Northland Power Inc.

Welcome to the Northland Power Conference call to discuss the 2023 first quarter results. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star 1-1 on your telephone. As a reminder, this conference is being recorded Wednesday, May 10, 2023 at 10 a.m. Conducting this call for Northern Power are Mike Crowley, President and Chief Executive Officer, Palim Allen Shandani, Chief Financial Officer, and Waseem Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northlands 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 and are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents in making investment decisions or recommendations. The release is available at www.northlandpower.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. We're going 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. To kick things off, as we always do, I want to reiterate that the health and safety of our employees and stakeholders always comes first. Our rigorous adherence to our health and safety protocols ensures the safety of our employees while also allowing us to maintain high levels of 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. Jakob has over 20 years experience in renewable power health and safety and is currently the volunteer chair of G2, 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 in 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 $0.72 and $0.62 respectively. Compared to the same period in 2022, 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. That 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 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 Northline 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. Positioning ourselves in the right markets has been one of the key drivers for our growth. We are already in some of the most attractive markets for offshore wind, both mature markets like Germany but also emerging offshore wind markets like Poland. With 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. Now, speaking of Canada, we have brought more focus to our home market, acquiring our first utility-scale battery storage project in Ontario named Oneida, and it positions ourselves in the battery storage market going forward, which is expected to grow significantly. At 250 megawatts, it will be the largest battery storage project in Canada and among the largest in North America. In the quarter, the project successfully executed a 20-year energy storage facility agreement, a revenue contract with the independent electricity system operator here in Ontario. The agreement will provide fixed monthly capacity payments for the majority of the project's 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 of senior and unsubordinated debt as the project advances towards achieving financial close. While we expect this to happen within the second quarter, and full operations are expected in 2025. We also secured a 1.6 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, at High Long, early construction work and fabrication activities continue. The project received its major construction permit, as planned, which allowed us to commence with in-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 Heilong 2B and 3 that results in the extension of the CPPA tenor by two years from 20 to 22 years. At our Baltic Power offshore wind project 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 CFD has been changed from Polish zloty to euros, and the indexation base year was moved up one year to 2022, which provides economic benefits to the project. The continued inflationary price environment that 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 costs is expected to be almost fully funded by non-recourse debt and the CFD indexation at economic value. As a result, Northland's 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, a leading energy company in Ireland, for a 24.5% interest in our 2.3 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 Northland to help build on the development progress we have already made. ESB were selected primarily because of their extensive experience in the offshore wind sector with investments into NNG and Inchcape, both in Scotland, as well as Galloper in England and the five estuaries early development stage project. Northland will continue to lead the development of the project, working with ESB, who will bring the benefit of their experience in Scottish offshore wind development, permitting and construction. And moving to South Korea, a major emerging offshore wind market, we've been awarded electricity business license, or EBLs, for the entire one gigawatt Datto Ocean project, and work continues on securing the final 200 megawatts of licenses for the 600 megawatt BaBe project. Turning to our construction activities, our La Lucha solar project as well as the New York onshore wind projects are progressing towards commercial operations this year. At La Lucha, the project was connected to the Mexican grid and energize. We are now coordinating with relevant authorities on the final procedures to achieve full commercial operations. Now lastly, at our Thorold natural gas facility in Ontario, Canada, as part of North Island's strategy to optimize existing operating facilities to enhance value and performance, we plan to carry out an upgrade of the 265 megawatt facility. The optimization will result in an increase to the electricity generating capacity of the facility by 23 megawatts and will help support the Ontario government's energy transition and security policies. As part of our optimization, the facility in Northland was awarded a five-year extension of the PPA for Thorold by the ISO from 2030 to 2035, which will provide an additional fixed contracted revenue stream for Northland. The upgrade 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. Last night, 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 our expectations and positioning us to reaffirm our full-year financial guidance. In the quarter, we generated adjusted EBITDA of approximately $352 million and representing a decrease of 16% or $68 million compared to the same period last year. Year over year, results were lower, primarily due to the non-recurrence of the unprecedented spike in market prices realized in the first quarter of 2022 at the Gemini facility and the Spanish portfolio. Realized that Just a Deep Adoption Gemini in the first quarter of 2022 was approximately $31 million higher compared to the first quarter of 2023 largely because of higher market price lows. Similarly, adjusted EBITDA from the Spanish portfolio was $11 million higher in 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, the significant factor contributing to the year-over-year decline was due to the non-recurrence of the unprecedented spike in market prices realized in the previous year. This was partially offset by gains from foreign exchange head 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 of 72 cents and free cash flow of 62 cents in the quarter compared to 84 cents and 77 cents respectively for the same period in 2022. I want to take a moment to discuss the revenue mechanism for our Spain portfolio. For a given year, both merchant revenue and the corresponding band adjustment are recognized in our adjusted EBITDA, adjusted free cash flow, and free cash flow measures. For 2023, the regulator's posted price increased to 208 euros per megawatt hour from 122 euros per megawatt hour in 2022. However, during the first quarter of 2023, pool 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 merchant revenue. For 2023, we have re-forecast our expected pool prices using the actual pool 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, we are now expecting adjusted EBITDA from the Spain portfolio to be $16 million lower and free cash flow to be $23 million lower relative to our original expectations when we set guidance. In spite of these 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 in our revolver to help fund our committed projects. The decrease in our position from the prior quarter is the result of capital investments into our high long and Baltic Power offshore wind projects, as both projects are being kept on schedule in order to proceed to financial close. We continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow, bolster our corporate liquidity, and ensure that North End remains in a good position to fund our committed projects. We intend to utilize non-recourse project-level financing as the primary source of our funding, with our equity requirements expected to be supported by cash on hand, proceeds from sell-downs, asset sales to use as corporate hybrid rent, and to a lesser extent, equity issuances. During the first quarter, we took a more moderated approach to our ATM program. In aggregate, we issued approximately 1.2 million common shares under the ATM program for gross proceeds of $42 million. We also completed the extension of the maturity for EBSA's non-recourse credit facility from December of 2024 to March of 2026 at effectively the same interest rate. The EBSA facility is denominated in Canadian dollars, and Northland has hedged the principal amount 100% against the Colombian peso. As part of the extension, the company realized a hedge settlement gain of $22 million, which offset a weaker Colombian peso since the loan was originally restructured in December of 2021. The cash gain will be equally recognized in Northland's adjusted free cash flow and free cash flow over the four quarters of 2023 and was already included within our 2023 financial guidance. Lastly, concurrent with the extension of the PPA for our Thorold natural gas facility, we completed a restructuring of Thorold's project debt that resulted in an additional financing of $26 million to finance the planned upgrade. The restructuring also resulted in a decrease in the all-in interest rate to 6.4% from 6.7% and a reduction of certain LC requirements. This transaction was accretive to our financial metrics. Turning to 2023 financial guidance, as disclosed within our results last night, we are 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 $1.30 to $1.50, while for adjusted free cash flow, we expect to generate $1.70 to $1.90 per share. As a growth company with a significant pipeline of development projects, Northland is committed to unlocking value by deploying early-stage investment, or DEVX, to advance their projects. As such, in 2023, we still expect to deploy development expenditures of approximately $100 million, or around 40 cents per share, to fund expenditures to advance secured projects. This would include expenditures on our Scotland offshore wind projects, the Korean projects, the recently acquired Alberta solar portfolio, in addition to other Canadian and 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 the reported free cash flow in the event they occur in 2023. Before I turn things back over to Mike, I want to take a moment to speak to our ongoing finance activities underway. The project finance projects for each of the three projects that are currently expected to achieve financial close this year, being High Long, Baltic Power, and Oneida, are currently progressing and an aggregate estimated to match a requirement for $12.5 billion of project finance debt this year. All three processes are in active work streams at various stages with resources and efforts focused on securing all necessary milestones and conditions precedent to achieve financial close. ANIDA is nearing the late stages to achieve financial close, while at Heilong, the final credit approval process was launched in March to secure the necessary funding. At Baltic Power, we are working through the due diligence and documentation process to begin to secure the necessary credit approvals. With respect to interest rates 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 costs not met with the funding currency will be hedged by financial close. Collectively, the project finance processes are being supported by a diverse group of Northland's 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 both Northland as a sponsor and our projects. I will now turn the call back over to Mike for his concluding remarks.