second-quarter reportnorthlandpower.com/cmsassets/docs/pdfs/npi_full_q2_report_201… · range of...

Quarterly Report for the period

ended June 30, 2014

Q2SECOND-QUARTER REPORT

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Northland Power Inc. Second Quarter 2014 Report 1

Management’s Discussion and Analysis The purpose of this Management, Discussion & Analysis (“MD&A”) is to help the reader understand the nature and importance of changes and trends as well as the risks and uncertainties that may affect Northland Power Inc.’s (“Northland’s” or the “Company’s”) operating results and financial position. Accordingly, this MD&A contains forward-looking statements that are based on certain estimates and assumptions that were considered reasonable on August 5, 2014; actual results may differ materially. Please see the “Forward-Looking Statements” section in this MD&A for additional information. This MD&A is organized as follows: SECTION 1: SECOND QUARTER OVERVIEW ..................................................................................................................... 1 SECTION 2: DESCRIPTION OF BUSINESS AND FACILITY RESULTS ............................................................................ 4 SECTION 3: IFRS REPORTING AND NON-IFRS FINANCIAL MEASURES.................................................................... 10 SECTION 4: CONSOLIDATED RESULTS ............................................................................................................................ 10 SECTION 5: CONSTRUCTION AND DEVELOPMENT ACTIVITIES ............................................................................... 19 SECTION 6: OUTLOOK ......................................................................................................................................................... 21 SECTION 7: EQUITY AND CONVERTIBLE UNSECURED SUBORDINATED DEBENTURE INFORMATION .......... 22 SECTION 8: HISTORICAL CONSOLIDATED QUARTERLY RESULTS .......................................................................... 22 SECTION 9: RISKS AND UNCERTAINTIES ....................................................................................................................... 22 SECTION 10: MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION .............................................. 24 SECTION 11: FORWARD-LOOKING STATEMENTS ......................................................................................................... 24 SECTION 1: SECOND QUARTER OVERVIEW Second Quarter Financial Highlights

• 63% increase in quarterly adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) from 2013;

• 43% increase in quarterly free cash flow from 2013; • Decreased quarterly cash payout ratio to 93% of free cash flow from 108% in the second quarter of 2013

(126% excluding the effect of the Dividend Reinvestment Plan versus 144% in 2013); • 37% and 41% increase in sales and gross profit, respectively compared to the second quarter of 2013; • Quarterly net income decreased $172 million due to marked to market adjustments on Northland’s

financial derivative contracts; and • Due to the strong performance in our operations over the first half of 2014, Northland has increased its

adjusted EBITDA forecast range for 2014 upward by $5 million to $350 million to $360 million. The forecasted payout ratio range for 2014 was also favourably adjusted to be in the range of 100% to 110% of free cash flow on a total dividend basis.

A significant portion ($109.2 million) of the second quarter net loss represents the fair value accounting treatment of Project Gemini’s interest rate swaps that are marked to market and consolidated with Northland’s operating results. Changes in interest and currency rates give rise to non-cash marked to market adjustments each quarter as a result of Northland’s and Project Gemini’s accounting election to forego the application of hedge accounting. 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. Significant Events During the second quarter and through the date of this MD&A, Northland achieved a number of milestones, as described below.


Project Gemini In May 2014, Northland acquired a 60% interest in Project Gemini a 600 megawatt (MW) offshore wind project located off the coast of the Netherlands in the North Sea. The purchase price and subsequent equity investment and subordinated loan into the project were funded through a combination of Northland’s $250 million corporate term facility, cash on hand and funds raised from the March 5, 2014 public offering of common shares and convertible unsecured subordinated debentures (“2019 Debentures”). Subsequent to the acquistion, Project Gemini reached financial close, having placed all of the €2.8 billion of equity and debt required for the project. More than 22 parties funded the project capital, including 12 commercial creditors and four public financial institutions that funded the project senior debt, one pension fund group and Northland provided subordinated debt to the project, and four equity sponsors including Northland provided the project equity capital. Project Gemini is owned by a consortium consisting of Northland (60%), Siemens Financial Services and Affiliates (“Siemens”) (Siemens - 20%), Van Oord Dredging and Marine Contractors BV (Van Oord - 10%) and N.V. HVC (HVC - 10%). Siemens is an affiliate of Siemens AG, one of the world's leading providers of a wide range of products, solutions and services in the field of energy technology. Van Oord is a leading Netherlands-based international marine contractor with significant experience in offshore wind farm construction and a leading position as engineering, procurement and construction (EPC) contractor in offshore wind projects. HVC is a Dutch waste management and renewable energy utility company owned by forty-eight Dutch municipalities and six water regulatory authorities. Northland, Siemens, Van Oord and HVC have provided combined equity of €441.5 million. In addition, Northland (€80 million) and the Danish pension fund PKA (€120 million) have provided subordinated loans totalling €200 million. Northland's total investment, including its equity investment, share purchase and subordinated loan to Gemini, is approximately CAD$557 million. Northland has provided additional contingent equity support to the project in the form of letters of credit totalling €94.8 million (CAD$138.4 million at the current exchange rate). Northland has entered into foreign exchange contracts with several members of its corporate banking syndicate to effectively fix the foreign exchange conversion rate on substantially all projected EURO-denominated cash inflows from Project Gemini for approximately 15 years following the completion of construction at a weighted average conversion rate of approximately 1.67 Canadian dollars per EURO. McLean’s Mountain Reaches Commercial Operations On May 1, 2014, Northland’s 60 MW (30 MW net interest) McLean’s wind project located on Manitoulin Island, Ontario, declared commericial operations. The project was completed on time and on budget and has a 20-year power purchase agreement (PPA) with the Ontario Power Authority (OPA) under Ontario’s renewable energy Feed-in-Tariff (FIT) Program. $240 Million in Financing for Ontario Solar Projects On April 24, 2014, Northland completed financing for five solar projects, totalling 50 MW, located in various communities in northern and central Ontario. The five projects comprise the fourth and last phase of its 130 MW ground-mounted solar program. The financing facility consists of a $240 million construction credit facility with an 18-year term loan. Panda-Brandywine PPA Termination and Transfer of Assets During the quarter, JP Morgan exercised its right to terminate Panda Brandywine’s PPA and as a result Northland received a one-time dividend payment of $3.3 million in May 2014. As part of the PPA termination, the generating assets of the Panda-Brandywine facility were also transferred to JP Morgan. Future dividends to


Northland which are expected to be approximately US$0.5 million will cease once Northland’s share of the residual cash balances have been finalized and have been distributed to Northland during the remainder of 2014. Renewal of Preliminary Base Shelf Prospectus On April 21, 2014, Northland filed a renewal of its short form base shelf prospectus with the securities regulatory authorities in each of the provinces of Canada. This filing allows Northland to maintain financial flexibility and provides efficient access to the Canadian capital markets when capital is required. This prospectus provides for Northland to offer an aggregate of up to $500 million of common shares, preferred shares, debentures and subscription receipts, or any combination thereof, over a 25-month period. Northland has no immediate intention to issue securities as a result of this filing. Sale of Wood Chipping Facility Northland sold its wood chipping facility in British Columbia for $0.8 million on April 23, 2014 and recorded a gain for accounting purposes of $0.5 million. New Directors At Northland’s annual general meeting, shareholders elected Barry Gilmour and Russell Goodman to Northland’s Board of Directors. Mr. Gilmour was formerly the Group Head of Technology and Operations at the Bank of Montreal Financial Group, while Mr. Goodman was formerly a partner at PricewaterhouseCoopers LLP. In addition to being members of the Board of Directors, Mr. Gilmour will be a member of Northland’s Compensation Committee and Mr. Goodman will serve as the Chair of the Audit Committee. Summary of Consolidated Second Quarter Results In thousands of dollars except per share and energy unit amounts

Three monthsended

June 30, 2014

Three months ended

June 30, 2013

Six months ended

June 30, 2014

Six months ended

June 30, 2013FINANCIALS Sales 169,945 124,400 399,369 230,534Gross Profit 103,701 73,779 237,139 141,763Adjusted EBITDA(1) 81,452 50,064 183,549 104,629Operating Income 50,397 32,755 134,406 70,125Net Income (Loss) (91,845) 80,129 (63,269) 103,746 Free Cash Flow(1) 31,369 21,977 88,121 52,395Cash Dividends Paid to Common and Class A Shareholders

29,281

23,754

56,898

46,436

Total Dividends Declared to Common and Class A Shareholders(2) 39,787

31,718

76,969

63,201

Per Share

Free Cash Flow(1) 0.213 0.187 0.618 0.447Total Dividends Declared to Common and Class A Shareholders(2) 0.270

0.270

0.540

0.540

ENERGY VOLUMES Electricity (megawatt hours) 1,099,457 733,006 2,590,072 1,711,042 (1) Please see Section 3: IFRS Reporting and Non-IFRS Financial Measures for an explanation of these terms and Section 4:

Consolidated Results for reconciliation to the nearest IFRS measure. (2) Total dividends to common and Class A Shareholders represent dividends declared irrespective of whether the dividend is received in

cash or in shares as part of the DRIP program.


Except for Northland’s wind projects, Northland’s operating projects met or exceeded management’s expectations for the three months ended June 30, 2014. Northland’s consolidated sales, adjusted EBITDA, and operating income for the three months ending June 30, 2014 were significantly higher than the same period for 2013 primarily due to a full quarter of contributions from North Battleford, McLean’s and the Ground-mounted Solar Phase I and II projects. The $31.4 million increase in adjusted EBITDA from the same period for 2013 was primarily due to a $32.2 million contribution from North Battleford, McLean’s and the Ground-mounted Solar Phase I and II projects and a $5.4 million increase in adjusted EBITDA from Northland’s other facilities, including higher dividends from Panda-Brandywine and interest on the Gemini subordinated debt. Offsetting these favourable variances were: (i) a $4 million decrease from Northland’s existing thermal and wind facilities, largely due to scheduled maintenance outages at Kingston and Iroquois Falls and calm wind conditions at all wind facilities; (ii) a $0.5 million decrease in performance and management fees from Kirkland Lake and Cochrane; and (iii) $2.3 million of higher corporate costs. The second quarter net loss exceeded the prior year because the increase in adjusted EBITDA was more than offset by higher finance costs, a fair value loss on derivative contracts and the write down of the Panda investment due to termination of the PPA and transfer of the facility’s assets to the PPA offtaker, JP Morgan in May 2014. See Section 4: Consolidated Results for additional details. Free Cash Flow Free cash flow for the second quarter exceeded the prior year by $9.4 million. Favourable changes from the same period for 2013 included the $31.4 million increase in adjusted EBITDA as described above, partially offset by: (i) a $12.8 million net interest expense increase, also related to the inclusion of North Battleford and Ground-mounted Solar Phase I and II projects; (ii) a $7.2 million increase in scheduled debt repayments as a result of the inclusion of North Battleford and Ground-mounted Solar Phase I and II debt; and (iii) $2.6 million in fees related to the renewal and expansion of Northland’s corporate credit facility. Readers should refer to "Cash Dividends to Shareholders and Free Cash Flow" within Section 4 of this MD&A for additional details on Northland's free cash flow. Dividends and Payout Ratio Common share and Class A Share dividends declared for the quarter totalled $0.27 per share. Northland’s cash dividend payout ratio in the second quarter of 2014 was 93% of free cash flow (126% excluding the effect of dividends re-invested through the dividend reinvestment plan (DRIP)) compared to 108% and 144%, respectively in the second quarter of 2013. SECTION 2: DESCRIPTION OF BUSINESS AND FACILITY RESULTS As of June 30, 2014, Northland owns or has a net economic interest in power producing facilities with a total capacity of approximately 1,335 MW. Northland’s operating assets comprise facilities that produce electricity from natural gas and renewable resources for sale under long-term PPAs to creditworthy customers in order to ensure cash flow stability. As of June 30, 2014, Northland had 50 MW of Ground-mounted Solar Phase II and Phase III projects and the 600 MW Gemini offshore wind project under construction. Northland’s advanced development projects include a 100 MW (50 MW net interest to Northland) PPA awarded under the OPA FIT program, and a 24 MW PPA with Hydro-Québec to construct a wind project near Frampton, Quebec. Northland expects to construct these projects over the next three years. In addition, Northland has an extensive portfolio of projects in earlier stages of development. Northland’s interim condensed consolidated financial statements include the results of Northland and its subsidiaries, of which the most significant are:

i. Iroquois Falls Power Corp., which owns a 120 MW natural-gas-fired cogeneration facility located in northern Ontario, together herein referred to as “Iroquois Falls”;

ii. Kingston CoGen Limited Partnership, which owns a 110 MW natural-gas-fired combined cycle facility


located in eastern Ontario, together herein referred to as “Kingston”;

iii. Thorold CoGen L.P., which owns a 265 MW natural-gas-fired cogeneration facility located in the Niagara region of Ontario, together herein referred to as “Thorold”;

iv. North Battleford Power L.P., which owns a 260 MW natural-gas-fired combined-cycle facility located near Saskatoon in central Saskatchewan, together herein referred to as “North Battleford”;

v. Spy Hill Power L.P., which owns an 86 MW natural-gas-fired peaking facility located in eastern Saskatchewan, together herein referred to as “Spy Hill”;

vi. Saint-Ulric Saint-Léandre Wind L.P., which owns a 127.5 MW wind farm located in the Gaspésie region of Quebec, together herein referred to as “Jardin”;

vii. Mont-Louis Wind L.P., which owns a 100.5 MW wind farm located in the Gaspésie region of Quebec, together herein referred to as “Mont Louis”;

viii. DK Windpark Kavelstorf GmbH & Co. KG and DK Burgerwindpark Eckolstädt GmbH & Co. KG, which own two wind farms totalling 21.5 MW located in eastern Germany, together herein referred to as the “German wind farms”;

ix. Ground-mounted solar partnerships, which consists of eight operating 10 MW solar projects in eastern and central Ontario, the first six of which are together herein referred to as “Ground-mounted Solar Phase I”; the remaining two projects in operations, and one under construction are together herein referred to as “Ground-mounted Solar Phase II”. The remaining 4 projects, which are also under construction are located in northern Ontario and are together herein referred to as “Ground-mounted Solar Phase III”;

x. McLean’s Mountain Wind Limited Partnership, which owns the 60 MW (30 MW net interest to Northland) wind farm on Manitoulin Island in Ontario, which declared commercial operations on May 1, 2014, together herein referred to as “McLean’s”; and

xi. ZeeEnergie C.V. and Buitengaats C.V., which collectively own the 600 MW (360 MW net interest to Northland) offshore wind project under construction off the coast of the Netherlands in the North Sea, together herein referred to as “Gemini” or “Project Gemini”.

As a result of obtaining a controlling interest in Canadian Environmental Energy Corporation (CEEC) on April 1, 2013, Northland’s financial results consolidate the financial results for Kirkland Lake and Cochrane facilities that Northland continues to manage on behalf of third-party, non-voting shareholders and CEEC. Northland also had a 19% equity interest in the Panda-Brandywine thermal facility in Maryland, whose PPA was terminated and related facility assets transferred to JP Morgan in May 2014, a 75% equity interest in four, small rooftop solar projects in Ontario and receives management fees from Chapais Énergie, Société en Commandite (“Chapais”) for managing its 28 MW biomass-fired power facility in Chapais, Quebec. In addition, as a result of obtaining a controlling interest in Project Gemini in May 2014, Northland’s consolidated statements also include Gemini’s financial results. Significant Gemini items included in Northland’s consolidated financial statements are as follows:

• Cash and cash equivalents of $357.5 million; • Property plant & equipment of $588.6 million; • Third-party debt of $175.3 million; and • Marked to market adjustment on interest rate swaps of $109.2 million.


Northland’s Thermal Facilities The following is a discussion of the operating results for Northland’s thermal facilities for the three and six month periods ended June 30, 2014.

(1) “Other” includes electricity production at North Battleford, Thorold and Spy Hill, which have contractual structures that

effectively provide for a pass-through of variable production costs and are generally not affected financially by changes in production levels.

(2) As a result of accounting for the Spy Hill operations as a finance lease, $4.6 million is reported as electricity revenue, $4.5 million as finance lease income and $1.2 million as receipt of lease receivable for the six months ended June 30, 2014.

(3) Capital expenditures exclude construction-related capital items. The majority of gas turbine maintenance is provided under long-term, fixed-price contracts that are charged to the income statement based on the terms of those contracts.

Northland’s thermal assets comprise both baseload and dispatchable facilities. The Iroquois Falls and Kingston

Three months ended June 30 Six months ended June 30(in thousands of dollars except as indicated) 2014 2013 2014 2013

Electricity Production (MWh)Iroquois Falls 148,857 157,172 334,915 365,336 Kingston 181,220 181,160 336,941 396,401 Other(1) 596,864 244,491 1,501,494 599,941

926,941 582,823 2,173,350 1,361,678

Sales 117,434 88,209 283,986 177,645

Cost of sales 49,824 35,420 125,895 73,560

Gross profitIroquois Falls 8,411 8,816 23,962 23,241 Kingston 12,918 14,235 34,001 28,639 Thorold 16,387 17,381 35,305 35,046 Spy Hill(2) 4,429 4,744 9,163 9,546 North Battleford 25,465 7,613 55,660 7,613

67,610 52,789 158,091 104,085

Plant operating costsIroquois Falls 2,146 1,884 4,085 3,859 Kingston 1,763 1,723 3,214 3,301 Thorold 2,434 3,350 4,886 5,993 Spy Hill 401 360 742 690 North Battleford 3,360 635 6,214 635

10,104 7,952 19,141 14,478

Adjusted EBITDAIroquois Falls 6,229 6,915 19,812 19,334 Kingston 11,084 12,463 30,680 25,238 Thorold 13,935 14,023 30,393 29,025 Spy Hill 4,021 4,375 8,408 8,836 North Battleford 22,095 7,026 49,417 7,026

57,364 44,802 138,710 89,459

Capital expenditures(3)

Iroquois Falls 130 - 151 14 Kingston 72 70 118 72 Thorold - 47 - 65 Spy Hill - - - - North Battleford - - - -

202 117 269 151


baseload plants are operated with the objective of generating 100% of contracted on-peak and off-peak production volumes, and receive a fixed price for all electricity sold. The North Battleford baseload plant is operated to generate throughout the month and produce at full output during on-peak periods and at reduced output during off-peak periods. Thorold and Spy Hill are dispatchable facilities and operate either when market conditions are economic or as requested by the contract counterparty. Thorold and Spy Hill receive contract payments that are largely dependent on their ability to operate according to contract parameters as opposed to maximizing production, and the payments ensure gross profit is generally fixed in spite of changes in production levels. Additional information relating to the thermal facility contracts can be found in Northland’s 2013 Annual Information Form (AIF), which is filed electronically at www.sedar.com under Northland’s profile and posted on Northland’s website at www.northlandpower.ca. Electricity production during the three months ended June 30, 2014 was significantly higher than the prior year largely due to the inclusion of North Battleford, which began commercial operations on June 5, 2013. Electricity production for the six months to June 30, 2014 exceeded the prior year’s results for the same reason described above, partially offset by lower production at Kingston and Iroquois Falls during the first quarter of 2014 due to periods of high natural gas prices when it was economically favourable to curtail the plants and re-sell natural gas rather than produce electricity. Gross profit during the quarter exceeded 2013 due to the inclusion of North Battleford, partially offset by lower results at Iroquois Falls and Kingston due to scheduled maintenance outages and lower PPA prices at Kingston. Gross profit for the six months ending June 30 was 53% higher than 2013 largely due to the inclusion of North Battleford, the resale of natural gas at Kingston and Iroquois Falls, and higher steam and electricity sales margins at Thorold. Plant operating costs during the second quarter and six months ended June 30, 2014 primarily exceeded the prior year due to the inclusion of North Battleford, and the scheduled maintenance outages as discussed above, partially offset by lower costs at Thorold because the second quarter of 2013 included a scheduled maintenance outage.


Northland’s Renewable Facilities The following is a discussion of the results of operations of Northland’s renewable facilities for the three and six month periods ended June 30, 2014.

(1) McLean’s adjusted EBITDA represents Northland’s share of adjusted EBITDA generated by the facility. (2) Capital expenditures exclude construction-related capital items. The majority of wind turbine maintenance is provided under

long-term, fixed-price contracts that are charged to the income statement based on the terms of those contracts. Electricity production during the three months ended June 30, 2014 exceeded the prior year because the contribution of the eight operational ground-mounted solar projects and the McLean’s wind farm offset lower production at Northland’s Quebec wind farms. Six solar projects began commercial operations between June and September 2013, and two projects began commercial operations in late January and early February 2014. Production for the six months ended June 30, 2014 exceeded the prior year largely due to the inclusion of the ground-mounted solar sites and McLean’s, partially offset by lower production at the Jardin wind farm. Wind farm production was less than the long-term production forecasts due to weaker wind resources and an approximate three-week unplanned maintenance outage at McLean’s to repair a defective underground cable. Production from the solar facilities approximated the long-term production forecast. The long-term production

Three months ended June 30 Six months ended June 30(in thousands of dollars except as indicated) 2014 2013 2014 2013

Electricity Production (MWh) 172,516 150,183 416,722 349,364

Electricity Production (MWh) - Long Term Forecast 211,890 151,461 442,080 354,821

Gross ProfitJardin 4,174 5,110 11,874 12,518 Mont Louis 3,605 5,126 10,580 10,790 German Wind Farms 671 597 1,908 1,478 McLean's 2,187 - 2,187 - Solar 17,783 757 27,154 757

28,420 11,590 53,703 25,543

Plant operating costsJardin 1,217 1,346 2,755 2,680 Mont Louis 1,241 1,579 2,397 3,197 German Wind Farms 254 380 518 827 McLean's 577 - 577 - Solar 694 30 1,264 30

3,983 3,335 7,511 6,734

Adjusted EBITDAJardin 2,988 3,334 9,091 9,349 Mont Louis 2,358 3,535 8,168 7,566 German Wind Farms 239 240 1,082 570 McLean's(1) 811 - 811 - Solar 17,060 722 25,849 722

23,456 7,831 45,001 18,207

Capital expenditures(2)

Jardin 243 - 243 46 Mont Louis - - - - German Wind Farms - - - - McLean's - - - - Solar - - - -

243 - 243 46


forecasts for Northland’s wind farms and solar projects were prepared by specialized consulting firms prior to acquisition or the start of construction. Gross profit for the second quarter and year-to-date was significantly higher than 2013 (by 145% and 110%, respectively) primarily due to the inclusion of results from the ground-mounted solar sites and McLean’s. Plant operating expenses during the second quarter and year-to-date exceeded the same periods in 2013 due to the inclusion of the costs for the ground-mounted solar projects and McLean’s, partly offset by lower turbine warranty and maintenance fees at Mont Louis. Management and Administration, Development and Other Services, including Investment Income The following is a discussion of financial results related to management and administration, development and other services for the three month period ended June 30, 2014.

Northland’s 2014 consolidated financial statements include the results for Kirkland Lake, Cochrane and CEEC following Northland’s April 1, 2013 acquisition of the controlling interest in CEEC. Fees and dividends earned by Northland following the acquisition are considered intercompany amounts and eliminate on consolidation. However, in the calculation of adjusted EBITDA and free cash flow, Northland includes the fees and dividends earned rather than all adjusted EBITDA and free cash flow generated by these entities. “Managed facilities” in the above table represents those management and incentive fees earned by Northland from services provided to Cochrane, Kirkland Lake, and Chapais. Adjusted EBITDA from the managed facilities for the three month period ending June 30, 2014 was down from the prior year largely due to lower incentive fees generated by Kirkland Lake and Cochrane. The performance incentive fee entitles Northland to share in the cash flows of each facility after all operating and financing expenditures. “Other facilities” in the above table represents adjusted EBITDA from Northland’s wood chipping facility (that was sold on April 23, 2014), an equity investment in four small rooftop solar projects in partnership with Loblaw Companies Limited, dividends received from Northland’s equity interest in Panda-Brandywine and interest earned on the loan receivable from McLean’s equity partner, Mnidoo Mnising Power Limited Partnership, an entity controlled by the members of the United Chiefs and Councils of Mnidoo Mnising First Nations (UCCMM). Adjusted EBITDA from the “Other facilities” is up from the second quarter of 2013 largely due to higher dividends from Panda-Brandywine associated with the May 2014 PPA termination payment from JP Morgan. As part of the PPA termination, the generating assets of the Panda-Brandywine facility were also transferred to JP Morgan. Future dividends to Northland will cease once Northland’s share of the residual cash balances have been finalized and have been distributed to Northland during the remainder of 2014. “Other income” of $0.7 million in 2014 relates to an earn-out from the 2011 sale of Northland’s South Kent wind development project. “Gemini interest” represents interest earned on the €80 million of subordinated debt that Northland has loaned Project Gemini. Due to Northland acquiring the controlling interest in Project Gemini in May 2014, Northland consolidates the financial results of Project Gemini and as a result Northland’s subordinated loan and earned interest are eliminated upon consolidation but are however included in Northland’s consolidated adjusted

Three months ended June 30 Six months ended June 30(in thousands of dollars) 2014 2013 2014 2013Other Sales and IncomeManaged facilities 3,775 4,303 15,901 11,151

Other facilities 3,718 282 4,557 450 Other income 675 - 675 675 Gemini interest 1,944 - 1,944 - Adjusted EBITDA 10,112 4,585 23,077 12,276


EBITDA.

Corporate management and administration expenses for the three months ended June 30, 2014 were $2.3 million higher than the prior year largely due to additional headcount, increased professional and consulting costs and higher long-term incentive plan (LTIP) costs. Northland expenses development-related management and administration costs not directly attributable to a specific development project, including costs to determine the feasibility of prospective projects. If management determines that a development project meets specific criteria that indicate a high probability of completion, Northland capitalizes all pre-construction costs directly related to that project, but continues to expense indirect costs such as management salaries and overhead. If management determines that development of a project will be discontinued or that success is no longer highly likely, all deferred costs are expensed in the period the determination is made. In the first quarter of 2014, Northland expensed $5.2 million of previously deferred development costs related to the Kabinakagami hydro project because it no longer qualified for capitalization under Northland’s deferred development policy due to uncertainies related to overall project costs (please see Section 5: Construction and Development Activities for additional details). SECTION 3: IFRS REPORTING AND NON-IFRS FINANCIAL MEASURES This MD&A includes references to Northland’s adjusted EBITDA and free cash flow, measures not prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA and free cash flow, as presented, may not be comparable to similar measures presented by other companies. These measures should not be considered alternatives to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Rather, these measures are provided to complement IFRS measures in the analysis of Northland’s results of operations from management’s perspective. Management believes that adjusted EBITDA and free cash flow are widely accepted financial indicators used by investors to assess the performance of a company, including its ability to generate cash through operations. Readers should refer to Section 4: Consolidated Results for an explanation of adjusted EBITDA and free cash flow and a reconciliation of Northland’s reported adjusted EBITDA to its consolidated income (loss) before taxes and a reconciliation of Northland’s free cash flow to its cash provided by operating activities. SECTION 4: CONSOLIDATED RESULTS The following discussion of the consolidated financial condition and results of operations of Northland should be read in conjunction with the unaudited interim condensed consolidated financial statements for the period ended June 30, 2014 and Northland’s 2013 Annual Report. Readers should note that a significant number of variances on the interim consolidated statements of income (loss) are the result of Northland now consolidating the financial results for Project Gemini, Kirkland Lake, Cochrane and CEEC. Consolidation of Project Gemini began this quarter, while consolidation of Kirkland Lake, Cochrane and CEEC began in the second quarter of 2013.

Three months ended June 30 Six months ended June 30(in thousands of dollars) 2014 2013 2014 2013Management and administration costs - Operations 4,304 3,177 8,607 6,635 - Development 5,690 4,628 10,350 9,618 Total management and administration costs 9,994 7,805 18,957 16,253 Less: facility management and administration costs (514) (651) (899) (940) Corporate management and administration costs 9,480 7,154 18,058 15,313 Write-off of deferred development costs - - 5,181 - Corporate management and administration costs and Adjusted EBITDA (9,480) (7,154) (23,239) (15,313)


Second Quarter Northland’s adjusted EBITDA and free cash flow for the three months ending June 30, 2014 were higher than the same period of 2013. Readers should refer to the “Adjusted EBITDA” and "Cash Dividends to Shareholders and Free Cash Flow" discussions within this section of the MD&A for additional details. The net loss for the second quarter of 2014 at $91.8 million was largely due to non-cash fair value losses associated with Northland’s derivative contracts ($130.4 million loss in 2014 versus a $77.7 million gain in 2013). The following section describes the significant factors contributing to this change: Total Sales, cost of sales and plant operating costs all increased due to the reasons discussed in Section 2, and largely due to a full quarter of contributions from North Battleford and the ground-mounted solar projects, partially offset by lower wind resources and scheduled annual maintenance outages at both Kingston and Iroquois Falls. Other sales decreased $1 million from the second quarter of 2013 due to the sale of Northland’s Chips facility. As discussed previously, management and incentive fees earned from Kirkland Lake and Cochrane are considered intercompany after the CEEC acquisition on April 1, 2013, and are eliminated on consolidation. Management and administration expenditures increased $2.2 million due to higher corporate costs as discussed previously. Investment income was $3.5 million higher than 2013 largely due to increased dividends from Northland’s Panda-Brandywine investment associated with the termination of its PPA and transfer of the facility’s generating assets to JP Morgan in May and interest earned on the loan receivable from UCCMM, as discussed previously. Finance lease income was in line with the same period of 2013. As described in Northland’s 2013 Annual Report, the fixed monthly capacity payments from SaskPower for Spy Hill are treated as lease income, while electricity sales are recognized in sales revenue. The accounting treatment of Spy Hill’s PPA as a finance lease has no impact on Northland’s adjusted EBITDA or free cash flow. Finance costs, net (primarily interest expense), increased by $13 million from the prior year due to the inclusion of interest on North Battleford, McLean’s and the Ground-mounted Solar Phase I and II project debt, higher convertible debenture interest due to the issuance of the 2019 Debentures in March 2014 and interest on the $250 million term facility utilized for the Gemini project. Amortization of contracts and other intangible assets at $5.1 million was in line with the same period last year. Non-cash fair value loss of $131.7 million (compared to a $79.4 million gain in 2013) comprised: (i) a $130.4 million loss in the fair value of Northland’s financial derivative contracts that include interest rate swaps on the facilities’ non-recourse project debt, the long term financial hedge related to future natural gas prices at Iroquois Falls and foreign exchange contracts associated with the Gemini project; combined with (ii) $1.3 million in unrealized foreign exchange losses. A significant portion ($109.2 million) of the second quarter non-cash fair value loss represents the marked to market on the interest rate swaps that Project Gemini entered into, which is now consolidated with Northland’s operating results. Northland’s (and Project Gemini’s) policy is to hedge interest rate and foreign exchange exposures where material. Changes in market rates give rise to non-cash mark-to-market adjustments each quarter as a result of Northland’s accounting election to forego the application of hedge accounting. 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. The 2013 interim consolidated statement of income also included a $11.3 million decrease in the liability associated with the fair value of Northland Class B Convertible Shares. In August 2013, all of Northland’s Class B Convertible Shares were converted into Class A Shares and subsequently, common shares of Northland.


Impairments were $3.1 million higher than the same period in 2013 and relate to the termination of Panda-Brandywine’s PPA in May 2014. As part of the PPA termination, the generating assets of the Panda-Brandywine facility were also transferred to JP Morgan. Future dividends to Northland will cease once Northland’s share of the residual cash balances have been finalized and have been distributed to Northland in 2014. Other income increased by $1.3 million and, as described earlier, relates to an additional receipt pursuant to the 2011 sale of Northland’s South Kent wind development project and a gain on the sale Northland’s wood chipping facility in British Columbia. The factors described above, combined with a $1.7 million provision for current and a $28.3 million recovery of future income taxes, resulted in net loss for the quarter of $91.8 million. Year to Date Sales and cost of sales were higher in the first six months of 2014 compared to the prior year for the reasons discussed under the segment disclosure and primarily reflect the inclusion of a full six months of financial results from North Battleford, the ground-mounted solar projects and Kirkland Lake and Cochrane. Readers should refer to Note 9 of the interim condensed consolidated financial statements for more details on the financial results contributed by Kirkland Lake, Cochrane and CEEC. Plant operating expenses were up due to the inclusion of the entities described above and the completion of annual maintenance outages at Kingston and Iroquois Falls. Management and administration costs increased from the prior year largely due to the inclusion of Kirkland, Cochrane, CEEC and North Battleford operations in Northland’s consolidated statement of income and higher corporate costs as discussed previously. In the first quarter of 2014, Northland recorded a $5.2 million expense related to the write-off of deferred development costs related to the Kabinakagami hydro project that no longer qualifies for capitalization under Northland’s deferred development policy. For the year to date, Northland recorded $138.3 million non-cash fair value losses (compared to a $93.2 million gain in 2013) comprised of: (i) $138.8 million loss in the fair value of Northland’s financial derivative contracts, partially offset by (ii) $0.5 million in unrealized foreign exchange gains. The 2013 consolidated statement of income also included a $10.6 million decrease in the liability associated with the fair value of Northland Class B Convertible Shares. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) Adjusted EBITDA is calculated as revenue less operating costs, before interest expense, income taxes, depreciation of capital assets and amortization of contracts, non-cash impairments and lease accounting gains and non-cash (unrealized) fair value changes. Adjusted EBITDA provides an indication of Northland’s capacity to generate income from operations before taking into account management’s financing decisions and the costs of consuming tangible and intangible capital assets, which vary according to asset type and management’s estimate of their useful lives. As discussed previously, Northland’s consolidated financials include the results for Kirkland Lake, Cochrane and CEEC following Northland’s April 1, 2013 acquisition of the controlling interest in CEEC. Fees and dividends earned by Northland from those entities following the acquisition are considered intercompany amounts and eliminate on consolidation. However, in the calculation of adjusted EBITDA and free cash flow, Northland includes the fees and dividends earned rather than all adjusted EBITDA and free cash flow generated by these entities. In addition, Northland has loaned €80 million of subordinated debt to Project Gemini, but due to Northland acquiring controlling interest of Project Gemini in May 2014, Northland consolidates the financial results of


Project Gemini and as a result Northland’s subordinated loan and earned interest are eliminated upon consolidation. Interest earned on this subordinated loan is however included in Northland’s consolidated adjusted EBITDA. The following table reconciles Northland’s income before income taxes to its adjusted EBITDA:

Second quarter adjusted EBITDA was higher than the prior year largely due to the inclusion of a full quarter of results from North Battleford and the operational Ground-mounted Solar Phase I and II projects, and results from McLean’s, which became operational on May 1, 2014 and investment income from Panda-Brandywine and the Gemini sub debt. These favourable results were partially offset by lower results from Kingston and Iroquois, due to annual maintenance outages, calm winds at the Quebec wind farms and increased corporate management and administration costs. Year to date adjusted EBITDA reflects a full six months of contributions from North Battleford and the operational Ground-mounted Solar Phase I and II projects, overall favourable results from Northland’s operating facilities, largely due to natural gas resales, favourable wind conditions at Mont Louis and the German wind farms, higher investment income and performance incentive fees earned from Cochrane and Kirkland Lake. These favourable results were partially offset by increased corporate management and administration costs and the write-off of deferred development costs in the first quarter. Liquidity and Capital Resources

Cash and cash equivalents of $518.7 million at June 30, 2014 increased by $380.3 million from December 31, 2013 due to $217.5 million of cash generated from operations and $925.6 million provided from financing activities, notably the funding of the equity requirements for the Gemini project, which was partially offset by $737.3 million of investing activities. Operating activities provided $217.5 million of cash for the six month period ended June 30, 2014, comprising a

Three months ended June 30 Six months ended June 30(in thousands of dollars) 2014 2013 2014 2013Income before income taxes (118,371) 101,223 (79,837) 132,997

Adjustments:

Depreciation of property, plant and equipment 30,219 20,092 58,410 35,782

Amortization of contracts and other intangible assets 5,053 5,054 10,106 9,824

Finance costs, net 30,306 17,261 58,836 31,810

Gemini sub debt interest 1,944 - 1,944 -

Fair value loss (gain) on derivative contracts 130,371 (77,741) 138,842 (90,612)

Fair value loss (gain) on convertible shares - (11,295) - (10,569)

Unrealized foreign exchange loss (gain) 1,217 (1,602) (571) (2,518)

Gain on sale of BC chipping facility (547) - (547) -

Write-down of Panda-Brandywine investment 3,100 - 3,100 - Elimination of non-controlling interests (2,529) (3,792) (8,098) (3,792)

Finance lease and equity accounting 689 864 1,364 1,707

Adjusted EBITDA 81,452 50,064 183,549 104,629

Three months ended June 30 Six months ended June 30(in thousands of dollars) 2014 2013 2014 2013Cash and cash equivalents - opening 348,981 46,854 138,460 31,715 Cash provided by operating activities 166,064 50,971 217,452 102,560

Cash used in investing activities (679,704) (54,532) (737,335) (122,594)

Cash provided by financing activities 708,893 13,996 925,610 45,617

Effect of exchange rate differences (25,502) 41 (25,455) 32

Cash and cash equivalents - closing 518,732 57,330 518,732 57,330


net loss of $63.3 million plus $253.4 million in non-cash and non-operating items such as depreciation and amortization, unrealized foreign exchange gains, and the change in fair value of financial instruments, combined with a $27.4 million decrease in working capital since December 2013 primarily associated with the investment in Project Gemini and the timing of payables, receivables and deposits. Cash used for investing activities consumed $737.3 million during the six months ended June 30, 2014, due to: (i) $723.9 million used for the purchase of property, plant and equipment, mostly representing construction at the McLean’s, Gemini and Ground-mounted Solar Phase III projects; (ii) $26.6 million in deferred development costs, largely representing expenditures on the Ground-mounted Solar Phase III projects prior to commencing full construction; and (iii) $30.8 million to acquire a 60% interest in the Gemini project. Partially offsetting these usages were: (i) a net reserve drawdown of $23.5 million primarily associated with the release of funds related to construction expenditures; and (ii) an $18.2 million change in working capital related to the timing of construction payables. Investing activities also included $1.5 million of interest received and $0.8 million from the sale of the British Columbia wood chipping facility. Financing activities for the six month period provided $925.6 million, comprising: (i) $275.7 million of net proceeds from the equity and convertible debenture public offering combined with the private placement in March; (ii) $111.7 million of advances under the Ground-mounted Solar Phase I and II loan facilities; (iii) $250 million ($247.4 million net of costs) of borrowings under Northland’s term facility to assist in funding the Gemini project; (iv) $263.8 million in contributions from the non-controlling interest partners in the Gemini project; and (v) $179.2 million in proceeds from Gemini third-party subordinated debt. Partially offsetting these proceeds were: (i) $63.8 million of common, Class A and preferred share dividends; (ii) $28.8 million in scheduled loan repayments (including Kirkland Lake); (iii) $5 million of dividends to the non-controlling shareholders of Kirkland Lake and Cochrane; and (iv) $54.6 million in interest payments. During the quarter, cash and cash equivalents increased by $169.8 million due to cash from operations of $166.1 million and cash provided by financing activities of $708.9 million, partially offset by $679.7 million of investing activities. The main contributors to the $169.8 million increase in cash include: (i) the operational contribution of North Battleford and the Ground-mounted Solar Phase I and II projects; (ii) overall favourable operating results from Northland’s operating facilities; (iii) construction related borrowings for Ground-mounted Solar Phase I and II projects and borrowings under Northland’s term facility to assist in funding the Gemini project; (iv) a net reserve drawdown and changes in working capital related to construction activities; (v) $263.8 million in contributions from the non-controlling interest partners in the Gemini project; and (vi) $179.2 million of third-party subordinated debt borrowings at Project Gemini. Partially offsetting these contributions were: (i) construction and development related expenditures, mostly associated with Gemini and the Ground-mounted Solar projects; (ii) scheduled debt repayments; (iii) interest payments associated with borrowings; (iv) acquisition of a 60% interest in the Gemini project; and (v) payment of dividends. Due to the strengthening of Canadian dollar versus the euro, Northland’s June 30, 2014 consolidated cash and cash equivalents was negatively impacted by $25.5 million as a result of translating euro-denominated cash and cash equivalents held by Project Gemini into Canadian dollars. The “effect of exchange rate differences” on Project Gemini’s cash and cash equivalents will fluctuate from quarter to quarter as the CAD/EUR exchange rate fluctuates. However, euro-denominated cash will be utilized by Project Gemini for the purchase of euro-denominated property, plant and equipment. Total Assets and Total Liabilities The following sections describe significant changes in Northland’s consolidated balance sheet, and include schedules of property, plant and equipment, deferred development costs, and debt. Restricted cash decreased $23.5 million primarily due to the utilization of funds previously set aside at McLean’s and the ground-mounted solar projects to pay construction related payables and a decrease in North Battleford’s debt reserve to fund its semi-annual principal payments. Trade and other receivables increased by $1.9 million


mainly due to the timing of receipts for electricity sales and investment tax credits related to construction activities. Prepaids decreased by $3.7 million mainly due to the utilization of amounts paid for in advance, including insurance. The fair value of Northland’s investment in Panda was written off ($3.1 million) due to the termination of Panda Brandywine’s PPA in May, as discussed previously. Property, plant and equipment increased $718.6 million from December 2013 due to construction-related activities, including the Gemini project and the transfer of Ground-mounted Solar Phase III deferred development costs to property, plant and equipment. Contracts and other intangible assets increased by $25.5 million due to the acquisition of the Gemini project partially offset by contract amortization, the reclassification of deferred development costs to property, plant and equipment and the write-off of deferred development costs, as described previously. Northland’s consolidated interest bearing debt balances were reduced by scheduled principal repayments, partially offset by advances under Northland’s credit facility, the Gemini sub debt and the Ground-mounted Solar Phase II and III loan facilities. Trade and other payables increased by $45.2 million largely due to the timing of interest payments on subsidiary credit facilities and construction-related payables, including amounts owing at Project Gemini. Convertible unsecured subordinated debentures increased by $73.2 million due to the issuance of the 2019 Debentures, partially offset by conversions of 2014 convertible unsecured subordinated debentures (“2014 Debentures”) into Northland common shares during the first six months of 2014. Derivative financial liabilities increased by $137.6 million due to non-cash fair value mark-to-market adjustments on foreign exchange contracts and Iroquois Falls’ natural gas financial derivative contract and interest rate swaps. The $13.3 million increase in provisions is related to Northland’s wind farms and solar sites which are generally located on leased lands. Upon the expiration of the leases, the leased lands must be returned to their original condition and all turbines and solar panels and equipment dismantled. Future decommissioning liabilities will be mitigated by the scrap value of the related assets. In the first six months of 2014, Northland recognized a $331.7 million increase in total shareholders’ equity. The increase in common shares was due to the public offering and private placement in the first quarter of 2014, the conversion of 2014 Debentures, the issuance of additional common shares under Northland’s LTIP and DRIP programs and the $0.6 million accrual for executive deferred rights. As a result of the acquisition of the controlling interests in CEEC and Project Gemini and the equity funding of McLean’s and Project Gemini by their non-controlling partners, Northland’s shareholders’ equity includes non-controlling interests, which totals $337.7 million at June 30, 2014. Readers should refer to note 9 to the consolidated financial statements for additional details related to Northland’s non-controlling interests. Shareholders’ equity also includes $29.2 million in accumulated other comprehensive losses which arises as the CAD/EUR exchange rate fluctuates and Project Gemini is translated into Canadian dollars. The $4.2 million decrease in long-term incentive plan reserve since December 2013 was the result of LTIP awards to Northland employees.


The following table provides a continuity of the cost of property, plant and equipment and deferred development:

(1) Includes the accrual for asset retirement obligations for accounting purposes, tax credits, and LTIP shares granted and write-offs of deferred development cost.

(2) Excludes Spy Hill lease receivable accounting treatment. (3) All deferred development costs associated with Northland’s Ground-mounted Solar Phase III projects were transferred to

construction in progress in the first quarter of 2014. (4) Kirkland Lake and Cochrane facilities. (5) Includes certain costs related to projects in advanced development, but excludes the rooftop solar projects as a result of Northland

adopting equity accounting as required under IFRS 11. The following table provides a continuity of Northland’s debt:

(1) Includes a favourable fair value adjustment to Thorold’s debt. (2) Includes a favourable fair value adjustment to Jardin’s debt. (3) Kirkland Lake and Cochrane facilities. (4) Excludes convertible unsecured subordinated debentures. (5) Excludes Northland’s subordinated debt, which eliminates on consolidation.

On March 7, 2014, Northland announced the completion of an amendment to its corporate credit facility with a syndicate of financial institutions. The credit facility was increased from $250 million to $600 million comprising a $350 million revolving facility and a $250 million term facility. The revolving facility is available for general

Cost CostBalance as of Exchange Rate Balance as of

(In thousands of dollars) Dec. 31, 2013 Purchases Other(1) Differences Transfers June 30, 2014

Operations:Thermal(2) 1,613,403 269 41 - - 1,613,713 Renewable 683,475 243 (27) (112) 283,918 967,497

2,296,878 512 14 (112) 283,918 2,581,210 Construction:

Thermal - - - - - - Renewable(3) 258,438 133,103 14,552 - (242,816) 163,277 Gemini - 588,239 1,698 (6,676) 5,352 588,613

258,438 721,342 16,250 (6,676) (237,464) 751,890 Managed(4) 228,474 62 - - - 228,536 Corporate(5) 11,932 1,946 (98) - (2,852) 10,928 Total 2,795,722 723,862 16,166 (6,788) 43,602 3,572,564 Deferred development(3) 32,828 26,598 (5,263) - (43,602) 10,561

Balance as of Amortization of Exchange Rate Balance as of(In thousands of dollars) Dec. 31, 2013 Financings RepaymentsCosts/Fair Value Transfers Differences June 30, 2014

Operations:Thermal(1) 1,160,195 - (16,487) 1,160 - - 1,144,868 Renewable(2) 454,957 5,080 (9,934) 354 206,300 - 656,757

1,615,152 5,080 (26,421) 1,514 206,300 - 1,801,625 Construction:

Thermal - - - - - - - Renewable 200,000 106,600 - - (206,300) - 100,300 Gemini(5) - 179,220 - - - (3,900) 175,320

200,000 285,820 - - (206,300) (3,900) 275,620 Managed(3) 6,418 - (2,366) - - - 4,052 Corporate(4) - 247,402 - 161 - - 247,563 Total 1,821,570 538,302 (28,787) 1,675 - (3,900) 2,328,860


corporate purposes and working capital to accommodate letters of credit and support of growth and development opportunities. The revolving facility also incorporates a $100 million accordion feature which provides Northland with access to additional revolving credit if required. Northland accessed its term facility for the full $250 million, net of costs to fund a portion of its investment in Project Gemini. The term facility matures in March 2018 and has a one-year renewal option. The underlying borrowings have been hedged through 2018 at an average rate of 1.48% plus the applicable credit spread. On April 24, 2014, Northland completed $240 million of non-recourse project financing for the five remaining ground-mounted solar projects with a syndicate of lenders. Once term conversion is achieved, the loan will require blended payments of principal and interest based on an 18-year amortization period. The all-in rate including interest rate swaps and credit spreads is 5.58% during operation escalating 25 basis points every 4 years. In May 2014, the Gemini project closed on approximately €2.0 billion of non-recourse project financing with a syndicate of international banks and credit agencies. The project loans include a 3-year construction period and a 14-year amortization period. Should the loan not be fully repaid by December 31, 2022, the credit agreement provides for an acceleration of principal payments, subject to available cash flow and the discontinuance of distributions to the equity partners. The interest rate for the project has been hedged over the full loan amortization period with an effective interest rate of approximately 4.75%. Debt Covenants Northland generally conducts its business indirectly through separate subsidiary legal entities and is dependent on receipt of cash from those entities to defray its corporate expenses and to pay cash dividends to common, Class A and preferred shareholders. Certain of those entities have outstanding debt arising from incurring non-recourse project finance debt sourced at the subsidiary entity to fund a significant portion of construction costs. Under the credit agreements or trust indentures for such debt, distributions of cash to Northland are typically prohibited if the loan is in default (notably for non-payment of principal or interest or if certain debt service coverage ratios are not met). Northland and its subsidiaries were in compliance with all debt covenants for the period ended June 30, 2014.

Readers should refer to Northland’s 2013 AIF for additional details concerning its debt covenants. Letters of Credit Northland’s corporate credit facility, among other uses, secures letters of credit issued on behalf of Northland and subsidiaries to counterparties to secure certain obligations under PPAs, credit agreements, development related agreements, or other operating related agreements. As of June 30, 2014, Northland and its subsidiaries had $244.2 million of letters of credit outstanding, of which $206.7 million were issued as security under Northland’s corporate credit facility for certain projects in operation, advanced development and construction, and $37.5 million was issued under specific subsidiaries’ non-recourse credit facilities.


Free Cash Flow and Dividends to Shareholders The following calculation of free cash flow is based on the unaudited interim condensed consolidated financial statements of Northland.

(1) A payout ratio in excess of free cash flow generally results from the payment of interest on subordinated convertible debt and dividends on preferred shares and common shares raised to fund construction projects prior to those projects generating cash flows, as well as the funding of development activities.

(2) Total dividends to common and Class A Shareholders represent dividends declared irrespective of whether the dividend is received in cash or in shares as part of the DRIP program.

(3) The number of shares and the related per share numbers is the sum of the weighted average number of common shares and Class A Shares of Northland, both of which are eligible to receive dividends and do not include any convertible debentures, Class B Convertible Shares or Class C Convertible Shares or contingent Replacement Rights.

(4) Average number of shares diluted is the sum of the weighted average number of common shares and Class A shares in the basic calculation plus the number of common shares that would be issued assuming conversion of the convertible unsecured subordinated debentures.

Free cash flow of $31.4 million for the quarter was $9.4 million higher (43%) than the corresponding period in 2013; significant factors increasing and decreasing free cash flow for the comparative quarter are described below. Factors increasing free cash flow in the second quarter of 2014 over the same quarter of 2013:

• $28.2 million higher adjusted EBITDA from Northland’s operating facilities, as previously discussed;

Three Months ended June 30 Six Months ended June 302014 2013 2014 2013

Cash provided by operating activities 166,064 50,971 217,452 102,560 Northland adjustments:Net change in non-cash working capital balances related to operations (79,755) (941) (27,369) (4,886) Capital expenditures, net-non-expansionary (457) (117) (601) (197) Interest paid, net (33,800) (14,629) (53,090) (22,449) Scheduled principal repayments on term loans (16,682) (5,495) (26,421) (8,574) Funds (set aside) for quarterly scheduled principal repayments 3,423 (544) - (3,901) Restricted cash (funding) for major maintenance (888) (598) (1,916) (643) Write-off of deferred development costs - - (5,181) - Consolidation of managed facilities (1,431) (2,959) (5,687) (2,959) Equity accounting 212 (429) (280) (368) Proceeds from sale of NP Chips assets 750 - 750 - Corporate credit facility renewal costs (2,598) - (2,598) - Funds set aside for asset purchase - 187 - 750 Preferred share dividends (3,469) (3,469) (6,938) (6,938)

Free cash flow 31,369 21,977 88,121 52,395

Cash Dividends paid to common and Class A shareholders 29,281 23,754 56,898 46,436

Free cash flow payout ratio - net dividends(1) 93% 108% 65% 89%

Total Dividends(2) paid to common and Class A shareholders 39,676 31,674 75,634 62,838

Free cash flow payout ratio - total dividends(1) 126% 144% 86% 120%Free cash flow payout ratio - total dividends since initial public offering(1) 103% 106%

Average number of shares - basic (thousands of share)(3) 147,466 117,589 142,717 117,313 Average number of shares - fully diluted (thousands of shares)(4) 152,246 119,113 147,681 119,105

Per share ($/share)Free cash flow - basic 0.21 0.19 0.62 0.45 Free cash flow - fully diluted 0.21 0.19 0.61 0.45


• $3.4 million increase in adjusted EBITDA generated from Northland’s managed and other facilities; • $1.3 million positive variance associated with Kingston and North Battleford’s payments to General

Electric related to their gas turbine maintenance contracts; • $0.7 million increase in other income related to the sale of Northland’s South Kent wind development

project in 2011; • $0.8 million in proceeds from the sale of Northland’s wood chipping facility; and • $1 million increase in other miscellaneous items.

Factors decreasing free cash flow in the second quarter of 2014 over the same quarter of 2013: • $12.8 million net interest expense increase primarily due to the inclusion of North Battleford and Ground-

mounted Solar Phase I and II debt; • $7.2 million increase in scheduled debt repayments as a result of including North Battleford and Ground-

mounted Solar Phase I projects; • $2.3 million increase in corporate general and administration costs; • $2.6 million of fees related to the renewal and expansion of Northland’s corporate credit facility; • $0.5 million decrease in management fees from Kirkland Lake and Cochrane; and • $0.6 million increase in operations-related capital expenditures and funds set aside for future major

maintenance.

Free cash flow during the second quarter was $25.4 million lower than the first quarter primarily due to: (i) lower cash flow from all of Northland’s operating facilities, except the ground-mounted solar projects, due to seasonality, scheduled outages and natural gas resales in the first quarter; (ii) $2.6 million of fees to renew and expand Northland’s credit facility; (iii) $1.6 million of higher net interest costs largely due to interest on the 2019 Debentures and McLean’s project; and (iv) $0.9 million higher corporate management and administration costs. Offsetting these negative variances were: (i) $2.6 million in investment income largely due to higher Panda dividends; and (ii) the write-off of deferred development costs in the first quarter. For the three month period ending June 30, 2014, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. This is equivalent to a cash payout ratio of 93% or 126% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland’s DRIP). SECTION 5: CONSTRUCTION AND DEVELOPMENT ACTIVITIES Projects Under Construction Ground-mounted Solar Projects Northland currently has five 10MW Ground-mounted solar projects under construction that have 20 year contracts with the OPA. One project is at an advanced stage of construction, with the installation of foundations complete and photo-voltaic (PV) module racking and underground electrical cabling and the substation well underway. PV module fabrication is complete. This project is expected to reach commercial operations by the end of September 2014. Northland’s final four solar projects totaling 40MW (Phase III) are located in northern Ontario and are all under construction. Phase III was financed by a syndicate of lenders on April 24, 2014 along with the previously described advanced construction project. Site clearing, grading and access road activities are nearing completion and pile foundation work has begun. Inverters and PV module manufacturing and assembly are on schedule. The total capital cost of the phase III projects is expected to be $246 million, with commercial operations start dates expected in 2015. The five construction projects are being constructed by H.B White Canada Corp. The PV modules and inverter assemblies will be supplied by SunEdison Products Singapore Pte. Ltd. (formerly MEMC Singapore PTE Ltd.), and SMA Solar Technology Canada, Inc., respectively, with manufacturing completed in Ontario to meet the domestic content requirements of the FIT program.


Gemini 600 MW Offshore Wind Project – Netherlands In May 2014, Northland acquired a 60% interest in Project Gemini from Typhoon Offshore B.V. Gemini, located 85 kilometres off the coast of the Netherlands in the North Sea, that is owned by a consortium consisting of Northland Power (60%), Siemens (20%), Van Oord Dredging and Marine Contractors BV (10%) and N.V. HVC (10%). The project was awarded 15-year electricity off-take agreements by the Government of the Netherlands. Subsequent to the acquistion, Project Gemini reached financial close and all consortium owners contributed their required equity, totalling €441.5 million. In addition, Northland and a pension fund have provided subordinated loans totalling €200 million. The loans currently earn an interest rate of 13%. Under a two-contract project structure Siemens will supply and erect the turbines, and Van Oord will construct the balance of the wind farm. Engineering at Gemini is complete on the monopile foundations and nearing completion on the transition pieces and offshore high voltage substation foundations. Fabrication of the 220 kV export cable and the monopiles has begun, with the first monopile completed in July. Grading and foundation work has begun on the land high voltage substation (“LHVS”). The first inwater activities are set to begin, with horizontal directional drilling activities in the tidal flats adjacent to the LHVS in August. Project Gemini’s total capital cost is approximately €2.8 billion and is expected to reach full commercial operations in 2017. Projects in Advanced Development Northland is actively developing two onshore wind projects that have been contracted under long term PPAs totalling 124 MW (66 MW net to Northland). The table below provides the respective project capacity, Northland’s economic interest, the PPA counterparties and contract term.

Advanced Development

Gross Project

Northland’s Economic Interest

PPA Contract PPA

Projects Capacity % Capacity Region Counterparty Term1

Grand Bend Wind 100 MW 50% 50 MW Ontario OPA 20 yrs

Frampton Wind 24 MW 66% 16 MW Quebec Hydro Québec 20 yrs

(1) From the commercial operations date

Grand Bend 100 MW Wind Project – Ontario Northland and an entity created by the Aamjiwnaang and Bkejwanong First Nations are jointly developing the 100 MW (50 MW net to Northland) Grand Bend wind farm project under a 50/50 partnership. The project has a 20 year PPA with the OPA under the FIT program. Development of the project continues. The Ontario Energy Board “leave to construct” has been received for transmission infrastructure, and the construction contractor for the project has commenced engineering. The Renewable Energy Approval (REA) was issued by the Ministry of Environment in June, and an appeal was filed with the Environmental Review Tribunal (ERT) in July 2014. The appeal process is expected to conclude within the six month maximum period provided by the ERT, and has been factored into the project’s construction schedule. Major construction activities are planned to commence following the ERT process, and commercial operation is scheduled for spring 2016. Capital cost of the project is estimated to be approximatley $385 million. Frampton 24 MW Wind Project – Quebec This 24 MW (16 MW net to Northland) wind project will be located on the south shore of the St. Lawrence River near Frampton, Quebec, and will be 33% owned by the municipality of Frampton. Environmental permitting for


the project is well advanced, and commercial operation is contracted for late 2015 under the PPA with Hydro-Québec. The project will use Enercon wind turbines supplied from a Quebec manufacturing facility, and is forecast to have a capital cost of approximately $75 million. Other Projects Kabinakagami Hydro Projects – Ontario Northland owns development rights to 26 MW (13 MW net to Northland) of hydro power to be provided from four run-of-river projects on the Kabinakagami River near Hearst, Ontario. The projects have been developed in 50/50 partnership with Constance Lake First Nation. Based upon the most current review of project costs and the OPA confirming in January 2014 that PPA prices would not be escalated with inflation despite the project being granted an extension due to permitting delays, the Kabinakagami hydro projects no longer meet Northland’s policy requiring that they be “highly certain” of being developed and constructed. As a result, $5.2 million of previously deferred development costs related to the Kabinakagami hydro projects were written off during the first quarter of 2014. Management is exploring its options for the project. SECTION 6: OUTLOOK During the first six months of 2014 and through the date of this report, Northland continued to expand its earlier-stage development pipeline, pursuing opportunities that meet the Company’s investment criteria in targeted markets including North America, Europe and Latin America. We have identified a number of opportunities in these jurisdictions, in addition to several projects already under development. Our sustained focus is on purposefully advancing those development opportunities that align with the Company’s business strategy while prudently managing the cost exposure of earlier-stage projects. Due to the strong performance in operations over the first half of 2014, Northland has increased its 2014 adjusted EBITDA forecast to approximately $350 to $360 million. Management continues to expect adjusted EBITDA of $380 to $400 million in 2015 based on the current completion schedules for Northland’s projects with power contracts. Northland’s 2014 dividend payments, on a total dividend basis, are expected to exceed free cash flow due largely to the level of spending on growth initiatives and payments of dividends and interest on capital raised for construction projects for which corresponding cash flows will not be received until the projects for which the capital is raised are completed. For 2014, commensurate with EBITDA guidance, management has improved its payout ratio forecast and expects cash dividends to be 75–85% of free cash flow, including the impact of reinvested dividends through the DRIP, and 100–110% of free cash flow excluding the impact of reinvested dividends through the DRIP (compared with 76% and 101%, respectively, in 2013). Prior to its investment in Project Gemini, management expected the dividend payout ratio to drop below 100% in 2014 on a total dividend basis, based on the successful conclusion of a period of significant growth and capital expenditures for Northland. Due to the significant capital costs for Northland’s investment in Project Gemini, additional corporate capital has been raised in 2014 to fund the project, and as a result the payout ratio may exceed 100% until Project Gemini is completed in 2017. Northland has sufficient liquidity to bridge the payout of the current dividend in excess of free cash flow during this period. Management expects the payout ratio during Project Gemini’s construction to be significantly lower than during the growth period experienced by Northland from 2009 to 2013.


SECTION 7: EQUITY AND CONVERTIBLE UNSECURED SUBORDINATED DEBENTURE INFORMATION As at June 30, 2014, Northland had 146,823,540 common shares outstanding (December 31, 2013 – 131,978,711), 6,000,000 Series 1 Preferred Shares, 4,800,000 Series 3 Preferred Shares and 1,000,000 Class A Shares.

On March 5, 2014, Northland announced the closing of a $157.5 million offering of 9,843,750 common shares and $78.8 million 2019 Debentures. Northland also issued, on a private placement basis, 3,125,000 common shares to a subsidiary of Northland Power Holdings Inc., a company controlled by the Chairman of Northland, James C. Temerty. After this transaction, Mr. Temerty, indirectly beneficially owned or had control or direction over 1,000,000 Class A Shares and 50,777,454 common shares of Northland, representing an approximate 35% interest in the Company. The aggregate gross proceeds from the offering and placement were $286.3 million ($275.7 million after costs and underwriters’ fees). The $275.7 million of net proceeds was consistent with the expected net proceeds disclosed in the prospectus dated February 26, 2014. Northland used the net proceeds of the offerings primarily to fund a portion of Northland’s equity investment and subordinated loan to Project Gemini.

As of the date of this report, August 5, 2014, Northland has outstanding 147,123,848 common shares, 6,000,000 Series 1 Preferred Shares, 4,800,000 Series 3 Preferred Shares, 1,000,000 Class A Shares, $13.2 million of the 2014 Debentures and $78.8 million of the 2019 Debentures. SECTION 8: HISTORICAL CONSOLIDATED QUARTERLY RESULTS

Northland’s financial results are affected by seasonal factors that result in quarterly variations. At the Iroquois Falls and managed facilities (Kirkland Lake and Cochrane), OEFC has contracted for more electricity and pays a higher price in winter than in summer. The financial results from Northland’s wind farms follow a similar seasonal pattern because it tends to be windier in winter months compared to summer months. Northland’s solar projects follow a seasonal pattern that is the opposite of Northland’s wind farms because the solar projects are expected to generate higher output and revenue during the summer months. Consolidated seasonality is also mitigated by the Kingston, Thorold, Spy Hill and North Battleford facilities because the contract provisions of these projects provide for generally consistent earnings throughout the year. Northland’s quarterly net income also varies due to any non-cash impairments/recoveries and foreign exchange adjustments required to translate U.S.-dollar- and euro-denominated balances to the appropriate quarter-end Canadian-dollar equivalent and by fair value movements of financial derivative contracts.

$ millions, except Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3Per share information 2014 2014 2013 2013 2013 2013 2012 2012Total sales 169.9 229.4 174.3 152.4 124.4 106.1 93.2 82.9Adjusted EBITDA 81.5 102.1 82.9 75.7 50.1 54.6 43.5 37.6Net income (loss) (91.8) 28.6 22.0 41.3 80.1 23.6 (2.5) (22.2)Free cash flow 31.4 56.8 38.0 39.7 22.0 30.4 17.7 5.7

Per share statistics Net income (loss) - basic (0.44) 0.08 0.08 0.27 0.62 0.17 (0.05) (0.21)Net income (loss) - diluted (0.44) 0.08 0.08 0.26 0.58 0.16 (0.05) (0.21)Free cash flow 0.21 0.41 0.28 0.32 0.19 0.26 0.15 0.05Total dividends declared 0.27 0.27 0.27 0.27 0.27 0.27 0.27 0.27


SECTION 9: RISKS AND UNCERTAINTIES For information concerning Northland’s risks, uncertainties, financial instruments and contractual commitments please refer to Northland’s 2013 Annual Report and its AIF dated February 19, 2014 which are filed electronically at www.sedar.com and on Northland’s website www.northlandpower.ca. Except as described in more detail below, management believes that there have been no material changes in the business environment or risks faced by Northland during the quarter that have not been disclosed in the AIF or the 2013 Annual Report other than the principal balance of plant contractor for the Jardin wind farm discontinued its legal action against a subcontractor and Jardin during the first quarter of 2014. As a result of the acquisition and investment in Project Gemini during the quarter, Northland will be exposed to additional risks and uncertainties unique to Project Gemini and/or offshore wind projects. A summary of these additional risks is listed below: Possible Risks Related to Co-Ownership Northland will be relying on the other Project Gemini investors (Siemens, Van Oord Dredging and Marine Contractors BV and N.V. HVC) to fulfill their commitments and obligations in respect of the project. There is a risk that one or more of the other investors will be unable or unwilling to fulfill its obligations in respect of the project. In such case, Project Gemini’s operations may be adversely impacted and therefore Northland’s cash flows from the project could be negatively impacted. Possible Risks Related to Natural Events Offshore wind projects, including their turbines and collection systems, are exposed to the elements such as wind, water and movement of the sea floor. They are also susceptible to weather and other natural events such as hurricanes, tornadoes, lightning storms, and icing events that can cause construction delays and production losses and damage construction equipment, the wind turbines, the wind turbine blades and other project equipment. Natural events may also make it impossible for operations and maintenance crews to access disabled turbines to deliver parts and provide services. During times of unavailability, turbines will not produce energy. Although Van Oord Dredging and Marine Contractors BV takes substantially all weather and subsurface risk for known conditions under their construction agreements with the project and Project Gemini will be insured for most weather related issues, there can be no guarantee that Van Oord Dredging and Marine Contractors BV’s construction agreements and insurance will provide coverage for such events, that coverage provided will be sufficient to account for the losses suffered by the project, that claims will be paid on a timely basis or that claims will be made pursuant to the insurance policies given the deductibles. Possible Power Market Risks Once Project Gemini begins generating revenue, it bears a degree of merchant risk on the SDE revenue, to the extent the annual average day ahead market energy price falls below the SDE floor price of €44/MWh (non-indexed). The project will receive revenue in accordance with the SDE pursuant to applicable renewable energy legislation. There is no guarantee that this legislation will not be changed, which may reduce the amount of cash flow received. Further, the SDE is valid for 15 years and the latest date for initiating the SDE contract period is in November 2016. As a result, any delay in the commencement of operations of the first wind turbine of the project beyond this date may cause Project Gemini to lose a portion of the full 15-year period the SDE. Possible Inflation Risk The SDE price is not subject to an inflation rate escalation. Inflation beyond initial estimates could impact the project’s economics and in extreme cases, Project Gemini’s ability to meet debt service coverage ratios or other


obligations. Except as disclosed in this MD&A or notes to the interim consolidated financial statements, Northland has not entered into any additional significant financial instruments or contractual commitments during the quarter. SECTION 10: MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION A rigorous and comprehensive financial governance framework is in place at Northland and its subsidiaries. Northland’s 2013 Annual Report contains a statement signed by Northland’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) outlining management’s responsibility for financial information contained in the report. Northland filed certifications, signed by the CEO and CFO, with the Canadian Securities Administrators in February 2014 in association with the filing of the 2013 Annual Report and other annual disclosure documents. In those filings, Northland’s CEO and CFO certified, as required in Canada by National Instrument 52-109 (Certification of Disclosure in Issuers’ Annual and Interim Filings), the appropriateness of the financial disclosures in Northland’s annual filings and the effectiveness of Northland’s disclosure controls and procedures. The CEO and CFO have certified to securities regulators the appropriateness of the financial disclosures in Northland’s interim filings for the period ended June 30, 2014, and that they are responsible for the design of disclosure controls and procedures and internal controls over financial reporting. The interim filings include this MD&A and the accompanying unaudited interim condensed consolidated financial statements. There have been no changes in internal controls over financial reporting during the quarter ended June 30, 2014 that have materially affected or are reasonably likely to materially affect Northland’s internal controls over financial reporting. As discussed previously, during the quarter, Northland acquired controlling interest in Project Gemini, which required Northland to include the financial results for the project in Northland’s consolidated financial statements at June 30, 2014. Project Gemini was not required to comply with National Instrument 52-109 prior to Northland’s acquisition. Project Gemini’s management has not formally documented and evaluated the internal controls over financial reporting; however, Northland management has been assisting Project Gemini’s management implement and document similar processes and internal controls to Northland. Management expects formal documentation and evaluation of both the design and operating effectiveness of internal controls over financial reporting for Project Gemini to be completed in early 2015. Northland’s Audit Committee reviewed this MD&A, and the attached unaudited interim condensed consolidated financial statements, and its Board of Directors approved these documents prior to their release. SECTION 11: FORWARD-LOOKING STATEMENTS This MD&A contains certain forward-looking statements that are provided for the purpose of presenting information about management’s current expectations and plans. Readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “intends,” “targets,” “projects,” “forecasts” or negative versions thereof and other similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” These statements may include, without limitation, statements regarding future adjusted EBITDA, free cash flows, dividend payments and dividend payout ratios; the construction, completion, attainment of commercial operations, cost and output of development projects; plans for raising capital; and the future operations, business, financial condition, financial results, priorities, ongoing objectives, strategies and outlook of Northland and its subsidiaries. These statements are based upon certain material factors or assumptions that were applied in developing the forward-looking statements, including the design specifications of development projects, the


provisions of contracts to which Northland or a subsidiary is a party, management’s current plans and its perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. Although these forward-looking statements are based upon management’s current reasonable expectations and assumptions, they are subject to numerous risks and uncertainties. Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, construction risks, counterparty risks, operational risks, the variability of revenues from generating facilities powered by intermittent renewable resources and the other factors described in this MD&A and Northland’s 2013 Annual Report and the 2013 Annual Information Form dated February 19, 2014, both of which can be found at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.ca. Northland’s actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur. The forward-looking statements contained in this MD&A are based on assumptions that were considered reasonable on August 5, 2014. Other than as specifically required by law, Northland undertakes no obligation to update any forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.


Interim Consolidated Balance Sheets (Unaudited) As at, in thousands of Canadian dollars

Assets June 30, 2014 December 31, 2013 Current Cash and cash equivalents [Note 9] 518,732 138,460 Restricted cash 50,877 74,365Trade and other receivables 126,544 124,606 Inventories 13,500 12,793 Prepayments 3,855 7,595 Investment in Panda-Brandywine – 3,100 Finance lease receivable 2,638 2,530 Total current assets 716,146 363,449

Finance lease receivable 159,888 161,235 Equity-accounted investment [Note 5] 4,536 4,941 Property, plant and equipment 2,812,839 2,094,262 Contracts and other intangible assets 212,571 187,121 Other Assets [Note 9] 8,845 8,845 Goodwill 220,167 220,167 Total assets 4,134,992 3,040,020

Liabilities and shareholders’ equity Current Trade and other payables 130,234 84,993 Interest-bearing loans and borrowings 62,483 59,173 Dividends payable – non-controlling interest [Note 9] 1,455 3,460 Dividends payable 13,304 11,968 Convertible debentures [Note 7.1] 13,912 – Total current liabilities 221,388 159,594

Interest-bearing loans and borrowings [Note 7.3] 2,018,813 1,762,397 Corporate term loan facility [Note 7.2] 247,564 – Convertible debentures [Note 7.1] 75,307 15,992 Other liabilities 4,251 3,050 Provisions 29,456 16,205 Derivative financial instruments 184,262 46,622 Deferred tax liability 69,545 83,422Total liabilities 2,850,586 2,087,282

Shareholders’ equity Preferred shares 261,737 261,737 Common shares [Note 8.2] 1,867,938 1,637,480 Long-term incentive plan reserve [Note 8.2] 3,113 7,319 Contributed surplus [Note 8.2] 643 – Convertible shares [Note 8.3] 14,615 14,615 Accumulated other comprehensive income (loss) (29,188) 204 Deficit (1,172,191) (1,041,872)Equity attributable to shareholders’ 946,667 879,483 Non-controlling interests [Note 9] 337,739 73,255 Total shareholders’ equity 1,284,406 952,738 Total liabilities and shareholders’ equity 4,134,992 3,040,020

See accompanying notes.


Interim Consolidated Statements of Income (Loss) (Unaudited) In thousands of Canadian dollars except per Share and Share information

Three months ended June 30 Six months ended June 30 2014 2013 2014 2013 Sales Electricity 164,528 118,389 366,439 212,996 Steam and natural gas 5,288 4,887 32,657 9,283 Other 129 1,124 273 8,255 Total sales 169,945 124,400 399,369 230,534 Cost of sales 66,244 50,621 162,230 88,771 Gross profit 103,701 73,779 237,139 141,763 Expenses Plant operating costs 20,074 16,719 36,744 26,863 Management and administration costs – operations 4,304 3,177 8,607 6,635 Management and administration costs – development 5,690 4,628 10,350 9,618 Depreciation of property, plant and equipment 30,219 20,092 58,410 35,782 60,287 44,616 114,111 78,898 Investment income 3,562 112 4,524 284 Finance lease income 3,421 3,480 6,854 6,976 Operating income 50,397 32,755 134,406 70,125 Finance costs [Note 10] 31,312 17,506 60,335 32,207 Equity-accounted investment (gain) [Note 5] (149) (143) (121) (130) Amortization of contracts and other intangible assets 5,053 5,054 10,106 9,824 Writeoff of deferred development costs [Note 11] – – 5,181 – Writedown of Panda-Brandywine equity investments 3,100 – 3,100 – Foreign exchange (gain) loss 1,309 (1,701) (479) (2,617) Finance (income) (1,006) (245) (1,499) (397) Fair value (gain) loss on derivative contracts [Note 4 and

Note 7.3] 130,371 (77,741) 138,842 (90,612)

Fair value (gain) on convertible shares – (11,295) – (10,569) Other (income) loss (1,222) 97 (1,222) (578) Income (loss) before income taxes (118,371) 101,223 (79,837) 132,997 Provision for income taxes

Current 1,739 2,146 4,546 3,575 Deferred (28,265) 18,948 (21,114) 25,676

(26,526) 21,094 (16,568) 29,251 Net income (loss) for the period (91,845) 80,129 (63,269) 103,746 Net income (loss) attributable to Non-controlling interest [Note 9] (30,391) 4,407 (16,857) 4,407 Common shareholders (61,454) 75,722 (46,412) 99,339 (91,845) 80,129 (63,269) 103,746 Weighted average number of Shares outstanding –

basic (000s) [Note 12] 147,465 122,638 142,717 122,362

Weighted average number of Shares outstanding – diluted (000s) [Note 12]

147,465 132,230 142,717 132,222

Net income (loss) per share – basic ($0.44) $0.59 ($0.37) $0.79 Net income (loss) per share – diluted ($0.44) $0.55 ($0.37) $0.74 See accompanying notes.


Interim Consolidated Statements of Comprehensive Income (Loss) (Unaudited) In thousands of Canadian dollars

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Net income (loss) for the period (91,845) 80,129 (63,269) 103,746 Items that may be re-classified into net income (loss): Exchange differences on translation of foreign operations (29,107) (370) (29,392) (326) Change in fair value of available-for-sale financial asset – – – (100) Other comprehensive (loss) (29,107) (370) (29,392) (426) Total comprehensive income (loss) (120,952) 79,759 (92,661) 103,320 Total comprehensive income (loss) attributable to Non-controlling interest [Note 9] (30,391) 4,407 (16,857) 4,407 Common shareholders (90,561) 75,352 (75,804) 98,913 (120,952) 79,759 (92,661) 103,320 See accompanying notes.


Interim Consolidated Statements of Changes in Equity (Unaudited) Six Months Ended June 30, 2014

In thousands of Canadian dollars

C

omm

on S

hare

s C

onve

rtib

le

shar

es

Pref

erre

d sh

ares

L

ong-

term

ince

ntiv

e pl

an r

eser

ve

Def

icit

Con

trib

uted

Su

rplu

s Fo

reig

n cu

rren

cy

tran

slat

ion

rese

rve

Equ

ity a

ttri

buta

ble

to sh

areh

olde

rs’

Non

-con

trol

ling

inte

rest

s T

otal

shar

ehol

ders

’ eq

uity

December 31, 2013 1,637,480 14,615 261,737 7,319 (1,041,872) – 204 879,483 73,255 952,738

Net (loss) for the

period – – – – (46,412) – – (46,412) (16,857) (63,269)

Conversion of

debentures 2,457 – – – – – – 2,457 – 2,457

Public Offering and private placement

200,421 – – – – – – 200,421 – 200,421

Deferred income taxes

1,633 – – – – – – 1,633 – 1,633

Change in translation of net investment in foreign operation

– – – – – – (29,392) (29,392) – (29,392)

LTIP shares and deferred rights

7,212 – – (4,206) – 643 – 3,649 – 3,649

Gemini acquisition and equity contribution

– – – – – – – – 284,315 284,315

Dividends to CEEC non-controlling interest

– – – – – – – – (2,974) (2,974)

Common and Class A share dividends

18,735 – – – (76,969) – – (58,234) – (58,234)

Preferred share dividends

– – – – (6,938) – – (6,938) – (6,938)

June 30, 2014 1,867,938 14,615 261,737 3,113 (1,172,191) 643 (29,188) 946,667 337,739 1,284,406


Interim Consolidated Statements of Changes in Equity (Unaudited) – continued Six Months Ended June 30, 2013

In thousands of Canadian dollars

C

omm

on S

hare

s R

epla

cem

ent R

ight

s C

onve

rtib

le

shar

es

Pref

erre

d sh

ares

L

ong-

term

ince

ntiv

e pl

an r

eser

ve

Def

icit

A

vaila

ble-

for-

sale

re

serv

e Fo

reig

n cu

rren

cy

tran

slat

ion

rese

rve

Equ

ity a

ttri

buta

ble

to sh

areh

olde

rs’

Non

-con

trol

ling

inte

rest

s T

otal

shar

ehol

ders

’ eq

uity

December 31, 2012 964,311 11,098 499,033 262,195 9,391 (1,045,930) – 1,018 701,116 – 701,116

Net income for the

period – – – – – 99,339 – – 99,339 4,407 103,746

Conversion of

debentures 10,588 – – – – – – – 10,588 – 10,588

Conversion of Shares and Replacement Rights

421,716 – (421,716) – – – – – – – –

Change in translation of net investment in foreign operation

– – – – – – – (326) (326) – (326)

Change in fair value of available-for-sale securities

– – – – – – (100) – (100) – (100)

LTIP shares 335 – – – 10,910 – – – 11,245 – 11,245 Non-controlling

interest acquired - - - - - - - - - 42,507 42,507

Dividends to non-controlling interest

- - - - - - - - - (2,102) (2,102)

Common and Class A share dividends

16,601 – – – – (63,201) – – (46,600) – (46,600)

Preferred share dividends

– – – – – (6,938) – – (6,938) – (6,938)

June 30, 2013 1,413,551 11,098 77,317 262,195 20,301 (1,016,730) (100) 692 768,324 44,812 813,136

See accompanying notes.

31 Northland Power Inc. Second Quarter 2014 Report

Interim Consolidated Statements of Cash Flows (Unaudited) In thousands of Canadian dollars except per Share amounts

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Operating activities Net income (loss) for the period (91,845) 80,129 (63,269) 103,746 Items not involving cash or operations:

Depreciation of property, plant and equipment 30,219 20,092 58,410 35,782 Amortization of contracts and other intangibles 5,053 5,054 10,106 9,824 Writeoff of deferred development costs [Note 11] – – 5,181 – Finance costs, net 35,275 15,787 55,819 24,763

Writedown of Panda-Brandywine investment 3,100 – 3,100 – Fair value (gain) loss on derivative contracts 130,371 (77,741) 138,842 (90,612) Fair value (gain) on convertible shares – (11,295) – (10,569) Finance lease 626 796 1,239 1,576 Unrealized foreign exchange (gain) loss 1,217 (1,602) (571) (2,518) Equity loss, net of distributions [Note 5] (149) 495 405 508 Other 707 (633) 1,935 (502) Deferred income tax (28,265) 18,948 (21,114) 25,676

86,309 50,030 190,083 97,674 Net change in non-cash working capital balances related to operations

79,755 941 27,369 4,886

Cash provided by operating activities 166,064 50,971 217,452 102,560

Investing activities Purchase of property, plant and equipment (686,286) (145,381) (723,862) (213,524) Cash reserves utilization 23,101 142 23,489 7,330 Increase in intangible assets (3,627) (26,001) (26,598) (33,784) Interest received 1,006 245 1,499 397 Gemini acquisition, net [Note 4] (30,811) – (30,811) – Acquisition of CEEC, net – 11,519 – 11,519 Net change in working capital related to investing activities

16,163 104,944 18,198 105,468

Other 750 – 750 – Cash used in investing activities (679,704) (54,532) (737,335) (122,594)

Financing activities Proceeds from borrowings [Note 4 and Note 7.3] 284,300 39,490 290,900 91,990 Corporate term facility proceeds, net [Note 7.2] 247,402 – 247,402 – Non-controlling interest equity contribution [Note 9] 263,770 – 263,770 – Net proceeds from bond offering – – – 153,622 Repayment of borrowings (17,504) (7,061) (28,787) (152,921) Settlement of interest rate swaps – – – (3,493) Decrease in bank indebtedness – 28,838 – 37,813 Net proceeds from public offerings and private placement [Note 6]

– – 275,729 –

Interest paid (34,806) (14,874) (54,589) (22,846) Dividends to non-controlling interests [Note 9] (1,519) (5,174) (4,979) (5,174) Preferred share dividends [Note 8.1] (3,469) (3,469) (6,938) (6,938) Common and Class A share dividends (29,281) (23,754) (56,898) (46,436) Cash provided by financing activities 708,893 13,996 925,610 45,617


Interim Consolidated Statements of Cash Flows (Unaudited) – (continued) In thousands of Canadian dollars except per Share amounts

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Effect of exchange rate differences on cash and cash equivalents

(25,502) 41 (25,455) 32

Net change in cash and cash equivalents during the period

169,751 10,476 380,272 25,615

Cash and cash equivalents, beginning of period 348,981 46,854 138,460 31,715 Cash and cash equivalents, end of period 518,732 57,330 518,732 57,330

Per Share Dividends declared to shareholders $0.27 $0.27 $0.54 $0.54 See accompanying notes.


Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business Northland Power Inc. (“Northland”) is incorporated under the laws of Ontario, Canada and has ownership or net economic interests, through its subsidiaries, in operating power producing facilities and a pipeline of construction and development projects. Northland’s operating assets comprise facilities that produce electricity from natural gas and renewable sources, for sale under long-term power purchase agreements (PPAs) to assure revenue stability. Northland’s operating assets and investments are located in Canada and Europe.

The 2014 interim condensed consolidated financial statements include the results of Northland and its subsidiaries, of which the most significant are listed in the following table:

Entity Name Country of Incorporation

% ownership June 30, 2014

% ownershipJune 30, 2013

Iroquois Falls Power Corp. (“Iroquois Falls”) Canada 100 100Kingston CoGen Limited Partnership (“Kingston”) Canada 100 100Thorold CoGen L.P. (“Thorold”) Canada 100 100Spy Hill Power L.P. (“Spy Hill”) Canada 100 100North Battleford Power L.P. (“Battleford”) Canada 100 100Saint-Ulric Saint-Léandre Wind L.P. (“Jardin”) Canada 100 100Mont-Louis Wind L.P. (“Mont Louis”) Canada 100 100DK Windpark Kavelstorf GmbH & Co. KG and DK Burgerwindpark Eckolstädt GmbH & Co. KG (“the German wind farms”) Germany 100 100McLean’s Mountain Wind L.P. (“McLean’s”) Canada 50(1) 100Ground-mounted Solar Partnerships (“Ground-mounted Solar”)

Canada 100 100

Canadian Environmental Energy Corporation (“CEEC”)

Canada 68(2) 68(2)

Buitengaats C.V. and ZeeEnergie C.V. (“Gemini”) Netherlands 60(3) N/A(1) On October 1, 2013, concurrent with the financing, Northland issued 50% interest of McLean’s Mountain Wind

Limited Partnership to Mnidoo Mnising Power Limited Partnership, an entity controlled by the members of the United Chiefs and Councils of Mnidoo Mnising First Nations (UCCMM); see Note 9.

(2) On April 1, 2013, Northland acquired an ownership interest in CEEC, which has voting control of Kirkland Lake Power Corp. (“Kirkland Lake”) and Cochrane Power Corporation (“Cochrane”); see Note 9.

(3) In May 2014, Northland acquired a controlling ownership interest in Gemini; see Note 4.

Northland’s financial results also include income earned from a 19% equity interest in Panda Energy Corporation (“Panda-Brandywine”), whose PPA was terminated and related facility assets transferred to JP Morgan in May 2014, results from the Northland Power Chips Limited Partnership (“Chips”) prior to its sale in April 2014, the rooftop solar partnership in which Northland has a 75% interest, and management fees from Chapais Énergie, Société en Commandite (“Chapais”), in which Northland has an indirect equity interest. 2. General Information Northland is a corporation domiciled in Canada with common shares (“Shares”), cumulative rate reset preferred shares, series 1 (“Series 1 Preferred Shares”), cumulative rate reset preferred shares, series 3 (“Series 3 Preferred Shares”), Series A convertible unsecured subordinate debentures (“2014


debentures”) and Series B extendible convertible unsecured subordinate debentures (“2019 debentures”) that are publicly traded. Northland is the parent company for the operating subsidiaries which carry on the company’s business. Northland’s registered office is located in Toronto, Ontario. 3. Summary of Significant Accounting Policies 3.1 Basis of Preparation These interim condensed consolidated financial statements of Northland and its subsidiaries were prepared in accordance with IAS 34, Interim Financial Reporting, utilizing the accounting policies Northland outlined in its December 31, 2013 consolidated financial statements. The accounting policies are in line with International Financial Reporting Standards (IFRS) guidelines. The interim condensed consolidated financial statements do not include all of the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with Northland’s 2013 annual audited consolidated financial statements. These interim condensed consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest thousand except where otherwise indicated. 3.2 Future Accounting Policies Two accounting pronouncements outlined below were issued in the second quarter of 2014. Northland will assess each pronouncement to determine if they have an impact on its consolidated financial statements. Management anticipates that all of the relevant pronouncements will be adopted for the first period beginning on their respective effective dates.

The IASB published amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets clarifying the acceptable methods of depreciation and amortization, applicable to annual reporting periods beginning on or after January 1, 2016. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.

The IASB and the FASB jointly issued converged accounting standard on the recognition of revenue from contracts with customers (IFRS 15: Revenue from Contracts with Customers) effective for annual reporting periods beginning on or after January 1, 2017. The core principle of IFRS 15 is to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

Other than the above, there have been no additional accounting pronouncements issued by the International Accounting Standards Board beyond what is described in Northland’s 2013 annual report that would impact Northland’s consolidated financial statements.

4. Gemini Acquisition In May, 2014, Northland acquired a 60% controlling interest in Project Gemini an offshore wind project, from Typhoon Offshore B.V., a private company in the Netherlands. This included 60% of the issued share capital and voting rights of two Dutch limited partnerships (CVs), named Buitengaats C.V. and ZeeEnergie C.V., together the partnerships, which held the respective rights in the project. Gemini is located off the coast of the Netherlands in the North Sea. The remaining issued share capital and voting rights in the CVs were acquired by Siemens Financial Services and affiliates, Van Oord Dredging and Marine Contractors BV and N.V. HVC.


Northland's total investment, including its equity investment, share purchase and subordinated loan to Gemini, is approximately CAD$557 million. Northland has also provided additional contingent equity support to the project in the form of letters of credit totalling €94.8 million. In accordance with IFRS 10, Northland was determined to have met the definition of control and Gemini has been consolidated in Northland’s interim condensed consolidated financial statements. The total consideration paid for the controlling interest of Gemini has been preliminarily allocated to the fair value of the net assets acquired and liabilities assumed as follows: As at, in thousands of Canadian dollars May 2014 Working capital, including cash of $7 37 Contracts and other intangibles 60,232 Deferred taxes (8,926) Total net identifiable assets 51,343 Non-controlling interests (20,525) Cash consideration 30,818 Consideration transferred The acquisition was settled by transferring $30.8 million of cash at or prior to the acquisition of the shares. Additional consideration may be due to the vendor if certain cost savings are achieved at the completion of project construction. Management believes that the payout of the contingent consideration is highly uncertain and accordingly has not included it in the acquisition above. Non-controlling interest in Gemini The non-controlling interest in Gemini is measured at the fair value at the acquisition date. Identifiable net assets The determination of the fair value of assets acquired and liabilities assumed has been based upon management’s preliminary estimates and certain assumptions with respect to the fair values of the assets acquired and liabilities assumed and are expected to be finalized within the next year. Gemini’s contribution to Northland’s results Gemini has commenced construction and the majority of the costs will be capitalized to the project. Except as described below, the amount of revenue and profit or loss of Gemini since the acquisition date has been nominal and has minimal impact on revenues and profit or loss of the combined entity had the acquisition of Gemini occurred as of January 1, 2014. The income statement line item impacted in Northland’s consolidated income statements until commercial operations is the mark-to-market movement of the interest rate swaps on the project’s long-term debt. For the three and six month periods ended June 30, 2014, unrealized losses of CAD$109.2 million were recognized on the Gemini interest rate swaps in the consolidated statement of income (loss). Subsequent to closing the financing for Gemini, see note 7.3, Northland entered into additional foreign exchange contracts with several members of its corporate banking syndicate to effectively fix the foreign exchange conversion rate on substantially all Northland’s projected Euro-denominated cash inflows from Project Gemini. The weighted average conversion rate over the term of the foreign exchange contracts is approximately 1.67 Canadian dollars per EURO. For the three and six month periods ended June 30, 2014, unrealized losses of $11.1 million were recognized in the consolidated statement of income (loss).


5. Equity Accounted Investments Northland has a 75% interest in four rooftop solar partnerships with Loblaw Companies Limited (“Loblaw”) (“Rooftop solar”). Northland accounts for its interest in the partnerships using the equity method. The change in equity accounted investment is as follows: In thousands of dollars December 31, 2012 balance 5,317 Equity income 262 Distributions received (638) December 31, 2013 balance 4,941 Equity income 121 Distributions received (526) June 30, 2014 balance 4,536 Summarized information on the results of operations and financial position relating to Northland’s pro-rata interest in the equity investment is as follows: Three months ended June 30, Six months ended June 30, In thousands of dollars 2014 2013 2014 2013Revenue 231 225 276 285 Expenses (82) (82) (155) (155) Proportionate share of net income 149 143 121 130 As at, in thousands of dollars June 30, 2014 December 31, 2013Current assets 308 558 Long-term assets 4,266 4,392 Current liabilities (38) (9) Long-term liabilities – – Proportionate share of net assets 4,536 4,941 6. Equity and Convertible Debentures Public Offering and Private Placement On March 5, 2014, Northland completed a public offering of 9,843,750 Shares (including Shares issued under the over-allotment option) at a price of $16.00 per Share, representing gross proceeds of $157.5 million ($150.4 million after costs and underwriters’ fees), and gross proceeds of $78.8 million ($75.3 million after costs and underwriters’ fees) of 5.00% convertible unsecured 2019 Debentures (including Debentures issued under the over-allotment option). The 2019 Debentures had an initial maturity of June 30, 2014 and as a result of the financial closing of Gemini (as described in Note 7.3 below), the maturity was automatically extended to June 30, 2019. Concurrently with the public offering, Northland completed a private placement of 3,125,000 Shares to a subsidiary of Northland Power Holdings Inc., a company controlled by Mr. James C. Temerty, at the same price per Share as the Shares issued pursuant to the public offering. The proceeds from the public offering and private placement totalled $286.3 million ($275.7 million after costs and underwriters’ fees) and were used by Northland to satisfy a portion of its equity contribution, and to fund a subordinated loan, to Project Gemini.


7. Convertible Debentures, Corporate Credit Facility and Long-Term Debt 7.1 Convertible Debentures During the three and six month periods ended June 30, 2014, a total of $1.4 million and $2.5 million (2013 - $2.9 million and $10.6 million) of the 2014 debentures have been converted into 113,925 Shares and 197,818 Shares; respectively (2013 – 229,301 Shares and 852,485 Shares; respectively). As at June 30, 2014, approximately $13.9 million of the 2014 debentures were outstanding with a maturity date of December 31, 2014, that if converted would convert into approximately 1.2 million Shares. As described in Note 6, in March 2014, a total of $78.8 million 2019 Debentures were issued related to the public offering. As at June 30, 2014, approximately $78.8 million of the 2019 Debentures were outstanding that if converted would convert into approximately 3.6 million Shares. 7.2 Amendment to Corporate Credit Facility On March 7, 2014, Northland completed an amendment to its corporate credit facility with a syndicate of financial institutions. The credit facility was increased from $250 million to $600 million and consists of a $350 million revolving facility and a $250 million term facility. The revolving facility also provides for an accordion feature which permits increases of up to $100 million upon obtaining commitments for such increase. The revolving facility is available for general corporate purposes and working capital. The maturity of the revolving facility has been extended from May 2015 to March 2019, with further annual renewal options. The full $250 million term facility was drawn on April 22, 2014 to assist in funding Northland’s investment in Project Gemini (as described in Note 4). The underlying interest rate on the term facility borrowings was hedged through 2018 at an average rate of 1.48% plus applicable credit spread. The term loan matures in March 2018 and has a one-year renewal option.

7.3 Long-Term Project Debt On April 24, 2014, Northland completed $240 million of non-recourse project financing and a $25 million letter of credit facility for the five remaining ground-mounted solar projects (“Cluster 4”) with a syndicate of lenders. Once term conversion is achieved, the loan will require blended payments of principal and interest based on an 18-year amortization period. The all-in rate including interest rate swaps and credit spreads is 5.58% during operation escalating 25 basis points every 4 years. On May 14, 2014, the Gemini project completed €2.0 billion of non-recourse project financing with a syndicate of international financial institutions and public financing agencies. The project loans include a 3-year construction period and a 14-year amortization period. Should the loan not be fully repaid by December 31, 2022, the credit agreement provides for an acceleration of principal payments, subject to available cash flow. The interest rate for the project has been hedged over the full loan amortization period with an effective interest rate of approximately 4.75%. 8. Equity 8.1 Series 1 and Series 3 Preferred Shares During the three and six month periods ended June 30, 2014, $2 million and $4 million, respectively, of Series 1 Preferred Share dividends were paid, excluding taxes (2013 - $2 million and $4 million, respectively) and $1.5 million and $3 million, respectively, of Series 3 Preferred Share dividends were paid, excluding taxes (2013 - $1.5 million and $3 million, respectively). 8.2 Shares Northland is authorized to issue an unlimited number of Shares.


The change in Shares during 2014 and 2013 was as follows: In thousands of dollars except for Shares Shares Amount Outstanding as at December 31, 2012 86,041,930 964,311Conversion of Class A Shares 41,209,399 603,013 Shares issued under LTIP (1) 1,029,481 15,061 Change in deferred taxes – (191) Conversion of 2014 debentures 920,434 11,432 Shares issued under DRIP (2) 2,018,112 32,756 Exercise of Replacement Rights 759,355 11,098 Outstanding as at December 31, 2013 131,978,711 1,637,480 Public offering, net of transaction costs 9,843,750 150,421 Private placement 3,125,000 50,000 Deferred taxes – 1,633 Conversion of 2014 debentures –Q1 83,893 1,042 Shares issued under DRIP (2)–Q1 543,440 8,341 Conversion of 2014 debentures –Q2 113,925 1,415 Shares issued under LTIP (1) – Q2 511,270 7,212 Shares issued under DRIP (2)–Q2 623,551 10,394 Outstanding as at June 30, 2014 146,823,540 1,867,938

(1) Long-Term Incentive Plan (2) Dividend Reinvestment Plan

Issuance of Common Shares As described in Note 6, in March 2014, a total of 12,968,750 Shares were issued pursuant to the public offering and private placement. Dividend Reinvestment Plan (“DRIP” or the “Plan”) Northland’s DRIP provides Shareholders and the Class A shareholder the right to reinvest their dividends in Shares at a 5% discount to the market price as defined in the Plan. Shares issued through the DRIP are currently from Northland’s treasury at the election of Northland’s Board of Directors. The issue price for the reinvested Shares on each dividend payment date is the volume weighted average trading price of the Shares on the TSX for the five trading days immediately preceding the dividend payment date less the 5% discount. Northland’s Board of Directors has the discretion to alter or eliminate the 5% discount or to revert to market purchases of Shares at any time. Long-Term Incentive Plan (“LTIP”) Northland’s LTIP provides for a maximum of 3.1 million Shares to be reserved and available for grant to employees of Northland and its subsidiaries. The number of Shares awarded at each milestone is determined using the amount of expected development profits at that milestone date. As a result, the amount of LTIP costs recognized depends on the estimated number of Shares to be issued at each milestone date, which in turn is based on management’s best estimate of a project’s expected development profit. Changes in estimates about the number of Shares to be issued, forfeiture rates and vesting dates and changes in fair value up to the grant date are recognized in the period of the change. For the three and six month periods ended June 30, 2014, Northland capitalized $1.2 million and $2.0 million, respectively (2013 – $8.8 million and $11.1 million, respectively) and expensed $0.5 million and $1.0 million, (2013 – $0.1 and $nil, respectively) of costs under the LTIP. Forfeitures have been assumed to be $nil. During the second quarter, pursuant to Northland’s LTIP, 511,270 Shares were awarded to employees.


For the three and six month periods ended June 30, 2014, Northland recorded $0.3 million and $0.6 million, respectively for deferred rights granted during the first quarter of 2014 which will vest upon achieving certain milestones. 8.3 Class A Shares The terms and conditions of Northland’s Class A Shares are defined in Northland’s Articles. As at June 30, 2014, a total of 1,000,000 Class A Shares remain outstanding totaling $14.6 million. 8.4 Dividends Dividends totalling $0.27 per Share and $0.54 per Share (2013 - $0.27 and $0.54), being aggregate dividends of $39.7 million and $76.9 million (2013 – $31.7 million and $63.2 million), were declared for the three and six months ended June 30, 2014. Total dividends declared for the three and six months ended June 30, 2014 consist of $29.3 million and $58.2 million of cash dividends and $10.4 million and $18.7 million of Share dividends pursuant to Northland’s DRIP. 9. Non-Controlling Interest Non-controlling interests relate to the interests not owned by Northland for McLean’s (50%), Gemini (40%) and CEEC (32%). CEEC has voting control of the Kirkland Lake and Cochrane facilities and has an 8.78% economic interest in Kirkland Lake and an 11.54% economic interest in Cochrane. Summarized financial information on the non-controlling interests in the consolidated balance sheet is as follows: In thousands of dollars As at June 30, 2014

CEEC McLean’s Gemini Total

Current assets 30,696 42,531 385,392(1) 458,619 Long-term assets 28,080 182,859 586,914 797,853 Current liabilities (16,224) (30,211) (34,980) (81,415) Long-term liabilities (1,524) (147,119) (264,917) (413,560)

(1) Included in current assets are cash and cash equivalents of $357.5 million for Gemini where the availability of funds is intended for the

respective operations.

In thousands of dollars As at December 31, 2013


Current assets 38,207 57,627 – 95,834 Long-term assets 32,456 141,290 – 173,746 Current liabilities (25,578) (14,057) – (39,635) Long-term liabilities (3,313) (135,200) – (138,513) As at June 30, 2014, dividends payable to the non-controlling interest partners of CEEC totalled $1.5 million. As at June 30, 2014, Northland had an outstanding receivable balance of $8.8 million with Mnidoo Mnising Power Limited Partnership. The change in non-controlling interests during 2014 and 2013 is as follows:

In thousands of dollars


Non-controlling interests as at December 31, 2012 – – – –


Non-controlling interests acquired 42,507 – – 42,507 Contribution of non-controlling interests – 24,832 – 24,832 Net income attributable to non-controlling interests 15,885 – – 15,885 Dividends declared to non-controlling interests (9,969) – – (9,969) Non-controlling interests as at December 31, 2013 48,423 24,832 – 73,255 Acquisition and contribution of non-controlling interests

– – 284,315 284,315

Net income (loss) attributable to non-controlling interests

16,682 (756) (32,783) (16,857)

Dividends declared to non-controlling interests (2,974) – – (2,974) Non-controlling interests as at June 30, 2014 62,131 24,076 251,532 337,739 10. Finance Costs Finance costs consist of the following: In thousands of dollars Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Interest on debts, borrowings and bank fees

30,929 17,214 59,626 31,622

Discount on provisions for decommissioning liability 194 103 331 207 Amortized transaction costs 189 189 378 378 31,312 17,506 60,335 32,207 For the six months ended June 30, 2014 and 2013, $6.3 million and $22.8 million, respectively, in interest was incurred related to facilities under construction, which was capitalized and included in construction in progress. 11. Writeoff of Deferred Development Costs In the first quarter of 2014, Northland expensed $5.2 million of previously deferred development costs related to the Kabinakagami hydro project as it no longer qualified for capitalization under Northland’s deferred development policy. 12. Earnings per Share The calculation of basic net income (loss) per Share is based on the consolidated net income (loss) for the period, less preferred share dividends divided by the sum of the weighted average number of Shares outstanding and the weighted average number of contingent/exchangeable Shares and contingent Replacement Rights recognized as equity for accounting purposes. Diluted net income per Share is calculated by dividing consolidated net income, net of preferred share dividends, plus expenses related to the debt that is being converted by the weighted average number of Shares used in the basic net income per Share calculation plus the number of Shares that would be issued assuming conversion of the 2014 and 2019 Debentures into Shares and the weighted average number of contingent/exchangeable shares and contingent Replacement Rights recognized for accounting purposes during the period. The reconciliation of the numerator in calculating diluted net income (loss) for the periods ended June 30 is as follows:


In thousands of dollars Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Net income (loss) for the period (61,454) 75,722 (46,412) 99,339 Less: preferred share dividends, net (3,469) (3,469) (6,938) (6,398) Net income (loss) attributable to ordinary equity holders of Northland for basic earnings (64,923) 72,253 (53,350) 92,941 Add back: convertible subordinated debentures interest – 214 – 486 Net income (loss) attributable to ordinary equity holders of Northland for diluted earnings (64,923) 72,467 (53,350) 93,427 The reconciliation of the denominator in calculating basic and diluted per share amounts for the periods ended June 30 is as follows:

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013

Weighted average number of Shares outstanding 146,465,816 116,588,770 141,716,575 106,270,869 Weighted average number of Class A Shares 1,000,000 1,000,000 1,000,000 11,042,363 Weighted average number of Class C Shares – 4,289,808 – 4,289,808 Weighted average number of Replacement Rights – 759,355 – 759,355 Weighted average number of Shares outstanding, basic

147,465,816 122,637,933 142,716,575 122,362,395

Effect of dilutive securities: Exchangeable securities – 8,067,723 – 8,067,723 Convertible unsecured subordinated debentures – 1,524,017 – 1,791,416 Weighted average number of shares outstanding, diluted 147,465,816 132,229,673 142,716,575 132,221,534

The inclusion of the conversion of the convertible unsecured subordinated debentures are anti-dilutive for the three and six month periods ending June 30, 2014 and have therefore been excluded from the calculation of the diluted weighted average number of Shares.

13. Operating Segment Information In accordance with IFRS 8, “Operating Segments,” Northland has identified the following operating segments: (i) thermal, (ii) renewable, (iii) managed, management and operations services for Kirkland Lake, Cochrane and CEEC following Northland’s April 1, 2013, acquisition of the controlling interest in CEEC, (iv) Gemini offshore wind and (v) other, the last of which includes investment income and wood-chipping operations, as well as the administration of Northland. The operating segments have been identified based upon the nature of operations and technology used in the generation of electricity. Northland analyzes the performance of its operating segments based on their operating income, which is defined as revenue less operating expenses.


Significant information for each segment for the income statement is as follows: In thousands of dollars Three months ended June 30, 2014

Thermal Renewables Managed(1) Gemini Other(2) Elimina-tions(3)

Total

External revenue 113,387 28,419 28,010 – 129 – 169,945 Inter-segment revenue 573 – – – 5,001 (5,574) – Total revenue 113,960 28,419 28,010 – 5,130 (5,574) 169,945 Depreciation of property, plant and equipment 15,236 12,705 2,178 – 100 – 30,219 Finance costs, net 16,782 9,701 12 – 3,811 – 30,306 Operating income (loss) 41,520 11,566 3,296 – (5,985) – 50,397 In thousands of dollars Three months ended June 30, 2013

Thermal Renewables Managed Gemini Other(2) Elimina-tions(3)

Total

External revenue 83,932 11,591 27,752 – 1,125 – 124,400 Inter-segment revenue – – – – 4,607 (4,607) – Total revenue 83,932 11,591 27,752 – 5,732 (4,607) 124,400 Depreciation of property, plant and equipment 11,457 6,291

2,228 – 116 – 20,092

Finance costs, net 11,042 4,431 163 – 1,625 – 17,261 Operating income (loss) 32,552 1,441 5,171 – (6,409) – 32,755 In thousands of dollars Six months ended June 30, 2014

Thermal Renewables Managed(1) Gemini Other(2) Elimina-tions(3)

Total

External revenue 275,894 53,702 69,500 – 273 – 399,369 Inter-segment revenue 1,277 – – – 18,645 (19,922) – Total revenue 277,171 53,702 69,500 – 18,918 (19,922) 399,369 Depreciation of property, plant and equipment 30,450 23,323 4,436 – 201 – 58,410 Finance costs, net 33,642 17,472 46 – 7,676 – 58,836 Operating income (loss) 107,027 22,494 18,585 – (13,700) – 134,406 In thousands of dollars Six months ended June 30, 2013

Thermal Renewables Managed Gemini Other(2) Elimina-tions(3)

Total

External revenue 169,092 25,544 27,752 – 8,146 – 230,534 Inter-segment revenue – – – – 5,445 (5,445) – Total revenue 169,092 25,544 27,752 – 13,591 (5,445) 230,534 Depreciation of property, plant and equipment 21,134 12,186

2,228 – 234 – 35,782

Finance costs, net 19,879 8,712 163 – 3,056 – 31,810 Operating income (loss) 66,753 5,923 5,171 – (7,722) – 70,125 (1) After the acquisition of CEEC on April 1, 2013, Kirkland Lake and Cochrane and CEEC’s consolidated operating results

are included in “managed”. (2) Included in “other” are revenues and operating income from Northland’s wood-chipping facility, management and

operations fees until April 1, 2013, from operating facilities on behalf of other investors, investment income, and management, administration and development expenditures.


(3) Inter-segment revenues are eliminated on consolidation.

Significant information for each segment for the consolidated balance sheet is as follows: In thousands of dollars As at June 30, 2014

Thermal Renewables Managed(1) Gemini Other(2) Total

Investment in Panda- Brandywine

– – – – – –

Property, plant and equipment 1,202,570 827,844 28,080 588,613 165,732 2,812,839 Equity-accounted investment – – – – 4,536 4,536 Contracts and other intangibles, net 90,873 1,106 51,186 57,821 11,583 212,571 Goodwill 163,837 47,451 – – 8,879 220,167 Total assets 1,739,487 969,344 109,962 1,031,826 284,373 4,134,992

In thousands of dollars As at December 31, 2013

Thermal Renewables Managed(1) Gemini Other(2) Total

Investment in Panda- Brandywine

– – – – 3,100 3,100

Property, plant and equipment

1,232,709 567,029 32,456 – 262,068 2,094,262

Equity-accounted investment

– – – – 4,941 4,941

Contracts and other intangibles, net

98,896 1,201 52,813 – 34,211 187,121

Goodwill 163,837 38,138 – – 18,192 220,167 Total assets 1,820,324 647,228 123,061 – 449,407 3,040,020

(1) Includes Northland’s managed facilities: Kirkland Lake, Cochrane and CEEC. (2) Included in “other” are projects under construction that will be transferred to the appropriate segment once commercial

operations have begun. Information on operations by geographic area is as follows: In thousands of dollars Three months ended June 30, Six months ended June 30, Sales 2014 2013 2014 2013 Canada 169,274 123,803 397,461 229,056 Europe 671 597 1,908 1,478 Total sales 169,945 124,400 399,369 230,534 In thousands of dollars Property, plant and equipment, net as at

June 30, 2014

Dec. 31, 2013

Canada 2,221,388 2,090,906 Europe 591,451 3,356 Total property, plant and equipment, net 2,812,839 2,094,262 As at June 30, 2014, all of Northland’s assets and sales were located in Canada and Europe. All of Northland’s reported goodwill relates to operating segments located in Canada and Europe.


14. Authorization of Interim Condensed Consolidated Financial Statements The interim condensed consolidated financial statements for the period ended June 30, 2014 (including comparatives) were approved by the Board of Directors on August 5, 2014.


Corporate Information Directors and Officers of Northland Power Inc. DIRECTORSMr. James C. Temerty

The Right Honourable John N. Turner

Ms. Linda L. Bertoldi

Dr. Marie Bountrogianni

Mr. Barry Gilmour

Mr. Russell Goodman

Mr. V. Peter Harder

EXECUTIVE OFFICERSMr. John W. Brace Chief Executive Officer

Mr. Sean Durfy President and Chief Development Officer Mr. Salvatore Mantenuto Chief Operating Officer and Vice Chair

Mr. Paul J. Bradley Chief Financial Officer

Mr. Anthony F. Anderson Chief Investment Officer

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, Series A and Series B convertible unsecured subordinated debentures and Series 1 and Series 3 preferred shares are listed on the Toronto Stock Exchange and trade under the symbols NPI, NPI.DB.A, NPI.DB.B, NPI.PR.A and NPI.PR.C, respectively. DIVIDEND REINVESTMENT PLAN (DRIP) Northland’s DRIP provides common shareholders and the Class A shareholder the opportunity to elect to reinvest their dividends in common shares of Northland at a 5% discount to the market price. TAX CONSIDERATIONS Northland’s common shares, preferred shares and convertible unsecured subordinated debentures are qualified investments for RRSPs and DPSPs under the Canadian Income Tax Act.

Shareholder Information

For further information contact

Telephone 416-962-6262

E-mail [email protected]

Barbara Bokla 647-288-1438

Website northlandpower.ca

Adam Beaumont 647-288-1929 Facsimile 416-962-6266

Address 30 St. Clair Avenue West 17th Floor Toronto, Ontario, Canada M4V 3A1

30 St. Clair Avenue West

17th Floor

Toronto, Ontario, Canada

M4V 3A1

northlandpower.ca

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