Northland Power Inc.'s focus on offshore wind generation and long-term contracts for its onshore operations insulates the company from the sorts of shocks that renewables operators experienced in the recent Texas blackouts.
The competitive market overseen by the Electric Reliability Council Of Texas Inc. forces operators to look for greater efficiencies to make a profit, Northland President and CEO Mike Crawley said on a conference call. Low margins create a situation where operators build "a plant as skinny as you can," which can lead to situations like improper winterization, he said. Toronto-headquartered Northland's preferred contract structure is one with a long term and strong counterparty that allows the company not to cut corners on design.
"We generally avoided ERCOT mostly because of the contract structures, and they didn't work for Northland as a dividend-paying stock," Crawley said on the Feb. 23 conference call to discuss the company's fourth-quarter 2020 financial performance. "Our strategy has been is to look for high-quality offtake contracts, long-term offtake contracts to the extent that they're available, so that's one of the reasons why we focus on offshore wind in new markets where you can still get — in the case of Baltic Power — a 25-year, sovereign-backed offtake agreement."
In late January, Northland Power said it was buying a 49% interest in Baltic Power, a 1.2-GW offshore wind development, from Polish utility PKN ORLEN SA. The project is expected to secure a long-term contract-for-difference offtake agreement.
Northland Power does not have any operating power generation assets in the U.S., according to S&P Global Market Intelligence data, and Crawley said Northland's focus on predictability in contracts helps smooth its profitability over the long term. Other Canadian power producers operating in Texas and the central U.S. have warned that they will see financial impacts as a consequence of a storm that brought sub-freezing temperatures and covered the states in snow and ice. Quebec-based Innergex Renewable Energy Inc. said the storm could result in a C$60 million hit, while Algonquin Power & Utilities Corp. said the event is expected to dent 2021 EBITDA by between US$45 million and US$55 million.
"Developers and [independent power producers] are looking for ways to take cost out to be more competitive," Crawley said. "We've always been fairly conservative in that regard. And if we sometimes lose the tender as a result, so be it, I guess, because there is a consequence to cutting all the costs."
Separately on Feb. 23, Northland reported adjusted EBITDA of C$268.5 million in the fourth quarter of 2020, down from C$272.7 million in the prior-year period. The S&P Capital IQ consensus adjusted EBITDA estimate for the quarter was C$290.3 million.
