Q1 2023 Northland Power Inc Earnings Call
Okay.
Welcome to the Northern Northland Power conference call to discuss the 'twenty to 'twenty three first quarter results. During the presentation, all participants will be in listen only mode.
Afterwards as well.
We will conduct a question and answer session at that time. If you have a question. Please press star one on your telephone.
A reminder, this conference is being recorded Wednesday may 10 2023.
Yeah.
Conducting this call for northern power are Mike Crawley, President and Chief Executive Officer, Palladium, Ellen Schum Downey, Chief Financial Officer, and was named <unk> Senior director of Investor Relations and strategy.
Before we begin Northland 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 it would be good.
Got it by its contents in making investment decisions or recommendations.
At least is available at www dot Northland power Dot com.
I will now turn the call over to Mike Crowley.
Good morning, everyone apologies for my voice I think it hopefully will clear up as we move through the call.
Thank you for joining us today for our first quarter earnings call in 2023.
To start with reviewing our financial and operating results for the quarter with our prepared remarks and look forward to addressing questions from analysts following that kick things off as we always do I want to reiterate that the health and safety of our employees and stakeholders always comes first a rigorous adherence to our health and safety protocols ensures the safety of our employees, while also allowing us to maintain.
<unk> high levels of the availability at our facilities.
To further strengthen our commitment we brought on a new global head of health and safety Jakob Nielsen.
In the last month Yakov has over 20 years experience in renewable power health and safety and is currently the volunteer chair of G to a global offshore wind safety organization.
So we're off to a good start this year with first quarter performance that was consistent with our expectations. We saw good performance across our facilities and in particular at our offshore wind facilities, which tend to have stronger performance and first quarter anyway.
We've also made good progress on our strategy, including securing new projects in our home market of Canada.
Looking at the headline numbers in the quarter, we delivered adjusted EBITDA of $352 million in the first quarter, along with adjusted free cash flow per share and free cash flow per share of 72 cents and 62 cents respectively.
Compared to the same period in 2020 to our financial results were lower primarily due to the non recurrence of the unprecedented spike in market prices realized in the first quarter of 2022 at Gemini and with the Spanish renewables portfolio.
Aside we generated good results this quarter and as noted in our press release yesterday, we are reaffirming our full year 2023 financial guidance.
Pauline who will provide a more detailed look into the financial numbers later in the call.
Reflecting on the quarter I'm very proud of the efforts and results that our teams delivered to continue to position North line 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 will be a big driver for our business.
A substantial build out of renewable energy will be needed over the next decade to facilitate these objectives.
<unk> ourselves in the right markets has been one of the key drivers for our growth.
We're already in some of the most attractive markets for offshore wind those mature markets like Germany, but also emerging offshore wind markets like Poland.
We'd onshore renewables, we are focusing our efforts to select key markets with ambitious renewable energy targets and robust dynamics to support growth.
This includes markets like Spain, Colombia, Poland, the United States and Canada.
Speaking of Canada, we have bought more focus to our home market acquiring our first utility scale battery storage project in Ontario, named an item and it positions ourselves and the battery storage market going forward, which is expected to grow significantly.
250 megawatts will be the largest battery storage project in Canada, and among the largest in North America.
In the quarter. The projects were successfully executed a 20 year energy storage facility agreement revenue contract with the independent electricity system, operator here in Ontario.
The agreement will provide fixed monthly capacity payments for the majority of the projects revenue with the remainder of revenue coming from the wholesale market.
Along with our partners, we signed a credit agreement with an external lender to allow the project access to approximately $700 million.
Senior unsecured needed debt as the project advances towards achieving financial close while we.
We expect this to happen within the second quarter, which we expect to happen within the second quarter and full operations are expected in 2025.
We also secured a one six gigawatt solar portfolio and development team in Alberta.
The most active renewable power market in Canada. The portfolio provides us with a significant position in the province, and an experienced team on the ground to complete the development of those assets and more going forward across Canada.
Turning to our existing development portfolio high long early construction work and fabrication activities continue the project received its major construction permit as planned which allowed us to commence within water construction activities in April .
We continue to advance the project financing moving towards financial close this year. The final credit approval process was launched in March to secure the necessary funding commitments from local and international lenders and export credit agencies.
Furthermore, in the quarter, we successfully executed an amendment to the corporate power purchase agreement that we signed last year for high long to beef and three that results in the extension of the CPA tenor by two years from 'twenty to 'twenty two years.
Our Baltic power offshore wind projects in Poland. The project is progressing well towards financial close also expected in 2023.
We are in the process of finalizing contracts with suppliers for key components for the facility.
As mentioned previously the currency for the project to see if he has been changed from Polish zloty to euros and indexation base year was moved up one year to 2020 year, 2022, which provide economic benefits to the project.
Continued inflationary price environment, and we have seen over the past year is expected to result in the total cost for the project just exceeding the upper end of our previous guidance of $5 billion to $6 billion.
However, the increase in project cost is expected to be almost fully funded by non recourse debt.
And the Cfd indexation economic value.
As a result, north times equity funding expectations and returns remain in line with prior disclosures.
In Scotland following a competitive process in 2022, we signed a definitive agreement with ESB.
Leading energy company in Ireland for 24, 5% interest in our two three gigawatt, Scott wind offshore wind project.
Partnering with ESB provides an opportunity to bring in a long term partner that is very experienced and complementary to the north and to help build on the development progress we have already made.
ESP were selected primarily because of their extensive experience in the offshore wind sector with investments in LNG.
And inscape, both in Scotland, as well as Gallup in England, and the five estuaries early development stage project.
North and will continue to lead the development of the project working with ESB, who will bring the benefit of their experience and Scottish offshore wind development permitting and construction.
And moving to South Korea, a major emerging offshore wind market, we had been awarded electricity business license or <unk> for the entire one gigawatt data Ocean project and work continues on securing the final 200 megawatts of licenses for the 600 megawatt Bob Bay project.
Turning to our construction activities are la Lucha solar project as well as the New York onshore wind projects are progressing towards commercial operations. This year.
At La Lucha project was connected to the Mexican grid and energized. We are now coordinating with the relevant authorities on the final procedures to achieve full commercial operations.
Now lastly on at our thorough natural gas facility in Ontario, Canada, as part of North <unk> strategy to optimize existing operating facilities to enhance value and performance.
Planning to carry out an upgrade of the 265 megawatt facility the.
The optimization will result in an increase to the electricity generating capacity of the facility by 23 megawatts and will help support the Ontario governments energy transition and security policies.
As part of our optimization of the facility Northland was awarded a five year extension of the PPA for thorough by the ISO from 2030 to <unk> 35, which will provide an additional fixed contracted revenue stream for Northland.
It is expected to be in service by the end of 2024.
Now with that I'm going to turn the call over to Pauline for a more detailed review of our financial results.
Thank you, Mike and good morning, everyone.
Northland Power released operating and financial results for the first quarter of 2023.
We delivered good financial performance in the quarter generating results that were relatively in line with your expectations and positioning us to reaffirm our full year financial guidance.
In the quarter, we generated adjusted EBITDA of approximately 350.
Representing a decrease of 16% or $60 million compared to the same period last year.
Year over year results were lower primarily due to the nonrecurring.
Mike and market prices realized in the first quarter of 2022.
The Gemini facility and the Spanish portfolio.
Realize adjusted EBIDTA from Gemini and the first quarter of 2022 was approximately $31 million higher compared to the first quarter of 2023.
Largely because of higher market priceless Similarly, adjusted EBITDA from the Spanish portfolio was $11 million higher than the first quarter of 2022 compared to 2023.
With respect to our free cash flow and adjusted free cash flow Northland generated approximately $155 million and $180 million in the quarter, respectively. This compares to $174 million and $192 million in the same period a year ago.
Similar to adjusted EBITDA.
And if I can factor contributing to the year over year decline was due to.
She is the non recurrence of the unprecedented spike in market prices realized in the previous year.
This was partially offset by gains from foreign exchange hedge settlements and lower finance costs, resulting from the principal repayments of facility level loans that we executed in the fourth quarter of 2022.
On a per share basis, we generated adjusted free cash flow 72 cents and free cash flow of 62 cents in the quarter compared to 84, and <unk> 77, respectively for the same period in 2022.
I wanted to take a moment to discuss the revenue mechanism for spine portfolio.
For a given year merchant revenue and the corresponding band adjustment recognized in our adjusted EBITDA adjusted free cash flow and free cash flow measures.
For 2023, the regulators posted price increase to 208 euros per megawatt hour from 122 euros per megawatt hour in 2022.
However, during the first quarter of 2023 full prices were trending lower than the posted price averaging 98 euros per megawatt hour, resulting in favorable band adjustments, which only partially offset the lower than expected and merchant revenue.
For 2023, we have re forecast or expected full prices using the actual full prices realized in the first quarter and the forward curve for the remainder of the year.
Including the expected band adjustments in 2023, which will compensate for only a portion of the lower revenues, where you are now expecting adjusted EBITDA from the Spain portfolios to be $16 million, lower and free cash flow to be $23 million lower relative to our original expectations. When we set guidance.
The changes we are reaffirming our full year 2023 financial guidance that was provided in early February .
As of March 31, 2023, Northland had access to over $580 million of available liquidity, comprising $74 million of cash on hand, and $506 million of capacity on our revolver to help fund our committed project.
The decrease in our position from the prior quarter as a result of capital investments into our high long and Baltic offshore wind projects at both projects are being kept on schedule in order to proceed to financial close.
Continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow bolster our corporate liquidity and ensure that north and remains in a good position to fund our committed projects.
We intend to utilize nonrecourse project level financing as the primary source of our funding with our equity requirements expected to be supported by cash on hand proceeds from asset.
Asset sales thesis corporate hybrid debt into a lesser extent equity issuances.
During the first quarter, we took a more moderated approach to our ATM program in aggregate, we issued approximately one 2 million.
<unk> million common shares under the ATM program for gross proceeds of $42 million.
We also completed the extension of the maturity for Edison Nonrecourse credit facility from December of 2024 to March of 2026 at effectively the same interest rate. The exit facility is denominated in Canadian dollars and Northland is hedged the principle on that 100% against the Colombian peso.
As part of the extension the company realized that hedge settlement gain of $22 million, which offset a weaker Colombian peso cents along was originally restructured in December of 2021 casting will be equally recognize northern's adjusted free cash flow and free cash flow over the four quarters of 2023 and was already included within our <unk>.
23 financials.
Lastly, concurrent with the extension of the PPA for the World Natural gas facility, we completed a restructuring of the <unk> project that resulted in additional financing of $26 million.
Finance the planned upgrade.
The restructuring also resulted in a decrease in the all in interest rate to six 4% from six 7% and reduction of certain LC requirements. This transaction was accretive to our financial metrics.
Turning to 2023 financial guidance at this loans within our results last night, we are reaffirming our reaffirming our full year financial guidance for adjusted EBITDA, We expect to generate between $1 2 billion and $1 $3 billion. This year for free cash flow per share we expect the range to be between $1 32 underlying <unk>.
Well 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 or <unk> to advance their projects as such in 2023, we still expect to deploy development expenditures of approximately $100 million are around 40 cents per share to fund expenditures too.
Advanced secured projects. This would include expenditures on our Scotland offshore wind project. The Korean projects. The recently acquired Alberta Solar portfolio. In addition to your other Canadian U S opportunities.
I would like to point out that our 2023 guidance ranges for free cash flow and adjusted free cash flow do not incorporate any sell down proceeds and as such net proceeds and sell downs will increase our reported free cash flow in the event they occur in 2000 and country.
Before I turn things back over to Mike I wanted to take a moment to speak to our ongoing finance.
Activities underway.
The project finance Chad for each of the three projects that are currently expected to achieve financial close this year being high long Baltic power and then Ita are currently progressing and an aggregate estimated to match our requirement for $12 5 billion of project finance debt this year.
All three processes are in activewear extreme is at various stages with resources and efforts focused on securing all necessary milestones and conditions precedent to achieve financial close.
And Ita is nearing the late stages to achieve financial close high long. The final credit approval process was launched in March to secure the necessary funding the Baltic power. We are working through the due diligence and documentation process to begin to secure the necessary credit approvals.
With respect to interest rate and foreign exchange exposures in line with both our risk management strategy and our expected project finance terms, we expect to hedge our interest rate exposure prior to or shortly after achieving financial close on each project. In addition, any construction cost not that with the funding currency will be hedged by financial close.
Collectively the project finance processes are being supported by a diverse group of Northland project partners lenders, including global financial institutions local lenders export credit agencies government infrastructure lenders and multilateral agencies.
We are encouraged by the diversity of the financial institutions globally participating in the financing processes to support partner to support fall Northland as a sponsor and our projects.
I will now turn the call back over to Mike for his concluding remarks.
Thank you Pauline as Pauline mentioned, we had a very good start to the year and looking ahead, we have some big milestones this year to further accelerate our growth.
Our teams continue to work hard to achieve these milestones and we look forward to updating you on our achievements that will that will set us up for another strong year in 2023.
As I've stated before we have a large development pipeline and one of the benefits of this is that we can be selective and disciplined in which projects we advance.
This concludes our prepared remarks, we'd now be happy to take your questions. Shawn Please open the line.
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One moment please for our first question.
Yeah.
Our first question comes from Sean Stewart with TD Securities. Please proceed with your question.
Thank you good morning, everyone.
Question on Baltic power I.
I think the wording you used in the prepared remarks is the revised budget will be just higher than the guidance you gave earlier this year.
Can you give us an order of magnitude of what you expect there and.
Presumably when you reset the budget earlier this year there were some contingencies built in.
Any specific details on whats driving the increase and if you can give us some context on how much that might be.
So in the process of converting the preferred supplier agreements or select supplier agreements that locked in the terms and the.
The commitments in the fabrication slots with each of the suppliers, which were signed last year as we converted them over the last three months.
<unk> full contracts.
There has been a combination of some clarifications on scope.
And some.
Identification of cost increases due to inflation over the last year by some of the suppliers.
So we've been negotiating to what we view as an acceptable resolution on that and that takes us to as I said.
In my remarks, just over the guidance that we gave on $5 billion to $6 billion in total capital costs.
As I said.
Based on the changes in the Cfd and the amount of capacity and the project financing or equity returns will remain as we've guided the markets.
Okay, So 5% increase is that.
I know you don't want to pin a number on it necessarily but if youre, saying just it's single digits I presume in terms of the budget increase.
It's a small increase about the bump up in.
Threshold, that's why I said, just I mean, the most important the most important thing is that.
We're in active processes with the lenders and rehab.
The level of interest and liquidity to support the cost increase through.
Your project financed debt, which is the most important elements of things as we continue to manage the negotiation.
Got it okay. Thanks for that.
And then Paul in with respect to the funding position. So you exited the quarter with 580 million, you've you've funded $929 million towards Baltic power and high long.
And I think last quarter, you suggested that the the total equity contribution for the the two offshore projects and Oneida was $2 2 billion of equity.
Is that number still in the ballpark and then if we're looking at.
I guess $5 to $700 million funding need.
Can you speak to hybrid debt markets, which are a part of the funding plan.
That's evolved over the last quarter end.
Any indications on the scale you might look to raise in that in that market. Yes. So I mean, so far are.
And our equity our equity needs have not materially changed from what we would have disclosed that at Investor day.
Corporate bonds are part of the.
Funding solution, there and we as we've advanced along that process. We still believe it's part of the funding solution and something that we'll be able to execute on this year.
Okay.
Okay. That's all I had for now thanks, guys. Thank you.
Yeah.
And one moment for our next question.
And our next question comes from the line of Nelson <unk> with RBC capital markets. Please proceed with your question.
Great. Thanks, just a follow up on Sean's question on in terms of funding so.
On the ATM I know that you only issued like one 2 million shares year to date.
And the average price was about $34 per share.
I guess big picture.
Yeah.
Is there a is there a price where are you kind of turn off the taps in terms of utilizing your your ATM.
So I think big picture, where we're looking to get to financial close on our projects. This year. We have closed out the large majority of the funding needs to position us and the teams to stay focused on achieving financial close.
I think the as we noted in our disclosures.
We have other sources of funding.
Before equity, although equity I'm not going to say is that not part of the plan but.
But it is to a lesser extent.
Oh, Okay. So obviously working on other initiatives.
Through other fell down.
Brad asset sales or other avenues and.
I think for.
What we've said before I don't think anything has materially changed.
Okay got it thanks, Pauline and then.
Another question is about the Scott when sell down.
So can you guys give any color on whether you received in a proceeds whether you've got some of your deposit back or how the development costs are being allocated going forward.
So let me do things on the Scott wins sell down.
Relevant to your last question is further evidence of us looking at other funding sources.
For our projects.
And equity issuances.
As you know we did the sell down on high long end.
Right.
Last year and now we're moving forward with a second sell down and.
It's obviously part of our strategy going forward to fund.
Projects with the asset level.
With respect to the proceeds from the sale.
Unfortunately under the terms of the agreement with the Crown estate, Scotland, we can't give any more detail than what we've given already certainly not at this point.
Okay, Alright, thanks, Mike.
I'll leave it there and get back in the queue.
Okay.
Okay.
One moment for our next question.
Yeah.
And our next question comes from the line of Rupert <unk> with National Bank. Please proceed with your question.
Thanks, Good morning, everyone.
So looking at your financial results for the quarter on the offshore wind you recognized a lower net average price than your average contract price can you discuss the dynamic around the regulatory adjustments you may have seen in the quarter and how much of a headwind that was to results.
So in April of every year, the Dutch authority publishes the P&I factor so up until December calendar year financial results. It is an estimate so usually that estimate has come in fairly close with what we are what we have.
Recorded in our financial statements. However, this year due to the unprecedented spike in market prices, we were effectively earning market prices and not the SPE salvi when they did the revision to that.
Ni factor ended up having a more material results. This year than it has in prior years, which will also not be reoccurring because it was unprecedented what it occurred in the quarter. There was an adjustment for approximately $10 million for free cash flow.
That came through in that and the Gemini results.
Okay, great. Thank you so that would be helpful.
The price that youre seeing but it is nonrecurring.
Okay.
The high long contracted to increase that.
Two years.
Is that mean that when youre looking at debt financing on the <unk>.
Hi, long that you will look for an amortization, that's two years longer as well.
It supports the amortization that we have and the debt financing. So that was one of the drivers for moving forward with it. It also offers a modest increase in the equity return.
And when you look at that project and what are the remaining hurdles to getting to financial close and if we were to compare it to.
The cost increases and and what you've done to lock in costs and Baltic.
How does how long look how how.
Certainty you have in your cost there now.
How long would be further advanced in Baltic and other in so far as all of the <unk>.
Referred supplier agreements have been already converted into full contracts.
So it would be further ahead in that respect.
The remaining milestones towards financial close really are just going through the credit approval processes, which is underway.
With the international banks the local banks.
The approval processes with the ECA. So that's well underway as we said in our opening remarks. It was launched and are in the middle of March right. The major variables that are left are financing costs, and hedging, which where we're looking to lock down fairly soon.
Okay very good I'll leave it there thank you.
Okay.
Okay.
And one moment for our next question.
Okay.
And our next question comes from the line of Nicholas Boy, Chuck with <unk> Securities.
Voltage power I'm wondering if you can expand a little bit on some of the components are items that saw that and elaborate on whether or not theres any other read through we should be looking into for other projects onshore or offshore.
Just trying to figure out if the inflationary curve is already rolled over or if that was just a year over year adjustment.
It would've been across a few of the packages, so I wouldn't get into kind of naming the different packages, particularly since were.
Uh huh.
Yes.
It is an active commercial discussions right now so but.
But it would have been across a few of the packages side of it would've been scope changes as well so it's not just inflationary impact.
With respect to our read through on the sector in general I would think a read through is that there.
Have been certainly inflationary pressures over the last year.
I don't think they've completely gone away yet.
Okay.
Okay that makes sense and then shifting to Oneida.
You kind of remind us what the impact of the capacity payment is like this.
That alone gets you to your base case return or are you reliant on that smaller merchant component, which I think was previously communicated at around a quarter of that.
Revenue generation from that profile.
Second part does.
<unk> maintained the ability to operate the discharge at that facility or are you basically handed over the controls to the grid in order to manage the battery when they need it.
We manage the dispatch and discharge of the facility.
The returns that we look at on the project include both merchant revenue assumptions and the.
Underlying capacity payment, which is which is a significant majority of the of the cash flows under the with the project.
And.
I mean, I think at a later stage, we'd be able to give a bit more detail on the makeup of the different revenue streams on the project, but we're not in a position to do that quite yet.
Okay understood. Thank you Mike.
Okay.
One moment for our next question.
Yes.
And our next question comes from the line of Ben Pham with BMO.
Alright. Thanks, Good morning, I wanted to maybe start with bulk power and are you if you've answered it.
So far in terms of the.
Direct cost increase.
Can I clarify I mean, when you when you announced the revision to earlier this year you mentioned some offsets there.
The currency.
Inflation to offset that increase and then now now it looks like there is potentially some upward swing.
Is there an additional offset there that I may have missed or is this more of a return to the same but there is still slightly lower than where you thought it was early in a year.
No. So we've.
You're right that the <unk>.
Crow.
The ability to make the cfd in euros instead is lodi.
What was discussed announced earlier.
What we.
What we knew is that that would have a positive impact on the on the project financing.
I didn't quite know exactly how that would shake out in terms of the the project financing. So that was a bit of a dynamic that we've been tracking and understanding better secondly, we knew that the <unk>.
<unk> state on the indexation was moving back one year.
And we are.
So we knew that was going to be a benefit.
<unk> been working through is just calculating.
The scale of that benefit.
To the project and so we understand it much better now so based on our current model as I said, we were just above.
<unk>.
Our guidance that we gave on the capital cost, but we are in line with the guidance that we gave on project returns.
We're deploying.
From where we were at originally on the project for deploying more capital.
But we believe securing still the same same equity returns.
Okay makes sense. Thank.
Can you talk about maybe.
The returns are.
Our target returns you're seeing in areas, such as Alberta or.
Ontario solar versus some of the returns that youre.
You are seeing in offshore.
So I think we would still expect to see.
On average better returns on offshore wind than you'd see on onshore solar.
But you have to kind of risk adjust that return as well to some extent with.
Yeah.
The amount of capital that's tied up on those projects over a period of time the execution risk so on a.
If you look at the portfolio on a portfolio basis looking at all of our.
<unk>.
Development assets, we would see some assets getting a lower return, but having a lower risk profile, which would be solar.
But still being materially accretive and then look at offshore wind getting a larger return in more meaningful capital deployment.
But obviously with the with the more more execution.
Our risk that we have to properly manage.
Okay and do you maybe just.
And my last one is I know you're saying.
Most of the friction on Capex that offshore wind.
And Thats, what youre seeing today.
But do you think there is.
Potential.
Whether it's new turbines or inflation easing that that maybe you could actually be in the money.
Is that right or maybe capex is going to trend lower.
As you start to actually put these projects in service.
I think listen O'brien.
The capex be lower once you put them in service of our Capex is.
Maybe I misunderstood, putting our capex is obviously.
As you of course know locked in it.
At financial close when we when we lock all of the elements of the project down so the capital costs.
Mike benefit or the project wont benefit from any increase or enhancements and turbine technology.
Coming up over the next few years as you.
You've probably seen that there is.
We are deploying a 15 megawatt turbine on Baltic power. There's now 16, 17, 18, even 20 megawatt turbines under development.
All of that bodes well for offshore wind over the next decade.
That's why we think over the next decade offshore wind.
We'll continue to be a really interesting sector.
With the.
More demand than there are projects available around the world and.
More projects to build than there are talent to build them. So we think the talent that we have as a strategic advantage in the knowledge that we have internally as a strategic advantage in terms of bringing those projects forward. So I'd say, that's the kind of longer term view.
And if you look at projects like Scott wind and what we're doing in Korea, that's why we're very.
Bullish on those projects and think they are very important parts of our portfolio.
Over the next two years so.
Our view is that you got to be very very careful and very cautious because.
It's not just inflation, it's also supply chain constraints.
Within offshore wind, which I think we will get resolved, but they don't get resolved overnight.
So I think you've got to be very very cautious.
Okay alright, thank you.
Okay.
One moment for our next question.
And our next question comes from the line of Mike Mark Jarvi with CIBC.
Thanks, Good morning, I, just wanted to come back to Baltic tier one more time here and just in terms of offsets. So Mike you brought up going back one year on the indexation move to euro.
I also get indexation on poor CPI instead of the Eurozone is that favorable and then maybe just kind of quantify what these positive offsets to that.
Ultimate contract price and expectation for revenue that series.
So.
The indexation moving back a year is obviously very positive given what's going on in the last two years with inflation.
Euros Euro zloty to euros.
<unk>.
It brings in more liquidity and more panel.
The project financing so all of that.
As positive for the project.
On the.
The CPI <unk>.
It's fairly clear that it is.
On a policy of taxation.
Going forward certainly a lot of are we.
We still have costs in <unk>.
Polish zloty in terms of some O&M costs going forward, So I think thats, probably the rationale for that.
So, yes, so all of that together.
That puts us in a place for where our returns remain intact and yes. The one thing I would say to you is just whatever we use as an assumption I mean as you go through the Pf process as you can imagine with the number of.
Global lenders that we have plus multilateral as it goes through a much more rigorous process, we outline on on the assumptions and how it is going to be.
Structured in the financing. It's also a more advanced on that now as well so it can be a bit more.
What assumptions we're using.
Would you be able to comment in terms of where the pricing adjustment it would be today relative to where you thought it might be two quarters ago, we wouldn't disclose that at this point.
Okay.
And the common term pulling about the hybrid and sell downs and asset sales.
Can you comment on asset sales.
Are you more open to the idea of selling operating assets today than maybe you were.
A few months ago or a couple of quarters ago.
Selectively and if it is.
It's in line with our strategy and not moving on our strategic objectives, but.
But definitely I think we're always evaluating whether the whole decision makes sense for where our portfolio has grown in the last couple of years.
Okay.
And then lots of headlines around the north sea cluster with the partnership with <unk> around starting to work on supply agreements.
Because their updated views in terms of timing I was like when you start to get close to enough idea I suspect that's dependent on getting a corporate PPA just sort of updated views on whether or not you see that coming to fruition in terms of RFID in the next couple of quarters and how the returns are shaping up on the North Sea cluster project.
Yes, I mean financial close on North Sea cluster first phase.
It is in the late.
Late 2024 second phases late 2026, the procurement is.
Well advanced on the first phase now.
In other words preferred supplier agreements are being negotiated and finalized.
The ITT process, where you go out and run your first transaction without a baffle round. It all completed was wrapped up in January January February so.
Our view on the understanding of the capital cost and the project is now.
Crystallizing.
And we also have.
Improving view on what the revenue contracts or what the revenue contract could be secured out in the market currently as well so our understanding of.
The project economics, given all that's going on in the last year and a half and offshore wind in the world with macroeconomic swings.
Swings as it is now firming up on the North Sea cluster.
And would you say, it's gotten more positive or largely as expected.
I think where we're at is crystallizing that invaded crystallized so.
More to come.
When do you think you'd have some clarity on contracting is that something can be done.
In the next couple of quarters.
Yeah, Yeah, yeah easily.
Okay, alright ill leave it there thanks.
Sure.
Hi.
One moment for our next question.
Okay.
And our next question comes from the line of non <unk> of <unk> capital markets.
Hi, Good morning, just wanted to start off on until.
Until.
I think in the past you noted sort of a maybe.
Maybe a reluctance and less in your thermal.
I'm just wondering what makes this.
Project different with the expansion that you just got in.
In Ontario.
Yes, I mean, we've been very consistent and clear that we're not going to invest in any new.
Gas fired or any thermal generating facilities moving forward are deploying new capital into any new facilities.
With respect to this this is an upgrade of the facility, which is something that we always look at is whether there's an opportunity to upgrade or to enhance the value in any facility that we have.
It is responding to.
And express need in Ontario from the system operator for additional capacity additional capacity is.
Needed to better optimize.
The renewable fleet as well as provide.
Backup energy for the system.
When the renewable fleet is not operating so it's.
Consistent with what we tell our facility operators all the time as always look for more value or how can you create more value in the facilities that we have that is the most efficient capital to deploy.
Okay, that's very clear.
Scott can you give us a bit more details about the partnership understanding you cant disclose a lot of details about the agreement for now but just.
On the sort of the partnership going forward, who is going to be responsible for what does it change your contracting strategy at all for most projects.
Hey.
You broke up a bit this is Scott wind right.
Okay. Okay. Thanks, Angie so so we're I mean, we're really excited about this partnership.
ESB, obviously, a solid partner from a balance sheet standpoint, given their position in the Irish electricity sector.
But they've got lots of experience doing.
Onshore renewables.
In Scotland, and doing offshore renewables in Scotland, including currently with the <unk> project, which is at an advanced stage of development.
LNG <unk>, which is in final stages of construction.
So they've been through everything with all the regulators all of the permitting agencies.
At communities on the on the other coast, but filled with Scottish community. So.
We think they bring a lot of understanding of how to move these projects forward and.
And then what some of the risks and some of the things that we should be aware of so in our view number one.
It brings on a partner with a solid balance sheet for.
The projects in the two five gigawatts of projects, including the floating one secondly, it brings on a partner that.
<unk> I understand development and.
Scotland.
We know we developed.
Operating assets in Europe , but Scotland is still a new market every market has its unique characteristics or bringing on somebody that knows that market is really important.
And.
And we also the team worked really well together so I mean.
It was a long process with multiple bidders a formal process that we ran to select a partner.
So we spent a lot of time with the team at ESPN.
We work very well together, so that's an important piece as well because it's going to be a long.
Term relationship of course over 25 30 years on these projects with them so all of that.
Why were excited about it and then one last thing is that they also were recently awarded a floating side of their own in Scotland, So theyre going to be learning on their own as well about floating so I think that again gives us a bit more scale when we look at our floating project.
They all have one as well so.
I think we will.
It definitely de risks the execution of the project and.
It's going to make these projects are even more successful I think.
It sounds like it's quite similar to the when you expanded the partnership with <unk> in Germany kind of enhances the.
Potential things get on those developments.
Maybe just one last quick question on the sell Downs, Scotland is completed I think you were mentioning earlier that there is another process that you might be looking to pursue this year.
Any updates on that.
Sure.
So I mean, maybe I'll talk a little bit about how we've set ourselves up internally. So we have that we sort of created one overall transactions team know that so far the globe and the business units and so at all times Theyre looking at supporting sell downs in each of the business.
Unit.
For for asset sales and capturing value from where we've extracted value from their projects.
And overall I think still looking at opportunities for us to grow.
Through M&A, so that whole transactions team is active on that I would say a number of different files right now so which would include sell downs, but it also includes some other things. So I think we are at.
And sort of making sure that we are proactive and working on things that are not necessarily 12 months out that could be 2024, 36 months out and starting to work on them now.
Okay understood. Thank you.
One moment for our next question.
Okay.
Okay.
And our next question comes from the line of David Quezada with Raymond James.
Thanks. Good morning, everyone. Just just one quick one for me and it's on the theme of <unk>.
I guess inflation, especially for offshore wind turbines I'm just curious Mike. If you have any color you can provide on conversations you've had with turbine suppliers, obviously, they've been losing money and they're trying to put through price increases do you have a sense of how far along those price increases.
The how far along is that process of them trying to rightsize pricing, but their costs.
Okay.
I think we're in close as you.
If correctly assumed in close contact with.
Certainly two of the three major turbine vendors.
I think they are well advanced in terms of kind of better understanding.
Their input costs.
Think there.
As I said earlier I don't think we're out of the woods completely on inflation, but I do think.
There's a better understanding of input costs on the part of the.
Turbine vendors.
And a better understanding of from their standpoint of what.
From their shareholder standpoint, what reasonable and acceptable margins are going to be moving forward.
So I think the situation is beginning to stabilize that as I said earlier.
I mean, we're going to be cautious over the next few years I think we've kind of found ourselves too.
A good place on Baltic power.
And there's chatter sale sales too.
Optimal place on on high long, but.
But over the next few years I think.
We would be very careful just to make sure that we understand.
The input costs on our offshore wind supply chain and the risk profile of that supply chain as well just given some of the constraints across all elements of the supply chain in offshore wind.
Beyond beyond that period like I said I think.
The volume of megawatts needed gigawatts needed.
Renewable gigawatts needed in Europe and Asia.
Offshore wind.
Has to be a big big part of the solution, which is why you saw the declaration and I'll stand in Belgium, two weeks ago from all European leaders got together they don't get together for nothing they all got together to declare a target of 120 gigawatts in the North Sea by 2030, and then 300 gig.
Excuse me by 2050.
Similarly.
I think the federal.
The Prime Minister Trudeau from Canada is going to South Korea.
The next week.
Visit and a big part of our strategy is being able to provide renewable energy.
Two.
Industry in Korea.
Which again helps them maintain their access to markets around the world, particularly as carbon border adjustment markets measure started come into place in markets like the EU So long.
Long term.
Both on offshore wind.
But.
Short term I think we will be quite cautious.
I appreciate those comments. Thanks, that's all I had.
Okay.
Yeah.
And Mr. Crawley there are no further questions at this time I will now turn the call back over to you.
Okay.
Thank you, Sean and thanks to everybody for joining us today, we're going to hold our next call. Following the release of our second quarter 2020 results in August .
I'm going to get some lemon tea down my throat to make my voice a bit better. Thank you everybody.
Ladies and gentlemen that does conclude the conference call for today. Thank you for participating and have a pleasant day.
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