Northland Power Provides Business Update, Announces 2021 Financial Outlook, and Launches Its ESG Framework
Large Project Pipeline Positions Northland for Continued Growth in Renewables Development with Offshore Wind to Anchor the Next Phase of Growth
TORONTO, Feb. 04, 2021 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) is pleased to announce an update on its long-term plans
and objectives as well as provide its 2021 financial outlook, which will be further discussed at the Company's virtual investor day later today.
Over the next decade, the global transition to renewable energy is expected to accelerate as de-carbonization efforts by governments and private entities increase and further electrification of the economy gathers momentum, resulting in significant opportunities for further growth in renewable power generation and green infrastructure, especially in offshore wind. Countries with land constraints and high carbon energy usage are increasingly adopting offshore wind to support their de-carbonization objectives and their renewable energy targets. As a global developer with extensive expertise in developing offshore wind projects, Northland is strategically positioned to compete in this global transition and further grow its global portfolio and market share.
“Northland’s deep expertise in renewables development combined with its established offshore wind capabilities and portfolio pipeline in Europe and Asia positions us to capture an outsized share of the renewable energy transition opportunities going forward,” said Mike Crawley, Northland’s President and Chief Executive Officer. “Offshore wind is a focal point of our strategy with over 1.2 gigawatts (GW) of gross offshore wind operating capacity and an additional 4 to 5 GW of gross capacity of identified projects under development, we are now a top ten global offshore wind owner and developer. Our growth aspirations are much larger than this and we have amassed a total pipeline of approximately 12 GW of gross offshore wind capacity globally. Pursuing offshore wind projects provide us the opportunity to deploy significant capital to generate attractive returns on assets underpinned by long-term, government backed revenue contracts. We are very excited to embark on the next growth chapter at Northland where we expect to execute on our development projects adding significant incremental operating capacity, furthering the global shift to a carbon free world.”
Pauline Alimchandani, Northland’s Chief Financial Officer, said “Northland continues to position itself for future growth and expects its strategy will continue to generate growing shareholder value over the coming years. The next growth inflection point for Northland offers the opportunity to deploy at least $15 to $20 billion of gross capital investment into new renewable projects over the next five years, anchored by identified offshore wind projects that are currently in active development. These projects have the potential to more than double our adjusted EBITDA1 from current levels, once commercially operational. In addition, we are targeting new opportunities in onshore renewables, utilities and transmission as well as establishing a position in renewable fuels and energy storage. Our allocation to utilities and transmission is targeted to account for approximately 10 to 15% of our adjusted EBITDA over time. This should enable Northland to maintain solid and diversified cash flows thereby supporting a strong balance sheet and credit rating to fund expenditures related to our core focus of securing and developing offshore wind development assets.”
1. This press release makes reference to non-GAAP measures such as adjusted EBITDA, Free Cash Flow and adjusted Free Cash Flow. Please see Non-IFRS disclosures at the end of the release for
For over 34 years, Northland has created shareholder value by leveraging its expertise and early mover advantage to develop and operate high-quality, sustainable projects supported by long-term revenue contracts that deliver predictable cash flows. While energy markets continue to change and the emphasis shifts through sector cycles, Northland’s core capabilities remain unchanged:
- Opportunity identification and project origination;
- Commercial acquisition negotiation, project financing and equity funding;
- Project development and construction; and
- Operations & asset management.
Northland has established a global presence across eight offices in four continents and has over 1,000 employees. This presence in multiple regions has resulted in developing local expertise and strategic partnerships that facilitate securing early stage development opportunities encompassing a range of clean technologies in target markets. This strategy has created both geographic and technological diversification across Northland’s operating and development portfolio. Northland remains focused on meeting the growing global need for renewable energy primarily through developing and operating generation projects but also through enabling transmission and distribution infrastructure to support electrification.
Offshore wind is the largest segment of Northland’s business and is expected to account for over 60% of its 2020 adjusted EBITDA. Through the development, construction and operation of its first three offshore wind projects in Europe over the past six years, Northland has developed engineering, project design, procurement and construction expertise in offshore wind that it expects to leverage to execute on new early-stage offshore wind projects globally. The Company considers its offshore wind resources to be a key asset not only in developing new projects but also in securing new partnerships, such as the recently announced 1,200 megawatt (MW) Baltic Power project located off the coast of Poland in the Baltic Sea, to be developed with PKN ORLEN.
One of the Company’s strategies is to augment its existing pipeline of offshore opportunities by securing interests in early stage projects in key target markets in Asia and Europe, through greenfield development, and by seeking long-term offtake agreements with creditworthy entities to generate strong returns and stable cash flows.
In Asia, several markets have demonstrated strong sovereign support for de-carbonization through renewables development. Northland will leverage its capabilities in offshore wind development and existing presence to increase its position and footprint in Asia. Current development activities are focused on advancing the 1,044 MW Hai Long, the 600 MW Chiba and the 1,000 MW Dado Ocean projects in Taiwan, Japan and South Korea, respectively. In addition, Northland is pursuing feasibility-stage development in the markets above and is considering additional market entry.
Beyond its Identified Development Projects2, Northland has built a robust pipeline of opportunities in offshore wind with the potential to add an incremental 12 GW of gross capacity. Successful execution of these projects will deliver significant incremental contracted cash flows starting in the latter half of this decade and is expected to further bolster Northland’s long-term business sustainability, extending into the 2040s and 2050s.
Onshore Renewable Power
While Northland expects significant growth will come from its core focus on offshore wind development, the cash flows from these projects are expected in the latter half of the decade. To complement its offshore wind development, Northland expects to advance shorter-term development and explore acquisition opportunities in the onshore renewable segment that can achieve commercial operations within the next few years. Northland’s focus is on markets in Canada, the United States, Mexico, Colombia, and Eastern and Southern Europe. Additional markets in Southeast Asia and Latin America are also under consideration. Current advanced development and under-construction projects encompass the 300 MW onshore wind projects in New York State, the 130 MW La Lucha solar project in Mexico and the 16 MW Helios solar project originating from EBSA in Colombia that will soon commence construction.
2. Identified Development Projects include: Hai Long, Dado Ocean, Chiba, Baltic Power, Nordsee Two/Three, and New York Wind
Utilities and Transmission
Expansion of renewable power will necessitate expansion of transmission and distribution networks in many countries. EBSA and similar utility infrastructure assets have demonstrated accretive returns and immediate cash flow for Northland in Latin America. Utilities offer perpetual and stable cashflows and can also be a platform for further investment and growth in their markets. Utilities are also considered as key enablers of the renewable energy transition in developing markets such as Latin America. As such, part of Northland’s long-term strategic positioning includes incremental investment in electricity distribution and transmission infrastructure, primarily in Latin America which are complementary to Northland’s development strategy and its existing portfolio.
In addition to EBSA, which serves as a platform to develop renewable power projects in Colombia, growth in Northland’s utility segment is expected to be supported by further investments and acquisitions in Latin America with strong rate base growth. The utilities segment is expected to account for approximately 10 to 15% of Northland’s adjusted EBITDA over the long term, growing from 7% currently.
With positive momentum behind renewable power, policy makers, regulators and corporations are now turning their focus to reducing and eventually eliminating carbon in fuels. As a result, renewable natural gas and hydrogen appear to be positioned for tremendous growth in the years to come and offer attractive returns to early movers who can manage the inherent risks in an emerging sector, similar to what Northland achieved through its investment in and ownership of offshore wind. In 2020, Northland created a dedicated team that is focused on establishing an early mover position in new growth asset classes. There are also potential synergies between Northland’s renewable assets and hydrogen production.
ESG and SUSTAINABILITY
“Our Mission is to Develop a Carbon Free World”
Sustainability is integral to Northland’s business and its ability to safely and reliably deliver the energy people need while delivering long-term economic value to its shareholders. Northland has been committed to delivering renewable and cleaner energy projects, health and safety and having a lasting, positive impact on its communities for 34 years. Northland is focused on advancing its Environment, Social and Governance (ESG) initiatives by integrating ESG into everyday activities, while enhancing its reporting on material ESG issues for stakeholders. These activities align with Northland’s mission of helping develop a carbon-free world. ESG has always been prominent at Northland and the Company is formally launching targets as part of its 2021 Sustainability report and will be committed to the following objectives:
- Supporting carbon reduction targets of the countries in which the Company operates by building significant green energy / renewable projects;
- Adding at least 4 to 5 GW of gross new renewable energy capacity to its portfolio by 2030;
- Committing to reducing Company carbon intensity levels by 65% by 2030 from 2019 levels;
- Continued commitment to diversity and inclusion (including 30% female representation at each of the Board and Executive Management levels);
- Continued emphasis on Corporate Governance best practices;
- Continuing to uphold the highest standards of Health & Safety (Zero life-changing incidents);
- Continuing to serve as a positive and contributing community partner; and
- Being a leader in ESG, through alignment with the United Nations Sustainable Development Goals, reporting in line with SASB in 2021 and a commitment to report inline with TCFD by 2022.
Efficient Natural Gas
Northland’s efficient natural gas assets have played a role in the de-carbonization of the Canadian energy grid, helping achieve the country’s objectives of diversifying its energy mix away from coal. In addition, these assets have been a staple of Northland’s business, providing a stable source of revenue and cash flow. Going forward and for the foreseeable future, however, Northland believes that by far its best opportunities to support global de-carbonization initiatives and generate positive financial returns for its shareholders will come from further development and growth in renewables. Through the execution of its offshore wind strategy, the relative financial contribution from the efficient natural gas assets to the overall corporate results is expected to continually decline. In the meantime, the free cash flow that is generated from the efficient natural gas assets supports the funding of development capital required for offshore wind. As such, Northland will take a measured approach to any decisions regarding its efficient natural gas assets with consideration to the impacts on cash flow and Northland’s broader strategic objectives.
Northland’s financial position continues to be excellent, with approximately $0.6 billion of total available liquidity, and an investment grade balance sheet that has no material maturities over the next five years and over 95% of total debt being non-recourse to Northland.
In addition to historical sources of funding utilized by Northland, the Company is pursuing additional options to expand its funding sources. These additional sources are intended to extend financial flexibility and continue to preserve the Company’s strong investment grade balance sheet while supporting the capital requirements for its growth. These sources are expected to encompass green financing instruments, partial sell-down of ownership interests in development assets and other tools.
Northland intends to consider a selective sell-down strategy of partial interests of certain of its development projects once they have achieved financial close to allow the Company to: (i) manage jurisdictional exposures, (ii) crystalize some development profit prior to construction as a result of the de-risking of the project; (iii) enhance its free cash flow and liquidity position; and (iv) increase project returns, amongst other considerations. Northland will assess each opportunity individually and intends to remain a long-term owner in the renewable projects it develops globally.
Effective today, Northland is launching a Green Financing Framework, available on the Company’s website (northlandpower.com/sustainability/), that focuses on greening and optimizing its balance sheet to secure green corporate and project financings starting in 2021. The financings will be required to meet internal eligibility criteria that align with the Green Bond Principles (GBP), Green Loan Principles (GLP), and EU Taxonomy. The framework has received an independent second-party opinion from Sustainalytics which confirms the framework is credible, impactful and aligns with the core components of the GBP and GLP. Green capital issuances will afford Northland a number of benefits including allowing the Company to capitalize on strong investor demand for renewable power investments, diversifying funding sources, and optimizing liquidity (through green corporate bond instruments), all of which should ultimately decrease the Company’s cost of funds and allow for better matching of tenors and/or currencies to its asset base.
Northland will also aim to enhance its corporate liquidity through DRIP participation and asset level financing optimizations, including re-financings of existing assets. All of these financial tools should ensure that Northland maintains a solid balance sheet to fund development and execution of its growth plans over the long term.
2021 FINANCIAL OUTLOOK
For fiscal 2021, management expects adjusted EBITDA to be in the range of $1.1 billion to $1.2 billion. Adjusted EBITDA is expected to remain consistent relative to 2020 guidance levels, primarily due to the following factors (all amounts approximate):
- Higher contribution from German offshore wind facilities as a result of anticipated fewer periods of negative market prices and un-compensated curtailments ($30 million);
- Higher contributions from Gemini primarily as a result of higher assumed 2021 wholesale market price ($10 million); and
- Contribution from the La Lucha solar project in Mexico ($10 million), with the project expected to begin producing power in March
2021, with commercial operations expected to follow soon after.
Factors offsetting the increase in 2021 adjusted EBITDA include:
- Lower anticipated contribution from efficient natural gas facilities primarily due to a scheduled extended maintenance outage at the North Battleford facility in Saskatchewan ($15 million decrease); and
- Higher expected growth expenditures relating to activities intended to advance Northland’s identified projects including New York Wind, Baltic Power, Chiba and Dado Ocean and Nordsee Two projects ($35 million), as well as higher G&A and other costs to support this growth ($25 million).
Free Cash Flow
In 2021, management expects Free Cash Flow to be in the range of $1.30 to $1.50 per share. This level of Free Cash Flow per share is expected to be lower than the revised 2020 guidance of $1.60 to $1.70 per share primarily due to the following factors (all amounts approximate):
- Higher contribution from German offshore wind facilities as a result of fewer periods of negative market prices and un-compensated curtailments net of higher interest, taxes and other items ($15 million);
- Higher contribution from Gemini primarily as a result of higher assumed market prices net of higher debt repayments and other items ($5 million); and
- Contribution from La Lucha ($5 million) and from EBSA ($10 million), including proceeds from anticipated upward financing of the
EBSA Facility that is expected to occur annually based on growth in EBSA’s rate base.
Factors more than offsetting the aforementioned increases include:
- Lower anticipated contribution from the efficient natural gas facilities, amounts as noted above; and
- Higher project development and corporate costs to support growth, amounts, as noted above, which is the primary driver for the decrease in Free Cash Flow.
To achieve its growth objectives, Northland will deploy increasing amounts of early-stage investment capital (development expenditures) to advance its projects. As in 2020, with the regional development offices fully functional and certain growth opportunities secured, such as New York Wind and Baltic Power, Northland expects to incur higher development expenditures and growth investment in 2021. Early-stage development investments will reduce near-term free cash flow and short-term liquidity until the projects achieve commercial operations but should deliver long-term, sustainable growth in free cash flow.
As such, the 2021 Free Cash Flow guidance range reflects increasing development expenses in pursuit of the Company’s continued execution of its global growth strategy. These expenditures relate to the development and advancement of Baltic Power, New York Wind, Chiba Energy in Japan, Dado Ocean in South Korea and other offshore wind projects. The 2021 development expenses are expected to be approximately $100 million or $0.50 of 2021 Free Cash Flow per share, which is included in the aforementioned variance explanations.
In addition to development expenditures, the Company expects to incur capital expenditures of $100 million in 2021 to advance Hai Long and other advanced-stage projects. Capital expenditures are largely expected to be funded through cash on hand and through Northland’s corporate credit facilities and do not impact Free Cash Flow.
Adjusted Free Cash Flow (Free Cash Flow Excluding Growth Expenditures)
Commencing with the fourth quarter 2020 results, Northland intends to disclose a new supplementary non-IFRS free cash flow per share measure, Adjusted Free Cash Flow, which will exclude growth expenditures as management deems them to be investment related. These growth expenditures are incurred for the purposes of generating future cash flow. Adjusting for growth expenditures in relation to 2021 cash flow guidance would result in Northland’s Adjusted Free Cash Flow for 2021 to be in the range of $1.80 to $2.00 per share and in management’s view, allow for a better representation of cash flow generated from the business before investment-related decisions. Management believes Adjusted Free Cash Flow is a meaningful measure of Northland’s ability to generate cash flow, after on-going obligations, to re-invest in growth and fund dividend payments. For comparison, the 2020 Adjusted Free Cash Flow supplementary guidance range would have been $1.95 to $2.15 per share relative to the revised Free Cash Flow per share guidance of $1.60 to $1.70 per share as disclosed in the third quarter of 2020.
Iroquois Falls Update
Northland’s 120 MW Iroquois Falls natural gas facility achieved commercial operation in 1997 and has contributed significantly to the Company’s financial performance through a 25-year power purchase agreement (PPA) with the government of Ontario. The PPA is set to expire at the end of 2021 and given the current forecasted Ontario market capacity needs, Northland anticipates participating in the Ontario market through Capacity Auctions as a generation resource, offering capacity for both the summer and winter commitment periods. In addition, Management intends to seek other offtake opportunities.
Currently, Iroquois Falls contributes approximately $75 million annually in adjusted EBITDA and this contribution is expected to materially decline starting in 2022 contributing less than $10 million in adjusted EBITDA annually.
LONG-TERM OUTLOOK AND GROWTH IN ADJUSTED EBITDA
Northland is at an inflection point given the accelerating global trend towards de-carbonization and electrification, and its extensive portfolio of offshore wind development. The Company has advanced and secured the rights to a number of offshore projects, which if successful will increase Northland’s installed gross capacity by at least 4 to 5 GW and require approximately $15 to $20 billion ($10 to $14 net) of total gross capital investment over the next five years. These projects, once operational by the latter half of the decade, are expected to more than double the Company’s adjusted EBITDA, after taking into account the Company’s ownership share. The Company’s investor day materials will provide more details on the identified development projects, an illustration of its funding plan and the additional large-scale growth opportunities expected to create value for shareholders over the long-term.
Northland’s Investor Day Conference
Management will host a virtual 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:||Thursday, February 4, 2021|
|10:00 a.m. ET to 1:00 p.m. ET|
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 5, 2021.
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, solar and 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 2.7 GW (net 2.3 GW) of operating generating capacity and a significant inventory of early to mid-stage development opportunities encompassing approximately 4 to 5 GW of potential capacity.
Publicly traded since 1997, Northland's common shares, Series 1, Series 2 and Series 3 preferred shares trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.B and NPI.PR.C, respectively.
NON-IFRS FINANCIAL MEASURES
This press release includes references to Northland’s adjusted earnings before interest, income taxes, depreciation and amortization (“adjusted EBITDA”), Free Cash Flow and adjusted Free Cash Flow, and per share amounts, which are not measures prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA, Free Cash Flow (and as adjusted) and adjusted Free Cash Flow and per share amounts do not have any standardized meaning under IFRS and, as presented, may not be comparable to similar measures presented by other companies. These measures should not be considered alternatives to net income, 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 adjusted EBITDA, Free Cash Flow and adjusted Free Cash Flow and per share amounts are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations. Refer to the SECTION 1: OVERVIEW, SECTION 4.4: Adjusted EBITDA, SECTION 4.5: Free Cash Flow and SECTION 5: CHANGES IN FINANCIAL POSITION of the current Management’s Discussion and Analysis, which can be found on SEDAR at www.sedar.com under Northland’s profile and on northlandpower.com, for an explanation of these terms and for reconciliations to the nearest IFRS measure, except for adjusted free cash flow that is introduced above.
This press release contains certain forward-looking statements including certain future oriented financial information 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. Forward-looking statements include statements that 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, Free Cash Flows, adjusted Free Cash Flow; the construction, completion, 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 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 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 that could cause results or events to differ from current expectations include, but are not limited to, revenue contracts, impact of COVID-19 pandemic, counterparty risks, contractual operating performance, variability of revenue from generating facilities powered by intermittent renewable resources, offshore wind concentration, natural gas and power market risks, operational risks, recovery of utility operating costs, permitting, construction risks, project development risks, acquisition risks, financing risks, interest rate and refinancing risks, liquidity risk, 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 2019 Annual Information Form, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at northlandpower.com. 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.
The forward-looking statements contained in this release 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 Relations
For media inquiries, please contact
Susan Sperling, Director of Communications
+1 (647) 288-1105
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