NPIFF - Northland Power Inc. (NPIFF) Q4 2022 Earnings Call Transcript
Northland Power, Inc. (NPIFF)
Q4 2022 Earnings Conference Call
February 24, 2023, 18:00 AM ET
Company Participants
Mike Crawley - President and CEO
Pauline Alimchandani - CFO
Wassem Khalil - Senior Director, IR & Strategy
Conference Call Participants
Sean Steuart - TD Securities
David Quezada - Raymond James
Nelson Ng - RBC Capital Markets
Rupert Merer - National Bank
Mark Jarvi - CIBC
Andrew Kuske - Credit Suisse
Naji Baydoun - IA Capital Markets
Brett Castelli - Morningstar
Nicholas Boychuk - Cormark Securities
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power Conference Call to discuss the 2022 Fourth Quarter Results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Friday, February 24, 2023, at 10:00 a.m.
Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer; Pauline Alimchandani, Chief Financial Officer; and Wassem 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 expected 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 investment decisions or recommendations. The release is available at www.northlandpower.com.
I will now turn the call over to Mike Crawley. Please go ahead.
Mike Crawley
Thank you, Latonia, and good morning to everyone. Thanks for joining us today for our first earnings call of 2023. This morning, we're going to review our financial and operating results for the fourth quarter and full year 2022. Following our prepared remarks, we will take questions from analysts and look forward to addressing those questions.
To kick things off, as we always do, I want to reiterate that the health and safety of our employees and our stakeholders always comes first. Our rigorous adherence to our health and safety protocols ensures the safety of our employees, while allowing us to maintain a high level of availability at all of our facilities.
We continued our strong performance in the fourth quarter and consequently for the full year, delivering solid operating results and financial results in 2022, leading us to exceed the upper end of our guidance ranges for both EBITDA and free cash flow per share.
A key driver behind our financial results has been our strong operational performance. Our teams have worked hard this past year to ensure that our facilities are operating at high availability levels, allowing us to capture a strong wind and solar resource this past year and capitalize on high power prices in Europe.
Looking at the headline numbers, we delivered adjusted EBITDA of $353 million in the fourth quarter compared to $364 million at the same time a year ago. On an annual basis, adjusted EBITDA in 2022 stands at just shy of $1.4 billion compared to $1.1 billion in 2021. This result represents a record for Northland, an accomplishment of which we are all very proud.
For adjusted free cash flow per share and free cash flow per share, we achieved $0.16 and $0.06, respectively, in the quarter, compared to $0.80 and $0.69 in the same period a year ago. While on a full year basis, we have delivered adjusted free cash flow of $1.95 per share and free cash flow per share of $1.61. This compares to $1.77 per share and $1.40 per share, respectively, in 2021. Pauline will provide a more detailed look into the financial numbers later in the call.
Reflecting on our accomplishments in 2022, I'm very proud of the efforts and results that our team delivered to continue to position Northland at the forefront of the global energy transition. The global emphasis on energy security and the need to accelerate the move from fossil fuels to renewable energy sources remains unchanged. A substantial build-out of renewable energy will be needed over the next decade to facilitate these objectives.
Over the course of the year, we made strong progress in advancing key development projects, source additional opportunities and position ourselves in some of the best markets to capitalize on this growth. Our growth pipeline now sits at nearly 20 gigawatts and is well diversified across technologies and markets. Having a robust development pipeline gives us optionality in terms of which projects we decide to invest our capital in. And to be clear, it doesn't mean that we'll be building all of these projects. In fact, it allows us to be selective in where we deploy our capital.
Our presence on the ground in key markets is an important success factor going forward. Energy security, decarbonization policies are driving increased targets for offshore wind and accelerating permitting time lines, particularly in Europe, where we have already established a healthy portfolio.
For onshore renewables, we have consciously picked onshore markets where we forecast strong growth for renewables, see good policy support going forward and where there is a favorable investment climate.
Last year, we brought the focus back to our domestic market, Canada by securing a 1.6 gigawatt solar portfolio and development team in the province of Alberta. This is a big step forward in the Canadian market for us. Alberta is currently the most prolific market within Canada for renewable development with a robust corporate offtake market. The acquisition adds a development pipeline of solar and storage projects, of which 220 - the 220-megawatt Jurassic Project would reach commercial operations as early as 2025.
In Ontario, we acquired a majority interest in a 250-megawatt late-stage grid-connected battery storage project in the southern end of the province. The Oneida Energy Storage Project, one of the largest in North America and certainly the largest in Canada. With that, Northland will be the majority owner of the project and will take the lead role in its construction, financing and operations.
The project will benefit from a 20-year fixed price contract for revenue payments with the IESO, the system operator in Ontario for the majority of the capacity from the project. The remaining capacity will earn market revenues through sales into the wholesale market. Financial close for the project is expected in 2023, with full commercial operations targeted to commence in 2025.
Turning to our development activities in Hai Long. The project has now executed all of its material contracts with suppliers and commenced early construction works, including starting the fabrication of key components. The financing of the project is progressing, albeit slower and more challenging than expected due to macro and market-specific factors.
As part of our partnership strategy in December, we announced an agreement with Gentari International Renewables, whereby Gentari will acquire 49% of our stake in Hai Long. This translates into an effective ownership of 29.4% for Centari with Northland, still retaining 30.6% ownership of the project.
Northland will continue to take the lead in the construction and operation of the project. In addition, we also signed an exclusivity agreement for further potential partnerships with Gentari in Taiwan. Closing of the transaction on this is subject to certain conditions and regulatory approvals.
At Baltic Power, we are very pleased how the Polish government responded to some of the market disruptions that have happened in the last year by making certain changes to the CfD or the revenue contract. The project's 25-year CfD is now denominated in euros instead of the Polish Zloty, and inflation indexation has been revised to a base year of 2022 from 2023, helping offset the inflationary price pressures in this past year.
In South Korea, we've been awarded electricity business licenses or EBLs, for nearly 1.3 gigawatts of offshore wind projects, including for Dado ocean and Bobae. Northland is also pursuing additional early-stage development opportunities in the country from multiple projects with up to 1.8 gigawatts of capacity.
Lastly, at our La Lucha solar project, we continue to work to achieve commercial operations for the project. In January, we received approval of the extension of the generation permit for La Lucha, and we are now coordinating with appropriate regulatory authorities to initiate testing of the project in order to achieve commercial operations, which is expected later this year.
All in all, a very active year for Northland. And despite the global uncertainty and macroeconomic pressures, we continue to deliver strong operating and financial results and continue to execute on our strategic plan.
With that, I will now turn the call over to Pauline for a more detailed review of our financial results.
Pauline Alimchandani
Thank you, Mike, and good morning, everyone. Last night, Northland Power released operating and financial results for the fourth quarter and full year of 2022. Our financial performance in the year was solid, where we generated results that exceeded our financial guidance, supported by strong performance across our operating portfolio.
Our operating assets achieved a high level of availability, which provided a good backdrop to capitalize on the stronger wind and solar resource and the higher power prices in Europe that benefited our offshore wind facilities.
Specific to the fourth quarter, the early completion of the bearing replacement campaign at Nordsee One meant that the turbines were fully available to take advantage of the seasonal stronger wins in the quarter. This helped to deliver fourth quarter results that exceeded management's expectations.
Adding all this up, we achieved results that were stronger than our revised guidance. Specifically, we achieved adjusted free cash flow per share that came in at the upper end of the guidance range, while free cash flow per share and adjusted EBITDA both exceeded the upper end of their respective guidance ranges.
When comparing to the midpoint of our original financial guidance issued in February of last year, our full year 2022 results were approximately 17%, 24% and 11% higher than its guidance for adjusted EBITDA, free cash flow and adjusted free cash flow per share, respectively.
In fact, we were able to achieve this result even after derisking our business through approximately $150 million of debt repayments at Gemini and Spain that were announced with our third quarter results, but were funded in the fourth quarter.
Looking at the specific financial results, we achieved full year adjusted EBITDA of nearly $1.4 billion, representing an increase of 23% or $260 million compared to $1.1 billion in 2021. The key factors that contributed to the higher adjusted EBITDA year-over-year included, higher contributions from our offshore wind portfolio resulting from a combination of higher market prices and a stronger wind resource compared to 2021, higher contributions from our Spain portfolio due to a full year contribution in 2022 compared to 5 months in 2021.
The Spanish portfolio also benefited from higher regulated posted prices in 2022, helping contribute to the overall increase in contributions from the portfolio and a onetime management fee and other optimizations from the restructuring and upsizing of our Kirkland Lake credit facility. This strength was slightly tempered by a decrease in operating results due to loss in contribution on the expiry of the PPA and subsequent sale of the Iroquois Falls natural gas facility in April of 2022.
With respect to our adjusted free cash flow and free cash flow, Northland generated approximately $461 million and $380 million, respectively. This compares to $386 million and $307 million for 2021. The significant factors contributing to the $75 million, a 19% increase in year-over-year adjusted free cash flow were an increase in overall contribution across all facilities resulting from better operating results, an increase in the onetime management fee and other optimizations from Kirkland Lake as previously discussed and onetime proceeds from the sale of the Iroquois Falls and Kingston efficient natural gas facilities.
These increases were partially offset by higher current taxes as a result of stronger financial results and a decrease in contribution from the Spanish portfolio, primarily due to the onetime principal payment upon the debt restructuring.
On a per share basis, these figures translated into adjusted free cash flow of $1.95 and $1.61, respectively, compared to $1.77 and $1.40, respectively, for 2021. These results generated a rolling 4-quarter adjusted free cash flow and free cash flow net payout ratios of 43% and 52%, respectively, calculated on the basis of cash dividends paid compared to 45% and 56% for the same period ending December 31, 2021.
With respect to our balance sheet, Northland retains ample liquidity to fund our current projects. As of December 31, we had access to approximately $1 billion of cash and liquidity, comprising $600 million of liquidity available on our revolving facility and $500 million of corporate cash on hand to help us pursue our growth initiatives.
We continue to prudently manage our balance sheet, taking proactive actions to further enhance our cash flow, bolster our corporate liquidity and ensure Northland remains in a good position to fund its growth needs. Part of these actions include utilization of multiple sources of liquidity to fund growth and capital investments, including proceeds from our ATM program.
We also continue to utilize project refinancing as a tool to optimize the debt profile, enhance future cash flows and generate additional liquidity to fund our growth. With higher cash flows in 2023 across our portfolio, we were able to proactively deleverage some of our assets to derisk the long-term cash flow profile while also enhancing the economic return of the projects through favorable refinancing terms. In total, we refinanced over CA$3 billion of project debt in 2022 and generated nearly $80 million of additional liquidity in the year.
As outlined at our Investor Day on February 3, we have an estimated $2.2 billion of equity capital deployment towards projects targeted for financial close this year. Of the $2.2 billion requirement is expected to fund Hai Long, Baltic Power and our newly announced Oneida Battery Storage Project in Ontario.
Of this, approximately $1.7 billion has already been sourced and/or announced through proceeds from the ATM program and the future expected proceeds from the Hai Long partnership sale, which is not yet closed. The remaining $500 million is expected to be funded through additional possible sell-down proceeds, hybrid bonds, liquidity on hand, potential ATM issuances and asset refinancing. We believe there is ample redundancy and sources available to us to fund our remaining equity requirements for 2023.
Turning to our 2023 financial guidance, as previously disclosed. For adjusted EBITDA, we expect to generate between $1.2 billion and $1.3 billion this year. Guidance for 2023 free cash flow per share, we expect the range to be $1.30 to $1.50, while for adjusted free cash flow, we expect to generate $1.70 to $1.90 per share.
As a growth company with a significant pipeline of development projects, Northland is committed to unlocking value by deploying early-stage investment capital or devex to advance our projects. As such, in 2023, we expect to deploy development expenditures of approximately $100 million or around $0.40 [ph] per share to fund expenditures to advance secured projects. This would include expenditures on our Scotland Offshore Wind project, North Sea 3 and Delta projects in Germany, the Korean projects, the recently acquired Alberta solar portfolio and Oneida in addition to other Canadian and U.S. opportunities.
In conclusion, we delivered strong results in the quarter and for the year, which surpassed the upper end of the guided ranges for adjusted EBITDA and free cash flow. We also achieved a record level of adjusted EBITDA. We are proud of the accomplishments we have achieved together as the team over the past year, and we are gearing up ourselves to continue to deliver on our stated objectives in 2023.
I will now turn the call back over to Mike for his concluding remarks.
Mike Crawley
Thank you, Pauline. As Pauline mentioned, we had a very good quarter and a great year in 2022. We look forward to another strong year in 2023. And with projects nearing key milestones, we are very excited about the continued growth of Northland.
This concludes our prepared remarks. We'd now be happy to take your questions. Antonio, please open the line for any questions.
Question-and-Answer Session
Operator
Certainly. [Operator Instructions] One moment for our first question. And our first question comes from Sean Steuart of TD Securities. Your line is open.
Sean Steuart
Thank you, good morning. Question for Pauline in to start. You stayed active on the ATM in the fourth quarter. Can you speak to your comfort continuing to use that facility as the share prices come under even more pressure since the Investor Day. Is that still from your perspective, value-accretive tool to use right now?
Pauline Alimchandani
So we have sort of multiple sources of capital available to us. I would say that the ATM usage should be viewed as a long-term tool in the sense of opportunistically being used over the next couple of years to fund the projects at financial close. And that will mean we are active on it at points in time where it's opportunistic and not active on it when a point of time where it's not opportunistic, and we have other sources of capital available to us.
Right now, our priorities at the start of the year is to enable ourselves to issue corporate hybrid bonds, and we are currently working on that as a source of capital in addition to looking at other refinancing opportunities and looking to see and close on another type of corporate financing that can help us sort of fund the remaining acuity requirements this year. And in addition to that, as you know, we've also commenced a couple of selldown proceeds as well.
So I mean, all of it in total, I think, is more than ample to fund what's left for this year. And I don't want to comment on sort of the near-term usage of the ATM program, but certainly, over the long term, we intend to stay active on it.
Sean Steuart
Okay. And can you - with respect to the hybrid, can you speak to the cost of that debt as you see it right now?
Pauline Alimchandani
Not yet. I think it's still early, and we're still sort of figuring out pricing in terms. But yes, I mean, it's -- as you know, we repaid the Pref [ph] at the end of the year, its no longer a product that think made sense to us from a cost perspective and an ongoing piece of our capital structure going forward. I think corporate hybrids are more cost-effective tool for us. Also the sort of rating agencies are sort of supportive of the product. So it will be the tool in our capital structure going forward, but -- and we think it will be better than Pref, but we're still working through the terms of the paper that we plan to issue.
Sean Steuart
Okay.
Mike Crawley
I mean there is two points - key points, Sean, are that we're number one, continuing to look to get ahead of our funding needs and stay well ahead of our funding needs. And second, create optionality and use the best tool, the best instrument, given what market conditions are at any given time.
Sean Steuart
Got it. Thanks, Mike. And one other question, Mike. Just with respect to the delays at Hai Long with respect to arranging project-level debt there. How much of that is specific to Taiwan overall? And are you anticipating you're seeing any friction for Baltic Power on that front?
Mike Crawley
I think - no, I would say most of it is more focused on Taiwan, and it's specifically related to one other project. There's several offshore wind projects that have been project financed in Taiwan. There's one that has experienced some significant delays. And on that one project, there's some overlap in lenders. So we've had to spend more time with those lenders explaining our project schedule, our project execution plan in more detail than we typically would have.
So it's really more specific to that, that's causing us to spend more time on Q&A than we probably would have expected to. On the Baltic Power project finance, it is moving forward well, and there's no delay in the project financing.
Sean Steuart
Okay. That's all I have for now. Thanks very much.
Operator
One moment for our next question. And our next question comes from David Quezada of Raymond James. Your line is open.
David Quezada
Yeah, thanks. Morning, everyone. Mike, just going back to your comments about being selective with your pipeline and obviously, the pipeline grow quite significantly. Is there any color you can provide on just how your decision-making process might change just with respect to, I guess, having more options, can you bid in some cases more conservatively? And maybe just some commentary on how your organizational realignment might support that?
Mike Crawley
So David, your first point is a good one. Having more options does allow you to bid into auctions for energy contracts or negotiate energy contracts bilaterally in a more prudent way, right? You don't have to win every auction, which I think is a position that you want to be in. Moreover, you also don't have to build every project. And in some cases, if you look at a project, and that project has, for whatever reason, more value to another owner because of the circumstances that, that owner at that given time, find themselves in, that may be the better option for us.
And so it really is all about looking at the capital that we have, which is Pauline mentioned currently is ample, and we continue to make sure that we get ahead of our funding needs, but deploying that capital in the opportunities that offer the best returns.
David Quezada
Okay. Great. Thanks for that. And maybe just one more for me. as you've got a fair amount of activity on the offshore wind construction front coming, I guess, towards the middle or the latter part of the decade. I wondering if you could touch on vessel availability, specifically for offshore wind turbines.
How do you see that evolving over time as activity in offshore wind ramps up? And do you have any kind of like longer-term solutions you could put in place to secure access to those vessels as needed?
Mike Crawley
It's a good question, David. I mean, I think when you look at the constraints in renewables and particularly in offshore wind, but one of the biggest constraints or concerns for us is vessel availability. So all of our project teams certainly are working hard to make sure we get ahead of that and secure vessels earlier than we would have otherwise.
We don't have anything to say on more creative or longer-term solutions than that. But that certainly is something that we're - our project teams are very, very focused on getting ahead of. And I think, David, I do think over time, the market signals will lead to more vessels being constructed and more options in the market, but there's a lag, right?
David Quezada
That's great color. Thanks, Michael. I'll turn it over.
Operator
Certainly, one moment for our next question. And our next question comes from Nelson Ng of RBC Capital Markets. Your line is open.
Nelson Ng
Great. Thanks and good morning, everyone. So a quick one for Pauline. You've mentioned that you redeemed the - or at least one tranche of the Pref [ph] And I think you have two tranches left. Can you just give a bit more color as to why you're redeeming those Pref? Is it mainly for tax reasons?
Pauline Alimchandani
No, I think that press are really no longer sort of a widely used sort of tool. And I think it was probably a couple of years ago at the Investor Day, we discussed sort of corporate hybrids for the first time as sort of the long-term - the long-term product to have in our capital structure.
And when we looked at the rate reset and then the cost of that product as well against what we can now do, I think, going forward with the balance sheet and opportunities and what's available to us now, I think we can do better.
Nelson Ng
Okay. Great, thanks. And you would expect to get some equity credit on the hybrid debt, right?
Pauline Alimchandani
That's correct. Yes. That's correct.
Nelson Ng
Okay. Got it. And then just moving to my next question. In terms of the hybrid wind development in New York, and you guys give a bit more color on why you sold that project. I understand that the project wasn't very economic to start off with, but any more color would be great?
Mike Crawley
So the project was 1 year behind the 2 other wind projects that we have in New York. So it would have been impacted by some of the cost inflation, which the 2 other projects got ahead of. So that was one factor.
But the other factor also was that there's another buyer that had an additional revenue stream that was not available to us. And so that made for, in my view, a good transaction for both of us.
Nelson Ng
Okay. That's great. And then just one last question. I think the MD&A indicated that you guys used $38 million of cash for the Oneida Battery Storage Project and the Alberta solar portfolio. Is this just the first milestone payment and then the rest will probably take place when those projects eventually hit financial close. Is that how the payment structure?
Mike Crawley
A bit different with each, but on the former on the Alberta there are future milestone payments. And on - I don't believe there are - yes. So we don't usually get into the details of the payment terms.
Nelson Ng
Okay.
Pauline Alimchandani
But then on the battery storage project, it would just be the financial close, funding construction.
Nelson Ng
Okay. Thanks.
Operator
One moment for our next question. Our next question comes from Rupert Merer of National Bank. Your line is open.
Rupert Merer
Hi. Good morning, everyone. Coming back to hybrid, was this one of the 2 sell-downs that you talked about doing this year or there are a couple of on bridge...
Pauline Alimchandani
No, this is a full divestiture. So sell-downs relate to when we speak to the nomenclature. It really is partial sell-down interest and versus this is an outright divestiture.
Rupert Merer
Okay. Great. And the asset or the location doesn't seem to be non-core, should we be reading anything into this? Is this an indication that maybe your other projects and in New York could be candidates or sell down or sell off?
Mike Crawley
No, not - you shouldn't read anything more into this than the fact that the - as I said, the project was a year later, and it always was scheduled to be built a year later. So it did get impacted by higher capital costs as we have seen inflation in equipment prices in the supply chain for renewables over the last year, as you know, across the board. So that impacted the project.
And then - but as importantly, there was a couple of other buyers that had access to certain transmission rights that gave them access to an additional revenue stream that we didn't have access to.
So it's basically putting the development asset in the hands of the owner that can extract the most value from it. And then both parties share the vendor and the purchaser share in that benefit. That really is all it is.
Rupert Merer
Great. Thank you. And then secondly, La Lucha. So you have some testing less left to do there. Is that scheduled yet? Do you have an idea of when you might be able to turn it on?
Mike Crawley
So all of the scheduling and the work is going on right now with the regulator and the transmission operator in Mexico. It is moving at pace or even a bit quicker than we had anticipated. The generation license was - the extension was issued about two weeks ago, I think. So it's moved very quickly since some meetings that we had in Mexico City in the second week of January
So it's moving quite quickly, and we're getting a very good cooperation from all of the Mexican authorities. So I can't give you an exact date on when it will be connected, but where things are moving well.
Rupert Merer
As the finish line approaches here, I imagine you're keeping an eye on the market for pricing or contracting. Can you give us an update on that? How does the market look today? What would be your strategy on pricing?
Mike Crawley
Well, what I guess, interesting in Mexico, is that there hasn't been a lot of additional renewable energy capacity built out over the last couple of years beyond a couple of large projects that the CF did, but there haven't been any IPPs building out a lot of capacity simply because of the uncertainty in the market the last 2 years in Mexico.
At the same time, industrial investment in manufacturing capacity in Mexico has continued moving forward. So there's a lot of multinationals still in Mexico and that are continuing to invest in Mexico that are looking for renewable energy capacity to meet their net zero and their ESG targets.
So yes, we think the La Lucha asset in a fairly good position as far as there's not a lot of non-contracted renewable energy facilities in Mexico that are available to industrial loss takers and energy prices are reasonably robust as well in Mexico relative to where they would have been a couple of years ago. So all of that, we're just working through to see what the revised economics are going to be on that asset, but that's kind of where we're at.
Rupert Merer
Okay. Thanks. I'll leave it there.
Operator
One moment for our next question. Our next question comes from Mark Jarvi of CIBC. Your line is open.
Mark Jarvi
Thanks. Good morning, everyone. First question is just on Hai Long. Last year, you signed the corporate PPA, you struck the deal with Gentari to help support economics of that project and offset some higher CapEx.
Are there any other levers you can pull to improve the return profile? Could you actually increase the size of the sell-down to 0 Gentari or some other partner? Just curious if there other ways to enhance returns?
Mike Crawley
We wouldn't do that and for a number of reasons, including regulatory. So we wouldn't be increasing the sell down further than what we've done already, and we're now down to just slightly over 30% in the overall project. So it's a substantial reduction from our original 60% position in that project.
We continue to look at ways to optimize the project and we'll continue to do so up until financial close. I'm going to be out there in 2 weeks' time as well with our Head of Development, looking within a series of meetings. So we continue to look at ways to optimize that project further, yeah.
Mark Jarvi
Is it in terms of just delay [ph] of the project? Is it still in terms of cost inputs, like what - I don't know if you can share anything, Mike, in terms of how you can further optimize the project at this stage?
Mike Crawley
I wouldn't give you any details at this point, and we'll share them if we're able to secure more optimizations.
Mark Jarvi
Okay. And then at the Investor Day a few weeks ago, you indicated that Baltic Power is not something you consider selling down you really like the attractive returns and cash flows. But if the share price language and ATMs less attractive over the course of this year or next year, would you reconsider doing a process maybe on the other side of financial close?
Pauline Alimchandani
So I think our dues in Baltic Power today are still the same as at Investor Day, but I think we are looking at any or all opportunities in our portfolio for sell-downs of development assets and or yes, opportunities where we see ability to recycle just Baltic Power on one of them, but there are others.
Mark Jarvi
And just Pauline to pick up on that comment. In terms of timing of sell-down, is there any change? Is it still like the optimal time is around financial close? Are you seeing opportunities to do it sooner on certain projects?
Pauline Alimchandani
I think we're looking at opportunities that are sooner than that.
Mark Jarvi
Okay. Thanks...
Pauline Alimchandani
Earlier on, yes.
Operator
One moment for our next question. Our next question comes from Andrew Kuske, Credit Suisse. Your line is open.
Andrew Kuske
Thanks, good morning. I guess it's a broad question for Mike. And there's a bunch of initiatives across Europe, and it varies a little bit by country by country to really accelerate permitting for renewables. If you can maybe just give us a context of what you think is improving and that can actually maybe accelerate growth for you and maybe some of the challenges that you see ahead?
Mike Crawley
I think in the - certainly in the medium to long term, there is a lot of opportunities in Europe as they put in place policies that are going to drive a long-term conversion away from Russian gas and also accelerate overall their decarbonization climate objectives, right? So I think all of that is good and it's getting much more serious and much more deliberate now than it would have been a year, 1.5 years ago.
On the efforts to accelerate permitting in some cases, I think it will help us. We'll see. I mean we've got we're at an early stage of looking at hybridization or adding some solar to our wind assets in Spain, for example, with some permitting would be required so that we'd look forward to, and that's a market where generally been seen as a slower market to permit in, so that would be welcome and would help on that initiative.
On offshore wind and the other large-scale projects, the biggest constraint now is not necessarily permitting and is - I think it was David's question, I'm not sure his question was earlier in the call. It's supply chain. So I mean, I'd like to kind of talk very optimistically about all of the great things are going in Europe and there are.
But the most important thing now is to see more investments in the supply chain, particularly in offshore wind, and that's what's going to unleash and accelerate more offshore wind investments and make those investments also going forward more attractive on new projects as well.
Andrew Kuske
Okay. Appreciate that color. And then I guess maybe just indirectly in supply chain, but it's a key part of the puzzle is just on the shipping side, some of the South Korean shipyards. I guess what are your thoughts about South Korea. You've obviously been exposed to the market on a very preliminary basis, BP entered the market. I guess, a week or 2 ago with the JV.
If you could just maybe give us some insights and thoughts on how you see that market developing? What time frame are things going to move faster now? And does that indirectly help in the supply chain, just given the ship building yards there?
Mike Crawley
It's a good question. So South Korea is really interesting offshore wind market for a number of reasons, including those that you just gave. So there's a lot more attention being paid to South Korea, including that announcement from BP. We're seeing a bit of a shift from Japan to South Korea from a lot of developers and from the supply chain as well.
So we've been active there for several years. We've got a very strong team on the ground and development team that's been securing these electricity business license or site exclusivity on projects around Korea. So it's a market that we're very interested in that there's there different avenues to offtake currently in South Korea the three different, I guess, processes, which we can go and I won't go into now. But - so that's good to have optionality in terms of how you source your revenue contract.
The piece around South Korea is it is still a relatively market for offshore wind. These are large projects that we have that others have. There's a lot of demand for energy and renewable energy in South Korea for sure. But these projects are complex, too.
So our next stage is really to get under the hood from a design and an early-stage feed standpoint on these projects and also really drill down on the offtake and really prove out the viability of these projects, but we're in a good position with this many sites secured, particularly when others are now just trying to get into the market.
Andrew Kuske
Okay. That's great. Thank you.
Mike Crawley
And in terms of - and sorry, one last thing, Andrew, in terms of supply chain, it - as I said, it is constraint globally. But one of the advantages of South Korea is a lot of the shipyards and fabrication yards that they have. For example, we're sourcing our jackets and cables for part of our Taiwan project from South Korea.
And it's - so it's one of those markets where when they - when you look at localization, it actually is an advantage where mostly when you hear localization for projects you think this is going to add costs in South Korea actually, in my view, is an advantage for that market.
Operator
And one moment for our next question. Our next question comes from Naji Baydoun of IA Capital Markets. Your line is open.
Naji Baydoun
Hi, good morning. Just wanted to spot off in Japan. I think there's an auction slated for early this year or mid-2023. Just given sort of the - where your projects are in that market. Is it too soon for you to participate? And how do you see sort of the changes of the auction guidelines versus maybe what happened last time around playing out?
Mike Crawley
We're glad that the Japanese authorities are revising the auction rules. We didn't like how the last auction played out and had concerns. I think we're still reviewing the rules around the future rounds in Japan and coming to a decision whether or not we will be participating in them.
Naji Baydoun
Okay. So a bit too early, but there is a chance that you end up deciding to participate in the auctions this year.
Mike Crawley
We haven't decided one way or another.
Naji Baydoun
Okay. And just on Nordsee, on the Nordsee Cluster, if you could just give us any updates on contracting there? How advanced are the negotiations today for the cluster A? And then with that, is there a view to maybe including Nordsee One and like as a re-contracting with either clusters when you're looking to contract those?
Mike Crawley
Yes. So I don't know much to add from Investor Day on the Nordsee Cluster or Nordsee A [ph], the first half of the cluster. As I said then, the procurement process is coming towards a conclusion. So we're moving towards selecting preferred suppliers across the supply chain for Nordsee A, the first half.
The costs are coming in above what our original investment case were, for sure, given the cost inflation over the last year. So for us, it was always that the intent was always to enter into a corporate offtake or utility offtake for those projects and the point we're working through now is just to see whether the increase in energy prices, which there also has been in clearing price for corporate offtake gets us back to the same economics with the higher capital costs. So that's what we'd be working through right now on it. On Nordsee One, the timing does overlap with Nordsee Cluster. So there may be an opportunity to blend the two together, but we're not yet at that stage.
Naji Baydoun
Okay. Thank you.
Operator
One moment for our next question. Our next question comes from Brett Castelli of Morningstar. Your line is open, Brett.
Brett Castelli
Yeah, hi. Thank you. Just a question on future offshore wind offtake. Curious, Mike, if you see the potential for, let's just call it like a reopener at all in terms of future offtake there and maybe some sharing between the offtake side and the development side, given the trends we've seen here recently?
Mike Crawley
So I mean I guess it's in a way that's kind of 2 offtake markets for offshore wind a sovereign-backed PPAs or CfDs that are run through centralized auctions and something like Scotwind we'd be expecting to bid into that kind of a process. And then there's a corporate offtake, which is what we're looking at for the Nordsee cluster, one of the options for our South Korean projects down the road.
So the I think on centralized kind of sovereign auctions for offshore wind, those actions, I think, will see prices reflect bids reflect what current capital costs are, which may moderate over time as more capacity comes available within the offshore wind supply chain.
On corporate offtake, certainly, there's more liquidity in the market than there was 2 years ago, more buyers looking to contract and buyers looking to contract for longer tenure than there was 1.5 years or 2 years ago, and we're seeing those corporate offtake clearing at higher prices.
But as I said, I mean, it just - it is a bit of a supply-demand situation, and we'll see if kind of at what point the things normalize where the corporate offtake offsets for the higher capital costs, which were just in a kind of period of discovery right now in Europe on.
Brett Castelli
Got it. And then just curious on sort of public versus private market valuations. We've obviously seen the public markets valuations come off a little bit. Curious what you're seeing on the private side, would you say that there's maybe a widening gap in terms of private market valuations for renewable assets holding up a bit better?
Mike Crawley
So all I know is what we've seen in the processes that we've been -- that we ran and that we're involved in, and we've seen valuations generally hold steady so far. So that's all I can give you a comment on. So yes, we'd be good at that.
Brett Castelli
Okay. Thanks, Mike.
Operator
One moment for our next question. And our next question comes from Nicholas Boychuk of Cormark Securities. Your line is open.
Nicholas Boychuk
Thanks, good morning. Coming back to the potential for asset sell-downs. I'm curious with the efficient natural gas facilities continuing to perform really well at 900 gigawatt hours of production this quarter. Are you guys getting any inbound interest by these at attractive terms? Would you maybe look to dispose of these a little bit earlier than initially anticipated?
Mike Crawley
I don't think there's any change in our position on those assets. There's no change in our position on those assets. So as you point out, they generate an important cash flow for Northland, but they're also an important part of the electricity mix in Ontario and Saskatchewan, two markets that rely on those assets and other gas-fired assets for capacity, right now.
So what you're seeing in Ontario is a big push to get additional capacity going forward given the growth in the economy and the electrification that's forecast to happen going forward. So that's in part how the contract and how the Oneida Battery Project has moved forward. But it also means that the province still is very reliant on the capacity that they get from gas-fired assets as well.
So the value of those assets to the system is as great as ever, if not greater right now. And whether we, in the long run, are the owners of those assets to be determined, but in the near term, certainly, I think that the system operators are relying on us, looking to us to maintain those assets at a high discrete availability and in some cases, maybe looking to us to see if we can optimize the contribution of those assets to the system as well.
Nicholas Boychuk
Got it. Makes sense. And then in Colombia, I'm just curious if the operating environment there has changed at all. Is there anything related to sort of valuations, cost of capital, if it's maybe more attractive for you to potentially to acquire other assets that could feed into EBSA. Any color about the Colombian market?
Mike Crawley
Colombia market, so there is fair degree of kind of solar and wind power development going on by junior developers there. There's interest in multinationals and contracting directly for renewables, which there's not a lot of volume available to contracts. So there may be opportunities there going forward.
The utilities in Colombia have a certain obligation to contract for renewables as well. So that all is, I think, creates an interesting market going forward. Yes, there's -- and just leave it at that.
Nicholas Boychuk
Okay. Thanks, Mike.
Operator
Thank you. Mr. Crawley, there are no further questions at this time. I would now like to turn the call back to you.
Mike Crawley
Okay. Thanks, everybody, for joining us today. We're going to hold our next call following the release of our first quarter 2022 results in May. So in the meantime, we want to thank you for your continued confidence and support. Take care.
Operator
Ladies and gentlemen, that does conclude the conference call for today. Thank you for participating, and have a pleasant day.
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Northland Power, Inc. (NPIFF) Q4 2022 Earnings Call Transcript