Feb 19, 2015
Executives
John Brace - Chief Executive Officer Sean Durfy - President and Chief Development Officer Paul Bradley - Chief Financial Officer Adam Beaumont - Director of Finance
Analysts
Nelson Ng - RBC Capital Markets Paul Lechem - CIBC Sean Steuart - TD Securities Steven Paget - FirstEnergy Ben Pham - BMO Capital Markets Matthew Akman - Scotiabank
Operator
Welcome to the Northland Power conference call to discuss the 2014 annual and fourth quarter results. [Operator Instructions] Conducting this call for Northland Power are John Brace, CEO; Sean Durfy, President and Chief Development Officer; Paul Bradley, Chief Financial Officer; and Adam Beaumont, Director of Finance.
Northland Power management has asked me to caution you that their summary of results and responses to your 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 the yesterday's news release announcing Northland Power's results and be guided by its content in making investment decisions or recommendations. The release is available at www.northlandpower.ca.
I will now turn the call over to John Brace. Please go ahead sir.
John Brace
Thank you very much, operator, and good afternoon, everyone. Thank you for joining us today, as we review the results from the full year 2014 and its fourth quarter.
I think we can all be proud of Northland's performance this past year. We achieved record annual sales and adjusted EBITDA.
And notably, we secured another offshore wind project and surpassed guidance expectations, due to the hard work and dedication of the entire Northland team. I will expand on these themes in a few moments.
In addition, I am also proud to let those of you who don't already know of two awards received by Northland and its staff. First, our own, Paul Bradley, was awarded Best Investor Relations Canada, by a CFO mid-cap, by IR Magazine, at their Annual Award Center in Toronto on February 4.
On the same day, our Gemini project was awarded Europe Power Deal of the Year by Projects Finance International at their Annual Awards in the United Kingdom. Paul will provide a more detailed report on our financial performance later in the call, but from a high level the numbers speak for themselves.
Our free cash flow increased by 27% and our adjusted EBITDA increased by 38% over 2013. And most notably, notwithstanding our equity raise in March to fund our Gemini project, our dividend payout ratio for the year was 95%, reflecting the value created over the last several years from our development projects.
And of course, true to our commitment, we continue to payout dividends of $1.08 per share per year. The cornerstone of our business, enabling these financial results, is our diverse portfolio of operating assets.
Currently totaling 21 and growing, our facilities ran safely and efficiently last year, with no loss time incidents. Our operating availability met our overall expectations, running consistently at 97%.
While ensuring that our operations ran reliably, we continue to increase our megawatts in operation through the successful completion of $300 million in construction projects. Our ground-mounted solar portfolio grew to 90 megawatts through the addition of three 10 megawatt projects.
Our 60 megawatt McLean's Mountain wind project located on Manitoulin Island in Ontario, of which Northland owns 50%, was completed on time and on budget in May of this year. This brings our total generating capacity up to 1,345 megawatts, which represents an increase of 33% over 2011.
Our operating portfolio was both sustainable and diverse, with a current mix of 70% thermal and 30% renewable through wind and solar. Of course, of our offshore wind projects will soon grow to become a significant portion of that mix.
Several large and exciting offshore wind projects in Europe have further extended Northland's growth pipeline. In May of last year, we completed the acquisition of a 60% controlling interest in Gemini, a 600 megawatt offshore wind project located off the coast of the Netherlands in the North Sea.
Gemini is now under construction. In September, we announced the acquisition of an 85% stake in three offshore wind projects in German waters called Nordsee One, Nordsee Two and Nordsee Three, totaling approximately 1,000 megawatts.
We are in the process of financing the 332 megawatt Nordsee One project now. With project financing for Gemini totaling approximately CAD3.2 billion was the largest project financing ever for an offshore wind project.
It has received significant attention, including the award for Project Finance International's Europe Power Deal of the Year that I mentioned a few minutes ago. Gemini has received other similar nominations for future events too.
In total, Northland completed four successful debt and equity financings and refinancing during the year, totaling approximately $4 billion, which added significantly to shareholder value. Sean will provide an update on our development activity shortly.
But, first, I'd like to share with you the progress of our construction projects, which remain active. As you know, we are working to complete the four remaining ground-mounted solar projects, 40 megawatts in total, under construction.
When completed this year, our portfolio of 13 Ontario projects will generate 130 megawatts. Consistent with our commitment to invest in our host communities, our First Nations neighbors, and for economic and approvals reasons, Northland will co-own these final four projects located in and around Cochrane, Ontario, with two local First Nations.
We will retain 62.5% ownership. As previously announced, in late December, Northland terminated the contractor for the project H.B.
White Canada Corp. for its default under the construction contract.
We quickly enlisted the help of Ganotec Inc., a Canadian subsidiary of Peter Kiewit Sons Co. Ltd.
to assist with the completion of the projects. You will recall that Kiewit is the same company that we used for the successful construction of Thorold and North Battleford.
And I can assure you that construction on the northern solar projects continues at high speed. Northland and Ganotec are in the process of estimating the cost to complete the work.
We do not expect the final cost of our overall 130 megawatt solar project portfolio to exceed $775 million, which is approximately 12% higher than the original estimate of $690 million. The difference is largely attributable to potential increases in the costs of these last four solar projects on the $246 million previously disclosed.
However, this is prior to any cost recovery through legal claims against White and its U.S. parent.
It's prior to the potential benefit of force majeure claims under the associated power purchase agreements and is prior to being able to fully explore cost mitigation strategies, while completing the projects. Although, the final returns for these four final projects cannot be estimated at this time.
I must stress that the whole 130 megawatt portfolio is expected to be Northland's project return requirements. The Gemini Project, currently in construction will also see significant progress in 2015 and continues overall on schedule.
The majority of the monopile foundations have been manufactured and majority of the several hundred kilometers of electrical cable is now fabricated, and construction of the offshore and onshore substations are well underway and horizontal underwater drilling for expert cable crossings is well advanced. As a side note, for anyone interested in learning more about the fascinating offshore construction process, I invite you to review our Annual Report, which will be issued early next week.
Included in the report, will be a detailed demonstration of the construction process. An important milestone in 2015 for Gemini will be the advent of full scale in-water construction in the summer.
A year from now, we can expect installed foundations, construction completed on the offshore and onshore substations, cables in place and the grid ready for energization. The turbine installations will commence in 2016 with full commercial operations beginning in 2017.
As I said a few moments ago, we are in active financing of the 332 megawatt Nordsee One wind project located in German waters. Sean will provide you with an update on this and the remainder of our development portfolio.
However, I'd first like to emphasize that while Northland plans on constructing over $6 billion in projects over the next three years, we will not compromise on operating our existing facilities safely and effectively. Our commitment to operational excellence across our organization underscores our ability to deliver stable cash flows.
Over to you, Sean.
Sean Durfy
Thanks, John. And as you heard from John's overview, we had a very busy year and we intend to maintain a strong pace in years to come.
Certainly, from a development perspective, 2014 was very productive. Our Grand Bend wind farm, which is 100 megawatts and is owned in a 50-50 partnership with two First Nations groups continues to advance, with permitting completed and financing to be secured within the first half of this year.
Construction on the project, which is located near the shores of Lake Huron in Southern Ontario, is expected to begin shortly thereafter and operations are anticipated to begin in the first half of 2016. Contributing to our ability to deliver long-term value, in September, we acquired the 85% stake in Nordsee, which includes three offshore wind development projects in Germany.
And one of which, 332 megawatt project Nordsee One, is currently in an advanced development stage. We expect to reach financial close on Nordsee One project in the first half of this year.
Construction is anticipated to begin later in this year and commercial operations are scheduled for the end of 2017. Working in partnership with the Germany facility RWE, the project is accompanied by two earlier stage opportunities, Nordsee Two and Three, and they total approximately 670 megawatts.
These projects will be developed over the next decade, as the offshore wind tariffs are extended and finalized as well as the grid infrastructure is made available in Germany. In addition to our growing offshore wind portfolio, Northland is also evaluating future growth prospects in market such as Latin America and Mexico, where our objective is to pursue projects that have acceptable risk profiles and produce appropriate project returns.
In United States, we are refocusing our development effort in selected regional areas. While our development focus has expanded significantly over the past couple of years, we remain committed to development growth in our own home market of Canada, if the opportunities are present.
Currently, there is relatively low demand for new supply in most provinces. We are also seeing increasing competition for our projects in regions such as Quebec, Ontario and Saskatchewan.
So with this increased competition, we are observing lower return requirements for the last several projects in which we compete. With that being said, we still see opportunity to provide unique solutions due to our thermal power development capabilities in provinces that are now faced with regional and peaking power needs.
We will actively advance these known opportunities that meet our return criteria. Building on what John said earlier, I think it's important to note that while Northland has two large offshore projects in construction in late development phases along with the expanded development focus, we will remain committed to measured growth.
We will continue to focus on specific technologies, including natural gas, wind and large solar to remain or become best-in-class in our sector from all aspects of the organization. And we will continue to strike the right balance of achieving both entrepreneurial growth and long-term sustainability.
On that note, I will turn over the call to Paul to provide more details on our financial results.
Paul Bradley
Thank you, Sean. And I'd like to extend my thanks to everyone for joining today.
Last night, Northland Power released its 2014 annual and fourth quarter results and unaudited summary of financial statements. Please note that within five business days from today, we expect to file an SEDAR our full 2014 Annual Report, which will contain our audited financial statements and management discussion and analysis.
Many details behind the summary financial statements released yesterday will be filled in once the full set of documents is available. As John mentioned, Northland's operating planned performance exceeded our expectations and our financial results also exceeded management's forecasted EBITDA guidance for 2014.
For 2014 year ended, Northland produced $363 million of adjusted EBITDA, which increased by 38% from 2013. Northland generated free cash flow of $165 million, an increase of 27% from $130 million in 2013.
A number of key factors contributed to this increased adjusted EBITDA, including: first, additional contributions of North Battleford and the operation of McLean's and the ground-mounted solar projects that were non-operational for the full year last year. Second, an increase in adjusted EBITDA from Northland's other facilities, including one-time dividends from Panda-Brandywine related to the end of the power purchase agreement buyout and interest earned on McLean's equity partner loan and the Gemini subordinated loan, which were not in place in the prior year.
And lastly, an increase in performance and management fees from Kirkland Lake and Cochrane, primarily due to achieving certain conditions, which entitle Northland to share in the Cochrane cash flows after all operating and financing expenses. This net increase in EBITDA was partially offset by the write-off of deferred development costs as well increased corporate, management and administration costs incurred to add the necessary resources to effectively manage Northland's growth.
Northland's free cash flow for the year increased by $35 million from that of 2013, due to the higher adjusted EBITDA. This was partially offset by new scheduled debt repayments and/or interest repayments from the addition of North Battleford and Ground-mounted Solar Phase I and Phase II facilities and Northland's corporate term loan.
There are few other small items, which will be enumerated in the Annual Report. Our dividend payout ratio for the year was 95% versus 101% in 2013 on a total dividend basis.
Including the effect of dividends reinvested through Northland's DRIP program, the cash dividend payout was 70% compared to 76% in 2013. This improving trend in the declining payout ratio is notable particularly, because we raised equity capital in March of last year to fund our Gemini project and we will not see the free cash flow from that until 2017.
The decrease to payout ratio reflects Northland's favorable execution of its development and construction program over the last several years. The GAAP net loss of $177 million exceeded the prior year, primarily as a result of the consolidated fair value accounting loss and interest rates swaps at the Gemini facility.
This net loss does not reflect economic substance of the project, because the interest rate swap actually provides the benefit by hedging the interest expense of Gemini. Northland's business practices to hedge against interest rate and foreign exchange exposures were material.
However, for accounting, the changes in market rates that give rise to non-cash fair value adjustments each quarter that flow through net income. These fair value adjustments are non-cash items that will reverse over time and have no impact on the cash obligations of Northland or its projects.
Turning to the fourth quarter results. Adjusted EBITDA increased by 12% from the same quarter in the prior year reflecting; first, additional contributions from the inclusion of McLean's wind project and three additional ground-mounted solar facilities.
Second, higher performance and management fees from Kirkland Lake and Cochrane as previously described. Third, the investment income earned on the Gemini subordinated debt, which is not in place in the prior year.
This net increase in adjusted EBITDA in the fourth quarter was partially offset by inclusion of 2014 interest expense from McLean's and the additional ground-mounted solar facilities, as well as increased corporate, management and administration costs. Free cash flow for the fourth quarter was 8% higher than the previous fourth quarter in 2013.
The free cash net increase was primarily a result of an increase in adjusted EBITDA from the factors just described, and a reduction in funds previously set aside for major maintenance. Offsetting factors of the net increase included the current year inclusion of interest expense from McLean's and Ground-mounted Solar Phase II facilities and on the corporate term loan.
Our dividend payout ratio for the quarter was 98% on a total dividend basis. Including the effect of dividends reinvested through Northland's DRIP program, the cash dividend payout ratio was 71%.
Net loss of $70 million for the quarter reconciled to our adjusted EBITDA by a number of non-cash adjustments that will be detailed in our MD&A, but primarily the fair value accounting loss on interest rate swaps at the Gemini project, as previously described. Northland's financing activities exceeded the pace set last year.
We executed debt and equity financings and refinancings totaled approximately CAD4 billion. The largest one being CAD3.2 billion project financing for Gemini represents the largest project financing for an offshore wind project to date.
In addition, we raised $286 million in public offerings and a private placement to fund project Gemini. Other successful financings include a $232 million bond refinancing for the first six ground-mounted solar projects and $240 million of non-recourse project financing in the last five ground-mounted solar projects.
More recently, we have been working towards project financing, the Nordsee One offshore wind project and we expect that financing to close for first half of this year. We have continued our active financing activities into 2015.
Last month, we achieved approximately $158 million in corporate convertible debentures. As always, management's objective is to minimize the amount of diluted equity raised, while prudently maintaining healthy credit metrics.
I will now comment on our financial outlook for 2015. As previously guided, Northland continues to expect to generate adjusted EBITDA of approximately $380 million to $400 million in 2015.
For our payout ratio in 2015, we expect the ratio to be in the range of 100% to 115% of free cash flow on a total dividend basis compared to 95% in 2014. The increase in payout ratio, among other things, reflects an expected share capital raised in the first half of this year to fund in Nordsee One and Grand Bend projects.
Northland's payout ratio on a total dividend basis is expected to exceed 100% until Gemini and Nordsee are completed in 2017. We expect our cash dividend payout ratio to be below 100%, due to the dividend reinvestment program.
We are confident that our financial liquidity remains healthy and we can comfortably pay our cash dividends and other obligations for the foreseeable future. And with that, I will turn the call back to John for concluding remarks before the question period.
John Brace
Thank you, Paul. In summary, Northland has once again achieved what we set out to do.
The year 2014 was positive from our financial, operational and growth perspectives. We believe that we are well-positioned to become a world-class power company, as we continue to expand our business, while upholding our track record of delivering excellence on each and every project and facility.
Our progress is possible, only because of the strong team behind us, which includes our Board of Directors, our staff, our partners and suppliers, and of course, each of our investors. I'd like to take this opportunity to thank you for your continued support.
In return, we remained driven each and everyday by our commitment to build sustainable value, you can count on today, and over the long-term, and to continuing to deliver dividend of $1.08 per share. We believe we have the team, expertise and strategies in place for 2015 to once again exceed your expectations and we look forward to the challenges and opportunities ahead.
That concludes our formal remarks. We would be please to take your questions at this time.
Operator, if you can please handle that.
Operator
[Operator Instructions] Our first question comes from the line of Nelson Ng with RBC Capital Markets.
Nelson Ng
I'll just start off with a few questions on solar. In terms of the First Nations purchase price for the solar project, does that depend on the final construction costs or are they not taking any construction price exposure?
Sean Durfy
The First Nations, as they're buying in once the projects are complete. I mean, purchase prices are established based on the cash flow, so they are not taking construction risk.
Nelson Ng
And then just on the Phase III projects. I think if I am doing my math right, it implies that the Phase III projects the maximum cost over-run is in the kind of 35% to 40% range before any claims.
I was just wondering whether you can provide some color in terms of how you came up with the upper range of the cost.
Sean Durfy
As mentioned, we and Ganotec are working through estimates at this point in time. And so it's driven by the knowledge we've gained so far on that activity.
There is still some work to go. And as I alluded to in my discussions, you can bet, we're going to exercise everything we can possibly exercise to make that as small as possible.
And then exercise everything we can through the legal processes against White and hopefully through our contract with the OPA.
Nelson Ng
And what's the liability, and the number that are EPC contract?
John Brace
I don't know that we've been public with that kind of information, but typically in the industry there are liabilities, there is face value of the contract. Nelson, I kind have to check that to make sure I'm not wrong what I just stated.
Nelson Ng
And then just kind of moving on, in terms of Gemini, I think you gave a quick update on construction activities to date. Is it too early to tell whether are the projects progressing on schedule and within budget?
John Brace
No, it's not too early to tell. Within budget, yes, absolutely.
On schedule, it's early days in the project. It's mostly so far manufacturing activities.
There's some pluses and minuses in that, but nothing that's ringing the alarm bells at this point in time. I think, as I said, overall the projects are on schedule.
And certainly in conversations with Van Oord, who really carries the construction and procurement risk in the project aside from Siemens they have no worries whatsoever.
Nelson Ng
And then my last question is for Sean. In terms of your approach to Latin America and Mexico, I guess can you provide additional color on whether you look to answering to your JV or would you do it alone?
And then also in terms of the types of projects, would it be just renewable or would you also consider [indiscernible] projects?
Sean Durfy
I mean, still very, very early stages. We have a person on the ground in Mexico who is looking at opportunities.
But what I can say is we will assess the risk and make sure that we understand the environment that we're getting into. So when you talk about JVs, mostly the ones that we are looking at are with potential partners.
And we are looking at projects that are either combined-cycle gas or cogen opportunities, so most of the ones we're looking at right now are thermal, and they all have a reputable off-take arrangement. We'd only get involve if that was the case.
So, again this is early stages in Mexico and Latin America. And we want to make sure that folks understand that we really take the time to understand the risk and what the offside of that risk looks like.
So it doesn't put any stress on the organization.
Operator
And our next question comes from the line of Paul Lechem with CIBC.
Paul Lechem
Wondering if you can give us some color around what are the steps to get Nordsee financing close. Is there any sort of updates you can give us on the things that need to happen between now and then?
Adam Beaumont
Sure, I can take that, and then Paul or John, want to jump in after. What we've done is, well, since September, we launched our meetings with the banks, the lenders.
And since that time, we put together a club of banks. The club of banks is roughly 10 banks with no multilaterals.
Then what happens is we give the information, such as all the five contract information, we get the independent engineering report, we get the lenders or the certain legal reports, all in place and in a due diligence room for the lenders in the lenders council. And they go through all of that information.
At the same time as they're going through that due diligence, we're also negotiating several agreements with the lenders. Agreements would be anything from the common terms of facilities agreement, credit facilities, credit agreement in other words and we go through different iterations of negotiating those things.
And then by mid-year, we hope to have all this put to bed and have the financing in place. What I can say is the process has been very seamless so far.
It's been single tranche in terms of the type of financing we're looking at, because we don't have multilaterals involved. And it's been very good.
So we expect the financing to be on time. Want to hit, Paul?
Paul Bradley
No. You've covered that nothing further to add.
Paul Lechem
So should we expect you to release information on the construction contracts also by the time of close, is that in place now or are those still under negotiation?
Sean Durfy
We have all of our contracts are signed and those are contracts, between ourselves as owner or anyone as the owner and lenders. So they won't be released publicly.
They won't be in public documents, but those have all been signed and negotiated by the N1 team with Northland intimately involved and they also are looked at by both the legal council for the lenders and also by the independent engineers. And that report is consolidated to make sure that it is financeable.
John Brace
Everything is financeable.
Sean Durfy
You will see in our prospective supplement, we've outlined what contracts we have and kind of the general nature of them. And of course, we are closer to finalization, then we'll provide more.
John Brace
Just to make sure there is no confusion. Sean use the word lenders only referred to the counter parties in the contracts, that's been [indiscernible] obviously meant the equipment supply and construction contracts.
Paul Lechem
So one financial close that you will release the names and the details of those contracts at that point, is that right?
Sean Durfy
Generally, at financial close that will become well-known to the market, whether we will put a press release out probably not at that point, but it will be well known at that point in time.
Paul Lechem
Just one final question on a different topic. The discussions with the OPA, it seems that you mentioned that they've been suspended around the re-contracting of Cochrane and Kirkland.
Can you give us some sense of what's going on there and how to resolve that?
Sean Durfy
We continue to discuss with them. Our contracts are little bit different than the mills, particularly Kirkland Lake, because the counterparty is actually OEFC, not the OPA or the ISO, now.
And we're really just re-negotiating a price for part of the production out of Kirkland Lake. So there is activity continuing on that.
On the Cochrane front, we have received an extension, as I believe, we have announced and we were talking about what that extension means in the context of the broader moratorium, as it were that the government established for ISO activities in this area. So we are working our way through that.
Paul Bradley
And just a bit more color. This is an industry wide thing.
The Ontario government is looking at some various procurement options such as supply from Quebec. They're looking at the nuclear program.
The ISO is looking at putting in a capacity market. There is a number of initiatives that are in play.
And because the [ph] nubs are, what we call are nub contracts that's our Kirkland and Cochrane, Iroquois Falls, Kingston and other folks, they're the only facilities in the market that are currently un-contracted. So if they are going to do any checking with the market, those kind of plants are very critical to setting up whatever function they want to set up.
So the government asks the ISO to suspend negotiations on the same terms and conditions as the old contracts until they figure out what they want to do with some of these items. We have been given an estimate of luckily six months on that and noting that our contract extension is for four, so we'll definitely have some conversations about the Cochrane facility within the next several months, but its kind of one of those evolving through it Cardinal, with our friends at Capstones, so we know its kind of just wait and see game and typically comes right down at the wire.
John Brace
Again, just to clarify something, you said, Paul, Cochrane, Kirkland, Iroquois, Kingston are contracted right now, you're talking about the period of time when their contracts might get out.
Paul Bradley
Yes. They are the ones that have been outsetter in the market place eventually.
Operator
The next question comes from the line of Sean Steuart with TD Securities.
Sean Steuart
Lot of my questions have been asked and answered. One point clarification, Paul, in the news release it refers to $36 million in proceeds from the sale of the solar stake in Frampton going towards 2015 free cash.
And I think in your January update, you referenced $46 million for solar and another $12 million for Frampton. Is the difference there just tax?
Is there anything else in there that we need to be thinking about?
Paul Bradley
Having cost basis. So free cash flow would only take in that profit that investors would otherwise have distributed to them.
So we announced the gross headline sales numbers previously and the free cash flow number $36 million takes a net-to-net on a cost basis.
Operator
Our next question comes from the line of Steven Paget with FirstEnergy.
Steven Paget
What are you seeing for your capital expenditure budget in 2015?
Paul Bradley
Steve, as you're aware, most of our capital expenditures for our operating plans are covered either through long-term agreements with the OEMs, in another words we pay sort of, I would call it, like a fixed or floating swap. So we paid them a fix amount and they keep the equipment maintained.
Generally, if we don't have that for something like our thermal plants, quite often we'll have a sinking fund that we called a major maintenance reserve account, lot of times that's dictated by the lenders. So really not a lot of huge capital expenditures, but we do from time-to-time, have to put a little bit of money on extended outage if we have some equipment that needs to replace, it's a bit more lumpy.
But we don't see any major CapEx going into our projects this year that wouldn't be smoothed out through the LTAs or the other similar type of mechanisms that we have.
Steven Paget
And could you address your growth capital expenditure budget as well?
John Brace
Well, Sean, why don't you take that one?
Sean Durfy
Sorry, the growth capital expenditure budget for 2015?
Steven Paget
That might include Grand Bend, Gemini and Nordsee.
Sean Durfy
How about we talk about we can talk about that one offline.
John Brace
I mean are you referring to how much you're putting in or are you referring to what's your plan for growth?
Sean Durfy
Just development cost or what are you looking for?
Steven Paget
I suppose what will be come off the cash flow from investing?
Sean Durfy
Well, typically we invest through raises of capital or credit lines or through free cash flow coming off. So our outbound investments, which are very well documented in our materials, and the cash is fundable doesn't necessarily come from one or the other, it comes from kind of the next up in line from credit, equity raises, debt raises, free cash flow.
So I mean maybe it' something that Adam can work with you offline on, but it's not like we decide how much we want to pour in from our free cash flow and then sell for dividend or something like that.
Adam Beaumont
Steven, I think, again what you're getting at, we can probably cover that, I don't have the numbers right in front of me, but I can give you a call after this.
Steven Paget
Are you looking at bidding on the 300 megawatt opportunity in Saskatchewan?
Sean Durfy
It's on the radar screen for sure.
Steven Paget
You've talked about competitive environment, and these bidders that apparently have low cost of capital, who are these bidders that can accept lower returns.
Sean Durfy
You saw in the last round with the Quebec wind RFP, what the going rate was on the PPA that was awarded. So you just back out the math and you look at what the type of returns would look like.
And for our company that's not an acceptable return. So we have to look at different projects in different parts of the world.
So who are they? Well, as I can see, when you topped at the last round there.
So I think from our perspective, we're going to go where the returns are acceptable for us and the risks are within our threshold.
Paul Bradley
And I'll just add, we know there is a lot of money that is out there looking to get placed, generally in the economy. We see pension funds that are funding developers, that are funding construction projects.
We see a lot of these U.S. Yieldcos that are enjoying cost of capital.
It's very interesting compared to our market and they're able to underbid for the time being. And you see some players from offshore and they're new to the business, have different return requirements, so they have different ways to make money, because they're vertically integrated.
It's pretty much all of the above. This has become somewhat a crowded space, particularly in North America, particularly when you get into the 20-year PPA world.
Steven Paget
Is it possible that Northland might look at some sort of shared issue that ran out payouts contingents on the completion of projects like Nordsee or Gemini?
John Brace
I would say, at the time being, we don't have any such plans or notion, Steve.
Operator
Our next one comes from the line of Ben Pham with BMO Capital Markets.
Ben Pham
I just wanted to go back to the question on payout and the asset sale proceeds. And presumably those asset sales, as we look to '16, as if that's going to go away, so it will be a negative delta, as we head towards '16.
And then when you look at the '16 and growth, I mean that's really just Grand Bend coming in second half of the year. And when I did a quick math, and maybe correct me if I'm wrong, I mean, it looks like your payout get towards 140% or am I missing something, and as it head towards '16?
Paul Bradley
Well, we've given the guidance for '15. We've not yet given it for '16.
'16 could be impacted positively by a number of other factors that we have out there. So I don't really want to put out the guidance for 2016 at this point in time on payout ratio.
Ben Pham
So there's nothing material on the positive delta that seems quite impact today, Paul, as of than that '16?
Paul Bradley
We haven't commented on 2016 at this point.
Ben Pham
And just sticking with the payouts, how you guys think about your payout longer-term, just with your contracts on average basis, probably dropping down versus how you've been historically and yet incremental FX risk and international risk. I mean what's the right payout for you guys in terms of retaining some cash to grow, but also returning some capital to shareholders?
Paul Bradley
As we all know well, it's a balancing act. And if you kind of took this business with a blank sheet of paper, you'd say that if you were in a high capital growth mode, you'd be using all your internal cash first and then raising capital from the markets.
But we are in opposing contrast world here, and we're kind approaching the world from the opposite. So over the long-term, we have to find that happy balance between giving dividend increases and using a responsible amount of our internally generated cash for our growth initiatives.
So where does that come out? I think when we look at the time period, when that becomes an issue for us, which is probably some time -- if I think about the full year, it will be probably the full year of 2018, once you've got Nordsee and Gemini onboard.
And we'll look at market conditions at that point and see where is that happy balance to be have. Obviously, if we kept paying out the rates we've been paying out, then one thing we do is, we probably will have some significant dividend increases.
However, we'd still be pointing back to the market to raise capital every time we have large project. So it's kind of one of these optimization exercises in between now and 2018.
I'm sure the market will change a couple of times, as it has over the last several years. So all we can commit to is, we'll keep our eye on ball and see what where the happy blend is for investors.
John Brace
I think within what Paul said, it's apparent that when Gemini and Nordsee come into operation, we're in a much different financial situation than we are in right now.
Operator
Your next question comes from the line of with Matthew Akman with Scotiabank.
Matthew Akman
Unfortunately, John, I missed the first few minutes of your comments. I think you were saying some things about the Phase III Ground-mounted Solar Projects, and I just wanted to make sure I understand the dynamic there.
Obviously, there is some cost overrun, but from a financing standpoint, you guys haven't put the project financing on these facilities yet, is that right?
Paul Bradley
We have.
Matthew Akman
Are those are the ones that you just financed? Okay.
So is there any more project finance you can put on them, given the cost overrun or is it all going to be equity?
Paul Bradley
It's probably more the latter, Matthew, to the extent that we have cost overruns on those. So as John had mentioned, there's going to be some time before we know what that is, because we've got remedies and we've got other mitigants out there.
But we try to do is throughout the number that kind of gives everybody a sense that nothing goes our way going forward, that's going to be where we end up. In a perfect world, the contractor finishes the project, we unfortunately aren't going to get with White.
In the second perfect world, we will recover all of our losses from the contractor, and you can bet that Northland will be pursuing those. And then there are some other tools and tricks that we can to manage that.
But we don't see, for example, having to go-to-market at this time to raise actually money for that. That will happen to play itself out over the course of time.
Matthew Akman
One thing I wanted to ask is, wondering if the assets that you guys announced, are selling part of the equity interest in.
Sean Durfy
Yes. That's correct.
The closing of that sale in essence is when that purchase go commercial. So this is all irrelevant as far as the purchaser is concerned.
Matthew Akman
In that deal though, do they share in the -- I mean they've bought a portion of the equity in that deal, do they got a preferred return or is their return going to get crammed down with you guys.
Sean Durfy
No. They're buying post-COD cash flows.
They are not involved in the construction of the project.
Matthew Akman
So their equity return is held harmless by any cost overruns, is that right?
Sean Durfy
Yes. And that was carefully thought about consideration, when we were talking to the two First Nations.
And for many reasons we did not want them to be involved in the construction of the projects. When you gather the more partners you have, the more decision making becomes an issue, and depending upon the financial resources of your partners that can bring in other dynamics as well.
So we felt, and I still strongly feel, that having them as partners where their interest is post-COD, is the right place to be.
Operator
I'm actually showing no further questions. End of Q&A
John Brace
Thank you, everyone, for joining us today. We will hold our next call following the release of our first quarter results in May.
And obviously, as usual, if further questions come to mind, please do not hesitate to contact us.
Operator
Ladies and gentlemen, that does conclude the conference call for today. Thank you for participation.
And I ask that you please disconnect your line.