Clean Energy Demand Powers Growth for this Utility

Northland Power is a power producer that develops, builds, owns, and operates clean power infrastructure assets in Canada, Europe, and other global markets. As one of Canada’s first independent power producers, Northland Power has global operating facilities generating over 2.6 GW of electricity.

Today, Northland is a top-ten owner and developer of offshore wind assets globally by megawatt capacity. Northland has in-house development, plant design, financing, and operations capabilities.

The company has a long track record of more than three decades in the business of producing electricity from natural gas and renewable energy sources. The company develops and operates sustainable infrastructure projects across a range of clean and green technologies, such as wind (offshore and on-shore), solar and thermal (natural-gas-fired and biomass), and utilities.

It has over $10 billion of high-quality power generating assets in operation. Northland has operations in Europe (58% of 9M 2020 revenue), North America (~32%), and Latin America (~10%). Its large geographical footprint provides ample opportunities in leading markets. Northland’s operating segments are offshore wind (accounting for 61% of 9M 2020 operating income), thermal (~19%), on-shore renewable (~9%), utility (~5%), and other (~6%).

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Investment Data

Revenue Growth & Market Exposure

Northland works with indigenous partners, municipalities, and independent companies to develop and operate power generation facilities. Given its long history in the power industry, the company has a good track record of bagging high-quality projects. Northland’s regulated utility serves 480,000 customers in Latin America.

Its ability to deliver projects on-time and on-budget further make it a preferred choice of customers. A good track record of operational excellence helps Northland to extend its long-term contracts with existing customers. 

Northland Power has grown its revenues at a rate of  ~24% CAGR over the last decade. The company continues to benefit from contributions of its offshore wind projects, the majority of which are contracted under long-term agreements. Northland Power is also investing in expanding its pipeline activity by establishing early-stage development projects in several new jurisdictions.

The company is focusing on long-term growth from the development of its extensive pipeline of offshore wind projects in Europe and Asia, encompassing the 1,044 MW Hai Long, 600 MW Chiba, and 1,000 MW Dado Ocean projects in Asia. The company’s pipeline of growth opportunities is projected to grow at 60% by 2026. Northland continued its operations in the pandemic as many of its facilities are deemed critical infrastructure.

Northland has a growing presence in Latin America and Asia. It enjoys an early mover advantage in growth markets and technology. Northland has expanded its development footprint with the addition of 300 MW onshore wind projects in the U.S.

It also completed the construction of three offshore wind projects (~1.2GW) in Europe and established development platforms in Mexico with the La Lucha Solar project and in Colombia with EBSA regulated utility. Its EBSA acquisition is expected to drive future opportunities in Colombia and Latin America, diversify its asset base and add to the regulated utility business.

Dividends

Northland Power is known for delivering strong and consistent returns and stable dividends to its shareholders. Its total shareholder return stood at 17% in the last decade. The company has also demonstrated solid growth in adjusted EBITDA (~145%) and free cash flow (~75%) per share over the last five years. It has an annual dividend yield of 2.4% and a dividend payout ratio of ~64%. Northland last raised its dividend by more than 11% in 2017 and it has grown them at 3.6% CAGR over the last three years.

Northland Power has a proven track record of growing cash flows. The company’s cash flows are derived from a diversified asset base comprising of wind, natural gas, hydro and solar facilities. Long weighted average contract lives of natural gas and wind assets add to the visibility of long-term stable cash flows. 

Given its financial flexibility and extensive development expertise, Northland is well-positioned to identify and develop future opportunities to expand its global development footprint. The company enjoys stable investment-grade credit ratings by top rating agencies. 

Northland Power expects adjusted EBITDA in the range of $1.10-$1.20 billion and free cash flow to be in the range of $1.60-$1.70 per share for FY 2020. The acquisition of EBSA will add to vertical integration and participation in all segments of the electricity supply chain given its grandfathered rights. EBSA’s utility infrastructure business is expected to generate average, mid-single-digit accretion to FCF per share during the period ending 2023 and increasing accretion thereafter in the long-term.

The company stands a good chance to gain from an exciting portfolio of attractive and strategic global development and partnering opportunities. Its well-diversified, modern fleet of high-quality global assets and proven excellence in managing projects and operating facilities should further support future growth.

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Competition

Northland Power competes directly with other utility companies in North America. It competes with several utility companies such as Fortis Inc., Brookfield Infrastructure Partners, TransAlta Renewables, ATCO, etc. having a huge presence in the US and Canada.

Fortis is a leading Canadian utility company with assets worth $57 billion and operating through ten utility operators. TransAlta Renewables is one of the largest generators of wind power in Canada while ATCO is a diversified company providing services and business solutions globally.

Here is the full competition in the sector.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.7049.0022.7718.8618.862.600.04124.120.776942.020.099267Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.6564.9921.2681.1481.140.800.04004.003.249142.040.132186Tollbooth - RegulatedYESYESNONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.5927.0216.159.169.162.950.03753.750.343941.010.079436Tollbooth - RegulatedNONONONOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3953.9514.930.000.00-12.550.02872.871.000041.220.058024Tollbooth - UnregulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.7650.1412.7013.2613.263.780.05095.090.674642.550.110769Tollbooth - RegulatedNOYESYESNOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.7919.7111.8518.9818.981.040.04014.010.760140.620.126878Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.5542.258.5524.1824.181.750.02842.840.6857121.200.039035Tollbooth - UnregulatedNONONONOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.7030.128.2222.8622.861.320.05845.841.332741.760.149867Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BEPCBEPCBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3858.937.950.000.000.000.02632.631.000041.220.055524Tollbooth - UnregulatedNONONONOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.5919.295.3916.1816.181.190.04984.980.8067120.960.049836Tollbooth - RegulatedNONONONOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.5020.185.3961.4461.440.330.04664.662.8473120.940.068634Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.4744.284.5479.3479.340.560.01491.491.178640.660.063754Tollbooth - UnregulatedNONOYESNOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6637.124.2616.9016.902.200.04834.830.815141.790.172667Tollbooth - RegulatedYESYESYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.4924.084.210.000.00-0.650.02992.991.000040.720.029946Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.5534.313.6744.2944.290.770.05975.972.662342.050.131756Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.2011.122.420.000.00-0.380.01531.531.000040.170.015303Tollbooth - UnregulatedNONONONOCanada1
TSE:SPBSPBSuperior PlusUtilitiesUtilities - Regulated Gas0.4113.242.3330.9830.980.430.05445.441.6744120.720.054415Tollbooth - RegulatedNONONONOCanada1

Bottom Line

Northland Power has consistently delivered strong long-term returns and stable dividends to shareholders. Ownership of sustainable infrastructure assets and significant development opportunities across multiple jurisdictions and technologies act as strong growth enablers for Northland Power. Its contracted cash flows have supported stable dividend payouts.

The company is well-positioned to benefit from shifting trends such as higher adoption of renewable energy, offshore wind expansion, growing demand for power and infrastructure in the global power markets.

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