Northland Power Inc

TSX:NPI

Earnings Call Transcript 2017-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Northland Power Conference Call to discuss the 2017 annual and fourth quarter results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, February 23, 2018, at 10:00 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 Adam Beaumont, Senior Director of Finance.Northland Power management has asked me to caution you 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 Statements 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 call over to John Brace. Please go ahead, sir.

[John W. Brace, Chief Executive Officer]

Thank you very much, operator, and good morning, everyone. Thank you for joining us today. This morning, we will review our 2017 results for the fourth quarter and the full year, and we will also provide an update on the business and share our 2018 financial guidance.Our 30th year in business was highlighted by a number of great development, construction, operational and financial achievements. In particular, we are very proud that in 2017, we officially completed construction of our first 2 offshore wind farms, Gemini and Nordsee One, ahead of or on schedule and under budget. With both of these large-scale wind farms in operation, Northland's net interest and operating generating capacity has now grown to over 2 gigawatts. This represents a 46% increase over 2016.We are pleased to see our bold entry into European offshore wind in 2014 paying off. On that note, we demonstrated our ongoing ability to create long-term value for our shareholders by increasing our dividend by 11% to $1.20 at the end of the year. Our commitment to delivering robust returns drives our efforts every day. I'll provide more detail on our progress shortly, but first, I'll share some of our financial highlights from 2017. We achieved adjusted EBITDA of $765 million, which represents a 22% increase over 2016. In fact, adjusted EBITDA exceeded our guidance, largely as a result of the strong contributions from Gemini and Nordsee One, favorable foreign exchange fluctuations and timing of development expenditures.Sales increased by 25% to $1.4 billion in 2017, and gross profit increased by 37% to $1.2 billion, again, primarily due to contributions from Gemini, pre-completion revenue from Nordsee One as well as positive contributions from Grand Bend and our other onshore wind facilities.Northland's free cash flow per share increased 4% from $1.40 in 2016 to $1.46 in 2017. I would note that 2016 contained the onetime global adjustment settlement. Free cash flow per share also exceeded our guidance, primarily due to the same reasons as adjusted EBITDA. Paul will provide additional detail on our financial results later in the call, but first, I'd like to provide an update on the rest of the business. As I mentioned earlier, in 2017, we officially completed 2 offshore wind projects: Gemini and Nordsee One, which achieved project completion in April and December, respectively. Gemini was completed ahead of schedule and under budget and has already generated over $860 million in revenues. Nordsee One was completed on time and under budget and to date has generated over $140 million in revenues for a partial year in 2017.In addition, we acquired our third offshore wind farm, the 100% Northland-owned Deutsche Bucht project, and achieved financial close in August. This project is in early stages of construction and is progressing according to plan. All key construction contracts have been signed, and the project components are currently being produced. We expect to begin in-water construction later this year and to reach final completion by the end of 2019. We look forward to keeping you updated on its progress.In the meantime, I can tell you that our operating facilities met or exceeded expectations in 2017, with operating availability at over 95%. We put a lot of effort into ensuring that each facility performs safely and to its utmost potential. This focus is established when a project is first being developed and sustained through construction and operations. This approach allows us to produce stable cash flows that pay our dividends while supporting our growth initiatives.With a successful 2017 behind us, we are already working hard to ensure that 2018 is productive and profitable. Through our investment in and ownership of Gemini and Nordsee One and, most recently, Deutsche Bucht, we have established a strong presence and positive reputation in Europe. The offshore wind sector remains a priority for us when it comes to seeking out new projects in Europe but also in other jurisdictions. We have an office and a local team in Taiwan, which has been identified as a region with some of the best wind resources in the world. To kick-start the offshore wind sector in Taiwan, the Taiwanese government has implemented a feed-in tariff program with long-term contracts. We are working closely with our local partners on advanced site development and completion of all required regulatory and permit-related work in order to obtain the approvals needed to secure a power purchase agreement. We hope to have news about this later in the year.In addition to Taiwan, we now have Northlanders residing in a number of international locations, including Hamburg, Amsterdam, Mexico City and London as well as, of course, in Toronto. Global decarbonization efforts offers significant opportunities for Northland. Government policy changes and incentives are driving a rise in renewables and coal retirement targets across the EU, Canada, the U.S., Latin America and other jurisdictions. We aim to be a leader in this global transition, and we are well positioned to do so. Based on international presence, our track record of on time, on-budget project delivery and our commitment to sourcing and securing high-quality projects in promising markets that are consistent with our risk reward profile. To underpin our ability to win the best projects and attract top talent, in 2017 we added 3 executives to our management team. In August, Morten Melin joined Northland as Executive Vice President, Construction. Northland (sic) [ Morten ] has extensive experience working in the international renewable energy sector, including his involvement in more than 25 offshore and several onshore wind projects.In September, Troy Patton joined Northland as a Chief Operations Officer. Troy brings more than 20 years of experience in the power generation industry and has worked extensively in Europe, Asia, the United States and Canada.In November, John Hannah joined Northland as global head of Human Resources. John has over 30 years of experience in Human Resources for international organizations and brings a strong focus on strategy, business alignment, people development and health and safety.They are hard at work and making great headwind as is all of the Northland team, and we look forward to keeping you up-to-date on our progress throughout the year.On that note, I'd like to turn the call over to Paul Bradley.

[Paul J. Bradley, Chief Financial Officer]

Thank you, John, and good morning, everyone. Last night, Northland Power released its 2017 annual and fourth quarter results as well as its full annual report and new information form. These documents are available on our website and on SEDAR.As John highlighted, we had another strong year of financial results. Northland generated $765 million of adjusted EBITDA, which represents a 22% increase over 2016, and surpassed our guidance range for 2017. These favorable results were primarily due to contributions from the Gemini and Nordsee One offshore wind facilities. Partially offsetting this increase was the onetime receipt of retroactive global adjustment payments in 2016 and the Kingston PPA expiry in January 2017. Northland also increased its free cash flow by 6% to a total of $256 million for the year. This was primarily a result of the contributions from Gemini and was partially offset by planned higher interest expenses, mainly at Nordsee One, in addition to the impact of the Kingston PPA expiry and the retroactive global adjustment payment received in the prior year.On a per share basis, free cash flow increased to $1.46, 4% higher than in 2016. This also exceeded our guidance range, primarily due to strong contributions from the offshore wind facilities. GAAP net income was $276 million for the year, which represents an increase of 45% from 2016. This was largely the result of an increase in operating income, combined with noncash gain associated with the fair value of derivative contracts, and was partially offset by higher depreciation and finance costs related to completed projects.Northland adopted hedge accounting in January 2017, which essentially moved the majority of noncash fair value changes from derivative contracts off of the income statement. Turning to our fourth quarter results. Northland generated $239 million in adjusted EBITDA. This was $38 million lower than in the same quarter in the prior year, and the significant factors of decrease included that $95 million was related to the onetime payment in 2016 associated with the global adjustment decision and also a $38 million in lower sales of Gemini. And this decrease was due to reaching the annual Gemini subsidy cap in November 2017, after which production generates revenue solely at wholesale market rates. This decrease in adjusted EBITDA was partially offset by $87 million contribution from Nordsee One, which represents the project's pre-completion revenues, less certain operating costs and numerous other factors described in the annual report.Free cash flow for the fourth quarter was $70 million, a decrease of $50 million from 2016. The decrease was primarily related to the adjusted EBITDA factors mentioned already. Quarterly free cash flow per share in the fourth quarter of 2017 was $0.40 compared to $0.69 in the fourth quarter of 2016. Net income was $82 million for the quarter, down from $291 million in the same quarter in 2016, again, due to factors previously discussed.With respect to financing activities, as John mentioned, during the quarter, Northland achieved project completion on Nordsee One. Concurrent with this milestone, the team successfully renegotiated the project's senior debt, reducing loan margins by 150 basis points. This has already resulted in improved economics for the project shareholders.Overall, we were very pleased with our 2017 financial performance. With Gemini and Nordsee One fully operational and construction underway on Deutsche Bucht, we are well positioned for continued strong results. With a successful 2017 behind us, we'll turn now to our 2018 adjusted EBITDA and free cash flow per share guidance. In 2018, management expects adjusted EBITDA to be $860 million to $930 million, an increase of approximately 17% over 2017. The forecasted increase in adjusted EBITDA guidance can be largely attributed to higher operating income as a result of higher expected production at Gemini and a full year of generation at Nordsee One.The increase is expected to be partially offset by higher planned corporate and development expenditures related to the expanded scope of Northland's international development activities. Additionally, consistent with past practice in providing guidance, once the construction of Deutsche Bucht offshore wind project is completed and the project is fully operational, management expects an additional contribution of adjusted EBITDA to be somewhere between EUR 155 million to EUR 175 million annually. Management expects free cash flow per share in 2018 to be in the range of $1.70 to $2 per share, an increase of 27% over 2017. This increase in 2018 is mainly due to the increased adjusted EBITDA from Gemini and Nordsee One and, as I just mentioned, in a number of other smaller items that are enumerated in our annual report.I'll now turn the call back to John for concluding remarks.

[John W. Brace, Chief Executive Officer]

Thank you, Paul. 2017 was a notable year for Northland. It was remarkable not just because of all we achieved in the past 12 months, but also because it represents such an important anniversary for the company. With more than 3 decades of successful operations behind us, we are stronger than ever, and we remain as committed as we have always been to achieving our vision to become a top international clean and green power producer.Though our roots remain probably Canadian, we have delivered continued growth through multiple international initiatives while achieving strong financial results and maintaining our commitment to operating our facilities safely and efficiently. We have also demonstrated our ongoing commitment to ensuring Northland remains a sustainable, scalable company long into the future with the addition of 3 experienced executives to our management team and a continued to focus on developing our people and ensuring our corporate foundation is strong and agile. We are well positioned for a successful 2018 and beyond, with the right people, plans and capabilities in place to execute on future plans. We are already working hard on our 2018 priorities, and we look forward to keeping you apprised of our programs. We thank you for your continued confidence and interest in us and remain focused on delivering value and results that you can count on.At this point, operator, could you please open the lines for questions?

[Operator]

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

[Nelson Ng, Analyst]

Paul, just a quick clarification. You mentioned that, I think in your 2018 guidance, that corporate M&A costs would be about, I think, $23 million to $28 million higher than 2017. So that's on a base of, I guess, $69 million or about a 37% increase? Is most of that due to Taiwan? And I guess, the second part of that is -- is that based on an assumption that you'll have a lot more to work on in Taiwan in terms of being awarded contracts?

[Paul J. Bradley, Chief Financial Officer]

So generally, just to remind everybody that unlike some of our peers, we expense our prospecting costs all the way up and until the time where we have a high degree of certainty that a project will be brought to the finish line. Traditionally, that means we have a power purchase agreement or a like kind of certainty that's locked in place. So yes, Nelson, the short answer to your question is that a lot of that increase is the Taiwan project, but I'll also point out that as we get more global and we look at more jurisdictions and the company gets to a larger size and managing a larger balance sheet income statement, that we're going to have also growing corporate costs as well as prospecting and development costs, going forward.

[Nelson Ng, Analyst]

I see. And if you guys are awarded contracts, I guess it's -- the timing is still expected to be about mid-year in terms of the contract award? Like -- then, costs would be capitalized from then on, right? Just from the...

[Paul J. Bradley, Chief Financial Officer]

From that point forward, but we wouldn't retroactively capitalize anything that was expensed previously.

[Nelson Ng, Analyst]

Okay, got it. And then just, my next question, it's probably not that material. But I noticed that you sold the 22-megawatt German wind facility for, I think, just under EUR 4 million. I know it's an old facility, it's about, I think, 18 years old, which probably explains the low price. But can you just give a bit more color like where the facility -- like was the facility nearing the end of its life?

[Paul J. Bradley, Chief Financial Officer]

Yes. I mean, the facility needed to be repowered in any event, in a couple of years and as -- basically, that's something that, given the power prices where they are currently, we just saw it as kind of on your best day a breakeven proposition. Plus, given where -- even though we have a lot more firepower in Europe now, and just given the size of the organization, putting Northland's traditional time and effort into that just probably wouldn't be the greatest use of resources. So we essentially sold it for a pretty good NPV of our expected future cash flows and really just took it -- became more of a time and effort distraction than anything else.

[Nelson Ng, Analyst]

Okay. Just one last question. Can you guys comment on whether you guys are participating in the current SaskPower wind RFP and whether there's an intention to get involved in the next 2 rounds of the Alberta RFP?

[Mike Crawley, Executive Vice President of Development]

Yes. So with respect to Saskatchewan -- this is Mike Crawley. With respect to Saskatchewan, this round, we are not participating. For the next 2 -- over the next round in Alberta, which is 2 separate procurements, as you're alluding to, we do have projects that we'd be eligible to bid and we're currently working on determining the competitiveness of our sites, and we'll make a judgment shortly on whether or not we'll bid those sites in.

[Operator]

Our next question comes from the line of Jeremy Rosenfield with Industrial Alliance Securities.

[Jeremy Rosenfield, Equity Research Analyst]

I just had a few questions on the distribution guidance and what goes in there, specifically related to Nordsee One in 2018. So I guess, the first distribution is in July of the year. Is there only 1 distribution in 2018 anticipated? And then in 2019, you would anticipate 2 distributions? Maybe you could just clarify that.

[Paul J. Bradley, Chief Financial Officer]

Yes. Well, of course, we don't really book the distribution from a cash perspective and a timing perspective that show up in our guidance numbers. But I believe that we have a first distribution coming imminently here on the -- and it's really just following the credit agreements. But essentially, there's timing differences between when the money is earned and distributed. But generally, twice a year is the norm in -- for European projects, going forward. But no, you're not going to see spikes in the accounting for EBITDA, free cash flow and the things that we report on. It's really just a cash flow item, if you will.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. So then, included in the free cash flow guidance from the Nordsee One, it's sort of a regular monthly or as-you-go contribution. So is that what included in that?

[Paul J. Bradley, Chief Financial Officer]

That's right. Because our free cash flow, by definition, will allow for timing differences for -- up to a short period of time, usually 3 months, 6 months, somewhere in that range. So we -- if it's -- if cash gets trapped, for some reason, then we have a different issue. But if it's just timing because the banks only allow us twice a year for distributing, there's no point in having our numbers jumping around quarter-to-quarter. That would be disservice, I think, to the readers.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. And then, is there anything that would cause a difference between that run rate guidance that you've put out there of EUR 155 million to EUR 175 million versus what you expect to actually achieve in 2018? Or is that the accurate sort of range for 2018?

[Paul J. Bradley, Chief Financial Officer]

No, that's -- that EUR 155 million to EUR 175 million is the guidance for Deutsche Bucht when it's completed.

[Jeremy Rosenfield, Equity Research Analyst]

Excuse me, I misspoke. I meant the range for Nordsee One of EUR 160 million to EUR 180 million.

[John W. Brace, Chief Executive Officer]

From last year.

[Paul J. Bradley, Chief Financial Officer]

Yes, from last year. Yes, I think we're largely on the path there. As you know, we've got -- there's a number of things that will come into our guidance versus our actuals, and we are now experiencing, with Nordsee One's addition, more volatility from production and from foreign exchange. And as you know, with Gemini, we also have a bit of market price volatility that happens usually more towards the end of the year in the fourth quarter because the subsidy on Gemini does have an annual cap on it as per the plan. So those were some of the items that you'll have to watch out for as you go through 2018.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. Maybe just one other question related to Nordsee One. You mentioned in the MD&A that the cost did come in below budget. So I'm just wondering if there was any materiality there, and whether that was a contribution or some kind of equity that was received back from the project for -- on the part of Northland Power.

[Paul J. Bradley, Chief Financial Officer]

Yes. So it was under budget. Again, I wouldn't -- it probably isn't worth calling out and changing estimates or anything on that. But it's a very complex calculation because it interfaces with the project finance completion. Pre-completion revenues have to be settled and a number of other construction closeout items have to be settled. So it really does get blurred a bit from how that's -- how we're able to monetize that under-budget nature of the project. But the value accretes to Northland, it just comes in a couple of different forms.

[Jeremy Rosenfield, Equity Research Analyst]

Okay. But none of that was actually booked into anything -- your EBITDA or cash flow in Q4?

[Paul J. Bradley, Chief Financial Officer]

No, no.

[Operator]

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

[Sean Steuart, Research Analyst]

A couple of questions. Just following up on Taiwan, as we're expecting the FIT contract awards later this year, I guess. Can you provide any more context, I guess, on the permitting and what's to come from here? And also curious how the projects are being scored and with respect to the equipment beyond your partner and the economics of the project, to be partnered with any local Taiwanese suppliers for that project as well, or those projects, I guess.

[Mike Crawley, Executive Vice President of Development]

Sure. So the process, moving forward, is that the FIT submissions or the feed-in tariff submissions go in at the end of March, and that's for a total of 3.5 gigawatts that will be allocated, essentially, of transmission capacity for projects, offshore projects. So those -- a decision on those awards, we expect will follow at some point in April or May. And then following those awards, there's an additional 2 gigawatts that will be awarded through a competitive auction, so a more typical kind of auction process, which we'll -- we bid for that currently according to schedule we've been given by the authorities there is the end of June, so June 30. So that -- and then those awards presumably will take place at some point during the summer in July or August. And then at the end of that -- at the end of those both procurement processes, the full 5.5 gigawatts will be awarded with in-service dates between 2020 and 2025. And it's staggered out, the capacity that's available through 2020, 2021 and then '23, '24, '25, based on when the -- either substation upgrades will be completed in the early years and then in the later years, once new substations are created or completed to take the new generations from these projects. So that's kind of the process. And so out of all of that, the proponents will be awarded an allocation of transmission capacity. There will still be a whole sundry bunch of permits that will need to get completed and where -- for our projects, we're working on completing those permits. We've got our environmental assessment completed and approved, but there is a whole bunch of other smaller, local permits that need to be completed and other interconnection-related permits that needed to be completed. Those will be done, we expect, towards the end of 2018. And at that point, then a PPA would be offered and executed. It's possible that, that could drift into 2019. So that's the process. There is a requirement with the feed-in tariff component, the 3 gigawatts -- the 3.5 gigawatts, excuse me, for the feed-in tariff component to have some local content. And without getting in too much precision, for 3 gigawatts, or the 3.5 gigawatts requires some local content, and that has to be submitted -- a plan on that has to be submitted for the earlier in-service dates later in 2018. So the later in-service dates would be due later in 2019. So with -- in that respect, we've been actively working to establish partnerships with local suppliers. Now the principle, I guess, behind everything that we're doing, both in terms of on the finance side but also on the construction side and the O&M side is to partner up experienced European providers in the offshore wind sector, with local Taiwanese suppliers who have experience, either on the finance side or have experience in the power sector in Taiwan, but not necessarily a specific offshore wind experience, so to partner the 2 them up. And we think that is both from the execution standpoint, from our standpoint, a good combination in terms of managing and -- managing our execution risk, but also from the Taiwanese authorities' standpoint, we think it is what they're looking for in terms of a bit of a knowledge transfer and leveraging the local supply chain as well. So that's our approach, and we'll have some more detail on that rolling out over the next couple of months as we move forward with both the FIT submission but also an auction bid as well at the end of June. And then in terms of the allocation for the FIT, it is -- there's a scoring matrix, which is largely based on execution capability, O&M, your O&M plan and also your financing capability and your financial strength. So we've been obviously working hard to put together an application that will score well -- very well in all of those aspects.

[Sean Steuart, Research Analyst]

Thanks, Mike. That's great detail. One quick follow-up question. I guess, a broader conceptual question. When you guys are thinking about allocating incremental development expense, how do you think broadly about spreading that across opportunities that might be really competitive bidding like Nordsee Two and Three versus FIT-type opportunities in Taiwan or more of the unconventional opportunities for new PPAs? How do you think about spreading that, that development expense?

[Mike Crawley, Executive Vice President of Development]

Well, I think as Paul alluded to, I mean, we're looking to leverage what experience and reputation we've gained through our offshore wind projects in Europe into what we see as the emerging markets for offshore wind, globally. So initially, it's Taiwan, in the medium to long term, perhaps it could be Korea and Japan. And there are other markets that we're starting to look at as well, where we think offshore wind will start to make sense. So that chunk is moving in and doing earlier-stage developments to try and secure rights to projects that we could either submit for FIT offtake or FIT PPAs or bid into procurements, depending on the market. But we're trying to secure a position so that we can move a bit earlier in the value chain to be able to secure better returns than you necessarily would in a competitive auction for a late-stage project. Having said that, we are -- we do look selectively at later-stage projects where we think we have some kind of an advantage or where we have -- can see a path to putting together a bid that would be successful. So we do continue to look at those opportunities, but we certainly are probably more judicious in which ones we pursue now, knowing how competitive the market is. So it's a balance of both, still looking at procurements for later-stage projects, but realizing to secure good returns that we do have to move earlier in the value chain and look at some of these emerging markets. You referred to N Two, N Three and I mean, it -- markets -- procurements that are designed in that manner, certainly -- probably don't lend themselves to the optimal terms and test results for us. So those types of options, we would tend to avoid. We think with -- in that particular procurement, for German offshore wind projects, we've got an attractive site with the 2 projects, N Two and N Three. So that's what had us participate in the auction last year and making a judgment soon on what our participation would be in this year's auction. In general, though, those will be the type of procurements that we will probably take a pass on.

[Operator]

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

[David Quezada, Equity Analyst]

My first question is just on the construction and development in crew that, I guess, would have finished out in Nordsee One now. And given that you've started construction at DeBu, could you just comment a little bit about how much of those resources you're able to move over there? And could you potentially even do that in the case that you're successful in Taiwan?

[John W. Brace, Chief Executive Officer]

In that particular example, really, the -- I'll call it, the executive management superstructure moved over. But because in part of the timing of the 2 projects, there wasn't really an opportunity to migrate the team en masse from one to the other, coupled with the fact that a reasonable proportion of the team on Nordsee One came from our partner, Innogy, and we're seconded to the project, and coupled with the fact that when we joined into Deutsche Bucht, the team and the philosophy was largely in place for the construction of that. So that's kind of a long-winded way of saying the executive and the oversight and the sort of Northland interest was transferred from one project to the other. But the execution team, in many respects, were different in both projects. As we continue on into future projects, it's going to depend on timing and it's going to depend on where they are. Our intent, overall, is to try to retain the best-performing team and transfer it from one to the other. On that line, we are in the process of more formally establishing our presence in Europe and taking on board and inside Northland, all of the core elements necessary to develop and execute and operate these large offshore wind farms. And we're making great progress in setting up and running what we call, Northland Power Europe, as a distinct part of Northland Power.

[David Quezada, Equity Analyst]

That's interesting, appreciate that. My only other question is that -- at DeBu, I know you've got the potential demonstration turbines that you might decide to install at some point, that I think, the suction bucket technology. Could you talk a little bit about maybe when you make that decision and what the benefits are of that technology?

[Mike Crawley, Executive Vice President of Development]

Sure. In terms of timing, I think we'd be looking at making that decision towards the mid-year. The benefit of the technology is largely with respect to sound, so installing a monopile, which is what's mostly used in the North Sea, there's a lot of noise in terms of hammering the monopile into the seabed, and that creates some concerns for regulators in terms of the impact of sea mammals, and so there's a fairly complex and costly sound mitigation program that has to be put together through construction, which is what we have to do on Nordsee One, and we'd be doing on the balance of Deutsche Bucht. So the benefit of the suction bucket technology is that it is basically a cone, upside down cone, that is lowered onto the seabed. And then, there's a vacuum, essentially, that's attached to it, that sucks out the water and some of the sand and allows the suction bucket to sink into the seabed. And I mean, it's a bit of a misnomer. It's not the suction, actually, that holds it there, but it sinks into the seabed through the suction that's used through the installation. And so that whole process, and then you have a monopile that's placed on top of that, it creates a lot less noise. So that's the advantage. That's why the German authorities are interested in seeing these 2 turbines installed. It's been widely used in the oil and gas sector, so it's not a new technology, it's just a new technology being applied to wind projects now globally. So that's the advantage of it. And so any jurisdiction, we have similar seabed characteristics and you'll be using monopiles, otherwise, it could be applied. So there's cost saving and environmental benefit, I suppose, is the way of looking at it. So that's what's causing authorities to offer the incentives to allow us to move forward with this if we choose by mid-year.

[Operator]

Our next question comes from the line of Mark Jarvi with CIBI Cap Markets (sic) [ CIBC Capital Markets ].

[Mark Thomas Jarvi, Director of Institutional Equity Research]

The first question is around the Nordsee One refinancing. In prior years, you gave 5-year lookouts on principal payment reschedules. I was just wondering what the refinancing, if anything materially changed in terms of the amortization schedule for Nordsee One today?

[Adam Beaumont, Director of Finance]

Mark, it's Adam. It's about $1 million per year, that it's improved.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Improved by $1 million?

[Adam Beaumont, Director of Finance]

Yes.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then going back to Taiwan, I think, previously, we talked about needing to see the supply chain firm up as well as the ability to secure project-level debt before you guys were 100% go on, on moving towards FIT or a full project in Taiwan. Has that been crystallized for you guys now? Were you confident enough if you could get a contract that those things are in place?

[Mike Crawley, Executive Vice President of Development]

Yes. I mean, given the scale of the opportunity, it's -- where it's landed at 5.5 gigawatts, there's been a lot of activity, both in terms of European supply chain moving over to establish themselves to construct these projects, but also because of the nature of the feed-in tariff with the encouragement for some local content, they've been actively also looking to partner with local suppliers. And the local suppliers have been positioning themselves to be attractive partners to the European suppliers. So on the supply chain, we're much -- feeling much better about it rather than, perhaps, we'd have been a year ago in terms of how it's developed. And on the financing side, just given the nature of the debt markets right now, there've been a lot of interest in Taiwan. We ran a finance conference back in November, a project finance conference, which attracted a lot of interest from the North American, Japanese, European blenders. And the local banks also have been increasing their comfort level and their knowledge around project finance as well. So we're, yes, increasingly comfortable on the finance side as well. The one announcement that we have made is that we've used Green Giraffe before as a financial adviser on our -- some of our European offshore projects and some of our pursuits in Europe as well. And we've, in Taiwan, created a joint mandate between Cathay United, a local Taiwanese bank, and also with Green Giraffe, so they've got a joint mandate, so that was announced a couple of weeks ago. And we'll also be having some more news on the supply chain coming up soon in terms of a partnership there as well.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

But neither are an impediment to move forward?

[Mike Crawley, Executive Vice President of Development]

I beg your pardon?

[Mark Thomas Jarvi, Director of Institutional Equity Research]

So neither of those are an impediment to move forward?

[Mike Crawley, Executive Vice President of Development]

I'm sorry, just, I didn't hear that.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

You're confident that both of those, the supply chain and the debt are -- plan to move forward.

[Mike Crawley, Executive Vice President of Development]

Oh yes, yes, confident on both.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

And then lastly, just to clarify, in terms of your willingness to participate in the RFP in Taiwan versus -- like are you exclusively focused on the FIT procurement process right now? Or are you going to be sort of dual track going forward?

[Mike Crawley, Executive Vice President of Development]

No. We're anticipating participating in both. I think we're certainly preparing to be able to submit a bid into the auction at the end of June as well. So we're on a kind of a dual track. So a lot of the work for -- that we're doing serves both purposes, but we will be preparing -- positioning ourselves to be able to submit a bid in to the auction at the end of June as well.

[Operator]

[Operator Instructions] Our next question comes from the line of Rupert Merer with the National Bank.

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

So with Nordsee operating now and with the experience you have with the 2 offshore wind farms, can you talk a little about how they're performing relative to your original expectations on costs and production?

[John W. Brace, Chief Executive Officer]

On the 2 sides of it, on the costs, everything is, lack of better words, A-OK. On the production side, it's early days. Last year was not a particularly windy year compared to historical records, and that had some contributions to somewhat less wind or electricity production than expected. On the other hand, it was of great assistance in completing the Nordsee One project construction, on time and easily. So there are some pluses and minuses there. I think we have to do some more detailed technical analysis of the results from the year to come to firm conclusions on what we -- given what wind we did receive, did we get what we expected out of those, and we'll be working on improving our analysis on that throughout the year.

[Paul J. Bradley, Chief Financial Officer]

Right. Just to elaborate a bit on the cost side. Rupert, as you might recall, particularly for Gemini but also Nordsee One, we have contracted most of the operations and maintenance functions out with the turbine maintenance to the turbine equipment manufacturers, in particular. And what that does is basically guarantees us an availability for basically a fixed price with penalties and just small bonuses as well. So that's quite an expensive way to do it, but it also takes away volatility. That's the way the project finance lenders prefer it. And certainly, for stock like ours, that is a great way to do your first couple of offshore wind projects. And as you look into the future and as we get more experienced, we think there's going to be ways to optimize. In other words, redo some of those costs and take on those services ourselves. But most of the costs have been contractually fixed for most of them for the length of the financing. So we -- that's why John was saying A-OK on the cost side, we -- it's kind of by design.

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

And the cost that you had on the offshore wind division in the quarter, is that reflective of the cost we should expect, going forward, or maybe a little lower given that the Gemini or Nordsee reached COD later in the quarter?

[Paul J. Bradley, Chief Financial Officer]

Well, in the aggregate, they're going to go up because we'll start seeing the expenses from Nordsee going onto the books. But by nature, it should be fairly stable, going forward.

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

Okay. And then, secondly, looking at your increased cash flow you're anticipating for next year, how does your free cash position look after considering obligations for construction at DeBu? And if you have any excess liquidity, can you talk about how you'll prioritize the use of it? Are you going to look at debt repayment or maybe an NCIB, or do you just save what you have for future growth opportunities?

[Paul J. Bradley, Chief Financial Officer]

Okay. So Rupert, first off, the DeBu project is fully funded and committed. So basically, when we did financial close back in the summer last year, we put all of the Northland contribution to the pot and the lenders committed to funding the project. So there's no more outflow that you'll see on our books, anyway, from the Deutsche Bucht project. So it's already set aside. So that -- and given prior practices, that doesn't move our free cash flow at all until the project is committed other than the capital servicing costs for the nonequity piece of it. So going forward, and as you can imagine, I'm sure your model shows quite a bit of excess cash flow over the dividend obligations that we have. I think one thing that we've said pretty much consistently on the call this year and other forums is that we will -- the board will continually balance the needs of investors with our need for cash. And it generates a good news story when we're using that cash to invest in good projects, going forward. And to the extent that at some point, if we see cash in excess of our growth potential, then I think the priorities will have to be assessed at that time. But they're just not outlined today.

[Operator]

Mr. Brace, there are no further questions at this time. I will now turn the call back over to you.

[John W. Brace, Chief Executive Officer]

Well, thank you, everyone, for joining us again today. We will hold our next call following the release of our first quarter results in May. Thank you, everyone. You can terminate the line now, please, operator.

[Operator]

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