Q2 2023 Northland Power Inc Earnings Call

Speaker 1: Welcome to the Northland Power Conference call to discuss the 2023 second quarter results. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your phone. You will then hear an automated message advising your hand is raised.

Speaker 1: To withdraw your question, please press star 1-1 again. As a reminder, this conference is being recorded Friday, August 11th, 2023 at 10 AM. Conducting this call for Northern Power are Mike Crawley, President and Chief Executive Officer, Pauline Emechendani, Chief Financial Officer, Adam Beaumont, Vice President, and Dario Demetrijja, Vice President. 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 and be guided by its contents in making investment decisions or recommendations.

Speaker 1: The release is available at www.nothlandpower.com. I will now turn the call over to Mike Crawley. Thank you, Chris, and good morning, everyone. Thanks for joining us today for our 2023 second quarter earnings call. To kick things off, I want to reiterate that the health and safety of our employees and stakeholders always comes first.

Speaker 2: The past few months we have stepped up our executive safety walks on our construction and fabrication sites. Along with Yoni Fushman, our executive vice president, Legal Affairs, and Michelle Chislett, who heads up our Enchore Renewables Business Unit, I did a safety walk at our own Ida Battery Storage Construction site in Ontario last month.

Speaker 2: I was pleased to see a very clean and safe site and their site construction manager was promoting a strong safety culture.

Speaker 2: As I alluded to last quarter, there's no denying that macro market conditions overall continue to remain challenging for the off-shore wind sector this year.

Speaker 2: Several large offshore wind projects globally that entered into revenue contracts prior to the impact of supply chain constraints, capex inflation and higher interest rates are reassessing their viability. You've seen all the headlines in the last few months.

Speaker 2: The renewable sector has been impacted by high interest rates and inflation, and our share price has certainly been impacted because of the materiality of our two large offshore wind projects.

Speaker 2: I'm pleased, however, that we've been able to with our partners secure amendments, the indexation and denomination of the 1.1 gigawatt Baltic Power Projects Revenue Contract as previously disclosed. This restores our project economics, generally to what they were when we decided to enter the project in the first place, despite

Speaker 2: The inflation and high interest rates that have been experienced since.

Speaker 2: and on the one gigawatt high-long project

Speaker 2: We recently secured further improvements in the CPPA. Indeed, a series of operations on the project over the last year or so had helped offset a good amount of the CAPEX inflation that we've already disclosed.

Speaker 2: And as you know, on the third offshore wind project that we were working on that said an advanced stage, Nordic cluster, we were unable to see a path to improve economics after the impact of cat-packs inflation was confirmed. And we move quickly to exit that project, recovering all of our costs and securing a premium.

Speaker 2: The materiality of these two large offshore wind projects.

Speaker 2: It's also what will give us significant additional cash flow once the projects reach full COD in 2026 to 2027.

Speaker 2: Despite the challenging marking dish this year, off-shore wind does remain core to Northland's growth.

Speaker 2: We control over 6 gigawatts of leases for development projects in the K and Korea.

Speaker 2: And you've also seen the targets for offshore wind in Europe and other parts of the world over the next decade.

Speaker 2: I will provide more details on offshore wind later in my remarks.

Speaker 2: As shifting attention to the quarter.

Despite the aforementioned challenging conditions in the removable sector, our team completed our corporate funding plan this year with proceeds secured from our inaugural 500 million green subordinated notes issuance. This issuance is a final element in our external equity funding plan for the 2023 construction project, high-long Baltic power and the 250 megawatt-Oniada Energy Storage Project.

our investment criteria, including a Colombian solar project STUBA, a small write-off.

at the North Sea cluster, which I just mentioned.

and also monetizing some of the value in our growth pipeline with a partial selldown of our Scottish offshore wind project.

Now looking at the headline numbers in the quarter, we delivered the adjusted EBITDA of $232 million in the second quarter, along with adjusted free cash flow per share and adjusted free cash flow per share of 25 cents and 16 cents respectively.

Compared to the same period in 2022, our financial results were lower primarily due to the non-recurrents of the unprecedented spike in European market prices realized in the second quarter of 2022 last year.

Apart from that, a recent regulatory change in Spain and slightly lower production across offshore wind and onshore facilities also had some impact on our results this quarter.

As noted in our press release yesterday, we are though reaffirming the lower end of our full year 2023 financial guidance despite the impact of this regulatory change in Spain.

For those following our Gemini project app, we all are also pleased to see very strong production in July . For a month that has historically had very low wind resource. In fact, I think it's our strongest July at any of our offshore wind facilities ever.

Pauline will provide a more detailed look into the financial numbers later in the call.

Atturning back to our off-shore wind business unit, a key focus remains achieving financial close on high long, where we are nearing the final stages of approvals and diligence for projects financing, having finalized the banking group.

We are also focused on achieving financial close for Baltic power. The team is presently working through the conformatory due diligence stage, having received credit approvals and with the banking group finalized on that project as well.

Following our exit from the Nordic cluster project, reference above, we have no additional committed offshore wind project capital commitments over the next couple of years, other than high-long and Baltic power.

Cognizant of the current macroeconomic conditions affecting offshore wind, we will remain prudent with our pace and selection of future development projects.

Now, as announced in last quarter's conference call, following a competitive process, we signed a definitive agreement in May with ESB, a leading energy company in Ireland, for 24.5% interest in our 2.3 gigawatt Scott Wind, offshore wind projects. ESB brings a lot to the table.

as partners with extensive experience in offshore wind, as well as onshore projects in Scotland and England.

This is the first of our project's sell downs to close as implementation of that strategy accelerates.

This strategy overall will allow us to manage single project exposure, pull cash flow forward, recover DEVX, secure premiums, and reduce our reliance on equity raises to fund our own equity commitments on these projects.

There's now a team dedicated to such spell downs at Northland.

In terms of construction updates, an early works program.

and fabrication of key components continue to progress at high long. We also continue to advance the project financing moving towards financial close as we work on customary closing conditions.

Furthermore, last quarter we noted that High Long had successfully executed an amendment to the corporate power purchase agreement for High Long to be and three to increase the tenor by two years from 20 years to 22 years. Now, subsequent to the end of the second quarter in July , we secured further amendments to the CPPA.

that included extending its tenor by a further eight years from twenty twenty from twenty two years now to thirty years. Notably this extension makes a high-long CPPA one of the longest CPPA is an offshore wind globally. This is a significant de-risking of the revenue stream on this asset and will allow.

for value creating refinancing and debt re-emeritization after commercial operations is achieved. The high-long 2A and 3 CPPA extensions now puts our weighted average PPA life for our net capacity, including operating construction and capitalized projects to over 14 years.

Baltic Power is progressing well with the supply chain contracts for the project all signed and financial clothes expected to be achieved this year. The project has progressed across many development work streams working alongside our partner.

Our South Korean offshore wind project, Bato and Bobbe have both received all of their electricity business license, which is the first key milestone for the two gigawatt portfolio.

Moving to our onshore renewables business, the O'Neill de Battery Storage Project, which is among the largest in North America, achieved financial close in the quarter. Construction activities at the project have begun with road construction and site preparation. The project is scheduled to commence operations in 2025.

Commencing operations this quarter also was our 130 megawatt La Lucha Solar Project in Mexico, which achieved full commercial operations in June .

The project has been generating revenues since being connected to the Mexican grid earlier this year.

Our two onshore wind projects in New York are progressing well towards achieving commercial operations in 2023.

Furthermore, as announced in the first quarter, we signed agreements to sell 100% of the high bridge project.

with closing conditions of the sale expected to be met by the end of third quarter. This project no longer met our investment criteria due to cost inflation.

We also made progress on the permitting of our 1.6 gigawatt.

Alberta Solar Project portfolio.

Continuing permanent delays as previously disclosed resulted in returns that no longer met Northland's investment criteria Further, we concluded that the returns from the other Colombian project did not meet Northland's investment criteria either in the current environment We are committed to being discipline stewards of investment capital. So the result of that and our deep development pipeline We expect to come out of this year with three large and attractive projects under construction

With that, I will now turn the call over to Pauline for a more detailed review of our financial results. Thank you, Mike, and good morning, everyone.

Before I provide details on our poorly results for lease last night, I wanted to summarize the milestones the team has delivered in the first half of the year to achieve and de-risk our funding plan objectives that we set out at our investor date in February , despite the more challenging economic backdrop overall.

We advance on the financing of our projects with the Anida Energy Storage Project achieving financial closing May. This entails securing approximately $700 million in debt facilities for a 20-year term.

Upon achieving financial close in May, we provided final catbacks of the project, Northland's equity, non-recourse financing terms, and five-year projections of both EBITDA and free cash flow, which we will also do for the two other projects expected to achieve financial close in 2023. With respect to the two offshore wind projects, Baltic Power and High Long.

Many lenders are longstanding supporters of Northland and or our partners in our respective projects. We have also secured new global lending relationships which speaks to the quality of the projects, their long-term cash flows between 25 to 30 years, and our track record is a developer and operator of large complex offshore wind projects. Such relationships will provide us with a competitive edge that we will use to continue to advance a renewable growth over their long term. With substantial international experience and global support from a large group of financial institutions and ECAs, we are proud of how Northland is leading both project financing through necessary milestones on behalf of the company.

execution program for interest rate exposures before financial close. In addition, any construction costs with foreign exchange risk, which is applicable only to high-long will be hedged around financial close.

Additionally, as Mike mentioned, we closed our external funding gap noted at investor day with the successful issuance of the $500 million of green notes which was an over subscribed offering. Post-headges and tax deductions, the cost of this offering was approximately 6.2%, which review is being a good result for the business and our balance sheet as it was to cure it at least.

During the quarter, there was no activity in our ATM program. The ATM program has now expired in accordance with its terms similar to the company's short form based shelf practice in July . We have also made a positive start to executing our sell down strategy as evidenced through our announced partnerships with GENTARI on Highlong and ESB on Scotland. We executed on the Scotland transaction in the second quarter of 2023. We have two more sell down transactions planned for 2023, one of which includes the previously announced transaction with GENTARI following the achievement of Highlong financial close. We now have a dedicated team to analyze and execute on both sell downs.

Mike noted, cell downs will be one of the primary sources of value creation and funding over the next couple of years. And we continue to see strong and keen interest in Northland's development assets and our projects.

Through targeted asset sales, we will ensure that Northland remains disciplined and focused only on the core markets in which we have or have plans to achieve scale.

We regularly review our portfolio on pipeline as part of this and we have already started to demonstrate this discipline through the exit from the North Bay cluster in Germany and SUBA in Colombia alongside our partner EDFR.

As we progress with our key milestones this year, we'll be working on achieving the following objectives.

Financial close on high-long, including related hedging activities. Financial close of Baltic power, including related hedging activities. Closing one further early-stage development fell down in 2023. Closing necessary bridge financing to secure financial close, which will be subsequently be repaid in full when the fall down to Gentari is completed.

potential optimizations in light of recent merchant price volatility.

For clarity, other than closing on the respective project financings and the sell down to Gentari, there are no further anticipated external funding requirements expected to be required to achieve financial close. At this time, based on current market conditions and the current stage of the financing processes, management believes the company will have access to the necessary-

We delivered performance that was slightly below expectations in the quarter largely due to the unexpected regulatory change in Spain recently enacted in June . While the financial impact of the regulatory changes pushed out the timing of revenue recognition from 2023 to 2025 and beyond, the changes do not impact the

a fixed regulatory return structure. With respect to the performance by business units, in the quarter, the offshore wind segment generated the justity of a $121 million, which was $20 million lower than last year, primarily due to the non-reaccurrence of the unprecedented spike in market prices, and slightly lower production across all our offshore wind facilities.

Entrepreneur Renewable's Adjustity Bidah of $66 million was $41 million lower compared to the same quarter of 2022, primarily due to lower merchant revenue from the Spanish portfolio. Adjustity Bidah for efficient master gas facilities, a $49 million decreased by $40 million, which was expected as we had the one-time fee income received last year.

We generated a just a debauch of approximately $232 million representing a decrease of $103 million compared to the same period last year. Year over year results were lower, primarily due to the non-reaccurrence of the unprecedented spike in European market prices.

reduction in contributions from the Spanish portfolio and as a result of the one-time fee from Kirkland Lake for seed blast year.

With respect to our free cash flow and adjusted free cash flow, Northland generated approximately $41 million and $63 million in the quarter respectively. This compares to $145 million and $162 million in the same period a year ago. The reason for the year over year declines were similar to those contributing to the declines in adjusted e-bid.

to offshor when development assets in Europe and certain foreign exchange heads settlements in 2023.

On a per share basis, we generated adjusted free cashflow of 25 cents and free cashflow of 16 cents in the quarter compared to 70 cents and 63 cents respectively for the same period in 2022.

I will take a moment to further provide details on the regulatory changes that impacted or Spanish portfolio. For 2023, the regulatory posted price that was 208 euros per megawatt hour was amended to 109 euros per megawatt hour retroactive to Jan 1, 2023.

The reduction in the regulated post-it price has an impact on the band adjustment revenue that is recognized in 2023. While the band adjustment revenue is lower in 2023, it is only a matter of timing of revenue recognition under the regulated framework, and therefore it is not expected to impact the overall return of the Spanish portfolio.

We expect to achieve our designated regulatory return of between 7.1 to 7.4% over the remaining regulated asset life of the portfolio. There is no change in view on the portfolio or its value contribution to Northland. We've expanded honor disclosures with respect to Spain in both our press release and MDNA.

to reduce adjusted EBITDA in 2023 by approximately $90 million and adjusted free cash flow and free cash flow by $75 million as detailed in our disclosures. Included in these numbers was the reversal of $11 million of band adjustment revenue in the second quarter that pertained to what was recorded in revenue last quarter.

With the impact of the new regulatory changes as described above, the Spanish portfolio is expected to achieve a just a deep aduh of approximately 160 million in 2023, which is down from 220 million in 2022, and our prior expectations for 2023 of 250 million.

captured power prices that determine our merchant revenue for the first six months of this year were 75 euros per megawatt hour. For the remainder of the year, we have assumed 96 euros per megawatt hour to derive an average full year assumed price of 85 euros per megawatt hour. This compares the four prices in Spain of 107 euros per megawatt hour for the second half of the year as of June 30, 2020.

average annual EBITDA that was disclosed at the time was expected to be 90 million euros or 135 million dollars.

with the impact of the new regulatory changes and considering the actual amounts that we received since 2021 on a comparable basis over the same timeframe, the EBITDA is expected to be slightly higher at 105 million euros or $155 million.

From acquisition date to 2030, we expect average annual Adjusted Debidance to be approximately 95 million euros or $140 million, which is unchanged from our prior expectations.

Our expanded MDNA Discollegeers' Discollege should help investors and analysts who assess the value of our assets without taking into consideration any perceived volatility coming from the regulatory framework changes. Our investment thesis on spandermains in fact, despite all the noise from the changes that have occurred this year.

Despite significantly lower spain results, we are still reaffirming our full year 2023 financial guidance, but it is now expected to be at the lower end of the range. The noted impacts for Spain are expected to be partly offset by better than expected performance on other planned activities in 2023, including fell down. I'll speak to this more a bit later.

With respect to our balance sheet as of June 30th, Northland had accessed over $1 billion of available liquidity to help us fund our committed projects. We continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow, bolster our corporate liquidity, and ensure that Northland remains in a solid position to fund financial close for the committed projects.

Our core balance sheet management philosophy for new growth beyond high-long and bulk to car remains unchanged with the priority to mean our investment-grate rating, secure non-recourse funding for projects, and fund our share of equity through sell downs and or non-core asset sales strategies.

Securing new asset-level partnerships in 2023 will give us an opportunity to broaden these relationships across other projects in the portfolio.

Lastly, turning to our 2023 reaffirmed financial guidance for Justin D. Vida, we expect to generate the lower end of the range of $1.2 and $1.3 billion this year.

For free cash will per share, we expect the range to be between $1.30 to $1.50 per share. While for adjusted free cash will we expect the range to be $1.70 to $1.90 per share also at the lower end of the ranges.

As noted in prior quarters, our previously disclosed 2023 guidance ranges for our non-ISF-MEasures, including Adjusted for Cache Low and for Cache Low, did not assume any cell-down proceeds. And as such, net proceeds from cell-downs increase a reported non-ISF-MEasures only when they occur.

We regularly review or non-IFRES measures, at least annually, to ensure they appropriately reflect the financial performance of our business. Within the Q2 materials, we made some changes to our non-IFRES measure definitions to accommodate for the transactions which occurred during the period and the economic reality of our ongoing business performance.

All of the definition updates are included in our MDNA alongside a full reconciliation from the prior and updated definitions and supporting rationale.

The most notable change is that we made an amendment to allow for the inclusion of gains from partial asset sell downs in adjusted EBITDA as this approach better aligns with Northland's ongoing strategy to continue to execute on securing partnerships through sell downs. And it also better aligns with definitions as per the majority of our peers.

In conclusion, while there are a lot of puts and takes within our quarterly results due to the regulatory changes in Spain and the first gains being realized from our partial asset fell down strategy, we have made substantial progress in derisking our corporate funding needs and continuing to advance high-long and ballistic power.

We look forward to continuing to provide you with updates on the projects as we work towards solidifying financial clothes this year. I will now turn the call back over to Mike for his concluding remarks.

Thank you, Pauline. As Pauline mentioned, we had a good quarter with many accomplishments and some noted challenges. Looking ahead, we have some big milestones this year for further acceleration in our growth. Our teams continue to work to achieve these milestones and we look forward to updating you on our achievements that will set us up for another strong year.

in 2024. As I have 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.

Chris, please open the line for any questions.

Thank you.

As a reminder to ask a question, please press Star 11 on your phone and wait for your name to be announced. To address your question, please press Star 11 again.

Stand by as we compiled a Q&A roster. And one moment please for our first question. Our first question will come from David Kuzata, a Raymond Gaines. Your line is open.

Thanks, morning everyone. My first question here just on financial clothes at Hyowong. Do you still expect that for three queue or could you see that shift for you and just any color you can provide on how the project financing has shaped up there compared to your expectations?

Let's start with that. We're very pleased, I mean, we've announced that the lender group is finalized on the project that we're in, kind of the final stages on the financing, but our guidance to the market remains the same that we would be closing this in 2023.

Yeah, the reason for that really is because, you know, when you look at what's left to do between, you know, direct agreements with suppliers, legal opinions, final technical court reports. A lot of that is from third parties, which isn't fully within our control, but we are working to advance through the financing.

Thank you for that. Maybe just one switching gears a little bit. Some of the changes they've made in Alberta or I guess a pause on approvals. Does that affect any of the projects in your pipeline there?

So on the CPPA, as we've disclosed before, there's very strict confidentiality provisions around it. So the one thing that we are able to disclose, as we did before, is PENR, but we are not able to disclose any other details in the CPPA, unfortunately. The one thing I'll add to that is that the financing is fully negotiated, so making any commitments now would require opening up everything and basically going back, which we wouldn't do at this point. I think the main optimizations now that exist for us, given the long tenor, is the refi.

initial activity on the financing certainly as as lenders kind of digested what what the uh... that activity in what some of the reaction to it meant so that that was one of the reasons for uh... the financing taking a bit longer the other reason is that the uh... there is a project in tyrant the uniline project which is achieved uh... some

significant challenges on construction.

and our site are significantly different from that project, which we were able to do successfully, but those two things took a lot more time. And what we also did was significantly increase the ECA coverage up to 90%, export credit agency coverage up to 90%, to give lenders more comfort around the...

the risk for seeds or otherwise related to the spike intentions across the Taiwan Strait. So that took some additional time to secure that extra coverage. But all of that is done. And so as Pauline mentioned, we're into kind of the final stages.

Russia is working collaboratively with the ECAs to get to the right long-term outcome for high-long and their partners.

That's useful detail. Thanks very much, guys.

Thanks very much, guys. Thank you.

And one moment please for our next question.

The next question will come from Nelson of RBC capital market. Your line is open.

Great thanks, and good morning, everyone. First question relates to high long. So I've seen the balance sheet that your carrying value is about 720 million. So you've obviously put in a lot of capital into that project.

Are you able to kind of roughly quantify how much more equity you need to put into HiLong on financial close or up until financial close? Like are you getting pretty close?

Okay, so what I'm gonna do is refer back to investor day where we showed how much capital would be needed to go into high-long Baltic in the night of this year, which is the $2.2 billion plan. That plan is unchanged. However, the way that the structure of high-long works is that we fund at 60 percent, at financial close, we fund at 60 percent, and then the sell-down occurs at financial close plus one. So within a short period of time after Gentari will come in for their share of 30 percent. So what you see right now in the financials is the funding at 60 percent.

But it's easier to refer back to the investor day plan, which is unchanged. Are you able to say?

We haven't invested our full stake yet. I mean, the funding goes in, so we're equity first and we're funding every single month. We will probably be fully invested in HyLong from a cash perspective at least by December of this year so that the money goes in first before you draw down on the project finance. Probably funded from a 60% perspective or from a 30% perspective? So funded from a 60% perspective to financial close and then effectively reimbursed for the 30% after financial close because the sell down.

year has increased by 27 or 28%.

I think it's due to higher maintenance costs, but you guys have long-term O&M contracts, right?

Is the additional work that's taking place this year outside of the scope or are there inflation step ups in those contracts and.

Should we expect to see costs come down in 24 or stay the same? Can you just provide a bit more color on the O&M side?

There's nothing unusual on the O&M activities on our offshore wind projects this year.

The main bearing assembly replacement was completed last year on the North C1 project, so otherwise it's typical maintenance activities that are scheduled on the project. The contracts do have inflation indexation in them, so you see some impact of that.

But there's nothing unexpected beyond that. Okay, so the 2023 costs are normal, whereas last year they were a bit.

Bit low yeah, it will get back to you and confirm whether there's any

unique kind of major maintenance that was scheduled for this year that's non-recurring, so we'll get back to you and confirm that offline.

Thanks, and then just one quick one on LaLucha. So you mentioned that it's reached, it's been commissioned, so congratulations.

Can you just comment if the project is currently merchant or contracted and I think you indicated that there's, I guess, 6M EBITDA contribution this year.

is currently merchant or contracted and I think you indicated that there's like a six million EBITDA contribution this year. Does that...

imply whether it's a $12 million or $10 million. Okay. It's merchant currently. Yeah.

Okay, so is it fair to just double the six million to assume the run rate?

Okay. So, is it fair to just double the 6 million to assume the run rate?

for now. We're looking at all best value creation options for each other and we'll reach out to them for now. I think that's a good assumption.

value creation options for Leloucha, but for now I think that's a good assumption. Okay, thanks. I'll leave it there.

Thank you.

And one moment please for our next question.

Our next question will come from Nicholas Bojchuck of Coremark Securities. Your line is open.

Thanks, good morning. Looking at the realized power prices on the offshore platform and some of the curtailment measures and how that's been playing out, can you comment on how that's compared to your initial underwritten expectations?

those assets so it's kind of a return back to normal conditions. For any investment we always do a detailed study of the grid to be able to forecast with an independent engineer to be able to properly forecast curtailment risk.

and the range of risks on curtailment, then you map that back to the protections that you would have under your revenue contract, and if there's a route to market PPA as well under that PPA, you can come up with a plan that has not been treated like normal PPA on treats.

a final assumption. And then of course all these projects are project finance so the lender's technical advisor is very much involved in that assessment too and so there's a lot of diligence and that goes into that forecast. Okay and so it's fair to say that what you're seeing right now from a performance standpoint is in line with the underwritten return expectations? Absolutely.

Moving to the corporate GNA and administrative cost lines, it seems like there were some expenses this quarter for personnel and other supporting costs. Can you comment on where those dollars were spent and if any other additional headcount expansion is going to be needed moving forward for new growth platforms or anything like that?

No, I think there were some non-recurring items in the G&A this quarter. So I think the full year G&A expectation is in and around $75 million, we call it. So we would expect that to taper down over the next couple of weeks.

we'll be looking at the right corporate structure going forward for the pipeline that we have on our balance sheet. Thanks. And then last one for me, just there was an inclusion of $23 million from the gain of a partial asset sell-down recognized and adjusted to this quarter. Can you guys comment at all on how much the back half is going to include of a similar gain recognition and how much that's going to factor into them? Are you guys meeting the lower end of your guidance for the full year? I think hopefully we've given you enough information to make an assumption of what we expect to get back on the lower end. We don't give any specific guidance.

for this year. So to give you just a rough range.

Thanks Mike. No problem. Thanks Mike.

Thank you. And one moment, please, for our next question. Our next question will come from Mark Javi of CIBC. Your line is open. Thanks. Hi, everyone. Just in light of where the share price has gone, and obviously it's not lost any of the higher cost of the capital right now, does that change at all in terms of where you're putting your prospective dollars, how hard you push on, I guess, the smaller onshore projects versus the big offshore projects? Ultimately, I guess, it changed hurdle rates when you're thinking about capital climate today. No, I mean, I'll say a couple of words and Pauline should jump in, too.

The restructuring of the business by business unit was in part designed to generate further growth in onshore renewables and balance out our portfolio both in terms of capital costs but also in terms of cash flow and when cash flow is delivered and also just in terms of risk profiles.

We have a mix of projects and also diversity of asset classes. So for example, right now where you've seen significant cost inflation in offshore wind and some cost inflation in onshore wind, there actually has been in the last six months, now there is an increase in the amount ofTypically existing assays

a downward trend in cost of solar in many areas.

ways. So having a diverse...

pipeline positions you to be able to continue to grow even as market conditions change through cycles. So I think what we would see

Over the next few years what we're focused more on in terms of kind of new projects would be more onshore projects as High long and Baltic power move through construction and we'd be focused on developing an offshore wind pipeline that would be in a position to FID Towards the back half of this decade and even into the first part of the next decade and that's kind of how we're managing

our pipeline. And in terms of cost of capital, we're still seeing a lot of interest at the asset level. And so that's why we initiated our partnering and sell-down strategy last year. And as you can see, this year it really is accelerating and so bringing in partners.

Anything in terms of just upward bias on return expectations, in terms of what your rail rates are now? Well, I mean, so in terms of – yeah, in terms of cost of capital, in terms of CapEx inflation, what we are seeing, I would say, is now some upward movement in revenue contracts for offshore wind projects, but also for onshore renewable power projects as well. So you're starting to see a bit of a market correction there, which is good. So I think –

that would imply both an offset to inflation but also a recognition of a higher cost of capital for the investors in those projects. Yeah, and then I think what's important also, you know, beyond the returns is the risk, right? So when you sign a PPA, you know, I think it used to be, you know, you signed a PPA and you assumed

relative stability on the cost side, but ensuring that you've got the flexibility in the terms and conditions of any PPA so that the developer isn't left holding the bag on cost increases. So I think that piece has to normalize through in terms of what's happening in some of the discussions with off takers globally. But I think that is a key element to ensure that with the returns that we develop.

But that type of risk we would not see taking on going forward.

Got it. And just last question for me would just be, you know, if the share price stays here, do you considering are there options to try to highlight value of your portfolio growth pipeline, or do you just stay the course and play the long game here? You obviously have to talk to a lot of new equity to get through financial goals and the big projects. So you just, you know, take a patient and you can improve the market out here in terms of being able to surface value or anything else you contemplate.

I didn't hear the first part. It just broke up a bit. Could you just repeat it again, Mark, please? Yeah, I was just saying, if the share price stays where it is here, it's depressed and some doubts here, do you consider anything else to try to highlight the value of report flow in development pipeline, or just play the long game and just ultimately hope that you get rewarded as you de-risk the big projects going forward? I think what is...

What NorthClan's strength has been is being able to, number one, look out towards the horizon and get ahead of things in terms of developing a strong pipeline, in terms of making sure that we have the

capital to fund our growth and getting ahead of those requirements. So that's what I think has stood us in good stead over what has been a really difficult year the last year for the renewable sector in general and offshore wind in particular.

So that would be our approach going forward, making sure that we maintain a robust pipeline that will….

market conditions had changed and impacted the returns on those projects. I think that's really what our approach is. What we would be looking at doing, as we already talked to the market about, is really in the near term significantly reducing our reliance, of course, on equity issuances until the share price recovers and looking more at monetizing the value of our pipeline through sell downs, to use that to help fund our equity commitments to those projects.

to see the value in our pipeline and gives a marker for investors to see the value of the pipeline not just down the road but also in real time.

Okay, that makes sense. Thanks, Mike. Thanks, Colin. Thank you. The one thing I would say, Mark, is what is clear.

What is clear is that over the next decade, there's going to need to be a lot of renewable energy capacity built in Europe , in Asia, in North America.

where there's value is going to be in controlling projects, controlling sites, controlling offshore wind leases over that period of time. That's fundamentally where the value is in Northland, both in our pipeline but also in our existing assets and looking for ways to help.

to optimize those assets, to extend leases, to extend permits on those existing operating assets as well.

Okay, thanks Mike.

OK. Thanks, bye. Thank you.

One moment, please, for our next question.

The next question will come from Andrew M. Kooski of Credit Suisse. Your line is open. Your line is open.

Thanks. Good morning. I'm going to put the picture in the middle initial just for extra measure.

You know, you mentioned earlier on the challenges in the renewable space, which we've seen from just the share prices broadly in the market. If, um, you could maybe give us some context and color from your own perspective and vantage point on transactional comps.

in the marketplace, whether there's been notable differences by generation type, geography, as it relates to discount rates, return expectations, multiples. And I ask the question in part because

From a public standpoint, we've seen a pretty wide dispersion of multiples in some transactions where we've seen high single digits, EV but DAW, and then we've seen sort of mid-20s. This is from your vantage point and what's relevant to you.

What have you observed and what kind of changes have you seen over the last, say, year or two?

Well, certainly at the asset level, I mean we continue to see high valuations for offshore wind projects and assets. So one key marker that we've seen, a number of you on the call would have seen, was the sale of park wind.

Jira a few months ago so that certainly is one marker and gives you a sense of kind of

one valuation on offshore contracted offshore wind assets. In terms of offshore wind leases, the clearing price in the recent German auction for leases gives you a sense of the value that is still attributed towards those leases. It's no secret that the issue for offshore wind is a

most everybody that's clear, which is why these leases are clearing at really high prices and which is why we've been very deliberate and focused on securing leases in markets where we could at lower valuation or lower prices where we could find markets where that rewarded development skills that we have such as Scotland and Korea.

So that I think is a clear signal of how the market views the growth of offshore wind going forward and the value of those leases going forward. The issue has been over the last year is where projects have secured revenue contracts, sometimes in competitive, very competitive processes, before they've locked down their capital costs and locked down their financing costs, right?

And so what Northland has done, spent a lot of our energy and effort over the last year is on finding revenue cures to Baltic power and Ha Long to offset those capital cost increases. And where we haven't seen a path to revenue cure, we've exited like on North Sea cluster. So we've shown discipline to exit where we don't think we can restore our economic...

and on development assets and offshore wind, we believe has a lot of value and we believe that the transactions that you've seen in the market.

would support that. Similarly on onshore renewables in terms of the sale of portfolios, development portfolios over the last year, last two years, there still continues to be strong interests.

which is why we see a lot of value in our portfolio in Alberta, subject to the comments about making sure that those projects are, as we believe, not impacted by the pause in that province and why we're focused on building out of storage portfolios. We've got currently building the largest...

storage project outside of California, I think, in North America with the Oneida project. And we've got a team that is focused on developing a further pipeline of storage projects in the markets where we're currently active as well.

I appreciate that color and context and then maybe just building upon the duality you have with the dichotomy of

Very good competitive positioning on the offshore, but it's a long duration, high capital cost game.

And then maybe onshore where there's less competitive advantage, but you've also got much faster cash conversion time.

How do you think about just the balance of the company on a go-forward basis between offshore and then onshore activities? We would still see the majority of our capital being deployed in offshore wind going forward.

probably the majority of our DEVEX going to offshore wind going forward, but we would see more DEVEX than previously going into onshore renewables and more CAPEX going into onshore renewables in the near term, particularly as we work through the construction program for Heilong and Baltic Power. And for onshore renewables, your description is...

is accurate in my view. I think you've described it well. For us, the key with onshore renewables is to pick markets where we can get scale, where we have confidence in the growth for renewables, and where we can execute and where the permitting regime is predictable. That came up in an earlier question.

And we believe not only is this going to be a good place for our capital to invest in those projects, but we're going to create good investment opportunities for partners to come in on those projects going forward too.

Okay, that's great. Thank you very much for your time.

Okay, that's great, appreciate the time. Thank you.

One moment please for our next question. Our next question will come from Ben Sam of BMO. Your line is open.

Hi, morning. I want to start with funding, going back to that topic. Yvette, the ATM expires, mentioned no external equity. Can you confirm that you have no intention to renew the ATM this year?

We can confirm that, yes. Okay. And then secondly, your partner Orla on bulk power, there's some press around CapEx numbers being disclosed. And then finally, your partner Orla on bulk power, there's some press around CapEx numbers

4.7 billion euro, 4 billion X interest, I think is what the adjustment is. Can you also comment, is that the newer CapEx for Baltic power, and should we be comparing your guidance to 4.7 or the lower 4 billion?

Apples to apples. So our guidance is and has always been according to our bank model or our lender model, so that covers all of the capital that we expect to spend on a project. And so our guidance that we gave previously that this would be, the cost would be slightly above that prior range.

of $6 billion at the top end. That maintains our, that is our guidance. I mean, there'll be some movement around for FX and final interest rates. And that's why we always say there's a bit of movement, bit of buffer, but our guidance is the same. That it is going to be slightly above $6 billion.

Okay, so this is really something like comparing 6.5 per orland to tier six, roughly. We said slightly over six. If you want to put a range about it, maybe five to 10% over 6 billion. Again, it'll solidify. Again, the contracts are now signed. All of those last variations in the assets Loganisconsin has to provide.

And there's a few open items with respect to hedging, which will be closed before financial close. It's hard for us to pinpoint a number, but it's unchanged from last quarter.

Our disclosure includes what our capital costs are, including contingency that we expect directly from the lender model that we would expect to use on the project. Orlan discloses.

according to their own criteria of what the scope should be. Yeah, okay. Okay, that's helpful. Thank you.

Thank you.

Thank you. One moment please for our next question.

Our next question will come from Najee Badon of IA Capital Markets. Your line is open.

Hi, good morning. Just on the Haileong corporate PPA, pretty impressive extension there. Can you just talk about how this was secure, the process behind getting that extension? And maybe you can speak to sort of the corporate power market dynamics in Taiwan and other markets that you're focusing on.

Taiwan, starting in Korea now too, and in North America, we're seeing broader interest in corporate offtake than a year ago. We're seeing, generally speaking, higher prices on corporate offtake on renewables than a year ago.

I mean, I suppose none of that should be a surprise just in terms of corporations moving now more aggressively towards net zero targets and decarbonization programs. So that is, in our view, one of the really positive trends of the last year.

On Hai Long and Baltic as we talked earlier in the call, we've been really focused on the last year and a half in looking for

ways to offset any impact of higher interest rates and capital cost increases that have occurred in the sector over the last year. Broadly speaking, there's been a lot of activity and a lot of focus and we believe a lot of progress and success in that area on both projects.

I just leave it at my broader statement that we are – have been working really hard on optimizing those two projects over the last year to maintain or restore economics on them. And obviously you talked a little bit about being more focused on certain markets, exiting North Sea. We're seeing other players as well exiting markets or contracts. I'm just wondering if you can give us an update on are there other markets that you would potentially be looking to exit? And I appreciate your comments on sort of your long-term commitment on Colombia, but Mexico potentially is not a core market. So I'm just wondering if there are other –

areas that you're thinking of that would be considered non-core today? No. So what I would say was our team is focused on, this dedicated team is focused on sell downs and asset sales. So in markets where we either have scale or see an avenue to develop scale, those are defined as core markets.

And anything that doesn't meet that criteria is defined as non-core and will be under review to see what generates the most value for Northland overall.

So there could be others. Okay, thank you.

The point around the benefit of a big portfolio allowing us to be selective and disciplined is it's not just something in our opening remarks on these calls, it is real, right? So we are able to now take a look through this development portfolio that we've built up and select the markets, the projects that are going to return.

offer the most attractive returns on a risk adjusted basis, proceed with those and be disciplined in exiting other opportunities or even other markets where the investment thesis has not held. I think that puts the company in a very strong position moving forward.

That's very clear. Appreciate the details.

That's right there. Appreciate the details. Thank you.

One moment. And Mr. Crawley, there are no further questions at this time. I will now turn the call back over to you. Okay. Well, thanks to everyone for joining us today. We're going to hold our next. Thank you for your continued confidence and your support.

Ladies and gentlemen, that does conclude the conference call for today. Thank you for participating and have a pleasant day.