Q2 2020 TransAlta Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Transalta Corporation second quarter 2020 results Conference call.
This time, all participants are in they listen only mode.
After the speaker presentation, there will be a question and answer session.
Last question. During this session you will need to press Star and then one that's on your telephone.
Please be advised todays conference is being recorded and if you require any further assistance. Please press star zero I.
I would now like to hand, the conference over to carry Valentini. Thank you. Please go ahead.
Thank you Chris.
Good morning, everyone and welcome to find all the second quarter 2020 conference call with me today, our Don Merril, President and Chief Executive Officer Cod stock Chief Financial Officer, John Kousinioris, Chief operating officer, and carry O'reilly Welch, Chief legal regulatory and external Affairs officer.
Today's call is what Tom and I write those listening on the phone to view the supporting slides that are posted on website.
A replay of the call will be available later today and the transcript will be sure posted to our website shortly thereafter.
Oh the information provided during this conference call is subject to the forward looking statement qualification set out here on slide two further detailed in our mdna unincorporated enfold for purposes of today's call all amounts referenced during the call or in Canadian currency unless otherwise.
As I stated.
The non <unk> terminology used including comparable EBITDA funds from operations and free cash flow are also reconciled in the M. DNA for your reference.
On today's call Donna Todd will provide an overview the quarter's results along with expectations for the balance of year. After these prepared remarks, we will open the call for questions.
But let me turn the call overtime, Thanks, Karen and welcome everyone to the call today.
We are presenting our results today from our offices here in Calgary, So as of last Monday, all our employees are now either back in their offices here or at the parts across her locations in Canada, United States and Australia.
I cannot tell you how great. It is to be here today, presenting a strong second quarter, along with all our people safely back at our sites and doing what they do best which is working to deliver low cost reliable and clean power to our customers in communities.
Our transalta employees are all leaders here at work and in their communities in families. As they have quickly learned how to practice covert safety protocols, which you're keeping it safe and allowing us to each other in person of course, while maintaining a two meter justice.
We're very excited to report results for the quarter that are solid.
According to the only slightly below what we expected to be able to do in a pre co bad world and this is actually exceptional when one step stock to reflect on how much different the world is under the cloud of the pandemic. It is a true testament to the diversity and stability of our portfolio.
On the resilience and tenacity of the employees who work at this company.
When we left the offices in early March we were facing into a significant drop in power demand in almost every jurisdiction, we either operated in or trade. It in.
We immediately set up systems to measure our liquidity, because we needed to be able to assess the ability of our customers to pay their bills.
We also saw reduce volatility in electricity pricing in every jurisdiction, which could have impacted the ability of our training business to deliver their results.
And of course, we were worried about the safety of our employees many of whom how to continue to go to the plan and many had to stay in their homes, where they did their work and makeshift offices well taking care of their families.
I'm very pleased today to tell you that many of our concerns simply did not take hold.
We are reporting a second quarter that is strong with excellent safety and operational results and stronger than expected revenue in our Alberta business due to some great hedging buyer opposite optimizer.
We had outstanding performance in our training business, which delivered one of the strongest Q twos in recent history.
Our trading operations ran smoothly, albeit from their homes and our <unk> chief strong availability.
Well dealing with the uncertainty of a pandemic and the challenges of having kids out of school.
As we look at the cash that we generated in the first half of the year and what's to come as we look ahead, we continue to closing on our goal of reducing senior recourse debt to 1.2 billion by November.
You all know that we've been after this objective for several years now I cannot wait until our fourth quarter call to tell you that it's finally been done indicated we're also confident that we can complete our investments under our strategy without the need for additional funding.
So our highlights of the second quarter include delivering 217 million of EBITDA and 91 million of free cash flow or 33 cents per share results that were ahead of 2019 by 94% on a per share basis.
We achieved strong availability and safety performance the entire fleet had an average availability of 90.7% for the quarter up from 83.8 last year.
And year to date, we've achieved a safety results of 1.4 on our total injury frequency rate, which is great performance.
We delivered strong operational performance well all our appliance dock showed up every day and work together under covered 20 covert 19 protocols that were approved by our local health authorities in each region.
We are deeply grateful to the men and women in our health authorities across all our sites, who worked side by side with us to develop safety protocols. The kept our workforce in the field and head office safe.
We needed to provide electricity for the economy, and our customers and they built our confidence around what people can do together if they're willing to follow a few very simple rule.
They also helped US continue with all our construction projects and we are moving ahead on every project with very few delays.
Now Unfortunately come about had a negative impact on the stock price of almost every Alberta company as it had such a tremendous impact on oil demand oil pricing and oil production here in Alberta.
Josh we used that as an opportunity to use our NC IB to return an additional 12 million of capital to our shareholders with our share buyback program and year to date we've returned.
Up approximately $21 million to shareholders at an average price of $7 in 51 cents per share.
I find his team did an outstanding job managing cash.
And our long term contracts with our customers were excellent any worries that we had about the depth of this crisis, we're satisfied through the quarter as all our customers continue to pay their bills.
We ended the quarter with continued strong liquidity at 1.6 billion, which includes approximately 250 million of cash and we're poised to repair 2020 I'm a treaty later this year without further funding requirements from the market.
So just a few words on our strategic priority.
We continue to track on all our parties with very little delay or very little change and timing.
Our strategy continues to focus on delivering our pipeline of investments regarding our called the GAAP here in Alberta wind at our wind and our cogeneration projects.
On our coal to gas strategy, we aren't that now to kick off the Sundance six conversion in September of this year.
Both keep those conversions, our on time and getting ready to go in the 2021 period.
We also continue to advance our gas supply strategy here in Alberta, and based on that progress. We do we now do not see I need to complete a dual fuel conversion on our Katori unit and that unit will be fully converted to GAAP only increase Q3 of next year.
Just slightly reduces our capital requirement for that project.
We're progressing the Repowering of Sundance unit, five and have advanced the competition for the EGPC contract and expect to receive these big proposals here in the [laughter].
We gave notice to retire are currently mothballed Sundance unit three coal fired unit out of the market by July 31st 2020 today.
This decision largely was largely based on the condition and age of the unit and our flexibility and options around Repowering, our units and our existing generation portfolio. This is another milestone in our transition plan to get to a 100% cleaning the energy by 2025 and closing the chapter on our coal fire generation.
On the cogeneration front during the quarter, we finalized the acquisition of her first cogeneration facility in the United States. We welcome the Ada facility located in Michigan, along with the new customers consumers energy and am way.
This marks our first toehold in the U.S. and this segment as we progress progress on our onsite generation goal.
On our Kaybob project with Semcams, we're on track to start construction in its early fall.
Factory tests of the gas turbines, having completed and we have major equipment delivery Soc for later this year.
And then you're on the renewable it's front, we have construction underway on both when drives and when charger, we expect to reach cod on wind charger and a few weeks.
Bulk of the equipment is now on site and installed and we're progressing with the factory testing on the Transformers.
On wind rise site construction commenced as planned in April and is tracking well with turbine deliveries expected later this year.
Our diligence and compliance to covert 19 protocols remained solid to date, which enables that project to continue.
School come Chuck now has 18 turbines up with a mechanical completion certificates issued.
The first circuit of six turbine have been energized and the rest are expected to commission in the next quarter and will make our decision on our option to by 49% of the project sometime during the quarter.
As we look towards the balance of year, we continue to have confidence in our 2020 free free cash flow guidance.
Todd will talk you through our views of the second half recovery in power demand here in Alberta as everyone returns to their offices in school and if all goes expected. We also expect to hit the lower end of our EBITDA guidance.
I do have one last comment before I turn it over to Todd, we did see particularly weak Alberta spot market prices in June due to short term disruptions in supply and demand.
Lots of supply due to both high winds and lots of hydro coming into the Pacific northwest that flow to court in Talbert of course through our timeline.
Demand fell by almost 1000 megawatts in March it has recovered somewhat since then but June was a month with lots of supply and an unheard of level of demand destruction.
Spot prices in the Alberta market in June are not in indicate cater of the future, which we will talk you through today.
What you'll see from talk today is that our diversified fleet our level of Contractedness and our approach to asset optimization, mostly offset the shorter term headwinds and the Alberta market.
Transaltas diversified EBITDA.
Our free cash flow, our liquidity and the fact that we have our strategy fully funded a lots is to be one of the few companies globally that can deliver on our investment plan with very minor changes in timing and on the path that we said prior to the full impact of this pandemic.
Pretty remarkable in my view, so with that I'm going to turn it over to talk for more color on the financials and then well it will all come back with questions for the team.
Thank you Don and welcome to everyone on the call I'll start by reviewing the financial highlights on slide six during our Q1 call. We indicated electricity demand was expected to remain low and that merchant power prices would be week in Q2, which they were.
Well these conditions impacted or these conditions impacted our merchant sales our fleet wide operational and financial results for the second quarter of 2020 continued to be strong and were indicative of the resilience of our operations, our hedging and marketing capability and our portfolio diversification.
During the quarter, we generated 217 million of EBITDA, which was inline with the same period in 2019, despite the challenge of lower electricity demand.
As I will highlight later on merchant sales from Rob from our Alberta coal segment represents a relatively small contribution to the company's overall EBITDA.
Our EBITDA in the quarter was generated by strong unpredictable contributions from our gas and renewable segments, combined which combined with strong cost control and performance from our energy marketing team.
Free cash flow also improved by $42 million year over year to 91 million in Q2 versus 49 million last year.
On a per share basis, we delivered free cash flow of 33 cents per share in the quarter and exceeded 2019 results by 94%, which was in line with our expectations.
Stronger free cash flow was largely attributable to reduced capital spend on major maintenance with two outages in Q2 2019 versus no major outages in 2020.
Year to date, we've generated 200 million of free cash flow or 72 cents per share a 41% increase over 20 Nineteens six month performance.
This is an exceptional results for the company and one of the strongest first house in the last decade.
Turning to the Alberta power market spot market, Alberta prices power prices in the quarter average $30 per megawatt hour and were considerably lower than the second quarter of 2019, which averaged $57 per megawatt hour.
However, our merchant units.
Alberta thermal we're able to continue to realize revenues in the mid fiftys due to our financial hedging and dispatch optimization.
As Don said earlier, the province had significant supply available for both within the province ASML. This from imports in the province supply was strong due to fewer planned outages and strong resource supply from the wind and hydro segments. During the quarter. We also saw significant low cost imports into Alberta from excess hydro and wind proved.
Action from the Pacific Northwest.
Electricity demand was impacted throughout Q2 back over night team and the continuing impact of lower oil prices on demand.
We estimate load reductions peaked at about 1100 megawatts, but is now trending in the five to 600 megawatt range versus 29 team.
As we're moving through the summer, we're seeing demand recover week by week as the economy starts to reopen over the past several weeks, we've seen many offices in businesses reopen and people are returned to restaurants and other attractions. We expect this to continue through the fall as kids go back to school and someone to shut in oil production is brought back into the market.
Our Alberta coal base load generation is now completely hedged for Q3, and we were partially hedged for Q4, which is the right position as we see prices recovering somewhat to reflect the increases in demand from increased economic activity.
For the Alberta market. When we look ahead to 2021, we could hedge volumes. If we wanted into the $51 per megawatt hour range that market is thinly traded and we'll begin to adjust as the market gets a sense of how demand is recovering over the second half of this year, we aren't the seller at these prices for the following reasons.
First there are a significant number of plant outages scheduled in 2021 as many of the coal units have planned outages to be converted to gas or dual fuel. These outages will naturally titan supply demand balances in the province.
Second we expect the problem provincial carbon tax to increased to $40 per ton to remain in line with the federal program. This raises the cost of production and has to be recovered through higher power prices.
Third the Alberta power purchase arrangements will transition next year six generating units, representing roughly 2400 megawatts of mid Merritt thermal capacity are currently dispatched by the balancing pool uncontracted under the existing be PPA is beginning in January the owners of the PPA assets will now be in complete alignment.
With the risks of owning operating and investing in the assets.
In order to recover capacity costs, we anticipate plant owners will structure. Their energy offers accordingly to reflect the recovery for return of an on capital as there is no mechanism outside of price of energy to do so.
We were pleased to see the clarification provided by the MSC enforcement statement in late June on economic withholding the unless they provided that in an energy only electricity market. The pool price must sometimes exceed short run marginal cost if the cost of generation capacity is to be recovered from the market.
This will be the first time and the Alberta market that this new alignment in ownership and clarity and rules will play out in terms of price formation.
And finally as the economy reopens, we see increasing demand as schools and businesses ramp up to higher levels, increasing demand generally correlates to increasing prices.
As an aside when you studied the cost structure of the generating units in the market and where demand across the supply the average price often settles into financial and spot market to an average of $60 per megawatt hour.
Next year, we expect additional volatility so taking an average price times volume will not tell the tale of Howard Weil due in the market for our fleet, peaking plants and hydro will make their money as prices increase during periods of tightness due to outages demand and whether we do expect the market to settle close to a historical.
Average, but our job will be to position ourselves to increased margins in periods of volatility.
We had a strong offer it we had strong operating performance across the generation fleet and segmented generation cash flows improved year over year by 16%. This was led by expected strong performance from our U.S. call segment and the increased contribution from the wind segment.
Overall, we continue to produce strong cash flows across all of our fuel segments with our largest contribution this quarter coming from the wind and solar segment, which has contributed about 30% of of our segment cash flows so far this year.
Wind and solar EBITDA improved in the quarter, primarily due to the full period contribution of anderman big level wind facilities, which were commissioned in December along higher production due to excellent wind resource across all regions.
Yes coal segment returned to normal results for the quarter and were substantially higher than the second quarter of 2019, we benefited from lower priced power purchases and strengthening of the U.S. dollar relative to the Canadian dollar.
For the remainder of the year, we continue to expect strong results for the segment as the majority of our production is hedged.
Cash flow from the Alberta thermal fleet was in line with 2019 and represents about 11% of our total segment cash flow.
Although EBITDA declined by 36 million this was offset by lower maintenance capital spend resulting in strong segment cash flow.
EBITDA in the segment was also impacted by a 7 million dollar increase to a provision in fuel and purchase power relating to the Alberta ISO line loss dispute for transmission losses for the years 2006 to 2016.
Many of you may not recall this proceeding so let me take a minute to go through it.
This regularity regulatory process has been ongoing for over a decade and relates to how the ISO used to calculate transmission lost fees for all generators in the province during Q2, the ISO was able to provide the results for the recalculation of three of the 11 years under dispute, which allowed us to better estimate the potential impact.
In total we've recognized the $20 million provision relating to this dispute.
The estimated amounts continued to be uncertain and the isos recalculated loss factors remain subject to further review and change.
Revenue from the Alberta thermal fleet in the quarter averaged approximately $65 per megawatt hour and was fairly consistent with last year.
Where we were able to maintain our per megawatt hour revenues through capacity payments on our PPA units as well as from significant hedging and dispatch optimization in the quarter.
Strong per megawatt hour revenues were offset by increased fuel costs of $40 per megawatt hour compared with $33 last year. A portion of this increased about $3 is due to the recognition of the transmission line loss provision the residual increase is related to higher year over year gas prices and our fixed coal costs now being spread over.
Lower volumes as a result of lower production in the in the mine in the quarter.
We had strong production from our hydro segment in Q2 due to strong seasonal run off but with an oversupplied power market. There was limited opportunity to capture any price premiums realized prices in the quarter for energy and syllabary were ancillary services were off compared to our historical averages due to lack of pricing.
Volatility.
Our energy marketing segment exceeded last year's quarterly performance by 10 million results were obtained through short term strategies across our various geographic regions in both the power and natural gas markets.
Our corporate segment in quarter incurred a quarter over quarter favorable run rate impact of $5 million due to lower operating costs after including for the impact of the total return swap our corporate segment cash flows decreased by a total of $12 million compared to 2019, an excellent result for the segment.
For the quarter, our segmented cash flow of 191 million was ahead of 2019 by 47 million and as I discussed earlier the company generated a consolidated free cash flow of 91 million, an increase of 42 million compared to the same period last year.
As Don mentioned liquidity at Transalta is very strong and has been for some time, we ended the quarter with 1.6 billion liquidity liquidity, including approximately 250 million in cash.
In addition to the current liquidity, we will be receiving 400 million from the second tranche of financing from the Brookfield investment in the fourth quarter of 2020.
Our strong liquidity position sets us up well to repay our upcoming bond maturity and to continue funding our coal to gas program and advance our renewable development projects.
With respect to our share buyback program year to date, we've repurchased and canceled 21 million shares which is tracking with our capital allocation strategy for 2020.
As you can see on slide 10 over the past few years, we've been focused on reducing our corporate debt levels in preparation for a fully merchant market in Alberta. We're on track to meet this goal in November and continued to be comfortable with our current debt levels.
On slide 11, I'll provide an update on our long term contract and hedging levels.
Year to date, we've realized 437 million of EBITDA, which is in line with 29 team.
For the full year 2020, approximately 90% of our EBITDA has been realized to date or is contracted or hedged for the balance of the year.
We continue to manage the remaining EBITDA contribution from merchant production through hedging and optimization.
Looking at our merchant exposure.
It up 75% of our thermal base load generation is hedged at $53 per megawatt hour for the remainder of the year.
For Q3, we are fully hedged in our base load generation, which provides the company protection from the near term fluctuations in power prices related to the cobot, 19, pandemic and resulting weaker energy demand.
As we look to the final quarter of 2020, we are opportunistically, adding additional hedges and are closely monitoring the recovery and power prices to take advantage of this on our open exposure.
At these current hedge levels, we estimate that a one dollar change in Alberta power prices would result in an approximate 2 million dollar change in EBITDA.
Given the unprecedented impacted demand in Alberta, we currently expect EBITDA to be at the low end of our guidance range.
This was primarily driven by the limited ability to sell additional merchant megawatt volumes into the market until the economy fully recovers.
At the same time, we also expect sustaining and productivity capital to be at the low end of our range as we've been able to respond with adjustments in our capital investment plans.
These reductions combined with our year to date results give us confidence in achieving our full year free cash flow at the midpoint of our outlook.
Before I close off my section I, just wanted to summarize the strength of the quarter the performance of the business and our people over the last three months demonstrates exceptional performance a strong commitment and significant resilience our business model and operating practices came through Q2 with flying colors and not only.
Are we able to see that in the health of our employees, but also in the health of the company.
As we look forward, we have confidence that our business operations and portfolio are well positioned to respond to the challenges and opportunities that lie ahead.
Given our ability to navigate the impact of this pandemic and delivery of our cash flows we have every confidence in our business model as we look towards the back half 2020 and into 2021.
Our strategy is on track and be complete Ken can be completed with little delay at within the financial resources, we have raised to date.
With that I will pass the call back over to Kara to start the QNX.
Thank you Todd Chris would you. Please open the call for questions from analysts.
Certainly ladies and gentlemen in order to ask a question you will need to press Star and then one on your were telephone. Please stand by what we compile the Q and a roster.
Our first question comes from Rob with Scotiabank. Your line is open.
Good morning, everyone on just want to follow up on your comment about getting behaviors and to 2021, just taking a look back at Q3.
And I guess year to date in 2020, we're seeing some of the balancing pooled units dispatch more than I would've expected. So do you think there will be do you think these are currently being bid economically and do you think there will be a large shipped in 2021 with into a new directions.
Yes, let me, let me start without and then taught in and John can can jump in because it's something we've been looking at closely I'm I really can't comment on what the motivations are of the balancing pool. They do have when you look at the structure of the PPA. They have they they remember those PA.
We're set up in 2000, and so they really do have quite a different <unk> economic signal and then and what it looks like when you actually returned the PPA back to all the owners. So what we've looked at is a couple of things you do you return everything back to the owners and effectively.
People do have to recover their car.
And they have to recover up a capacity payment somehow in the markets.
And and and they they have the right to rich you know to recover the capital that they they've invested.
People have forgotten that the original PPA case did not have recovery recovery of sustaining capital in the last five years or so.
And the theory at the time wise that if the generators wanted to continue to reinvest towards the end of the PPA days. It was really on their time to do that reinvestment to set up the units for that for the coming market. So if you. If you put that on a big part answer what it really means as as everybody gets their PPH back they really.
Okay.
Start to bid the proper cost structures into the market. The proper return so of course will be a competition for what that return might be depending on supply and demand conditions.
But does we finally got the full fundamentals of that energy only market. So when we've done a lot of analysis on that and when we look at that that's where you start to see things like the impact of a $40 carbon price comes into it comes into effect.
And then you also see that kind of generally the generators.
I'll have pretty similar cost structures. So at the end of the day, they're all going to be equally motivated to get tick to ensure they get their cost side of the market.
This does that make sense Rob.
That's great.
And then a follow up question just how are you thinking about deploying the capital you have a bunch on the balance sheet got pioneer coming in soon what do you look at the stack of opportunities in front of view how did they rank could we see do some contracted or merchant renewables in Melbourne further cogen M&A development in the U.S., how you're thinking about.
Flying capital.
Yeah, I mean, there's some there so I'm really really interesting opportunities.
You know we're seeing in a in the marketplace I mean, where were generally quite focused on.
Serving as you know, we don't retail power, we sell to retailers.
But we're really quite focused on the large commercial and large industrial sector and John.
You know just through the pandemic I think people I've, often wondered whether or not the framework well will remain or will that got kicked aside and what we're seeing is you know investors are even more.
They find it even more important to ensure that they roost reduce the risk.
What the science may bring which means that all companies are focused on how do they create some sort of path towards lower greenhouse gas emissions and so we see opportunities here in Alberta, with our large oil and gas customers.
We see a lot of opportunities across the United States almost everywhere. We go you know even if I you know having am way as a customer it's pretty called these guys there.
They're growing their businesses based on what they see as a future and of course as a result of doing not they want to make sure that they've got a power behind that business at sustainable revenue.
Attunitys here in Alberta, but also in the U.S.
All right that's great. Thank you.
Our next question is from Patrick Kennedy with National Bank Financial Your line is open.
Sure Yeah good morning.
Don maybe just a follow up on the capital allocation. So you've had success.
The big corporate off takers for renewable capacity.
Curious your thoughts on being able to leverage off your existing relationships with Microsoft and others to no potentially accelerate your clean energy transition and take advantage of the strong growth being experienced across the tech industry.
Then I guess, if internal capital is a constraint to take advantage of that growth. How you might think about putting in partners or other external sources of capital.
Yeah. So it so couple of comments on that Patrick So first of all when do you want to look out when you look at our Alberta portfolios. We actually have it we have there's not a lot of green power here in Alberta, and we've got most of it like we've got kind of 90% of at between our hydro and and our wind assets in and of course.
You know when we're finished with Sensex, we have a way to back it up with clean clean gas. So that is something that we really see as a big opportunity for existing customers that we've got long term relationships with here in Alberta, That's number one number too when you look at that the Microsoft's it a and the tech industry.
They are highly sought after like everybody and their dog, one SAR contract with with Microsoft. So those returns tend to be bed really really fun not that we don't want to compete there, but when you're thinking about capital allocation. Like you are you want to go where your highest returns are.
And typically what we're finding is go back to our little Michigan, a project, which you know everybody goes on why do you want to invest 27 million U.S. and a company like that level by two little and I'm looking at it going yeah behind that is a really big supplier of.
Products to the market in Amway, and if we could capture them as one of our <unk>. If we became their preferred supplier on green electricity. That's a massive move for us. So as we look at the customer business. We do we are starting to really partition in say two ourselves who actually needs. This summer.
Who needs our skills cause our skills or a combination of how do you trade energy how do you build new energy how do you bring create green credits and offsets how do you understand the regulations around offset how do you bring that whole mix together and then provide something to your customer and we find actually the industrials who are re tooling their businesses.
Yes.
To have it seems to be better prospects for us because they need us more and and most people aren't aren't focus there.
Okay, that's great Don and and maybe just a follow up Todd.
You mentioned, the Alberta merchant contributions continue to represent.
Smaller portion of overall cash flows.
But I guess this looks to be putting some pressure on your de consolidated.
Leverage ratios.
So you know until power prices recover there might be a delay here in getting down to that sub three times.
Target.
Just wondering how does that impact at all the <unk>.
The priorities with respect to dividend policy share buybacks.
Or.
Debt repayment as you look to refinance the 22.
Font coming up there.
No I would say actually no changed any of our capital allocation plans that we talked about I think it was last September we announced on our de consolidated basis.
You are correct, although our I think our de consolidated cash flows are actually very strong and stronger than they were prior quarter.
But as of compared to 2019.
What we're really looking at is reinvestment in the coal to gas is consuming some capital right now and so we really need to get through some of that program and similarly, we will see higher deconsolidated free cash flows once the hydro comes off PPH beginning of next year that will be a significant contribution to that de consolidated cash flow.
Okay, great. Thank you very much.
Patrick.
Our next question is from then bound with BMO. Your line is open.
Okay. Thanks, good morning.
Last question on the.
Hydro PT that expires later this year.
And next year that production from that facility is that.
Is that any part of your hedging program with some of your storage Sloshed want to read or is it can lead mostly open exposure.
Hi, So I'll start and then advent John can cannot I'm I mean, you've got to think about that hydrous as several different streams of revenue.
But if you're just thinking about the sort of energy component in the capacity remember that in this spring there's big run offs, we never know quite when it is we never know if it's going to be you know in May April may or June. It has I've you know in Alberta, It's been 30 above at the end of April and sometimes it's a cool spring.
Being on the run off doesn't come until June.
But net net that energy that comes it's more run of the river is more energy and it gets done of it is hedgeable in our program.
And then there's the storage component of it which is really what we used for both ancillary services and then selling into the market when it like last week when the market was really high our hydro loves those days right. So it's that the asset optimizers.
You a lot of risk probability assessments and then they decide how much they're gonna hatch, maybe John do you Wanna add to that I mean, I think I think that dawn answered it well there is a there is a component I think of it as a strip effectively.
Of the anticipated generation that we have through the year that we do view is being based load like if I can use that sort of expression of would factor into.
The work that the optimization team does from a from hedging perspective for sure.
Okay great.
And anything.
Although we will well.
Some of that.
Right so pump storage.
Thanks.
Picking a lot of late.
Thank you and out here and ago Theres been some.
Activity around PC energy.
Great and outbreak.
Thats not going on on turnaround, but would love an update there if there's anything.
You must be in the walls that transalta sorry event.
So everybody knows it Brasso's says Ceos favorite project and she's going to find some way come hell or high water to figure out how to make it go because when I look ahead bad I I, what I see is.
You have to go you know it over over 20 years, it's not going to happen tomorrow by over 20 years in Alberta, you've Gotta go from.
Natural gas and renewables much more towards storage and renewables and to me that if if the if the truth is it Canada as a whole is going to go after net zero by 2050, Alberta produces the most greenhouse gases, our oil and gas industry needs us to find the cleanest way to produce electricity. So that they can can do.
Can you to to sell oil and gas so.
We do think brad's always in the mix there so.
We continued to work behind the scenes on it part of it is as you know it's challenging.
To get People's attention on a project that won't be ready for seven years. So we've got some really cool ideas about how we can maybe create some sort of pitcher between now and seven years with some of our existing assets on our way to brought on the road to Brad, though so it's not dead, but it's certainly not something that we're talking about with investors.
Are you know really putting out in a in the front lines because we want to make sure that it is also competitive with other things that people will be thinking about people will be thinking about how to put hydrogen for example into Oh gosh stream at our plants because if we can do that you get some greenhouse gas.
Reductions we've resurrected the files on Ccs Oh. So for example, if K one is our neck and combined cycle plant for 2025, maybe we should be thinking about K, one having carbon capture in storage on it so that we can.
Well really clean energy to the oil and gas sector here.
We're also looking at you know other we've we've we've got a little program, where weve looked at almost every kind of battery storage that there isn't there some really interesting things going on with different technologies. There. So we've basically you've got a little team at fly and all of that up we're looking at how broad that would fit into that.
What the timing would be and then if I don't think about Brad. So I think if candidates going to build a infrastructure coming out of this pandemic as a way to get us out of the the mess that were in here or something like Brad, though is what I call productive infrastructure, it actually creates value and long term streams of income.
To investors and long term employment for people and it also would create a tax stream for governments. So I think the time is now to get that kind of infrastructure funded so we've got all of that on our minds, but I certainly nothing announceable, Ben but lots of five work going on behind the scenes as we take all that through.
Ah relative to our future.
Okay, maybe probably more than one [laughter] no.
That's great.
These thanks guys here.
And you're starting to happen cycle.
All right and maybe made its Mike My last question third on on that when you think book the market 710 years from now yet.
Very tight supply demand conditions that that quantifying.
Hi, guys. The status quo has always been just building a new gas generation at that time here equates to call the cat conversions.
Can you do you think.
How do you talk about hydrogen in renewable as you think maybe.
That might not be despite all that it's becoming more renewable more storage.
More of that maybe.
Pump hydro in that mix over over gap.
Yeah. So the way I tend to think about it is.
You know if you look at net zero by 2050, that's 25 years from 2025, and when I look at converting K one to gas I think you've got to be prepared and I do think that's had a fantastic and gosman daschle now it's similar to what we're doing on some five and as you know I've said before any.
Yes conversion has to be really capital conserving because you've got to get your capital back through the timeframe. So if I look at Kay wind like I say as a potential combined cycle plant.
The question I've got in my mind, it will it be one of the last combined cycle plants built and and will it require well we were well we built it actually with carbon capture and stores. So that it last beyond 2050, now typically a gas conversion is about a 25 year. So I think what the team is doing here as we're saying okay.
What is what did that one of the gas projects that can go to 2050, how do you get them past 2050, you have to put Tcs and play and then what starts to replace it now I can say I'm. Unfortunately have been in its interest you far too long.
The cost of things like new killer like people are talking about new killer and I'm like Oh My God.
It is it is very very costly its $200 megawatt hour I do not want to put that on my grandchildren. So when we look at hydrogen hydrogen is very expensive right now.
But 20 years ago wind was as you know for it really was $200 per megawatt hour today at 40. So 20 years is a long time, so I do think.
We want to be very very careful as a company in what those what those investments looks like and gas on our way to their 20, Twentys and I would predict at the group that is here at the end of the 20 Twentys, we'll be working really really hard on those storage options because I think renewables are pretty abundant a wind is pretty.
Abundant in Alberta.
And there are some some other ways to do hydro here like we've got a whole we pulled out as you know the whole file of hydro projects that the company was looking out into 15 and they put aside because they thought they would go to to call.
So some of those would come back now new hydro is really hard to hard to permit as well. So I think you're right on the money.
As we go through the decade gas will start to fade away and other things will start to come into play, but it takes you know it takes a customers who are willing to partner with us on those kinds of projects because in this market you can't you can't build the browse, though in a merchant market.
Using merchant rescue have to have some partnerships on that so I think that will be the other thing that will emerge as we go through that the decade here.
Alright, Thats great. Thank you Don.
Thanks Ben.
Our next question is from Murray's Troy with RBC capital markets. Your line is open.
Hi, good morning.
The ball from that.
Your long term discussion that you just had.
That does that mean that.
[music].
Thank you get to answer about obese, new technologies, having a cost come down significantly.
You are quite an unlikely to make a decision on.
Q1, and possibly even some for have you some near term.
Yeah, No no I would say again, if you if you if you look remember where a 85000 gigawatt hour market here today and even if it doesn't grow our gross.
Out at sort of 1% that see current simple conversions that are in the market. They they did they only have 15 years of life. Some of them last because of regulations right. So even as you're going forward through the twentys, you're gonna have to replace some of the supply and and so I.
I'm very bullish on K, one and potentially sun for as as rich as as repairing options because they're effectively replacing supply I should go later into the decade and as you rightfully pointed out when you start to look at around 2026, a number of people are looking at.
You know supply tightness and and our job is to make sure that our low cost resources get into the market. So we keep prices low here.
For our customers 'cause, Alberta is not competitive and less power prices are low and that's that's just a fact and you got to be able to make money and in those in those price ranges.
Huh.
So I think those are still continue to be good candidates, but as we look at the mix going forward. We may add some investment on Ccs because if you look at the carbon market. If carbon is going to 50 Bucks and beyond if you look at the clean fuel standard, which has an implied carbon price of $350 in it.
All of that says that the carbon market itself starts to dictate the way you think of your investments. So we can see ways of making returns on green screen greener assets, not just by selling I gigawatt hours backed by selling clean gigawatt hours. So gas can be very very clean and I. In fact, it's very very plenty plenty for.
I'll here in Alberta, and the trick is how do you either turned that got into hydrogen or how do you have turned that gas into a green house.
Greenhouse gas free gas by by doing Ccs. So those are the kinds of considerations that we're making and Luckily we've got to great portfolio of assets as sort of our starter kit to attached those investments to for our customers.
I guess just to pick up on.
I think there's a comment earlier from taught that usually Paul prices settle at around $60 per megawatt hour.
Does that mean, the as you think about all these projects you you model or you underpin that $60 at Nada hired insertion dollar properties.
I, Yeah, you know why and Anda.
I think as you think about your portfolio in your mix for the first of all you know $60 today has pretty pretty low returns in it relative to that the cost structure. This underneath that because the cost structure. This underneath that has to incorporate a future view on carbon and and.
As you all know the tier today allows gas to really effectively get off the hook, especially combined cycle gas propane any carbon bill at all we do expect as we go forward that that will go away I expect overtime anybody who's looking at at returning capital over 20 years.
Has to be looking at a natural gas, having more and more of a carbon price associated with it so.
When I think about $60 I, often think backwards without a carbon pricing. It when you start to put the carbon pricing. It it might go up a little bit it might be 70, 75, whatever but but it doesn't mean that.
It doesn't mean that that returns are higher it just means that the cost structure underneath it is higher.
My bet is the way technology has worked I mean, when we when we bet on wind in 2000 <unk>. Most people thought we were absolutely Stark raving Mad when we built our wind portfolio you all know I had more questions on the street about selling the went than I ever did about investing in it.
I have more people yelling at me for investing in wind farms, and I did supporting us, but net net as you look ahead, there's going be a lot of went on this planet and a lot of returns are going to be associated with that so.
So I think the job of the industry is to keep prices and not 60 $70 range as long as they can because it turns out no. One likes you gotta have low cost electricity to be competitive and especially if you like electrify everything that you can it's even more important so if the let's say on.
The oil and gas industry here starting to go for let's say electric boilers, very very expensive, but something they maybe thinking about as they look at their own as she goes we have to come underneath that and provide them with low cost power. So I, absolutely do not subscribe to a world where you charge people a ton of money to provide them electricity 'cause it screen.
Our job is to be innovative and get the cost down.
[laughter] speaking about clean energy.
Can you update us on your thoughts on Dropdowns to Trenton fell into renewables their preference I am going exactly.
Got it yeah, so I'm going to like John take that one.
Murray's we continue to have discussions with between Transalta and Transalta renewables about.
The potential for Dropdowns I think we've been you know I think people have a sense of what the.
A group of assets are that would potentially be within with the right attributes for dropdown and.
All I can tell you that we continue to work and have those discussions as we go forward Amir.
Thanks, and just the cleanup.
A question about mine mall.
Okay.
Cosmos.
No.
Mike.
Mhm medical what.
Oh.
Quarter.
That.
The though.
[laughter] Maurice I'm, having a hard time hearing it.
Have you already increase I think your question and well have to make that your lots of because we got to move to Andrew but I think your question is what is the cash flow impact to align life settlement.
Correct, and whether or not that affects your guidance for free cash flow.
Yes, no it doesn't affect our guidance we've built some of that settlement into our plan. So we do expect to settle roughly a third of that this year and then the remaining portion of it at some point in 2021, but that's been built into our forecast yes.
Thanks.
Thanks, Nice I. Andrew.
Next question is from Andrew that's going on with Credit Suisse. Your line is open.
Thanks, Good morning.
Appreciate the commentary and the perspective on your outlook for Powerplay, saying I'm just bidding behavior. That's a question more directly to transaltas bidding behavior is going to change in the market as the market transitions, but how do you look at your energy marketing business.
How does that more and change with the new market reality, Alberta.
Yeah. So it is so Andrew are you thinking about.
That being more so I think a simple way to say that is our energy marketing business has kind of right as always having a little separate book that they've had and the reality is as you can as you see as we bring on all these assets that are all merchant, it's really their expertise that helps us optimize around that so.
I think they'll continue to be the big value adders, a in how we how we how we look at the market here and I think at the end of that day. It doesn't they don't really need to be taking any real risk themselves and the electricity market here in Alberta.
As we've got all these assets and we've got a trade around so they'll do like what they do out at Centralia, they'll trade around the assets and at the same time provide a lot of asset optimization.
For the for the portfolio.
John you want to add anything no a you know all I would say is.
I mean your question is is a timely one in the sense. It's a very active discussion that were held yeah. Certainly as you can imagine our whole the way we're thinking of asset optimization.
His is being reviewed and we're getting prepared for the merchant market in 2021. So the balance between what you would do that kind of from a prop trading perspective in Alberta versus what we would be doing just in terms of yeah.
The the hedging that we're looking at doing for that for the larger fleet is a balance that we're continually assessing now as we go forward, but but Andrew if you're worried about how they'll do as a as a separate little business going forward.
They have really diversified away from out that was my next yeah. Go ahead. So Andrew when you look at what the actual floor is doing I mean, Alberta is probably kind of 15% of the way. We think of kind of you know if you look at it from a targeted perspective in terms of cash contribution it is less than a fifth.
Of the way that we think of the various steps that we have we have on on in the consolidated group.
Okay. That's great appreciate there and then.
[laughter], maybe my my second question and religious revolves around your Kaybob opportunity. It's okay. That's very interesting opportunity that's very interesting business group.
How do you think about just the risk management across the Alberta BC border is obviously, there's different markets and different behaviors on counterparties.
The border as we've seen in the last few months. So how do you think about just the size of the opportunity in Alberta, and then also NBC.
Are you thinking about BC hydro trying to attract everybody there because of all the power of the because of their hydro power is is that what you're.
A lottery way, but I'd put the BC hydro behavior bit differently as far as what they've done, but some contracts they have in the market but.
When you when you think about you cogen opportunities like you're doing with Kaybob.
Hi, guys. That's an interesting business mix you are clearly those opportunities exist on the other side to view the provincial bound Oh, yeah, Yeah, Yeah, Yeah, Yeah, you know on.
I think it typically the cogeneration opportunities emerge always because of that of the high steam and process he demand.
So they have.
It is interesting, though because there's a lot of surplus power coming out of B C and I think they've been able to market some of that into a some of the developments that have been going on in NBC, but net net as we work with customers, it's any customer anywhere anywhere in Canada anywhere across the United States.
Anywhere in Australia that has a requirement for either behind the fence gas, which is what a lot of our Australia guys have or behind the fence team. Those we we markets all of that.
And we packaged full service behind the fence.
Products as well combination of renewables with gas with yeah that add the hype really helpful. Last piece, that's taken off here to talk to point to is exactly that yeah. Like we're seeing for example in Australia, right, which is completely we're gobsmacked bite actually but if you look at the Australian mining industry. They all have the S.G. golf.
So you know we're seeing people now talking to us about.
Providing them with some solar power at the same location, where they'd have a gas pot. So so some really interesting things emerging there as well.
Okay. That's great if I could maybe sneak one last one just on that point, how big do you think that market opportunity is very busy part of the footprint in Australia for years.
How much information that you think you can do there.
Yeah, I think it's it's so it so the way we kind of like had it always Andrew we loved singles as you know, we don't need billion dollar investments, we like to place singles and doubles and I can occasionally a triple which you know you will see sometimes as well, but so when we.
Look at the Australian market right, what we're seeing right now a single site bite size hundred million hundred 50 million and if we can get three singles a year you know for 50 500 million in here going on a sustainable basis, that's really what this company needs to to grow.
And we like singles and doubles, because they tend to a date you don't get yourself all hung out on one customer one deal and you you know there's a lot of issues that go along with that we like the diversity of the customers and the different fuels. So Australia will give us a couple of those 100 250 million.
Dollar investments over the next five years.
That should keep this isn't about 300 I appreciate that thank you yeah, I know I know it that's what branding tells me all the time. If you can just had a well you yeah. It was each each hero you know its Seattle. He just hit every time right.
Our next question is from John most with TD Securities. Your line is open.
Morning.
I would just going back to bigger picture over to market questions. There's been talk of federal clean energy stimulus certainly nothing concrete comes out at this point, we've seen a number of market driven renewable projects and else in Alberta, and just when you're thinking about the sun five repowering.
Do you think about the potential for let's say out of markets supports for renewable growth and the impact that can have on the market and that could be a big benefit for a project like Brad. So is your comp stores, you're discussing earlier, but just wondering how you think about the impact of a potential push the green, Alberta electrons on the returns from an investment.
Like some five and what it can earn in the energy markets.
Yes, so can I separate I'll separate for you signed five and Sensex right Sun six of the gas by the end of this year, so one to peaker and ones that combined cycle energy project.
So when I look at a combined cycle energy project and I look at the way the carbon tax work right now on the tier program works. It just gets in there I guess, it's money period, so and it doesn't care it doesn't care about volatility if prices are high cuts that margin if prices are lot against that margin in it runs so when I, when we stress tests and pressure.
<unk>.
What the market can look like that's still an excellent returning project because of the capital it is lower than what you'd have to do if it was brand new.
If you if you take.
The coal to gas project.
It's this is going to sound odd to you, but it actually does better because effectively you create massive volatility in the market. So think about it. This way, let's say you had another just magically woke up tomorrow morning, and another 1500 megawatts a supply of wind showed up in Alberta, and now you've got 3000, let's say you get.
3000 megawatts in a 11000 12000 megawatt market well it turns out all that wind is in the same place at all blows one day and at <unk> and none of it blows. The next day market. The prices are going you know somewhere between zero and 500 box and <unk> and a peaker captchas captured those market those margins so the real issue.
It's whether or not there was peakers can get started up pretty quickly and John and his team have done an amazing job on that so net net it turns out that in a renewable its market here in Alberta out you have to back it up with something and in absence, some things like Brad though.
You need fast acting peaker. The other <unk> course, big benefit that that are peakers have is they're able to fully ramp all away a they don't have any restrictions and I think under the federal rules brand new Peakers, a restricted telling me running 30% at the time, so that's pretty hard to make money on.
So I think net net what we're looking at its the volatility works for the Peakers and the cost structure works for the combined cycle plant over a range of options.
And pitch and when you bring in more renewables to create more volatility.
Okay. Thanks for that context, the men card reference the embassy statement I think earlier on economic withholding are you anticipating any additional guidelines related economic reporting or offer behavior from yenisei or with the so having completed its market power mitigation Broadview earlier. This year are you expecting a stable bidding framework.
Good morning.
Okay character.
Yeah, we've got carry O'reilly wells here, who runs our regulatory somebody to try to her sure on that so we don't anticipate any new guidance, but you know that being said a we weren't necessarily anticipating the most recent statement. So I think as we enter into a pure merchant market and the.
Balancing pool falls away I would suspect that will sign that will receive more principles issued by the M. essay in terms of going forward, but we believe that the market is stable. It's been confirmed that you know with fair efficient open competitive beyond regulation, we have what we needed.
For the market share to run properly and provides stability. So we don't anticipate anything brand new coming out yeah. The only the only color I could potentially add is one of our board members I accoutrements or.
I was that ahead of the ISO in California, and he did say give me once he said look at your market's been design for P.P. Ace. The rules are set up relative to the PPH as you come out and the <unk> come off and you go to bidding a your costs and having to get a return at capacity payment out of the market are there might be some real time.
Ranges that are gonna be required to make price formation as as strong and as robust as it can be because as Todd said the whole thing now the whole market hangs off a really really strong price formation in that spot market.
So we don't know yet what that could be and carry and her team I'll be working sort of side by side with some you know data with the ISO to see if there any change that are required as we go down through that Ah, but what I find generally is those kinds of real changes, they're very technical very hard to understand you take the ph.
She and power economics in math to understand what they're really trying to do but you could so I think we could see some of that but the main.
Pieces, it's a market have really been sat and when they did that when they issued that guidance. They put the final icing on the cake around how the energy only market could trade so that affectively. It can give the signals for capacity, which I think is.
Really important in very positive for our strategy.
Okay. Thanks for that I'll leave it there.
Thanks, John.
Our next question is from Merck Turvy with CNBC capital markets. Your line is.
Thanks, Good morning, everyone.
So you kind of locked at Transalta renewables, we've seen a big premium come in for pure play renewables I'm, just wondering how that might.
Influencing your seen on valuations in the market.
In terms, how you shape future dropdowns at our endeavoring if that changes your willingness and then put gas fired assets into the or.
That's what that's 50 50 that it is now.
Yeah, I mean, we I think it's fair to say Mark there were relatively opportunistic in terms of.
What would go down from a dropdown perspective, the company strategy as a balanced one we do have a focus on developing our renewable business and we do think we have runway on onsite.
Generation, so as we develop both of those kinds of assets. We think that there is that both of them are the valuable I know that different multiples are assigned to each of them, but we would be looking at both of those categories as being things that you know ones. We have projects would be a good candidates potentially for R.W.
Okay, and then just coming back to sort of power market in future supply person speculation of a.
Combined cycle plant like finance and we're in a market and just wondering how that might alter your plans for a quarter gosh gas conversion is around either going to repowering. These are delaying any of the bladder conversions until you see what that financing does with that project.
I now.
No delay whatsoever, no no change to our approach.
Okay, and then last one years, maybe it is deciding feasible, but given your expectations are waiting prices need to settle next year. Some soft demand. This year is there any way to shuffle around planned outages or even just advance in either case here catering for their conversions.
Well.
On a first of all we can't talk about that because it has to go to the market overall at varying time. So so all I would say is my expectation is set as we.
And this is just my expectation as you start to come out of the pandemic as the numbers start to drop as people actually figure out that I have to do is wash your hands day two meters apart and where I'm asked when you can't and ask the kids come back to school.
I think some of the history of in light of all of this and you'll start to see that.
You'll start to see things climb out and we're certainly seeing that week by week here in Alberta, Traffics getting heavier and heavier everyday through the summer, which is quite unusual usually the traffic stays.
You know is pretty good in the summer.
So I think demand as you have to expect that and we're starting to see on the curtailments on production going away on oil. So I think as demand left here you know how things are set up next year makes sense. Yes. The only thing is we got out we've got to get equipment and people like that that's what I was just about the same mark like low.
Getting the amount of advanced planning that remember these are outages plus conversion. So the amount of planning that goes in.
You know as we're thinking of subjects Sundance six for example, there's hundreds of people that are going to be on site working on the facility to both to the outage and degree conversion. So just logistically. It's not something you can you can you can toggle.
All that easily so it's a lot of planning and yeah timeline I think the I think people are getting people are going to realize that all over this country.
In facilities every where people are building stuff and operating stuff and nobody is getting sick because they're all using very simple protocols and hopefully that commentary is going to start to dominate.
The airwaves I here pretty soon.
Okay. Thanks for clarifying appreciate it.
Okay, and ladies and gentlemen that to queue for a question. It is star one on your telephone keypad. Our next question is from that GE, They do with industrial line Securities.
So I.
Hi, good morning.
Quick question for me on the topic of of Repowering can you just your thoughts on when the Repowering, particularly for some of your older or whatnot. So that's something you could potentially be pursuing over the near term.
Yeah and nashi. Thank you for first of all being so patient to wait all the way to this time to ask that question and it's a great question. So as we look at when Repowering <unk>. We've got some of the earliest when sites, which are have got really great resource resources for wind typically a lot of people will tend to.
But we're pretty we're pretty conservative about what we put in as our terminal values of wind farms.
Because we have we kind of look at two things. One can you it's got to extend the contract with a land owner and and two can you review some of the equipment you know what weve, mostly found as you can absolutely extend the contracts and landowner. They are desperate to keep does when times there because usually that's what's keeping them alive.
But but the technologies change so much.
So if you look at our first wind farm was probably 300 kilowatts right and then it went to 660 and now we're looking at wind farms that are five megawatts, while the platform for five megawatts is quite a bit bigger and quite a bit deeper than the platform for 660. So I typically your eye Repowering option is a renewal and a brand new.
Wind farm at that site using that resorts and you have to do a lot of work on your on your substation and all the rest of it.
So that's how we look at it.
So it typically the number one thing is to have you been a good neighbor have you kept the noise low how efficient if a door opens on at the top of the Windmill did you go out and shot it is faster Chicago. So you didn't keep the landowner away call night have you got excellent environmental records and and <unk> are you doing the things you should be doing for birds back from B.
And if you get all of that going you'll get a long term extension on the wind resource, but likely you're Repowering is is is a replacement.
On top of just the Repowering. We also have a good inventory of other option guy and build out new wind farms and that sort of how the wind rise facility came out as opposed to Repowering. One of our retired sites is to to actually go to a new site and start again, that's just Alberta down in the U.S., John I think we have.
A thousand we have quite a few.
Early stage development sites that we can develop up as well and those would be all.
As or on your side and that is back along with the strategy of saying.
We need to have some early stage development sites or late stage development sites to be able to bring forward to customers to get their attention to it to get them in a position, where we can actually execute contracted PVA.
Okay, that's that's where the so thank you and just the I guess do other target kind of similar to the Cogen strategy of certain amount of capital that you want to be investing in these types of opportunities and ER and if you do proceed with somebody borrowings of the returns that you're targeting better similar so newbuilds.
Oh, yeah, absolutely, yeah, yeah, and it and again, if you kind of sit back and say, okay can you find enough things to do in the jurisdictions, where and the technologies that we'd love.
To get your on a path, where you're investing in that you know for 50 500 million year on a consistent basis.
On the when kind of fits in that but not in that if when to sell our return then cogen <unk>, we're going to do more cogen wind and vice versa. So it really comes down to can we get the right prices for the investments that we make.
Thank you for the greater detail.
Yes. Thank you.
Our next question is from a Chris Verco with Calgary Herald. Your line is open.
Hi, Don I'm, sorry, it does questions, but also just jumped on the call, but I'm curious what the wind Charger battery storage project can you talk about public construction has gone costs have gone on this project and whether they met your expectations and maybe more importantly, what are you going to be watching for as the keys for success in this project.
I mean, it's pretty cool, Chris like I, I wish I actually I'm going to give it to John because of his team that said it but go ahead, John or yet or is it. It is really cool and you know we are we get picture is a bit from time to time from our crew.
Down there and we're excited to have it it is essentially all in place we're just doing some.
Some testing on the on the Transformers the costs were pretty much right on top of where we thought.
The timing was pretty much on top of where we thought notwithstanding the thickening of the border and co bid.
I can tell when you started the construction and when you're going to and what we're going to edit it a couple I mean, we're basically there were more in a in a testing phase, but it was put together in just a matter of month to beyond the.
In terms of construction and it was great. When we saw the batteries coming up from Tesla and in place. So I think Don at you and I were right by there just a couple of months ago and it was that there wasn't a lot there and literally two month. It's basically done we are excited about it. It's it's an opportunity for us to kind of match.
Storage and our renewables wind power generation, it's tied to a wind farm that we have there. So we're really looking at learning from from from tying the two together and.
You know just seeing how we will operate.
[music].
To fill in kind of peaks of demand in the marketplace in sort of time shift effectively the generation that we have from the renewables the times when it would be potentially more valued so it's not Roger marker for it Chris is not so very simple very fast to put up really quick I, you know very easy to to permit I mean, we were standing in a failed.
Looking at a field one day in the next day, we got the pictures and the batteries had been brought up by truck and we're sitting on the where they were supposed to be it's about half the size of a soccer field. So you kind of giving us if you're in our industry, where it takes you know forever to get anything done it was kind of remarkable but the real challenge will be will it make any money bill.
As you can you store for about two hours and then you've got to you've got to undo. It you know when the prices are higher so your your your time shifting the value of energy and and it's got a at the end of the day, it's got to pay for itself. So we'll be able to we won't know for about a year or so whether or not it creates value in the March.
Get here, but certainly it's been a pretty interesting project to be involved in.
Just a follow up plants you what do you see is the potential for battery storage given the current technology and well what do you see the limitations at this stage that that really need to be overcome.
Yes, so I in our industry to limitation is always the caught the capital the size of the capital that you need to make the initial investment relative to the you know whatever that price differential is you're going after so the way batteries, where Chris is you need at a fairly good differential between periods. So you need a low.
The price period with your charge or that you can charge and then you use you take that power out of the battery when there's a higher price Albert is a little bit tougher than most jurisdictions, because we have such a high system load factor, we need power 24, seven you don't get as much day and night I changed you do maybe in other markets, but as more renewal.
Most come in maybe that will change. So that's something that you would watch for the biggest constraint right. Now is the time duration. So these are the Tesla batteries are short duration batteries. Two hours were looking at batteries are R. Brasil, when our Brazos storage project, which is pump storage it has about nine.
There's a lot of discharge, but it takes 12 hours to store right. So it takes 12 hours to charge that reservoir and then you can run it out for nine that's pretty good I. We're looking at some battery technologies that are kind of half and half I use you store for about 13 hours and you if it comes out for 10 or 11.
I don't asked me why does and all that up to 24 hours [laughter] engineer has to explain that to me but.
So so net net the biggest constraint today is everybody's going after these long storage batteries and they've got all these different technologies, a lot of them or chemical chemical batteries, where you're adding ions to a chemical and then you're taking the ions out as your discharging. So if you're interested in it come over and will take you through at your story.
Alan you can write lots of stuff about it.
Ladies and gentlemen, this does conclude our Q and a period and I'll turn it back over to care valentini for any closing remarks.
Great. Thank you Chris.
Well. Thank you everyone that concludes our call for today.
Further question, please don't hesitate to reach out to the IR team here at Transalta have a great day.
Ladies and gentlemen, this concludes todays conference call. Thank you for your participation and you may now disconnect.
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