The Company’s operating results are reported in U.S. dollars. However, substantially all of the Company’s project level revenues and a significant portion of the Company's expenses are generated in currencies other than U.S. dollars (including Brazilian real, Chinese yuan renminbi, Indian rupee, Malaysian ringgit, South African rand and Thai baht). As a result, the Company’s revenues and expenses are exposed to foreign currency exchange fluctuations where its power plants are located. In certain instances, the Company uses currency forward contracts to minimize the impact of foreign currency fluctuations on our operating results and our investments. Management may use other derivative financial instruments, such as purchasing currency options, to minimize the Company’s net exposure to currency fluctuations. Following the IPO, management entered into currency forward contracts for approximately three years to mitigate the Company’s risk exposure to currency fluctuations with regard to projected cash available for distribution to shareholders. In addition, management entered into currency forward contracts for investments that include the planned acquisitions and the repayment of project debt as specified in our registration statement on Form S-1 filed with the SEC (File No. 333-203934), as amended. Net gains or net losses associated with these currency forward contracts have full or partial offsetting reductions or increases to cash available for distribution to shareholders and the investments. To the extent that significant debt is denominated in currencies other than local currency, the Company may limit its currency risk with respect to project level long-term debt by entering into fixed currency rate swap agreements that limit foreign exchange exposure.
As of December 31, 2016, a significant portion of the Company’s project level long-term debt was borrowed at variable interest rates. In the future, management expects a substantial amount of the corporate and project level capital structure will also be financed with variable rate debt or similar arrangements. Management also expects that debt will be refinanced from time to time. If the Company incurs variable rate debt or refinances its fixed rate debt, changes in interest rates could have an adverse effect on the Company’s cost of capital. To limit our interest rate risk with respect to project level long-term variable rate debt, the Company has entered into interest rate swap agreements. Although we intend to use hedging strategies to mitigate our exposure to interest rate fluctuations, we may not be able to hedge all of our interest rate risk and, to the extent we enter into interest rate hedges, our hedges may not necessarily have the same duration as the associated indebtedness. Our exposure to interest rate fluctuations will depend on the amount of indebtedness that bears interest at variable rates, the time at which the interest rate is adjusted, the amount of the adjustment, our ability to prepay or refinance variable rate indebtedness when fixed rate debt matures and needs to be refinanced, hedging strategies we may use to reduce the impact of any increases in rates and the creditworthiness of our hedging counterparties.
Each of the markets in which the Company expects to operate has established various incentives and financial mechanisms to support reimbursements of the cost of and accelerate the adoption of renewable energy. These incentives help catalyze private sector investments in renewable energy and efficiency measures. Such incentives are generally in the form of feed-in tariffs and other programs designed to facilitate the development, financing and operation of power plants, including solar and wind energy. The incentives are aimed at reducing the development costs of power plants or providing favorable contract prices for such renewable energy. The Company’s operations benefit from these government incentives, and any adverse change or termination of these incentives would have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. In addition, a loss or reduction in such incentives may decrease the attractiveness of renewable energy projects to developers, which could reduce the Company’s acquisition opportunities.
The Company measures the electricity-generating production capacity of its power generation assets in net capacity (measured in megawatts of direct current, or “DC,” with respect to solar power plants, and megawatts of alternating current, or “AC,” with respect to wind power plants). Net capacity represents the rated generation capacity at standard test conditions of a power plant multiplied by either the Company’s percentage of economic ownership of that power plant after taking into account any redeemable preference shares and shareholder loans held by the Company or percentage of equity ownership of that power plant, as applicable. Rated capacity is the expected maximum output a power plant can produce without exceeding its design limits. The size of the Company’s power generation assets varies significantly among the assets comprising the portfolio. Management believes the aggregate net capacity of the Company’s portfolio is indicative of the overall production capacity and period-to-period comparisons of net capacity are indicative of the growth rate of the Company’s business. Our power plants had a net capacity (based on our share of economic ownership) of 919.0 MW as of May 31, 2017.