Q4 2022 Northland Power Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to this Northland Power conference call to discuss the 2022 fourth quarter results. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please.
Press Star one one on your telephone.
As a reminder, this conference is being recorded Friday February 24th 2023 at 10, a M. Conducting this call for Northland power are Mike Crawley, President and Chief Executive Officer, Pauline <unk>, Donnie Chief Financial Officer, and <unk>, <unk> Senior director of Investor Relations and strategy.
We begin north of the 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 management's expected or forecasted results. Please.
Read the forward looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents in making investment decisions or recommendations. The release is available at www Dot Northland power Dot Com I will now turn the call over to Mike Crawley. Please go ahead.
Thank you Latanya and good morning to everyone. Thanks for joining us today for our first earnings call of 2023. This morning, we're going to review, our financial and operating results for the fourth quarter and full year 2022. Following our prepared remarks, we will take questions from analysts and look forward to addressing those questions.
To kick things off as we always do I want to reiterate that the health and safety of our employees and our stakeholders always comes first a rigorous adherence to our health and safety protocols to ensure the safety of our employees, while allowing us to maintain a high level of availability at all of our facilities.
We continued our strong performance in the fourth quarter and consequently for the full year delivering solid operating results and financial results from 2022.
Leading us to exceed the upper end of our guidance ranges for both EBITDA and free cash flow per share a key driver behind our financial results has been our strong operational performance. Our teams have worked hard this past year to ensure that our facilities are operating at a high availability levels, allowing us to capture a strong wind and solar resource.
This past year and capitalize on high power prices in Europe .
Looking at the headline numbers, we delivered adjusted EBITDA of $353 million in the fourth quarter compared to $364 million at the same time a year ago.
On an annual basis adjusted EBITDA in 2022 stands at just shy of one 4 billion.
Compared to $1 1 billion in 2021. This result represents a record for Northland and accomplishment of which we are all very proud.
For adjusted free cash flow per share and free cash flow per share, we achieved 16 and.
<unk> <unk>, respectively in the quarter compared to <unk> 80, and.
<unk> 69 in the same period a year ago.
While on a full year basis, we delivered adjusted free cash flow of $1 95 per share and free cash flow per share of $1 61.
This compares to $1 77 per share and $1 40 per share respectively in 2021.
Pauline who will provide a more detailed look into the financial numbers later in the call.
Reflecting on our accomplishments in 2022, I'm very proud of the efforts and results that our team delivered to continue to position Northland at the forefront of the global energy transition.
The global emphasis on energy security and the need to accelerate the move from fossil fuels to renewable energy sources remains unchanged a substantial build out of renewable energy will be needed over the next decade to facilitate these objectives.
Over the course of the year, we made strong progress in advancing key development projects source additional opportunities and positioned ourselves in some of the best markets to capitalize on this growth.
Our growth pipeline now sits at nearly 20, gigawatts and is well diversified across technologies and markets.
A robust development pipeline gives us optionality in terms of which projects, we decided to invest our capital in and to be clear. It doesn't mean that we will building.
We'll be building all of these projects in fact, it allows us to be selective in where we deploy our capital.
Our presence on the ground in key markets is an important success factor going forward energy security Decarbonization policies are driving increased targets for offshore wind and accelerating permitting timelines, particularly in Europe , where we have already established a healthy portfolio for.
For onshore renewables, we've consciously picked onshore markets, where we forecast strong growth for renewables see good policy support going forward and where there is a favorable investment climate.
Last year, we brought the focus back to our domestic market, Canada by securing a one six gigawatt solar portfolio and development teams in the province of Alberta.
This is a big step forward in the Canadian market for as Alberta is currently the most prolific market within Canada for renewable development with a robust corporate offtake market.
The acquisition adds a development pipeline of solar and storage projects of which 220 to 220 megawatt Jurassic project would reach commercial operations as early as 2025.
In Ontario, we acquired.
A majority interest in a 250 megawatt late stage grid connected battery storage project in the southern end of the province.
And either energy storage project, one of the largest in North America, and certainly the largest in Canada.
With that North line will be the majority owner of the project and we will take the lead role in its construction financing and operation.
The project will benefit from a 20 year fixed price contract for revenue payments with the ISO the system operator in Ontario for the majority of the capacity from the project.
The remaining capacity will earn market revenues through sales into the wholesale market.
Financial close for the project is expected in 2023 with full commercial operations is targeted to commence in 2025.
Turning to our development activities.
Long the project has now executed all of its material contracts with suppliers and commenced early construction works, including starting with application of key components.
The financing the project is progressing, albeit slower and more challenging than expected due to macro and market specific factors.
As part of our partnership strategy in December we announced an agreement with <unk> International renewables, whereby <unk> will acquire 49% of our stake in high long. This translates into an effective ownership of 29, 4% for its entirety with Northland still retaining 36% ownership of the project.
Northland, we'll continue to take the lead in the construction and operation of the project. In addition, we also signed an exclusivity agreement for further potential partnerships with Centauri in Taiwan.
Closing of the transaction on this.
Object to certain conditions and regulatory approvals.
At Baltic power, we are very pleased to have the Polish government responded to some of the market disruptions that have happened in the last year by making certain changes to the cfd revenue contract.
The project is 25 year CFT is now denominated in euros instead of the Polish zloty.
And inflation indexation has been revised to a base year of 2022 from 2023, helping offset the inflationary price pressures in this past year.
In South Korea, we've been awarded electricity business licenses, our abl's for nearly one three gigawatts of offshore wind projects, including for data Ocean and Bob Hi, Nora.
Northland is also pursuing additional early stage development opportunities in the country for multiple projects with up to one eight gigawatts of capacity.
Lastly, at our La Lucha Solar project, we continue to work to achieve commercial operations for the project in January we received approval of the extension of the generation permit for La Lucha and we are now coordinating with the appropriate regulatory authorities to initiate testing of the project in order to achieve commercial operations.
Which is expected later this year.
All in all a very active year for Northland and despite the global uncertainty and macroeconomic pressures, we continued to deliver strong operating and financial results and continued to execute on our strategic plan.
With that I will now turn the call over to Pauline for a more detailed review of our financial results. Thank.
Thank you, Mike and good morning, everyone.
Last night Northland Power released operating and financial results for the fourth quarter and full year of 2022.
Our financial performance in the year with solid where we generated results that exceeded our financial guidance supported by strong performance across our operating portfolio.
Our operating assets achieved a high level of availability, which provided a good backdrop to capitalize on the stronger wind and solar resource and the higher power prices in Europe that benefited our offshore wind facilities.
Specific to the fourth quarter. The early completion of the bearing replacement campaign at North Sea. One meant that the turbines were fully available to take advantage of the seasonal stronger wins in the quarter. This helped to deliver fourth quarter results that exceeded management's expectations.
Having all of this app, we achieved results that were stronger than a revised guidance specifically, we achieved adjusted free cash flow per share that came in at the upper end of the guidance range, while free cash flow per share and adjusted EBITDA, both exceeded the upper end of their respective guidance ranges.
When comparing to the midpoint of our original financial guidance issued in February of <unk>.
Last year, our full year 2022 results were approximately 17%, 24% and 11% higher than guidance for adjusted EBITDA free cash flow and adjusted free cash flow per share respectively.
In fact, we were able to achieve this result, even after derisking our business through approximately $150 million of debt repayments at Jim and I in Spain that were announced with our third quarter results, but were funded in the fourth quarter.
Looking at the specific financial results, we achieved year full year adjusted EBITDA of nearly $1 4 billion representing.
An increase of 23% or $260 million compared to $1 1 billion in 2021.
Key factors that contributed to the higher adjusted EBITDA year over year included.
Higher contributions from our offshore wind portfolio, resulting from a combination of higher market prices and a stronger wind resource compared to 2021 higher contributions from our spine portfolio due to a full year contributions in 2022 compared to five months in 2021.
The Spanish portfolio also benefited from higher regulated posted prices in 2022, helping contribute to the overall increase in contribution from the portfolio.
And a one time management fee and other optimization from the restructuring and upsizing of our Kirkland Lake credit facility.
This strength was slightly tempered by a decrease in operating results due to the loss contribution from the expiry of the PPA and subsequent sale of the aircraft balls natural gas facility in April of 2022.
With respect to our adjusted free cash flow and free cash flow Northland generated approximately $461 million and $380 million respectively.
This compares to $386 million and $307 million for 2021.
The significant factors contributing to the $75 million, 19% increase in year over year adjusted free cash flow were an increase in overall contribution across all facilities, resulting from better operating results an increase in the onetime management fee and other optimization from Kirkland Lake as previously discussed.
One time proceeds from the sale of the aircraft falls in Kingston efficient natural gas facility.
These increases are partially offset by higher current taxes as a result of stronger financial results in a decrease in contribution from the Spanish portfolio, primarily due to the one time principal payments upon the debt restructuring.
On a per share basis. These figures translated into adjusted free cash flow of $1, 95, and $1.61, respectively compared to $1 77, and $1 40, respectively for 2021.
These results generated a rolling four quarter adjusted free cash flow and free cash flow net payout ratios of 43%, 52%, respectively calculated on the basis of cash dividends paid compared to 45% and 56% for the same period ending December 31 of 2021.
With respect to our balance sheet Northland retains ample liquidity to fund our current projects as of December 31, we had access to approximately $1 billion of cash and liquidity comprising $600 million of liquidity available on our revolving facility and $500 million of corporate cash on hand to help us pursue our growth initiatives.
We continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow bolster our corporate liquidity and then shared Northland remains in a good position to fund its growth needs.
Part of these actions include utilization of multiple sources of liquidity to fund growth and capital investments, including proceeds from our ATM program.
We also continue to utilize project refinancings as a tool to optimize the debt profile enhance future cash flows and generate additional liquidity to fund our growth with.
With higher cash flows in 2023 across our portfolio, we were able to proactively deleverage some of our assets to de risk. The long term cash flow profile, while also enhancing the economic return of the projects the favorable refinancing terms and.
In total we refinance over 3 billion Canadian dollars that projects that in 2022 and generated nearly $80 million of additional liquidity in the year.
As outlined at our Investor Day on February 3rd we have an estimated $2 2 billion of equity capital deployment towards projects targeted for financial close this year of the $2 2 billion requirement is expected to fund high long lasting power and our newly announced Tonight at battery storage project in Ontario.
Of this approximately $1 $7 billion has already been sourced and our announced through proceeds from the ATM program and the future expected proceeds from the high long partnership sale, which is not yet closed.
The remaining $500 million is expected to be funded through additional possible sell down proceeds hybrid bonds liquidity on hand potential ATM issuances and asset refinancings. We believe there is ample redundancy and sources available to us to fund our remaining equity requirements for 2023.
Turning to our 2023 financial guidance as previously disclosed for adjusted EBITDA, We expect to generate between one two and $1 $3 billion. This year.
<unk> guided for 2023 free cash flow per share, we expect the range to be $1 30 to $1 50, while for adjusted free cash flow, we expect to generate $1 70 to $1 90 per share.
As a growth company with a significant pipeline of development projects Northland has committed to unlocking value by deploying early stage investment capital or <unk> to advance our projects.
As such in 2023, we expect to deploy development expenditures of approximately $100 million around 40% per share to fund expenditures to advance secured projects. This would include expenditures on our Scott wind offshore wind project in North Sea <unk> and Delta projects in Germany, The Korean projects, the recently acquired Alberta.
Solar portfolio and <unk> in addition to other Canadian and U S opportunities.
In conclusion, we delivered strong results in the quarter and for the year.
Which surpassed the upper end of our guidance ranges for adjusted EBITDA and free cash flow. We also achieved a record level of adjusted EBITDA.
We are proud of the accomplishments we have achieved together as a team over the past year and we are gearing up ourselves to continue to deliver on our stated objectives. In 2023, I will now turn the call back over to Mike for his concluding remarks.
Thank you Pauline as Colin mentioned, we had a very good quarter and a great year in 2022, we look forward to another strong year in 2023 and with projects nearing key milestones. We're very excited about the continued growth of Northland.
This concludes our prepared remarks, we'd now be happy to take your questions. Tony. Please open the line for any questions certainly ladies and gentlemen, if you would like to register for a question. Please press star one one on your telephone.
Your question has been answered and you would like to withdraw yourself from the queue. Please press star one one again, if you are using a speakerphone. Please lift your handset before entering your request one moment for our first question.
Okay.
And our first question comes from Sean Stewart of TD Securities. Your line is open.
Thank you good morning.
Question for Paul Lean to start.
Stayed active on the ATM in the fourth quarter can you speak to your comfort continuing to use that facility as the share prices.
Come under even more pressure since the Investor day.
That still.
From your perspective value accretive tool to use right now.
So.
We have sort of multiple sources of capital available to us I would say that the ATM usage should be viewed as a long term tools and in the sense of.
Opportunistically being used over the next.
Couple of years to fund the projects that financial close and that will mean, we're active on it at points in times, where it's opportunistic and not active on it when at points in time, where it's not opportunistic and we have other sources of capital available to US right now our priorities at the start of the year is to enable ourselves to issue corporate hype.
Bonds.
And we are currently working on that.
As a source of capital in addition to looking at other refinancing opportunities and looking.
To close.
On.
Another type of corporate financing.
That can help us.
Sort of fund the remaining equity requirements. This year and then this addition to that as well.
We've also commenced a couple of styles and processes as well so I mean all of it in total I think is more than ample to fund what's left for this year.
And yet.
I don't want to comment on on sort of the near term usage of the ATM program, but that certainly over the long term, we intend to stay active on it.
Okay.
With respect to the hybrid can you speak to the cost of that debt as you see it right now.
Not yet I think it's still early we're still sort of figuring out pricing and terms, but but.
Yeah.
As you know, we we prepaid the perhaps at the end of the year is no longer a product that may make sense to west from a cost perspective, and an ongoing piece of our capital structure going forward.
I think corporate hybrids are more cost effective tool for us also.
It's sort of rating agencies are supportive of the product. So it will be that the tool in our capital structure going forward, but we think it'll be better better than perhaps but we're still working through the terms of.
Of the paper that we that we plan to issue.
Okay.
Key points are that we are.
Number one.
Continuing to look to get ahead of our funding needs and stay well ahead of our funding needs and second create optionality.
And use the best tool the best instrument, given what market conditions are at any given time.
Got it thanks, Mike and one other question, Mike just with respect to the the delays that high long with respect to arranging.
Project level debt there how.
How much of that is specific to Taiwan.
Overall and.
Are you anticipating youre seeing any friction for Baltic power on that front.
I think no I would say most of it is more focused on Taiwan and it's.
Yes.
Specifically related to one other project there are several offshore wind projects that had been project financed in Taiwan. There is one.
That has experienced some significant delays.
And on that one project there is some overlap and lenders. So we've had to spend more time with those lenders.
Explaining our project schedule our project.
Execution plan in more detail than we typically would have.
So it was really more specific to that thats, causing us to spend more time on Q&A and we probably would have expected to.
On the Baltic Power project Finance it is.
Moving forward well and theirs.
No delay.
And the project financing.
Okay. That's all I have for now thanks very much.
One moment for our next question.
And our next question comes from David Quezada of Raymond James Your line is open.
Okay.
Yes.
Yes, thanks, good morning, everyone.
Mike going back to your comment about being.
Collective with your pipeline.
Obviously, it's the pipeline grow quite significantly is there any color you can provide on just how your decision making process might change.
Just with respect to I guess, having more often can you bid in some cases more conservatively.
And maybe just some commentary on how your organizational realignment might might support that.
So David.
Your first point is a good one having more options does allow you to bid into auctions for.
Energy contracts are negotiated energy contracts bilaterally.
In a more.
A more prudent way right you can kind of you don't have to win every auction, which I think is a position that you want to be in Moreover, you also don't have to build every project and then in some cases, if you look at a project and that project has for whatever reason more value to another owner because of the circumstances at that owner.
Given time finds himself in that that may be the better option for us and so.
It really is all about.
Looking at the capital that we have which is playing.
Mentioned currently is ample and we continue to make sure that we get ahead of our funding needs are deploying that capital.
The opportunities that offer the best returns.
Okay, great. Thanks for that and maybe just one more for me.
As you've got.
Fair amount of activity on the offshore wind construction coming I guess towards the middle or latter part of the decade I'm wondering if you could touch on the vessel availability specifically for offshore wind turbines.
How do you see that evolving over time.
Activity in offshore wind ramps up and do you have any kind of like longer term solutions you could put in place to secure access to those vessels as needed.
Good question, David I mean, I think when you look at the constraints in renewables, particularly in offshore wind but.
One of the biggest.
Constraints or concerns for us is vessel availability so.
All of our project team certainly are working hard to make sure. We get ahead of that and secure vessels earlier than we would have otherwise.
We don't have anything to say on more.
Creative or longer term solutions in that.
But that certainly is something that we're.
Our project teams are very very focused on getting ahead of.
And I think David I do think over time the.
Market signals will lead.
Two more.
More vessels being constructed and more options in the market, but it does there is a lag right.
That's great color, Thanks, Mike I'll turn it over.
Certainly one moment for our next question.
And our next question comes from Nelson, Inc of RBC capital markets. Your line is open.
Great. Thanks, and good morning, everyone.
So quick one for Paul and you've mentioned that.
Yes.
Alright.
The press and I think you have two tranches.
<unk> left.
Can you just give a bit more color as to why your redeeming those press is it mainly for tax reasons.
Yeah.
No I think that.
Crafts are really no longer.
Part of that.
A widely used.
Sort of tool and I think Kevin.
I think it was probably a couple of years ago. The Investor day, we discussed sort of corporate hybrid for the first time is sort of the the long term.
The long term.
So having our capital structure.
And when we looked at the rate reset and then the cost of that product as well against what we can now do you think going forward with the with the balance sheet and opportunities and.
What's available to US now I think I think we can do better.
Okay, great. Thanks.
And you would expect to get some equity credit.
On the hybrid debt right.
That's correct yes.
Okay got it and then just moving to my next question.
In terms of the Highbridge when development in New York, and you guys give a bit more color on.
Why you sold that project.
I understand that the project wasn't very economic to start off with but.
Any more color would be great.
So the project.
Was one year behind the two other wind projects that we have in New York. So it would have been.
Impacted by some of the cost inflation.
<unk>, which the two other projects got ahead of that.
That was one factor the other factor also was that there's another buyer that had an additional revenue stream.
<unk>.
That was not available to us and so that made for my view a good transaction for both of us.
Yes.
Okay. That's great and then just one last question.
I think the <unk>.
<unk> indicated that you guys use $38 million of cash.
Or are they on Ida.
Battery storage project and the Alberta solar portfolio.
This is is this just the first milestone payment and then the rest will probably take place when those projects. Eventually hit so close is that how the payment structure.
Bit different with each but.
The former.
On the Alberta, there are future milestone payments.
And on the.
I don't believe that arent, yet so we don't usually get into the details of the.
Payment terms.
Okay, but then on the <unk> project it would just be the financial close funding any construction right, yes right.
Okay. Thanks.
One moment for our next question.
Yes.
Yes.
And our next question comes from Rupert Murdoch.
National Bank your line is open.
Hi, good morning, everyone.
Coming back to Highbridge was this one of the two sell downs that you talked about doing this year or a couple of hours.
No. This is a full divestiture so.
Sell downs relate to at length, when we speak to the nomenclature. It really is partial sell down interest in <unk>.
This is an outright divestiture.
Okay great.
The asset or the location doesn't seem to be non core should we be reading anything into this.
So it is an indication that maybe your other projects in New York could be candidates for sell downs or sell off.
No you Shouldnt read anything more into this than the fact that the.
As I said the project was a year later and it always was scheduled to be built the year later, so it did get impacted by higher.
Higher capital cost as you would have seen.
Inflation equipment prices in the supply chain for renewables over the last year as you know across the board so that impacted the project and then.
As importantly.
There was there was a couple of other buyers that had access to certain transmission rates I gave them access to an additional revenue stream.
We didn't have access to <unk>.
So as Paypal basically putting the development asset in the hands of the owner that can extract the most value from it and then both parties share.
The vendor and the purchasers of sharing that benefit does that really is all it is.
Okay, great. Thank you and then secondly, la Lucha. So you'll have some testing less left to do there is that scheduled yet do you have an idea of when you might be able to turn it on.
So all of the scheduling and the work is going on right now with the regulator and the transmission operator in Mexico. It is moving.
At pace or even a bit quicker than we had anticipated.
The generation <unk>.
License was the extension was issued about two weeks ago I think.
It's moved very quickly since.
Meetings that we had in Mexico city in the.
Second week of January so, it's moving quite quickly and we're getting very good cooperation from.
All of the Mexican authorities. So I can't give you an exact date on when it will be connected but where things are moving well.
So as the finish line approaches here I imagine you're keeping an eye on the.
The market for pricing or contracting can you give us an update on that how does the market look today, what would be your strategy on pricing.
Well I.
I guess interesting in Mexico is that there hasnt been a lot of additional renewable energy capacity built out over the last couple of years beyond a couple of large projects at the Cfe did but there hasn't been any.
<unk> is building out a lot of capacity simply because of the uncertainty in the market. The last two years in Mexico at the same time.
Industrial investment in manufacturing.
Manufacturing capacity in Mexico has continued.
Moving forward. So there is a lot of multinationals still in Mexico and that are continuing to invest in Mexico.
That are looking for renewable energy capacity to meet there.
Zero in their ESG targets.
So yes.
Yes, we think the la lucha assets in a fairly good position as far as theres not a lot of non contracted renewable energy.
Facilities in Mexico.
That better available to industrial off takers.
And energy prices are reasonably robust.
As well in Mexico relative to where they would've been a couple of years ago. So all of that.
We're just working through to see what the.
Revised economics are going to be on that that asset, but that's kind of where we're at.
Okay, Thanks for that and I'll leave it there.
One moment for our next question.
Yes.
Our next question comes from Mark Jarvi CIBC. Your line is open.
Thanks. Good morning first question is just on high long.
Last year, you signed that struck the deal with Jim Tyree to help support the economics of that project offset some higher capex are there any other levers you can pull them prove the return profile could you actually.
We increased the size of the sell down to his entire some other partner just curious was that a ways to go.
Enhanced returns.
We wouldn't we wouldn't do that.
For a number of reasons, including regulatory so it wouldn't be increasing this sell down further than what we've done already and we're now down to just slightly over 30% and the overall project. So it's a substantial reduction from our original 60% position in that project.
We continue to look at ways to optimize the project and we will continue to do so up until financial close.
I'm going to be out there in two weeks time as well.
Our head of development looking.
In a series of meetings. So we continue to look to ways to.
Optimizing that project further.
Yes.
Is it in terms of just the labor the project is still in terms of.
Cost inputs like I don't know you can share anything like in terms of how you're going to further optimize the project at this stage.
I wouldn't give you any details at this point and we'll we'll share them. If we are if we're able to secure more optimizations.
Yes.
And then at the Investor Day, a few weeks.
You indicated the Baltic powers out something you consider selling down.
Attractive returns and cash flows but yes.
The share price languish in the ATM less attractive over the course of this year or next year.
Would you reconsider doing a process maybe on the other side of a financial close.
So I think our argues in Baltic power today are still the same as at Investor day, but thanks.
We are looking at any or all opportunities in our portfolio.
For sell downs of development assets.
And ore.
Yes opportunities, where we see an ability.
The ability to recycle just both the power, it's not one of them, but there are others.
And then just following the pick up on that comment.
In terms of timing of sell Downs, and then change in that.
The outflow of time is around financial close or are you seeing opportunities sooner on certain projects.
I think we're looking at opportunities that are sooner than that.
Okay. Thanks.
Earlier on.
One moment for our next question.
Our next question comes from Andrew Koska Credit Squeeze you had credit Suisse. Your line is open.
Thanks, Good morning, I guess, it's a broad question for Mike.
A bunch of initiatives across Europe , and it varies a little bit by country by country.
Accelerated permitting for renewables.
Maybe just give us a context of what you think is improving.
That could actually maybe accelerate growth for you and maybe some of the challenges that you see ahead.
I think in the.
Certainly in the medium to long term there is a lot of opportunities in Europe .
As they put in place policies that are going to drive a.
Long term conversion away from Russian gas and also accelerate overall their decarbonization climate objectives. So I think all of that is.
Is good and it's getting much more serious and much more deliberate now than it would have been a year year and a half ago.
On the efforts to accelerate permitting in some cases.
I think it will will help us we'll see I mean, we've got.
Right in early stage of looking at.
Hybridization or adding some.
Solar to our wind assets in Spain for example, with some some permitting would be required so that we would look forward to and Thats a market work.
Generally been seen as a slower market to permit and so that would be welcome and which would help on that initiatives.
On offshore wind and.
Other large scale projects. The the biggest constraint now is not necessarily permitting and says.
I think it was David's question I'm not sure. If your question was earlier in the call it supply chain, so I'd like to.
Yeah.
Talks very optimistically about all of the great things are going in Europe , and there are but.
But the most.
Important thing now is to see more investments in the supply chain, particularly in offshore wind and Thats whats.
Ah.
Going to unleash and accelerate more offshore wind investments and make those investments also going forward more attractive on new projects as well.
Okay. Appreciate that color and then I guess, maybe just indirectly on supply chain, but.
But if a key part of the puzzle is just on the shipping side some of the South Korean shipyard I guess.
What are your thoughts about it.
South Korea, you've obviously been exposed to the market on a very preliminary basis.
<unk> entered the market.
I guess, a week or two ago.
The JV if you could just maybe give us some insights and thoughts on how you see that market developing what timeframe are things going to move faster now and does that indirectly, helping the supply chain just given that the shipbuilding yards there.
It's a good question so South Korea is really interesting offshore wind market for.
A number of reasons, including those that you just gave so theres a lot more attention being paid to South Korea, including.
That announcement from BP.
We're seeing a bit of a shift.
From Japan to South Korea from a lot of developers and from the supply chain as well.
So we've been active there for several years, we've got a very strong team on the ground and development team that's been securing.
These.
Electricity business license or the site exclusivity on projects around Korea. So it's.
The market that.
Oh.
We're very interested in if there is three different avenues to offtake currently in South Korea for three different.
Guess processes.
Which we could go into I won't go into now, but so thats good to have optionality in terms of how you source your revenue contract.
The piece around South Korea as it is still a relatively new market for Austral wind.
These are large projects that we have that others have theres a lot of demand for energy and renewable energy in South Korea for sure.
But these projects are complex too so that our next stage is really to get under the hood.
Design and our early stage feed standpoint on these projects and also really drill down on the offtake.
<unk>.
Really prove out the viability of these projects, but we're in a good position with this many sites secured particularly when others are now just trying to get into the market.
Okay. That's great. Thank you.
And then in terms of Im sorry, one last thing.
Andrew in terms of supply chain.
As I said it is it is it a constraint globally.
But one of the advantages of South Korea.
Is.
A lot of the shipyards and fabrication yards that they have for example, we're sourcing our jackets.
And cable cables for part of our Taiwan project from South Korea.
So it's a it's one of those markets, where when they when you look at localization it actually is.
Advantage, where it's mostly when you hear localization for.
Projects do you think Oh. This is going to this is going to add cost in South Korea actually in my view isn't it is an advantage for that market.
Yes.
Okay, and one moment for our next question.
Our next question comes from Nausea pay down pay down of IAA capital markets. Your line is open.
Hi, good morning.
Just wanted to start off in Japan, I think there is the auction.
<unk> four.
Earlier, this year or mid 2023.
Given sort of the.
Your projects are in that market is it too soon for you to participate.
How do you see sort of the changes.
Guidelines versus maybe what happened last time around playing out.
Okay.
We're glad that the Japanese authorities are revising the auction rules we didn't.
I didn't like how the last option played out in <unk>.
Had concerns I think were still reviewing.
The method the rules around future rounds in Japan, and coming to a decision whether or not we are.
Uh huh.
We will be participating in them.
Okay.
It's a bit too early but there is a chance that you end up deciding to participate in the auction.
We haven't decided one way or another.
Okay got it.
And just on the North Sea.
On the North sea cluster or if you could just give us any updates on.
Contracting how advanced are the negotiations today for further cluster.
And then with that that review to maybe including North Sea one and.
<unk>.
The re contracting with either.
Customers when Youre looking to contract those.
Yes, so I don't have much to add from Investor day on the North sea cluster or north sea or the first half of the cluster.
As I said then the procurement process is coming towards the conclusion. So we're moving towards selecting preferred suppliers across the supply chain for north Sea a the first half.
<unk>.
Costs are coming in above what our original investment case, where for sure given the cost inflation over the last year.
So for US it was always the.
That was always to enter into a corporate offtake or utility offtake.
For those projects and the.
Point, we're working through now is just to see whether the increase in energy prices, which they are also has been in.
Clearing price for corporate offtake.
Gets us back to the same economics with a higher capital costs. So that's our that's what we'd be working through right now on it on North Sea one.
The timing does overlap with north sea clusters, so there may be an opportunity to.
Blend the two together, but where we're not yet at that stage.
Okay. Thank you for that.
One moment for our next question.
Our next question comes from Brett Castelli of Morningstar. Your line is open Brian .
Yes, hi, thank you.
Just a question on future offshore wind offtake curious, Mike if you see the potential for lets just call it like a reopener.
At all in terms of future.
Im offtake, there and maybe some sharing between.
The offtake side.
Development side.
The the trends we've seen here recently.
So I mean, I guess, there is a way to just kind of to offtake markets for offshore wind the sovereign backed.
Ppas or cfd is that a run through centralized auctions and so that's something like Scott when we'd be expecting to bid into that kind of a process.
And then there's a corporate offtake, which is what we're looking at for the North Sea cluster.
One of the options for our South Korean projects down the road so.
<unk>.
I think on on centralized kind of sovereign auctions for offshore wind.
Okay.
Those options I think we will see prices reflect bids reflect what our current capital costs are.
Which may moderate over time as more capacity comes available within the offshore wind supply chain on corporate offtake.
Certainly there is more liquidity in the market than there was two years ago more buyers looking to contract and buyers looking to contract for longer tenor than it was a year and a half or two years ago.
And we're seeing those corporate.
Corporate offtake.
Clearing at higher prices.
But as I said I mean it just.
It is a bit of a supply demand situation in it.
And you'll see us kind of at what point, the things normalize where the corporate offtake offsets for the higher capital cost, which are which.
Just to kind of period of discovery right now in Europe .
Got it and then.
Just curious on sort of public versus private market valuations, we've obviously seen the public markets evaluations come off a little bit.
Curious what youre seeing on the private side would you say that there's maybe.
So a widening gap in terms of private market valuations for renewable assets.
Holding up a bit better.
So all I know is what we've seen in the processes that we've been the.
Rebranding that we're involved in.
And we've seen valuations generally hold steady so far so that's all I can give you a comment on.
So yes, it would be good.
Got it.
Okay. Thanks, Mike.
One moment for our next question.
And our next question comes from Nicholas Wojciech.
Core Mark Securities. Your line is open.
Thanks, Good morning.
Coming back to the potential cross sell downs I'm curious with the efficient natural gas facilities continue to perform really well at.
900 gigawatt hours of production. This quarter are you guys getting any inbound interest by these at attractive terms would you maybe look to dispose of these a little bit earlier than initially anticipated.
Okay.
I don't think there's any change in our position on those assets. There is no change in our position on those assets. So.
As you pointed out.
They generate an important cash flow for Northland, but there are also an important part of the.
Electricity mix in Ontario, and Saskatchewan two markets.
That.
Rely on those assets and other gas fired assets for capacity right. Now so what are you seeing in Ontario is.
A big push to get additional capacity going forward.
Given the growth in the economy and the electrification that's forecast to happen going forward. So.
That's in part how the contract and how do you.
Hattery project has moved forward.
But it also means that.
The province still is very reliant on the capacity that they get from gas fired assets as well.
So the value of those assets to the system.
Is as great.
Great as ever if not greater right now.
Uh huh.
Whether we.
In the long run are the owners of those assets to be determined but in the near term certainly.
The system operators are relying on us looking to us to maintain those assets at a high degree of availability.
And in some cases, maybe looking to us to see if we can optimize.
The contribution of those assets to the system as well.
Got it.
Then in Colombia, Im just curious if the operating environment there has changed at all.
Is there anything related to sort of evaluations cost of capital as it may be more attractive.
Essentially the to acquire other assets that could feed into absa any color about the Colombian market.
Yeah.
Columbia market. So the there is.
A fair degree of kind of solar and wind power development going on by junior developers there.
Interest in <unk>.
Multinationals and contracting directly for renewables.
Theres not a lot of.
Volume or available to contract so.
There there may be opportunities there going forward the utilities in Colombia have a certain obligation to contract for renewables as well.
So that all is I think an interesting market going forward.
Yes, there is.
<unk>.
Just leave it at that.
Okay. That's fair thanks, Mike.
Thank you.
Mr. Crawley there are no further questions at this time I would now like to turn the call back to you.
Okay. Thanks to everybody for joining us today, we're going to hold our next call. Following the release of our first quarter 2023 results in May so in the meantime, we want to thank you for your continued confidence and support.
Take care.
Ladies and gentlemen that does conclude the conference call for today. Thank you for participating and have a pleasant day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Hmm.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Sure.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Yes.
Sure.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
Hum.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Hum.
Okay.
Okay.