Northland Power Inc. (NPI) Earnings Call Transcript

Welcome to the Northland Power conference call to discuss the second quarter 2026 results. As a reminder, this call is being recorded on Thursday, August 13, 2026, at 10:00 a.m. Eastern. Present for the call are Christine Healy, President and CEO; Jeff Hart, Chief Financial Officer; and Adam Beaumont, Head of Capital Markets. Before we begin, Northland's management has asked me to remind listeners that all figures presented during today's call are in Canadian dollars and to caution that certain information presented and responses to questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents when making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Ms. Christine Healy. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us. Northland continued to execute on our strategy this quarter, delivering strong operating performance, advancing our projects in construction and progressing the opportunities that will drive our next phase of growth. I'll provide some construction updates, and Jeff will then walk through the financials in more detail, and we will open the line for questions. But before jumping into our results, I wanted to take a moment to comment on our broader market backdrop. Across our core markets, we're seeing a level of electricity demand growth that has not been present for decades. That growth is being driven by industrial activity, data centers, electrification, urbanization and more importantly, over time, energy security. The energy security point is particularly important in Europe. For the Canadians and Americans on the call, the current European market reality is quite different. North American natural gas prices remain relatively low and are largely disconnected from European and Asian gas pricing. In markets such as Germany, though, natural gas remains a key driver of electricity prices, which means volatility in global gas markets continues to flow into power markets and resulting pricing. That's why the discussion in Europe has moved beyond simply adding renewable capacity. The focus is on building an electricity system that's secure, affordable and able to support the electrification, industrial needs and the data center demand. This matters for Northland. It validates our multi-technology approach and reinforces the importance of investing based on what an electricity system needs. We don't start with the technology and look for somewhere to deploy it. We start with market fundamentals, system needs and risk-adjusted returns, and we invest selectively where our capabilities can deliver results. We don't see this as a short-term cycle. We see a structural shift in electricity markets and recognizing, of course, that the pace and shape of that shift will vary by market. Northland is well positioned to respond through our differentiated development, construction and operating capabilities across renewables, gas-fired power and storage. And I will note here as well that Northland does have a particularly differentiated capability in offshore wind, demonstrated by the delivery of our 2 world-class projects in construction and our projects in operation. We have the people, partnerships and execution capability to deliver this necessary and growing source of energy. I will add that not a single electron gets added to the grid through policy and discussion alone. It requires capable owners and operators who can build and run the infrastructure our markets need, and this is where Northland delivers. Turning now to our operations over the quarter. I've noted on these calls in the past that our goal is to be ready when the wind blows and the sun shines. And in the past quarter, our availability was very strong. In the case of our gas assets, we are ready to dispatch when the market needs us. In Q2, wind resources across Europe, particularly in the North Sea, were at the low end of historic averages. This was partially offset by our Spanish onshore renewables portfolio, where solar and onshore wind resources were generally in line with the same period last year. Against that backdrop, our operational performance was strong with 96% availability, ensuring we were well positioned to capture the resource when availability -- when available. Importantly, the low European wind was a second quarter story. Year-to-date, generation is in line with historical average levels, and you will recall there were strong wind conditions in Q1. As a result, we are reaffirming our full year 2026 adjusted EBITDA and free cash flow per share guidance. Turning to our projects in construction. Just a few weeks ago, we made history in Poland. Our 1.1 gigawatt Baltic Power offshore wind project achieved first power, delivering the first electrons ever produced from an offshore wind project to Polish homes and businesses. This was a major milestone for the project, for Northland, our partner, ORLEN and for Poland. Many Polish and Canadian dignitaries were in attendance to mark the significance of this landmark event. Today, 61 out of 76 turbines are installed and 15 are generating power. The project is on track for commercial operations later this year with costs aligned to original expectations. Poland is a priority market for Northland. We have built local partnerships, established in-country expertise and continue to see compelling market fundamentals driven by robust economic growth and the need for additional energy infrastructure. Our battery storage projects in Poland are a natural extension of these capabilities and an attractive opportunity to further expand our presence in the market. During the quarter, we commenced construction on those battery storage projects, Kamionka and Mieczyslawów. Both projects represent a combined 300-megawatt 4-hour duration or 1,200 megawatt hours of capacity. Site preparations and foundation work are underway. Major equipment has been ordered, and both projects are on track for commercial operations in 2028. These projects deepen our platform in Poland and build on the expertise gained through the successful execution of Oneida and the ongoing construction of Jurassic BESS. We are leveraging lessons learned and our proven capabilities in development, construction and operations to support project delivery and create long-term value for shareholders. Turning to Hai Long, a 1 gigawatt offshore wind project in Taiwan. We expanded the existing power purchase agreement with the corporate customer to 100% of the output through a 30-year contract. And earlier this week, we announced that Hai Long secured a CAD 2.4 billion financing package. Through this, we've optimized the project, attracted new local banks and accessed lower financing costs. We are encouraged by the increased participation from local banks in this financing. Their involvement reflects the confidence and support for the Hai Long project in the Taiwanese market and reinforces the importance of aligning long-term infrastructure investments with domestic stakeholders. Construction continues to progress as 71 out of Hai Long's 73 turbines are installed with 59 generating power. We expect all turbines will be generating power later this year and full commercial operations will be achieved in 2027. Shifting to Canada, our 80-megawatt, 160-megawatt hour Jurassic BESS project in Alberta is in construction. All the major equipment has been installed, and we are in the final stages of commissioning with commercial operations expected shortly. Once complete, Jurassic BESS will be the largest battery storage project in Alberta and Northland's second operating battery storage facility following from Oneida's successful commissioning in Ontario last year. Together, these 5 projects in construction add approximately 2.5 gigawatts of new capacity to our future operating portfolio and will deliver a meaningful increase in EBITDA and cash flow as they come online. Beyond our current construction program, we are focused on converting this backdrop into the macro backdrop I spoke of earlier into the next phase of disciplined growth, particularly through opportunities where Northland already has operating experience, development capability or established relationships. In Canada, we are encouraged by the improving policy dialogue and the growing alignment between federal and provincial governments on the need for new infrastructure. We are watching carefully for regulatory improvements that can help unlock the next phase of investment. For Northland, this could create a compelling opportunity set in our home market, particularly where our development, construction and operating capabilities can be applied with discipline. In Europe, our focus remains on markets where long-term policy direction, system needs and Northland's capabilities come together to support attractive investment opportunities. And we see opportunities to deploy capital for strong risk-adjusted returns across our core markets, including Poland, Spain and the U.K. We will pursue growth where market fundamentals, risk-adjusted returns and Northland's capabilities align. We will provide a fuller update on our growth priorities with our third quarter results. For now, our message is that the opportunity set is broadening and our approach will remain disciplined. Our recent Poland BESS acquisition is a good example of our approach. We identified and secured mature opportunities in a core market, and we have been able to execute on them very well. Value enhancement is also an important part of our growth strategy. As an owner and operator, Northland has visibility across the full asset life cycle, which allows us to identify opportunities to increase returns from existing infrastructure, grid connections and development rights. These initiatives can offer attractive risk-adjusted returns with lower capital intensity and execution risk than fully new build development. Work is ongoing, including evaluating hybridization opportunities, repowering, recontracting and capacity optimization initiatives across our fleet. We are focused on delivering the opportunities in front of us and creating long-term value for shareholders. And with that, I'll turn it over to Jeff to walk through our financial results.

Thanks, Christine, and good morning, everyone. I'll provide some further color on our Q2 results. Northland generated adjusted EBITDA of CAD 259 million, a 6% increase compared to the second quarter of 2025. And that increase was driven by revenue contributions from Hai Long and a full quarter of Oneida operations, combined with lower operating costs at our natural gas facilities. As Christine noted earlier, those increases were partially offset by lower offshore wind production in Europe, which was approximately 11% below the long-term average. The resulting second quarter free cash flow was CAD 23 million. This was approximately 60% lower than the same quarter last year. And the primary contributing factor to the decrease in free cash flow was a onetime benefit from a German trade tax refund recognized in the second quarter of 2025. And on a per share basis, free cash flow in the second quarter was CAD 0.09 compared to CAD 0.22 in the second quarter of '25. Our net loss was CAD 54 million for the quarter, which was in line with the second quarter of 2025. I will note, in July, one of Gemini's 2 export cables had a circuit failure and was taken out of service. Gemini's production has continued to be the second export cable and the subsea repair of the other cable is underway with completion expected this year. We expect the impact on our full year results to be immaterial, net of insurance proceeds. And turning to our investment program. At our offshore construction projects, Baltic Power and Hai Long, both are on track for commercial operations with overall costs aligned with original expectations. At Baltic Power, as Christine mentioned, we achieved first power in early July and expect to achieve full commercial operations later this year. And at Hai Long, we have secured a 20-year incremental debt financing of CAD 2.4 billion, and this financing strengthened the project's capital structure and provides an alternate source of lower cost funding. Approximately CAD 900 million of the CAD 2.4 billion represents incremental funding capacity available through project completion. The remaining proceeds will be used to refinance the approximately CAD 1.5 billion of higher cost debt. The financing attracted a number of new local lenders, further reflecting the quality of the project and execution. Hai Long's construction remains on track, and the forecasted pre-completion revenue, combined with the incremental debt is expected to cover the project's funding requirements. We are reaffirming our 2026 financial guidance with adjusted EBITDA expected in the range of CAD 1.45 billion to CAD 1.65 billion and free cash flow per share in the range of CAD 1.05 to CAD 1.25 per share. And I'd like to close by acknowledging that with nearly CAD 1 billion of available liquidity, combined with our investment-grade balance sheet, we are well positioned to execute on our plan. And with that, I'll hand it back to Christine.

Thank you, Jeff. Northland's strategy is simple. We build in markets where we have earned the right to operate and then operate well. The progress we've delivered this quarter demonstrates that strategy in action. We have reaffirmed full year guidance. Baltic Power is generating power for the Polish grid. Hai Long is fully contracted and financed. Jurassic BESS is in the final stages of commissioning and construction is underway on Kamionka and Mieczyslawów, our 2 Poland BESS projects. Operational reliability continues to be strong. Simply put, we are efficiently and effectively delivering. As we look ahead, the second half of 2026 will be defined by 2 milestones. We expect both Baltic Power and Hai Long to have all turbines generating, marking the start of contracted -- marking the start of cash flow after years of project investment and execution. With full year guidance reaffirmed and major projects approaching commercial operations, Northland is well positioned to deliver long-term value. This concludes our prepared remarks. Operator, can you please open the line for questions?

[Operator Instructions] And our first question comes from Baltej Sidhu of National Bank of Canada.

Just a few questions from me. So there's been clearly strong momentum at Hai Long with effectively all of the turbines now installed. And if we look at the energy cadence since Q1, roughly, call it, a couple of turbines per week, it would seem possible to have the full product energized by the end of September, absent any weather or other disruptions. Is that a reasonable way to think about the remaining commissioning cycle?

Baltej, thanks very much for the question. I'm going to say to you, nothing is done until it's done because we're in the project land, but the teams are executing very well. I see the same pattern that you mentioned there that the performance has been good. The execution has been good. We have had some weather that's rolled through. The teams have adapted to that quite well. So we see things on track, and you can see we're getting pretty close to the finish line on that.

Yes. And I think Baltej, just to add on is that we are consistent with that, and we articulated, I think, last quarter that we expected all the turbines to be turning in Q4. So it's good to see that progress, and we're pleased by it.

Great. And just a follow-up for you, Jeff. Great to see the refinancing earlier this week. Just given if the current energization piece continues, does that change how you're thinking about the PCR shortfall, appreciating that winds are strongest in Q4 and Q1?

Yes. No. And -- we articulated, I think, last year, CAD 150 million to CAD 200 million our share impact on the PCRs. And the incremental financing or funding, it's funding, it's capacity. So we don't necessarily have to draw on it. It is CAD 300 million our share. I think we're right on where we expect guidance to be within that range for our PCR generation, and we outlooked that earlier this year. So we're on the PCRs the way we laid out. I think we -- if wind performs in Q4, we're probably ahead of that CAD 150 -- we're ahead of that CAD 150 million to CAD 200 million impact and can negate some of it, plus we have the incremental funding and capacity there. So we feel like we're in a good place on that project. But as Christine said, you're not done until you're done.

Great. And Christine, with roughly 2/3 of Nordsee One that's still available, -- how are you -- you touched on the German power pricing and natural gas dynamics there. How are you looking to balance locking in today's attractive German power prices against preserving merchant upside? And if you were to recontract more of that asset, how supportive would that be to pull some liquidity or up finance that asset?

So Baltej, we're always looking at that and what makes the most sense. I will say that the market is in a high level of disruption right now. So you see quite a variance in terms of different folks' forecasts on what the long-term pricing is going to look like. So certainly, we're watching it. And if we see a good opportunity, then we will consider contracting. But our strategy was clear that we contracted 1/3 so that we had stability on the cash flows that we needed to see in that asset. And then we were prepared to have the other 2/3 be merchant exposed. As you know, across our entire portfolio, we have very low merchant exposure. And so the portfolio can actually absorb some merchant exposure. We're comfortable with that right now, but we do continue to scan for -- if there's a better opportunity to contract it in and that makes sense for us, we, of course, will take advantage of that. But right now, we're happy with what we have.

And our next question comes from Sean Steuart of TD Cowen.

Christine, there was mention made of growth aspirations in Europe. I think we have a pretty good sense of what you're focused on in Poland. But you mentioned Spain and the U.K. as well. Can you give us an update on potential for organic growth in those 2 markets? And any perspective on scale and potential timing of moving those types of initiatives along?

Sure. Sean, we'll be talking more about that, I think, with Q3 results because we've been focused this time around on project delivery given that it was such a huge quarter on the project side. And so, of course, we continue to be very interested in Poland. Poland is just a really attractive market for us. And I think it's -- it's probably -- for companies who are not there, then entering Poland is a different decision, but we are there, and it's a great underlying demand growth, supportive policies. We have some great partnerships. We really like Poland. In Spain, we have a strong position in Spain, and we see that Spain really needs a lot more batteries. So without batteries, there will continue to be a great deal of variability. So the batteries make a pretty great business case just on the accessing shoulder pricing because there's such a variation in pricing during the day. So we like the hybridization on existing platforms. We like some stand-alone battery opportunities. So we're evaluating that. But the message I'll give here is the same as what I say in our investment committee all the time is that every opportunity in Northland has to compete for capital. So we have to see that it's the best use of our capital and more importantly, the best use of our talent within the company as well. So we continue to assess those opportunities. Personally, I do like batteries in Spain, but we'll see if they make it -- they run the gauntlet and investment committee successfully. And then in the U.K., as you know, we have an offshore wind project in Scotland called Spiorad na Mara. That project was submitted for the consent process. So we'll wait and see what comes from that. But we do see that in the U.K. market, there are some very interesting opportunities that we're looking at. And both, I would say, our own offshore project, but then some onshore opportunities as well. So again, we don't like to have a single asset orphaned in any one particular location. We like to build out a bit of a cluster around it. So that sort of gives you a guidepost to the types of areas where we're looking.

Okay. And Christine, I was wondering if you can comment on the Ontario LT2 process, read-throughs on the outcome there and perspective on prioritizing growth in this province versus other regions going forward?

Sean, this one actually causes me some amount of consternation as a Canadian because I would love to deploy more capital in Canada, but we just see that the returns are better in our other markets. And so we bid projects on the basis of what returns we would need for those projects to be competitive in our portfolio. And you know what, it's probably properly and effective functioning markets if there are others who think or can actually deliver those better or at lower cost, I would say, though, we have a lot of experience at Northland, and we have a very good track record of delivering projects exactly the way that we say. And I would say that the carry on of that is it means that we're pretty effective at pricing the risk. And so I'm comfortable with how we bid into LT2. I'm also comfortable that our projects didn't make it through, and I'm okay with that because we have other places to deploy our capital where we can get that rate of return. And we also -- so we watch carefully for the future, but it remains a question of where are going to be the really attractive opportunities in Canada. So the team is active on that. I'm as a Canadian, very hopeful that we will see some places where we can really deploy. But we have to -- we keep saying risk-adjusted returns. Part of that risk is the regulatory process, the time it takes to get projects approved, the layers of approvals that are required for even quite simple projects. When we put all that in and stack it up, the Canadian projects have to compete. And right now, there -- we see other better opportunities in the portfolio.

And our next question comes from Benjamin Pham of BMO.

I know you mentioned the incremental debt funding, the pre-completion revenues that's more than enough to cover the Hai Long funding needs. But is there a scenario where, I guess, first off, can you confirm your confidence in not needing additional equity contributions to the project? And then just what conditions you would have to see for that scenario to occur?

Yes, Benny, it's Jeff here. Look, I'll point to the execution of the turbine count and the amount of turbines we've actually got generating power. I mean, and the trajectory of the execution. I think that gives us confidence here leading into Q4. And so we're really pleased with that. And our forecast is, look, you need the wind turning and the turbines installed, and we're well on our way with that and turning. So we're happy with that. I think we're really -- we're confident that we won't require an equity injection. But look, as we get in and we see the wind in Q4, that will be the key item, and that's why we've got some incremental capacity there as well. That's prudent. And that provides us flexibility and -- but we fully expect to be on in Q4, and it really comes down to wind, but we've got capacity there that we talked about earlier. So we're feeling like we're in a good place on that.

I would guess I would add to that, Ben, that if it's helpful that because of the way the project is designed, too, many of the parts of the project operate independently of one another. So even if we had a problem with a turbine or 2, it's not going to affect the whole field. So that redundancy and that design, I think, is actually an advantage that probably it's maybe deep into the details, but it means that because of that, we -- it's not sort of off a cliff in terms of if there's a turbine that's out of commission for some days or weeks that the overall picture from the field is strong.

Got it. I just want to shift to the battery storage side of the NPI. And yes, you referenced the Jurassic BESS project now nearing commissioning -- can you talk perhaps you think forward with the larger Polish storage projects under construction? Is any lessons you can share with us the investment community coming off of Jurassic and maybe with Oneida as well?

Well, you know what, every project, we try to learn as we go through the project and then how do we get better. And we spend a lot of time inside the company on lessons learned and try to harvest all the things that we think we did well and the things that we would like to improve. So if we were -- one of the tests I always ask myself and to the teams is if we were building Oneida today, for instance, would we build it differently. And I think we would do it better. I think we did Oneida very, very well, but we -- there were a lot of things we didn't know. So we built in extra redundancies. We took a different approach on foundation. Some of it is kind of deeply technical, but we -- every single project makes us better. And so that's part of the reason that we were confident to go into Poland and to deliver on -- in the storage market there. And it's part of the reason why we're looking really carefully at Spain that has a clear need for battery storage. And frankly, very clear and quick regulatory processes to be able to deliver on that. So we like that. And I think we've done a very good job, I would say. I don't say that often, but I think on those battery projects. Oneida was first of its kind, but I think we see now with Jurassic, once we see 2 in a row, that starts to make a bit of a pattern.

And our next question comes from Nelson Ng of RBC Capital Markets.

So just a quick one on Hai Long. So in terms of the new debt financing or additional debt financing for Hai Long, can you just comment in terms of how much room there is to optimize the existing debt in the future? And also the new debt that was raised, is there room to optimize that in terms of the credit margin? I know in your European offshore wind farms, there have been several opportunities to narrow the credit margin over time. So just wondering in terms of near-term and longer-term opportunities to optimize the debt there.

Yes, Nelson, that's something we're always looking at. And what I'll say as we view that always is upside to the plan and optimizations that we can then, I think, ultimately optimize our funding capabilities in those projects. But yes, that's something that we look at longer term. I mean the tenor on the debt is about 20 years. We've got longer-dated contracts in that. So there's always ways to manage that. And I think you kind of typically look at 2 times where you can do like really are obvious, at COD and then after a little bit of operations. I think with the execution we've been seeing and the way the project is performing, it allowed us to maybe get out in advance of COD and work a few things, number 1. And then number 2, as we get in and we see operations here and continue to execute, I think there's time -- at that time, we can go back with a good operating performance and tighten there. And like I said, we've got room on the tenor as well.