Nov 11, 2020
Operator
Ladies and gentlemen, thank you for standing by, and welcome to this Northland Power Conference Call to discuss the 2020 Third 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, Wednesday, November 11, 2020.
Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer; Pauline Alimchandani, Chief Financial Officer; and Wassem Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northland's management has asked me to remind listeners that all figures presented are in Canadian dollars 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.
Actual results may differ materially from management's expected or 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.com. I will now turn the call over to Mike Crawley.
Please go ahead.
Mike Crawley
Thank you, operator, and good morning to everyone. Thanks for joining us today.
Also joining from Tokyo today on the call is David Povall, our Executive Vice President of Development. This morning, we will review our third quarter 2020 financial and operating results and provide an update on the business.
Following our remarks, we look forward to taking your questions and comments. With the final quarter of 2020 underway and what has been an extraordinary year, we are pleased with the progress we have made despite the challenges arising from the COVID-19 pandemic.
Our underlying business is performing well. And even with the financial impacts experienced year-to-date from negative pricing, curtailments and low wholesale market pricing, we are still able to deliver strong operational results.
I want to start off the call by highlighting a couple of points on the quarter and Pauline will provide a more detailed look into the financial numbers later in the call. We achieved a healthy growth in adjusted EBITDA, reporting $254 million in the quarter or a 13% increase compared to $224 million a year ago.
We recorded free cash flow for a share of $0.30 in the quarter compared to $0.41 in 2019, representing a decrease of 27% year-over-year. The decrease in free cash flow was primarily attributable to scheduled principal debt repayments for Deutsche Bucht, following the declaration of commercial operations at the end of March.
Now turning to our growth strategy. It has both the near-term and long-term element.
Northland is amongst the top 10 global developers of offshore wind. And this is where we are prioritizing our long-term development efforts.
New offshore wind markets continue to open and long-term power purchase agreements are still generally available for offshore wind projects. These opportunities span multiple geographic locations in Asia and Europe.
In many land constraint countries, there is a high demand forecast for renewable energy and lots of capital eager to invest in advanced development and operating stage offshore wind projects. This is however – there is however, relatively few companies capable of developing and building offshore wind projects that allow these countries to reach their decarbonization objectives.
That is where we see opportunity for Northland. While our long-term objective center on offshore wind, our short-term objectives look to investments in onshore renewable projects.
These types of projects enhance our financial performance by providing near-term cash flow in part to fund our long-term offshore wind development activities. In the quarter, we successfully closed the acquisition of three onshore wind farms in New York State with a combined capacity of approximately 300 megawatts.
These development stage projects expand Northland's North American portfolio by providing investment opportunities into the U.S. renewable market.
These acquisitions are part of Northland's longstanding strategy of early entry into projects and leveraging our substantial experience and expertise to successfully complete the development of these projects. The New York High Bridge, Bluestone and Ball Hill projects, position us to actively participate in the growing renewable market in New York State, which is expected to add an incremental 26 gigawatts of renewable energy by 2030.
Our plan is to grow our presence in the U.S. by leveraging the platform of New York wind projects as a base to pursue more projects in the Northeast and in other targeted U.S.
markets to establish a portfolio of one onshore renewable projects with an expected capacity in excess of one gigawatt. Now turning to our construction activities.
Work at La Lucha continues with all the major components of the project having been installed. Final work on the step-up and switching substations are being executed, and we are on track for project completion by end of year.
As our first project to be underpinned by commercial and industrial customer offtake agreements, we are progressing to secure those agreements for La Lucha. We expect to have them in hand by the end of the year to coincide with commercial operations.
At our Hai Long offshore wind project in Taiwan, the team continues to make progress towards securing corporate power purchase agreements for the remaining 744 megawatt allocation that was secured under an auction process. As mentioned previously, Hai Long through our auction projects has the opportunity to pursue PPAs with corporations corporate load that is of course a part of our strategic option to enhance the economic value of the project and beyond what we would get from the utility offtake tied to our successful auction bid.
We hope to say more on this in 2021. In Europe, subsequent to the end of the third quarter, Northland Power Europe, a subsidiary of Northland signed a service agreement with Nordsee One, whereby Northland Power Europe will provide turbine operations and maintenance services to the project.
The contract will be effective through to 2027. Now the advantages of Northland being able to provide these services include gaining a better fundamental understanding of the cost assumptions underpinning this offshore wind investment and positioning the company for cost competitiveness in the post tariff landscape.
Furthermore, with the expertise and knowledge gained through the execution of these services, Northland will be able to apply these learnings to future offshore wind developments to enhance project profitability while also ensuring a more balanced operational risk profile. Our regional development teams continue to look for additional development opportunities in other key markets.
As opportunities are identified and evaluated, we will invest the appropriate capital to advance these projects and expand our development pipeline. Lastly, we continue to see significantly higher unscheduled transmission outage losses at Nordsee One and Deutsche Bucht in the third quarter due to grid repairs by the system operator.
We expect these outages to continue into the fourth quarter and Northland is reviewing its options to address these unscheduled outages. We will receive compensation from the grid operator for a portion of these losses.
While these outages are affecting the short-term results at our facilities, we do not expect there to be an issue in the long-term once the repairs have been made by the grid operator. I will now turn the call over to Pauline for a more detailed review of our financial results.
Pauline Alimchandani
Thank you, Mike, and good morning, everyone. Last night, Northland Power released operating and financial results for the third quarter of 2020.
As Mike mentioned, despite these challenges we have faced this year, our business continues to deliver solid operating results. Our Offshore Wind segment has generated nearly $1 billion in revenues through the first nine months of the year, which represents a new first for Northland.
Coupled with strong performance from our other segments of our business, we have generated nearly $902 million in adjusted EBITDA in the first nine months of the year. For the third quarter, we generated adjusted EBITDA of approximately $254 million, which was an increase of $30 million or 13% increase from a year-ago.
The primary drivers behind the increase in adjusted EBITDA year-over-year include a full quarter contribution from our Deutsche Bucht project and additional contributions from EBSA, which was consolidated from the closing of acquisition in January of 2020. These two assets contributed approximately $43 million in incremental adjusted EBITDA in the quarter.
These results were partially offset by a $10 million decrease in operating results at our Gemini and Nordsee One facilities in the North Sea primarily stemming from lower wind resources during the quarter combined with continued weakness in the wholesale market prices at Gemini and unpaid curtailments at Nordsee One due to unscheduled grid repairs. Through the first nine months of 2020, as disclosed in our MD&A, we have experienced approximately $59 million of lower revenue as a result of unpaid curtailments due to negative pricing and grid repairs at our German wind farms and lower market pricing at Gemini.
With respect to free cash flow, Northland generated approximately $61 million or $0.30 per share in the third quarter. This was a decrease of approximately 18% and 27% respectively compared to the third quarter of 2019.
The single largest driver behind the year-over-year decrease in free cash flow was a $43 million or $0.21 per share scheduled increase in principal repayments, primarily attributable to Deutsche Bucht and Grand Bend. Also contributing to the decrease was the previously mentioned grid outages and other items, including higher interest and tax expenses and higher development expenditures details of which are listed in our MD&A.
Our rolling four quarter free cash flow payout ratio calculated on a cash dividend basis for the period ended September 30 up 65% compared to 61% payout ratio last year. On the development front, as we have noted previously, Northland intends to allocate a greater proportion of capital to development expenditures for its growth pipeline, including its offshore wind activities.
For 2020, this is now expected to total to $0.35 to $0.45 of free cash flow per share of development costs and overhead. Thus far in 2020, development expenditures and overhead have amounted to approximately $0.25 per share primarily at our Hai Long project, but also include expenditures at other projects in our development pipeline.
Starting mid-July of 2020, as a result of achieving certain milestones, Northland commenced the capitalization of our Hai Long development project in accordance with IFRS. In the nine months ended September 30, Northland incurred $29 million of development expenditures related to Hai Long of which $16 million was expensed and the remainder was capitalized.
These costs relate to site assessment work, including geotech and geophysical work studies, the hiring of personnel for the projects and other engineering work to advanced development of the project. With respect to our liquidity, Northland remains in a very strong liquidity position and our recently reintroduced dividend reinvestment program is expected to supplement the funding of select growth initiatives that are continuing to progress.
Thus far, we are seeing good 28% participation in our DRIP, which if remains stable would generate approximately $60 million on an annualized basis to support our growth initiatives. Turning to our 2020 outlook.
I want to make a couple of comments and provide some details on our adjusted EBITDA and free cash flow per share guidance, which is highlighted in our quarterly press release. Our 2020 expectation for adjusted EBITDA remains unchanged, and we continue to forecast achieving between $1.1 billion and $1.2 billion in adjusted EBITDA this year, which speaks to strong operating results, which more than offset the after mentioned lower offshore wind revenues realized as a result of COVID-19, and unusually high third-party grid outages affecting our German facilities.
For free cash flow within our financial guidance released in February of 2020, our assumptions included optimizing the Deutsche Bucht project by refinancing its $1.5 billion senior debt, including the deferral of a €38 million scheduled debt repayment or $0.30 per share due in the second half of 2020. COVID-19 adversely affected lending markets, and as a result, we opted to change our financing optimization strategy for the project.
Taking advantage of an improving lending environment, these refinancing of the debt is now expected to be completed in 2021. Consequently, the project's future cash flows from 2021 onwards through to maturity of the loan are now expected to improve in lieu of a large upfront one-time deferral.
The non-deferral of Deutsche Bucht debt repayment in December 2020 will reduce free cash flow by approximately $0.30 per share for the year, of which $0.15 has already been deducted in the third quarter. As a reminder under Northland's free cash flow definition, funds are set aside for scheduled principal repayments in order to allocate semi-annual repayments across the quarters to more clearly reflect the company's performance.
In accordance with our decision, we have revised our free cash flow per share guidance to reflect the addition of principal repayment and our revised guidance for free cash flow is now expected to be in the range of $1.60 to $1.70 per share compared to the previous range of $1.70 to $2.05 per share. Lastly, our balance sheet and available liquidity remains strong with ample access to fund our development initiatives.
At the end of the quarter, we had access to $704 million of cash and liquidity. This was an increase from $561 million available at the end of last quarter.
With that, I will now turn the call back over to Mike for his concluding remarks.
Mike Crawley
Thank you, Pauline. As always our primary focus during these times is the health and safety of our employees and all stakeholders.
We also feel a great sense of responsibility, as I said before, to continue delivering electricity under our long-term offtake agreements and concessions. Looking ahead, we continue to see significant growth opportunities with the renewable energy space as a global decarbonization trend gains momentum.
Northland aims to be at the forefront of this movement and our strategy continues to be on making the investments necessary to position ourselves to capitalize on these opportunities. Our growth strategy centers on developing our pipeline of offshore wind projects in Europe and Asia, which will provide significant growth to the company and substantially grow our cash flows in the years to come.
Finally, I'm pleased to announce that Rachel Stephenson will be joining Northland as our Chief People Officer, effective January 1, 2021. Rachel brings Northland more than 15 years of leadership in human resources, including extensive experience leading human resources strategies and functions for national and global organizations across multiple sectors and technologies, including renewable power covering North America, Europe and Latin America.
Rachel will play a key role in helping us build a culture that attracts, retains and develops high performance talent to deliver on our global growth objectives and she will be a great addition to our executive team. That concludes our prepared remarks.
We'd now be happy to take your questions. Operator, please open the line.
Operator
Thank you. [Operator Instructions] And your first question is from David Quezada of Raymond James.
David Quezada
Thanks. Morning everyone.
My first question here, when you look to fill out that one gigawatt plus portfolio in the Northeastern U.S., I'm curious – I guess a couple things. Which states particularly do you find attractive outside of New York, if any, and maybe if you could just briefly comment on, I guess, the motivation for moving into onshore and how it compares, I guess, in terms of returns to offshore wind in the state.
Is that primarily a timing issue like the fact that onshore is, I guess, more near-term? Is that the primary motivation?
Mike Crawley
Yes. I mean a couple of points on that.
Certainly onshore wind and solar, as a developer, we can convert a project more quickly into cash flow, right? You can work through your development milestones and into construction and into operation more quickly than for offshore wind.
So that certainly is one advantage in terms of kind of balancing out our cash flow. In terms of the markets, New York is particularly attractive.
And so far as they've got a very aggressive, as I referred to in my prepared remarks, very aggressive renewable energy target. And they also are now offering what's equivalent to a 20-year offtake agreement or 20-year PPAs to what they're calling an IREC to help kind of further stimulate and encourage the development of offshore wind.
And those as you know are very rare and hard to come by now in onshore renewables. So that's what we like about New York.
We've also looked at opportunities in New England as well, where we see similar opportunities more with utility offtake. We have looked at some opportunities in PJM and that's more opportunities specific, and in particular, understanding either the utility or C&I offtake and the credit quality and the tenor of that offtake.
It's been more granular. Otherwise the team that David leads and I'll turn it over to him actually is also looking at opportunities on the West Coast in California and Washington, Oregon.
But David, just kind of answer your question.
David Povall
Mike, no I think you've covered it very well. And I think, David, the thing to say it's targeted.
The U.S. market is obviously extremely large.
There's a lot of locations, which they are crowded. So team is very focused on those markets, which Mike just mentioned I think, particularly New York and we see the opportunity in all of these things in early stage development opportunities that hopefully we'll be able to talk about through 2021 to work towards that one gigawatt pipeline.
So nothing else to add to Mike's comments.
Mike Crawley
I mean, returns would probably be a bit lower than for offshore wind, but with a shorter timeline to getting those projects into operation. Similar opportunities for sell-down to augment our returns, but you typically would have to kind of aggregate a number of projects to really have an effective sell-down strategy on onshore, whereas in offshore you could actually just do it on one single project.
David Quezada
Excellent. That's great color.
Thank you for that. And then maybe just one more for me.
On the refinancing for DeBu, I'm just curious if financing conditions or the potential there has improved, I guess, similar to what it was pre-pandemic. And will you be able to get that optimization done on the terms that you expected back in February?
Pauline Alimchandani
Thanks for your question. So to answer it simply, yes.
The financing – the markets have improved, spreads have improved. They are not at pre-COVID levels, but they are at levels that make it accretive to the value of the project for us to pursue this financing in 2021.
David Quezada
Okay. Great.
Thank you very much. I'll get back in the queue.
Operator
Thank you. Your next question is from Nelson Ng of RBC Capital Markets.
Nelson Ng
Great. Thanks.
First question relates to the acquisition of the Onshore Wind Development in New York State. I was just wondering whether the $5.6 million purchase price is an upfront payment or is it the total amount to the seller regardless of the outcome?
I'm just wondering if there's like earn-outs in milestone payments payable as well.
Mike Crawley
David, do you want to break that down for Nelson?
David Povall
Yes. Nelson, we structured them in a – I guess a couple of tests, some of them a portion of upfront, but also some linked to financial close and milestones coming into the projects.
So I think in a favorable way for us to – obviously, we’re taking on development ways, the projects that still have that development which built in. We're comfortable about managing that, but obviously [indiscernible] the payments accordingly.
Nelson Ng
So that $5.6 million is the upfront amount. Is that right?
Or is that spread over time?
Pauline Alimchandani
Yes.
David Povall
I think, yes.
Nelson Ng
Okay. The $5.6 million is spread over time, right?
Pauline Alimchandani
No, the $5.6 million has been funded during the quarter.
Nelson Ng
Okay. So that's the upfront and then there could be earn-out payments and milestone payments afterwards, correct?
Pauline Alimchandani
Yes.
Mike Crawley
Yes.
David Povall
Yes. Payment – milestones about next year is achieved.
Nelson Ng
Okay. And then from a timeline perspective, like how soon would those projects be ready to kind of get bid into future RFPs?
David Povall
Interesting situation – it's a moving situation and we'll know more in literally a couple of days time. So as Mike indicated, the projects already had REC contracts that had been secured previously.
But what New York is now moving to is the conversion of those REC contracts to what they're calling IREC contracts. So the concept that you refer to those bidding in subject to what we understand will be announced literally we hope later this month.
We'll not be opposed to rebidding it. It will be a conversion of those contracts that we have into the new IREC contracts.
Exact details, I say, we will know in a couple of weeks time.
Mike Crawley
So Nelson, when we began looking at these projects, we were looking at them with a REC, which would just cover the renewable attributes and the revenue stream for that. And then we would have to market the brown energy right from the projects, which is how the market had been structured in New York.
As discussions move forward and as we move forward in negotiating the agreement to acquire these projects, the state of New York changed their position and moved towards – started moving toward this IREC, which had been rumored, which – assuming everything works out as we expect would allow these projects to convert to what is effectively a 20-year PPA. So we're keeping a close eye on developments in the coming days as David referred to, but I think it's one of those opportunities where – with development, there's so many things you can control and you manage those and there's something throughout your control, and sometimes they go in your favor, sometimes they go against you, and this is – hopefully, we'll see should be a favorable development on those three projects.
Nelson Ng
So just to clarify, so one of those projects have a REC contract and it might simply be a conversion into a IREC contract where that project might not need to get fit into a process. It's a simple conversion, is that?
Mike Crawley
Yes, three of those projects are in that situation. Three of those projects have a REC that we hope we'll be able to convert into an IREC, which would mean that they would not have to bid into an auction.
Nelson Ng
I see. Okay.
That makes sense. And then just moving over to the offshore wind side, obviously there has been a lot of activity in Eastern Europe.
I know you've talked about Eastern Europe in the past. Are you able to give any comment or any color on your activities in Poland and like potentially partnering with any local developers as you've done in other regions?
Mike Crawley
All we can say is that Baltic offshore wind in general, but Poland announced the three Baltic states, we think offer some good opportunities moving forward in each one of those countries, but Poland, obviously being the biggest and the most aggressive are taking steps to really stimulate offshore wind and encourage offshore wind. And it's a market of interest, but we don't have anything at this point beyond that to say.
Nelson Ng
Okay. And then just one last question.
In terms of undertaking the O&M activities at Nordsee One, are you expected to make any like cost savings by taking it – by self performing and are you also taking on any incremental risk?
Mike Crawley
I would say there's some modest cost savings. I wouldn't describe them as being particularly material.
We view it more as an opportunity to understand better about the operations of the project and the costs involved so that when it comes off a contract in 2027, we're better able to right-size the OpEx to what would be the new revenue opportunities at that point.
Nelson Ng
Okay. And I presume the risk is quite incremental as well.
Mike Crawley
Yes. But the risks, I would say, without going into the detail on it, there's not a significant amount of incremental risk, the way we structured it, which is why there's not a significant amount of incremental revenue on it to Northland.
The objective was as I described, so weren't looking to kind of extract a huge amount of additional revenue from the project, but more to, as I said, to prepare ourselves for a post-contract environment on that project, which is what comes up first. But also Gemini follows in the early 2030s, and so we want to be prepared for that as well in Deutsche Bucht soon after that.
Nelson Ng
All right. Thanks, Mike.
I'll get back in queue.
Operator
Thank you. Your next question is from Rupert Merer of National Bank.
Rupert Merer
Good morning, everyone. Just a couple of follow-up questions.
So first on the service agreement for Nordsee One, what do you need to take on the operation and maintenance? Do you have any upfront CapEx or operating cost to be able to start the service and do you need to hire many people or do you have all that expertise in-house?
Mike Crawley
So we have been actually performing this for the last year. So it initially, I mean, [Nelson] to some extent strategy comes out of circumstance.
So what happened was, as you may recall, Symbion, the turbine vendor, which had the service contract went into an insolvency procedure and we had anticipated, and it seem the signs of this developing. So we kind of started tracking the team that they have that was executing on the service contract in Germany.
And when they indeed went into their insolvency procedure, and those people became available, we moved in very quickly to hire them and to enter into an interim SMA, which is what we're operating under the last year, which is how we’re able to ensure that there was no interruption of service and that we’re able to operate the turbines that I think the same actually, slightly higher availability then under Symbion over the last year. So what was essentially a – initially a defense move to make sure that the project continue operating it at the same level of availability opened up an opportunity for us to step in for the long-term.
So the way it worked with the lenders on the project is that they required after that initial year for process to be undertaken to pick a long-term operator up to the end of the subsidy period in 2027. We submitted bids along with others, and our bid was selected by Nordsee One.
We’re obviously recused from the decision. So our minority partner made the decision, the selection and that's how we've come into this role.
But we've essentially been performing at all along. And so we've got the same team that we hired relatively quickly last fall and they've been performing extremely well over the last year.
So we're quite comfortable with that situation. And there's a – good degree of the obligation on spare parts and maintenance CapEx still does rest with the project itself.
So our obligations are more related to response times as opposed to much beyond that.
Rupert Merer
Okay. All right.
Great. And follow-up on the New York developments.
Are there any other development milestones you need to pass to stay on? I think it's a 2022 timeline or is it really just a matter of looking at for the contracts in the IRECs at this point?
Mike Crawley
Dave, do you want to answer Rupert on that?
David Povall
Yes. Certainly, yes.
We probably described in the mid-stage development projects when we just move earlier this year. So there are still the classic development risks to work through.
So there are still some permitting items we need to close out. And then of course the whole procurement cycle as well to go through on both turbines and wider BOP, so that's a live activity that's underway.
At the moment we've probably seen coming in. And then combined with the offtake side of things, we just talked about with the IREC conversion.
So those are working through. There's nothing that concerns me of this classic development risks on onshore wind projects and moving towards that financial close in the second half of next year.
Rupert Merer
And are these projects eligible for 100% PTC?
David Povall
I guess in case you understand how the PTC works, so we're making sure we are maximizing their ability to use whatever PTC can be available. So if we can get hold of the relevant equipment and qualify for PTC, we're doing that.
And I think as you may know the 80% PTC was extended as a result of the COVID actions earlier in the year. And so we're looking to see where we can extract that same value into the projects through securing the right equipment.
Rupert Merer
Great. Thanks for the color.
I'll leave it there.
David Povall
Thanks, Rupert.
Operator
Thank you. Your next question is from Sean Steuart of TD Securities.
Sean Steuart
Thanks. Good morning.
Question for Pauline, I suppose. The North Battleford debt upsizing, are there other opportunities across the rest of the portfolio from your perspective to free up more liquidity for growth going forward?
Pauline Alimchandani
Yes. We are actively looking at a few opportunities currently.
Sean Steuart
Any context on scale or scope?
Pauline Alimchandani
Not at this time. I think as we move forward with our Investor Day and releasing guidance, we can provide some more details on some of the other financing optimizations that we're currently pursuing.
Sean Steuart
Okay. And I wanted to follow-up on La Lucha.
And Mike, you mentioned you expect to have the contract structure in place when the asset starts COD in the coming months. Can you give us an idea of where you are right now with respect to, I don't know if it's percentage of generation that's contracted, what the average contract duration looks like?
Where are you in that process right now?
Mike Crawley
We're expecting the tenor to be moved. The negotiations are quite advanced to be in and around 10 years.
And I think in terms of volume, it's in the range of 80% to 100% in that range.
Sean Steuart
Okay. That's all I have.
The rest of my questions have been asked. Thanks guys.
Pauline Alimchandani
Thank you.
Operator
Thank you. Your next question is from Mark Jarvi of CIBC.
Mark Jarvi
Good morning, everyone. Four questions on La Lucha.
One is how would the terms of the contracts and offtake be relative to here going into assumption? And secondly, where do you guys stand in terms of putting some debt on that asset in terms of timing or quantity?
Mike Crawley
Could you repeat the first part? I didn't quite hear you.
Mark Jarvi
Yes. So you said you'd be 80% to 90% contracts, but I'm just curious in terms of pricing on the offtake in terms of how that has settled there relative to your expectations going into that project?
Mike Crawley
Yes. In line with our expectations on the pricing.
So in line with RFID case or how we underwrote the investment on that. And then on the financing?
Pauline Alimchandani
Yes. The financing is currently in progress and we would be targeting to close the financing in tandem.
Mark Jarvi
Okay. And then given – you've made good progress on that.
What's the appetite to do more solar capacity in Mexico over the next year or two?
Mike Crawley
It's a good question. So as you know kind of the administration in Mexico has become in the last year a bit more protective of the CFE, the government owned utility, and certainly Pemex, the government owned oil and gas company.
And has taken some steps that were designed to support CFE and support Pemex, which in our view and other generators view is disadvantaged private generators in Mexico. We along with others pursued recourse through the courts and in just about every situation, the court supported the position of the generators and prevented the government action in just about every situation.
So that's good, but I would describe our posture on Mexico right now as somewhat cautious. We think in the medium term, there's great opportunity there.
Like I said on earlier calls, we certainly watched the presidential election a few years – a couple of years ago, but we also watch closely on the ratification of the USMCA. And that's what we think really drives.
The second, the free trade agreement really drives – will continue to be a big driver of growth in Mexico in terms of industrial load and then also in terms of a growing middle-class and the increasing demand for power from the middle class. So macro speaking, medium, long-term, we're big believers in Mexico, and we think that they will need a lot of new power supply, but we're just being careful what we do in the near-term until we can properly assess what the government's posture is with respect to private generators.
Mark Jarvi
Okay. That makes sense.
And then just pivoting to appetite or interest for M&A, in your reports linking you guys to some efforts and some processes, so just curious where you guys are now, like in your thinking in terms of the key tenants of an acquisition and whether or not it's energy market, adding development capabilities in a short-term, and sort of where you guys are thinking in terms of what you guys can look for on any acquisitions right now?
Mike Crawley
Yes. I mean, similar to EBSA, there's a number of EBSA that we’re interested in the Colombia market for both transmission and generation, and we saw EBSA as a platform to be able to do that.
I think I mentioned in earlier calls, the teams already looking at some solar projects and other renewable energy projects there in Colombia. So for other acquisitions, certainly an entry into a market that we are interested and particularly if we feel that the asset can in some form be used as a bit of a platform for further growth, that would be one stream that we would put M&A opportunities through.
I think also looking at markets that we're already in to the extent that we can get a greater scale in some of those markets that certainly is important as well. So I think entry into new markets and the ability to scale up.
And as we mentioned on prior calls, we are looking at kind of new areas for growth that maybe kind of relatively small in the near-term, but we believe will grow over time such as renewable fuels. And so that certainly would be another area where we'd look at relatively smaller scale acquisitions, but to be able to find a foothold into that sector, but there's nothing in particular on that, but those would be kind of three highlights.
I don't know if you'd add anything to that, Pauline?
Mark Jarvi
That's helpful, Mike. And then last question for me.
Just in terms of Japan offshore, you guys [indiscernible], I think there has been prior conversation about trying to accelerate and looking at other consortiums, any update on that? Or that's now or something that you guys think you will be able to speak at the Investor Day in January?
Mike Crawley
Yes. Nothing to announce today.
I mean, David's Asian team is certainly looking at opportunities in Korea and Japan, and we have an interest in – interest in Europe and there's some markets that are of interest there. But nothing that we’d – to announce at this point.
Mark Jarvi
Okay. Thank you.
Operator
Thank you. Your next question is from Ben Pham of BMO.
Benjamin Pham
Thanks. Good morning.
Pauline Alimchandani
Hi, Ben.
Benjamin Pham
Hi, good morning. You mentioned that you're planning to put at ESG reporting interim Investor Day, so all looking forward to that.
You’re really checking the boxes on general renewables, wrapping that up. I'm wondering then with your gas portfolio.
Is there any thought of launching a sale process gas portfolio to reduce scope on emissions or should we view your segment change to efficient gas as a subtle message that you're planning to hold on to those assets?
Mike Crawley
You're reading a lot of tea leaves there. No, I wouldn't read too much into that change in label.
We don't have any plans on a sale process around the thermal assets at this point. All of Northland's plan growth going forward is in renewable assets.
I think we would also look as I've said before at a utility type investment, like EBSA if it were opening up as a platform for other growth opportunities in renewables. So that's kind of where we see our growth going forward.
We are not looking to invest any more capital in thermal generation going forward as well. And yes, and then I’d leave it at that.
Pauline Alimchandani
Yes. The other reason for the name change was just in our conversations with global investors who don't necessarily understand the profile of these assets in that, they displace coal originally and sort of getting marked in a category that we weren't.
So we wanted to make that more clear in all our communications. And then with respect to ESG, obviously ESG is more than our thermal assets.
It's a lot about the renewable capacity that we want to develop over the next 10 years, really focusing on the direction of this company, increasing renewables, increasing capacity, lowering intensity, also covering portions of the assets that are become really important to our company and to the world. And then just into a lot of G components which have been addressed and are continuing to improve, so it's really part of the holistic framework that we're working on and hope to discuss more about it in January.
Mike Crawley
If we were to do anything on our thermal assets, it would only be done with proper regard to cash flow and the long-term sustainability of the company. So it's a balanced decision that would we would have to take if we did anything.
Benjamin Pham
Okay. And then on Taiwan, what do we need to pay attention to on the supply chain?
Just getting those 14 megawatt turbines is a port access you need and what else that we should be focused on?
Mike Crawley
Yes. I mean, David, do you want to pick that up.
I can jump in later, but…
David Povall
Yes. Ben, just to explain in terms of focus on the supply chain.
I mean that most of the work on the supply chain now is as I am finalizing the IRP, which is the localization, which I think I've mentioned on prior calls. So that's both working with SGRE on – for the turbine, the 14 megawatt turbine, but also the wider supply chain event and all other components for the wind farm.
So that's where most of the work is in. But does that – remember your question or maybe just expand it a little bit further.
Benjamin Pham
Yes. That’s clear.
I'm wondering [indiscernible] comments. Would there be any issues of procuring turbines, cables, getting resources?
They're not because of COVID-19, but because Taiwan may be not as established as Europe.
David Povall
Yes. Good point.
I understand a bit more now. So obviously we’re not in the first project in Taiwan, so obviously the supply chain is starting to be there in service projects that have gone before.
But there is a need to continue to build capacity. I think as we've reported the SGRE, we’re looking at establishing a sales factory locally in Taiwan, which obviously there to provide the sales for their 40 megawatt turbine, which would be the first project to do that and then from SGRE perspective.
That's also an export base for them more broadly across Asia. So yes, there are parts of that supply chain, which is in discussions and will be built in Taiwan to service the Hai Long project.
Benjamin Pham
Okay. That's great.
Thank you.
Operator
Thank you. Your next question is from Andrew Kuske of Credit Suisse.
Andrew Kuske
Thank you. Good morning.
I think the question is for Mike and it's really on Northland's positioning in the marketplace. And when we look at Northland, we see this duality where you are a large player in the offshore wind market.
But there is a number of players that don't really have a horse in the race, but have an ample capital looking to get in. And then there's obviously a series of smaller players that really don't have capital, but have some offshore rights.
So how do you think about your positioning with that duality?
Mike Crawley
It's a great question. So I mean, just starting off quickly on, I mean on onshore renewables, we talked about that a bit earlier in the call and on that we're taking a very targeted approach in different markets where either we think we have an advantageous position or we can create an advantageous position such as throughout our utility platform in Colombia, recognizing that we are one of 100, 200 players globally developing solar and developing onshore wind projects.
Offshore wind, you correctly point out, I mean, Northland is one of the – amongst top 10 number six, number seven. So a limited number of players in offshore wind overall and we're one of the top players in a sector that's set to takeoff.
And that is attracting a lot of interest from investors, including – you're probably alluding to oil and gas majors and others that want to deploy capital into offshore wind. And so our big pivot in the last three years was moving from doing what we did on the first three projects in Europe, where we acquired those projects pretty much within a year or so of financial close to actually developing projects and coming in right at inception in Hai Long and at early stages in some of these other projects that we're getting involved, and now recognizing that the capital is no longer scarce for offshore wind projects.
And that there's an aggressive targets for offshore wind in a lot of these markets. And so what will be scarce is projects, quality projects.
And so that's where we're leveraging the team that we've pulled together over these last three projects that we've built in Europe to develop projects for both our own capital and getting in early so that we are getting in before and oil and gas major comes in to bid up the value of a site or something like that, or a lease and also so creating an investment opportunity for ourselves. But also creating an opportunity to bring their capital into the project on a sell-down as we create more value as we move through the permitting milestones and towards revenue contract and towards financial close.
So that's our approach to offshore wind and key to it is getting in early and be able to – and getting early to establish a foothold, and then also having the requisite talent and skills to build or to develop a number of these projects across multiple geography. So that's how I'd characterize it.
Does that answer your question?
Andrew Kuske
It does. That's very useful color.
And then maybe building upon just the scarcity and the competition for projects, what issues do you see in the future on seabed rights? And I know there's broad latitude in a bunch of different markets, but where you are positioned now and prospectively on the future, how do you think about the seabed rights and how does that factor into that duality?
Mike Crawley
Well, every market is different. So the U.S.
Northeast, which I think I've alluded to earlier in other calls, there's going to be quite a bit of offshore wind built out in the U.S. Northeast.
And it's a great market for offshore wind just because you can't excite a lot of onshore renewables in those states. And there's relatively shallow water.
So it's good for marketing both those respects and a lot of load, a lot of demand. So the challenge that we had as we kept looking at different opportunities in the U.S.
Northeast is just the way the market was structured. We had a separate process at the federal level lease conducting auctions for leases, and then another process to the state level for power purchase agreements.
Both very quickly became very competitive process particularly for the leases. And we saw values get bid way, way up beyond what we would be comfortable paying for a lease upfront.
And that's where we kind of made a decision that the risk reward was not what we would feel comfortable within the U.S. Northeast.
And we focused on other markets where you can get in and secure a site at a much lower cost and that's where the markets that we focused on. So yes, I mean, I had to say just in closing the U.S.
Northeast in a way was ideally suited for these oil and gas majors to come in and bid up these large leases at – the U.S. federal government was putting up which would put us at a disadvantage and we focused on other markets where we can secure the sites ourselves, develop them and then look to bring in those investors at a later stage as a partner on the projects.
Andrew Kuske
That's great. Thank you.
Operator
Thank you. Your next question is from Naji Baydoun of Industrial Alliance.
Naji Baydoun
Hi, good morning. Just maybe going back to Colombian.
Can you give us any more details on the pipeline of opportunities you see there for renewables. Are there details on the scale of the timing of projects?
Mike Crawley
The first few projects that we're looking at are relatively small scale. So it's solar and we've looked at a couple of hydro opportunities, but haven't decided to move on them at this point.
But there’s smaller hydro – smaller scale hydro opportunities. But that's where it's at I think the – our first step would likely be on a solar project, relatively small scale, but we'd hope to build on that.
Naji Baydoun
Okay. And just maybe a question on Taiwan.
Just wondering how you’re thinking about the upcoming, I guess tranches of around three auctions. Just how are you thinking about positioning yourself to participate in those upcoming rounds and what are some of the criteria for the bidders going into 2021 and some of the other tranches as well?
Mike Crawley
Yes. I'll turn that over to David.
I mean, there's certainly some advantages that we have given our success on the fit round and the auction round. But David, do you want to expand on that a bit?
David Povall
Yes, absolutely. I think as Mike said, with a position we’ve built in the market that both the relationships [indiscernible] to some of the key stakeholders, obviously, particularly on the government side and also the confidence we have in the team on the ground.
We are actively looking at participation in the round three. Both I think the 2022 and then the 2024, there's two auction rounds coming.
So it also ties in quite nicely with the timing for, I guess the Hai Long going into industry and then people obviously becoming available. We’re still waiting for further detail.
I think the big one, and I always talk about this subject on these calls, but the localization requirements for the round three projects, it's still not fully understood and that's going to be really important criteria. Again, back to that supply chain conversation we had earlier, but also of course, where your localization does have an impact on costing and hence bidding strategy and bidding pricing.
So that's something that we're tracking to our relationships and to fully understand, so we can understand how to position ourselves.
Mike Crawley
And at a high level, the two broad considerations are on one hand. There could be some synergies from an operating and even perhaps a construction standpoint with our current sites, our current projects on it, which would make us more competitive.
On the other hand, everybody knows about Taiwan and offshore wind now. So we’re an early mover several years ago, four years or five years ago.
Now most of the offshore wind developers are there, so we'd have to get comfortable that we're going to be able to be competitive with whatever site we may choose to proceed with.
Naji Baydoun
Okay. That's helpful.
And just to clarify, so you won't be participating in the, I guess, smaller auction next year, but maybe you will participate in the bigger ones two or three years down the line in Taiwan?
Mike Crawley
Yes.
David Povall
Yes. We're certainly looking at the 2022, would be the first auction that we would participate in.
Naji Baydoun
Okay. That's great.
Very helpful. Thank you.
And just congratulations to Pauline on your recent Business Best Executive Recognition Award.
Pauline Alimchandani
Thank you very much.
Mike Crawley
Okay. Well, thank you everyone for joining us today.
We'll hold our next call following the release of our fourth quarter and full-year 2020 results in February. In the meantime, I'd like to thank you for your continued confidence and support, and also as I've been reminded to – to gently remind everybody that it's Remembrance Day and that those in the Eastern time zone, there'd be a moment of silence at the top of the hour.
Thank you very much.
Operator
Ladies and gentlemen, that does conclude the conference call for today. Thank you for participating and have a pleasant day.