that happened from 2007 to 2009. In the
company’s 2008 Annual Report, it states that in the current economic climate, safe investments
are hard to come by. Innergex Renewable Energy had the impression that the recession would
carry on into the coming financial quarters. Under this impression, the main goal of the
company was to ensure that their energy facilities produced their expected revenues. In this time
of economic uncertainty, Innergex Renewable Energy saw this as a time that could generate
41
interesting business opportunities. Since the rise of Innergex’s stock market in 2010, the
company has been relatively stable with their market price [11].
Forces at Work Changing Industry Condition:
In order to stay relevant in the renewable energy market, Innergex must look at some of the
important forces that will be affecting the industry between now and three years from now
(2017) are listed below:
Changes in policy
Subsidization
Increase in public environmental awareness
More interest in renewable energy
Natural gas prices may decrease with a higher supply
Market resistance to change and dominance of proven sources
The renewable energy market as been changing for the better. It is getting more attention in the
public eye. Many companies are seeing the opportunity to enter this market. However, there are a
few setbacks. The energy market has long been a slow driver of change and with a heavy cost of
infrastructure and natural monopolistic tendency of wide-scale utilities. It is difficult for an
industry of this scale to change at a quick pace.
Changes in policy in Canada gave the opportunity for renewable energy to emerge and opened
doors in key customer areas. As stated earlier, in 2004, the Canadian government had a budget of
$1 billion over seven years in support of environmental technologies. Of this amount, $800
million over five years will be invested to support the development and commercialization of
42
promising environmental technologies in such key areas as renewable energy, alternative fuels,
clean coal and carbon dioxide sequestration.
Subsidiaries are very important. The IEA believes that further growth of renewable energy is
essential for a secure and sustainable energy system. Transitional economic incentives that
decrease over time are justified. Incentives are sometimes needed to stimulate cost reductions
through technology learning, such as improvements in manufacturing, increased technology
performances, economies of scale and larger deployment. Incentives may also be justified to
secure additional energy security and environmental benefits. Current policies have started to
deliver in this respect. Nevertheless, in several countries, the design of support policies has not
been ideal, and this has led to higher than anticipated levels of deployment and excessive policy
costs. With the Canadian government involved and the economy doing relatively well, they
created two tax incentives aimed at promoting investment in renewable energy projects. The
Capital Cost Allowance Class 43.1 in the Income Tax Act, and the Canadian Renewable
Conservation Expense (CRCE). Many nations have also pushed for improvements in alternative
and renewable energy sources, providing subsidiaries on purchases and development such
technologies. [15]
With an increase in public environmental awareness and a greater interest in renewable energy,
companies such as Innergex are in demand. Not only is renewable energy better for the
environment, it is also better for the economy. According to the International Energy Agency
(IEA), in 2009, the world relied on renewable sources for around 13.1% of its primary energy
supply, renewables accounted for 19.5% of global electricity generation and 3% of global energy
consumption for road transport in the same year. Since 2009, that number has only gone up. [35]
With large countries like Canada and the United States, population has increased calling for
43
more energy consumption. According to the Union of Concerned Scientists, “compared with
natural gas, which emits between 0.6 and 2 pounds of carbon dioxide equivalent per kilowatt-
hour (CO2E/kWh), and coal, which emits between 1.4 and 3.6 pounds of CO2E/kWh, wind
emits only 0.02 to 0.04 pounds of CO2E/kWh, solar 0.07 to 0.2, geothermal 0.1 to 0.2, and
hydroelectric between 0.1 and 0.5.” This is a large difference. [36]
Innergex and other renewable energy companies will have to compete with natural gas and crude
oil producing companies. The energy market is huge and will always be in play. There is a lot of
competition in the energy industry with major emphasis on renewables. Each of the forces listed
above will have an impact on the renewable energy industry and be favorable.
Innergex and its competitors such as Northland power, Capital power, and TransAlta
Renewables will have opportunities for growth. Some issues that will lead to their expansion
include population being directly proportional to electricity. According to Statistics Canada, on
July 1, 2013, Canada's population was estimated at 35,158,300, up 404,000 (+1.2%) over the last
year. And now in July 2014, Canada’s population is estimated to have 35,540,419. [42] Another
issue that helps Innergex and its competitor’s growth is Canada's pollution. Pollution is an
environmental issue in Canada. It has posed health risks to the Canadian population and is an
area of concern for Canadian lawmakers. Renewable energy has little or no greenhouse gas
emissions, and most do not cause acid -rain. With a use in renewable energy, pollution will be
decreased tremendously.
Innergex and its competitors such as, Northland power, Capital Power, and TransAlta
Renewables will have threats that may impact their growth. Some issues that can tamper with
their expansion include natural disasters. Examples of such events are, the 1998 ice storm in
eastern Canada and the flooding of the Red River in Manitoba in 1997. [43] This affects the
44
hydroelectric dams and wind turbines. Another issue is the price of natural gas and crude oil
going down. As the economy is getting better gradually, the price will decrease causing an
increase in demand. This will compete with the renewable energy companies whose products and
maintenance are expensive.
The Industry’s Operational Context
Currently, the industry is at its maturity stage, as it exhibits peak operations with other
competing industries trailing behind. It has long come off its take off stages owing to the period
of its inception in 1990. The industry has had long-standing dominant economic traits that have
led it to become one of the most successful firms operating in Northern America. The number of
its competitors has also increased dramatically (Thomas Publishing Company, 2014). The
company bases its success on sustainability of its products and services, which bring about
customer satisfaction. Innergex operates autonomously in the production and distribution of
renewable energy sources. It does not depend on external renewable energy developers.
However, it independently produces or develops and owns renewable energy systems. The
autonomy forms part of the firm’s dominant economic traits.
The market place for the organization is such that there is a wide scope of dominance in the areas
of its operations such as Québec, Ontario, British Columbia, and Idaho, U.S. These are some of
the most populated regions of Northern America with high demand for home-use energy. In this
regard, the company has a relatively wide market space with a superior coverage over its
competitors.
There is a continuous rapid growth in the market demand of both products and services of
Innergex Renewable Energy Inc. The demand is attributed to several factors. For instance, there
is an unprecedented rate of global warming and climate variations that calls for more production
45
and use of renewable energy sources. The fact that the company has an established independent
system of production, distribution, and management of its energy resources, implies that it
provides an upper hand to the rapid growth in the industry’s market space growth.
Like any other producing industry with market shares in the wider market scope, Innergex
Renewable Energy Corporation exhibits a competitive rivalry scope within its market space. The
firm competes with other industries that also produce and supply energy to the wider market
space. The competition scope extends into the capital shares and stock exchange where Innergex
has to compete with other energy producers and suppliers. The competitive rivalry in the
industry is, therefore, influenced by many industry characteristics. The presence of large number
of firms plus slow market growth results to the dominant Innergex Renewable Energy and its
competitors fighting for market shares. High fixed costs of production for the energy sources
may also enhance the rivalry. Furthermore, the competitive rivalry is manifested through price
wars and competition for customers, hence, the market share (Mind Tools Ltd., 2014).
There are many competitors in the market place, all producing, and distributing energy sources to
the customers. However, the industry has three main competitors in the market space. They are
TransAlta Renewables, Northland Power, and Capital Power.
Government and political influences are both factors determinants of the overall competitive
rivalry. They deal with the formulation and/or the enactment of new legislations that govern
entry and operations of the companies in the industry. Therefore, the two factors form the
Legislative and Legal Compliance force, which is necessary in shaping industry operations and
the mode of operation of firms in the industry (Mind Tools Ltd., 2014).
Backward and forward integration of production in the market place is an inevitable undertaking
if firms in the industry aim at growth. Backward integration involves an organization linking
46
with firms that provide resources that it needs in the production of its output. On the contrary,
forward integration involves firms that merge with companies that consume their outputs. The
two forms of integration have not been exhibited in the energy sector in Canada.
The entry barriers to the market space are not factor-specific. One of the most important
prerequisites for entry into the market space is government policies and or regulations. The
government formulates and enacts regulatory compliance that controls the entry of firms into the
market space. The capacity of production output also determines entry into the market space.
Other barriers include existence of industrial monopoly in the market, brand identity, and cost
implications of competitive production. On the other hand, there are also a number of exit
barriers in the market space. Products and services specificity is a major barrier to exit. The
industry deals in renewable energy that is not only a factor of production, but also a specific
source of energy that has eco-benefits. An established large customer base may also be a barrier
to an industry’s exit from the market. Existence of interrelated businesses carried out by the
energy companies may also establish a barrier to ease of exit. This is common in cases where
companies not only produce renewable energy, but also engage in other forms of businesses such
as consultancy. High exit cost implications may hinder ease of exit.
There is a rapid advancement in sophisticated technology that enables the production of quality
renewable energy. The overall essence is to ensure that customer acquire safe energy sources at
affordable prices. Generally, generation of electricity is also a sophisticated process that must
involve and incorporate high technological advancements. The industry’s market space is such
that the products and services are non-perishable and highly volatile. Production uses the
environmental friendly techniques and resources with the products being categorized under fixed
assets in most cases.
47
The industry’s customers are mainly household, institutions, and other companies. It produces
large amounts of megawatts capable of supporting a wide range of customers. The customers are
generally environmental conscious and low energy spenders. They also understand the principles
and concept of sustainability and sustainable development. The industry depends on natural
resources, which are harnessed via sophisticated technology to produce energy. It obtains solar,
wind, and water naturally before harnessing to produce renewable energy. Although all the
resources are weather-dependent, solar, and wind are more stable in supply. The company
harnesses larger amounts of solar and wind to generate the energy compared to water. The
industry’s current profitability exhibits high-income returns owing to its well-placed market
space. The fact that the company tops the renewable energy production in Canada and the North
America puts its products and services at high bids in the market space thereby assuring high
levels of returns (Thomas Publishing Company, 2014).
Currently, the company is on the rapid growth phase of the experience curve. Despite its many
upcoming competitors, it has three main competitors. They include TransAlta Renewables,
Northland Power, and Capital Power. The industry has its competitors striving to produce and
distribute to the customers their differentiated products and services. However, despite the
attempts, Innergex Renewable Energy has remained undeterred in its successes in the market
space. In this regard, the competitive forces are not strong enough to match the Innergex
Renewable Energy’s successes in customer reach-out and marketing.
XIII. Competitor Analysis
Top 10 Competitors
Overall, there are hundreds of renewable energy companies that settle across North America.
These companies specify in solar, wind, geothermal, biofuel, and hydroelectric energy. Each of
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these companies are competitors to Innergex Renewable Energy. There are many competitors to
Innergex, but here is the top ten in no particular order.
TransAlta Corp. – an energy company headquartered in Calgary, AB, Canada that is focused on
renewable energy. They produce hydro and wind power in Canada and the United States.
Northland Power Inc. – an energy company headquartered in Toronto, Ontario, Canada that has
facilities in wind, solar, and hydroelectric energy. Northland Power does business in Canada,
Germany, and the United States.
Capital Power – an energy company headquartered in Edmonton, AB, Canada that focuses on
natural gas, wind, and coal. Capital Power does business in Canada and the United States.
Algonquin Power and Utilities – an energy company headquartered in Oakville, Ontario,
Canada that has twenty-six renewable generating facilities that are fueled by wind and
hydroelectric energy.
Boralex Inc. – an energy company headquartered in Kingsey Falls, Quebec, Canada. Boralex
Inc. is focused on producing hydroelectricity and wind energy.
Run of River Power – an energy company headquartered in Delta, British Columbia, Canada
that produces hydroelectric energy.
Alterra Power – an energy company headquartered in Vancouver, BC, Canada that has facilities
that produce renewable energy from hydroelectric energy, wind energy, and solar energy.
Finavera Renewables Inc. – a wind energy company that is headquartered in Vancouver, BC,
Canada. Finavera Renewables operates wind farms in Ireland and North America.
49
Synex International – a hydroelectric energy company that is headquartered in Vancouver, BC,
Canada.
Enel Green Power – a renewable energy company that is headquartered in Rome, Italy. They
have facilities in twenty-one U.S. states and two Canadian provinces. They also have facilities
in Europe, Mexico, and South America.
Top Three Competitors
The top three competitors are TransAlta Renewables, Northland Power Inc., and Capital Power.
These are Innergex’s top three competitors because at this moment in time, they are closely
related to Innergex in size and energy capacity output.
TransAlta Renewables is a renewable energy company that is headquartered in Calgary, AB,
Canada. They have approximately one thousand employees that work for them. TransAlta
Renewables has seventeen wind facilities and twelve hydroelectric facilities. The company
operates all throughout Canada and have one facility in Wyoming, United States. In Wyoming,
the wind farm is one hundred percent owned by TransAlta Renewables, but NextEra Energy
operates the facility. TransAlta Renewables is in a very convincing position to grow in the
Canada market and the United States market because of their potential for more hydro and wind
facilities in North America. They also have the potential to look elsewhere and expand their
business outside North America such as Europe, where there is an immense market for
renewable energy. TransAlta Renewables states that “We are primarily focused on growing in
Canada and the U.S.; however, acquisition opportunities outside of these core regions will be
considered if they meet return expectations and come with long-term contracting opportunities.”
[26]
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Northland Power is another major competitor of Innergex Renewable Energy. The company is
headquartered in Toronto, Ontario, Canada. Northland Power has wind farms, solar farms, and
thermal facilities. They approximately have one thousand employees. The company operates all
throughout Canada and one wind farm in Germany. In Germany, Northland Power is eighty-five
percent owner of the Nordsee One wind project. The Nordsee wind project gives Northland
Power a Power contract with feed-in-tariff subsidy for approximately ten years under the
German Renewable Energy Act. Northland Power is one of Canada’s first independent power
producers that was established over twenty-five years ago. After they were established over
twenty-five years ago, they have achieved a remarkable growth trajectory. The company is in a
very good position to grow domestically and internationally. Since they already operate a wind
farm in Germany, which is extremely large in size, they have connections to operate and develop
more facilities in this area. [31]
The last top competitor to Innergex Renewable Energy is Capital Power. Capital Power also has
over one thousand employees. The company focuses on natural gas, wind, and coal. Capital
Power operates all throughout Canada as well as North Carolina, United States. There are two
facilities that Capital Power oversees in North Carolina. One is called Roxboro, where it is one
hundred percent owned by Capital Power. The other is called Southport where it is also one
hundred percent owned and operated by Capital Power. Due to their vast amount of energy
facilities, Capital Power has the room to develop more in North America as well as overseas.
The company already has three facilities in development in Alberta and Ontario, Canada that will
produce an extra 490 megawatts of power. [28]
Innergex Renewable Energy and their top three competitors have strong and weak points within
the renewable energy industry. Currently, Capital Power has the best opportunity to have the
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best profit solely on the reason that besides their renewable energy facilities, they have some
nonrenewable energy facilities, too. Due to this reason, Capital Power can produce cheap energy
and sell it at a greater profit at this moment in time than renewable energy companies. In the
long run however, Capital Power will not do very well unless the company makes renewable
energy facilities their number one priority at the right moment in time. In the long run,
Northland Power is in the strongest position to be the most successful firm. Due to their 2.8
billion Euro investment on the Gemini project, which will be the largest wind farm in the North
Sea, Northland Power has the potential to be one of the largest energy firms in the world.
Currently, Innergex is producing less megawatts of energy than the company’s competitors.
Innergex Renewable Energy continues to develop projects and facilities where they can produce
at the same level or even more megawatts than their competitors.
The top three companies in the renewable energy industry are Iberdrola, Calpine Corp., and
China Yangtze Power. Iberdola is a clean energy company that is based out of Spain. It is the
largest renewable energy asset based company in the world. The company is expecting to bring
in 1,450 megawatts of clean energy in the next two years. They are constructing massive wind
and hydro facilities in Brazil. Calpine Corp. is a Fortune 500 United States power company
based out of Houston, Texas. The company delivers nearly 27,500 megawatts of clean, reliable
energy to customers in twenty U.S. states and Canada. Lastly, the third biggest renewable
energy company is China Yangtze Power. This company operates the world’s largest power
station in terms of installed capacity coming in at 22,500 megawatts. This power station is called
The Three Gorges Dam and it is located on the Yangtze River in China. [37]
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TransAlta Renewables PEST
Political: The Canadian Government has been much involved in renewable energy companies
because a good amount of the country’s energy comes from renewable energy. Under the
CEPA, Canadian Environmental Protection Act, renewable energy companies such as TransAlta
Renewables will be a part of the pollution prevention in Canada for a more sustainable
development in the future. Since, TransAlta has facilities in hydro and wind, they must do
everything in their power to not hurt wildlife in any way under the Canada Wildlife Act. The
company also cannot negatively affect the environment in any way under the Environmental
Enforcement Act. [14]
Economic: TransAlta Renewables is a company that is located in Canada as stated before.
Canada’s economic status is currently described as stable. Recently, Canada’s unemployment
rate decreased to 6.8 percent in October from 7.3 percent in August of 2014. [16] TransAlta
Renewables stock has slowly been increasing since October of 2013. Recently, TransAlta took a
dip in expectations this third quarter of the financial year because it is a “low wind resource
period.” [38]
Social: Canada is increasing in population every day due to growing cities such as Toronto and
Vancouver. Demand for energy will keep growing in Canada so these energy firms, such as
TransAlta Renewables, are going to have to keep up with supply. Opportunities for sale are
going to increase in the future, especially when nonrenewable energy becomes obsolete in
society. TransAlta Renewables’ shareholders are strongly represented on an experienced Board
of Directors where people can share what is best for the company.
53
Technological: TransAlta Renewables focuses on wind and hydroelectric energy. The company
has seventeen wind facilities and twelve hydro facilities, which totals up to twenty-nine
renewable energy facilities. These twenty-nine facilities generate 1,255 megawatts of power.
Wind energy uses a wind turbine that uses a rotor on the top with blades attached to it. These
blades are made at precise angle so they can be one hundred percent efficient. The hydroelectric
facilities have a high initial capital cost. These facilities use the gravitational force of falling and
flowing water to create energy. [26]
Northland Power PEST:
Political: Northland Power has solar, wind, and thermal facilities all throughout Canada. The
company is a good example of what the CEPA, Canadian Environmental Protection Act, will be
looking forward to in the future from energy companies. Northland Power will need to be aware
of the Canada Wildlife Act. They will need to know that they cannot hurt any wildlife while
operating their facilities. Also, Northland Power will need to be aware of the Environment
Enforcement Act. This states that they cannot negatively hurt the environment when they are
constructing their facilities. Also, Northland Power does business in Germany by owning a wind
farm in this territory. Under the German Renewable Energy Act, Northland Power was able to
successfully develop and construct a billion dollar wind farm in Germany.[14]
Economic: Canada’s Gross Domestic Product (GDP) has expanded 2.45 percent in the second
quarter of 2014. Due to Canada’s steady growth over the past couple decades; this has given
Northland Power to expand and develop in this area. According to The Economist, Germany’s
economy, where Northland Power has a wind farm, is in a rut. The German economy shrank by
0.2% in the second quarter of 2014. If their economy keeps declining, then technically,
Germany will be in a recession. Companies in Germany, such as BMW, are moving their
54
factories to America, where energy prices are eighty percent lower. Firms want to take
advantage of the cheaper energy. Northland Power should be a little concerned if Germany is
trying to focus on cheaper energy in the future since renewable energy is more expensive at this
moment in time. [39]
Social: Both Canada and Germany are increasing in population. Northland Power is going to
have to keep up with the demand for energy in Canada in the future. In Germany, renewable
energy is used more than most places in the world. This was a smart business decision at the
time to create and operate wind farms in the North Sea over in Germany. Germany is in a little
rut at this moment in time but the German people are not feeling the pain because the
unemployment is at less than five percent. [39]
Technological: Northland Power has solar, wind, and thermal facilities that produce power. The
company has a total of eight solar farms, four wind farms, and seven thermal facilities.
Northland Power produces 1,404.5 megawatts of energy with their nineteen facilities. Solar
energy harnesses light from the sun using solar photovoltaic energy. Wind energy uses a wind
turbine that uses a rotor on the top with blades attached to it. These blades are made at precise
angle so they can be one hundred percent efficient. Thermal energy is heated energy generated
and stored in the Earth. [33]
Capital Power PEST:
Political: Capital Power operates all throughout Canada and in North Carolina, United States.
The company has natural gas, coal, and wind facilities. Capital Power will be monitored closely
by the Canadian Government under the CEPA, Canadian Environmental Protection Act, because
it produces coal that pollutes heavily. Capital Power will also have to be conscious of the
55
Canada Wildlife Act. The company cannot harm the wildlife when they are developing,
constructing, and operating their facilities. Capital Power will also have to be aware of the
Environmental Enforcement Act. [14] The company cannot destroy the environment or else they
will be assessed major penalties and fines. In North Carolina, Capital Power operates two
facilities run by solid fuel. The company will need to be aware of the Pollution Prevention Act
in the United States. [40]
Economic: The Canadian dollar is doing better than other major currencies such as the United
States dollar, the Euro, and the British Pound. Due to Canada’s steady economic growth
nationally, Capital Power has a good opportunity to expand. Capital Power has the opportunity
to expand internationally also because their dollar is stronger than most countries. A strong
dollar relates to a healthy economy. [41]
Social: Capital Power is one of the most respected energy companies within North America.
The company wants to keep shareholders informed on to what is happening at their company.
Their strategy is built to maintain a strong balance sheet and an investment-grade credit rating.
Capital Power wants to keep growing and known as North America’s most respected energy
company through various economic cycles. [28]
Technology: Capital Power has natural gas, coal, and wind facilities. They acquire the natural
gas through horizontal or vertical drilling at specific facilities. Energy from coal is acquired
through burning the coal, making steam, which then runs through a turbine to generate
electricity. Wind energy uses a wind turbine that uses a rotor on the top with blades attached to
it. These blades are made at precise angle so they can be one hundred percent efficient. [28]
56
TransAlta Renewables VIRO:
Service
offered
Valuable? Rare? Difficult
to
imitate?
Supported by
organization?
Competitive
implications
Performance
ROR
Hydro
Electric
Yes No Yes Yes Competitive
Advantage
Above
Normal
Wind
Farms
Yes No No Yes Competitive
Parity
Normal
ROR (Run-of-River) Hydroelectric – TransAlta Renewables has twelve hydroelectric
facilities. These facilities are implemented on moving bodies of water and generate energy that
is transmitted to nearby energy distribution centers. This product is an advantage to TransAlta
Renewables because of the company’s efficient ability to maintain these facilities.
Wind Turbines – TransAlta Renewables has sixteen functioning wind farms throughout Canada
and one in Wyoming, United States. These large constructed towers with rotating blades
generate vast amounts of energy utilizing only the wind.
Northland Power VIRO:
Service
Offered
Valuable? Rare? Difficult to
Imitate?
Supported by
Organization?
Competitive
Implications
Performance
Photovoltaic
Panels
Yes No No Yes Competitive
Parity
Normal
Wind Farms Yes No No Yes Parity Normal
Simple Cycle
Gas Turbine
(SCGT)
No No No Yes Parity Normal
Combined
Cycle Gas
Turbine
(CCGT)
Yes Yes Yes Yes Competitive
Advantage
Above
Normal
Cogeneration Yes Yes Yes Yes Competitive
Advantage
Above
Normal
57
Biomass
Steam
Yes No No Yes Competitive
Advantage
Normal
Run-of-river
Technology
Yes No Yes Yes Competitive
Advantage
Above
Normal
Pumped
Storage
Technology
Yes No No Yes Parity Normal
Wind Turbines – These large constructed towers with rotating blades generate vast amounts of
energy utilizing only the wind.
Solar Farm – Solar farm utilizes photovoltaic panels to harness sunlight and generate energy.
The photovoltaic panels are a competitive parity due to the fact that they are the same technology
used in the majority of solar farms around the world.
Simple Cycle Gas Turbine (SCGT) - plants use thermal energy released from the combustion
of natural gas to spin a turbine, which in turn drives an electrical generator to produce electricity.
SCGT plants can be started or stopped quickly in response to changing demand, which makes
SCGT ideal for peaking plants, which are designed to balance supply from intermittent power
sources, such as wind. System operators also use SCGT sources to protect against unexpected
outages at other generating stations and to overcome transmission bottlenecks or constraints [34]
Combined Cycle Gas Turbine (CCGT) - technology produces electrical energy in two stages:
1.A natural gas-fueled turbine turns a generator.
2.A heat recovery system captures waste heat from the turbine exhaust and creates steam
to drive a steam turbine to produce additional electricity.
CCGT plants are more efficient than SCGT plants, but more expensive to build. CCGT projects
are best suited for extended or continuous use, rather than being required starting up quickly or
58
often. [34]
Cogeneration - uses CCGT technology and then further uses the steam produced in an industrial
process or as a heat source. This typically requires the plant be located close to a steam host that
has contracted to off-take the steam. Cogeneration mode is the most efficient form of gas-fired
generation, but is more costly to build than SCGT or CCGT. [34]
Biomass - technology uses a totally renewable fuel source, often from forestry and wood-
processing waste. The waste would otherwise be discarded, releasing greenhouse gases into the
atmosphere and contaminants into ground water. Eliminating these harmful effects further
increases the environmental benefits of biomass steam as an energy source. [34]
Run-of-river technology directs river water into an intake and through a powerhouse into a
water turbine. The turbine spins an electrical generator to make electricity. After passing through
the turbine, the water flows back into the river. This technology is very well developed and
common. Depending on the topography, a small to medium-sized dam is built at the site to create
the required drop in water elevation. [34]
Pumped Storage - technology uses combination pumps/turbines to pump water from a lower
reservoir to an upper reservoir for storage. It then generates electricity similar to a standard hydro
project as the water is released through the turbines and flows down into the lower reservoir. [34]
Capital Power VIRO:
Service
Offered
Valuable? Rare? Difficult
to imitate?
Supported by
organization?
Competitive
implications
Performance
Coal Yes No No Yes Competitive
Parity
Normal
59
Natural
Gas
Yes No No Yes Competitive
Parity
Normal
Wind
Farms
Yes No No Yes Competitive
Parity
Normal
Coal – Capital Power has multiple coal facilities located in Canada. To generate electricity from
coal, it will need to be burned in a broiler, which will produce steam. The steam then runs
through a turbine, which will generate electricity.
Natural Gas – Capital Power has multiple natural gas facilities. One method to generate power
from natural gas is to burn the gas in a broiler, which will produce steam. The steam will go into
a steam turbine that will produce electricity. Another way to produce electricity is to burn the
gas in a combustion turbine to generate electricity.
Wind Turbines – Capital Power has a few operating wind facilities. These large constructed
towers with rotating blades generate vast amounts of energy utilizing only the wind.
60
SWOT Analysis for Competitors
TransAlta Renewables:
Strengths: TransAlta Renewables has over one hundred years of experience in the renewable
energy field. Also, TransAlta has a strong integrity to bring value to its customers and
shareholders through developing new projects, operating in extreme and varied conditions, and
improving efficiencies of their wind and hydro facilities. Also, a board of directors who
understand the energy business and can oversee the company’s actions represents TransAlta
Renewables’ shareholders [26].
Weaknesses: TransAlta Renewables’ market price has been decreasing since July of 2014. The
company’s total revenue and assets has been decreasing since the beginning of the year 2013 [27].
Opportunities: TransAlta Renewables has not yet committed to solar energy. The company can
explore their options and see what is available in for solar energy in the national or international
market. TransAlta is considering opportunities outside North America if they meet return
expectations and come with long-term contracting opportunities [26].
Threats: Some of the threats of TransAlta Renewables are changes in economic conditions,
unplanned outages at facilities, and natural disasters. Other threats are need for sudden
additional financing and instabilities of value of foreign currency [27].
Capital Power Corporation:
Strengths: Capital Power Corporation is increasing its dividend payments to its shareholders.
There is increasing demand for their Alberta Power, so Capital Power Corporation is expected to
grow their cash flows. They produce energy from natural gas and coal that is a lot cheaper of
operating and maintaining than renewable energy facilities [28].
61
Weaknesses: Capital Power Corporation needs to watch how much pollution they put into the
environment from their facilities following the pollution acts of Canada [29].
Opportunities: Capital Power has not yet explored their options in the hydro sector for energy.
Canada, and North America in general, have many places where a company can use rivers to
harness energy [30].
Threats: Some of the threats for Capital Power are increases in income taxes, weather, and
instability of value of foreign currency. Another threat is the movement away from
nonrenewable forms of energy and an increase in demand for renewable forms of energy [30].
Northland Power:
Strengths: Northland Power is a Canadian company that is an eighty-five percent owner of
NordSee One offshore wind project in the growing German wind energy project. The NordSee
One has an ample amount of potential for energy output and growth. In 2013, Northland Power
was named North American Developer of the Year by Project Finance magazine. This award
improves the company’s reputation nationally and internationally [31].
Weaknesses: Some of the weaknesses for Northland Power are how expensive it is to oversee
and maintain their facilities. For example, maintaining and operating their facilities in Germany
can get quite expensive with traveling costs. Another weakness for the company is their long-
term debt they need to pay off on the Gemini Project. They will need to keep making sizeable
payments until the projected year of 2022 [32].
Opportunities: Northland Power produces solar, wind, and thermal energy nationally and
overseas. There is a growing demand for renewable energy in North America and Europe. Since
Northland Power is currently present in Germany, they have the opportunity to expand in
62
Europe. Also, Northland Power has the opportunity to explore their options to hydroelectric
facilities since there are many places to put them in Canada [33].
Threats: One major threat to Northland Power is an extreme rise in inflation rates. This will
negatively impact their projects financial outcome and speculations. Another threat for
Northland Power is a natural disaster. Anything that could damage their turbines and facilities
will have a negative impact on their business. [32]
63
XIV. Strategic Group Map and Moves
This strategic group map shows the top nine ways to create energy using renewable and
nonrenewable resources. The y-axis measures the price of these commodities while the x-axis
measures the usage of these commodities worldwide. At this moment in time, one can see how
the nonrenewable energy commodities are doing better than the renewable energy commodities.
In the future, one expects these commodities to switch places
Strategic Moves for Competitors:
If Innergex Renewable Energy accepts the recommendations from earlier in the report, found
under the Recommendations section, then the company’s top three competitors could make some
64
strategic moves. Innergex Renewable Energy’s top three competitors are most likely going to
expand in national and international markets. The current economy in Canada is stable and
healthy. Therefore, it is a perfect time for these companies to expand and develop additional
facilities. Another move that these competitors can make is to merge with other energy
companies. If the financial situation is right for both companies, merging can be very beneficial
for these competitors. The top three competitors of Innergex Renewable Energy could also
attempt to reduce costs within their company. If a company can offer lower prices then their
competition while maintaining the same energy quality, then a company can strengthen their
competitive advantage against other renewable energy firms.
Action/Reaction:
Action: Expansion in Growing Markets
Competitors Reactions:
1. Also expand in national and international markets
2. Reduce energy prices
3. Create partnerships with other firms
Action: Marketing and promotion
Competitors Reactions:
1. Create own advertisements
2. Expand customer base
3. Improve customer experience
65
Action: Invest in Solar Energy
Competitors Reactions:
1. Also invest in solar energy
2. Do not have resources and do nothing
3. Invest in energy substitute
66
XV. Porters 5 Forces Model
Competition in the renewable energy field is currently moderate. The filed is relatively new; in
the near future the industry will be highly competitive. To have an advantage in this field a
company needs to be diverse in its practices (offer wind, hydro, and solar), as well as efficient
construction that can be in production quickly. A company in this field also has to follow many
government regulations.
Suppliers: The threat from Innergex Renewable Energy Inc. suppliers is very high. Their
suppliers have a great deal of power in the renewable energy industry. Their suppliers are
responsible for the chemicals they use to produce photovoltaic panels. As well as the
construction material used to build their turbines used in windmills and hydroelectric plants.
Moderate
rivalry
between
Industry
competitors
Threat of New Entrants
Investors support
Finding clientele
High entry barriers
Threat of Substitute
Cheaper production
Substitutes pollute
Substitutes have more research and development preformed
Suppliers Power
Limited number
Special equipment
Experience and know-how
Buyers Power
Available substitutes
Price negotiation
High switching cost
High
Threat
Moderate
Threat
Weak
Threat Moderate
Threat
67
Without these materials Innergex wouldn’t have the equipment to construct profitable energy
systems. On a scale of 1 to 10, the rating for suppliers as a threat is 7.
Threat Of new Entrants: New entrants are considered a moderate threat. There are high
barriers to entry in the energy business. This is due to the overhead cost needed to begin
production on an energy system. Also new entrants must find investors to help support the initial
costs that occur in the construction industry. These entrants also have to build relations with
clientele since existing companies already have developed these relationships. The competition
in the renewable energy field is currently low since the majority of energy is still derived from
fossil fuels. However, the threat of new entrants will soon increase. On a scale of 1 to 10, the
threat of new entrants is a 5.
Buyers Power: The buyers of Innergex Renewable Energy are a weak threat. Since the number
of renewable energy companies in Canada is low, distributors don’t; have much say in what
energy company they want. Most of Innergex sites are constructed in rural areas so the
households and business that receive power from them have no other option. On a scale of 1 to
10, the treat from buyers is a 2.
Threat of Substitutes: The threat from substitutes is a moderate risk. The movement towards
cleaner energy has begun, and Innergex is one of the companies that have proven success in this
field. There aren’t many substitutes for clean energy since Innergex provides the majority of
them. Other options could be geothermal and tidal energy, however these can only be offered in
specific areas. On a scale of 1 to 10, the threat of substitutes is a 4.
Key Success Factors: Using renewable energy sources as a commodity is still in its early
stages. The key success factors determined so far for the renewable energy field are. To have
68
cheap manufacturing cost, establish energy systems that will cover construction cost and return
profit. Other key success factors are to make sure there are sufficient investors, and the ability to
find opportunities to establish energy systems.
Energy companies need to have cheap manufacturing cost. For a client to hire them a company
needs to be able to offer lower price than its competitors, while not dismissing any of their
products integrity.
Energy companies also need to establish energy systems that will cover production cost, and in
time return a profit. They can do this by being selective of their construction site. An example
where returns would not be favorable would be where the amount of energy from households
and business in an area is less than the output from the energy system.
Sufficient investors are another key success factor. This is key because there are many initial
costs that come with construction. Renewable energy companies also need to be marketable.
Since renewable energies are relatively new, most areas already have an energy system
established. The company needs to market themselves so they can replace existing energy
systems.
69
Attractiveness:
Currently are company is moderately attractive. Investors and buyers are beginning to
notice that renewable energy is going to be prominent in the near future.
In the near term 1-3 years the growth of the company will not greatly change. The company
currently has 4 sites in construction and 1 in development. All 5 of these projects claim to be
completed by 2016. For the longer term (5 years plus), the demand for renewables will greatly
70
increase, resulting in more attractiveness for Innergex. The company began in 1990, and the
majority of its projects developed have occurred in the past 5 years. So if the company grows at
the same rate or at a higher one, then Innergex will appear very attractive. The CAGR for
Innergex is 12.5%. This represents a 12.5% gain on an investment in a given amount of time.
After the 5th term this value will be expected to increase due to the company’s ability to be more
efficient. Competitive forces will remain the same through the terms. This is because the market
for this industry will increase with the number of competitors, so the industry will remain stable.
XVI. Current Global Business Development
(Referenced to “Kiss, Bow, or Shake Hands” by: Terri Morrison)
Doing Business in Brazil:
Our company is going to be buying materials from Brazil. Brazil is a large South
American Country with around 200 million people, and is a Multi-Federal Republic government.
Even though they are located in South America, Brazilians speak Portuguese, and resent when
people attempt to speak Spanish to them. There are also many other ethnicities in Brazil so
languages such as German, English, Italian, French and Japanese are not that foreign. Also there
are many different religions practices in Brazil, however, predominantly catholic. Make sure
you know what language and religion your client prefers.
When meeting with a client make sure to make appointments at least a week in advance.
Avoid scheduling around carnival and other holidays. Schedule appointments between 10:00 am
and noon, this way the meeting runs into lunch, and you are able to treat your client to lunch
71
since this is very important to building a relationship. Prepare to wait for your client since
punctuality is very lenient in Brazil. Great with a handshake for first encounters, once
friendships are established then an embrace is acceptable. Women often kiss each other on the
cheeks. It is polite to shake hands with everyone who is present. An important note when
greeting is that in Portuguese the order of names is first name, middle name, last name. Attire
should be comfortable since it’s a warmer climate. Avoid wearing Brazilian flag colors such as
green and yellow. Conservative attire should be worn by women, and men should avoid jeans
since they are typically worn by young people.
Negotiation in Brazil can require many trips. Be prepared to commit many resources
such as time and money towards building a relationship with your clients. Avoid confrontation
and aggressive attitudes. With numerical values make sure you know that Brazilians use periods
instead of commas for punctuations. Make sure not to make changes in your negotiation team
since Brazilians value the person they negotiate with more than the firm’s name.
If clients come to visit our company, remember that showing up late is a common
occurrence, and offense shouldn’t be taken. It may be wise to hire a Brazilian Translator from
Brazil to travel with them. This way they are more comfortable, compared to speaking with a
one of our translators.
72
Doing Business in Germany:
Our company is going to open a sales office in Germany. Germany is a European
country that’s speaks German, English and French are their preferred foreign languages. Their
government is a Federal Parliamentary Republic. The religion in Germany is split between
Roman Catholics and Protestants.
When meeting Germans punctuality is extremely important. Also appointments should
be made in great advance. Germans have up to 6 weeks off work towards vacation (often used in
July, August, and December) so schedule wisely. Avoid scheduling Friday afternoons since
offices may close early. Also remember to schedule around Carnival, Oktoberfest, and other
holidays. Germans use a 24 hour clock, so midnight is considered null Uhr which means zero
hour. When meeting clients shake hand before and after meeting, accompanied with a nod. To
get attention in a meeting you may raise your hand. When entering a room, the highest-ranking
members usually enter the room first. Avoid chewing gum when talking to clients as well as
having your hands in your pockets, and maintain eye contact when speaking directly or listening.
Negotiation with Germans is much slower than negotiations with Americans or the
British. Make sure to be direct, and to avoid hype around the product being sold. Also be
prepared to supply information quickly, and capable to answer any question they may address.
The clients may appear to be cold initially, but a close business relationship can be established
with time. When preparing a proposal make sure it’s in German even if the client speaks
English. Allow the client privacy, private negotiations can occur behind closed doors, offense
should not be taken from this practice.
73
If clients come to visit our company, remember that punctuality is very important. Also
it may be wise to hire a German Translator from Germany to travel with them. This way they
are more comfortable, compared to speaking with a one of our translators.
Porter’s Generic Business Strategy:
The business strategy Innergex Renewable Energy should use to further grow their company is
the differentiation strategy. With Innergex being a producer of renewable energy and having
clients all throughout Canada. Innergex's reputation with its customers is very important.
Innergex has a dominant competitive advantage over other renewable companies because they
have hydroelectric, wind and solar energy plants. This differentiation will be marketed to potential
clients in need of an alternative electrical source that is both personally scalable to their facility, and
reliable in supplying a constant flow of electricity. The ability to tell potential investors and
customers that Innergex has thirty-three sites operating and five in development differentiates
Innergex from its competitors. This proves Innergex is a growing company with a future for greater
returns. With Innergex's competitive advantage and its remarkable reputation, with the differentiation
strategy, clients have less power to negotiate because of few close alternatives. Thus, giving Innergex
the ability to charge at a higher price range.
In conclusion, Innergex Renewable Energy has a profitable market and room to grow even larger.
With their different sources of renewable energy, their reputation with their clients and development
of new facilities. Innergex differentiates themselves from its competitors. Innergex should see major
increases in overall revenue and profit in the near future.
74
XVII. Strategic Analysis, Planning, and Recommendations
One of the main problems for Innergex Renewable Energy is that the company is not as diverse
in the renewable energy industry as the company could be. Innergex currently operates 26 run-
of-river power plants, 6 wind farms and 1 solar farm, for a total net installed capacity of 687
MW. Innergex needs to look more into solar energy and wind. The future for obtaining
renewable energy will be through diversity. Solar energy will have a major impact in our future.
For example, solar energy is starting to be used on many households’ roofs to provide additional
energy. In an interview article from National Public Radio, Eric Wesoff of Greentech Media
states that even though solar energy accounts for less than 1 percent of the electricity produced in
the United States and across the globe, it is on the rise substantially (Greene). Another problem
Innergex Renewable Energy has is that the company is not as big as they can be. Some of their
top competitors have more facilities throughout Canada and more facilities internationally than
Innergex.
Framing Our Options:
Available Resources
Additional Revenue (Recent increase 14%)
United States of America
$2,602 million in total assets
Other renewable energy industries
Canadian network
75
Alternative 1: Expansion in the Growing Markets
Innergex Renewable Energy can expand their hydro, wind, and solar facilities. Throughout their
already impressive Canadian network, there is still more room to grow for Innergex to keep up
with their major competitors. Renewable energy is the future so now is the time for Innergex
Renewable Energy to expand their company. Estimated time of completion – four years.
Alternative 2: Marketing and Promotion
With the additional revenue that was required by Innergex from last year to this year, Innergex
can advertise their company across the nation. Marketing and advertisement has the potential to
spread the word of Innergex and their commitment to renewable energy. Since renewable energy
is our future, people will start to invest in Innergex if the company will get their name in the
public. Estimated time of completion – two years.
Alternative 3: Invest in Solar Energy
Innergex can look into the United States to expand in the solar energy industry. Solar power has
huge potential to grow. For example, in the southwestern part of the United States, solar power
is growing substantially. In the future, solar energy will be a part of everyday life. Solar panels
will be on the rooftops of houses and on the roof of cars. Estimated time of completion – three
years.
76
Revised Strategy
It is clear that Innergex Renewable Energy has been doing very well in the energy sector, given
its dominance in the production of renewable energy. However, the company has concentrated
only in Canada and Wyoming, United States. It should diversify its market and venture into other
international market. In the Southwestern part of the U.S, the region has been known to be
sunny. The company can exploit the sun to generate solar energy, which is part of its brand
specialization. The diversification into the region will be of significance to Innergex because it
will enhance the firm’s revenues, as well as risks. The venture in the Southwestern part of the
U.S. is viable because it is still relatively close to the company’s headquarters in Canada, hence,
management will be easy and effective.
a) The Goal
The goal of diversifying internationally is to expand the company’s portfolio in the region and
increase the firm’s market share, hence, maintaining the firm’s dominance. The second goal of
the firm is to diversify business risks so that it does not have to rely on the Canadian market
alone. Last, Innergex Renewable Energy will need to look into the southwestern part of the
United States for the solar energy industry.
b) The Time Frame
The period that the company will take to venture into the southwestern part of the United States
will take about two years. The first six months of the first year will involve a feasibility study of
the market. This will include the assembling of a research team to go into the potential market
and study all aspects of the market, including possible site locations, infrastructure, and related
government regulations. The feasibility report will also provide the viability of the market in
terms of the consumption levels of energy (energy demand) and consumer preferences for energy
77
(Mind Tools Ltd., 2014). The feasibility report will be important in providing an inner analysis
on the specific aspects of the venture. The second half of the year will be followed by
establishing the right mode of entry. In case the company chooses a joint venture, then it will
identify the right company for the venture. The period will also involve collection and
acquisition of all required documentation, licenses, and resources for the venture. Year two will
involve the installation of all required technologies for solar power. Before the year is over, the
operation Innergex in the region should be operational.
c) Expected Outcomes
It is important to note that the implementation period of the firm should take at least two years.
Year 1: The period is the first, immediately after the product launch. The year will be
characterized large-scale investments in all forms. For instance, the company will undertake
integrated marketing communication and advertising in order to increase awareness of the new
products in the market. Other forms of investments will also take place. It is expected that the
end of the period will see increased awareness of the product, although no much expectations in
terms of additional revenue.
Year 2: The period will be characterized by gradual increase in the revenues of the company as
consumers begin embracing the firm’s new form of energy. The company should work closely
with all solar product manufacturers in order to realize increased revenues. Large-scale solar
outputs should be sold to the national grid or corporate, as well as households.
Year 3: The period is expected to have continued growth in revenues.
d) The Impact on the ability to do business “as usual”
The international diversification of Innergex will not have a big impact on the daily processes of
the company. Only some divisions of the company will have to realize an increase in the
78
workload to extra management of the subsidiary. For instance, the overall finance sector and
administrative division will have double workload until the subsidiary is full independent
(Innergex, 2013).
e) Cost Implications
Innergex Renewable Energy is a dominant firm in the Canadian energy industry. The implication
is that the firm has enough capital to undertake the international venture. An investment value
amounting to about $55 million will be significant to establish the venture. The profits registered
by the company are enough to finance the new project.
f) Implementation
As noted earlier, the implementation of the project should take place six months after the
feasibility study. The period allows the company to prepare itself in terms of seeking for capital,
venture partners and appropriate entry modes. The implementation process is expected to take an
estimate of about 3 years (The National Energy Board, 2014).
g) Performance Measurement
The performance of the project will be measured in terms of revenue that it generates on an
annual basis compared to the invested and operational capital. The returns on invested capital
will take some time, as the company increases awareness of its services and products, as well as
overcomes risks in the new market.
h) Likely Competitor Responses
The top three competitors of Innergex Renewable Energy, TransAlta Renewables, Capital
Power, and Northland Power will have response to Innergex’s goals when accomplished. If
Innergex Renewable Energy invests in solar energy, TransAlta Renewables will do the same.
Currently, TransAlta Renewables does not have any solar energy plants. Investment in solar
79
energy would be a key factor for growth for TransAlta Renewables. Innergex Renewable
Energy will just keep on searching for land that is efficient for solar energy. Capital Power will
need to invest more in all different types of solar energy to help sustain their company in the long
run. Innergex should state that they have maintained their commitment to renewable energy
since the founding of their company since 1990. Northland Power will invest in hydroelectric
facilities if the company wants to diversify their company. Innergex Renewable Energy will
need to make sure that they keep making contracts with their clients at all of their hydroelectric
facilities.
80
XVIII. Research and Raw Data
Vertical Analysis of the Income Statement of Innergex Renewable Energy Inc.
Consolidated Statement of Earnings
Year Ended 31 Dec 2013
Percent (%)
Revenues 198,259 100.00%
Expenses
Operating 33947 17.12%
General and administrative 11194 5.65%
Prospective projects 4202 2.12%
Earnings before finance costs, income taxes, depreciation, armotization, other net (revenues) expenses, share of earnings of joint ventures and unrealized net gain on derivative financial instruments 148916 75.11%
Finance costs 65158 32.87%
Other net (revenues) expenses -392 -0.20%
Earnings before income taxes, depreciation, amortization, share of earnings of joint ventures and unrealized net gain on derivative financial instruments 84150 42.44%
Depreciation 48674 24.55%
Amortization 20486 10.33%
Share of earnings of joint ventures -6053 -3.05%
Unrealized net gain on derivative financial instruments -45249 -22.82%
Earnings before income taxes 66292 33.44%
Provision for income taxes
Current 2618 1.32%
Deferred 18243 9.20%
20861 10.52%
Net earnings (loss) 45431 22.91%
Net earnings (loss) attributable to:
Owners of the parent 48170 24.30%
Non-controlling interests -2739 -1.38%
45431 22.91%
Weighted average number of common shares outstanding (in 000s) 94694 47.76%
Basic net earnings (loss) per share 0.43 -
Diluted weighted average number of common shares outstanding (in 000s) 94780 47.81%
Diluted net earnings (loss) per share 0.43 -
81
Vertical Analysis of the Balance Sheet of Innergex Renewable Energy Inc.
Consolidated Statement of Financial Position
Dec 31 2013
Current assets
Cash and cash equivalents 34,267 1.44%
Restricted cash and short-term Investments 49,745 2.09%
Accounts receivable 19,799 0.83%
Reserve accounts 1,771 0.07%
Income tax receivable 80 0.00%
Derivative financial instruments 7,563 0.32%
Loans to related parties 6,798 0.29%
Prepaid and others 5,085 0.21%
Total Current Assets 125,108 5.26%
Reserve accounts 45,791 1.93%
Property, plant and equipment 1,583,417 66.61%
Intangible assets 466,093 19.61%
Project development costs 81,643 3.43%
Investments in joint ventures 24,639 1.04%
Derivative financial instruments 7,066 0.30%
Deferred tax assets 1,804 0.08%
Goodwill 8,269 0.35%
Other long-term assets 33,244 1.40%
Total Assets 2,377,074 100.00%
Liabilities
82
Current liabilities
Dividends payable to shareholders 15,651 0.66%
Accounts payable and other payables 48,258 2.03%
Income tax liabilities 2,216 0.09%
Derivative financial instruments 12,915 0.54%
Current portion of long-term debt 26,649 1.12%
Current portion of other liabilities 362 0.02%
Total Current Liabilities 106,051 4.46%
Construction holdbacks 1,347 0.06%
Derivative financial instruments 26,081 1.10%
Accrual for acquisition of long-term assets 9,855 0.41%
Long-term debt 1,313,718 55.27%
Other liabilities 10,567 0.44%
Liability portion of convertible debentures 79,831 3.36%
Deferred tax liabilities 163,689 6.89%
Total Liabilities 1,711,139 71.99%
Shareholders’ equity
Common share capital 10,374 0.44%
Contributed Surplus from reduction of capital on common shares
784,482 33.00%
Preferred shares 131,069 5.51%
Share-based payment 1,806 0.08%
Equity portion of convertible debentures 1,340 0.06%
Deficit (344,809) -14.51%
Accumulated other comprehensive income 244 0.01%
83
Equity attributable to owners 584,506 24.59%
Non-controlling interests 81,429 3.43%
Total shareholders’ equity 665,935 28.01%
Total Liabilities and Shareholders' Equity 2,377,074 100.00%
Horizontal Analysis of Innergex Renewable Energy Inc.
The analysis indicates a comparison of financial data of the company over a period of
two years. It compares increases in the value of items on the balance sheet and the income
statement of the company. Negative changes can be noted to cause poor performance of an
organization, which is contrary to positive changes.
Horizontal Analysis of Income Statement of Innergex Renewable Energy Inc.
Consolidated Statement of Earnings
Year Ended 31 Dec 2013
Year Ended 31 Dec 2012 Variance
Revenues 198,259 176,655 21,604
Expenses
Operating 33947 28850 5,097
General and administrative 11194 9601 1,593
Prospective projects 4202 4412 -210
Earnings before finance costs, income taxes, depreciation, armotization, other net (revenues) expenses, share of earnings of joint ventures and unrealized net gain on derivative financial instruments 148916 133792 15,124
Finance costs 65158 62038 3,120
Other net (revenues) expenses -392 15566 -15,958
Earnings before income taxes, depreciation, amortization, share of earnings of joint ventures and unrealized net gain on derivative financial instruments 84150 56188 27,962
Depreciation 48674 42602 6,072
Amortization 20486 21163 -677
Share of earnings of joint ventures -6053 -1166 -4,887
Unrealized net gain on derivative financial instruments -45249 -7791 -37,458
Earnings before income taxes 66292 1380 64,912
Provision for income taxes
84
Current 2618 1970 648
Deferred 18243 4793 13,450
20861 6763 14,098
Net earnings (loss) 45431 -5383 50,814
Net earnings (loss) attributable to:
Owners of the parent 48170 1405 46,765
Non-controlling interests -2739 -6788 4,049
45431 -5383 50,814
Weighted average number of common shares outstanding (in 000s) 94694 86557 8,137
Basic net earnings (loss) per share 0.43 -0.03 0.46
Diluted weighted average number of common shares outstanding (in 000s) 94780 86708 8,072
Diluted net earnings (loss) per share 0.43 -0.03 0.46
Horizontal Analysis of the Balance sheet of Innergex Renewable Energy Inc.
Consolidated Statement of Financial Position
Dec 31 2013 Dec 31 2012 Variance
Current assets
Cash and cash equivalents 34,267
49,496
(15,229)
Restricted cash and short-term Investments
49,745
87,811
(38,066)
Accounts receivable 19,799
50,062
(30,263)
Reserve accounts 1,771
1,816
(45)
Income tax receivable 80
443
(363)
Derivative financial instruments 7,563
1,693
5,870
Loans to related parties 6,798
23,444
(16,646)
Prepaid and others 5,085
4,715
370
85
125,108
219,480
(94,372)
Reserve accounts 45,791
45,800
(9)
Property, plant and equipment 1,583,417
1,427,112
156,305
Intangible assets 466,093
429,424
36,669
Project development costs 81,643
103,529
(21,886)
Investments in joint ventures 24,639
18,935
5,704
Derivative financial instruments 7,066
6,698
368
Deferred tax assets 1,804
5,846
(4,042)
Goodwill 8,269
8,269
-
Other long-term assets 33,244
31,347
1,897
2,377,074
2,296,440
80,634
Liabilities
Current liabilities
Dividends payable to shareholders 15,651
14,643
1,008
Accounts payable and other payables 48,258
41,252
7,006
Income tax liabilities 2,216
1,541
675
Derivative financial instruments 12,915
17,199
(4,284)
86
Current portion of long-term debt 26,649
63,926
(37,277)
Current portion of other liabilities 362
-
362
106,051
138,561
(32,510)
Construction holdbacks 1,347
1,668
(321)
Derivative financial instruments 26,081
60,808
(34,727)
Accrual for acquisition of long-term assets
9,855
12,899
(3,044)
Long-term debt 1,313,718
1,166,782
146,936
Other liabilities 10,567
8,870
1,697
Liability portion of convertible debentures
79,831
79,655
176
Deferred tax liabilities 163,689
139,265
24,424
1,711,139
1,608,508
102,631
Shareholders’ equity
Common share capital 10,374
120,500
(110,126)
Contributed surplus from reduction of
capital on common shares 784,482
656,281
128,201
Preferred shares 131,069
131,069
-
Share-based payment 1,806
1,511
295
87
Equity portion of convertible debentures
1,340
1,340
-
Deficit (344,809)
(330,621)
(14,188)
Accumulated other comprehensive income
244
241
3
Equity attributable to owners 584,506
580,321
4,185
Non-controlling interests 81,429
107,611
(26,182)
Total shareholders’ equity 665,935
687,932
(21,997)
2,377,074
2,296,440
80,634
88
89
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