Northland Power Inc. (“
Northland” or the
“
Company”) (TSX: NPI) is pleased to announce its
2023 financial outlook ahead of the previously announced annual
Investor Day, which will be held at 10:00 am EST today. Members of
the executive team will provide an update on recent growth
activities, Northland’s long-term plans and objectives.
Through its entrepreneurial drive and
disciplined execution, Northland has established a track record of
growth over its 35-year history. Its diversified portfolio of
operating facilities continues to deliver strong performance. With
3 gigawatts (GW) of gross operating capacity and a robust
development pipeline, the Company is well positioned for an
accelerating global energy transition. Northland intends to be
selective and pursue only the projects within its pipeline that
meet its strategic objectives and targeted returns. With growth in
offshore wind set to outpace all other renewables, Northland’s
leading position in offshore wind positions the Company to be a
significant player in this segment through the decade. As the
Company was with offshore wind, Northland intends to continue to be
at the forefront of emerging renewable energy asset classes.
2022 Growth Activities
In 2022, the Company was successful in
increasing its offshore wind development portfolio. In Scotland,
Northland secured 2.3 GW of offshore wind leases and in Germany
formed the 1.6 GW Nordsee Cluster. Progress was also made on
advancing current projects towards financial close, including Hai
Long and Baltic Power.
In onshore renewables, efforts focused on the
Company’s targeted markets in North America, and Europe as well as
Colombia. At the end of 2022, through the acquisition of a 1.6 GW
solar development portfolio, the Company established a presence in
Alberta, currently the most prolific market within Canada for
renewable development. Through this acquisition, Northland becomes
the third largest renewable energy developer in the province, with
the first project in the portfolio targeted to achieve commercial
operations as early as 2025. In the United States, the Ball Hill
and Bluestone onshore wind projects are under construction and are
expected to achieve commercial operations in 2023. As part of its
growth strategy in the United States, Northland has created a
pipeline of nearly 700 megawatts (MW) of solar projects which will
provide the Company the opportunity to bid the projects into future
auctions at its discretion.
Executing on its strategy of establishing a
presence in energy storage, in December 2022, Northland entered
into an agreement to acquire a majority interest in a late-stage,
grid-connected battery energy storage project in southern Ontario,
Canada. The Oneida Energy Storage Project is a 250
MW/1,000-megawatt hour (MWh) battery energy storage facility being
developed in partnership with NRStor Inc. and the Six Nations of
the Grand River Development Corporation.
Northland is also exploring the feasibility of
green hydrogen to ammonia export projects along Canada’s
coasts.
In 2022, inflation, supply chain constraints and
rising interest rates affected the global renewables sector. For
Northland, the impact was felt on its most advanced projects where
equipment and material costs increased from original expectations,
as the Company moved to select suppliers and lock down contracts.
From a global risk management perspective, on all projects,
Northland has increased estimates for contingency amounts and
schedule buffers in accordance with recent changes experienced. On
the 1.2 GW Baltic Power project, amendments to the 25-year CfD
offtake contract, principally the new option to denominate in Euros
and the advancement of the indexation base year to 2022 (from 2023
previously), have restored original project economics. Corporate
offtake sourcing for the 1.6 GW Nordsee Cluster has commenced in
2023 and Northland expects to contract at a higher price than had
been assumed prior to the European energy crisis; this benefit,
however, may be partially offset by increased capital costs. On the
1.0 GW Hai Long project, the 744 MW 20-year corporate PPA rate
helped to partially offset some of the capital costs increases. The
financing of the project is progressing, albeit slower and more
challenging than expected due to market specific factors. The
Company continues to look for opportunities to optimize returns and
manage risk and despite these higher costs, believes the actions
taken in combination with other offsets, including sell-downs, will
keep overall average returns for its offshore wind portfolio in the
targeted ranges.
“The accelerating energy transition and energy
security concerns are creating attractive development and
investment opportunities for Northland Power and an improved market
environment for our operating facilities”, said Mike Crawley,
Northland’s President and Chief Executive Officer. “At the same
time, macro-economic and geo-political headwinds of the last year
require even more focus on disciplined and prudent project
execution. A robust development pipeline not only positions
Northland well in several key renewable energy markets but, as
importantly, it allows the company to be selective in where it
deploys its capital.”
BUSINESS ALIGNMENT
Northland has implemented a new organizational
structure that allows the Company to scale, create clearer
accountability and bring even better focus to project execution and
operational excellence. Effective January 2023, Northland formally
commenced operating under a business unit (BU) structure focused by
technology. The BU’s encompass Offshore Wind, Onshore Renewables,
Efficient Natural Gas and Utilities and Hydrogen/Renewable Fuels.
The offshore BU accounts for 1.2 GW of operating assets and 12 GW
of development assets in Europe and Asia. The onshore BU accounts
for 1.1 GW of operating assets and nearly 8 GW of development
assets in North America, Colombia and Europe, while the natural gas
and utility BU accounts for 0.7 GW of operating assets.
This new operating structure will result in a
more streamlined business that is better oriented towards the
expected growth by technology. Each BU is led by an experienced
executive, with a dedicated chief financial officer (CFO),
operations head, project execution head, legal and human resource
leads. The Hydrogen BU is earlier stage in its formation but with
experienced hydrogen talent already in place.
Net Zero Target - Scope 1, 2 and
3 As part of the Company’s purpose to help build a carbon
free world, it is establishing a net zero initiative that aims to
achieve zero emissions across its operations by 2040. Efforts will
focus on reducing GHG emissions intensity from Scope 1 & 2 by
65% by 2030 (from a 2019 baseline) while targeting a
science-aligned net zero over all emissions scopes by 2040.
EXECUTING ON OUR DEVELOPMENTS IN
2022
Hai Long Partnership At Hai
Long, the project secured a 20-year corporate offtake agreement for
the 744 MW Hai Long 2B and 3A projects, executed all material
contracts with suppliers. The project has commenced with early
construction works including starting the fabrication of key
components. The project also announced a strategic partnership with
Gentari International Renewables Pte. Ltd, who will acquire 49% of
Northland’s interest in the project. Upon closing, the transaction
will result in Gentari holding a 29.4% indirect equity interest in
the Project, with Northland holding a 30.6% interest. Northland
will continue to take the lead role in the construction and
operation of the project. In addition, the two companies signed an
exclusivity agreement for further potential partnerships in
Taiwan.
Baltic Power Update At Baltic
Power, preferred supplier agreements for key elements of the
project, including wind turbines, export cables and the offshore
and onshore substations have been signed as well as agreements for
the transport and installation of the turbines and for the
foundations of all substation elements and offshore
substations. The project continues to advance towards
financial close, expected in 2023.
South Korea UpdateIn South
Korea, the Dado Ocean offshore wind project has been awarded
Electricity Business Licenses (EBLs) for approximately 900 MW of
the 1,000 MW capacity, providing exclusivity on the leases for the
project. The project is expected to advance to mid-stage
development and will begin progressing engineering surveys and
securing grid capacity. Northland has also been developing a second
project, the 600 MW Bobae project. The project has been awarded
EBL’s for approximately 400 MW and work continues to secure EBLs
for the remaining capacity. Northland is pursuing additional
early-stage development opportunities located in Wando County for
multiple projects with the potential for up to 1.8 GW of operating
capacity.
Suba Update Development
progress at the 130MW Suba solar projects in Colombia continues. As
previously communicated, commercial operations are now expected to
occur in 2024 as certain environmental permits are needed to move
the projects towards financial close.
La Lucha Update Northland
continues to work to achieve commercial operations at its 130 MW La
Lucha solar project in Mexico. In January 2023, the Company, along
with other Canadian private power producers met with the Mexican
government in a bid to find a resolution to certain activities that
have caused a delay in the energization and subsequent commercial
operations. Following that meeting, the relevant Mexican permitting
authority approved extension of the generation permit for La Lucha.
The company is now coordinating with the appropriate regulatory
authorities to initiate testing of the project in order to achieve
commercial operations, with the exact target date to be defined in
a few weeks. While timelines remain uncertain, Northland is
optimistically targeting commercial operations at La Lucha in
2023.
STRATEGIC GROWTH IN CANADA
Oneida Storage Project
Delivering on its strategic objective of establishing a presence in
energy storage, Northland entered into an agreement to acquire a
majority interest in a late-stage grid-connected battery energy
storage project in southern Ontario, Canada. The Oneida Energy
Storage Project is a 250 MW/1,000 MWh battery energy storage
facility and is being developed in parentship with NRStor Inc. and
the Six Nations of the Grand River Development Corporation. Upon
closing of the transaction, Northland will be the majority owner of
the Project and will take the lead role in its construction,
financing and operation. Financial close for the Project is
expected in 2023 with full commercial operations targeted to
commence in 2025.
Alberta PortfolioThe Company
continued its growth and leadership in renewable energy in Canada
through the acquisition of a leading renewable power development
platform from Greengate Power Corporation, which provides a robust
development pipeline of solar projects in Alberta. Alberta is an
attractive market for renewable development, being Canada’s only
deregulated electricity market, offering clear pricing to
generators and strong consumer and industrial demand for offtake.
The acquisition adds a solar and storage pipeline encompassing over
1.6 GW and 1.2 GWh, respectively, of which the 220 MW Jurassic
Project could reach commercial operations as early as 2025. The
projects are expected to be accretive to Free Cash Flow per share
as they reach commercial operation. All projects will be funded
with non-recourse debt, in accordance with Northland’s typical
investment-grade financing approach. As part of the transaction,
key members of the development team originating the portfolio will
be joining Northland to help execute development of the current
portfolio and also accelerate growth in Alberta and across
Canada.
2023 FINANCIAL TARGETS
Adjusted EBITDA
For 2023, management expects Adjusted EBITDA to
be in the range of $1.2 billion to $1.3 billion compared to the
revised 2022 guidance range of $1.25 to $1.35 billion, with the
major factors contributing to the year over year change in Adjusted
EBITDA including (all amounts approximate):
-
Higher contribution from the Spanish onshore portfolio primarily
due to a higher regulated posted price for the solar and some of
the wind assets ($80 million); and
-
Higher overall contribution from onshore renewables including the
New York Wind projects, which are expected to achieve commercial
operations in 2023 ($20 million).
Factors offsetting the increase in 2023 Adjusted EBITDA
include:
-
Lower contribution from offshore wind facilities primarily due to
lower forecasted wholesale power prices compared to 2022 and
completion of the NER300 subsidy at Nordsee One in the fourth
quarter of 2022 ($45 million)
-
Non-recurrence of a one-time asset management income from a natural
gas facility in 2022 ($35 million);
- Lower
expected contribution from the efficient natural gas facilities due
to higher levels of dispatch in 2022 and other items ($25 million);
and
- Higher
expected growth expenditures to advance Northland’s increased
number of secured projects as well as higher platform costs to
support this growth and a larger operating fleet ($35
million).
Adjusted Free Cash Flow and Free Cash
Flow
In 2023, management expects Adjusted Free Cash
Flow to be in the range of $1.70 to $1.90 per share, compared to
the guidance range of $1.85 to $2.05 in 2022. The major factors
contributing to the year over year change in Adjusted Free Cash
flow include (all amounts approximate):
-
Higher contribution from the Spanish onshore portfolio ($110
million), net of re-profiled debt service payments following
completion of the refinancing in 2022.
Factors more than offsetting the aforementioned
increases include:
-
Lower expected contribution from offshore wind facilities ($30
million);
-
Lower proceeds from the annual refinancing of the EBSA debt
facility compared to 2022 ($45 million);
-
Non-recurrence from a one-time asset management income from a
natural gas facility, as a result of financing and other
optimizations, net of tax ($25 million); and
- Higher
expected enabling platform costs to support growth and a larger
operating fleet as well as a higher expected corporate tax expense
($30 million).
For Free Cash Flow, which includes growth
expenditures, management expects a range of $1.30 to $1.50 per
share, compared to a range of $1.40 to $1.60 per share in 2022. The
significant factors affecting Free Cash Flow are as described above
for Adjusted Free Cash Flow but include approximately $100 million
(approximately $0.40 per share) in growth expenditures. These
growth expenditures are expected to support secured projects
including: Scotwind, Nordsee 3 and Delta within the Nordsee
Cluster, the Korean projects, the recently acquired Alberta solar
portfolio, in addition to other Canadian and US opportunities.
These early-stage development investments will reduce near-term
free cash flow until the projects achieve commercial operations but
are expected to deliver accretive long-term, growth in earnings and
free cash flow.
In addition, any gains from the future sell-down
of ownership interests in development assets would be included in
Free Cash Flow and Adjusted Free Cash Flow as they relate to
capturing development profits at key milestones. Currently, the
2023 guidance for Free Cash Flow and Adjusted Free Cash Flow does
not incorporate any sell-down proceeds and as such, net proceeds
would increase reported Free Cash Flow in the event they occur in
2023.
LONG-TERM OUTLOOK
Northland remains in a strong position to
achieve substantial growth in Adjusted EBITDA by 2027, with over
3.5 GW of projects in construction and/or scheduled for financial
close and commencement of construction within the next two years.
Once these projects are complete, Northland’s total gross capacity
will nearly double to more than 6.5 GW by 2027. Longer-term, the
Company continues to advance a pipeline of up to 15 GW encompassing
its identified projects and additional opportunities to support the
sustained growth of the Company.
Table 1. Northland’s Current Project
Pipeline (under construction and development)
Project |
Location |
Technology |
Size (Up to or Approximate) |
Northland Current Ownership |
Status |
Contract Type2 |
Est. COD |
Construction Projects |
Ball Hill |
United States |
Onshore Wind |
108MW |
100% |
Under Construction |
20-yr PPA |
2023 |
Bluestone |
United States |
Onshore Wind |
112MW |
100% |
Under Construction |
20-yr PPA |
2023 |
La Lucha |
Mexico |
Solar |
130MW |
100% |
Under Construction |
TBD |
2023 |
Total Construction Projects |
350MW |
|
|
|
|
Capitalized Growth Projects |
Hai Long |
Taiwan |
Offshore Wind |
1,044MW |
60% |
Late-Stage Development |
20-yr PPA |
2026/2027 |
Baltic Power |
Poland |
Offshore Wind |
1,200MW |
49% |
Late-Stage Development |
25-yr CfD |
2026 |
Nordsee Two |
Germany |
Offshore Wind |
433MW |
49% |
Mid-Stage Development |
TBD1 |
2026 |
Godewind |
Germany |
Offshore Wind |
225MW |
49% |
Mid-Stage Development |
TBD1 |
2026 |
Highbridge |
United States |
Onshore Wind |
100MW |
100% |
Mid/late-Stage Development |
20-yr PPA |
2024 |
Suba |
Colombia |
Solar |
130MW |
50% |
Late-Stage Development |
15-yr PPA |
2024 |
Oneida |
Canada |
Battery Storage |
250MW |
Majority |
Mid/Late-Stage Development |
TBD |
2025 |
Total Capitalized Projects |
3,382MW |
|
Identified Projects |
Jurassic |
Alberta |
Solar |
220 MW |
100% |
Mid-late Stage Development |
2025 |
Alberta Solar |
Alberta |
Solar |
1,400MW |
100% |
Mid-late Stage Development |
COD 2027 – 2030+ |
Nordsee Three |
Germany |
Offshore Wind |
420MW |
49% |
Mid-Stage Development |
Nordsee Delta |
Germany |
Offshore Wind |
480MW |
49% |
Mid-Stage Development |
Chiba |
Japan |
Offshore Wind |
600MW |
50% |
Early/Mid-Stage Development |
Dado Ocean |
South Korea |
Offshore Wind |
Up to 1,000MW |
100% |
Early/Mid-Stage Development |
Scotwind |
Scotland |
Offshore Wind |
2,340MW |
100% |
Early-Stage Development |
Hecate |
Canada |
Offshore Wind |
400MW |
100% |
Early-Stage Development |
CanWind |
Taiwan |
Offshore Wind |
500MW |
100% |
Early-Stage Development |
Bobae |
South Korea |
Offshore Wind |
600MW |
100% |
Early-stage Development |
Wando |
South Korea |
Offshore Wind |
Up to 1,800MW |
100% |
Early-Stage Development |
Total Identified Projects |
9,760MW |
|
Additional Pipeline |
Various |
~6,800MW |
|
Early-Stage Development |
TBD |
Total Pipeline (Under construction
Capitalized + Identified + Additional) |
~20,000MW |
|
- Nordsee Two and Godewind have secured grid interconnection
rights for zero subsidy bid, with intention to secure a long-term
corporate power purchase contract
- PPA – Power Purchase Agreement; CfD – Contracts for
Difference
To support the development of its capitalized
growth opportunities, Northland intends to utilize non-recourse
project level financing as the primary source of funding, supported
with other funding tools including proceeds from development asset
sell-downs; partner equity; equity issuances via its At-the Market
program; as well as corporate hybrid debt. Northland’s investor day
materials will provide more details on its growth ambitions
including an illustration of its funding plan and specific project
milestones achieved since last year that are expected to create
value for shareholders over the long-term.
Northland’s Investor Day Conference
Management will host a hybrid investor conference today
at 10:00 a.m. ET. The conference will be webcast live and
can be accessed through Northland’s website at
www.northlandpower.com.
Details of the webcast:
When: |
Friday, February 3, 2023 |
|
10:00 a.m. ET |
Webcast: |
Registration Link |
Presentations and supporting materials will be posted on
Northland’s website at www.northlandpower.com.
A webcast replay will be available after the conclusion of the
conference and posted to Northland’s website on February 6,
2023.
All dollar amounts in this press release
are in Canadian dollars, unless otherwise stated.
ABOUT NORTHLAND POWER
Northland Power is a global power producer
dedicated to helping the clean energy transition by producing
electricity from clean renewable resources. Founded in 1987,
Northland has a long history of developing, building, owning and
operating clean and green power infrastructure assets and is a
global leader in offshore wind. In addition, Northland owns and
manages a diversified generation mix including onshore renewables,
efficient natural gas energy, as well as supplying energy through a
regulated utility.
Headquartered in Toronto, Canada, with global
offices in eight countries, Northland owns or has an economic
interest in 3.0 GW (net 2.6 GW) of operating capacity. The Company
also has a significant inventory of projects in construction and in
various stages of development encompassing over 20 GW of potential
capacity.
Publicly traded since 1997, Northland's common
shares, Series 1 and Series 2 preferred shares trade on the Toronto
Stock Exchange under the symbols NPI, NPI.PR.A and NPI.PR.B
respectively.
NON-IFRS FINANCIAL MEASURES
This press release includes references to the
Company’s adjusted earnings before interest, income taxes,
depreciation and amortization (“Adjusted EBITDA”),
Adjusted Free Cash Flow, Free Cash Flow and applicable payout
ratios and per share amounts, which are measures not prescribed by
International Financial Reporting Standards
(IFRS), and therefore do not have any standardized
meaning under IFRS and may not be comparable to similar measures
presented by other companies. Non-IFRS financial measures are
presented at Northland’s share of underlying operations. These
measures should not be considered alternatives to net income
(loss), cash flow from operating activities or other measures of
financial performance calculated in accordance with
IFRS. Rather, these measures are provided to complement IFRS
measures in the analysis of Northland’s results of operations from
management’s perspective. Management believes that Northland’s
non-IFRS financial measures and applicable payout ratio and per
share amounts are widely accepted and understood financial
indicators used by investors and securities analysts to assess the
performance of a company, including its ability to generate cash
through operations.
FORWARD-LOOKING STATEMENTS
This press release contains statements that
constitute forward-looking information within the meaning of
applicable securities laws (“forward-looking statements”) that are
provided for the purpose of presenting information about
management’s current expectations and plans. Readers are cautioned
that such statements may not be appropriate for other purposes.
Northland’s actual results could differ materially from those
expressed in, or implied by, these forward-looking statements and,
accordingly, the events anticipated by the forward-looking
statements may or may not transpire or occur. Forward-looking
statements include statements that are not historical facts and are
predictive in nature, depend upon or refer to future events or
conditions, or include words such as “expects,” “anticipates,”
“plans,” “predicts,” “believes,” “estimates,” “intends,” “targets,”
“projects,” “forecasts” or negative versions thereof and other
similar expressions or future or conditional verbs such as “may,”
“will,” “should,” “would” and “could.” These statements may
include, without limitation, statements regarding future Adjusted
EBITDA, Adjusted Free Cash Flow and Free Cash Flow, respective per
share amounts, dividend payments and dividend payout ratios,
guidance, the timing for the completion of construction,
acquisitions, dispositions, investments or financings, attainment
of commercial operations, the potential for future production from
project pipelines, cost and output of development projects,
litigation claims, plans for raising capital, and the future
operations, business, financial condition, financial results,
priorities, ongoing objectives, strategies and the outlook of
Northland and its subsidiaries. These statements are based upon
certain material factors or assumptions that were applied in
developing the forward-looking statements, including the design
specifications of development projects, the provisions of contracts
to which Northland or a subsidiary is a party, management’s current
plans and its perception of historical trends, current conditions
and expected future developments, as well as other factors,
estimates and assumptions that are believed to be appropriate in
the circumstances. Although these forward-looking statements are
based upon management’s current reasonable expectations and
assumptions, they are subject to numerous risks and uncertainties.
Some of the factors include, but are not limited to, risks
associated with sales contracts, Northland’s reliance on the
performance of its offshore wind facilities at Gemini, Nordsee One
and Deutsche Bucht for approximately 50% of its Adjusted EBITDA,
counterparty risks, contractual operating performance, variability
of sales from generating facilities powered by intermittent
renewable resources, offshore wind concentration, natural gas and
power market risks, operational risks, recovery of utility
operating costs, Northland’s ability to resolve issues/delays with
the relevant regulatory and/or government authorities, permitting,
construction risks, project development risks, acquisition risks,
financing risks, disposition and joint-venture risks, interest rate
and refinancing risks, liquidity risk, inflation risks, impact of
regional or global conflicts, credit rating risk, currency
fluctuation risk, variability of cash flow and potential impact on
dividends, taxation, natural events, environmental risks, health
and worker safety risks, market compliance risk, government
regulations and policy risks, utility rate regulation risks,
international activities, reliance on information technology,
labour relations, reputational risk, insurance risk, risks relating
to co-ownership, bribery and corruption risk, legal contingencies,
and the other factors described in the “Risks Factors” section of
Northland’s Management’s Discussion and Analysis and Annual
Information Form for the year ended December 31, 2021, which can be
found at www.sedar.com under Northland’s profile and on Northland’s
website at northlandpower.com. Northland has attempted to identify
important factors that could cause actual results to materially
differ from current expectations, however, there may be other
factors that cause actual results to differ materially from such
expectations. Northland’s actual results could differ materially
from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurances can be given that any of
the events anticipated by the forward-looking statements will
transpire or occur and Northland cautions you not to place undue
reliance upon any such forward-looking statements.
The forward-looking statements contained in this
release are, unless otherwise indicated, stated as of the date
hereof and are based on assumptions that were considered reasonable
as of the date hereof. Other than as specifically required by law,
Northland undertakes no obligation to update any forward-looking
statements to reflect events or circumstances after such date or to
reflect the occurrence of unanticipated events, whether as a result
of new information, future events or results, or otherwise.
For further information, please
contact:
Mr. Wassem Khalil, Senior Director, Investor
Relations647-288-1019investorrelations@northlandpower.com
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