Inflation hit: Canadian power producer sees costs soar up to 30%
Northland Power (NPI.TO)(NPI-PC.TO) sees higher interest rates and supply chain challenges raising costs by up to 30 per cent for its advanced offshore wind farms.
The Toronto-based company is the latest renewable energy player to complain of heftier costs to borrow money and build projects. Speaking at Northland's annual investor day, chief executive officer Mike Crawley also said a tight labour market has created a "war for talent," resulting in higher salary costs for the company.
"You can't discount what's going on in the market today," he told investors last Friday. "Supply chain constraints put a big priority on us locking down our supply contracts on our big projects much earlier than we would have done otherwise."
Northland owns and operates a global portfolio of wind, solar, and natural gas-powered electricity assets spanning North America, Europe, and Asia. In its 2023 financial guidance, the company raised expected project costs for its Hai Long, Baltic Power, and the Nordsee Cluster A projects by 20 to 30 per cent. It also hiked contingency amounts and timing buffers on all projects due to "recent changes experienced."
Northland now plans to spend between $16 billion and $19 billion over the next five years on its project pipeline, up from the $12 billion to $15 billion range issued last year. The company cited a combination of project cost inflation and additional projects.
"We're in some of the most attractive markets for offshore wind, both mature markets like Germany, but also emerging offshore wind markets like Poland," Crawley said.
"With onshore renewables, we have set up development teams in countries with some of the most ambitious renewable energy targets, and best commercial regimes. [The] best places to do business in. We look forward to carving out a position in energy storage."
According to guidance issued on Friday, Northland expects 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to come in between $1.2 billion and $1.3 billion, compared to the revised 2022 guidance of $1.25 billion to $1.35 billion.
Scotiabank Global Equity Research analyst Justin Strong shaved his price target for Toronto-listed shares on Monday, lowering his one-year forecast from $51 to $49. He maintains a "sector outperform rating."
"We remain constructive on Northland, and reiterate it as our top pick within the renewable coverage universe," Strong wrote in a research report. "We reiterate our buy thesis on Northland's largely funded growth plans and large opportunities set in its pipeline."
The company is scheduled to release its latest financial results after markets close on Feb. 23.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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