Northland Power Inc.
Quick Take: Germany to set price cap at €130/MWh and September 2022 start date
TSX: NPI | CAD 37.99 | Sector Perform | Price Target CAD 43.00
Sentiment: Neutral
Our take
We believe Germany's proposal to set the power price cap at €130/MWh and an effective date of September 2022 should have a neutral to modestly negative impact on the shares of NPI, because losing three incremental months (September, October, and November) of power price upside is not material for the company (we estimate ~$30 million over October and November), and should not impact management's 2022 Adjusted EBITDA guidance of $1.25-1.35 billion.
Details
€130/MWh price cap and September 2022 start date. Bloomberg news reported that the German government plans to set the power price cap for solar/wind/nuclear at €130/MWh (rather than the previoulsy suggested level of €180/MWh), and the effective date would be September 2022 (rather than December 2022).
Modest impact to NPI. The change in the effective date to September means that NPI would not benefit from power price upside in the months of September, October, and November if German/Dutch power prices exceed NPI's three offshore wind contract prices (€184/MWh, €194/MWh, and €211/MWh). The reduction in the level of the price cap to €130/MWh does not impact NPI, as 100% of the upside would have been clawed back at the €130/MWh and €180/MWh levels. We note that NPI's 2022 guidance does not assume the realization of power price upside in Q4, and our Q4/22 forecast includes $30 million of incremental EBITDA over October and November that NPI will no longer benefit from. We believe NPI recognized some power price upside in September 2022 that may need to be reversed in Q4/22.