Polaris Renewable Energy Inc.

The thesis

Metrics profile

This profile describes the company's characteristics. It contains no assessment of whether the share is over- or undervalued.

Fundamentals

Business model

Eight assets, six countries, four technologies — and a revenue model that hangs almost entirely on long-term offtake contracts. The breakdown, from the annual report (AIF 2025, 19 February 2026) and the interim report to 30 June 2026:

| Asset | Country | MW | Offtaker | Contract to | |---|---|---|---|---| | San Jacinto-Tizate (geothermal) | Nicaragua | 82 | state-owned distributors | 30 Jan 2039 | | Punta Lima (wind) | Puerto Rico | 26 | PREPA | 2044 | | Canoa 1 (solar) | Dominican Republic | 25 | Edesur | 2040 | | 8 de Agosto (hydro) | Peru | 20 | volume contract | 25 Dec 2039 | | Vista Hermosa I and II (solar) | Panama | 10 | **no contract — spot market** | — | | El Carmen (hydro) | Peru | 8 | volume contract | 30 Nov 2039 | | San José de Minas (hydro) | Ecuador | 6 | ARCONEL | 2029 | | Canchayllo (hydro) | Peru | 5 | volume contract | 31 Dec 2034 |

Weighted by capacity that gives an average remaining life of about 12.4 years. The spread is the real information: Puerto Rico is contracted to 2044, Ecuador only to 2029, and the 10 MW in Panama sell at whatever the market pays — an average of USD 62.86/MWh in 2025, against the USD 111.20/MWh Nicaragua receives under contract.

**San Jacinto carries three different dates that should not be conflated.** The offtake contract runs to 30 January 2039. The concession over the field runs, on the annual report's account, to 25 January 2041. The generation licence for 82 MW, however, was granted for 30 years from 18 December 2003 and therefore expires roughly five years **before** the offtake contract. How that gap is bridged does not appear in the documents available to us; the corporate presentation of 31 July 2026 additionally cites 2053 for a concession, a date that maps to none of the three. What governs here is the annual report filed on SEDAR+, not the presentation.

Output in Nicaragua fell 5.2% in the second quarter of 2026. The interim report gives three reasons: the biennial major overhaul of Unit 3, constraints on brine reinjection, and increased silting of the production wells — and describes the pattern as the field's natural decline rather than a one-off event.

Balance sheet

As at 30 June 2026: cash of USD 98.801 million, of which USD 5.582 million is restricted. Borrowings of USD 216.751 million at carrying value, USD 4.117 million of it current. Equity attributable to shareholders USD 235.341 million. Net debt therefore around USD 118 million, or roughly 2.2 times adjusted EBITDA for the last twelve months (USD 53.1 million).

⚠️ **Two debt figures that are not the same thing.** The carrying value is USD 216.751 million; the principal is USD 235.242 million. The USD 18.491 million difference is unamortised discount, USD 13.370 million of it on the loan from Peru's Generación Andina — which is **interest-free** and therefore carried at a discount. Putting the principal into an enterprise value overstates it by about USD 18 million.

The three loans (note 9 to the interim financial statements at 30 June 2026):

| Loan | Principal | Rate | Maturity | Covenant | |---|---|---|---|---| | Green bond | USD 175.000 million | 9.5% fixed | 3 Dec 2029 | DSCR ≥ 1.75:1 · liquidity ≥ USD 15 million | | Generación Andina | USD 31.662 million | **interest-free** | 15 Jun 2038 | DSCR > 1.1:1 | | Canoa 1 | USD 28.580 million | 7.0% fixed | 30 Sep 2037 | DSCR > 1.20:1 · debt-to-equity ≤ 85:15 |

The green bond costs around USD 16.6 million a year in interest and carries two conditions that bear directly on distributions: dividends and buybacks are permitted only where the coverage ratio exceeds **2.00:1**, and together they may not exceed **50% of the prior year's operating cash flow**. The prior year produced USD 35.243 million, putting the ceiling at about USD 17.6 million against a dividend of about USD 12.5 million. There is headroom, but not a great deal. All bond covenants were met at 30 June 2026.

**The waiver concerns Canoa 1.** The notes put it more bluntly than the management discussion: curtailment forced the company to request and obtain a waiver of the coverage covenant as at 30 June 2026. No event of default exists, the second covenant was met, and the company expects no interruption to debt service. What matters is the sentence that follows — and it appears **only** in the notes: given continued curtailment, management expects that compliance with the covenant may remain constrained in future reporting periods. It had already been signalled in the interim report to 31 March 2026.

For scale: Canoa 1 is USD 27.672 million of USD 216.751 million of total borrowings (12.8%) and USD 1.614 million of USD 19.935 million of quarterly revenue (8.1%). Whether any cross-default links it to the green bond does not appear in the documents available to us; we have not seen the full bond agreement.

Dilution

Here the direction runs against what one expects from a company this size: the share count is **falling**. There were 20,892,618 shares outstanding at 30 June 2026; around 169,800 were repurchased during 2025, and share capital fell from USD 665.141 to USD 664.970 million over the first half of 2026.

Outstanding are 223,099 options, 268,785 performance, 111,119 restricted and 58,751 deferred share units — 21,554,372 shares fully diluted, about 3.2% above the outstanding count. For comparison, on most of the companies covered here that premium runs to double digits.

The options carry a weighted average exercise price of CAD 17.28 against a share price of CAD 14.95 (14 August 2026), which places all of them out of the money. There are no warrants.

⚠️ The interim report contains an evident inconsistency at this point: it refers to a grant of 2,105,000 performance share units, which cannot be right against 268,785 units outstanding and 20.9 million shares. We do not carry the figure.

Valuation

We currently publish no fair value and no recommendation. The framework that applies to this sector is set out here: Methodology.

Key metrics

Peer group

SWOT

Chart

Catalysts

• Q3 2026 Interim report to 30 September 2026

  The next test date for the Canoa 1 coverage covenant. Management said in the notes at 30 June 2026 that compliance may remain constrained.

• ongoing Curtailment in the Dominican Republic

  The company expects 40,000 to 42,000 MWh of curtailment in 2026 and cites a window of 18 to 24 months from May 2026 for the government's grid storage. No date is given.

• 2026 Production guidance

  After 404,447 MWh in the first half, guidance of about 760 GWh requires some 356 GWh in the second. The third quarter is seasonally the weakest.

• open Approvals for the Puerto Rico storage project

  The agreement of 5 June 2026 is subject to approval by the regulator, the offtaker's governing board and the oversight board. No date given.

• open Funding for the Mexican projects

  About USD 240 million of investment against USD 93.219 million of unrestricted cash. The interim report states that additional capital will be required.

• ~2033 San Jacinto generation licence

  The 82 MW licence was granted for 30 years from 18 December 2003; the offtake contract runs to 2039. How the gap is bridged does not appear in the documents.

Risks

• As at 30 June 2026 a waiver of the debt service coverage covenant on the Canoa 1 loan was requested and granted. No event of default exists and the second covenant was met. What matters, though, is the addition in the notes to the interim financial statements, which the management discussion does not carry: given continued curtailment, management expects that compliance with the covenant may remain constrained in future reporting periods. That is the company's own disclosure, not an assessment of ours. Canoa 1 represents 12.8% of borrowings.
• 58.6% of second-quarter 2026 revenue comes from Nicaragua — USD 11.685 of 19.935 million. The offtakers are the state-owned distribution utilities, and the annual report lists this expressly as economic dependence. The offtake contract runs to 30 January 2039, but the generation licence, granted for 30 years from 18 December 2003, expires roughly five years earlier. How that gap is bridged does not appear in the documents.
• Curtailment in the Dominican Republic rose from around 7% in the first half of 2025 to around 42% in the first quarter and around 29% in the second quarter of 2026. Output from Canoa 1 fell from 31,729 to 20,952 MWh. The company cites grid bottlenecks and the operational inflexibility of certain thermal units, and gives a window of 18 to 24 months for the government's grid storage — without a date. The same bottleneck is blocking the Canoa 2 expansion from 25 to 50 MW, whose offtake contract was signed as long ago as 24 May 2023.
• Production guidance for 2026 has been cut twice: from about 775–790 GWh to 760–770 GWh in May, and in July to the bottom of that range. Against 810,731 MWh in 2025 that is a decline of 6.3%. ⚠️ No guidance figure is published in any written report by the company; it exists only in oral remarks on analyst calls. We reproduce it as such.
• Revenue fell year on year in the first half of 2026 from USD 41.929 to 39.703 million, and the operating result from USD 15.477 to 11.117 million — 28%. That the net result improved over the same period, from USD −8.238 to −1.479 million, is **not operating progress**: the prior-year period carried a USD 9.664 million charge from the early repayment of four loans. Comparing the two net figures without stripping that out reads as a recovery that did not happen.
• The USD 175 million green bond at 9.5% falls due on 3 December 2029 and, at around USD 16.6 million of annual interest, absorbs roughly a third of adjusted EBITDA. Distributions are permitted only where the coverage ratio exceeds 2.00:1, and may not exceed 50% of the prior year's operating cash flow — about USD 17.6 million for 2025, against a dividend of about USD 12.5 million.
• The entire portfolio sits in countries carrying low credit ratings: Nicaragua, Peru, Ecuador, the Dominican Republic, Panama and Puerto Rico. The annual report lists expropriation and nationalisation without adequate compensation expressly as a risk factor. We are not aware of any such proceeding under way.
• The expansions require capital the company does not hold. About USD 240 million for Mexico stands against USD 93.219 million of unrestricted cash, and the interim report to 30 June 2026 states that additional capital will be required. With the share price below every option exercise price, raising equity is more expensive for existing shareholders than it was in 2023.

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