Northland Power Inc

TSX:NPI

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power conference call to discuss 2018 first quarter results. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, May 10, 2018, at 10 a.m.Conducting this call for Northland Power are John Brace, Chief Executive Officer; Paul Bradley, Chief Financial Officer; Mike Crawley, Executive Vice President of Business Development; and Dhiraj Shangari, Corporate Finance Manager.Northland Power management has asked me to caution you that their summary of results and responses to your 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 statement section in yesterday's news release announcing Northland Power's results and be guided by its contents in making investment decisions or recommendations. The release is available at www.northlandpower.ca.I will now turn the conference over to John Brace. Please go ahead, sir.

[John W. Brace, CEO & Director]

Thank you very much, operator, and good morning, everyone on the call. Thank you for joining us today. This morning, we will review our 2018 first quarter results.In short, we're off to a very strong start. We once again delivered very strong financial results. We achieved an increase in EBITDA of 47% to $290 million compared to the same quarter last year, and an increase in free cash flow per share of 250% to $0.84 per share from $0.24 per share last year. We also shared some exciting news last week. Our Hai Long 2 offshore wind project in Taiwan was allocated 300 megawatts under Taiwan's feed-in tariff program. This is a significant milestone for the project as it advances the project's ability to execute a 20-year power contract under Taiwan's feed-in tariff program. With this milestone under our belt, we are actively engaged on completing the remaining development work. We will finalize project economics, financing details and finalize turbine in construction contracts further along in the process. We look forward to applying our European offshore experience in a new promising region and to supporting Taiwan's transition to reliable energy.When built, Hai Long 2 would increase Northland's offshore wind operating capacity to over 1,450 megawatts or net 1,074 megawatts by 2024. As you know, Mike Crawley is on the line and can answer questions about the project later on in the call.Back to the quarter. I'd like to point out that the significant increases in EBITDA and free cash flow are largely due to Nordsee One and Gemini, our 2 operating offshore wind farms delivering on their potential.Overall, all of our operating assets, representing over 2.4 gigawatts of gross generating capacity performed well and safely over the quarter.Sales increased by 34% to $486 million, and gross profit increased 41% to $455 million over the same quarter in 2017. Again, due to higher production at the Nordsee One offshore wind farm and a favorable exchange rate compared to last year.Paul will take a deeper dive into our financial results shortly, but first, I'd like to provide an update on the rest of the business. As I mentioned, both of our operating offshore wind projects Gemini and Nordsee One continue to perform well. And we are making great progress on our third offshore wind farm, the approximately $1.9 billion Deutsche Bucht project, which is currently in construction. It is moving along on schedule and on budget. Production of the main components continues and the first offshore activities mainly surveying and checking, and if necessary, clearing the offshore site of unexploded ordinances have been completed.Looking ahead, in the second half of 2018, we will begin offshore installation and continue to expect project completion by the end of 2019.And furthermore, we just received the permit for the 2 turbine foundation demonstration expansion project, on which a final investment decision will soon be made.Finally, in April, Northland expanded its Board of Directors from 6 to 7 members, and appointed me to the board. I really appreciate the trust being placed in me, and I'm excited about continuing to advance Northland's vision.Along with everyone on the Northland team, I come in to work every day excited and committed to the work that we're doing. Our every effort is focused on delivering on our promises to our shareholders, while building a more sustainable future for all.On that note, I'd like to turn the call over to Paul.

[Paul J. Bradley, Chief Financial Officer]

Thank you, John, and good morning, everyone. Last night, Northland Power released its 2018 first quarter results. As John highlighted, we continue to build on the success achieved last year as reflected by strong first quarter.As noted, Northland generated $290 million of adjusted EBITDA in Q1, which represents a 47% increase over the same period in 2017. Significant factors for this increase include: a $70 million increase due to Nordsee One reaching full commercial operations in December 2017; a $22 million contribution from Gemini, as a result of higher wind production; and a $6 million decrease in corporate general and admin costs, primarily related to the timing of early-stage development projects.These favorable results were partially offset by a $6 million decrease in operating income related to the Kingston PPA expiry in January 2017. With respect to free cash flow, Northland generated a total of $148 million in the first quarter, this represents an increase of 256% compared to the same period in 2017. On a per share basis, free cash flow increased from $0.24 to $0.84, a 250% increase over the previous year. The significant factors increasing free cash flow include: $192 million increase, primarily due to Gemini and Nordsee One reaching full commercial operations in 2017; $5 million of Gemini interest income on the subordinated debt, this amount was excluded from free cash flow until third quarter of 2017, when cash interest payments commenced; and a $6 million decrease in corporate and general admin costs related to the timing of early-stage development projects, as previously mentioned. These favorable results in free cash flow were partially offset by a $48 million increase in scheduled principal repayments, and a $29 million increase in the net interest expense related to both Gemini and Nordsee One debt; an $11 million increase in current taxes related to Nordsee One; and lastly, a $6 million decrease in operating income due to the Kingston PPA expiry.For the 3 months ended March 31, 2018, the rolling four quarter free cash flow net payout ratio was 39%, calculated on cash dividends paid and 53% calculated on a total dividend basis. This compares to last year's payout ratios of 57% and 78%, respectively, and is mainly a result of the contributions from Gemini and Nordsee One.GAAP net income was $178 million for the year, which represents an increase of 78% from 2017. This was largely the result of higher operating income from Gemini and Nordsee One, slightly offset by a noncash fair value loss on derivative contracts and increase in the provision for current taxes.Finally, I'll reconfirm our 2018 adjusted EBITDA and free cash flow per share guidance. We continue to expect the full year adjusted EBITDA in 2018 to be $860 million to $930 million and free cash flow per share to be in the range of $1.70 to $2 per share. I'll now turn the call back to John for concluding remarks.

[John W. Brace, CEO & Director]

Thank you very much, Paul. We're feeling very positive about 2018 so far. Our growth trajectory continues. Since 2014, we have deployed approximately $1.7 billion of capital in projects that are either operating or in construction, translating into gross project capital cost base of approximately $8 billion. We are making great progress on our construction project in Germany, while achieving a major milestone on our first Taiwanese offshore project. And we continue to achieve strong, sustained financial results as per our commitment to our shareholders.We remain well positioned for a successful 2018 and beyond with the right people, plans and capabilities in place to execute on future plans. We are making great strides towards our vision of becoming a top international clean and green power producer. We are advancing all of our 2018 priorities, and we look forward to providing further updates throughout the year. In the meantime, we appreciate your confidence and interest, and our promise to you is an unwavering focus on delivering value and results that you can count on.At this point, operator, would you please take the questions?

[Operator]

[Operator Instructions] Our first question comes from the line of Nelson Ng with RBC Capital Markets.

[Nelson Ng, Analyst]

In terms of the free cash flow in Q1, was it abnormally high? And I just noticed that the -- just on the reconciliation, the interest paid was like less than half of what it was last year about $26.6 million versus the $58 million. So just wondering, what were kind of some of the reasons why they're -- that caused it to be potentially abnormally high in Q1?

[Paul J. Bradley, Chief Financial Officer]

Yes. So Nelson, first of all, just a general response to your question, and I know many others that are queued up here are going to have the same questions. But I think, I just want to put a general caution out to trying to look at an annual set of guidance numbers and looking at 1 quarter in the business. The first quarter has a number -- has quite a high traffic load of things like currency coming in and out. We've got some seasonality just from production, and we have a number of things that could be timing differences between now and the end of the year, including the way the Gemini contract delivers its revenue. So I just want to be -- I know the question out there is, why is our guidance the same at the first quarter? Was this far over? Remember, we're comparing it to same quarter last year, as opposed to what might be constructing the plans for 2018, both from consensus side and from our side. So I just want to put out there as a general cautionary statement for you.

[Nelson Ng, Analyst]

Okay. But I guess, like there is a number of reasons. You're essentially saying there is a lot of moving parts, including FX seasonality. And like interest isn't paid -- is interest generally paid every quarter or is it 6 monthly?

[Paul J. Bradley, Chief Financial Officer]

Usually, on the European projects, it's 6 monthly. We try to smooth it out with our numbers, but the cash is different than the payments. [ Waiting for ] the payments.

[Nelson Ng, Analyst]

All right. I'll just probably follow up with you off-line in terms of the timing. My next question relates to Taiwan. Is the -- I presume -- is it your expectation to get a -- to sign a PPA this year? And I guess, the question is if it doesn't happen this year, is there a risk that the PPA price could change?

[Mike Crawley, Executive Vice President of Development]

Well, so the tariff is set every year for all different types of renewables, including offshore wind by the Bureau of Energy in Taiwan. So there is a formula that's used and it's moved a bit over the last 2 or 3 years in offshore wind but not materially. And so our objective would be to try and secure the PPA this year. If we are unable to secure the PPA this year, either through the timing it takes to get the final permit secured or the response time from the Bureau of Energy, we would anticipate that there may be a slight adjustment in the tariff rate for next year, up or down but it is formula-based. So yes, in short, our objective would be to get it this year, which makes sense and I think that is implied in your question. But the -- we are not particularly concerned if it drifts into next year.

[Nelson Ng, Analyst]

And what are the key drivers of the adjustment? Is it like inflation in prices, like steel and things like that or is it something else that would cause it to be biased towards the downside?

[Mike Crawley, Executive Vice President of Development]

I think in the -- there's been upward adjustments in the last couple of years on at least one occasion. So it's an estimate of the construction costs and the labor costs as well as some other factors, including, as you say, inflation as I believe. But we can get back to you off-line with some more detail on that. But it's a fairly rigorous and complex formula, so I think does protect you against some -- any significant [ theory of ] such activity.

[Nelson Ng, Analyst]

Okay. And then while we're on Taiwan, do you have any additional details on the timing of the price competitive auction? I think I heard that it could be as early as next month. And I guess, what are you hearing and what has the government officially told bidders?

[Mike Crawley, Executive Vice President of Development]

Yes. And that's our understanding that there is -- that it would likely be by the end of June. So we're waiting for some more clarification with all the other permitted projects, waiting for some more clarification on the exact timing. And we expect to hear something in the coming 2 or 3 weeks from the government, that's certainly the indications we've received. But I do think it will come relatively quickly. Certainly -- probably, by the end of June, but certainly in the next several weeks.

[Nelson Ng, Analyst]

And just to clarify on that, it's the award of additional or allocation of additional capacity by the end of June? Or...

[Mike Crawley, Executive Vice President of Development]

Submission...

[Nelson Ng, Analyst]

Any clarity on the project?

[Mike Crawley, Executive Vice President of Development]

So I think, yes, in the next 2 or 3 three weeks, I think we'll get more clarity on the process and the timing and the rules. And then our understanding is that the bids could be due as early as the end of June.

[Nelson Ng, Analyst]

Okay. Got it. And then while we're still on the offshore development side. In terms of Germany, I guess the round 2 has been awarded for offshore wind. I think you guys have Nordsee Two and Three in terms of those developments. I guess, what's the longer-term plan there? Are you essentially waiting for the next procurement process? Or is that mainly just the kind of -- are those projects just put on the back burner for now?

[Mike Crawley, Executive Vice President of Development]

So the -- there is some rights that still come with those projects for the next procurement round in Germany, as we understand it. And there's still more details to come from the German government and regulatory authorities around how this is going to work. But there will be another procurement round, which will be more in line with the centralized auctions in the Netherlands, where there's a single site in which bidders are invited to submit prices on or submit bids on. And so we understand that there will be some rights accorded to those who are essentially giving up their sites and the data that they've collected on their sites. And that's what we're going to be tracking, and that's what we're going to be working towards. So that is to be determined but there will be some rights accorded to our giving up all the data on our site, which would allow the government to run a centralized auction on a specific site, which could include our site.

[Operator]

Your next question comes from the line of Rupert Merer with National Bank.

[Rupert M. Merer, Managing Director and Research Analyst]

Mike, while we have you, and we're talking about development, can you give us some thoughts on the potential for Northland and future bids in Taiwan? And in those future bids, can you leverage any of the infrastructure from Hai Long to improve the economics of your bid?

[Mike Crawley, Executive Vice President of Development]

Well, for sure. So I mean, I think the -- all recipients of FIT awards will be in a similar position where they can kind of -- they can look to bid an add-on, I guess, to their project into the auction, so they can leverage some of the economics of the FIT round to put together a bid for the auction round and look at the combined economics of both projects possibly, right? The one point for Northland to consider is that with the 2024 COD, the auction round CODs are anticipated to be 2025, certainly in the Changhua County area, the central area of Taiwan. So there is some possible synergies between our FIT project and our auction project in terms of mobilization on construction.

[Rupert M. Merer, Managing Director and Research Analyst]

And how much capacity do you feel you have remaining that you could bid into future calls?

[Mike Crawley, Executive Vice President of Development]

It will be somewhere between 500 to 700 maximum that we could bid in, depending on what the final rules indicate in terms of bidding spare -- any residual capacity on the site where we were awarded our FIT tariff.

[Rupert M. Merer, Managing Director and Research Analyst]

Okay. Great. And John, I guess, turning to you, you're so quite fresh from your deep dive into the strategic review. With that, I'm wondering if you can give some thoughts on recent transactions you've seen in the market, kind of the pension fund acquisitions of onshore and offshore wind farms? How do you view the valuations on those deals? And what are the implications for valuation of Northland Power, or even potential for recycling capital in the future?

[John W. Brace, CEO & Director]

I think it's fairly obvious that the whole power sector is attracting a lot of investment from pension funds. And certainly, as you've pointed out, the offshore wind sector part of the power business is attracting a lot of attention as well and a lot of activity. I think from what I know about what's being paid and what's it's being paid for, I think the -- from the sellers' point of view, the valuations are pretty good. And return expectations from the buyers' point of view are probably what I'd characterize as fairly moderate, but we're not exposed to all of the details of how both sides have evaluated their transactions. From our point of view, we look at our fleet and what we have, and believe that our continuing philosophy that we build and we hold for the long run is our base case. We will continue to test that as we need capital and time moves along, but we don't have any immediate plans to try to change the nature of what we are as a company.

[Paul J. Bradley, Chief Financial Officer]

And I'd just add to that, that when you look underneath the motivations of some of the folks that have taken on these pension funds at a corporate level or at a larger level on a single project, the most recent one had a number of different motivations than we find ourselves today. I think one axiom that I've said at every chance I get is, in today's environment, it's much easier to monetize the cash flow stream than it is to create one. Everyone is out there looking for cash flow streams. We have that. We have that in spades. And quite frankly, I think that's reflected in our stock price that we have the ability to create those streams and why we'd want to sell them off, pay taxes and take after-tax proceeds and reinvest it into a market that's pretty frothy for acquisition projects, isn't making a lot of sense to us today.

[Operator]

Your next question comes from the line of Sean Steuart with TD Securities.

[Sean Steuart, Research Analyst]

Couple of questions. I'm wondering if you can talk about your perspective development activity beyond Taiwan and German offshore winds. Any update on -- that you can give us on other activities in Europe, North America, and elsewhere, with respect to prospective developments?

[Mike Crawley, Executive Vice President of Development]

Yes, I mean, in general, I think our focus in Europe is probably going to be shifting away from subsidy-based contracts more towards ones that would have less merchant exposure or so less -- more long-term contracts so that would kind of tilt towards some of the emerging markets for offshore wind in Europe possibly. And possibly taking another closer look at the market like the U.K. for medium to long-term opportunities. With respect to Taiwan and Asia, I think we generally see a lot of opportunity again in the medium to long-term for offshore wind and other forms of generation -- new generation in Asia, specifically in markets like Korea, Japan and still in Taiwan. So I think, at a high level that's an area of interest, but not necessarily where we're -- decide to get to put boots on the ground and pursue stuff if it is certainly an area of interest for us. And then in terms of -- we've got some greenfield development activities in Mexico. I think we're accessing what the best path to revenue is. In a market like Mexico, it's a big market, but certainly the centralized auctions have proven to be very competitive and so we're trying to determine what the best path to revenue for Northland is in a market like that and if it's something that we want to pursue.

[Sean Steuart, Research Analyst]

And just following on that prospective offshore wind procurements in South Korea and Japan, is there a sense that there will be any subsidization of initial procurement or will they go straight to competitive bids? Do you have any view on that?

[Mike Crawley, Executive Vice President of Development]

Well, sure. I mean, right now, there's a FIT tariff for offshore wind in Japan. But there is other regulatory impediments for those projects to move ahead right now. So there needs to be some changes to allow those projects to move forward. But that's the current status, right? That there's a FIT tariff on the books, it's just there's impediments actually executing on projects right now. And then in Korea, there is a REC or a renewable energy credit for different forms of renewable generation, including offshore wind. And the -- so that's how they incentivize it. There are still some similar -- not totally the same, but similar to Japan -- there's still some changes that would be needed in that market to make those projects viable, and that's obviously something that we're tracking closely.

[Paul J. Bradley, Chief Financial Officer]

And I'd probably just add to that, that in new markets you've got to have a pretty developed supply chain and protocol and various experience levels to build offshore winds. So when you look at Europe, the reason that's gone to, what we call it, high competitiveness, is because there's a well-proven supply chain. Typically you get that through not going straight to auctions, which we understand why Taiwan is trying to go straight to auction, but we don't expect we're going to see the same results as Germany, simply because they don't have an open market first off, and second off, it is that the supply chain isn't -- is really not even getting started yet. So it's probably going to be the same situation in some of these other markets. It isn't necessarily going to be the same situation jumping straight to an auction, particularly if some of the early spade work hasn't been done.

[Sean Steuart, Research Analyst]

Got it. One other question, and I appreciate you don't want to harp too much on the quarterly result relative to your annual guidance ranges. Can you just give us a sense though, the offshore wind generation in Q1, I don't know if you could put a number on it, but how much above normal would you suspect generation might have been for the quarter?

[Paul J. Bradley, Chief Financial Officer]

The production was actually a little bit below norm, and plus, we've had some curtailment at Nordsee One. The lion share of it is paid curtailment, but not necessarily 100% of it. There was quite a lift from just the change in currency and not -- I don't think we want to count on that being the case throughout the entire year, if it is, great. But I think it would be very irresponsible for us to book that in the ledger for the whole year. And there's just other parts of our business, including how we spend money on development that's just very seasonal, and where it's very lumpy or it's got other dynamics to it that doesn't spread -- divided by 4 very easily. And so I'll just stick with that for now, And if you want to go through a full reconciliation of where we think the numbers split quarter-to-quarter, I think that would probably be best done off-line to keep from a long protruded discussion on that. But we feel comfortable about our annual guidance, and I just sort of suggest everyone should keep that in their focus.

[Operator]

Your next question comes from the line of David Quezada with Raymond James.

[David Quezada, Equity Analyst]

Just a follow-up question to the competitive auction round 2 in Taiwan. I think in the past, you mentioned potentially taking some of your O&M activities in-house. Is that something that you'd consider for that competitive auction? And would your lenders be open to that, do you think?

[John W. Brace, CEO & Director]

I think there's -- there are probably several parts to answering that question. I'll start off and Mike will add. But if -- part of what we're doing in Europe is, if you look at the structure of Gemini and Nordsee, as we entered into those projects, they were really truly standalone entities from an operational point of view with a full staffing or an expectation of a full staffing complement to do all of the project management, et cetera, internally. And that was just the way the projects were set up when we entered into them. So part of what we are doing in Europe is in those projects and particularly in Deutsche Bucht where we own the whole thing and subject to our financier's agreement, we can kind of structure it the way we want. We are taking in-house components of the operation and maintenance capabilities that otherwise would have been resident in the projects themselves and we're focusing on taking on, what I will call, mission-critical for long-term success components of the operations and maintenance activities. So that's one part of it. And when we come to Taiwan, we will certainly look at making sure that Northland is really running the show directly rather than a completely standalone entity from an operational point of view. The secondary, of course, is some of the more detailed work. For example, when it comes to the turbines, how long and under what kind of scope is the turbine manufacturer doing the maintenance on the turbines? Obviously, there's a warranty period and a post-warranty period to be considered. That will be an evolving thing for us, as we become bigger and have more experience, and as undoubtedly relationships with suppliers changes over the time period we've got in front of us in Taiwan. With that, Michael, anything to add?

[Mike Crawley, Executive Vice President of Development]

No, that's -- I have nothing to add to that, that's perfect.

[David Quezada, Equity Analyst]

My only other question, just switching gears a bit, any updated thoughts on the Alberta subject, what rounds of the procurement? And how you thought the pricing shook out in the first round?

[John W. Brace, CEO & Director]

Well, I think the pricing in the first round was, in our view, very, very aggressive. And so it's just what you're seeing across North America from Mexico up to U.S. and Canada in any centralized auction for take-or-pay contract for renewables that you're seeing very aggressive bidding. So we are currently taking a look at our portfolio in Alberta, and working hard to see if we can get to what we think will be a competitive bid and if we get to that point, then we certainly will submit, and if we don't, we'll make a judgment call in terms of what to do with the portfolio there.

[Operator]

Your next question comes from the line of Mark Jarvi with CIBC Capital Markets.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

I wanted to start with the offshore projects that you're offering now. Maybe you can just comment, given we're seeing some cash taxes come off of that, how that structure works, what expectations are for those in terms of the cash profile?

[Paul J. Bradley, Chief Financial Officer]

Yes. So different that our Canadian profile, Mark, these are a little bit more of a pay-as-you-go type of structure. We have a -- I think in pretty standard tax structuring as most of our peers do, which involves a number of entities offshore with some various shareholder loans and other mechanisms, so it's on one hand complicated, but on another hand, not on standard from what others do. But it generally is more of a pay-as-you-go philosophy than it is deferring taxes and one day a huge bill comes in.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Could you give us a ballpark in terms of what an effective tax rate should be?

[Paul J. Bradley, Chief Financial Officer]

I can't. We can probably work at that off-line, but it's -- I don't have at the top of my head.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then can you remind us again in terms of the O&M profile, those projects, I think there are, like you talked about earlier, a large of these wrapped O&M contracts. Are they smooth across the 4 quarters or are there going to be some seasonality in a few projects online?

[Paul J. Bradley, Chief Financial Officer]

It should be generally smooth. There is a -- the turbine maintenance has a fixed cost per turbine per month, if you will, or a quarter, I'm not sure exactly how the -- whether it's monthly or quarterly. Most of it is fairly smooth. It's not dependent on production in most cases or anything like that. The way you might see some lumpiness is if there's an availability failure from, say, Siemens on Gemini, 1 quarter and they pay that in the second quarter. In theory, you can get some variability that way. But that's not going to be the biggest source. Our biggest source of variability is production. And that's going to dwarf anything else, but behind that would come currency and third would become market pricing from a little bit of market revenues that come off the Gemini contract. Certainly, every quarter, but usually very heavy in the fourth quarter, once we've reached our subsidy cap for the year from the Dutch government. So those are probably the ordination of the variances that come in.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

And then going back to Taiwan in addition to comments about the timelines of COD on the competitive RFP silver lining where you guys got your allocation on the FIT process. Just wondering what the resources that you have in the country and maybe this is one of the opportunities -- near-term opportunities and we don't know what the future brings. How do you guys think about those sites in terms of your willingness to bid more competitively and maybe not be the ultimate owner of those sites and take advantage of your development team over there right now?

[Paul J. Bradley, Chief Financial Officer]

Yes. I think that's all TBD markets. On one hand, and the best outcome for us is we bid a project that we like the IRR, and we continue to own it for the rest of time. But because we have the real estate, i.e. the sites and the permits and whatever. I guess and probably, hopefully though, second or worse case is that we bid it to an IRR that someone else truly loves but maybe doesn't -- isn't at a hurdle rate that we particularly want to do. And obviously, worst cases you don't win any allocation. But I think first and foremost, we've got to come up with our view of where the project clears, and whether -- second question is, is that good for us or is it good for others? Naturally, our D&A is to build, own and operate our own projects. But we recognize that in today's day and age of competitive capital and a very frothy market for M&A that there is a possibility that there is a happier owner for it than us at a certain bid price.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay, okay. And then maybe lastly, just question around new development activities. In terms of how much you guys are getting inbound from other people looking to you guys as experts in offshore versus how much is [ religious ] from you guys looking under every rock?

[Mike Crawley, Executive Vice President of Development]

It's both. I mean, we certainly get approached by developers looking for a strategic partner or IPPs with more experience doing onshore development that are starting to look at offshore development in some of these new markets where offshore looks like it will emerge as part of the generation mix going forward. So we get a bit of inbound from those. And then we also proactively are putting ourselves out there to try and better understand the markets where offshore wind is likely to emerge so that we can position ourselves and go out and reach out to who we think would be good partners on the ground in those new markets. So it's a mix of both.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

But no real change in pace in terms of the inbound for the last year?

[Mike Crawley, Executive Vice President of Development]

I think the one thing that you've seen in the last year is the markets outside of just kind of Germany, U.K. and Netherlands that the new markets where offshore wind is starting to be considered by regulators and policymakers. We were starting to see more developers reach out from those markets to ourselves and I assume to some of our competitors, too.

[Operator]

Your next question is from Ben Pham with BMO.

[Benjamin Pham, Analyst]

I wanted to follow up on a couple of comments you've made so far. More on -- there's a mention about a rational bidding, high valuations and the overall landscape. And I'm more curious, do you see some guys like Enbridge, [ CPT creating JVs ]? What's your assessment of the industry now going forward? Is the [ RES award ] looking still attractive for you guys in the power industry? And really, I'm asking to think about, you guys went through 2.0 NPI. This NPI 3.0, does it involve a broadening of what you guys have looked at historically?

[John W. Brace, CEO & Director]

I think, Ben, certainly, the power industry we think still has lots of promise for us. And if you look globally, the amount of -- and just looking at renewable power, the amount of need on a global basis over the next reasonably near time frame, it's astonishing the total amount of work that must be done. So there is all sorts of stuff we will be able to do and we're very confident and optimistic about that. I think as well if you look at our history, though, we have, I'll call it, a habit, of being kind of leaders leading from one area of the power business to another area of the power business as we went from biomass through creating the gas industry, early movers in onshore wind and solar, and from a Canadian perspective, offshore wind. We are always keeping our eyes open and thinking about whether there's another new branch out from there that makes sense for us. And if and when we get to that point, you will be one of the first to know about it.

[Mike Crawley, Executive Vice President of Development]

And the only thing I'd add to that is that the -- perhaps in the past, CapEx for projects was where there was a need and that, certainly now as you know, there's ample CapEx to invest in late stage or in the contracted projects. But the -- there is a lot of value given, as John said, the amount of new power supply has to be built around the world in different markets. There's a lot of value in controlling projects and having your proprietary stream of projects that you control. And in some markets, there would be projects that we would want to finalize the development and construct and own and operate ourselves. And as Paul alluded to in other markets, depending on the dynamic, there may be a better owner than Northland in the long term. But we have the requisite skills to originate and develop projects, and I think that's where there's value in the market today.

[Benjamin Pham, Analyst]

Okay. And can I ask you secondarily? The -- that's -- you look at all these bids that are coming in, spot prices and what not, and it's just [ easier to ] say the return is [ somewhat back rate ] and there's the rationality. But is there a chance that maybe that statement's incorrect? Because you guys look at the Canadian side of things, and you did a pretty good job of bidding in ahead of time and turbine cost went down 50%, and you realized a lot of returns from that. So is there something to think about that historically as if -- you think about offshore wind going forward?

[John W. Brace, CEO & Director]

As you put together a bid for, say an offshore wind project, particularly with some of the timelines involved, as Mike mentioned earlier, the competitive round for Taiwan is for projects that go into operation 2025 in the first case. There is a lot of time and opportunity for technology development between now and then. And part of what we have to do as a developer is have as intimate as possible discussions with the turbine manufacturers about where they are going and what they might have available in that time frame and take that into consideration in our -- putting together the bids. That all being said, of course, again, depending upon the jurisdiction and how the bid is structured, your view of market prices for electricity in the future can be a major determinant of what's an acceptable bid price to you. What's been happening in Germany and the Netherlands, those bids are structured [ because ] the market price for electricity is very important. But in the U.K., where it's a contract for differences that is up for auction. Your view of the market prices really doesn't mean much, because you're bidding the price that you will be paid, not the price that you expect the market will take you to. So it depends quite a bit on where you are and what you are. But bidding for the future and then incorporating your expectations on cost decline is an important part of being successful.

[Operator]

[Operator Instructions] Your next question comes from the line of Jeremy Rosenfield with Industrial Alliance Securities.

[Jeremy Rosenfield, Equity Research Analyst]

Just first on Taiwan. Maybe you can just highlight what the major milestones are that you do need to achieve before you file for and receive a PPA?

[Mike Crawley, Executive Vice President of Development]

Sure. I mean, the major milestones all relate to local permits that need to be secured. As you know, we secured our environmental permit for both sites, including the site where we received the FIT award earlier this year in January. So that was a major permit, but there are sundry local permits that need to be secured prior to submitting for what's called the establishment permit, which once received, then we would be in line to receive a PPA or to submit for a PPA. So that's really the work that's going to go on in the coming months, is securing those final permits.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. And do you expect to look at hedging financing costs or debt costs? Maybe, Paul, you can address that. Ahead of the PPA signing, or would that be something you would look at following reception of the PPA?

[Paul J. Bradley, Chief Financial Officer]

I think it's a bit premature to do that. I mean, I think there's 2 functions happening here: one is the PPA granting; and the other is the ramp up of the exposure that we have. It's very expensive to hedge early. And there comes a point where there is a sweet spot to do it. I can't tell you where that is currently.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. Just switching gears. If you can just address the curtailment issue at Nordsee, and you said that it was mostly not -- didn't impact the financials, but just what is the status? How does the curtailment potentially impact Nordsee?

[Paul J. Bradley, Chief Financial Officer]

Well, there is different reasons for curtailment. There is reasons that have to do with just grid congestion. And almost every PPA in the world that I'm aware of, the grid always reserves the right to curtail for grid safety, grid security, grid reliability issues. There's other issues that could come up where, for example, there's negative pricing, and we have a balancing agreement that just pretty much pays everybody to say, "Hey, it's better off curtailing." And typically, we get paid for that type of curtailment when it's economic. Generally, and it gets very complicated, because there's probably -- I gave you the 2 largest reasons for curtailment, there is many others. But generally, most of the curtailment is covered, but there are small bits of curtailment where we wouldn't be covered because of -- it's just in everybody's best interest to either not run it or that it just becomes economically unfeasible for the balancing. But it's not of -- it's not an area of great concern, but whether you're going to notice it, is a de-linking between some of our production figures and the revenue figures.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. And this impacts Nordsee more than what you would see elsewhere?

[Paul J. Bradley, Chief Financial Officer]

Well, as I said, it exists in almost every power project. It's just really a question more of what the financial arrangement is around curtailment. But Nordsee One, I guess particularly the region that it's in, has seen a bit more curtailment than expected. And since then we've been paid for most but not all of it. So really what we're trying to highlight here is that there is not an enormous risk, financially, of curtailment, but you are going to have trouble tracking the revenues to the production numbers when there are periods of higher curtailment, such as in this first quarter.

[John W. Brace, CEO & Director]

Operator, are there any other questions?

[Operator]

No, sir, not at this time. Mr. Brace, there are no further questions. And I'll turn it back over to you for closing remarks.

[John W. Brace, CEO & Director]

Well, thank you, everyone, for joining us today. We will hold our next call following the release of our second quarter results in August of this year. Thank you very much.

[Operator]

Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you for participating. And have a pleasant day.