Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) has announced that it has entered into a definitive agreement for the acquisition of an operating portfolio of onshore renewable projects in Spain and to provide a business update on various strategic initiatives. The Company is also announcing a concurrent $900 million bought deal equity financing to fund the acquisition as well as projects within the Company’s identified 4 to 5 gigawatt (GW) renewable development pipeline, outlined at the Company’s recent Investor Day in February 2021.
Spanish Renewables Acquisition
Northland has entered into an agreement with Helia Renovables, F.C.R., a fund sponsored by Plenium Partners Asset Management, S.G.E.I.C., S.A., and Bankinter S.A., being fully distributed among the latter clients, to acquire a portfolio of operating onshore renewable assets in Spain (the “Portfolio”) with a total combined net capacity of 540 megawatts (MW). The Portfolio includes 33 operating assets comprised of onshore wind (424 MW), solar PV (66 MW), and concentrated solar (50 MW) located throughout Spain. Total cash consideration to be paid for the Portfolio upon closing will be €345 million (C$520 million) together with the assumption of debt in the amount of €716 million (C$1,075 million). Closing of the acquisition is expected to occur in the third quarter of 2021 subject to regulatory approvals and customary closing conditions.
The acquisition of the Portfolio immediately places Northland as a top 10 renewable power operator in Spain and creates a platform for growth in an attractive market for renewables. In 2020, Spain made a commitment to achieve 70% electricity generation from renewable energy sources by 2030 as part of the Law on Climate Change and Energy Transition. The 2030 target translates into a requirement for an estimated 35 to 40 GW of additional renewables capacity. In support of its 2030 goal, the Spanish government is expected to auction a further 16.5 GW of solar and onshore wind capacity over the next five years. In addition, the Spanish market has developed into one of the most active corporate offtake markets in Europe, which together with the expected procurements noted above and an attractive merchant power market, offer several routes to market for new renewables. Spain has also announced a 2030 target of 4 GW of hydrogen and 20 GW of storage, which align with Northland’s energy transition growth objectives. Northland intends to leverage the acquisition of the Portfolio to build a platform with asset management, development, and operations and maintenance capabilities that can competitively pursue onshore renewables acquisition and development opportunities across Europe over the next decade.
As outlined at the Company’s Investor Day in February 2021, part of Northland’s strategy is to secure attractive renewable operating portfolios to ensure incremental near-term cash flow. The addition of the Portfolio’s near-term cash flow helps fund the development of Northland’s large offshore wind projects as new markets continue to emerge for offshore wind globally. Northland is an experienced onshore renewables power developer and operator and is a leading global player in the fast-growing offshore wind sector.
The Portfolio aligns well with Northland’s priority to diversify and add high-quality, contracted or regulated cash flows to the business. All the acquired assets are governed under the Spanish regulatory framework, which was implemented in 2013. The framework replaced the feed-in tariff regime and provides a regulated return based on a standard set of operating parameters. Once each asset reaches the end of its regulatory life, it is expected that the project will either sell its generation output in the merchant power market in Spain or secure a commercial or utility power purchase agreement. The framework provides the assets with a regulated revenue stream for the remaining regulatory life, which averages 13 years across the Portfolio, increasing Northland’s average contracted life of its entire power generation fleet.
“Today's announcement further demonstrates Northland's continued growth and leadership in renewable energy and establishes Northland as a top player in one of Europe’s most attractive markets over the next decade for renewables, storage and hydrogen. Through this acquisition we will also establish a European asset management platform that can support entry into other attractive European onshore renewables markets,” said Mike Crawley, President and Chief Executive Officer of Northland. “This transaction is consistent with our strategy and positions Northland for further growth and diversification, while providing us with near-term cash flow.”
| Euro | $C1 | |
|---|---|---|
| Cash Purchase Price | €345 million | $520 million |
| Assumed Net Debt | €716 million | $1,075 million |
| Total Enterprise Value (EV) | €1,061 million | $1,595 million |
| 5-year Average Annual EBITDA | €90 million | $135 million |
| 5-year Average Annual Free Cash Flow2 | $25 million |
| Total Net Capacity | 540 MW |
| Average Remaining Contracted Life and Debt Term | 13.4 years |
| Pre-Acquisition | Post-Acquisition | |
|---|---|---|
| Gross Installed Capacity – Northland Total | 2,681 MW | 3,241 MW |
| Net Installed Capacity – Northland Total | 2,266 MW | 2,806 MW |
| Net Installed Capacity – Northland Europe | 894 MW | 1,434 MW |
| Average Remaining Contract Life (years) |
| 2021E Adjusted EBITDA Contribution3 | Percentage Before | Percentage After |
|---|---|---|
| Offshore Wind | ||
| Onshore Renewables | ||
| Efficient Natural Gas | ||
| Utilities |
The assumed net debt of €716 million (C$1,075 million) is non-recourse, fixed rate debt, with maturities matching the regulatory lives of the assets. Based on the transaction metrics, Northland expects the acquisition to be immediately accretive to Free Cash Flow per share and Adjusted Free Cash Flow per share. In addition, Northland will shortly enter long-term Euro denominated foreign exchange swaps/hedges for the cash flow generated from the Portfolio assets to mitigate foreign exchange volatility, consistent with its corporate risk mitigation strategy.
Spanish Renewables Platform Acquisition and Equity Raise Enables Northland Growth Strategy
Northland intends to permanently finance the acquisition of the Portfolio with a portion of the concurrent bought deal equity offering described below. The Spanish renewables platform will deliver both immediate cash flow accretion and a platform for further onshore renewables development in Spain. Subject to customary closing conditions as well as required Foreign Investment Approval by Spanish regulators, Northland expects to close the acquisition in the third quarter of 2021. The timing of closing will accordingly result in minimal contribution to Northland’s full year 2021 financial guidance. As is typical for offshore wind assets in the North Sea, there is some variability in the wind resource and this variability could result in fluctuations in quarter-to-quarter financial results. Preliminary indications are that first quarter results may be modestly impacted from lower first quarter wind resources in the North Sea. Northland is reaffirming its full year 2021 financial guidance with respect to Adjusted EBITDA ($1.1 billion to $1.2 billion), Free Cash Flow per share ($1.30 to $1.50) and Adjusted Free Cash Flow per share ($1.80 to $2.00).
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