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    Northland and Orlen Announce Project Financing of USD5.2 Billion for Baltic Power Offshore Wind Plant in Poland


    September 20, 2023 - Marketline - Deals

     

      Deal In Brief

      Northland Power Inc along with its partner, Orlen S.A. (“Orlen”), announced that its Baltic Power offshore wind project (“Baltic Power” or the “project”) in Poland has signed a credit agreement to secure an equivalent of $5.2 billion of non-recourse green financing that adheres to Northland’s green financing framework covering construction and a 20-year term. The total installed capacity of the plant will be 1,140 MW

      The non-recourse project financing will be provided by 25 international and local commercial banks, and multiple Export Credit Agencies and multi-lateral agencies including the European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), Euler Hermes (Allianz Trade), Export and Investment Fund of Denmark, and Export Development Canada

      The project is expected to reach financial close in the coming days, upon satisfaction of all relevant conditions precedent to the financing being achieved

      “Today’s announcement is a major achievement for Northland, our partners and the Baltic Power project,” said Mike Crawley, President and Chief Executive Officer of Northland. “This milestone demonstrates the support from the global financial community and reflects their confidence in Northland and our ability to develop, procure, construct and finance large and complex offshore wind projects. Despite the recent challenges for the offshore wind sector in some markets, Northland continues to find a way to advance large-scale offshore wind projects with attractive economics.” “This financing is Northland’s first offshore wind project in Poland,” said Pauline Alimchandani, Northland’s Chief Financial Officer. “We would like to thank all stakeholders for working together to achieve this significant milestone. Once operational, Baltic Power will be Northland’s fourth offshore wind project in Europe and will provide significant high quality, inflation-protected, long-term contracted Adjusted EBITDA and Free Cash Flow to our business and shareholders.” Northland has been co-developing Baltic Power with Orlen, since acquiring a 49 per cent equity stake in the project in 2021. The project financing amount of $5.2 billion represents 80 per cent of Baltic Power’s $6.5 billion projected total capital cost (inclusive of contingencies). The remaining capital will be contributed by the project partners at financial close and has already been secured. Northland’s share of equity for the project was fully secured through the green hybrid bond issuance in June 2023 and existing corporate liquidity. Northland’s interest in Baltic Power is expected to generate a five-year average Adjusted EBITDA (a non-IFRS measure)1 of approximately $300 to $320 million and $95 to $105 million of Free Cash Flow (a non-IFRS measure)1 per year once operational, delivering significant long-term cash flow for the Company’s shareholders

      The project’s 25-year CfD offtake agreement is Euro-pegged and includes an inflation indexation feature commencing with a base year of 2021, providing offsetting benefits to the higher inflationary price pressures recently experienced. Further optimization opportunities will be pursued during and after the construction period, which include: future optimizations the long tenor CfD offers, operating cost improvements and construction execution efficiencies. The project has secured a 15-year operations and maintenance agreement with the turbine supplier, with options to extend

      The project is located in the Baltic Sea, approximately 22 kilometres off the Polish coast near Plaza Wydmy Lubiatowskie and has obtained all environmental approvals and major construction permits. Construction activities have commenced, with fabrication of certain key components underway. Full commercial operations are expected in the latter half of 2026. Once operational, Baltic Power will be amongst the largest offshore wind projects globally. It is expected to provide clean energy to over 1.5 million Polish households and will play an important role in helping Poland achieve its renewable energy targets where installed capacity of offshore wind energy is expected to reach up to 11 GW by 2040

      Baltic Power has entered into interest rate hedges that cover the full loan amortization period and provide an effective all-in interest rate of approximately 5 per cent. In addition, Northland has entered into currency hedges to stabilize the Canadian dollar equivalent for the majority of its projected distributions through 2038 and will enter into additional hedges on an ongoing basis, in line with the Company’s risk management strategy. Baltic Power’s major supply and construction contracts are denominated in Euros to match the currency of financing, with 95% under fixed price contractual structures

      Northland’s interest reflective of 49 per cent ownership. Assumed average EUR/CAD exchange rate at 1.53 in the first five years of operations. The 2021 CfD tariff of PLN 319.6/MWh (equivalent to EUR 71.8/MWh) with CfD price pegged to EUR at 4.45 PLN/EUR. In 2022, CfD changed from Polish Zloty to Euro denominated currency. Indexation base year moved up one year to 2022 using 2021 CPI. Northland’s equity includes amounts paid to acquire the original 49% stake in Baltic Power, and amount to approximately $0.1 billion.

      Deal Value (US$ Million) 5200
      Deal Type Acquisition
      Sub-Category Asset Purchase
      Deal Status Announced: 2023-09-19

      Deal Participants

      Deal Rationale

      (Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Marketline shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.)

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