Northland Power Inc. (“Northland”) (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.”
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.