Northland Power Earnings: Offshore Wind Projects Advance Amid Challenging Environment

We lower our fair value estimate for Northland Power NPI to CAD 31 from CAD 35 following its second-quarter results. The primary drivers of our lower valuation are a lower medium-term adjusted EBITDA forecast for the company’s Spanish onshore renewables assets, as well as a tweak to our terminal multiple. Northland Power shares, along with other renewable developers, have been under pressure year to date as inflation and higher interest rates have roiled the renewables market. However, we see shares as undervalued following the decline.

Northland’s operating offshore wind portfolio saw generation in line with long-term averages in the second quarter, while revenue and adjusted EBITDA declined year on year (as expected) following abnormally high power prices in 2022. Regarding the full year, Northland now expects adjusted EBITDA toward the low end of its guidance range following a regulatory change in Spain. We adjust our medium-term expectations from the company’s onshore Spanish portfolio lower to account for this change.

Looking ahead to the remainder of 2023 Northland is laser focused on reaching financial close for its two large offshore wind projects in advanced development: Baltic Power and Hai Long. The company continues to expect both to reach financial close in 2023, and we think execution against this timeline will help assuage investor fears following delays, notably with Hai Long. Northland remains in a sound position from a financing perspective, with no near-term equity needs.