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INTELLIGENT ENERGY, SUSTAINABLE GROWTH: The Northland Timeline

MEETING THE
GLOBAL DEMAND FOR
INTELLIGENT ENERGY

Northland Power is an independent power producer. We develop, build, own and operate sustainable infrastructure assets that produce electricity from clean-burning natural gas and renewable resources such as wind, solar and biomass. Our goal is to be a leading supplier of clean, green energy while providing a sustainable and prosperous future for all stakeholders. We aim to increase shareholder value by creating high‑quality projects underpinned by revenue contracts that deliver predictable cash flows.

Table of Contents
2 Letter to Shareholders
9 Management’s Discussion and Analysis
42 Management’s Responsibility
43 Independent Auditors’ Report
46 Consolidated Balance Sheets
47 Consolidated Statements of Income (Loss)
48 Consolidated Statements of Comprehensive Income (Loss)
49 Consolidated Statements of Changes in Equity
51 Consolidated Statements of Cash Flows
52 Notes to the Consolidated Financial Statements
IBC Corporate Information
In 2018, we advanced our development of the awarded Hai Long offshore wind farms in Taiwan, a partnership which represents over 1,044 MW in power generation (626 MW net to Northland). In total, we operate 26 power generation facilities, including two offshore and four on-shore wind farms, six thermal facilities, and 14 solar facilities—representing $8 billion in power generation assets.
NORTHLAND POWER INC.
2018 ANNUAL REPORT
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Letter to Shareholders

Meeting the Global Demand for Intelligent Energy

In 2018, Northland continued expanding to meet the growing global demand for clean, green energy. We now have two offshore wind farms operating in the North Sea, with a third nearing completion. In addition, we secured 1,044 MW of offshore wind generation development projects in Taiwan. Approximately 60 percent of our power production in 2018 was derived from renewable sources, with the largest being offshore wind.

At a time when governments and power authorities around the world are looking to renewable solutions, we have successfully positioned ourselves as a key supplier. We have demonstrated our ability to deliver major projects on time and on budget, and to operate them efficiently and profitably. Our successful bids in Taiwan have shown that we can compete among the world’s largest renewable energy companies.

All 31 monopiles, were safely installed on schedule at our third offshore wind farm, Deutsche Bucht.

Financially, 2018 was a very good year, which unfolded largely as planned. At $891 million, total adjusted EBITDA exceeded that of 2017 by 17%. Our free cash flow per share also saw significant growth – at $1.90, an increase of 30% from 2017. The biggest change was that our Nordsee One project—which was completed in late 2017— contributed a full year’s income to Northland. Beyond the addition of Nordsee One, a number of smaller events contributed to the year’s results.

In 2018, wind conditions in the North Sea were below average, which noticeably impacted the revenue from our offshore wind projects. Due to the breadth and diversity of our asset portfolio, combined with the success of various optimization strategies we undertook, we were able to meet our financial guidance. Looking forward, our asset diversity will only increase, as our Hai Long projects come online in 2025 and our development initiatives take us into expanded technologies and geographies.

Northland’s finance group undertook a number of initiatives in 2018 to further strengthen our balance sheet. These included: renewing the corporation’s base shelf prospectus; entering into a $1.25 billion corporate credit facility with a syndicate of banks; holding a successful Investor Day in September; redeeming our 5.0% Series B convertible debentures; modifying the Dividend Reinvestment Plan and, instituting a Normal Course Issuer Bid.

Europe: project advancement and operational optimization

In September 2018, in-water construction officially commenced on our Deutsche Bucht offshore wind farm. By early January 2019, all 31 steel monopile foundations were in place. Fabrication continues on two additional foundations that employ a different technology, known as mono bucket foundations. Mono bucket foundations use suction to adhere to the ocean floor. This reduces underwater construction noise and its effects on marine life. Deutsche Bucht is the first offshore wind farm to employ mono bucket foundations under commercial operating conditions. Completion of construction activities at Deutsche Bucht is expected by the end of 2019, adding 269 MW of offshore wind power to our portfolio.

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NORTHLAND POWER INC.
2018 ANNUAL REPORT
The foundations for Deutsche Bucht were successfully installed at depths of approximately 40 metres.
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Northland’s Asset
Diversification

  • Thermal
  • Wind
  • Wind Under Construction & Advanced Development
  • Solar
Technology: Operating1 Construction1
Thermal 973 MW
Wind 1,326 MW 269 MW
Solar 130 MW
Total (Gross) 2,429 MW 269 MW
Total (Net)2 2,014 MW 269 MW
1. As of December 31, 2018
2. Represents Northland’s economic interest
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2018 ANNUAL REPORT
2018 was the first full year of operation for our two offshore wind farms in Europe. Deutsche Bucht, our third European offshore wind farm, has advanced to construction. Completion is expected by the end of 2019.
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2018 ANNUAL REPORT
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The transition pieces for Deutsche Bucht – each weighing 335 metric tons – were transported by heavy lift vessel BigLift from the production site in Avilés, Spain to the port of Cuxhaven in Germany.
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NORTHLAND POWER INC.
2018 ANNUAL REPORT

Letter to Shareholders (cont’d)

To increase the long-term value we receive from our operating assets, we established a European division with an office in the UK and two offices in Germany. This division will initially function as a centre for operations and management of our Deutsche Bucht and Nordsee One offshore wind farms. By taking over the management of many ongoing functions that were previously outsourced, we expect to significantly improve our margins and knowledge base.

Asia: Hai Long and beyond

2018’s most significant news was the awarding of three grid capacity allocations for the Hai Long offshore wind project in Taiwan. When fully developed, this project will represent a total of 1,044 MW of power generation of which we have a 60% interest, representing 626 MW net to Northland. Advanced development work is currently underway, and the project is expected to begin initial commercial operations in 2025. In 2019, we plan to secure Power Purchase Agreements and move forward with procurement and supply chain strategies.

We see tremendous potential in Asia, where power producers are shifting away from nuclear and carbon-based energy. We continue to make progress in establishing a presence in the region. We have a Memorandum of Understanding in place with a power plant design and engineering company in South Korea, and market development initiatives are proceeding in Korea and Japan, with the Taiwan project as our anchor.

Canada and the Americas:
optimizing operations and improving returns


The installation vessel transported three monopiles and transition pieces per trip from the port of Cuxhaven to Deutsche Bucht’s offshore site in the German Economic Exclusive Zone.

Coal power generation is on the decline throughout North and Latin America. Our development office in Houston, Texas is actively exploring energy investment opportunities in Latin America and has an established presence, with a development pipeline in Mexico in the works. We are also exploring alternative investment opportunities beyond power generation, such as energy infrastructure and transmission. As always, our objectives are to balance growth with stability, by creating high-quality projects underpinned by revenue contracts that deliver predictable cash flows, while carefully managing and mitigating risks.

In our Canadian operations, a number of initiatives created value. At our North Battleford thermal facility, we secured a new agreement with SaskPower for increased capacity. As several of our assets approach the end of their Power Purchase Agreements in the coming years, we are pursuing new revenue streams for them. To increase the returns we receive on our operating assets, we expanded our Energy Marketing Group, further enhancing our capabilities for natural gas marketing, transportation and storage for our thermal plants. We expect that insourcing these functions will improve our margins on these types of transactions.

Stable, disciplined management, well positioned for growth

As Northland grows and diversifies its asset mix and geographic footprint, our management team remains disciplined and focused. We are well funded, with access to capital to support our initiatives. Our balance sheet and financial results continue to be strong. Our total shareholder returns are among the best in our sector, and we are well positioned to achieve measured, steady growth throughout the next decade and beyond.

As we increase in size and global scope, we take on new risks and challenges. In response, we established a more formal enterprise risk-management program. The new program provides a higher level of consistency and a documented framework for evaluating and mitigating the risk exposures of operations, development and construction.

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2018 ANNUAL REPORT
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Letter to Shareholders (cont’d)

A smooth transition to a new CEO

The year also brought about some changes in executive management. After 30 years with Northland, John Brace proudly retired as Chief Executive Officer. Under John’s leadership, the company grew to a market capitalization of over $4 billion. John remains committed to Northland’s success: he was appointed to our Board of Directors and has been working with our new CEO, Mike Crawley, to ensure a smooth and seamless transition. Mike, who was previously our Executive Vice President of Development, has been with Northland since 2015. He led the Deutsche Bucht project development team to success and was key in winning the Hai Long grid capacity allocations.


Building sustainable long-term, global growth

Looking ahead, Northland is in the strongest position in our corporate history. We have positioned ourselves at the forefront of the global move to greener energy. We are about to bring our third European offshore wind farm into operation. We have embarked on the multi-year development of the Hai Long project in Taiwan, and we have expanded our regional market development hubs, moving them closer to their respective markets. We are bringing more of our asset management in-house and seeing a marked improvement in returns.

As we close one year and begin another, we must thank the people who work at Northland for their dedication to developing and producing intelligent energy solutions. We give a special acknowledgement to the team who worked long and hard to secure opportunities in Asia, which will be transformative to our future. And we extend a personal note of thanks to John Brace for his strength, leadership and vision that brought Northland to where it is today. Lastly, we thank our shareholders for their continued support of Northland and our growth objectives.

James C. Temerty, C.M.
Director and Chairman of the Board
Mike Crawley
President and Chief Executive Officer
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Corporate Information

  • DIRECTORS AND EXECUTIVE OFFICERS OF NORTHLAND POWER INC.

    DIRECTORS

    Mr. James C. Temerty (Chair)
    The Right Honourable
       John N. Turner
    Ms. Linda L. Bertoldi
    Dr. Marie Bountrogianni
    Mr. John W. Brace
    Mr. Barry Gilmour
    Mr. Russell Goodman

    EXECUTIVE OFFICERS

    Mr. Mike Crawley
    President and Chief Executive Officer

    Mr. Paul J. Bradley
    Chief Financial Officer

    Mr. Troy Patton
    Chief Operations Officer

    Mr. Morten Melin
    Executive Vice President, Construction

    Mr. Michael D. Shadbolt
    Vice President and General Counsel

    Ms. Linda L. Bertoldi
    Secretary

  • GENERAL
    INFORMATION

    REGISTRAR AND
    TRANSFER AGENT

    Computershare Trust Company of Canada
    100 University Avenue
    Toronto, Ontario, Canada
    M5J 2Y1
    Attention: Equity Services

    COMMON SHARES,
    DEBENTURES AND
    PREFERRED SHARES

    Northland’s common shares and Series C convertible unsecured subordinated debentures and Series 1, Series 2 and Series 3 preferred shares are listed on the Toronto Stock Exchange and trade under the symbols NPI, NPI.DB.C, NPI.PR.A, NPI.PR.B and NPI.PR.C, respectively.

    DIVIDEND REINVESTMENT
    PLAN (DRIP)

    The DRIP provides common shareholders and the Class A shareholder the opportunity to elect to reinvest their dividends in common shares of Northland.

    TAX CONSIDERATIONS

    Northland’s common shares, preferred shares and convertible unsecured subordinated debentures are qualified investments for RRSPs and DPSPs under the Income Tax Act (Canada).
  • CONTACT
    INFORMATION

    INVESTOR RELATIONS

    Mr. Wassem Khalil
    Senior Director,
    Investor Relations and Strategy
    647-288-1019

    NORTHLAND POWER

    416-962-6262

    investorrelations@northlandpower.com

    northlandpower.com

    30 St. Clair Avenue West
    12th floor
    Toronto, Ontario, Canada
    M4V 3A1

Our Vision:

To be a top clean and green developer, constructor, owner, and operator of sustainable infrastructure assets, inspiring our people to achieve a sustainable and prosperous future for all stakeholders.
30 St. Clair Avenue West
12th Floor
Toronto, Ontario, Canada
M4V 3A1