Northland Power Inc

TSX:NPI

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Northland Power conference call to discuss the 2019 fourth quarter and full year results. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, February 26, 2020, at 10 a.m. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer; Paul Bradley, Chief Financial Officer; and Wassem Khalil, Senior Director of Investor Relations and Strategy. Before we would begin, Northland's management has asked me to remind listeners that all figures are presented in Canadian dollars and to caution that certain information presented and responses to questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents in making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Mike Crawley. Please go ahead.

[Mike Crawley, CEO & President]

Thank you, Jamie, and good morning, everyone. We're also joined this morning by David Povall, our Executive Vice President of Development as well. Thank you for joining us today. This morning, we will review our fourth quarter and full year 2019 financial and operating results. We will provide an update on our development and construction activities as well as provide guidance for our 2020 adjusted EBITDA and free cash flow per share.We closed out the year on a very positive note, posting another quarter of solid operating and financial results, adding to the strong performance we delivered in 2019. We also advanced our projects under construction and advanced -- expanded our global footprint through both development and acquisition execution in the year. First, looking at the financial results for the year. We reported adjusted EBITDA of approximately $985 million compared to $891 million in 2018, representing a 10% increase year-over-year. Our free cash flow per share in 2019 was $1.77 per share compared to $1.90 per share in 2018. The decline was primarily due to higher scheduled debt repayments for Nordsee One and an increasing level of development activity from our global teams. Paul will provide a more detailed look into the financial numbers later in the call. Operationally, our teams worked tirelessly to ensure that our facilities operated safely and efficiently. Excellence in operations is a key focus for Northland. As predictability of the performance of our operating assets enables both, to comfortably pay our dividend to shareholders and provide funds for our growth activities. Strategically, we delivered on our growth objectives by establishing development projects in new jurisdictions and acquiring our first electricity distribution utility. This was accomplished through our regional development offices that we established over the past couple of years. By leveraging our talented teams in these offices, we are better positioned to compete globally, to secure new development opportunities in key markets, but also to compete for asset acquisitions, such as securing EBSA, our first utility. As we continue to take advantage of a global increase in demand from renewable energy projects, we will continue to leverage our competitive advantages in order to meet our ambitious growth plans. As such, we are allocating a greater amount of development capital in 2020 in order to expand our growth initiatives. This additional capital will be dedicated to advancing projects under development, such as Hai Long offshore wind project in Taiwan, but will also help us establish a more pronounced presence in other markets in Asia, such as Japan and South Korea, where we see an increased demand for renewable energy driven by sustainability and energy independence policies. On the construction front at Deutsche Bucht, as previously communicated, the 31 monopile foundations turbines were successfully installed ahead of schedule and were generating full power by the end of September, ahead of schedule. These turbines are operating as expected, resulting in Deutsche Bucht contributing approximately $96 million of pre-completion revenues in 2019. Installation of the 2 mono bucket foundations, Demonstrator Project, was paused in December following the identification of technical issues. A thorough evaluation of the root cause is ongoing, and there is a possibility that the Demonstrator Project may not proceed. If this determination is made, Deutsche Bucht will be comprised of the operationally complete 31 turbines on monopile foundations with total capacity of 252 megawatts. Paul will describe our accounting treatment of the Demonstrator Project momentarily. At La Lucha, construction activities continue as scheduled, and the project remains on track with the original project cost estimates. Northland owns 100% of La Lucha, our first project in Mexico and our first project to be underpinned by commercial and industrial customer offtake. Project completion is expected in the second half of 2020. In January, we announced the closing of our EBSA acquisition following the receipt of the proposed tariff from the local regulator. The closing resulted in an adjustment to the purchase price to CAD 960 million came from the initial CAD 1.05 billion price. As part of the purchase price, the final purchase -- as part of the purchase agreement, the final purchase price is subject to further post-closing adjustments following a review of the tariff resolution by the local regulator. EBSA will provide as a platform for additional product development of new infrastructure in Colombia. We're excited about the prospects that Colombia has to offer and how these prospects will help deliver strong shareholder returns while progressing our evolution as a global player in the power infrastructure sector. Turning to our development activities. Work continues at our Hai Long offshore wind project in Taiwan to secure power purchase agreements for the remaining 744-megawatt allocation secured under an auction process. We secured all key permits in December and expect to sign the PPAs in 2020. In December, we announced the expansion of our strategy in Asia with the formation of a joint venture partnership in Japan that will target offshore wind development in that country. We see tremendous potential in Asia, where more jurisdictions are shifting towards renewable energy sources to meet their energy demands. The joint venture will result as establishing cheaper offshore winding, a partnership to develop early-stage offshore wind opportunities. If fully developed, these projects could potentially add approximately 600 megawatts of gross offshore wind capacity. Lastly, as you would have read earlier this week, we announced the acquisition of Dado Ocean Wind Farm Co., a development company with multiple early-stage offshore wind project sites off the coast of South Korea. Dado Ocean is currently owned by an experienced wind power developer who will continue to support the project as a local partner, working together with Northland to achieve key milestones for the project. This development opportunity further aligns with their strategic objective of being an early mover in key markets with a meaningful presence, and it adds to our portfolio in Asia. We will have more to say on these opportunities at a future date. I will now turn the call over to Paul for a more detailed review of our financial results.

[Paul J. Bradley, Chief Financial Officer]

Thank you, Mike, and good morning, everyone. Last night, Northland Power released operating and financial results for the fourth quarter and full year 2019. These results showcased our continued strength across a number of financial metrics. We generated adjusted EBITDA of $273 million in the fourth quarter, a 23% increase from a year ago. The business benefited from strong operational performance and the additional contributions from our Deutsche Bucht project that contributed approximately $79 million of pre-completion revenues in the quarter. On a full year basis, adjusted EBITDA was approximately $985 million, which was at the higher end of our guidance of $950 million to $1 billion and represents increase of 10% from the same period a year ago. The primary drivers behind the increase was pre-completion revenues from Deutsche Bucht and higher overall production from virtually all of our operating facilities. These were slightly offset by market prices below the contractual floor at Gemini and unfavorable movements in exchange rates.With respect to free cash flow, Northland generated a total of $67 million in the fourth quarter. This represents a decrease of 24% or $21 million from the $89 million generated in the fourth quarter of 2018. The decrease in quarterly cash flow year-over-year is attributable to an $18 million decrease in overall earnings resulting from market prices below the contractual floor at Gemini and negative pricing and curtailments at Nordsee One. Also contributing to the decrease was higher corporate expenses related to an increasing level of development activity. On a full year basis, free cash flow in 2019 was $318 million compared to $338 million in the prior year, representing a decrease of 6% or $19 million year-over-year. The drivers behind the year-over-year change in cash flow was a $35 million increase in scheduled principal repayments, primarily for Nordsee One debt; a $9 million increase in costs related to increased project development activities; and a $9 million increase in current taxes related to our offshore wind facilities. These negative factors were partially offset by a $28 million decrease in our net interest expense due to amortizing debt, lower outstanding balance on our corporate credit facilities and redemption of convertible debentures in 2018. These figures translated into free cash flow per share of $0.37 for the fourth quarter and $1.77 for full year 2019. These were 24% and 7% lower, respectively, compared to the same periods in 2018. This level of cash flow resulted in a rolling 4-quarter free cash flow payout ratio calculated on a total dividend basis ended December 31, 2019, on 68% compared to 63% payout ratio last year. GAAP net income in the fourth quarter was $61 million or $0.23 per share and represented a decrease of 7% compared to the $65 million recorded in the fourth quarter of 2018. As a result of the uncertainty with the DBU mono bucket Demonstrator Project, accounting principles require Northland to record a noncash impairment loss of $98 million for the project costs incurred to date associated with the Demonstrator Project. On a full year basis, net income of $451 million or $1.71 per share represents an increase of 11% and 14%, respectively, from the same period in 2018. This increase in net income year-over-year was primarily due to higher gross profit and lower finance costs mentioned earlier, offset by the $98 million impairment recorded in Deutsche Bucht, a higher tax expense and higher expenses due to the timing of development expenditures. With respect to our financing activities, in December, we announced the renewal of our normal course issuer bid, which allows the company to purchase for cancellation up to 8 million common shares if the company deemed it appropriate to do so over the subsequent 12 months. I will now take a few moments to highlight our 2020 outlook and provide some details on our adjusted EBITDA and free cash flow per share guidance. As we have noted earlier, our business strategy remains focused on enabling us to meet our commitment to our investors. Our 2020 guidance reflects a higher level of development expenditures in pursuit of the company's execution of its global growth strategy. As a reminder, we deduct development expenses from our free cash flow and EBITDA until a given development project reaches a high degree of certainty of completion. As a result, management expects adjusted EBITDA in 2020 to be in the range of $1.1 billion to $1.2 billion. This expected range takes into consideration an incremental $140 million to $150 million contribution from Deutsche Bucht for a full year of operations, excluding the Demonstration Project, and $100 million to $105 million contribution from EBSA, which closed in January 2020, and also a contribution from La Lucha, which is expected to be completed in the second half of 2020. Management expects free cash flow per share in 2020 to be in the range of $1.70 to $2.05 per share. Similar to our EBITDA forecast, this range takes into account a $120 million to $130 million contribution from a full year of Deutsche Bucht operations, including onetime excess pre-completion revenues that were in 2019, a net of a partial year debt principal repayment but excludes the Demonstration Project, and a $30 million to $35 million contribution from EBSA and La Lucha. In addition, our 2020 free cash flow range takes into consideration higher planned development expenditures, including a partial year of Hai Long's development costs and development overhead, expected to total $0.45 to $0.50 of 2020 free cash flow per share compared to a total of $0.24 per share in 2019. With that, I will now turn the call back to Mike for some closing remarks.

[Mike Crawley, CEO & President]

Thank you, Paul. In closing, I wanted to note that we made significant progress on our strategic objectives in the year. We delivered strong financial and operating results in the year. We advanced our projects under construction and under development. We expanded our global development footprint through targeted investments and acquisitions that allowed us to establish a presence in Latin America through La Lucha in Mexico and EBSA in Colombia. We see significant opportunities arising with the next wave of global decarbonization as governments and corporations further reduce their global carbon footprint. We want to ensure that we are well positioned to be at the forefront of this next wave. Recognizing that our continued growth will require further expansion of our global footprint, we remain committed to our growth initiatives, seeking new project opportunities in our targeted jurisdictions.That concludes my prepared remarks. We'd now be happy to take your questions. And as mentioned, we also -- at the beginning of the call, we also have David Povall, our Head of Development, with us as well. So operator, please open the queue for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Sean Steuart with TD Securities.

[Sean Steuart, Research Analyst]

Few questions. The incremental 2020 development expense that you referenced, can you tell us how much of that is Hai Long? And did you start capitalizing some of that? Is it post financial close? Is that the hurdle we should think about for that transition?

[Mike Crawley, CEO & President]

I think on a free cash flow basis, about $0.10 or $0.11 of that would be Hai Long, and that is assuming that we start capitalizing July 1. So we're assuming we continue to expense up until the end of the second quarter.

[Paul J. Bradley, Chief Financial Officer]

Right. And Sean, on the capitalization question, I mean, generally, no, it won't be financial close, I hope, but the criteria. Typically, in the old days, we used a PPA signing as our kind of bright line test. With the advent of things like FIT contracts, we've got more of the work ahead of you than behind you when the PPA is signed. It makes the internal test, where we consider it beyond certain barriers, a little bit tougher to nail down. But we look at things like high degree of certainty of your cost estimates, we look at various agreements that are pinned in, we look at the offtake agreements. So it's a number of measures that we internally look at, and so we try to make sure that the project is very pinned down by the time we start capitalizing, but not necessarily to the point of financial close or FID.

[Sean Steuart, Research Analyst]

Okay. And I know you're not giving 2021 guidance, but this revised development expense figure for 2020, should we expect ongoing, I guess, higher development expenses into 2021 and beyond as well?

[Mike Crawley, CEO & President]

Yes. I think what -- I mean, what we're doing is certainly for the offshore wind portfolio that we're developing in Asia, and we're looking at other opportunities in Europe still. Those opportunities will likely be reaching COD in the latter half of this decade, so '25 to '28, '29 in that time period. So that would mean that between now and then, there'll be development expenses. And as Paul said, we would make a judgment based on various factors, at which point we start capitalizing those project costs.

[Sean Steuart, Research Analyst]

Okay. And last question, maybe I'll get back in the queue after that. Can you give us progress on where you are with respect to contracting La Lucha so we can dial in the project economics there a little bit better?

[Mike Crawley, CEO & President]

Yes, for sure. So we have -- are in discussions with a number of qualified suppliers. I think we've also indicated that we are looking at creating our own platform as well, possibly in Mexico to contract directly to industrial load. So we hope to have some information on that to share soon.

[Operator]

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

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

Maybe I'll start with a question on EBSA. Can you talk about the return assumptions or tariff assumptions that are baked into the acquisition price and how they may compare with the initial assumptions that you presented to the market?

[Mike Crawley, CEO & President]

Yes. So I think on EBSA, our return assumptions are generally in line with what we would have revealed to the market originally. There's a price adjustment, but there was also an adjustment -- sorry, there's an adjustment in the tariff, but there's, as you can see -- and also an adjustment in the purchase price as a result, based on the mechanics of the original purchase and sale agreement.

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

Can you give us any color as to what changed to bring down the purchase price?

[Mike Crawley, CEO & President]

There are a number of changes in -- some in the CapEx, some in the OpEx program, and there is also some changes to the loss control program. But there's also a review going on right now, which is why we refer to some potential final adjustments that could come to the final purchase price.

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

Okay. Do you have any visibility on when those adjustments may be made?

[Mike Crawley, CEO & President]

We expect it soon, but I can't give you a specific date.

[Paul J. Bradley, Chief Financial Officer]

Yes. I think generally what we can say, Rupert, is that the purchase and sale agreement was written in a fashion that was largely meant to keep us whole on this until it's settled.

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

All right, great. And maybe a question for David on South Korea. I was wondering if you can give us some more color on what you see in the South Korean market, for example, do you have any visibility on upcoming RFPs? And can you talk a little about the team that you've acquired in South Korea, what experience they have today, and how you may build out that team in the future?

[David Edward Povall, Executive Vice President of Development]

Yes. Certainly, Rupert. Yes, you saw earlier this week exciting partnership we've signed there in South Korea. I had an opportunity, obviously, to meet the team that we've acquired in -- or the company Dado Ocean and the partner that we're now working with. A really strong guy, similar to what you saw at Shizen, somebody who can very much manage the local stakeholders, which is, of course, something that's very complementary to what we bring to the table in terms of our, obviously, global offshore expertise. So as I think -- we talked about an opportunity there to deliver a 300-megawatt circuitry in the megawatt project, and we see that progressing quite well over the next 12 to 18 months to secure some of the key permits that will then allow us to progress the project through the -- as you say, through the year and the off piece of the process. So positive on that opportunity in Korea.

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

Can you talk a little about that RFP process? And what do you need to do to secure contracts?

[David Edward Povall, Executive Vice President of Development]

Yes. So the key thing that we're working for now is an electricity business license. That's the key -- the next key stage in the process. We're on the process to securing that. We're in measurement stage. And so circa 12, 18 months from now, we will -- all being well, secure that permit, which then moves us along the process.

[Operator]

Your next question comes from the line of Nelson Ng with RBC Capital Markets.

[Nelson Ng, Analyst]

Great. Just a follow-up on Rupert's question. In terms of -- is there a RFP process, like, that's set in terms of how offshore wind contracts are given out to developers?

[Mike Crawley, CEO & President]

Nelson, it's Mike, and excuse my voice on the call today. I've got a little bit of a lingering cold. But the -- it's a different process from Japan. And as far as it's not a centralized procurement, but it is a process that we find attractive for other reasons. So maybe, David, you can walk through the path to getting a PPA in Korea.

[David Edward Povall, Executive Vice President of Development]

Yes. So what you're going to expect -- the journey is having secured the electricity business license, we will then look to bring in a relationship with one of the gencos. You need that as part of the process of then securing the offtake and the RFP right from the incumbent genco in the vicinity of your project. So that's the root of which you move to then secure the offtake.

[Mike Crawley, CEO & President]

Overall, it's driven by a renewable portfolio standard in Korea, which obliges all of the Capco subsidiary, the generation companies, to secure so many renewable energy attributes or RECs. And so the way the onshore projects in inquiry have worked to date is that they will procure both the renewable energy attributes and also the brown energy or the energy from a renewable power project, bundle it up into a PPA. And then on the back of that, you would finance and construct your project.

[Nelson Ng, Analyst]

Yes. So just to clarify, so the gencos could technically buy onshore wind, solar, offshore wind or even do biomass? Like -- and within that mix, they would then hit their renewable targets?

[Mike Crawley, CEO & President]

They can. But there's -- I believe, there's a higher REC value for offshore wind to incentivize offshore wind in Korea.

[Nelson Ng, Analyst]

Yes. Okay. And then one last question on South Korea. Can you just give some color on the, I guess, the consideration arrangement? Is there like a small upfront payment, but most of the payment is, I guess, based on success? And then on the second part, like how big is the team that you're acquiring?

[David Edward Povall, Executive Vice President of Development]

Yes. I'll give a little bit of color on that. So correct. I'm pleased to say that the way we structured the payment is very much as you described, so incentivizing the delivery of the key permits and milestones that I referred to earlier. So yes, it's very much the way we structured the transaction. I'm sorry, your second part of the question was?

[Nelson Ng, Analyst]

The team. The...

[David Edward Povall, Executive Vice President of Development]

The team, sorry. So a very small team. So it's the company and it's a couple of individuals who have those relationships with the stake -- the local stakeholders, and that's really the key value that we need from the local entity.

[Nelson Ng, Analyst]

Okay. And then just on the bigger picture on development activities. Could you just talk about how the development cost would be incurred relative to geography, whether it's like Latin America and North America, Europe versus Asia?

[Paul J. Bradley, Chief Financial Officer]

Look, generally, Nelson, it's just very fluid. I mean, that's part of what we are able to offer as being experienced developers is that we're going to be looking at moving the development teams and expenses around as opportunities kind of come and go. We have sort of our plan for 2020 ahead of us, but by the time you get to July or August, that could have tremendous shifts, but that's pretty much the job of the developers, to allocate between the different technologies and between the different geographies as the opportunities to get warmer, colder. That's a general answer. I don't know if David wants to say something specific, but I just want to be clear that we try to stay as flexible as we can with that.

[David Edward Povall, Executive Vice President of Development]

Yes. I mean, I think as Mike said in his indication, the opportunities we're seeing in Asia are significant. And so we start the year, as Paul says, with a certain allocation to that region. But I think the long thing would be to be too hard and fast. We need to be nimble. And if we see better opportunity coming in other jurisdictions, we'll respond to those. And I think that's the advantage of, as Mike said, having these sort of 4 geographic regional development offices around the world. We're seeing really good volume of good trends, good quality transactions. So that's not -- my concern is not the quality of transaction, it's the allocation of the funds to the right ones and delivering those transactions for the business.

[Paul J. Bradley, Chief Financial Officer]

Yes. And then just to probably add a tiny bit more color to that. We tend to allocate enough money for the development regional offices to prospect and to look for projects. We also hold a bunch back centrally unless and until the prospects come to a certain point of maturity, where we're willing to go to new stages in the gates. So just sort of think of it as a central reserve, and there's a certain amount that's allocated out. By the end of the year, all goes well, it's all allocated out to great projects. But if we don't have them, that doesn't get allocated out. And you've seen that in prior years, where we've actually not spent the whole budget because we just didn't want to let that out, but that's kind of how we operate.

[Nelson Ng, Analyst]

Okay. And then I just want to touch on the DBU project before I get back in the queue. Can you give any color on the technical issues that the -- that you're seeing at -- on the mono buckets -- the foundations? I think last quarter, you mentioned that there was a delay in the manufacturing of the mono buckets. So like was the $98 million the amount that was already spent today? And would that be considered the sum cost? And then also, like, when do you think there would be a final decision on whether those 2 turbines would eventually be installed or not?

[Mike Crawley, CEO & President]

Yes. So the fabrication delay was resolved in 2019. The pause on the projects was related to a failed installation of the first mono bucket, and so we're currently doing a root cause analysis to understand why the installation failed. And as we get more information from that, and as we continue our discussions with the EPCI contractor who is responsible for the installation of the mono buckets and the installation of the turbines on the mono buckets, we will come to a conclusion whether we proceed with the project or not.

[Paul J. Bradley, Chief Financial Officer]

Yes. And then regarding the $98 million, that's kind of a harsh treatment that GAAP accounting kind of pushed us to, which is once we push the pause button and have an uncertainty going forward, notwithstanding the fact that there's upsides like insurance and settlements of the contractors, they require that we take the whole thing into an impairment. And if sometime, let's say, next quarter, we decided to continue on, we'd reverse that, which obviously is not great from a lumpiness standpoint, but that's our worldwide accounting profession that has decided on that standard. There we go. And I think just stay tune on this one. It's been a few more challenges than we had wished, but we hope to have this result sometime in the next quarter.

[Mike Crawley, CEO & President]

And the basis for the decision whether or not to continue with the mono bucket pilot project is going to be the same basis for which we decided to embark on it, which is what is best for the overall project. So it's a 252-megawatt project. We saw an opportunity to add 2 turbines to it through this pilot program. We will make a determination of what's best for the overall project, which is a very attractive project. And on that basis, we'll decide whether or not to proceed.

[Nelson Ng, Analyst]

And then if you choose not to proceed, like everything is already being manufactured, right? So like I presume you could get some value for at least the turbines at a minimum and some of the equipment or...

[Paul J. Bradley, Chief Financial Officer]

Yes. As I mentioned, there's a number of upsides, including -- there's some insurance proceeds if the installation is failed. I mean, really, the root cause is going to flush out. Was it installation failure or was it an equipment failure? In both cases, we have some degrees of recourse, not only to manufacturers and contractors, but also there's an insurance element to it. There's salvage value, there's a number of things. And then you've got to divvy that pie up between contractors and ourselves. So it's probably -- the accounting always comes from a much more conservative base than typically reality unfolds, but that's kind of why we're not really able to say exactly today what's going on because it really depends on how all this stuff makes out. But we've got a big team in Hamburg that's currently on this thing pretty much full-time trying to figure out what the best course of action is.

[Operator]

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

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Yes. Paul, you made a comment about sometimes not always spending to the budget for development expense. I think it was a little bit lower in 2019. So just maybe as you think about that incremental spend in 2020 and ex Hai Long or maybe $20 million, $25 million of incremental development expense, how much line of sight do you guys have to that right now? Or how fluid is that as you work through the year?

[David Edward Povall, Executive Vice President of Development]

I think sitting here today, reasonably good line of sight on a number of opportunities. That's both, I think, seeing the teams bringing through actual transactions. Obviously, we've not closed on those transactions. You'll hear about that as soon as we do, but there's really good visibility on those. We know the nature of the project, and therefore, know the nature of the development spend that's going to come after that. I think in other jurisdictions, it's probably -- I'm thinking, particularly in LatAm, where we're looking at, as Mike referred to earlier, continuing to be a good work we've done in Mexico, et cetera, continuing to look for other opportunities. Again, there's a good amount of projects that I'm seeing the team presenting. We haven't landed on which one at the moment to bring forward, but a good level of certainty, I think, on the numbers today.

[Mike Crawley, CEO & President]

What we obviously look at where the opportunities are, and that's where we've decided to deploy our regional development offices and where we've targeted those regional development offices in specific markets, specific countries. But we're always looking to balance both in terms of when these cash flows from our development activities become available, so you want to have a balanced approach to that. So you have some that will be coming online towards the end of the decade, some coming on near term, and you see as is evident in some of the activity in Latin America is more near-term cash flow, whereas the offshore wind activity in Asia is more later-term cash flow. So we're trying to balance that out, trying to balance out jurisdictions so that we're not overexposed in any one jurisdiction. And also keeping an eye on the quality of cash flow. So we're trying to make sure that we have a good proportion of either perpetual or long-term contract cash flows and augmenting that with some near-term C&I offtake like we're getting in Mexico, where we'd be looking for a higher return, but obviously with lower quality cash flow. So it's always trying to balance that out as well as looking to where the opportunities are and making sure we have boots on the ground in those markets.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then on EBSA, until you get clarity on the final tariffs, do you put the debt in place there? Or are you guys waiting for that? Or what's sort of the status in terms of the financing, final plans for corporate and then the nonrecourse utilities with that?

[Mike Crawley, CEO & President]

Yes. So I mean, the work on the financing has begun. We would expect that the tariff would be resolved prior to the financing getting close.

[Paul J. Bradley, Chief Financial Officer]

Yes. But either way, the amount of financing we need kind of goes up and down depending on the tariffs. So we're just basically trying to work through it. Just one observation is that I'm sort of finishing up here the 35th year of my career, I've never seen a financing market so favorable, particularly for this kind of asset. So we should be, all else being equal, in the best spot we've ever been, trying to get a financing. So I'm just going to throw that out there.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

And picking up on that, Paul -- on that comment, Paul, you always have discussed maybe repricing in Deutsche Bucht that's commercially complete. And then are there other pieces of debt inside the company you guys can look to reprice into? And in your guidance, do you guys assume any refinancing?

[Paul J. Bradley, Chief Financial Officer]

Yes. So Deutsche Bucht repricing, re -- probably not a refi, they're probably repricing on that debt is certainly in our cards this year and certainly in our business plan, and I think we'll see some. There's a bit of upside that we've put into our guidance for next year already in that, but just seeing where financing markets are, last 2 days have obviously been a bit disruptive in the financial markets. But generally, if you take the last sort of 4 to 6 months, we've been just in the most favorable environment I've ever seen from a term and condition and from a pricing standpoint. So I think we'll probably see -- I'm guessing that there's some upside there potentially as well. And then as far as the rest of North instead, most of our Canadian fleet is in a fixed priced sort of institutional-type debt. So unfortunately, not a lot of opportunity there. But should some of the favorable conditions continue, we might reopen, particularly some of the European -- other European projects. Nordsee One and Gemini, there's some potential there. But at some point, you're -- it just sort of diminishing returns on trying to chase it down again. But we'll see where the markets go, but it's something that we've always got on our radar.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then last question is, obviously, the coronavirus issues, quite prevalent here. Is that impacting at all supply chain for you guys? You think about solar for La Lucha or just even the ability to kind of move forward on development activities in Asia?

[Mike Crawley, CEO & President]

That's a good question. The -- so there has been a slight impact on La Lucha on the module or the panel supply, but we understand that it's now moving ahead. And so there was probably about a 2-week delay, but it was not on critical path for the project. But it's a good observation. So there was slight delay there in the supply chain, but as I said, it wasn't critical path. David, you'd have a better insight on Asia in terms of what you're seeing there.

[David Edward Povall, Executive Vice President of Development]

I think in Asia -- and I've just come back last week, so very up-to-date in terms of the last couple of weeks out in Asia. It's starting to slow the impact, a lot of more meetings going to video conference rather than face-to-face, which we could argue that's the right move anyway. A few restrictions coming on travel, obviously, as countries are increasing their risk level, and therefore, it stops you traveling more broadly. That's probably the risk that I see at the moment, not really happening at the moment outside of Mainland China, but you're seeing levels in places like Singapore being increased to the point that, that might restrict people moving more freely. So a little bit of frustration, I think, at the moment, but nothing that's really stopping business.

[Operator]

Your next question comes from the line of Ben Pham with BMO.

[Benjamin Pham, Analyst]

Just wanted to ask -- I just want to go back to some of the topics on the development expense, and we've seen this before in your lifespan, just ramping up development. I guess, what's interesting now is you have the DBU project coming in, a lot of free cash flow this year. So my question is like how much more can you push the development expense, or other words, add another geographic area for further development? I mean, are you -- can you add more? Or do you want that more? Or you're at the point where it's more harvesting?

[Mike Crawley, CEO & President]

Well, I mean, the question is what interest we're going to retain in some of these development projects that we're pursuing. So I mean, as you know, there's a lot of capital chasing renewable energy assets globally. There -- that capital is typically coming in certainly for operating assets very competitively, but also for late-stage development assets. So I think we've disclosed this earlier. So we've been moving over the last couple of years into more earlier stage development, leveraging what we've learned in offshore wind and what we've learned in onshore renewables over the last 20 years to develop earlier stage projects with a view to initially controlling 100% of the project or with a partner controlling 100% of the project. But as we move forward and as the project reaches and passes certain value creation milestones, we would now be certainly open to bringing in partners -- equity partners, both to defray some of our ongoing development costs, but also to monetize some of the development profit and essentially augment the return that we get on the project. So I mean, the lever that we have is to what extent we bring in third-party capital on some of these projects. But our view is that -- I mean, there's no scarcity of capital. But with all of these targets for renewable energy globally, which are very aggressive and we think will get more aggressive, there will be a scarcity of good projects certainly with scale, and that's what we're seeking to develop.

[Paul J. Bradley, Chief Financial Officer]

Yes. And I'd just add to that. It is a bit of a pay-to-play type of a scenario where we see this manifest itself is in our free cash flow per share, unfortunately. And it's noticeable when we want to increase in order to take advantage of the global opportunities, particularly in the big chunky projects like offshore wind, and it hurts us in the short run because we've got to deduct that from our free cash flow. You'll note that some of our peers who take a different approach in AFFO or something like that, they're not necessarily in the same way accounting for those development expenses. I mean, this year, it's particularly noticeable. I don't want to say painful, it's pretty noticeable because we've deducted -- we'll be going into Hai Long, which is very close to the criteria where we would normally be capitalizing it, but just isn't there yet and probably won't be there until sometime midyear. So that's something that if we had just -- maybe had a couple of more milestones under our belt, wouldn't be showing up in the guidance going forward. But to keep true to our non-GAAP measures and follow the consistency, we have to take that pain up front, but we think that's a good pain to take. But generally, I think, we have to, as developers, make sure that we are allocating development dollars where we're going to get the highest return and have the lowest potential of loss, and sometimes that takes several years of advanced vision to do that. The only thing I'd point to is that, so far, we've been able to find that balance and have been able to recover probably the lion's share of what we spend every year in our development, eventually recover that. So there could be an argument as to how much of that is investment capital or pre CapEx versus DevEx. And that probably goes well beyond the topic of this call. But that's something that we debate, certainly, every week, at investment committee, but probably more often during the week and various other meetings that we have.

[Benjamin Pham, Analyst]

All right. That's a good point. So like you said, some peers add back to development expense in their free cash flow. I just wanted to clarify that, Mike, your comment around premium partners. I mean, that sounds more like it's more -- you can monetize pieces of the Korean business or Japan versus really pushing separating development and operating assets. I mean, that's -- just wanted to clarify that.

[Mike Crawley, CEO & President]

Okay. My comments were more focused on -- we're focused on development projects. So looking at the -- as we -- as the projects advance and become more mature, we certainly anticipate that there would be interest in third-party capital coming in, and we would be open to that at certain stages, and that's a lever that we can play with as we look at our free cash flow and our corporate liquidity at any given moment.

[Paul J. Bradley, Chief Financial Officer]

Right. And for further background, I mean, just to review here, there are several reasons why you might take on a partner. On one end of the scale, as you take on a partner fairly immediately, very little uplift in economics because the project's too big for you, you're not willing to take the risk or there's another reason why that partner needs to be there in the equation. The other book end is you wait until as late as possible because really what you're trying to do is to sell down and get cheaper capital and get a higher capital gain into your mix. And there's pretty much everything in between. And typically, Northland style has not been to go to the latter book end, which is to really just sell down to monetize profit at the very last minute, but as capital gets cheaper and cheaper in operating assets, we're pushed to do that simply to stay competitive in a number of arenas. But generally, where we see ourselves creating the value is through the development process. But we also realize we don't have an unlimited wallet, and it's a pretty big globe, and it's a pretty big nut to cover. So we will be taking on partners in various realms out there in order to just maximize the development dollars that we put out and try to make sure that we don't concentrate our bets in any one project or any one region. So it is tricky, but I think that's really what our job is to do.

[David Edward Povall, Executive Vice President of Development]

Ben, and I think -- just one comment for me. You heard me mention before on the Korean opportunity and bringing in a genco. Now that's very much to increase the chance of success. So clearly, we want that project to happen, and we know about bringing in certain partners, not only does it have the benefits, which Paul and Mike just outlined, but it also increases the chance of and speed of getting your project into construction and operations as quickly as possible. So that's maybe a good example to Mike's point of bringing in a partner.

[Benjamin Pham, Analyst]

Okay. And just to close off at that point. I guess, now when you're incorporating your partners, maybe your hurdle rates might be a bit lower than before because someone else is willing to pay a much lower cost of capital and you just -- you recover all the development expense just to redeploy globally.

[Paul J. Bradley, Chief Financial Officer]

Yes. I mean, that's one way to look at it. There's -- as I said, there's a number of reasons why you might bring in the partner, but ultimately, you will probably see us be doing more and more of that simply because that's where the financial markets have pushed us where you've got pension funds, and you've got other pools of money that are willing to own operating projects at much lower IRRs than we are. And if we try to compete to own that long term 100%, they may not be the most competitive bid going forward. So we have to sort of capitulate to that reality, and we -- you'll see that probably happening more in our world over the next few years.

[Operator]

Your next question comes from the line of [ Ralph Wood ], who's a private investor.

[Unknown Shareholder]

Delighted to -- as a shareholder to see your ongoing success. But I'm interested, particularly in one project which has been on the cards, or I'm led to believe so for some time, and that's the Marmora pump storage project. And I'm wondering if you could give me some comment on if and when that project is liable to proceed further.

[Mike Crawley, CEO & President]

Thanks, [ Ralph ], and thanks for your support and your investment in Northland. The -- so the Marmora project is continuing its development, and we continue to have discussions with the system operator in Ontario and with the Ontario government. In the last year, 1.5 years, I guess, about 1.5 years ago, we took on Ontario Power Generation as a partner on that project, and we continue to move the project forward with OPG as the partner.

[Unknown Shareholder]

Okay. That's very good information. And what -- can you speculate as to the prospects for that project to go ahead in the reasonably near future?

[Mike Crawley, CEO & President]

I'm certain -- I mean, I think there's certainly interest within certain parts of the government, there's interest within the system operator. We continue to discuss the project with them and with other stakeholders. Ontario Power Generation certainly is a big supporter of the project as well, and that's why we're happy to have them on as -- board as a partner. We -- to be determined when and how that project moves forward.

[Unknown Shareholder]

Okay. I understand your language. Thank you very much, and good luck for this coming year in all your projects.

[Mike Crawley, CEO & President]

Thank you very much. And thanks, again, for your investment in Northland. Okay. Well, thank you, everyone, for joining us today. We will hold our next call following the release of our first quarter 2020 results in May. In the meantime, we thank you for your continued confidence and support. Thank you.

[Operator]

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