Northland Power Q3 2025 Earnings Report

Northland Power EPS Results

• Actual EPS: -C$1.58
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Northland Power Revenue Results

• Actual Revenue: $554.48 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Northland Power Announcement Details

• Quarter: Q3 2025
• Date: 11/13/2025
• Time: After Market Closes
• Conference Call Date: Thursday, November 13, 2025
• Conference Call Time: 10:00AM ET

Northland Power (TSE:NPI) develops, constructs, and operates maintainable infrastructure assets across a range of clean and green technologies, such as wind (offshore and onshore), solar, and supplying energy through a regulated utility. Offshore wind is expected to remain the company's largest segment over the long term. Northland's growth opportunities are global and span North America, Europe, Latin America, and Asia.

Northland Power Q3 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: The board cut the annual dividend to CAD 0.72 to preserve an investment-grade balance sheet and self-fund growth, a move likely to weigh on near-term shareholder returns.
• Positive Sentiment: Operations delivered strong Q3 results with >95% availability, a 13% rise in adjusted EBITDA to CAD 257 million, and free cash flow up ~130% year-over-year, aided by Oneida battery contributions and stronger wind in September.
• Negative Sentiment: The Hai Long 1.1 GW project in Taiwan has >50% of turbines installed (37) but faces commissioning delays and an onshore substation bushing replacement, reducing pre-completion revenues by ~CAD 150–200 million (Northland share) and shifting some cash into 2026.
• Negative Sentiment: Northland recorded a CAD 527 million non-cash impairment at North Sea One due to the step-down from subsidy pricing to expected market PPA levels (~EUR 60–70/MWh) and updated production and O&M assumptions.
• Positive Sentiment: Management says it has line of sight to multiple value-accretive opportunities across an 8.5 GW pipeline in Canada and Europe, emphasizing short-cycle value enhancements and acquisitions and a plan to fund growth without issuing common equity.

Presentation

[Operator]

Welcome to the Northland Power Conference Call to discuss the Third Quarter 2025 results. As a reminder, this conference is being recorded on Thursday, November 13th, 2025, at 10:00 A.M. Eastern. Conducting this call for Northland Power are Christine Healy, President and CEO, Jeff Hart, Chief Financial Officer, and Adam Beaumont, Senior Vice President of Capital Markets. Before we begin, Northland's management has asked me to remind listeners that all figures presented are in CAD 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.

[Operator]

Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statement section in yesterday's news release announcing Northland Power's results and be guided by its contents when making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Ms. Christine Healy.

[Christine Healy, President and CEO at Northland Power]

Good morning, everyone. Thank you for joining us today. I will begin with our business update, and then Jeff will provide more details on the financial results. Just a quick note that with our 2025 Investor Day coming up next week, today's remarks will focus on Q3 results and details behind the change to the dividend. We will share more detail on strategy and growth priorities on November 20th, and we hope to see you there. After our prepared remarks, we'll open the line for questions. I will start with health and safety because, as always, safety remains a core value and top priority at Northland. This quarter, Northland and our partners at the Oneida Battery Storage Project received an Ontario Electrical Safety Award recognizing the project's safety practices. With nearly 300,000 worker hours and zero lost-time incidents, Oneida has set a new standard for field safety on large-scale builds.

[Christine Healy, President and CEO at Northland Power]

We're very proud of that. During my visit to site, I saw firsthand the team's strong commitment to safety and performance. The executive team and I are looking forward to sharing our new strategy at Investor Day next week. We'll be presenting a plan that capitalizes on the growing demand for power globally, particularly in our core markets of Canada and Europe, and this is driven by electrification, energy security, data center, and decarbonization trends. This demand for power, particularly in our core markets, offers a number of organic opportunities and value enhancement opportunities within our existing fleet. Northland's strong capability as a global power operator across multiple solutions allows the company to execute on this strategy.

[Christine Healy, President and CEO at Northland Power]

I will add that as part of our new strategy, we have been assessing growth opportunities in our core markets, and we have line of sight to multiple value-accretive opportunities where Northland's capabilities can be deployed to deliver long-term value for shareholders. To provide greater financial flexibility for self-funded growth and maintain an investment-grade balance sheet, the board of directors, including me, has decided to adjust Northland's dividend to CAD 0.72 per share on an annual basis. We are committed to this sustainable dividend, and it remains an important component of our long-term value proposition. I am going to pause here because, as you know from my previous comments and from my history, changing the dividend is not something I wanted to do. In my career, I have always resisted this, and I can tell you that I have resisted it here at Northland too.

[Christine Healy, President and CEO at Northland Power]

My goal and our goal at Northland is always to deliver best value for shareholders. After much analysis and assessment, I'm convinced that this is the best way to do that. Since arriving at Northland, I've had hundreds of meetings with investors, partners, suppliers, governments, and competitors. I brought Jeff in, and I tasked him with analyzing where we are with our current assets and our pipeline, and he and the teams have done a great job to give us a clear picture of what's happening. We've also completed our strategy deep dive and our planning cycle now for 2026 to 2030. I also stood up this task force, and we've been screening hundreds of opportunities, large and small, in Europe and in Canada, and they have found several value-accretive opportunities, and you're going to be hearing more about these in the coming weeks and months.

[Christine Healy, President and CEO at Northland Power]

These opportunities are better than any we've seen in the last five years and indicate to me that having the flexibility to move on those opportunities is important. I contrast that against the backdrop that we've seen in 2025, which I would refer to as a year of volatility. We saw historically low winds in the North Sea in more than the front half of the year. We saw a dramatic shift in sentiment in the United States related to renewables. We've seen a softening of corporate PPA activity in Europe, and we see in many of our core markets increasing divergence in electricity pricing forecasts. In parallel, we have two very large projects in construction, and while they remain on track and our teams are delivering, in the words of Robert Frost, there are miles to go before we sleep.

[Christine Healy, President and CEO at Northland Power]

When I'm looking ahead at how are we going to deliver best value to shareholders over the five and ten-year horizon, we established some financial guardrails. We will maintain an investment-grade balance sheet. We will provide flexibility to deploy on value-accretive growth that is self-funding without reliance on equity markets, and we will maintain a sustainable dividend, all of which is achieved with this change. We believe this recalibration brings the payout ratio to a level that is prudent for a capital-intensive growth company. This plan does not rely on external common equity, and it enables us to fund a project pipeline that will generate highly attractive risk-adjusted returns. I will reiterate that the dividend remains an important component of Northland's capital allocation framework. Turning to our third-quarter results, they were strong.

[Christine Healy, President and CEO at Northland Power]

Our global operations performed again to a high availability over 95%, and the stronger wind in September led results to surpass last year in the same quarter. That good wind has carried into October, which we were happy to see. Turning to our projects in construction, at Hai Long, our 1.1-GW offshore wind project in Taiwan, over half of the wind turbines have now been installed. As you will note from the press release, though, pre-completion revenues have been lower than expected due to longer commissioning times for installed wind turbines and certain technical components of the onshore substation needing to be replaced. We expect this to be resolved, and it will enable us to remain on track. The overall message is that the project remains on track for full commercial operations in 2027.

[Christine Healy, President and CEO at Northland Power]

In Poland, our 1.1-GW Baltic Power Project installed both offshore substations, each weighing over 2,500 tons and located about 20 kilometers offshore. These substations will collect energy from our 76 turbines and transfer it to the onshore grid. That project also remains on track, with full commercial operations expected in the back half of 2026. Turning to development and growth, we continue to advance and refine our development pipeline, pursuing opportunities in our core markets of Canada and Europe that meet our investment criteria and deliver shareholder value. In Canada, we see opportunities across all our generation and storage technologies, leveraging our strong domestic platform and brand. In Europe, we're evaluating several renewable power and battery storage projects where we can apply our project execution and operational expertise. In Scotland, the 1.4-GW floating foundation project, Havbredey, has been deprioritized as part of our disciplined capital approach.

[Christine Healy, President and CEO at Northland Power]

At the same time, our 900-MW fixed-bottom offshore wind project, Spiorad na Mara, has completed community consultation and is progressing toward consent submission with the government. Global demand for reliable, affordable, sustainable power continues to rise, and Northland is well-positioned to capitalize on this trend. I also reiterate that we have access to a growing number of opportunities, including what we call value enhancement projects that offer short-cycle opportunities to deliver higher returns from our existing fleet. We see organic growth opportunities within our own pipeline and opportunities for acquisition of projects in mid to late stage on attractive terms. With that, I'm going to turn it over to Jeff for a detailed update on our financial results. Jeff?

[Jeff Hart, CFO at Northland Power]

All right. Thanks, Christine, and good morning, everyone. I'll take some time to discuss our third-quarter results, which were positively impacted by strong wind resource in September. As Christine mentioned earlier, our strong availability of over 95% allowed us to capture much of the benefit. The quarter also benefited from the Oneida battery facility operations commencing in May. Performance was partially offset by planned grid outage at Deutsche Bucht and lower solar and wind resource at our operations in Spain. Northland generated adjusted EBITDA of CAD 257 million, a 13% increase compared to the same quarter of 2024, which was mainly a result of higher production at our three offshore wind assets and an outage last year at Gemini and the additional contributions from Oneida, which came on earlier this year.

[Jeff Hart, CFO at Northland Power]

During the third quarter, we generated free cash flow of CAD 45 million, which was approximately 130% higher than the same quarter last year. On a per-share basis, free cash flow in the third quarter of this year was CAD 0.17 compared to CAD 0.08 in the third quarter of 2024. The increase to free cash flow was primarily related to the higher adjusted EBITDA that I mentioned earlier. And the net loss for the quarter was CAD 456 million compared to a net loss of CAD 191 million in 2024. This is primarily due to a CAD 527 million non-cash impairment that was recognized for the North Sea One offshore wind facility, resulting from the transition from the initial subsidy pricing regime to market pricing by May 2027. We have also updated our long-term production forecasts and anticipate an increase in operating and maintenance costs.

[Jeff Hart, CFO at Northland Power]

Turning to our investment program at the Hai Long and Baltic Power Projects, as of the end of the third quarter of 2025, we have spent approximately CAD 12 billion to date, with remaining expected gross capital expenditures for the two projects to be CAD 5 billion. At Hai Long, we've started to see the first revenues post-first power, although lower than we expected, as Christine mentioned, impacting the pre-completion revenues by approximately CAD 150 million-CAD 200 million Northland share. Overall, the project is continuing on track and on budget. At Baltic Power, we continue to advance to first power in 2026 when grid connection is planned. Our financial guidance for 2025 is unchanged, with adjusted EBITDA expected to be in the range of CAD 1.2 billion-CAD 1.3 billion and free cash flows projected to be between CAD 1.15 and CAD 1.35 per share. Now, turning to the balance sheet and updated capital allocation plan.

[Jeff Hart, CFO at Northland Power]

As Christine mentioned, the announcement of the decision to recalibrate the dividend was not easy, but provides the company a sustainable financial framework and provides funds to make accretive investments, which are underpinned by the cash flows of our business and an investment-grade balance sheet. Our plan is expected to be self-funded with no reliance on common equity issuances. I'll be happy to share further details with you and lay it out at Investor Day next week. I'll hand it back to Christine to conclude the call.

[Christine Healy, President and CEO at Northland Power]

Thank you, Jeff. I'm also looking forward to our Investor Day next week, and we will then be providing deeper insight into our focus areas, the progress we're making across the business, and our growth plans. That concludes our prepared remarks, so I'll turn the call over to the operator. Operator, please open the line for questions.

[Operator]

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Baltej Sidhu of National Bank of Canada. Your line is open.

[Baltej Sidhu, VP and Equity Research Analyst at National Bank of Canada]

Hey, good morning, and thank you for taking my question here. Could you set some color on the magnitude of the impairment at North Sea One and what are the factors that led to the recalibration of the write-down? Was prior market expectations and market prices elevated, and how are conversations evolving with respect to recontracting opportunities?

[Jeff Hart, CFO at Northland Power]

Yeah, no, thanks. It's Jeff here. Yeah, the impairment was primarily related to the pricing that we've gone out. I'll remind you, we're stepping down from the initial contract period from EUR 194 per MW hour. Ultimately, there's a phase step down to EUR 154 per MW hour. Ultimately, we go to market pricing in 2027. Now we've been out in the markets on the PPAs, and I would expect something in the weeks and actually days. We're fairly close. And so we've really, with those benchmarkings Christine alluded to in the script, you know the PPA markets. We've triangulated, I'll say broadly, I'd say into a market price in and around the PPAs of EUR 60-70 per MW hour.

[Jeff Hart, CFO at Northland Power]

So really, it's a reflection of that step down, and this is the only asset we have in the five years in the offshore that's stepping down.

[Baltej Sidhu, VP and Equity Research Analyst at National Bank of Canada]

Okay. And then just as a follow-up to that, and then just appreciating the last comment that you made on the five years for the assets that are stepping down. When we're looking at Deutsche Bucht, which is still recontracted out until, I believe, the early 2030s, are there similar assumptions that were made prior given the pricing dynamic and curtailments that are evident as well?

[Jeff Hart, CFO at Northland Power]

No, I think, you alluded to curtailments in the German market, and I think year-to-date, we've probably seen a 7.5% negative price curtailment. I think our long-term assumptions aren't really far off of that, plus or minus a half to a percent on it. We've really focused on where we have contract renewals coming here in the first five years, and that's where we look at the PPA market. It isn't really, I'd say, a longer-term market. It would be more into the five-year frame, and that's really what's setting it and impacting N1.

[Baltej Sidhu, VP and Equity Research Analyst at National Bank of Canada]

Great. Thanks for that color, Jeff. I'll hop back into the queue. Thanks.

[Operator]

Thank you. Our next question comes from Sean Stewart of TD Cowen. Your line is open.

[Operator]

Thanks. Good morning, everyone. Christine, on the rationale for the dividend cut, you touched on a few points. I guess a part of it here is freeing up more capital to feed an expanding investment opportunity set and the risk of front-running the Investor Day next week. Can you give perspective on the 8.5-GW pipeline beyond the under-construction stuff? Any perspective over the next five years how much of that might be advanced? I ask only because it seemed like there was a line of sight on this payout ratio coming down as Hai Long and Baltic Power reach commercial operation. Just trying to gauge how much of that growth opportunity set you might expect to come into the midterm development pipeline and how much of this is just aligning the payout ratio with industry norms.

[Christine Healy, President and CEO at Northland Power]

Thanks for the question, Sean. I do want to make sure that you come to Investor Day, so I do not want to give too much of it right now. I think part of it is that we have, I would say, a couple of types of projects. First of all, I alluded to the fact that we have been looking externally at what other people have and what projects are for sale in the market. There is a real opportunity set there that did not exist even a year ago, but certainly not a couple of years ago. From a pricing perspective, very attractive if you can buy now. So that is interesting to us, and if we can high-grade through that, we would like to. We also have a set of initiatives that we have been working on through our existing fleet that we call value enhancement initiatives.

[Christine Healy, President and CEO at Northland Power]

And these are things that we would do that are near-term, short-cycle, and that deliver a demonstrable rate of return in the existing fleet, and it is just getting more out of what we already have. And so some of those projects require capital, and we have been doing a lot of work to understand the capital those projects require. But this is from my perspective, it is value lying on the ground, and we would be foolish not to take it. We wanted to find a way that we could invest in those projects and ensure that we still keep the balance sheet flexibility given the projects that we have still in construction. The idea that we would pass up on all of these opportunities or push them well out into the future, when we modeled it, it was just a poorer use of funds than investing in them sooner.

[Christine Healy, President and CEO at Northland Power]

Okay. Understood. I guess we'll get more detail next week. Jeff, can you give any perspective on, I guess, discussions with the rating agencies and appreciating investment grade is paramount to what you guys are focused on? Did those discussions have any bearing on the dividend decision?

[Jeff Hart, CFO at Northland Power]

Yeah. So, thanks for the question. We're obviously in constant communication with our rating agencies and have open dialogue with them. I'll kind of go back to what Christine said and reiterate. For us, it's making sure and reinforcing from our perspective the best use of resources on a risk-adjusted basis. So for us, an investment-grade balance sheet is important, I think, ultimately to ensure funding through cycles, number one. Number two is, with the opportunities laid in front of us, rebalancing to capture those in a growing market is really the drive here. So it's all of it together. It's really from our perspective of reinforcing the investment-grade balance sheet and ensuring that funding certainty there. And I think capturing the market opportunities is really the main driver of, and we felt this was the best use of shareholder resources.

[Christine Healy, President and CEO at Northland Power]

I guess I'll add on to that, Jeff, to say that this was very much a Northland decision, and it was driven by an enormous amount of work that's been done. We looked at many different options of how we could deliver best value for shareholders. That was the driver for this decision. Full stop.

[Christine Healy, President and CEO at Northland Power]

Okay. Understood. I'll get back in the queue. Thanks very much.

[Jeff Hart, CFO at Northland Power]

Thank you.

[Operator]

Thank you. Our next question comes from Robert Hope of Scotiabank. Your line is open.

[Robert Hope, Director of Equity Research at Scotiabank]

Morning, everyone. Can you add a little bit more color on the specific? Thanks. Can you add a little bit more color on the specific issue driving the delayed pre-completion revenue on the onshore substation and when you expect it to be rectified and if you have any recourse through insurance or warranty with the manufacturer on both the cost and lost revenues?

[Christine Healy, President and CEO at Northland Power]

Sure. Thanks very much for the question. I love the technical and detailed questions. So basically, with the onshore substation, when we were installing some cabling, we were doing normal course testing, and we were dissatisfied with the results of some of the tests. When we investigated further, we saw that there was a bushing that we felt could create problems for us over the long term. So it's functioning effectively, but it created a risk for long-term reliability. We, in fact, insisted that that get changed out. So the supplier for that component is a subcontractor to one of our suppliers, and so we do not have a direct contractual relationship with them, but we have been working with them to make sure we are satisfied with the replacement.

[Christine Healy, President and CEO at Northland Power]

So in order to do that replacement work, though, we have to shut down the onshore substation for 20 days-ish, I think. I cannot remember the exact number, so do not quote me on that. But we have to turn off the onshore substation in order to complete that. But then we can be, we can be assured that the solution is there for the long haul. I think it is the right thing to do. The question of insurance and the rest, I think that it would be more a question for our supplier because this is part of what our supplier has to deliver for us.

[Robert Hope, Director of Equity Research at Scotiabank]

All right. I appreciate that. Maybe just one more follow-up question there. Just given the long lead times on some equipment items, when would you expect you know the 20-day outage to occur? And just given it is onshore, I guess you do not have to wait for any weather windows, and that can be done at any time?

[Christine Healy, President and CEO at Northland Power]

Yep. No weather windows, and that is going to be done before the end of the year. We already have all of the components. We have those in our potlatch little hands at our warehouse as we speak.

[Robert Hope, Director of Equity Research at Scotiabank]

Okay. Is the impact then just in 2025 then?

[Christine Healy, President and CEO at Northland Power]

So we have these two things going on at Hai Long. We have this issue at the onshore substation. The commissioning of the turbines that both Jeff and I referred to, that is an issue that is continuing into 2026. In fact, we see the financial results of that in 2026 instead of in 2025. Basically, this is a situation, again, managed within the perimeter of our supplier for the turbines. They have an obligation to deliver turbines to us that have been installed and commissioned. In fact, they have passed a reliability test, and they have been running for a number of days before we accept them in the handover. So the planning for that commissioning was based on typical North Sea performance, which would be they would typically commission two to three a week.

[Christine Healy, President and CEO at Northland Power]

But I think in the Taiwan Strait, the weather conditions have been more challenging, and it has been slower than anticipated. Our supplier has, I think, a robust plan in order to improve on that. Right now, we are in the poor weather time. So they will be delivering on that in 2026. And hopefully, they will be able to start delivering the commissioning pace that we expect to see. But right now, we've seen disappointing performance on the commissioning. They are not where they were meant to be at this point in time. Again, it's fully within their contract. It does not have an impact for us on the budget. We have enough float still in the schedule that it does still fit within our schedule. But it does affect on pre-completion revenues.

[Christine Healy, President and CEO at Northland Power]

And pre-completion revenues were part of our funding model for the project, and we're still working through that.

[Robert Hope, Director of Equity Research at Scotiabank]

Thank you.

[Operator]

Thank you. Our next question comes from Nelson Ng of RBC Capital Markets. Your line is open.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Great. Thanks. I had a quick follow-up question on the Hai Long commissioning of the turbines. So, I think you mentioned that Christine mentioned over half of the turbines are now installed, and I believe you stopped installing turbines early October or late September. How many of the installed turbines are currently commissioned?

[Christine Healy, President and CEO at Northland Power]

So, thanks for the question, Nelson. You know what? Fully commissioned right now, the challenge that we're having is that they have to do what we call a soak test. They have to run continually over a period of time with no alarms. Quite a few of them have started the test, and then alarms go off. This is, again, a difference with the weather impact because in the North Sea, if you have those alarms, it's pretty quick. You can go out, you can check it, you can remedy it. Typically, it's not anything wrong with the turbine. It's often something wrong with the sensor. So that gets calibrated, that gets fixed. It's a really quick turnaround. Right now, because the weather conditions have been very tough, getting out to check those alarms has been quite difficult.

[Christine Healy, President and CEO at Northland Power]

In terms of maybe the better answer, we have 14 of them have been commissioned, but they've continued to have alarms. So in terms of energized, right now, we have only two that are energized. Energized is probably for me, that's the most important one. Those are the ones that are generating revenues. Right now, we have two that are energized and producing revenues.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. So 30-something installed, four commissioned, but two feeding power to the grid. Is that the right way of thinking about it?

[Christine Healy, President and CEO at Northland Power]

We have 14 that are commissioned, but they're under warranty as well. Just because they're commissioned doesn't mean that the supplier is off the hook with them. Right now, of the 14 commissioned, two of them are energized and functioning the way that we expect them to.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. Over half of the turbines are installed. That is like 30-something turbines installed.

[Christine Healy, President and CEO at Northland Power]

Yes. 37.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Seven.

[Christine Healy, President and CEO at Northland Power]

37 turbines installed. The installation went very well. This is, I would say, a learning for our supplier about commissioning activities. They have a good recovery plan. I just want to be clear about that. They have a very strong recovery plan. They have got their A-team on this. They will do a good job of this, but we probably will not see a huge amount of progress until the weather window opens up again in the new year.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. I know in the past, you talked about the winter. Obviously, the weather is not great, but you have the option to work during the winter, right? So is that supplier pretty much like if they see a window of opportunity during the winter, they would go and try to commission more or energize more projects? Is that what you are referring to in terms of the plan too?

[Christine Healy, President and CEO at Northland Power]

Yes. They have a team in country, and they are available to go when the weather window opens. Whether it is open for a day or 10 days, they can do that in short bursts of time. The reality is that the weather has been pretty harsh the last couple of weeks, and there has only been one day in the last, I think, I want to say maybe as much as three weeks now, but there has only been one day that they have been able to get out there.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. Then just overall, I think in terms of the guidance, you guys talked about how the pre-completion revenues might be CAD 150 million-CAD 200 million lower than expected next year. Can you just talk about what the new assumption is? I think in the financing plan, roughly there was an estimate of, I think, roughly CAD 1 billion of pre-completion revenues.

[Jeff Hart, CFO at Northland Power]

Yeah. That's right, Nelson, right? Where we're at is you're right. It's CAD 1 billion at 100%. The reason we're talking about the impact into 2026 is any PCRs we would generate this year would actually be collected in the cash generated next year in conjunction with effectively Q1 and Q2 PCRs as well. That's why we're talking about the 2026. The 150-200 is our share, and that's 31%. You can kind of back into the range there on a gross basis.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. So I guess less than half of, so the.

[Jeff Hart, CFO at Northland Power]

Yeah. You're anywhere from half to 60% impact, give or take, on the current expectation. As Christine said, obviously, the supplier weather windows and to see how we could potentially close the gap and other alternatives, right? That is effectively the good way to think about it.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

And as a result, there will just be a larger draw on the non-recourse debt, or?

[Jeff Hart, CFO at Northland Power]

We're evaluating what we could do. Number one is the recovery plan and then looking at what we can do on the project side of it as well. Obviously, we've got the financial capability to manage it as well. We're looking at all the different avenues there and monitoring the technical situation. We'll obviously keep everyone abreast as that's updated.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Okay. And then switching gears a bit, in terms of the dividend, so the decision in terms of the sizing of the dividend cut, so is the main target to internally fund all equity requirements going forward for the next five years? Is that how the dividend was sized?

[Jeff Hart, CFO at Northland Power]

Yeah. So it is Jeff here. Absolutely. I think our view, and I think I have reiterated this, is I believe in self-funding model. I think it is an effective way to execute the plan and creates what we view as solid accretion and shareholder value. That is the intent, is self-funded plan, and that is what we intend on delivering.

[Nelson Ng, VP and Equity Analyst at RBC Capital Markets]

Great. Thanks, Jeff. I'll leave it there.

[Operator]

Thank you. Our next question comes from Mark Jarvi of CIBC. Your line is open.

[Mark Jarvi, Equity Research Analyst at CIBC]

Thanks. Jeff, you talked about maybe compensation on the pre-completions, contingencies in the project funding. How would you handicap the likelihood that Northland would have to put some incremental capital into Hai Long at this point?

[Jeff Hart, CFO at Northland Power]

Look, I'm not going to get into hypotheticals and percentages. What I will say is I will always make sure, as a CFO, you need to make sure that you've got the liquidity and capital resources and the funding strategy to manage contingencies like this. And so we have the capability to manage it corporately. We'll continue to progress it. I always have to manage on the view that I need and have to have the liquidity to manage it. We're looking at avenues within. Number one, on the technical recovery plan. Number two, on other things we can do at the project level. I'm not going to give percentages on that right now, but I have to make sure we've got the resources to handle it.

[Christine Healy, President and CEO at Northland Power]

I will just add to that, Mark, that this is back to the whole idea of we have to be prudent. These are large projects, and they're being delivered very, very well. We stand head and shoulders above many others who are delivering similar projects. But there are bumps in the road in every project I've ever been involved in in my career. That is why we have to be ready to adjust to that when they come.

[Jeff Hart, CFO at Northland Power]

Maybe I can, I'll word it this way. From my perspective, we'll look to mitigate and manage impacts and look at the best alternative. I also have to make sure that I can manage it as if there is an injection required.

[Mark Jarvi, Equity Research Analyst at CIBC]

Got it. This as a component of the dividend cut would be sort of a minor element? Is it kind of the messaging?

[Jeff Hart, CFO at Northland Power]

Yeah. I mean, I'll go back to what Christine and I reiterated is this. Number one, it's rebalancing, I think, the payout to a capital-intensive industry. We also see lots of opportunity, both organic and inorganic, in the markets we're focusing on. It is really to capture that opportunity, rebalance to, I'd say, a sustainable financial framework that allows us to capture those opportunities. And ultimately, with that, it's the virtuous circle. It gives you a balance of protection and resources to handle contingencies as well.

[Mark Jarvi, Equity Research Analyst at CIBC]

Just going back in terms of the timing announcement, we can debate about when it should happen. It sounds like you're trying to position this that you have a use of capital for new growth that's showing up on short-cycle projects and other opportunities. Any consideration was put into whether or not you should have announced this concurrent with new investments? How close are you on things like those short-cycle needs or potentially acquiring advanced-stage projects?

[Christine Healy, President and CEO at Northland Power]

Well, Mark, we had a lot of debate about that. I can tell you there's no right time because I can honestly say that if we waited to Investor Day, then I would have expected somebody would have asked me the question then of, "Why didn't you tell us this a week ago when you had your quarter close?" I think what we're being transparent, there's never a good time for this. We decided to disclose the decision when the decision was made, and the decision was literally just made. So we want to make sure that we're transparent about that. But I think you should not be surprised to hear some new announcements in coming days.

[Mark Jarvi, Equity Research Analyst at CIBC]

Okay. And then last one, just Jeff. In terms of the IG rating, is there a view that you'll use a little bit more on-balance sheet debt going forward versus how much non-recourse debt you used? Is that sort of factored into the decision on the dividend level?

[Jeff Hart, CFO at Northland Power]

No. Look, I think obviously we'll get more color on it at Investor Day here and on details on overall funding. But I would still expect the majority of our, I'll say, leverage or debt funding to be in the project finance realm. Clearly, the corporate balance sheet's an option for different opportunities, but that balance won't materially change. It's just to reiterate the point is the execution, the opportunity in front of us go forward and setting up the guardrails and framework that we're sustainable through cycles.

[Mark Jarvi, Equity Research Analyst at CIBC]

Got it. Thanks for taking the questions, and see you next week.

[Jeff Hart, CFO at Northland Power]

Thanks. Yeah. Look forward to it.

[Operator]

Thank you. Our next question comes from Benjamin Pham of BMO. Your line is open.

[Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO]

Hi, Morning. I just want to go back to the dividend side because obviously, the market's quite perturbed today with the messaging and more to come next week on some of the rationale. I'm curious, do you think with the payout ratio, it's 60% this year on your guide, and it's reasonable to think it's going to come down to 2027? What do you think is the appropriate payout ratio for you? The way we were thinking about it is you're generating CAD 200 million of incremental free cash flow based on your guidance, and you can lever that up that you can still self-fund growth under that alternative.

[Jeff Hart, CFO at Northland Power]

Yeah. No.

[Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO]

What have you come up to the payout?

[Jeff Hart, CFO at Northland Power]

Yeah. No. Thanks for the question. Ultimately, we'll provide color on the funding and then correspondingly read through to payout at Investor Day to provide that color. I'll reiterate back, this is to give a financial framework and foundation that we feel is balanced through the cycle and has guardrails. But we will provide more color on that next week then.

[Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO]

Okay. Got it. Also, I mean, 40% seems to be a magic number for a lot of folks that have cut dividends in the past. I mean, when you did your analysis, can you talk about the other alternatives you were looking at? I think you mentioned that earlier. How do you kind of think about just there's a lot of history too from companies that have cut dividends and same thing. There's more growth coming, and it just doesn't seem the public markets really care for a few years. Can you just talk about that as you think about, I guess, your own patience with this? How do you maybe differ from those case studies? Because there's been a lot out there.

[Jeff Hart, CFO at Northland Power]

Look, and I'm not going to, and Christine will obviously add on to this, is we've looked at several different scenarios, looked at the best options that we felt in aggregate balancing growth, cash returns to shareholders, and felt the plan that we'll be putting forward in balance and coming to this is the best value creation and value proposition on balance. Really, for me, it's about being disciplined through this. We need to keep strength on the balance sheet. We need to have a sustainable payout ratio and then ultimately be able to capture opportunities in a growing demand market and be disciplined on returns. We won't chase returns down. All of that kind of goes together. We looked at a bunch of different modeling and analysis on this and feel we've landed in the best path forward for the company.

[Christine Healy, President and CEO at Northland Power]

So, Ben, I do want to take the opportunity to add on to that because I can tell you that all those things that you say are very much on my mind as we've been having this big internal review and assessment of what the best thing to do in this circumstance is. Frankly, there are easier things that we could do, but they would not have been as value accretive to shareholders. So, fundamentally then, I had to take a very hard look into the abyss and say, "What is the right thing to do here?" And fundamentally, I believe that this company is very, very good at building and operating projects. The world has a huge demand for what it is that we do.

[Christine Healy, President and CEO at Northland Power]

The idea that we would hunker down and not grow for a big chunk of time does not make a lot of sense to me. In fact, when you model it out on the numbers, it does not make sense on the numbers either. When you look at the different ways you could fund that growth, the most value-accretive way for shareholders is to do it the way that we are doing it. So there is no question that we take the pain now. And I am a shareholder too. I have to tell you, I am a shareholder who really likes dividends. I can say that I am definitely in the camp right there with people who are unhappy about that. But I have to say again, what are we trying to do here? We are trying to build long-term value for shareholders.

[Christine Healy, President and CEO at Northland Power]

That is what this plan does. I will be talking more about that at Investor Day. I can say hand on heart that if there was a better way to do it, I was definitely looking for it.

[Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO]

Yeah. No, absolutely. It seems like the old-school model of high payout and issuing equity, that's kind of old days. High-growth companies yourself should have a lower payout ratio from a long-term perspective. I appreciate that. I mean, just one quick one for me. I get the PCR situation at Hai Long and the tech issues, and you got to manage that. That's pretty easy large projects that can go sideways. Is there a scenario there where you're thinking about that there could be even more impact from this technical issue where you have to actually repair the station? There's more CapEx. There's delays. Is that a scenario that could be in the realm of the possibility?

[Christine Healy, President and CEO at Northland Power]

So, Ben, this particular issue that we're having with the onshore substation is completely contained. In fact, it gives me more confidence in the project team that they spotted this and were able to respond to it so effectively and so quickly. So in fact, I view it as a very positive thing because it was through very, very good work at the onshore substation and very good inspection work from our teams that we found the issue. So I don't see it as indicative of a bigger problem. I think it's a very discrete problem related to a very small bushing. And so it has been addressed and remedied, and no indication of any kind of larger problem there at all. In fact, I think it was well-contained and well-managed.

[Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO]

Okay. Got it. Thank you.

[Operator]

Thank you. Thank you. I'm showing no further questions at this time. I'd like to turn it back to Christine Healy for closing remarks.

[Christine Healy, President and CEO at Northland Power]

I just want to say thank you to everyone for your great questions and your engagement in joining us today. Hopefully, we will see you at Investor Day. Thanks very much.

[Operator]

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Participants

Executives

• Jeff Hart, CFO
• Christine Healy, President and CEO

Analysts

• Mark Jarvi, Equity Research Analyst at CIBC
• Nelson Ng, VP and Equity Analyst at RBC Capital Markets
• Company Representative at TD Cowen
• Robert Hope, Director of Equity Research at Scotiabank
• Benjamin Pham, Managing Director and Pipelines and Utilities Analyst at BMO
• Baltej Sidhu, VP and Equity Research Analyst at National Bank of Canada