Q3 2020 Northland Power Inc Earnings Call
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As a reminder, this conference is being recorded Wednesday November 11 2020.
Conducting this call for north when power or Mike Crowley, President and Chief Executive Officer.
Colleen Alan can Donny Chief Financial Officer.
And once seemed to little senior director of Investor Relations and strategy.
Before we begin north once management has asked me to remind listeners that all figures presented are in Canadian dollars and to caution that certain information presented and responses to questions may contain forward looking statements that include assumptions and are subject to various risks.
Actual results may differ materially from managements expected or forecasted results.
Please read the forward looking statement section in yesterday's news release announcing north one power's results and be guided by its content and making investment decisions or recommendations.
The release is available at Www Dot North one power Dot Com I.
I will now turn the call over to my Crawley. Please go ahead.
Thank you operator, and good morning to everyone.
Thanks for joining us today also joining from Tokyo today on the call is David Paul Our executive Vice President of development there.
This morning, we will review, our third quarter 2020 financial and operating results and provide an update on the business. Following our remarks, we look forward to taking your questions and comments.
But the final quarter of 2020 underway and what has been an extraordinary year. We're pleased with the progress we've made despite the challenges arising from COVID-19 pandemic or.
Our underlying business is performing well and even with the financial impacts experienced year to date for negative pricing curtailments and lower wholesale market pricing, we are still able to deliver strong operational results.
I want to start off the call by highlighting a couple of points on the quarter and Pauline will provide a more detailed look into the financial lot numbers later in the call.
We achieved a healthy growth in adjusted EBITDA reporting $254 million in the quarter or a 13% increase compared to 224 million a year ago.
We recorded free cash flow per share of 30.
Compared to 41 cents and 2019, representing a decrease of 27% year over year.
The decrease in free cash flow was primarily attributable to scheduled principal debt repayments for Deutsche booked following the declaration of commercial operations at the end of March.
Now turning to our growth strategy.
It's both the near term and long term element North Platte is amongst the top 10 global developers of offshore wind and this is where we are prioritizing our long term development efforts new offshore wind markets continue to open.
And long term power purchase agreements are still generally available for offshore wind projects. These.
These opportunities span multiple geographic locations in Asia and Europe.
In many land constraint countries, there's a high demand forecast for renewable energy and lots of capital eager to invest in advanced development and operating a stage offshore wind projects. This is however, there is however, relatively few companies capable of developing and building offshore wind projects.
That allow these countries to reach their de carbonization objectives.
He is where we see opportunity for north Platte.
While our long term objective centered offshore wind our short term objectives looked through investments in onshore renewable projects. These types of projects and enhance our financial performance by providing near term cash flow in part to fund our long term offshore wind development activities.
In the quarter, we successfully closed the acquisition of three onshore wind farms in New York State with a combined capacity of approximately 300 megawatts.
These development stage projects expand north plants, North American portfolio by providing investment opportunity into the U.S. renewable market. These.
These acquisitions are part of North times longstanding strategy of early entry into projects and leveraging our substantial experience and expertise to successfully complete the development of these projects.
The New York, Highbridge, Bluestone and ball Hill projects position us to actively participate in the growing renewable market in New York State, which is expected to add an incremental 26 gigawatts of renewable energy by 2030.
Our plan is to grow our presence in the U.S. by leveraging the platform as New York wind projects as a base to pursue more projects in the northeast and other targeted U.S. markets to establish a portfolio of one onshore renewables projects with an expected capacity in excess of one gigawatt.
Now turning to our construction activities work at lot Lucho continued with all the major components of the project having been installed final work on the step up and switching sub stations.
Are being executed and we are on track for project completion by end of year.
As our first project to be underpinned by commercial and industrial customer off take agreements, we are progressing to secure those agreements for literature we.
We expect to have them in hand by the end of the year to coincide with commercial operations.
I don't know how long offshore wind project in Taiwan. The team continues to make progress towards securing corporate <unk> power purchase agreements for the remaining 744 megawatt allocation that was secured under an auction process as mentioned previously high long through our auction projects has the opportunity to pursue p. ph for the corporation.
Corporate load that is of course.
Part of our strategic option to enhance the economic value of the project and an invoice and.
And and beyond what we would get from the utility offtake tied to our successful auction bid.
We hope to say more on this in 2021 and.
In Europe. The subsequent to the end of the third quarter Northland Power Europe, a subsidiary of North and signed a service agreement with nor G., one whereby north Sunpower Europe will provide turbine operations and maintenance services to the project the contract will be effective through to 2027 have.
The advantages of Northland being able to provide these services include gaining a better fundamental understanding of the cost assumptions understood underpinning this offshore wind investment and positioning the company for cost competitiveness in a post tariff landscape.
Furthermore, with the expertise and knowledge gained through the execution of these services north and we'll be able to apply these learnings to future offshore wind developments to enhance project profitability, while also ensuring a more balanced operational risk profile.
[noise] our regional development teams continue to look for additional development opportunities in other key markets as opportunities are identified and evaluated we will invest the appropriate capital to advance these projects and expand our development pipeline.
Lastly, we continue to see significantly higher on schedule to transmission outage losses at North Sea, one and Deutsche booked in the third quarter Cuda grid repairs by the system operator.
We expect these outages to continue into the fourth quarter and Northland is reviewing its options to address these unscheduled outages.
We will receive compensation from the grid operator for a portion of these losses.
Well these outages are affecting the short term results at our facilities, we do not expect there to be an issue in the long term once repairs have been made by the grid operator.
I will now turn the call over to Paul Lean for a more detailed review of our financial results.
Thank you, Mike and good morning, everyone last night, North Sunpower relief operating and financial results for the third quarter of 2020.
As Mike mentioned despite these challenges we have faced this year our business continues to deliver solid operating results.
Offshore wind segment has generated nearly 1 billion in revenues through the first nine months of the year, which represents a new first for Northland.
Coupled with strong performance from our other segments of our business. We have generated nearly 919 million in adjusted EBITDA in the first nine months of the year.
For the third quarter, we generated adjusted EBITDA of approximately $254 million, which was an increase of $30 million or 13% increase from a year ago there.
The primary drivers behind the increase in adjusted EBITDA year over year include a full quarter contribution from I guess, you do project and additional contributions from SAP, which was consolidated from the closing of the acquisition in January of 2020. These two assets contributed approximately $43 million in ink.
Your mental adjusted EBITDA in the quarter.
These results were partially offset by a 10 million dollar decrease in operating results at our Gemini and North Sea one facilities in the North sea, primarily stemming from lower wind resources during the quarter combined with continued weakness in the wholesale market prices that Jim and I and unpaid curtailments at North Sea, one you cheat on schedule.
Great repairs.
Through the first nine months of 2020 as disclosed in our M. DNA, we have experienced approximately $59 million of lower revenue as a result of unpaid curtailments due to negative pricing and greater Paris at our German wind farms and lower market pricing out Gemini.
With respect to free cash flow, north and generated approximately $61 million or 30 cents per share in the third quarter. This was a decrease of approximately 18% and 27% respectively compared to the third quarter of 2019.
The single largest driver behind a year over year decrease in free cash flow was a $43 million or 21 cents per share schedule with increase in principle repayments, primarily attributable to do what you do and Grand Ben.
Also contributing to the decrease was the previously mentioned grid outages and other items, including higher interest and tax expenses and higher development expenditures details of which are listed in our M. DNA.
Our rolling four quarter free cash flow payout ratio calculated on a cash dividend basis for the period ended September thirtyth.
65% compared to 61% payout ratio last year.
On the development front as we have noted previously Northland intends to allocate a greater proportion of capital to development expenditure is for its growth pipeline, including its off Sherwin activities for 2020. This is now expected to total to 35 to 45 cents, a free cash flow per share development costs and over.
At best.
That's far in 2020 development expenditures and overhead haven't amounted to approximately 25 cents per share primarily at our high long project. But also include expenditures at other projects in our development pipeline.
Starting mid July of 2020, as a result of achieving certain milestones Northland commence the capitalization of our high long development project in accordance with IRS.
In the nine months ended September 30 at Northland incurred 29 million at development expenditures related to high long of which 16 million was expense and the remainder was capitalize these.
These cost related site assessment work, including Geotech and Geophysical work studies, the hiring of personnel for the project and other engineering work to advance development of the project.
With respect to our liquidity northlake remains in a very strong liquidity position and our recently reintroduced dividend reinvestment program is expected to supplement the funding of select growth initiatives that are continuing to progress. Thus far we are seeing good 28% participation in our drip, which if remain stable.
Paul will generate approximately $60 million on an annualized basis to support our growth initiatives.
Turning to our 2020 outlook I want to make a couple of comments and provide some details on our adjusted EBITDA and free cash flow per share guidance, which is high and it highlighted in our quarterly press release.
Our 2020 expectation for adjusted EBITDA remains unchanged and we continue to forecast achieving between 1.1 billion and $1.2 billion in adjusted EBITDA. This year, which speaks to strong operating results, which more than offset the aforementioned lower offshore wind revenues realized as a result.
It's called at 19, and unusually high third party grid outages affecting our German facilities.
For free cash flow within our financial guidance released in February of 2020 hour in seven chance included optimizing to do it should be project by refinancing its 1.5 billion dollar senior debt, including the deferral of a $38 million <unk> 38 million Euro.
Scheduled debt repayment.
Prepayment or 30 cents per share do you in the second half of 2020.
COVID-19 adversely affected lending markets and as a result, we opted to change our financing optimization strategy for the project.
Taking advantage of an improving lending a market. These refinancing of the debt is now expected to be completed in 2021.
Consequently, the project future cash flows from 2021 onwards through to maturity of the loan are now expected to improve in lieu of a large upfront onetime deferral.
The non deferral of Deutsche if its debt repayment in December 2020, well reduce free cash flow by approximately three cents per share for the year of which 15 cents has already been deducted in the third quarter.
As a reminder, under north line free cash flow definition funds are set aside for scheduled principal repayments in order to allocate semiannual repayments across the quarters to more clearly reflect the company's performance.
In accordance with our decision we have revised our free cash flow per share guidance to reflect the addition of principal repayment and our revised guidance for free cash flow is now expected to be in the range of one dollar and 60 cents to $1.70 cents per share compared to previous range of $1.70 cents to $2.05 per share.
Lastly, our balance sheet and available liquidity remained strong with ample access to fund our development initiatives.
At the end of the quarter, we had access to $704 million of cash and liquidity. This was an increase from $561 million available at the end of last quarter.
That I will now turn the call back over to Mike for his concluding remarks.
Thank you Pauline.
As always our primary focus during these times is a health and safety of our employees and all stakeholders. We also feel a great sense of responsibility as I've said before to continue delivering electricity under our long term offtake agreements and concessions.
Looking ahead, we continue to see significant growth opportunities with the renewable energy space as a global de carbonization trend gains momentum.
Northland aims to be at the forefront of this movement and our strategy continues to be on making the investments necessary to position ourselves to capitalize on these opportunities.
Our growth strategy centers on developing our pipeline of offshore wind projects in Europe, and Asia, which will provide significant growth to the company and substantially grow our cash flows in the years to come.
Finally, I'm pleased to announce that Rachel Stephenson will be joining north that as our chief people officer effective January Onest 2021.
Rachel brings to north by more than 15 years of leadership in human resources, including extensive experience, leading human resource strategies and functions for national and global organizations across multiple sectors and technologies, including renewable power covering North America, Europe, and Latin America.
Richard will play a key role in helping us build a culture that attracts retains and develops high performance talent to deliver on our global growth objectives, and she will be a great addition to our executive team.
That concludes our prepared remarks, we'd now be happy to take your questions.
Operator, please open the line.
Thank you and as a reminder, if he would like to register a question Press Star one on your telephone.
And your first question is from David Khazzan of Raymond James.
Thanks. Good morning, everyone. My first question here when you when you look to fill out that that one gigawatt plus portfolio in the northeast from U.S. Im curious a I guess a couple of things what would the particularly do you find attractive outside of New York, if any and maybe.
He could just briefly comment on I.
I guess, the motivation for moving into onshore and how it compares I guess in terms of returns.
The offshore wind in the state is that primarily a timing issue like the fact that onshore is I guess more more near term is that is that the primary motivation.
Yeah, I mean couple of couple of points on that certainly onshore wind and solar a.
As a developer we can convert a project more quickly into cash flow rate you can work through your development milestones and into construction and into operation more quickly than for offshore wind. So that certainly is one advantage in terms of kind of balancing out.
Our cash flow.
The in terms of the markets New York is is particularly attractive in so far as they've got a very aggressive as I referred to in my prepared remarks, very aggressive renewable energy target.
And.
They also are now offering was equivalent to a 20 year offtake agreement or 20 year P. Eight through what they're calling in Iraq or two helps kind of further stimulate and encourage the development of offshore wind and those as you know are very rare and hard to come by now and onshore renewables. So that's what we like about me.
Arc or they we we've also looked at opportunities a in a new England as well, where we see a similar.
Similar opportunities more with utility offtake or we have looked at some opportunities in PJM and that's more more opportunity specific and in particular understanding a either the utility or see an eye offtake and the credit quality and the tenor of that offtake.
It's a bit more granular otherwise the team or that you know the David leads and I'll turn it over to him actually is also.
Also looking at opportunities on the West Coast in California, and Washington.
David just kind of answer your question [laughter] should afford human human anything else that.
No. It's all Mike I think you covered it did very well and I think David the thing to say that its targeted.
The U.S. market is obviously extremely long it has a lot of locations, which is a crowded so team. He's very focused on those markets. We like just mentioned I think that to New York and we see the opportunity you know what do you think's in early stage.
Turning to opportunities that I hope to be able to talk about the two 2020 want to work towards that one gigawatts and pipeline. So if nothing else driving and small to mikes comments.
And were turns I mean returns would probably be a a bit lower than for offshore wind.
But with a a shorter.
Timeline to getting those projects into operation or similar opportunities.
Or sell downs to augment her returns, but you typically would have to kind of aggregate a number of projects.
To really have an effect of sell down strategy on on.
Onshore and offshore you could actually just do it on one single project.
Excellent that's great color. Thank you for that and then maybe just one for one more for me on the refinancing for you I'm just curious if if.
Financing conditions.
Or the potential there has improved I guess similar to what it was pre pandemic or and will you be able to get that optimization done on that on the terms that you expected back in February.
Thanks for your question so <unk> to.
To answer it as simply yes at the financing and the markets have improved spreads have improved they are not at pre colgate levels, but they are at levels that make it accretive to the value of the project for us to pursue this financing in 2021.
Okay, great. Thank you very much I'll get back in the queue.
Thank you. Your next question is from Nelson Ng of RBC capital markets.
Great. Thanks first question relates to the acquisition of the <unk> onshore well developments in New York State.
I was just wondering whether the the 5.6 million purchase price.
Isn't upfront payments or is it the total amount to the seller regardless of the outcome I'm. Just wondering if there was like earn outs and milestone payments payable as well.
David do you want to break that down for for Nelson.
Yes, Nelson, we restructured living there yet.
I I guess couple of days some of them a portion of up front, but also some of the two and a financial close and milestones coming into the projects. So I'm thinking if paperweight question. Obviously, we're taking on development based projects and still have a this out to them and they spoke in we're comfortable about managing that but obviously it makes sense.
It depends on the payments and accordingly.
So that 5.6 is the upfront them out.
Is that right or is that spread over time.
Yes, yes, I think yes.
Okay. The 5.6 is spread over time right.
Or no. That's the 0.6 its been funded during the quarter.
Okay. So that's the upfront and then a phase and then there could be earn out payments and milestone payments for like afterwards.
Correct, Yes, yes, correct, yeah, yeah, okay, but I I some outside of Tibet exceeds a cheap.
Okay, and then from a timeline perspective like how soon would those projects be ready to kind of get fit into a future our fees.
Okay.
They then.
She situation they to moving situation or one that we will know more than it literally a couple of days time. So so as Mike indicated the projects are already had some like contracts that have been secured previously, but what what New York is not moving to me is the conversion of those exact contracts to that question I bet contract.
So the concept that you referred to that's bidding in a subject to what we understand will be announced.
And we hope later this month.
Not be opposed to be could you get it would be a conversion of those contracts that we have into the new I bet contract.
Exactly details, let's say, we will know a couple of weeks.
Okay Nelson, we when we began looking at these projects we were looking at them with a rack, which would just cover the new black using the revenue stream for that and then we would have to market or the the brown energy right from the project, which is how the market had been stretched in New York as discussions Pete Florida.
We need for negotiating the big name together to acquire these projects or the state of New York change their position and move towards it started moving toward this Iraq, which had been rumored.
Which which assuming everything works out as we expect would would allow these projects to convert to what is effectively 20 or p.. So we're keeping a close eye on.
The developments in the coming days as David referred to but it's you know it's I think it's one of those opportunities were developing there's so many things you can control and you manage those and there are some things that are out of your control and sometimes they go in your favor sometimes they go against you in this so hopefully we'll see a should be a favorable development on those three projects.
So just to clarify so one of those projects had a record contract and it might simply be a conversion into Iraq contract, where that project might not need to get it into a process. It's a simple conversion is that yes three of those projects.
That's a good way still three of those projects have a record that we hope will be able to convert into an Iraq, which would mean that they would not have to bid into an auction.
Oh, I see okay that makes sense.
And then.
Just moving over to the offshore wind side, obviously, there's been a lot of.
Activity in Eastern Europe, I know, you've talked about eastern Europe in the past.
Uh huh.
Are you able to give any comment or any color on your activities and in Poland and like potentially partnering with.
Or with any luck.
Local developers as you've done in other regions.
All we can say is that Baltic offshore wind in general but.
Poland analysis, the three Baltic States.
We think offer some some good opportunities moving forward and there.
Each one of those countries, Poland, obviously being the biggest and the most aggressive are you know taking steps to to really stimulate offshore wind and encourage offshore wind and it's a it's a market of interest, but we don't have anything at.
This point beyond that to to say.
Okay, and then just one last question in.
In terms of undertaking the Oh in EM activities that North Sea one.
Are you expected to make any.
Cost savings by taking it but by self performing and.
Are you also taking on any incremental risk.
I would say there, there's some modest or cost savings I wouldn't describe it as being particularly material we view it more as an opportunity to understand better about the operations of the project and the cost involved so that when it comes off contract in 2027, we're better able to rightsize the.
Yeah, the opex to what would be the new revenue.
Opportunities at that point.
Okay, and I presume that risk is quite incremental as well.
Yeah, but the risks are I would say that.
Going to the detail on it that there's there's not a significant amount of incremental risk the way we structured it which is why there's not a a significant amount of incremental revenue on it to two two northland its a.
The objective was as I described so we weren't looking to kinda extract a huge amount of additional revenue from the project, but more to as I said to prepare ourselves for a post contract environment on that project, which is what comes up first but also you know Gemini follows and.
The early 20, Thirtys and Oh, gosh, we want to be prepared for that as well in Deutsche Bank soon after that.
Alright, Thanks, Mike I'll get back in queue.
Thank you. Your next question is from Rupert Merer of National Bank.
Hi, good morning, everyone.
Just a couple of follow up questions. The first one on the service agreement for North Sea, one what do you need to do to take on the operation and maintenance do you have any upfront capex or.
Operating costs too.
To be able to start to see the service and I do need to hire very many people or do you do have all that expertise in house.
So we haven't been actually performing this for the last year or so it internationally.
Uh Huh [laughter] I mean Nelson to some extent strategy comes out a circumstance. So what have you.
As you may recall sand being the turbine vendor, which had the service contract.
Went into a.
Ah insolvency procedure, and we had anticipated and seem to signs of this developing.
So we are kind of started tracking to the team that they have that was executing on this the service contract.
Germany, a and when they are indeed.
Indeed went inside into there and solvency procedure and those people became available we moved very quickly to hire them and to enter into an interim estimate which is what we are operating under under the last year, which is how we were able to ensure that there was no interruption.
Service and that we were able to operate the turbines that I think the same actually slightly higher availability and understand being over the last year or so.
What was essentially a initially it offensive.
Moved to make sure that the project continue operating it at the same level of availability Uh huh.
Opened up an opportunity for us to.
Step in for the long term so that the way it works with the lenders on the project is that they required after that initial year for.
Producers process to be undertaken to pick a long term operator up to the end of the subsidy period and 2027, we submitted bids along with others and our our bid was ER was selected.
By North Sea, one, we're obviously recused from the decision.
Minority partner and made the decision the selection and a and that's how we've come into this role, but we've essentially been performing at all along and so we've we've got the same team that we we hired a relatively quickly last fall and.
And they've been performing extremely well over the last year or so.
Quite comfortable with that situation.
There's a good degree the obligation on on.
Spare parts and and.
Maintenance Capex still does rest with the project itself.
So our obligations are more related to response times as opposed to a a.
Much beyond that.
Okay, all right, great and a follow up follow up on me I'm, The New York developments are.
Are there any other development milestones you need to pass to stay on a I think its a 2022.
A timeline or is it really just a matter of looking at for the contracts and the Iraq. So at this point.
David do you want to do you want to answer report on that.
Yeah, that's it yeah.
<unk> said and I said would probably describe them as mid mid stage development projects.
Maybe the early this year, so they've all still I couldn't classic development risks to to work through so there are still some permitting items, we need to close out.
And then of course the whole schulman.
Cycle is about to go to him, but I said it binds and why that be a piece about the life I could be people can do it and then quite seen coming in and then combined with the uptake side of things. We just talked about with the idea that conversion. So those things are working through that there's nothing that concerns me just classic there.
On the basics on onshore wind projects and moving towards that and that's when I took place in the second half of next year.
These projects are eligible for 100% PTC.
They I guess it because you didn't have the PTC work, so we're making sure.
We are maximizing their ability to to to use what are the PPC can be available. So if we can get hold of it rather than equipment quote to talk to PTC, we're doing that and I think as you may know is and he keeps MPT. He was extended as a result of the yet because the actions earlier in the year or so we're looking to see.
You can expect that same five you into the projects to.
To secure anyway.
Great. Thanks for the color I'll leave it there.
Thank you. Your next question is from Sean Stewart of TD Securities.
Thanks, Good morning.
Question for propylene I suppose that the north battle for debt upsizing.
Are there other opportunities across the rest of the portfolio from your perspective to free up more liquidity for growth going forward.
Yes.
And they are actively looking at a few opportunities that currently.
Any context on scale or scope.
Not at this time I think as we add no forward and you know with our Investor day and sat releasing guidance. We can provide some more details on some of the other financing optimizations that we're currently pursuing.
Okay.
And I wanted to follow up on luge or Mike you mentioned, you expect to have the.
The contract structure in place when the fed starts Cody.
The coming months can you give us an idea of where you are right now with respect to I don't know if it's percentage of generation that's contracted.
What the average.
Contract duration looks like where are you in that process right now.
We're expecting the tenor to be moved to the new negotiations are quite advanced to be in in and around 10 years.
And ER and I think in terms of volume at a it's in the range of 80% to 100% in that range.
Okay.
That's all I had the rest of my questions. Thanks, guys.
Q.
Thank you. Your next question is from Mark Giardia CBC.
Yeah.
For anyone column four question Luca <unk>, one is how would the terms of the contracts and LTAC relative to your going in assumption and secondly.
Where do you stand in terms of clean to get on that asset because of timing or quantity.
Could you repeat the first part I just didn't quite yet.
Yeah. So you said you'd be 80% to 90% contracted I'm just curious in terms of pricing on the off take in terms of how that has settled there relative to your expectation going into okay. Yeah, yeah inline with our expectations on the price.
20, <unk> in line with.
Our RF I'd Ah case are we underwrote the investment.
On that and then on the financing yeah. The financing is currently in progress and we would be targeting you plan to close the financing and in tandem.
Okay, and then given you know we've made good progress on that what's the appetite to do more solar capacity in Mexico over the next year or two.
It's good question so as.
As you know kind of the.
Administration in Mexico has become in the last year a bit more.
Protective of the SIFI the government owned utility and certainly Pemex, a government owned oil and gas company.
And it's taken some steps.
That were designed to support see a fee and support Pemex.
Which in our view and other generators use a disadvantage private generators in Mexico, we along with others pursued recourse through the courts and in just about every situation. The courts supported the position of the generators and and.
Going into the government action in just about every situation.
So that's.
Good, but I would describe our posture on Mexico, right now as a somewhat cautious.
I think in the medium term, there's there's great opportunities there like I said on earlier calls.
Certainly watch the presidential election, a few years couple of years ago, but we also watch closely on the ratification of the U.S.M.C. and that's what we think really drives the second the free trade agreement really drives.
We'll be continue to be a big driver of growth in Mexico in terms of industrial load and then also in terms of a growing middle class in the.
Increasing demand for power from the Middle class. So macro speaking medium long term, we're big believers in Mexico, and we think that they will need a lot of new power supply, but we're just being careful what we do in the near term until we can properly assess.
What the government's posture is with respect to private generators.
Okay that makes sense, and then just putting the appetite and because for M&A or something here of course thinking you guys to African some processes. Just curious where you guys are now like in your thinking in terms of the.
You know that the King <unk> 10th.
10th of a of an acquisition and whether or not it's an interesting market yeah.
Adding development capability in a short term or sort of where you guys are thinking in terms of what you guys and look for on on acquisitions right now.
Yeah, I mean, we we I mean ER.
Similar to absolutely we there's a number of as Bob says we were interested in the Colombian market.
For both transmission and generation and we saw absa as a platform to be able to do that and we're I think I mentioned in earlier calls the teams are already looking at some solar projects and other renewable energy projects there and.
In Colombia, so for other acquisitions, certainly an entry into a market that that we are interested in and particularly if we feel that the viasat can in some form.
Be used as a bit of a platform for further growth that would be.
One a screen that we would put it a M&A opportunities through.
I think also looking at markets that were already in to the extent that we can get a greater scale and some of those markets that that certainly is important.
As well, so I think a entry into new markets and the ability to scale up and as as we mentioned on prior calls we are.
Looking at kind of new areas for growth that or maybe kind of relatively small in the near term, but we believe will grow overtime, such as renewable fuels and so that certainly would be another area, where we look at I'd be route be smaller scale or acquisitions, but to be able to find or a foothold into it.
Into that sector, but there's a yeah nothing nothing to.
Nothing in particular on that but that those to be kind of three three highlights I don't know if you'd add anything to that Pauline.
Okay.
That's helpful. Mike and then last question for me just in terms of Japan, All for you guys or they have the one joint venture I think it's been in prior conversations about trying to accelerate and looking at other consortiums any update on that or that's now or something that you think could go to speak to you at the Investor Day in January [noise] Yeah.
No nothing to announce today mean, David ER.
Asian team is certainly looking at opportunities in Korea, and Japan, and Oh, we have an interest in still in interest in Europe, and there's some markets that are of interest there, but nothing nothing that we would to two to announce at this point.
Okay. Okay.
Thank you. Your next question is from Dan Salmon of BMO.
Hi, Thanks, good morning.
Hi, Ben.
Right you mentioned that you are planning to put it I issued a report and entered an investment banker all looking for class.
Your remote check in.
Boxes on on gender.
Sure Bose wrapping that up I'm wondering than what your GAAP Clark portfolio is there any thought.
Thought of appointing a sale process.
GAAP portfolio to reduce Gulf wind in Michigan door or should we view your your second change to efficient gas as a subtle message that you're planning to hold onto those assets.
Oh [laughter] you are reading a lot of tea leaves there, but the no I wouldn't I wouldn't read too much into that that change in.
And and label today. So we don't have any plan so on a sale process around the thermal assets at this point.
All of Northland growth plan growth going forward is a in renewable assets I think we would also look as I've said before at a utility type investment like a absa a if it were opening up as a platform for other growth opportunities in Reno.
Doable, so that's kind of where we see our growth going forward.
We're not looking to invest any more capital in thermal generation going forward as well and Ah Ah.
Yeah, and I would leave it at that yeah, and the other reason for the name change the shift in our conversations with little faster as to who don't necessarily understand you know D. N. The profile of these assets and I think its place cool originally you know and that sort of getting marked in a category that that we weren't so we wanted to make.
Got more clarity and all are communications and then with respect to E.S.G. you know honestly, yes. She has more than our thermal assets. It's a lot about the renewable capacity that we want to develop over the next 10 years of really focusing on you know the direction of this company increasing renewables I.
Increasing.
Capacity lowering intensity also covering at <unk>, you know portions of the asset or you know become really important to our company and to the world and it just didn't you a lot of GE components, which have been addressed and are continuing to to improve so it's it's really part of a holistic framework that we're working on EBITDA.
Hope to discuss more about in January.
If we were to do anything on a thermal assets.
It would only be done with the proper regard too.
Cash flow and the long term sustainability of the company. So it's a it's a balance to a decision that would would that we would have to take if we did anything.
Okay.
And then on hot on high one then what.
What do we need to pay attention to on on the supply chain that's.
Just getting those 14 megawatt turbines that are that is the port access you need and what what else that we should be focused on.
Yeah, I mean, David do you want to pick that up and I I can jump in later, but.
Yeah, Dan do you just think from me in terms of a focus on supply chain and that the most of the work on the supply chain now we'd send a I was on finalizing the M. A the I O P.
P., which it looks like they should which I think I've mentioned, a quite a cold. So that's kind of what can be best you already and Oh for the turbine a 40 megawatt turbine, but also the widest why the supply chain event.
Uh huh.
So the windfall so that that's that's where most of the work is it but you've got you've got we've been to your question or maybe just expand a little bit kinda.
That's what I'm more and more wondering and May make my luck differences there wouldn't be any issues.
Procuring turbine cables.
Getting resources and not not because I COVID-19 bucket, maybe because the Taiwan, maybe not at the stop Lifesize as here.
Yeah, that's a good point I understand a bit more now so yeah I would say that we're not in the first project in Taiwan. So obviously the supply can you stocking to ER to be that said well get to come before but but there is a need to continue to build capacity I think as Weve reported see.
And its job here looking at establishing going in and the cell factory locally in Taiwan, which obviously that to the buys and sells for about 14 megawatt turbine, which always would be the first quick to do that I'm going to Miss you always perspective, that's supposed to an export base for them more broadly across Asia. So yes, there are parts of that supply chain, which.
Which is in the discussions will be filled in Taiwan to service the Highland project.
Okay, great. Thank you.
Thank you. Your next question is from Andrew Kuske of Credit Suisse.
Thank you. Good morning, I think the question is for Mike and its really on Norplant's positioning in the market place. So when we look at Norfolk, We see this duality, where youre a large player in the offshore wind market, but there's a number of players that don't really have a horse race the partner capital looking to get out.
And then there's obviously a series of smaller players that really don't have capital, but have some offshore rights. How do you think about your position or where the duality.
It's a good it's a great question so the.
Just starting off quickly on <unk> onshore renewables, we talked about that a bit earlier in the call and on that we're taking a very targeted approach.
Approach and in different markets, where either we are I.
I think we have an advantage advantageous position or we can freight and advantageous position such as trees or utility platform in Colombia, recognizing that we are one of 200 200.
Players globally developing solar in developing onshore wind projects offshore wind you correctly point out I mean, north Atlanta is is one of the you know amongst the top 10 number six number seven so a limited number of players are in offshore wind overall and we're one of the the top players in the sector that set to take off.
And that is attracting a lot of interest.
From.
Ventures, including you're probably alluding to on the gas majors and others that want to deploy capital into offshore wind.
And so are our big pivot in the last three years.
Was moving from doing what we did on the first three projects in Europe, where we acquired those projects pretty.
Pretty much within a year or so of financial close.
To actually developing a projection coming in right at inception in I long and at early stages in some of these other projects that were getting involved in now.
Recognizing that the capital is no longer scarce for offshore wind projects.
What's and that Theres, an aggressive targets for offshore wind and a lot of these markets and so what will be scarce is projects quality projects and so that's where we're leveraging the team that we've pulled together over these last three projects that we've built in Europe or.
To develop projects for both our own capital.
But and getting an early so that we are getting in before.
Oil and gas major comes into bid up the value of a site or something like that or leaf and also so creating a an investment opportunity for ourselves, but also creating an opportunity to bring their capital into the project on a sell down as we create more value as we move through the permitting milestones and towards.
Revenue contract and towards financial close so that that's our approach to offshore wind and key to it is a is getting in early and ER and be able to create and getting an early to establish a foothold and then also having the the requisite talent and and skills are and.
To build and develop a number of these projects across multiple geography. So that's a that's.
That's how I'd characterize it is that does that answer your question.
It does know that that's very useful color and then maybe building upon just the scarcity of the competition for projects what issues do you see in the future on seabed rights and I know this brought a lot of it's in a bunch of different markets, but.
Where are your position now and perspectives in the future. How do you think about to see about rights and how does the duality.
Well every market is different so or the U.S. northeast, which I think I.
Alluded to earlier as you know other calls.
There's going to be quite a bit of offshore wind built out in the U.S. northeastern it said.
It's a great market for offshore wind.
Just because you can't just tied a lot of onshore renewables in in in those states and and there's relatively shallow water. So it's it's good for us.
Mark in both those respects and a lot of low and a lot of demand. So that's.
But the challenge that we had as we kept looking at different opportunities in the U.S. northeast. It's just the way the market was structured we had a separate process.
At the federal level lease.
Ducting auctions for leases and then another process at the state level for power purchase agreements. Both very quickly became very competitive process, particularly for the leases and we saw values get bid way way out beyond what.
We would be comfortable paying for at least a upfront and that's where we kind of made a decision that.
The risk reward a was not what we would feel comfortable in the U.S. northeast we focused on other markets, where you can get in and secure a site or at a much lower cost.
And that's where the markets that we focused on so.
Yeah, So I mean that the I'd say just in closing that the U.S. northeastern away was ideally suited for.
These oil and gas majors to come in and bid up these large leases that the U.S. federal government was putting up a which would put us at a disadvantage and we focus on other markets, where we can secure the sites ourselves.
<unk> them and then look to bring in a those investors at a later stage as a partner on the project.
That's great. Thank you.
Thank you. Your next question is from not to pay down of industrial Alliance.
Hi, Good morning, just maybe going back to Colombia can you give us any more details on the a pipeline of opportunities you see there for a renewables a other details on the scale of the timing or a project.
The first few projects that we're looking at are relatively small scale. So solar and we've looked at a couple of hydro opportunities, but I haven't decided to move on them at this point, but they're smaller hydro smaller scale hydro opportunities, but that's where it's at I think our first step would likely be on a solar project relatively small scale.
Ah, but we'd hope to build on that.
Okay, and just maybe a question on Taiwan, just wondering how you're thinking about the upcoming I guess tranches of around three auctions. Just how are you thinking about positioning yourself and you know to participate in those upcoming rounds and what are some of the criteria.
Betters Ah Ah going into 2021 than some of the other tranches as well.
Turning over to David I mean, there's certainly some advantages that we have given our.
Success on the fit round in the auction round, but David do you want to expand on that a bit.
Yeah, I actually I think like I said, it and with the position with built in the market that relationship since it come some of the key stakeholders hopes he pick on the government side and.
And also the confidence we have in the <unk>.
And the team on the ground, we all that could be looking at a participation in a devout see.
22, and then the twins 24, this to Ocean Downs coming so it also tightened quite nicely with the timing for I guess, a high long going into and through its FC and then people obviously, becoming available. It's still we're still waiting for further detail I think the big one on it I always talk about the subject on on these calls, but they look like they should the climate.
School for the downstream projects I'm still not fully understood I'm not going to be really important criteria again back to that supply chain conversation. We had earlier, but also of course, where youre localisation does have an impact on costing and and hence sitting pretty exotic in bidding pricing. So that's something.
Where we're tracking to long term relationships and to fully understand so we can understand how to position ourselves.
And at a high level. The two two broad considerations are in one hand, a there there could be some synergies from an operating and even perhaps a construction standpoint with our current sites are current projects on.
I mean would you would make us more competitive on the other hand.
Everybody knows about Taiwan and offshore wind now so where we were an early mover.
Senator several years ago, four years or five years ago now most of the offshore wind developers are there. So we'd have to get comfortable that we are we're going to be able to be competitive.
With whatever site, we we may choose to proceed with.
Okay. That's helpful, but I'm just to clarify so you won't be participating and B I guess smaller auction next year, but maybe you will participate in the bigger ones and took two or three years down the line and Taiwan.
[laughter].
Yes, Yes, we said it looking at the 20 get between 22 would be the first auction that we participate in.
Okay. Okay. That's great very helpful. Thank you and then just congratulations to Paul Lean on your recent business, that's executive recognition and awards.
Thank you very much.
Okay, I'm well, thanks to everyone for joining us today, we'll hold our next call. Following the release of our fourth quarter and full year 2020 results in February.
In the meantime, I'd like to thank you for your continued confidence and support and also as I've been remapped minded too [laughter] to gently remind everybody that is remembrance day and that those any in the eastern time zone that would be a moment of silence that at the top of the hour.
Thank you very much.
Ladies and gentlemen that does conclude the conference call for today. Thank you for participating and have a pleasant day.
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