Aug 11, 2016
Executives
John Brace - Chief Executive Officer Mike Crawley - Executive Vice President of Business Development Paul Bradley - Chief Financial Officer Adam Beaumont - Director of Finance
Analysts
Sean Steuart - TD Securities Paul Lechem - CIBC Nelson Ng - RBC Capital Markets Rupert Merer - National Bank Jeremy Rosenfield - Industrial Alliance David Quezada - Raymond James
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Northland Power Conference Call to discuss the 2016 Second Quarter Results.
During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.
[Operator Instructions] As a reminder, this conference is being recorded, today, Thursday, August 11, 2016 at 10:00 AM. Conducting this call for Northland Power are John Brace, Chief Executive Officer; Paul Bradley, Chief Financial Officer; Mike Crawley, Executive Vice President of Business Development; and Adam Beaumont, Director of Finance.
Northland Power management has asked that we caution you that in their summary of the results and responses to your questions may contain forward-looking statements that include assumptions and are subject to risks and uncertainties. Actual results may differ materially from management’s expected and 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.ca.
I would now turn the call over to John Brace. Please go ahead.
John Brace
Thank you very much, operator, and good morning, everyone. I’m glad you are able to join us today, as we review our second quarter results.
Once again, I can report that Northland Power enjoyed a successful and productive quarter. This morning, I’ll provide you with a brief summary of our second quarter highlights including an update on our construction projects and operational results.
Then Mike Crawley will provide an update on our development pipeline activity. And finally, Paul will go into detail on our financial results.
After which we’d be pleased to take any questions you may have. We delivered strong financial results this quarter, sales and gross profit increased by 6% and 21% respectively over the same quarter in 2015.
Adjusted EBITDA also increased by 14% over the same period last year to a total of $104 million. These increases are largely the result of bringing new renewable facilities into operation.
More than halfway through 2016, I can confirm that our outlook for the year remains positive and we continue to reaffirm our previously issued 2016 adjusted EBITDA and free cash flow per share guidance. As you aware, we have continued to maintain our solid growth trajectory over the past several years.
In 2015, we completed the construction of our portfolio of 13 Ontario-based ground-mounted solar projects. They have been operating well and have contributed to the increase in our quarterly results over last year.
More recently, in April of this year, we delivered our Grand Bend wind farm into commercial operations. We completed the project ahead of schedule and under budget.
Our thanks go to the internal and external construction teams whose diligence and industriousness allowed us to take advantage of favorable weather conditions and put additional staff to work to complete the project with such great results. The project also achieved term conversion on its financing at the end of July.
With Grand Bend now complete, we are focusing on the remaining projects in our approximately $6 billion construction portfolio. Our 600-megawatt Gemini offshore wind farm continues to progress at a rapid pace.
As of yesterday over 90% of the wind turbines or 138 of the total 150 have been installed, of those 105 are producing power and earning pre-completion revenues. Turbine installation and commissioning will continue throughout remainder of the year.
The project remains on budget and on schedule to begin full commercial operations in 2017. Our second offshore wind farm, the 332-megatwatt Nordsee One is also moving forward on time and on budget.
In April, installation of the foundation monopiles and transition pieces was completed. Last month, the team successfully completed installation of the offshore substation, always a major milestone in offshore wind projects.
Production of the wind turbine components continues and installation remains on track as planned to begin in early 2017 with full commercial operations expected by the end of next year. Turning to other areas of the business, our operating facilities continue to perform safely and efficiently.
In July, Northland reached a settlement with H.B. White Canada Corp., and certain of White affiliates to settle all disputes and claims concerning five of our Ontario ground-mounted solar projects located in and around Cochrane and Burks Falls.
In conjunction with the settlement, White announced that it had filed a court application for creditor protection under the companies’ Creditors Arrangement Act in Ontario. Our settlement agreements are conditional upon the plan of arrangement proposed by White in its CCAA proceeding being approved by the court and its applicable stakeholders.
Pending the outcome of the proceeding, all ongoing arbitration and claims between White and Northland have been suspended. While this settlement does not result into a huge recovery of Northland’s losses from the project, it is the best outcome for all parties involved given White’s financial reality and it cleans up a number of issues for us, including the return of approximately $70 million of use of credit we needed the post in order to keep title to the properties clear.
In other legal news, last week the Court of Appeal ruled in favor of Northland and others and denied the OEFC’s opposition to paying us the retroactive payments related to the global adjustment decision announced earlier this year. Accordingly, the Northland applicants are entitled to receive the retroactive payments of which Northland’s share totals approximately $95 million.
As we understand it, the OEFC could separately apply to the Supreme Court of Canada to challenge this ruling on the retroactive payments. The exact timing of any receipt is therefore not known at this time.
However, Northland will recognize the retroactive payment into income once received. We have not factored this payment into our 2016 financial guidance.
The OEFC is continuing to seek to leave appeal the overall global adjustment decision to the Supreme Court of Canada. Given the nature of this system, the decision timeline will be determined by the Supreme Court.
Last but not least, on July 12, Northland’s Board of Directors announced that it has commenced a review of strategic alternatives to further enhance the company’s growth, shareholder value and ability to capitalize on a growing pipeline of clean energy infrastructure development opportunities. While, this review is in process, we remained focused on completing our construction projects, advancing our development pipeline and continuing to operate our facilities and company to the standard of excellence expected of us.
It is business as usual here at Northland. Though, while I’m sure you were all keen to learn more, I must reiterate that we do not attempt to provide ongoing updates on review until its completion unless further disclosure is otherwise warranted.
For this reason, we won’t be answering questions on this topic today. In closing, I think our results demonstrate that we are continuing to deliver on our commitments.
Our sustained focus on sustainable growth and robust returns is keeping us very busy, which is just how we like it. Over to you Mike Crawley, for development updates.
Mike Crawley
Thanks, John. On development, while the need for new power supply has slowed in two markets Ontario and Quebec, where Northland has traditionally been very active, we are forging ahead into new markets with tight reserve margins and decarbonization policies.
In particular, we are focusing on markets that can leverage Northland’s offshore wind experience as well as Northland’s ability to develop greenfield projects, which means getting involved in the development process at or near the very beginning. These two capabilities are becoming increasingly key to Northland’s growth as the M&A market for newly or already contracted development projects has become increasingly competitive.
In short, it allows us to grow in a way many other power sector investors cannot and capture superior returns at the same time. We continue to be very much focused on offshore wind opportunities in Europe and recently opened an office in London.
Our main focus is bidding on the Nordsee Two and Nordsee Three projects, representing 700 to 800 megawatt into the next year’s German transitional option. We are also continually exploring other investment opportunities in Europe where offshore wind tenders for 11 gigawatts are expected by 2022.
In Latin America, we’ve refined our focus to Mexico, where as much as 60 gigawatts for new power supply is forecasted to be required by 2030, including 12 gigawatts of renewables and our recently launched renewable portfolio standard. All of this is to serve a fast-growing manufacturing sector and middle-class.
Given the volume of power supply required and the competitiveness of the tenders, our focus is on greenfield and multiple wind, solar and gas-fired projects. Our Mexico City office is staffed with developers with many years of experience in Mexico’s power sector.
We will continue to look at opportunities elsewhere in Latin America on an opportunistic basis. In response to an aggressive offshore wind fit program calling for at least 4 gigawatts of new supply, Northland has established a presence in Taiwan through a partnership with a local developer and are actively developing projects in that area.
This month, we will relocate a Northland developer to Taipei, who will focus on Taiwan opportunity, and also keep an eye on other potential markets in the region with a particular focus on offshore wind. And after several years of fits and starts, the offshore wind market in the U.S.
seems to be finally developing. New York State is rolling out a 50% renewable portfolio standard that should drive the development of a significant amount of new renewable power supply with transmission restrictions likely to encourage offshore wind to serve the load in New York City and Long Island.
Massachusetts recently passed legislation that will drive the procurement of as much as 1,600 megawatts of offshore wind. Northland is assessing a number of ways to enter this new market.
Now, Canada will of course always be an important market for Northland. Our focus right now is on securing wind sites for upcoming renewable power procurements in Alberta and Saskatchewan as both provinces seek to retire their coal-fired generation fleet by 2030.
In Ontario, we are considering whether to participate in next year’s Ontario renewable power procurement. And with that, I will turn the call over to Paul for financial update.
Paul Bradley
Thank you, Mike, and good morning, everyone. Last night, Northland Power released its 2016 second quarter results.
As John mentioned, we had a strong second quarter year over year and also in our year-to-date results. Northland’s planned operations exceeded our expectations for the second quarter, producing $104 million of adjusted EBITDA.
As John mentioned earlier, this represents a 14% increase over 2015. There are three key factors to which we can attribute the increase adjusted EBITDA.
First, a $10 million increase in operating results from Northland’s renewable facilities, largely due to the new contributions from Grand Bend and the additional ground-mounted solar facilities that were completed late last year. Second, an $8 million increase in operating results from Northland’s thermal facilities, largely due to the additional contributions from Iroquois Falls facility associated with the revision to the price escalator of the PPA rates resulting from the OEFC court decision.
And third, a $1 million increase in investment income earned on Northland’s portion of the Gemini subordinated debt and the interest earned on the loan receivable from Grand Bend’s equity partner. These favorable factors were just partially offset by $3 million increase in corporate management and administration costs, primarily related to increased spending in early-stage development projects and a $2 million decrease in management fees from Kirkland Lake, primarily due to the amended baseload gas-fired PPA rates.
On a minor note, you will see that Gemini has been producing revenues since the first quarter, which is reflected in our income statement. As turbines continue to be installed and meet certain operational tests, they will begin to be included in our operating results.
It is worth noting the project is currently receiving only the market price for production sold. Gemini will earn additional revenues from its renewable energy subsidy contract once the project exercises notice to the Dutch government.
Some of the subsidy will be paid retroactively. The subsidy notice timing depends on a number of factors related to turbine installation, actual production and with the concurrence of the project funders.
The project will likely operate at a book loss until such time as the subsidy commences, currently expected in the third or fourth quarter of the year. Due to the retroactivity of the subsidy, Northland expects the book losses from this quarter and next to be largely reversed by the end of the year.
Moving on, Northland generated free cash flow of $46 million for the quarter, which is a 34% increase over the same quarter 2015. The main contributing factor was the $18 million increase in results from Northland’s operating facilities, again, primarily due to the additional contributions from completed construction projects.
This net increase in free cash flow over 2015 was partially offset by $4 million increase in scheduled debt repayments for the additional ground-mounted solar facilities and a $4 million increase in net interest expense, primarily due to the inclusion of Grand Bend and the additional ground-mounted solar project debt. Quarterly free cash flow per share was $0.27 in the second quarter of 2016 versus $0.20 in the second quarter of 2015, primarily due to the increase in adjusted EBITDA.
The GAAP net income was $23 million compared to a $140 million in the second quarter of 2015. The decrease was primarily caused by the marked-to-market non-cash adjustments on Northland’s financial derivative contracts.
These fair value adjustments are non-cash items that will reverse over time, and do not reflect the economic substance of the projects. For financial outlook for 2016, as John mentioned, Northland continues to expect our adjusted EBITDA to be in the range of $500 million to $530 million.
This adjusted EBITDA excludes any lump-sum retroactive payments to Northland from the past amounts owed by the OEFC pursuant to the global adjustment decision which is estimated at approximately $95 million net to Northland. As John discussed, we expect to include the retroactive payments in income when received.
Commensurate with the adjusted EBITDA guidance, management continues to estimate the free cash flow per share in the range of $0.93 to $1.08 per share. This free cash flow per share guidance includes a $28 million partial payment against the purchase price of the sale of 37.5% interest of four ground-mounted solar projects that is subject to meeting certain conditions with the partner’s financiers, and it has not yet been received.
And similar to the adjusted EBITDA guidance, our free cash flow per share guidance excludes the benefit from that lump-sum retroactive payment from the OEFC court decision. Finally, there was another noteworthy event in July, the Standard and Poor’s credit rating agency reaffirmed Northland’s corporate credit rating of BBB stable.
The update was determined under their new rating methodology which is announced earlier this year. The investment grade rating demonstrates the quality and stability of Northland’s overall business.
With that, I’ll now turn the call back to John for concluding remarks.
John Brace
Thank you, Paul. To date, 2016 has been a very productive year for Northland.
We remain well positioned to continue our growth trajectory, while continuing to deliver robust financial returns. Thanks to the hard work and dedication of our team.
We’re making great progress on a number of fronts. Our construction portfolio is moving along at a rapid pace.
We continue to deliver strong operating results and our development team is ensuring that we maintain a solid pipeline of opportunities to generate strong returns long into the future. As always, thank you for your continued support of our business.
We will now be pleased to take your questions. Operator, if you could handle the questions, please?
Operator
Thank you. [Operator Instructions] One moment, please, for the first question.
Our first question comes from the line of Sean Steuart with TD Securities.
Sean Steuart
Thanks. Good morning, everyone, couple of questions to start.
With respect to Gemini, I mean, it feels like everything, all the - the turbine should be up I suppose within the next month or two months. Paul, can you just walk through the mechanics of invoking the subsidy?
Should we assume that decision happens once all the turbines are up? And a bit more context, I guess, on the retroactive part of that and how much that can pertain to?
Paul Bradley
Okay, Sean. Good morning and thanks for that question.
And it’s one we’re getting fairly often. I’ll start with a little bit of a disclaimer that, trying to work your way through the math on this is kind of one of those, don’t try this at home, kids, kind of thing.
It’s very complicated. It starts with the fact that the Gemini project is actually two projects, two 300 megawatt projects.
And each one of them kind of has separate contracts with the subsidy regime. Secondly the contracts have a time component as well as a total subsidy component.
So the earlier we invoke, you take the time off the back-end, so if you don’t have enough turbines, initially and you invoke the contract, you’re going to be losing revenues in the back-end and then you have to do some kind of an NPV calculation. Furthermore you’re also competing with the, just the knowledge of the turbine installation schedule because they get installed and we have 138 up now, but we don’t accept them, and so there is a lot of testing and commissioning done.
And so, there are three kinds of schedules, when they’re actually installed, when we actually accept them and when they are fully commissioned. And so you have to balance all of this stuff together.
And the good news is that we have the ability to invoke the subsidy contracts retroactively and we can do them while each half of Gemini, the 200, 300 megawatt halves. So we have always watching as to what the turbine installation schedule looks like, what the market price earned is.
And at some point there is an optimization exercise where we can notify the Dutch government that we’d like to retroactively invoke the STE contract on the first half of Gemini and with the second half of the Gemini, we’re just trying to capture the wave from the production to date without hurting ourselves within the later stage of the STE contract, we’re burning off time unnecessarily. For example, get one turbine spending and you invoke the contract, you’re going to have 149 turbines aren’t getting some revenue at the back end of the project.
So it’s a huge optimization exercise. We have until the fourth quarter of this year to retroactively invoke it on one or both halves of Gemini which I think we will likely do.
And we also have some restrictions from our credit agreements as to when we could invoke those and we have applied for waivers to invoke at least one of the halves of Gemini little bit sooner. So, I hope that gives you a bit of context as to why this isn’t as clear as it might otherwise be.
And apologies for the long answer to your question.
Sean Steuart
No, that does help a lot. Thanks Paul.
Second question, there is no mention of your thoughts on the Kingston contract and the MD&A. John any update you can provide there on your thinking with regards to that contract?
John Brace
Nothing other than we’re continuing to try to come to agreement with the authorities on that. And we’ll continue to plug away on that.
There is nothing really to report at this point.
Sean Steuart
Okay. Thanks.
I’ll get back in the queue.
John Brace
Thanks Sean.
Operator
Your next question comes from the line of Paul Lechem with CIBC.
Paul Lechem
Thank you, good morning. Paul, just back on Gemini for the quarter.
So, on the Q1, at the time of the Q1 report back in May there were 27 Gemini turbines which were producing power and now that’s 105. But those very little EBITDA loss generated by Gemini in the course.
So can you just give us some color behind how back-end loaded in Q2 with the remainder of the turbine that became operational? And why a $2 million EBITDA loss and how do you get to €80 million to €90 million EBITDA guidance still for the year?
Paul Bradley
Yes, so I walked in the last question from Sean, I walked through kind of the let’s just call it the cash and business dynamics. When you get into the accounting dynamics, you add a whole another level of complexity to how this works.
So, basically what happens is, when a turbine is up and the first time it starts to spin and produce electricity, it’s actually a reduction of plant, property and equipment until we accept the turbine from the contractor which can take let’s call it weeks depending on what teething issues each turbine might have. Once we accept the turbine and that doesn’t mean it’s commercially operational but we’ll accept it from the contractor then that turbine from an accounting purpose starts to record into income and EBITDA into Gemini.
So, if you kind of take the complexities that I outlaid just a few minutes ago and you add that complexity on top of it, the best advice you can give anybody is just kind of roll with us until the fourth quarter when all this reconciles, once the subsidies are invoked and are lined up making a lot more sense. If you try to follow quarter-by-quarter, it just is going to be extremely difficult to do.
Paul Lechem
So, we should expect Q3 to be another pretty low quarter in terms of a contribution from Gemini?
Paul Bradley
It will be higher but if we have not invoked the subsidies, then it will probably still be at a book loss. But we’re increasing the amount of cash generation to the project with each turbine installation each hour production.
Paul Lechem
Got you.
John Brace
Just to add to something Paul has said a couple of time, but it’s very important to this. At this point we’re receiving market prices for the electricity from the project.
When we invoke the subsidies we will increase the price that we’ve paid hugely. And depending upon the date of the invocation of that, there is retroactive payment made from that point forward.
Paul Bradley
Right. So right now what happens is we’re getting the market price but we’re having to pull full depreciation and full OpEx on each given turbine plus a share of the other costs in the Gemini company against very little revenue.
Anybody knows that’s going to create significant amount of loss. But when we retroactively take the subsidy then in fourth quarter you can expect that we’re going to see a big offset to what happened in the first three quarters that’s why trying to run it quarter-by-quarter is a very agonizing process.
And just to clear up, that’s only true for 2017, 2017 will be much more straight forward. 2016 is the odd year out on this one.
It’s just the nature of the beast for commissioning one of these projects.
Paul Lechem
Got you. Okay, thanks.
On North Sea 1, is there any possibility of getting delivery of some of the turbines prior to 2017 or are you just going to be sort of waited on hold mode until then?
John Brace
That’s extremely unlikely. The project was planned intentionally with having significant time buffers between the various activities in the projects in order to have an acceptable risk profile to the project.
So, although the manufacturing of the turbines has started, it’s I think extremely unlikely anything will be delivered and installed prior to the early part of next year.
Paul Lechem
Got you. Okay, last question if I may for Mike.
Given what we saw on both of the projects in the Netherlands. Can you give us some comments on the - your confidence in being able to bid on any of these offshore or any of the renewable opportunities and actually get a decent return.
Is there anything out there right now that you’re seeing the potential to actually get your hurdle rate or better in terms of these projects which are up and coming?
Mike Crawley
Sure. I mean, so I mean, first of all on the outcome of the North Sea 1 or 2 tender, I mean, there is a number of factors at play there.
Certainly it was an auction that was designed to be as competitive as possible. It was a site designated by the Dutch Authorities.
And there is no ability for a developer to any advantage by developing and finding a superior site and then gaining any advantage that way. So, certainly it was a very competitive process.
But at the same time the other thing that’s going on in general with offshore wind is that costs are coming down. So equipment cost, EPC costs are coming down as the sector matures.
So I think you’re going to continue to see that and we see that as a positive trend, right, that will create more opportunities as market sees this as a viable mainstream alternative for power generation as they decarbonizes now. In terms of our upcoming opportunities, our main focus in Europe is on North Sea 2 and 3.
And this is a limited auction so it’s a different structure than North Sea 1 and 2 or North Sea 3 and 4, its developers are bidding in their site. So we have two sites to bid into this auction.
And it’s roughly 8 gigawatts qualifying projects that can bid, they would add meters threshold in terms of permitting maturity to qualified, so 8 gigawatts is bidding for what by the legislation will be about 3,100 megawatts of contracts. So even on that basis we think the odds are pretty good for a tender.
And moreover, we look at North Sea 2 and 3 and for a number of reasons we think that site will be very competitive in the auction simply by virtue the nature of the site. But on top of that we are going to be working hard to make sure that we look for ways to drive as much cost out of the project as possible while maintaining our typical risk profile so that we can be successful in that auction.
So there are North Sea 1 and 2 is not necessarily representative of all the opportunities going forward in offshore wind in terms of competitiveness and structure.
Paul Lechem
Thank you very much guys.
John Brace
You’re welcome.
Operator
Your next question comes from the line of Nelson Ng with RBC Capital Markets.
Nelson Ng
Great, thanks. Just a few more questions on offshore wind.
So, I think you mentioned Mike that the main focus is on Greenfield developments in Europe. I guess would you consider getting involved in projects that are already an advanced new element in Europe like you did in Gemini North Sea 1 or do you think those opportunities are kind of no longer available in terms of providing actual returns?
Mike Crawley
So, our increasing focus I guess is on Greenfield development in multiple markets. So for this I guess there is two kind of pivots, one is to look beyond your for offshore wind opportunities, and the second is to be open to coming in earlier on both onshore and offshore projects, right, in general.
So that’s - and it’s consistent with what Northland has always done in terms of doing Greenfield development. And right now we think that there are better opportunities to get better returns and doing Greenfield development and coming in on late stage projects right now just where the markets are at.
Having said that, to your point, in Northern Europe we will continue to be open to opportunities to coming in later stage on offshore projects. And we continue to look at those opportunities but we’re right, all I’m saying is we’re simply not solely relying on that for our growth.
Nelson Ng
Okay. Because I guess there are a number of projects that are in I guess advanced development or whether it’s under construction or pre-construction or I think the main sponsor is looking to sell-down a stake.
I was just - I presume you at that stage you wouldn’t really be too interested in participating in the project given at that stage the returns would be too low?
Mike Crawley
It depends on the project. I mean it’s each project is depending on where it’s at in terms of its development in permitting, will have a different risk profile.
And you’d be able to gain different returns, right. So, we look at all the opportunities that come up as I said, staff office in London, so we’ve got a team on the ground in Europe.
So what opportunities there are we see. But we would tilt towards opportunities that allow us to add value to the development process even if the project is already contracted.
If there is still some permitting and engineering work to be done, we would see that as a better entry point for us. And as a result you typically would get better returns coming in at that stage as well.
Nelson Ng
I see. You mentioned that you’re looking at a few opportunities in Taiwan.
Is there a process already underway or is there a process that you expect near-term or are you really just kind of positioning yourself now prior to what you expect in the future?
Mike Crawley
There is a feed-in-tariff regime in Taiwan. So Taiwan is to some extent kind of doing what Northern Europe 10 years ago or so, right in terms of kind of driving incentives to encourage investment in the offshore wind sector in order to get it moving quickly and accelerate the development of this sector.
We would expect over time that it would follow a similar course as has happened in Europe or you move towards more competitive processes. But right now, there is a feed-in-tariff program for offshore wind and that’s - it's under that program that we’re developing projects with our partner there.
Nelson Ng
Okay. And how advanced are the projects are you really kind of staking out lands or water at the moment?
John Brace
We’re permitting two sites.
Nelson Ng
Okay. Great, thanks.
Those are my questions for now.
Operator
Your next question comes from the line of Rupert Merer with National Bank.
Rupert Merer
Hi, good morning everyone. So your development activities are moving ahead business as usual you mentioned.
And you mentioned some opportunities in U.S. offshore.
What are your thoughts on tax equity structures, I imagine given the cost of offshore, maybe better for ITC. And does that mean that you need to move sort of sooner rather than later on opportunities in the U.S.?
John Brace
Well, we obviously can’t define the schedule for procurement of offshore wind. And so, both given kind of the long development cycle and offshore projects and also the capital cost involved in them, and you layer on top of that the gradual sun-setting of the ITC and PTC in the U.S.
We’ve seen initially tax equity playing a role, but gradually over time as this sector would also see a tax equity playing less and less of a role given what we understand is to the sun-setting of the ITC and PTC.
Rupert Merer
And then, the cost, coming down in the U.S. as they are in Europe where it could be an attractive alternative in your view?
Mike Crawley
Yes, I mean, I think the cost will not be initially as low in the U.S. as they are - as you’re starting to see in Northern Europe where the supply chain is more mature and the sector is really developed further.
So there is, lot of the cost has been driven out of the supply chain in Europe. But at this point that will take some time to catch up in new markets such as U.S.
and Taiwan for example. But it will gradually get better and I think it will in certain markets where you have constraints on onshore citing of renewable, constraints on getting transmission in new gas into certain markets in the U.S.
you’ll see offshore wind we think being a reasonable alternative for new generation supply.
Paul Bradley
Yes. And I think we can also add that the lot of the cost reduction has to do with the size and scale of the turbines and improvements in blade design and things of that nature which you’d imagine that the whole world will enjoy that as the industry progresses on.
But as Mike mentioned some of the supply chain in the early, getting imported for structure and everything, the U.S. is going to be a little bit of a start-up challenge but probably overcome-able.
Rupert Merer
Great. And then on business as usual, you mentioned potential partner in Taiwan.
So I guess development activities you’re considering a range of partners in all of the markets. Does that complicate the strategic review process at all or are you, maybe hesitant to enter into partnerships until you get better visibility on the outcome of that strategic review process?
John Brace
No, it’s business as usual in all of assets of Northland. The strategic review may conclude that we are wonderfully content with ourselves as we are now.
So, we’re not envisaging any slowdown or change in tactics here.
Mike Crawley
Yes, I might add that some of our, when we get to markets where we’re sort of less familiar having partners that are more local that don’t probably be true under any type of structure that it’s a value adding proposition.
Rupert Merer
So, to some degree the relative attractiveness of various markets will help to determine the outcome of that process, who may you partner with for example?
John Brace
I don’t think they’re connected really, frankly.
Mike Crawley
No, the partner, I mean, Paul had alluded, as we enter into new markets, we certainly see bringing on a strong local partner as being a good way to enter. And the other thing that we try to do is hire good local talent even in Mexico, we’ve got three strong Mexican power sector professions there working in our office there.
And we see local knowledge, local contacts and local understanding of the market whether through partners or through our own staff that we hire in those markets is important to make sure that we have successful entry into new markets.
Rupert Merer
Okay. Thanks for the color.
John Brace
Thanks Rupert.
Operator
Your next question comes from the line of Jeremy Rosenfield with Industrial Alliance.
Jeremy Rosenfield
Yes, thanks, good morning. Just a couple of I guess follow-up questions on U.S.
and the Taiwan opportunities. Can you talk a little bit just in terms of the size of potential opportunities and investments that might be reasonable in those respective sort of jurisdictions for U.S.
on the offshore side and also the Taiwan offshore that you referred to? Either in terms of I guess capacity or dollars or maybe just on a relative basis to the offshore projects in Europe?
Paul Bradley
So, in terms of kind of the Taiwan market, the information on the feed-in-tariff program there is obviously public. So it’s currently scaled at 4 gigawatts.
They may, there are some rumors that it will maybe increase, but certainly that’s the kind of order of magnitude on the program. We would anticipate to get we’d be targeting to get a reasonable slice of that.
But depending on how the projects develop that we’re looking at it, is not yet clear how big those projects will be in the U.S. The only clear indication so far is the legislation has been passed in Massachusetts which allows for the procurement of about 1,600 megawatts of offshore wind.
We take a look ahead and we see the RPS in New York and we see other assets getting retired in New England over the next decade. And we surmise that maybe there might be further opportunity for offshore wind.
That’s all we know right now in terms of the scale of those markets and that present. I mean, there is a certain scale that you need for generally for an offshore wind project to be viable.
But we haven’t yet come to a specific scale on any project opportunities that we pursue in either one of those new markets.
Jeremy Rosenfield
Okay, fair enough. And then, just in terms of the overall I guess commitment towards development activity moving forward, is it fair sort of for us to assume that development expenses are likely to pick-up in coming quarters relative to last several quarters?
Mike Crawley
Jeremy, I think that’s probably for wrong conclusion, certainly as Northern gets bigger, as we start looking to more jurisdictions, have more offices, I think that’s inevitable, slightly down slightly at least from an accounting perspective impact that will have on us. So, yes, we will probably be seeing an increase there.
Jeremy Rosenfield
Do you have a sort of rough guideline or just sort of notional at this point?
Mike Crawley
Not at this time I mean, you can imagine that we’ve already announced results here that have increased in corporate expenses which mostly included development expenses. We haven’t revised our guidance for the year, so you can imagine for the balance of this year you probably won’t be seeing a whole lot that’s going to be huge.
In the coming year, I think we have to assess that as we continue to do our planning and focusing.
Jeremy Rosenfield
Okay. And then just on the strategic review, I’m just curious if there were any cost specifically in the Q2 results that might have incurred prior to the actual announcement of the strategic review or if there is nothing in the results here?
Paul Bradley
Minimal.
Jeremy Rosenfield
Okay. And then just finally, last clean-up, if, I don’t know if you have the number.
But just in terms of the output from Gemini for the quarter, I don’t know if that’s available?
Paul Bradley
I don’t have that off the tip of my fingers, and we typically haven’t really focused too much on that not only because there is output that doesn’t belong to us, there is output that belongs to us but not recorded income. And you know what I mean, and it changes all the time with turbine delivery and wind speed and everything.
So it’s for 2016, just as I started dealing with questions, just really tough thing to try to follow too closely. You really just got to ride with it until the fourth quarter.
Jeremy Rosenfield
Okay, great. Thanks.
Those are my questions.
Operator
[Operator Instructions]. Your next question comes from the line of David Quezada with Raymond James.
David Quezada
Yes, thanks good morning guys. Maybe just a follow-up question on Taiwan.
On the competitive environment there, would you say kind of in a rough vector that you’d expect it to be less competitive than maybe the U.S. and Mexico and obviously Europe?
What kind of environment would you expect there?
Mike Crawley
Well, I mean, it’s certainly a new market for offshore wind, so it has gradually opened up over the last 12 to 24 months. And so, we are seeing some of the competitors that we see in Europe but not all of the competitors that we’re seeing in Europe.
And we’re just trying to gain an advantage the way that any good developer gains an advantage by moving faster and smarter than the others. So, it’s I guess for short, it’s probably fewer players and you currently would see in Europe for example.
But at the same time we’re not being complacent or trying to move as quickly as we can to secure an advantage.
David Quezada
Okay, great. That’s helpful.
And then I guess just you guys talk a bit, quite a bit about new jurisdictions. Do you ever consider given your kind of history in early move launch offshore wind, do you consider moving into any new types of technology, I think we’ve heard about a recent pilot project on floating turbines in Europe or any of those kinds of projects something that you would think about?
Mike Crawley
Well, we certainly have done some - we’ve done some research into floating turbine technology. And I think over time we could see that becoming more mainstream, at this point it really is more of an experimental or pilot type of technology that there has been some pilots in Japan, there are some projects in Scotland that are being pursued and in Portugal there was one project that was being cleared as well.
So, it’s something that we’re tracking closely. I think as you move into new markets for offshore wind, where you’ve got greater water depths floating technology could very well make sense.
But the costs are not there yet. And some of the technologies last to be further proven out.
John Brace
I think your basis thesis of Northland philosophy is correct. We try to be leading-edge but not leading-edge.
David Quezada
Great. That’s fair enough.
Thank you. That’s all I had.
John Brace
Thank you. Is that it for questions operator?
Operator
At this time Mr. Brace there are no further questions.
I will now turn the conference back over to you.
John Brace
Well, thank you everyone for joining us today. We will hold our next earnings call following the release of our third quarter results in November of this year.
Thank you very much.
Operator
Thank you ladies and gentlemen. That does conclude today’s conference call.
Thank you for participating. And have a pleasant day.