Earnings Call: Q1 2021

May 13, 2021

Earnings release

Ladies and gentlemen, thank you for standing by. Welcome to the Northland Power Conference Call to discuss the 2021 First Quarter Results. During the presentation, All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded, Thursday, May 13, 2021 at 10 am. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer Pauline Alimchandani, Chief Financial Officer and Wasim Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northland's 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 Specsed or forecasted results. Please read the forward looking statements section in yesterday's news release announcing Northland's power results and be guided by its contents in making investments, decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Mike Crawley. Please go ahead. Thank you, operator, and good morning, everyone. We also have David Pavel joining us today. David is the Executive Vice President of Development, of course. And he's joining us from Tokyo actually where he's been spending the pandemic Focused on a lot of our growth opportunities in Asia. So thanks to everybody for joining us this morning. We will review our first Quarter 2021 financial results on the call and operating results. Following our prepared remarks, we will take your questions from analysts. To kick things off, we want to reiterate that the health and safety of our employees and stakeholders comes first. Through diligent planning and rigorous adherence to health protocols, we have maintained high levels of facility availability, delivering essential supply of energy To consumers and businesses in Europe, Canada and Colombia. First, looking at our financial results for the Q1, We reported adjusted EBITDA of $360,000,000 compared to $421,000,000 in Q1 2020, Representing a 14% decrease. Our free cash flow of $134,000,000 was 36% lower compared to $211,000,000 in the same quarter of 2020. On a per share basis, we achieved $0.66 in 2021, which compares The $1.02 in 2020. I would point out though that the majority of the decline year over year is attributable to lower wind resource At our offshore wind facilities in 2021 compared to the Q1 in 2020. That quarter was a very strong one for offshore wind production with wind generation well above long term averages. What we saw in the Q1 2021 in the North Sea is closer to normal winter wind speeds, albeit somewhat lower than the long term average. Pauline will provide a more detailed look into the financial numbers later in the call. Strategically, we continue to build momentum on both our short term and long term growth initiatives to position ourselves for success. Northland has a growing footprint globally with positions in key growth markets to participate in the global decarbonization efforts underway. And subsequent to the end of the quarter, we expanded this footprint. 1st, as we outlined in January, we announced our entry into Poland for the Baltic Power Offshore Wind Through our partnership with PK and Orland, the Polish oil and gas company, a very strong and influential partner in Poland. We completed the acquisition on March 24, 2021. The partnership will provide Northland with a 49% interest In a mid stage offshore wind development project with the potential of up to 1.2 gigawatts of capacity We built in the Polish Baltic Sea in the middle of the decade. Baltic Power provides Northland with a scale entry into a new market Alongside a strong and influential local partner, it gives us a healthy balance between reducing the risks of new market entry on the one hand And development opportunities to extract value on the other. The project will benefit from the 1st round of revenue support through a 25 year contract for difference Offtake agreement with the Polish government. Following the closing on March 24, the project filed an application with Poland's Energy Regulatory Office And we expect to receive approval for the CFD in the coming weeks. We expect to reach financial close for the Baltic Power Project 2023 and commercial operations in 2026, which fits nicely with our other offshore wind projects in Asia. While offshore wind remains our primary focus to achieve our long term growth objectives, we are also enhancing our near term development pipeline as part of our strategy to Further diversify our portfolio and bolster our cash flow profile. This strategy not only supports the advancement of our 4 to 5 gigawatts I've identified development projects, but it also provides additional critical mass alongside our offshore wind projects to grow our global presence. Most recently, we announced the acquisition of a 5 40 Megawatt Onshore Renewables Portfolio in Spain. This new portfolio aligns well with our priorities and helps to diversify our asset base while adding high quality Regulated cash flow to our business, while expanding our presence in Europe as well. The near term free cash flow from this Portfolio will help fund the development of our large offshore wind projects, particularly as new markets and opportunities continue to emerge for offshore wind globally. In addition, the acquisition provides us with scale and a platform in the growing Spanish renewables market that immediately positions Northland as a top And Renewables operator in Spain. We expect to leverage this position to grow our presence in Spain and the Iberian Peninsula as a whole And to help us establish a European asset management platform that could support our entry into other attractive European renewables markets. Turning to our development and construction projects, I want to provide a brief update on the various projects we have underway. 1st, touching on our New York wind onshore projects, in February, we received and accepted contract price offers From NYSERDA for 20 year index renewable energy credit offtake contracts. We are also in the final stages of negotiations regarding key agreements For the projects and expect to be able to sign the turbine supply, service and maintenance and the balance of plant agreements in 2021. These are all key milestones in the development of the projects as we move closer towards financial close, which we expect to execute for 2 of the 3 projects later this year With one following after in 2022. Commercial operations for the first two projects are expected by late 2022 and the last one in 2023. At Hai Long, we received confirmation from the Taiwan Bureau of Energy that Hai Long 2A has secured approval for It's industrial relevance plan, which sets out Northland's commitment to local supply chain and procurement, marking the achievement, excuse me, of a significant milestone Now at La Lucha, as we previously disclosed, construction activities are nearing the final stages of completion. Certain construction activities related to the energization of the project have been delayed primarily due to COVID restrictions. Once these activities are completed, Northland expects to commence with grid testing, which will be followed by submission of an application for commercial operations to the Mexican regulatory authorities. Based on the current timeline, Northland still expects commercial operations at La Lucha to commence later this year. Efforts to secure commercial offtake and project financing are expected to be finalized after commercial operations at La Lucha. I wanted to quickly discuss our financial risk management activities as they relate to our Gemini project. In 2020, the wholesale market or APX for short Traded down well below the SDE floor that applies to our Gemini PPA. In fact, the APX Has averaged below the SDE floor, this is Gemini PPA for 4 of the facilities 5 years of operation, But was the worst in 2020. This resulted in Northland occurring loss revenue of approximately $27,000,000 in 2020 as reported in our annual report. In response to the decline in power consumption caused by COVID related lockdowns last year And the uncertainty related to the length of the COVID pandemic, in the Q2 of 2020, Northland entered into financial derivatives For 2021 and to a lesser extent for 20222023. These derivatives were effective in mitigating downside risk With some exposure to lost revenues, should the APX increase above the FTE floor. Because forward market prices were low relative to the Gemini floor price of €44 The hedge we put in place last year protected our downside risk If market prices declined further, but it effectively gave up upside in revenue when market prices rose above the floor price. The APX has strongly rebounded lately, in part prompted by rising natural gas and carbon prices in the EU. As such, the APX Hedge ceased to serve its purpose since the APS has now climbed above the floor price in our SDE contract resulting And $4,000,000 of lost revenue for the Q1. Subsequent to the Q1, the APX has continued to increase to the current price of 63 dollars per megawatt hour and as a result, Northland commenced entering into financial derivatives that will limit Gemini's lost revenue for 2021 to similar levels as experienced in 2020. In closing, we are off to a good start in 2021 with healthy first quarter financial results And good momentum and execution of our growth plans. We continue to accelerate our position as a top 10 global player in offshore wind through our Baltic Power Offshore Wind Project in Poland and have secured an attractive entry portfolio for onshore renewables in Europe through our Spanish acquisition. The execution of our strategy in key growth markets will further strengthen Northland's competitive positioning as a global developer and operator within the renewable energy space. 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. Last night, Northland Power released operating and financial results for the Q1 of 2021. Our financial performance in the quarter was solid and we generated healthy results for both adjusted EBITDA and free cash flow despite experiencing lower wind resource in the quarter from our offshore wind segment. Our business is primarily focused on offshore wind With over 60% of our adjusted EBITDA being generated from our offshore wind facilities in the North Sea, This segment of our business experiences natural variations in wind resource, not only year over year, but also within any given year. These fluctuations can result in variability from quarter to quarter. However, over the course of time, this variability Typically balances out. Also as part of our growth strategy, we will also continue to diversify our portfolio and our cash flows. In the Q4, we generated adjusted EBITDA of approximately $360,000,000 which was a decrease of $61,000,000 or 14% from the $421,000,000 we generated in the Q1 of 2020. The main factor leading in the year over year was the lower wind resource in the North Sea, which saw a 19% decline in production across all three of our facilities in the Q1 of 2021 compared to the same period in 2020. Note that the Q1 of last year had Wind Resource significantly above the long term average. This decline in adjusted EBITDA was offset by additional positive contributions from ESSA. ESSA Only had partial contribution in the Q1 of 2020 due to the timing of that acquisition. With respect to free cash flow, Northland generated approximately $134,000,000 in the first quarter. This was a decrease of $77,000,000 or 36 percent compared to the same quarter in 2020. As with adjusted EBITDA, the single largest driver behind the year over year decrease in free cash was the lower offshore wind resource in the quarter that resulted in a decline in overall earnings of $61,000,000 In addition to the lower wind resource, there was a number of smaller items that contributed to the decrease, including higher scheduled principal repayments, primarily relating to North SeaOne and higher non expansionary expenses at North Battleford and North SeaOne, which were expected. As disclosed in our Q4 results, Northland commenced reporting adjusted free cash flow, which excludes growth related expenditures from the metric. Management believes that adjusted free cash flow provides a relevant presentation of cash flow generated from the business before investment related decisions and is a good and meaningful measure of Northland's ability to generate Cash flow after ongoing obligations to reinvest in growth and fund dividend payments. In the quarter, we reported adjusted free cash of $147,000,000 compared to adjusted free cash flow of $224,000,000 in the Q1 of 2020. Adjusted free cash flow was affected by the same factors impacting free cash flow as growth expenditures remained relatively consistent year over year. On a per share basis, these figures translated into free cash flow of $0.66 and adjusted free cash flow of $0.73 respectively in the Q1. These compared to $1.10 per share and $1.17 per share for free cash flow and adjusted free cash flow during the Q1 of 2020. Our rolling 4 quarter free cash flow and adjusted free cash flow payout ratios Calculated on a cash dividend basis for the quarter ending March 31 were 73% 58%, respectively. This compares to ratios of 58% 52% for the same quarter ending March 31, 2020. The increase in both net payout ratios were primarily due to lower free cash flow and adjusted free cash flow as explained prior, partially offset by the reinstatement of the dividend reinvestment program in September of last year. In addition to free cash flow generated, Northland utilizes additional sources of liquidity to fund growth and our capital investments. In March, we successfully completed our Deutsche Bu refinancing, resulting in a reduction in the interest rate of the facility's senior debt and the release of €50,000,000 or CAD 74,000,000 from the funds previously restricted for debt service, immediately enhancing our corporate liquidity. Subsequent to the end of the quarter, Northland completed a bought deal equity offering for 22,500,000 common shares for aggregate gross proceeds of $990,000,000 The net proceeds of the offering will be used to fund the cash purchase price of the Spanish portfolio acquisition that Mike mentioned earlier, Expected to close in the Q3, with the remainder of the net proceeds expected to be applied towards funding capital requirements, including the acquisition of Baltic Power, expected near term capital commitments for identified development projects and to repay Borax under our corporate revolver. As a result of the equity offering, which closed in April, We estimate we have approximately $875,000,000 of liquidity on hand, providing sufficient liquidity to execute on our identified development initiatives. Turning to our financial outlook. Our 2021 financial guidance remains unchanged from February With adjusted EBITDA continuing to be in the range of $1,100,000,000 to $1,200,000,000 we expect our free cash flow share in 2021 to be in the range of $1.30 to $1.50 And lastly, our recently introduced metric, Adjusted free cash flow per share, we expect to be in the range of $1.80 to $2 per share. In other corporate events, Northland's corporate credit rating of BBB stable was reaffirmed by Standard and Poor in their most recent review in March of 2021. Last but not least, we released our 4th annual sustainability report highlighting Northland's 2020 ESG achievements and sustainability strategy going forward. This report is centered around the 4 pillars of planet, people, community and business and sets out how Northland will meet its 2,030 targets of reducing its electricity generation carbon intensity by 65% from 2019 levels, while increasing our gross renewable energy capacity by 4 to 5 gigawatts around the globe. Our vision is to create a carbon free world and is centered around our efforts to embed the principles of sustainability and ESG into all aspects of our business. In 2021, we formally launched our ESG framework, which provides greater transparency in how we mitigate risk, Meet our ESG reporting obligations and broader stakeholder expectations, while at the same time creating long term Value for our shareholders and our partners. We are committed to enhancing our disclosures in order to further demonstrate our transparency and effective management by reporting in alignment with the GRI standard core, also reporting in alignment with SaaS B Based on our industries and aligning our commitments with the relevant UN Sustainable Development Goals, we have also committed to reporting in line with TCFD by 2022. All in all, it was a productive quarter for the company as we work deliver on our growth objectives, key milestones on our development projects, to derisk our projects and increase their value and achieve our financial guidance. With that, I will turn the call back over to Mike for his concluding comments. Thank you, Pauline. Northland is in an advantageous position to participate in the global growth in renewable energy. We have the market position, the growth pipeline, the talent and the balance sheet to seize the opportunity and create significant value for our shareholders over the long term. This concludes our prepared remarks. We'd now be happy to take questions from our analysts. Operator, please open up the lines. Our first question comes from the line of Rupert Merer with National Bank. Please proceed with your question. Hi, Rupert. Inflation is very topical today. Can you talk about the impact of inflation on the cost of your development projects? Maybe if you could give us some color on what you're seeing in rising costs and how much of the cost is locked in for your contracted projects? And do you see any risk to returns with rising costs? Well, so we certainly track commodity prices closely, Particularly on our larger projects. On those projects, we always include sufficient buffer in our view To account for any rise in commodity prices driven by inflation overall, Rupert. So when we look at our current pipeline of projects right now, we're generally comfortable with where They stand and the basis on which we underwrote the initial decision to begin spending development dollars in them, But it's something that we obviously track on an ongoing basis. At certain points, as the project matures, we are able to hedge some of that commodity Exposure. And so we keep track of that and obviously take advantage of that at the moment When the opportunity is available for us to hedge, I'll leave it like that. And then of course, in terms of Interest rates, we also similarly include a buffer in all of our financial models, Particularly on projects where you have an offtake agreement that is not indexed to inflation. So we try and account for that in the project model to make sure that we're Have adequate buffer. Okay. So putting it all together, you're comfortable you'll achieve your Target returns on the development projects that are under construction? We are. Okay, great. Then sticking on the topic The hedging, as you gave us some color on the APX pricing and the derivatives you had in place. Sounds like you've closed out the position. Wondering if you can give us some more color on how the derivatives were structured And the impact we're going to see if you have closed out that position, is that primarily a Q2 event? Or is this going to be spread Through the next few quarters. Yes. I'll start off and then I'll hand it over to Pauline. I think we're well on our way to closing out our position in 2021, 20222023 where we have hedged a smaller portion of the cash flows in both years, That process is just starting now. But I'll turn it over to Pauline to give you a bit more color on the actual derivative and the impact. Yes. It will the impact will occur over the balance of the year as revenue is earned under the contract for Gemini. So it will be It won't be exactly even through the quarters, but it will follow the revenue pattern of Gemini. Okay. Can you give me some color on how the contracts Sure. So I mean, it was basically the contract Basically put in a floor at which below which we would not suffer any further loss. So it's basically to protect us On the downside, if the APX price fell continue to fall below the SDE floor price where we would Suffer economically under the SDE contract. To the extent that the APX price rose above the floor, We would have to trade back, give back some of that upside going forward. So as we articulated in the introductory remarks, once the APX price On a sustained basis settled in the Q1 of this year above that floor price, we deemed that those hedges were no longer Effective and we put in place swaps to basically offset those hedges going forward. And so as So the impact of that will be realized as those swaps come due moving forward. And then going Forward now, I mean, the because of where the APX price is, it's actually very economical to buy puts right at the FDA floor level and have that to be the downside protection going forward. So we have better options now protect against the downside that we had when the APX price was lower. But at this point last year, when the pandemic was Just starting and it was unclear how long it would last and how significant the economic impact would be. At that point, the correct decision in our view was to protect ourselves against the downside. Now that there doesn't seem to be that downside risk In the immediate term, we're unwinding those hedges, but we, as Pauline said, now have the opportunity to buy a fixed price put option, Which will protect us moving forward against downside in future years. Great. Thanks for the color. Our next question comes from the line of Sean Steuart with TD Securities. Please proceed with your question. Thank you. Good morning. First question is on Spain. And Mike, you touched on part of the motivation here is to Participate in future onshore growth given aggressive procurement targets At the country level, can you give us some detail on the organic opportunity set tied to this acquisition And how you're thinking about organic development versus M and A driven opportunities for onshore renewables in Europe? Yes, for sure. So I mean, Sean, I mean, as you know well, any large platform of operating onshore renewables It's much sought after these days and trades at a pretty high valuation. We think we were able to Sure. This platform at what we view in the current market context to be a reasonable valuation is the diversity of it, which suits us Well, in terms of a mixture of solar, wind and also concentrated solar. But we think for other Perhaps more passive investors, the diverse team was less appealing. So What we see going forward in terms of growth in onshore renewables is generally not going to begin acquiring Larger platforms, as you know, we haven't generally participated in that market in terms of M and A. Where we see the better the opportunities going forward in Spain is number 1. It's a highly fragmented market in terms of ownership Of renewable assets, so we've identified about 9 gigawatts of portfolios that are between 102 100 Megawatts. So we think as either those portfolio owners look to exit or as we hopefully approach them, that we'll be able to secure Bilateral acquisition opportunities at more favorable economics and you see in well marketed Larger scale platforms for renewables. So that's number 1. And number 2 is in time, we would Look at development as well. There's a very ambitious growth target, I think, of 35 to 40 gigawatts of new renewables in Spain by 2,030. They also have specific storage and hydrogen objectives in Spain. So we'd also see it as a good platform to participate in that growth. But that will take a bit more time to develop a strategy over that. And we've also noted that the last procurement was quite competitive. We want to kind of take our time and come up with the right development strategy. So in the meantime, it would be more of a focus on acquisition of either smaller late stage projects or smaller operating portfolios. Thanks for that detail. Second question, in late April, identified some issues with their offshore cable protection systems. They're spending a lot of money To retrofit some of those assets and it looks like most of them were built around the same time you guys built out your European platform. Can you comment on comfort that this won't be an issue for Northland? And does this have any bearing on your thoughts for future Offshore wind project CapEx and potentially returns. Yes. So we at all three of our Facilities, we did look into our interconnection cables, our inter array cables as well at the same time and looked at the cable protection designs That we have. The Nordsee One project uses a very different cable design, a much more robust cable design. So our view is that it Would not be impacted. Nevertheless, we do regular underwater inspections of those cable and protection Systems and we will continue to do so at North Sea One and perhaps pay a bit more closer attention to ensure that this different Cable design protection design system proves as robust as we think it will be. On the Gemini and Deutsche Bucht wind farms, They do use a similar cable protection design, albeit a more recent design than Orsted uses. But our subsea inspection campaigns have not identified any issues on those. In some ways, Orsted's news does give us a good opportunity to add some more rigor and some more detail to those inspection campaigns, Because as long as you identify the deterioration before it breaches the protection system on the cable, the protection sheet on the cable, It can be easily repaired at a relatively low cost. The problem is as per announcement is if you Don't identify it early enough. The repairs can be very costly. So we've scheduled in our 2021 Survey campaign for Gemini and Deutsche Bucht to not only we're doing the inspection campaign anyway, but to add some more rigor to it to make We do identify any issues. There is also the impact of the sea currents Where the projects are located, I mean, I believe the Orsted's U. K. Projects are in an area which would have Stronger currents, which would cause more movement as well. But nevertheless, it's a good opportunity for us to track these cable protection systems more closely to ensure we don't get in the same position. But to be clear, we have identified no issues In all of our inspection campaigns on our cables. Okay. Thanks, Mike. I will get back in the queue. Our next question comes from the line of Nelson Ng with RBC Capital Markets. Please proceed with your question. Great. Thanks and good morning everyone. A quick question on Baltic Power. I think a few months ago, There was like they set the I think the maximum price. I think it translates to about, I think €68 per megawatt hour. Can you just give some more color as to how the actual price is set And how it relates to the like maximum price? Like what's the process in setting the final price? So and David can jump in here as well. But I believe that the initial PPAs that were CSD contracts that have been issued so far Have been at the maximum price level to the project. They're kind of being they're more or less seem to be issued in the order of application roughly. So it is identified as the maximum price, but so far the CFTs have been issued at that price. I'm not sure if that answers your question. And David, is there any other color you'd add to that? Yes. That is correct, Mike. It's a fairly structured Form filling submission process first and then considered on a sort of an application Time based, those who submitted first have been considered as and those who have been awarded now have received at the maximum price. SEK 319.6 which Depending on the FX rate, it's around €70,000,000 And yes, so as Mike said in his introduction, We're in that process. There's a Q and A back and forward, some clarifications, and that's what we're just answering those questions at the moment and expect to receive in the next couple of weeks. Okay. So you're obviously in the queue and you're pretty confident that you'll receive A contract as well? Absolutely. Yes. Okay, great. And then just following up on Rupert's comment on cost escalation inflation. So for the you mentioned that there's 2 wind projects in New York that will Preach completion by the end of next year. So in terms of locking the price, would you be fixing your construction price Like over the next couple of months or at the end of the year? Can you just give a bit more color as to timing? And then I guess on a related question, can you also talk about Taiwan, which is obviously a much bigger project? And I think Is financial close still expected for like sometime mid next year? So I guess you'll have to lock in your price sometime Mid year, mid-twenty 22? I mean steel prices would get locked in at the point that we secure the We signed the turbine supply agreement, execute the turbine supply agreement. So on the 2 projects that would be going to construction this year In New York, those contracts have been executed and the steel price has been locked in. And we're also moving to secure the balance of plant contracts as well, which will lock in other Price all the other the balance of the cost in the projects. With respect to Hai Long, the current intent is to It's reached financial close in Q3 of 2022. And so that's a track run. We would be in a position to enter into supply contracts Before that, at which point we would be locking in steel prices. As I said, there may be other opportunities to Hedge some of the exposure to commodity prices moving forward as well prior to locking in the supply contracts. Yes. And on the interest rate side, we are hedged for 20 years on the New York projects as well. And As soon as we know sort of the structure term of debt, we do hedge. And for Hai Long, that's something that's in process. And as that starts to get structured and firmed up, we would look to do the same. Okay, thanks. And then just one last question on Taiwan. It looks like there's going to be like a few years Offshore Wind RFPs in Taiwan. I think in the past, Mike, you mentioned that you have a you're working on about 1.8 gigawatts Of Offshore Wind on your own. Like can you tell us or give us a bit more color as to the landscape in Taiwan? Like Has the land grab happened already? And is like are you you're working on that 1.8% and is it Difficult to kind of grow that development capacity right now? Well, David's obviously closest to that. So I'll turn it to you, David. Yes, I can pick that up. So you would have been tracking the news. So the rules for what's called the round fee We announced, I think it was depending on your time zone, I think it was yesterday or the day before. So we're just analyzing the detail of that. So that's the positive news in confirmation that we were expecting that Taiwan will contract for further offshore wind. So that's been good news this week. In anticipation of that, and as Mike has referred to in the past, we have been basically identifying the coastline Where we think the Otsman sites are. And it has been announced locally in the press in Taiwan, the two sites that we're looking at. And we are developing those sites at the moment. So yes, it's getting increasingly crowded space off the coast of Taiwan, But there are still some good sites, which we believe we've identified and are developing will be happy ready to participate in the round 3. Just to clarify, those two sites relate to the 1.8 gigawatts or they're in addition to those? It's part of, yes. Okay, got it. Thanks, Oliver. Thanks. Our next question comes from the line of David Quezada with Raymond James. Please proceed with your question. Thanks. Good morning, everyone. My first question just, I guess, related to the European market in general. We've seen Carbon prices moved quite a bit higher recently and I believe there has even been some commentary from other players that PPA prices I've gotten higher. I'm curious, I know you certainly have a strategy of being a first mover in new markets, but do you see things shaping up In such a way potentially in Europe that the combination of higher carbon prices and potentially I guess a corporate PPA Could be an attractive proposition for you, either for offshore or onshore, I guess? I think that's a Correct observation. So as you know, we've got 2 expansion projects on Nordsee 1, so Nordsee 2 and 3, Total of, call it, roughly 900 Megawatts between the 2. On those projects, we have a step in right. So we basically can match the winning bid on those sites in the procurements that are scheduled for 2020 this September on Nordsee 2 and then 2023 on Nordsee 3. So The second right, we basically have to accept whatever the winning bid price is. So we've been running various scenarios obviously from a 0 subsea bid, which Has been seen in North Sea offshore wind projects in the last few years, all the way up to the ceiling price of I think it's €70 or €74 David would be tighter on that number than I am. But so we've been running all these different scenarios. So obviously, in Scenario where you've got a 0 subsidy bid or a lower subsidy bid, you're going to be looking at what Revenue you can recover from the market either through merchant revenue or preferably through as you say a corporate PPA. So I think it For that project, what we're seeing on carbon pricing has been encouraging, the trend lines. And the other thing that is encouraging on that project and other future offshore wind projects too is the pressure that Increasing pressure that you're seeing on large, particularly listed companies, but also private companies to procure renewable power. And certainly the one way to get it at scale is through offshore wind projects. So it is something that we're very focused on and we have ahead of Origination, as you may know, Offtake Origination is based out of London now and is working on Include the N2 opportunity and other opportunities. That's great color. Thanks, Mike. And then maybe just one more, Maybe since David is in Japan right now, just wondering, if there's any update on the early development activities in Japan and Korea, anything And you can share there. Yes, Raymond. I guess the most Key event that's happened is the in Japan, we have the different rounds and the our Achieba project, we are Positioning to participate in round 3. So that's progressing well. The Cheever Prefecture has, in the use of sort of layman's terms, Put their hands up to the government for that round to be included or that area to be included into the 3rd round. So we don't know the outcome of that. We'll know that later this year. But if so, that's a great confirmation that the project will then be able to bid into the round 3. So project development continues On track to for that to participate in round 3 if it's chosen, so that's good news. And then in the Dado project in Korea, on track, the key milestone there, I think we've talked about before is the securing your electricity business license, and we remain on track to secure that this year based on the project activities. So, yes, 2 key highlights in those two markets. Excellent. Thank you very much. I'll get back in the queue. Our next question comes from the line of Ben Pham with BMO. Please proceed with your question. Okay. Thanks. Good morning. I wanted to go back to the some of the questions around raw material costs Moving higher. It looks like you're well protected with your buffer and given the fact a lot of your projects, you're not going to put the shovels in the ground A few years out, it's far more than the developers that are building next 1 or 2 years. If you see steel Copper got more than 50% over Coke since last August. It's been quite incredible. So I'm wondering maybe more of a broader question then is We've seen cycles like this in the past. You have inflation in the 80s. So you have these PPA contracts with inflation protection, This commodity boom in the past, so the industry has seen this before and it's more to consumer that's been hit. So How do you see this playing out then for the next couple of years here? Because the move isn't pretty powerful. Is it really consumers that are going to take the, I guess the pain of this increase, like how does the industry respond here? Well, I mean, certainly on any off take agreements that have not yet been Allocated and where there's a bidding process then it will get translated into higher bid prices and the same thing with the corporate PPA. So In that case, it would probably all other things equal create a higher price on a corporate PPA As a result, on existing PPAs, as I said, I mean, we keep a close eye on that, particularly any existing PPAs Where there is no indexation on that PPA, we keep a close eye on that. I mean, and to be clear, I mean, there's an overall Contingency in all of our budgets to account for a number of different unforeseen circumstances, including Movements on commodity prices. So, yes, as I said, to some extent, it will be absorbed by the off takers, but other extent, it will have to Be factored in and absorbed by contingency in primarily the developers' budget, but also There's contingency in the supplier's budget too, because it's a point at which a developer will choose to Decline to procure equipment if the price is too high. So I think it shakes out on both sides. It depends on the nature of the offtake agreement and the stage of Okay. So it seems like there's a fair share in situation, but direction it sounds like the power price Potentially go higher here. Can I ask you this, do you get the sense that in some of these recent Bids that you've seen where prices have been really low and you backed off because of the behavior that those developers are bidding on expectation that levelized costs are going to continue moving lower versus using today's equipment costs to derive the returns? Yes. I mean, we I mean, to be candid, Ben, for better or for worse, we have not Really played that game in the past. To some developers, it has worked in their favor and some others have been caught out. So we generally have not Playing that game, you see it most in the most pronounced way on solar projects in the last few years. I think some of the movement in commodity prices will, Going forward, discipline, some of that behavior, because it will indicate just how unpredictable supply Prices can be overall for equipment for a project. And I think in the last couple of years, there's been some fairly big swings in solar Panel prices as well. So I think all of that together will, I hope, discipline some of the more aggressive bidding And procurements going forward. As you know, we've got some solar projects we're developing in New York State. So we'll see how that plays its way out. Okay. That's good to hear. And then maybe on keen on the Spain side of things, Are you more focused on developing that market out first before looking to adjacent markets? I think what we've communicated at Investor Day was that We've communicated our focus on New York State, Colombia, for the reasons given in terms of what we see as a growth in both those markets and renewables. And we communicated that we were looking at Eastern Europe, select markets in Eastern Europe, Where we see still a lot of coal in the grids, but we also take comfort from the fact that a number of those countries are part of the EU. And we see a positive long term economic trajectory for those countries And we see a near term need for both at a state level, but also at a corporate level to procure renewable energy in those markets Given the carbon intensity of the grid. So that would be the other market that we would be open to In the near term, if we found the right opportunity, given the state that those markets are at in Eastern Europe, it would more than likely if we did anything Be more of a development play, so as opposed to something with operating assets. Question comes from the line of Andrew Kuske with Credit Suisse. Please proceed with your question. I guess, the question is for Mike. And when you start to think about just the longer term nature of returns and the big capital needs for offshore wind, Does that really help preserve the competitive advantage for some of the early movers like yourself on a longer term basis for this industry? Could you just repeat the first part of your question again, sorry? Well, if we just think about offshore wind and how long it takes to bring a project online, to win Project to bring it online and just the capital that's involved limits the audience on this. And we've seen in other aspects of renewables a lot of money chasing things. Yes. Do you see your competitive advantages being preserved in part because of those realities of offshore wind? Yes. I mean, so there's a I mean, Sam, I'm mixing my analogy metaphors, but there's a moat around offshore wind, a greater moat around offshore wind than there is Around onshore renewables, in other words, a greater barrier to entry, both in terms of the talent that it requires to both develop And construct the projects, but also as you say the length of time that it requires and the development expense That it requires to move the projects forward. And as well, there's new markets still opening up for offshore wind. So You mean, in our view, the way to secure these projects and move them forward successfully Is to, in most cases, get the right a good local partner like we did in Poland and like we've done in Taiwan and in Japan. So sorry, I got a bit of a beeping in my ear. I'm not sure if it's my headset. Okay. So yes, I think in all of those, we see ourselves as having a bit of an advantage that we want to leverage moving forward. And if you I mean, the defining two defining characteristics of our sector Right now, and I think for the near term future at least, is the need for a lot of additional renewable energy supply In a lot of markets around the world to meet carbon reduction goals. And number 2, just the amount of capital that's coming into the sector, To invest in renewable assets. So that means to me that the best opportunity right now is in developing Those projects, so it's a win into which can supply the energy and create an investment vehicle for the capital that's coming in to the sector. And that's what We're looking to do with offshore wind where those projects are have a scale to, which allows us to bring in other investors into those projects alongside our own capital. If I may, just as a follow-up to that and really build upon the farm downs that you plan on doing in the future. Just given the uniqueness of the offshore environment and the few players, do you think you have greater preservation of returns and farm downs Then you would say if you're trying to do the same thing with onshore renewables, whether it be solar or wind? I think there's probably a greater lift that you can get on the farm down, I mean, to be determined, because I think you've got a you're Starting off with a better return in offshore wind and given the scale of the investment on the farm down, you're Probably attracting a larger pool of investors, so you probably have a bigger spread there. So that's To be determined, that's the thesis. So I'd say the answer is probably yes. But until something's done, I never like to get too far ahead of myself. Okay. That's great. Thank you. Our next question comes from the line of Mike Jarvi with CIBC Capital Markets. Please proceed with your question. Thanks. Good morning, everyone. Just a continuation of the discussion on procurement and kind of locking costs. It looks like you've expanded the turbine supply agreement Taiwan to Hai Long 2B And 3, are those costs all set for Taiwan? And then are there options in the agreement with Siemens in terms of like Procurement of turbines for Baltic Power, Nordy 2, if you do that in terms of being able to sort of also lock in sort of some indicative pricing on other projects that you're looking at doing? So good question, Mark. I mean, on the second part of it, there's no explicit Connection to any other projects and as you know we have different partners on different projects as well already, right? So there wouldn't be any explicit anything explicit in the contracts on that and the supply contracts on that. However, Your best leverage with any supplier is other opportunities for them, right, And a pipeline. So having the pipeline of offshore wind projects we have globally coming up, It certainly, in our view, enhances our negotiations our negotiating position with any turbine supplier and other suppliers to our projects as well, Particularly turbine suppliers. The prices or the cost on those projects, the Taiwan projects will not be locked in until we execute the turbine supply agreement and the service associated service contract, Which we wouldn't anticipate being in a position to and we have never anticipated being in a position to do until the end of this year or the first kind of quarter of 2022. As we work through the local supply chain and confirm on Hai Long QA. The local supply commitments that we have to make according to the industrial relevance plan that we referred to in The script at the beginning. And as well, just working with the regional supply chain on the balance of the procurement for the project. So we'd expect to be, as I said, locked in end of this year, early 2022 On the supply prices. Okay. And then just coming back to the sell downs or the farm downs, continue to see A number of deals get done. When you track some of the deals have been done either operating assets like Orsted, sell down in Orgis or even the process has happened already in Taiwan. Have you been able to triangulate like what is sort of the difference between the returns and the buyer's IRR at a Project at Financial Coals versus COD and how those sort of relative time points in terms of you trying to optimize your returns, how that how you've seen other transactions I would inform your view of whether or not the sell down at financial closes, are you leaving money on the table at that point? Yes. So I'll flip it to Pauline because we had walked through an example at the Investor Day as you know back in early February. But I mean, high level, well, typically a sell down at financial close would seem optimal And particularly if you end up guaranteeing some of the construction costs, then arguably you can get the lowest cost capital at financial close On a sell down, there are other reasons to do sell downs earlier, both at the project level or they can be other reasons, both at the project level, But also from a Northland standpoint as we manage how we fund our portfolio globally. So it is There are multiple considerations in terms of when we do the sell down. We are seeing more interest from investors in coming into Offshore wind projects in particular at earlier stages, so that perhaps does change Our calculation a bit on it, but I don't know Pauline would. Yes. I mean our strategy, I guess, right now for the most part is It's still to sell down in and around financial close and all the transactions, we look at each and every single one. And I think the metrics We should at our Investor Day still hold intact, right? And so in that example, we put out that illustrative 10%, A 300 basis point promote, which is going to be lower or higher depending on the market and the specific nuances and risks Each project and each project is different. And in that case, that means the buyer's IRR is 7. I think that still Feels reasonable to us, looking at recent transactions. And just my comment about The number of buyers, the people that would have been there at post COD or operating assets are essentially migrating closer to financial close. You still think there's a very strong competitive tension Out there for at the time of the call down at financial close. It's interesting because I think what we're Starting to hear more of is interest to come in earlier because it's very competitive to come in at financial close. If there is an avenue to come in earlier, we are hearing more and more interest for that. So I think time will tell. Okay. Thanks for the answers. Appreciate it. Thank you. Mr. Crawley, there are no further questions At this time, I will now turn the call back to you. Well, thanks everyone for joining us today. We will hold our next call following the release of our Q2 2020 results 2021 results in August. In the meantime, We thank everybody for your continued confidence and support.