Q3 2020 Capital Power Corp Earnings Call
Welcome to capital Power's third quarter try to try to your results conference call.
Currently all participants are in listen only mode.
Following the presentation the conference call will be open for questions. This.
This call is being recorded today November 2nd Twentytwenty.
I'll now turn the call over Chester, Randy Mccullough director of Investor Relations.
Lets go ahead Sir.
Good morning, and thank you for joining us today to review counterparts third quarter 2020, and results, which we released earlier. This morning, our third quarter report and the presentation for this conference call are posted on our website at capital par Dot com.
Joining me on the call is Brian fragile, President and CEO et cetera, Hopkins Senior Vice President Finance and CFO well, let's start with opening comments and then open optimized state your question.
Before we.
We start I would like to remind everyone that certain statements about future events made on the call are forward looking in nature and are based on certain assumptions and analysis made by the company actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business.
Please refer to the cautionary statement on forward looking information on slide number two.
In today's discussion, we will be referring to various non-GAAP financial measures as noted on slide three these measures are not defined financial measures. According to GAAP and do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other enterprises. These measures are provided to compliment the GAAP measures which are pretty.
Got it in the analysis of the company's results from management's perspective.
Reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our third quarter 2020, Mdna I will now turn the call over to Brian threshold for his remarks, starting on slide four.
Thanks, Randy and good morning, I'll start off with the highlights in the quarter first I want to recognize the efforts of our employees who work at our facilities and those who continue to work remotely during the COVID-19, pandemic and helping to achieve strong operating performance and financial results that were.
In line with management's expectations.
With no material changes to our outlook, we are maintaining our financial guidance for 2020 that was announced at our Investor Day last December.
We continue to execute our growth strategy with continued progress on renewables and sustainability.
October we signed a 20 year PPA for Threed, new solar projects in North Carolina in Japan.
Part of our goal to be net carbon neutral before 2050, which I'll discuss shortly we've.
We've increased our investment and see to see achieved from 9% to 25%. Following our due diligence that demonstrates C. CNC technology produces quality carbon nano tubes on a consistent basis and its scalable.
Good to see and she is a strategic investment that creates environmental benefits in line with our sustainability strategy.
We have an equity option to further increase our equity investments of 40%.
At the end of 2020.
We completed three initiatives that provide the company with financial stability, we completed our longest dated and lowest coupon transaction in the Canadian market. When we raised $350 million a very successful 12 year medium term note offering.
At very attractive interest rates of 3.147%.
This successful MCN transaction signals market confidence in our credit quality and long term strategy.
In August we executed a 10 year tolling agreement for a dictator energy center in Alabama, which supports our mid like gas asset strategy and I view that natural gas generation, along with carbon capture utilization and storage technologies will continue to play a critical role.
[music].
And we reduced our wind service and maintenance costs by an estimated 26% compared to our current agreements by completing the transition to 10 year long term service agreements with best this split of maintenance of ours. That's that's equipped wind facilities, which totals over 1200 megawatts of Japan.
City.
Turning to slide five.
As mentioned, we've extended the tolling agreement on our Decatur facility.
For an additional 10 years, which now expires in December 2032.
Since our acquisition of Decatur in 2017, we commenced upgrading the combustion turbines to increase capacity reduce emissions and improve heat rate and to maintain reliability.
We've increased the capacity by 60 megawatts from the upgrades on two of the three combustion turbines. The third combustion turbine will be upgraded next year, adding another 30 megawatts of capacity.
That's part of the tolling agreement extension, we receive payments for 34 megawatts of additional capacity immediately and up to an additional 79 megawatts of capacity in 2021.
The expected financial contribution from the contract extension will add significant value in the remaining years of the current contract that expires in 2022 and during the 10 year extension.
When we acquired Decatur, We believe we had a high probability of re contracting based on its history of re contracting and the need for this facility in the region.
With 10 year PPA extensions validates our acquisition strategy of acquiring midlife contracted natural gas assets that have a positive re contracting outlook and have value beyond the current contract term we.
We focus on the right assets in the right markets, providing the right service.
Turning to slide six a key part of our strategy.
And meeting our goal of being net carbon neutral before 2050, it's growing our renewable assets, we continue to demonstrate our competitiveness renewable development projects and the execution of 20.
Your PPA EPS.
In October for three new solar development projects in North Carolina, with Duke Energy Carolinas.
The projects, our Barnett solar hunters coal solar and bear brand solar with a combined capacity of 160 megawatts.
We expect constructions for all three projects to begin in late 2021, or early 2022, but estimated capital cost of $260 million.
With commercial operations, starting in the fourth quarter of 2022.
Three solar projects combined are expected to generate 23 million in adjusted EBITDA and $5 million of vessel annually on average in the first five years.
The 20 year contracts strengthen our contracted cash flows and will increase the overall average remaining life of our contracted facilities.
We currently have six renewable projects and advance development or under construction totaling approximately 350 megawatts by the end of 2022, our renewables capacity will grow to 23% compared to 16% at the end of 2019.
I'll now turn the call over to Sandra.
Thanks, Brian.
Ill review, our third quarter financial results starting on slide seven.
Revenues and other income in the third quarter were 453 million down 12% compared to the third quarter of 2019, mainly due to the unrealized changes in fair value of commodity derivatives and emission credits and the lower Arlington Valley total contract.
Adjusted EBITDA was 284 million on changed from a year ago you.
The additions of Cardinal point Whitlow, one when one Bob Thornton wind and strong trading performance were offset by the Arlington Valley total decrease.
Normalized earnings of 66 cents per share were up 10% compared to 60 cents per share in the third quarter of 2019.
We generated 221 million in FFO and was slightly below the 225 million in the third quarter of last year and AFFO of $2.10 per share was unchanged year over year.
Slide eight shows our financial performance on a year to date basis compared to the same period in 2019.
Revenues and other income were 1.4 billion up 11% year over year, mainly due to stronger portfolio optimization performance contributions from renewable additions an additional month of operations that go our way.
Adjusted EBITDA was $735 million up 9% compared to 2019, primarily due to the acquisition of go our way in renewable additions that was partly offset by the Arlington Valley total decrease.
Normalized earnings of $1.90 per share was up 4% from a year ago.
We continue to generate strong FFO, including $436 million in the first nine months of the year that was up 2% year over year AFFO per share with $4.14 up 1% from the same period in 2019.
Turning to slide nine overall, the third quarter financial results were in line with our expectations.
Our trading desks continues to create value by capturing realized power prices above spot power prices.
In the third quarter, the average realized power price of $59 per megawatt hour was 34% higher than the average spot for 40 $44 per megawatt hour.
The low spot price in the third quarter reflected lower market demand from reduced oil and gas production and the impact from COVID-19, and softer pricing from a stable base load supply strong hydro and wind generation and moderate temperatures.
With respect to the line loss real proceeding we have recorded a provision of 18 million to date we've.
We've received the first of three invoices and the payments are the first invoice is due by the end of 2020 and it will have a 6 million dollar impact to FFO.
The payments for the second and third invoices will be due in the first half of 2021.
Ill discuss the Alberta power market in more detail with respect to the COVID-19 pandemic as shown on slide 10.
The chart shows the year over year comparison of the internal low demand based on the actual 30 day rolling averages and therefore has not been normalized for weather or other events.
For example, the higher demand in February 2019, what's driven by extreme cold temperatures in Alberta.
As you can see in the chart COVID-19 was declared a pandemic on March 11, following that power demand in Alberta started to decline in early April following various shutdowns in the province and continue to decline throughout the month of May the.
The largest year over year decline in power demand was about 7%.
Demand started to recover in June as the economy reopened and close the gap to worth approximately 2% decline in October year over year.
At the current rate of recovery, we expect demand to be a pre COVID-19 level late in 2021 and that further demand disruptions would be addressed by disciplined supply response.
Turning to slide 11, I'll provide an update on our commercial portfolio position.
The remainder of 2020, our Baseload generation, it's substantially hedged.
At the end of September were 13% hedged for 2021 at an average contract price and the high $50 per megawatt hour range. The lower hedge position in 2021 is due to lower than normal liquidity and the gap between our fundamental pricing view and forward prices then.
The low liquidity for next year relates to the uncertainty from the expiry of the Gilbert Repellency pool PPA case in corresponding transfer of market share offer control to a commercial entities. The continued impact of COVID-19, an oil price reduction on demand and carbon pricing.
With low liquidity forward prices have been slow to respond however, since the end of the quarter Nick.
Liquidity has started to improve and forward prices are strengthening correct.
Current forward prices for 2021 around $55 per megawatt hour compared to $51 throughout Q3. Therefore.
Therefore, as we see forward prices continue to rise we would increase our hedging activity in the fourth quarter, but expect the percentage hedged entering into next year will be lower than it has been in recent years.
For 2022, and 2023 were 18 and 12% hedged at an average contract price in the low $50 per megawatt hour range for both years.
Current forward prices are in the low $50 per megawatt hour for both 2022 and 2023.
I'll now call turn the call back to Brian.
Thanks Sandra.
Slide 12 highlights the progress on our committed capital for growth to date, we've announced six renewable projects. This year that will add 355 megawatts.
This includes the acquisition of Buck Horne wind in Texas, which was acquired in April we're building to renewable development projects with lottery and Strathmore solar in Alberta, and we're building the three solar projects in North Carolina, which I mentioned earlier.
Overall, weve committed $592 million in capital for growth this year in the renewable space solid growth in a step towards our goal of being net carbon neutral before 2050.
I will conclude with an update on our performance versus our 2020 annual targets as shown on slide 13.
Our average facility availability in the first nine months is 94% compared to the 93% annual target with major planned outages already completed and with the deferral of the Geneseek two planned outage to 2021.
We expect the average availability to be slightly above the annual target.
Sustaining capex is $50 million year to date with the deferral of the Geneseek to outage, we expect sustaining capex will be below the 90 to 100 million dollar annual target.
Adjusted EBITDA is $735 million year to date based on our current forecast. We expect 2020, adjusted EBITDA will be above the midpoint of the 935 days.
985 million target range.
We generated $436 million of full year to date compared to the five.
$100 million to $550 million target range, we are on track to be near the midpoint of the AFFO range, excluding the impacts of the line loss rule proceedings.
As previously highlighted we've had an excellent year for growth with $592 million committed capital that exceeds our annual growth.
Capital target of $500 million fine.
Finally, we've developed.
Can.
Construction targets for the Cardinal point and with a lot of two projects.
We completed the Cardinal win.
Project on schedule in March and within the U.S. dollar budget range, whether Whitlock. Two project is currently tracking on budget and on schedule for commercial operation in the fourth quarter of 2021.
In summary, a strong quarter of operations and financial results.
By the Decatur Centre, 10 year, PPA extension and excellent strategic growth and renewable development project.
I'll now turn the call back over to Randy.
Alright, Thanks, Brian anesthesia, we're ready to take questions.
We will now begin the question and answer session.
To Joe's question can you May Press Star then one on your telephone keypad, you will hear a tone acknowledging you are.
If you are using a speakerphone. Please pick up your handset sales for pricing any key.
We withdraw your question. Please press Star then too.
Global Pos for moment as callers join in Q.
The first question comes from David Cuba with Raymond James. Please go ahead.
Thanks, Good morning, everyone. My first question here just on the.
On the Decatur contract extension now I'm just wondering if you can just provide some some maybe some perspective on how the terms worked out maybe compared to what you had expected at the time of the acquisition back in 2017, and any commentary I guess, specifically on on how would have affected the returns that you expected on that acquisition at the time.
So when we acquired the indicator facility.
We certainly expected that we would be re contracting that facility and so from that perspective.
That came to fruition in looking at the particulars, although we had expected.
I thought that there was an opportunity to.
Expanding capacity of that facility and potentially increase the.
Our DPC rate.
We weren't precisely clear as to what we expected in terms of an outcome sold the identified as a as a possibility.
As you can appreciate we've put a lot of capital into that facility and what I can say is overall.
The return on our existing investments and with the additional facilities is consistent with our general expectation of returns on the project, but it is different in nature and form than we would have anticipated at the time of the acquisition.
Okay, great. Thank you for that and then maybe just.
Great to hear your broader thoughts on further.
Natural gas mid contract life M&A I know over the past couple of quarters, you've mentioned that activity in that market has been lower have you seen that come back at all and just wondering what your thoughts are in the state of things there.
So the market continues to be.
Relatively slow.
Paired to prior years and compared to our expectations. So we continue to hear that there are a number of opportunities out there that haven't come to market yet so we'll wait to see.
To see what happens in terms of our view.
As I said earlier in the presentation it boils down to is there.
Asset opportunity out there that makes sense and markets that said that work for us and and that one can have a view over the long term contracted.
Ability and also a very important element is whether or not that particular piece.
Power facility has the attributes that are either unique in the market or are very deep in terms of if there is a stack sales facilities, providing that same service because we do expect.
Natural gas generation as it as it exists today from the straight energy perspective to decline a bit over time and certainly we don't want to have one of those facilities that is simply generating electrons. She goes at some point in time, it wont be re contracted but.
So we continue to look at a number of markets and anticipate various opportunities coming forward. So.
We would expect that there will be further midlife natural gas acquisitions in our future.
Thank you very much for that color I'll get back in the queue.
The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Yeah, Good morning, everybody I'm Brian.
Brian I didn't see anything in the release on your application to Repower Genesee, one and two so maybe just get.
Get your thoughts on how.
How you're thinking about moving forward with construction by next summer and bringing on another call. It 600 megawatts to supply into the market.
Especially in the context of I guess cascade coming on by 2023 as well.
Not to mention some course cogent potentially a couple of years later.
And if you have any preliminary capital cost estimates for the project that would be great.
So.
That's as as you know.
The first step in moving forward on a project like this is to go ahead.
On that.
The permit.
Permitting side, which we've done.
We're continuing to develop the project to develop the capital costs, although we're getting much closer to having.
All of the necessary pieces of a project in order to.
Do things like seek board approval and announce its moving forward.
As we look at the market outlook.
You know there is capacity coming into the market, but we expect there would be significant.
Supply response associated with new natural gas units coming into the market.
What I can say about the what what we're looking at in terms.
Of the assets is they are extremely efficient.
We expect that there will be the most efficient in the market.
And their capital cost is very low utilizing existing facility. So.
You know I would I would say you can you can expect that both units would be no sir.
Certainly below a billion dollars in terms of putting them in place so.
So far so good and developing the project and again, we do expected there would be a supply response in the market.
And.
Oh, well, we'll be continuing to monitor and at some point, we may well announce at these two repowering there moving forward.
Okay, that's very helpful and and what role do you.
The Genesee.
Playing longer term in the provinces goal of becoming a leading producer of blue hydrogen I.
I know, it's still early days.
But maybe you can just confirm if you'll be applying for the 12% capital cost grants that were announced on Friday.
So we're still looking at that and its and its relation to Genesee and what can potentially be done there. So.
Definitely in a repowering scenario.
It can make a lot of sense a lot sooner.
You know that the two units. So we're looking at Repowering out of the box will be 30% carbon.
Already handle with a very modest investment.
From $10 million, a unit or they can be as much as 95%.
Hydrogen ready so you.
We will be ready for when the economics and the value is there to move to a two hour blue hydrogen or or green hydrogen while whichever happens to be available at competitive pricing.
Right Okay.
Sounds like lots of good stuff on the go agenda see it.
Maybe just for Sandra here on the back of your.
No recent a successful bond refinancing how are you thinking about.
Tapping the green bond market.
Going forward just given some.
Some of your recent and I guess upcoming investments in through a new renewables.
Could you look at.
Green bonds for say refinancing your 2020 ones next year.
Thanks, Pat Yeah. So we continue to look at both green bonds and sustainability linked bonds and give both considerations to that and I think as we continued to build out our integrated reporting in our yesterday targets that fits very nicely with being able to execute fairly seamlessly on on a sustainable.
The link on we have had some discussions around the refinancing next year and whether that would be an opportunity to do it so well continue to monitor that.
We do see that it that that will be in our future whether it is a project level green bond or balance sheet financing using sustainability linked metrics.
Okay, Great and I know you previously you run the math that.
Now looking to crystallize the value of your your off cool payments.
Have you taken another look at that recently just to see if that might make sense and allow you to potentially turn the drip back off.
We haven't looked at that recently, but I think we would be of the same view that.
Theres not a lot of upside to crystallize the Matt with the draft Pmiers, we do have a lot of internal spend on our current assets as well as some development projects, though that just seem to be an efficient way to generate equity to fund that so I think we'll continue with that for the foreseeable future.
Okay, Great I appreciate all the comments so I'll leave it there.
The next question comes from Robert <unk> with Scotiabank. Please go ahead.
Good morning, everyone. First question is just on the Alberta power market outlook and just you know we did see you increase your overall hedge position. There you know as we've moved through October with the volatility in the pricing that we've seen over getting towards your kind.
On a notional view.
2021 looks like and and overall is the market behaving as you'd expect and it isn't just a view that the forward markets not reflecting the fundamentals.
Yeah, I think what our expectation was in Q3 that with the Aro auctions starting in September that we would start to see an increase in liquidity in pricing, but that didn't happen through the end of the quarter, but as you mentioned, we are starting to see prices move forward.
Upwards in the last couple of weeks. So currently at $55 a megawatt hour and tier market participants are starting to take price view, but yeah. We continue to see we would expect to continue to see forward. It's moved to be more in line with our expectations. So we still think that there is a a bit of a gap even at 55, but.
Starting to see some momentum in the right direction in Q4.
And so it kind of it appears that you're kind of fundamental view of 2021 is kind of high fiftys.
Oh that would be generally in the range yes.
And then just south of the border any commentary on kind of the.
Potential to kind of extend the lives LIFO. So part just given some permitting challenges there or kind of what does the strategy for that unit.
So as we as we look forward and we had for a couple of years looked at.
Re contracting those facilities to both support Roxboro as well as there were other entities.
And to the scene in the market, who were looking at potentially buying those assets and utilizing a different.
Nature of fuel and so on it.
Unfortunately.
All right.
Neither re contracting nor selling those assets change.
Came to fruition. So our expectation is that next year those facilities will.
Likely cease operations.
All right. So it's a little roxboro not just that part.
That is correct.
All right. Thank you.
Your next question comes from Mark Charles E.
Go ahead.
Yeah. Thanks, good morning.
First question just on the portfolio optimization revenue, maybe give us a split on how much coming from power sales and how much they in a quarter like this lower generation.
Did you reselling gas a profit.
Yeah, So I think that the natural gas optimization with about $9 million in the quarter.
And the rest would have been from some power optimization.
Okay.
And just on the on the gas costs.
As an escalator you guys are substantially hedged largely hedged on your fuel cost for 2021 can you give us any sort of direction of where you are relative to where.
So gas forward prices are for 2021, just how much of a of a buffer you've created versus where the spot market is gone and then longer term. If you guys are thinking about extending.
The duration of any gas hedges.
Okay.
So our gas procurement is that dependent upon.
You know our coal to gas conversion timing and gas usage in general So we have locked in prices for for most of next year on natural gas at a at a price that is that is below where the current forwards are.
So it's still around that $2 a.
Take a dual range.
Okay. That's very helpful and then third.
Third question is around the solar projects in the Carolinas Amazes me give you some background or just how you got involved those projects at what stage.
And given that as you know obviously competitive for renewable projects in the U.S. When you guys look to continue to hold your equity interest all the way through to the end of life or would you consider like a sell down to enhance return.
[noise] so the history behind those three solar projects is that there was on a.
A competition or an RFP out by Duke Carolinas were 600 megawatts of renewables.
Mhm, we threw some relationships and then you know we are in North Carolina, and actually have a solar farm. There. So we have some profile in the stage and we teamed up with junior developer who had some projects and we went through.
Due diligence and came to the conclusion that these three projects had a very good probability of moving forward. So.
From almost.
Nine months ago started working to to prepare Uh huh.
Bid and.
But put a sort of our best foot forward and we were successful on.
The three projects that we put forward.
In terms of sell down in our our view of the renewables portfolio that we have on both sides of the border is no. There is significant value there and at times, whether it's looking for a source of capital.
Or when we look at optimizing the returns that we get from assets.
We would certainly consider selling down selling down projects.
To get to a lower level of interest in all likelihood if we were going in that direction with bundle, one or two projects together and have though.
As a package could with weird again look for more of a strategic.
Purchase or somebody who obvious.
Obviously, a financial entity that would work with us on a couple of projects and.
Move forward would be somebody who would be a natural buyer of how.
Other interest low bar soaps, well do I believe that some time in our future we will look to selling down our interest again, when there's a capital requirements or as you say to optimize the returns associated with that particular project.
Okay. Thanks for that Brian and then my last question just.
Going back to Pat question about Tennessee on Repowering can you guys remind us.
What the useful life is their end of life assumption would be around conversion versus the repowering and and where you guys are in terms of clarity on.
Peacefully.
[noise]. So you can always when you look at the [noise] useful life as it as it relates to Repowering.
Yeah, we're we're kind of looking through a lens of add maybe another.
20 years in terms of the the economics of that kind of a facility. However.
I would have to emphasize that moving to hydrogen our carbon capture and utilization, which significantly extend battery life beyond the 20 years.
So again, just in a kind of a status quo world we would see.
You know, it's a 20 year life, that's a reasonable economic expectations.
When you look at dual fuel, where you would see that as being the.
Potentially a little bit shorter.
But as we've said since you know for the last couple of years.
Our view is that eventually.
Those units would churn in two.
Hey.
To re powered facilities at some point in time it was just a matter of when.
Okay. Thank you.
The next question comes from Andrew Peters with Credit Suisse. Please go ahead.
Thanks, Good morning, So probably a two part question to start and that's really what it just natural gas prices rising.
How do you think that changes market dynamics with the market transition on Jan one and then also related to that as just your ability to engage in longer term contracts within the province.
So with respect to the first part of the question for natural gas prices and then does that dynamic. So what we have seen coming through this year with higher natural gas is just lower utilization of our of our gas facilities, but tax.
That said at some point we'll.
See rather than pricing then that'll bring no spark spreads back.
And and be able to to utilize our plants and in a more historical fashion, but with it as far as long term natural gas hedging I don't know, Brian if you want to answer that question.
Yes, we've no.
Looked at as a long term hedging associated with natural gas and certainly when we're in a dual fuel world that that can make that a little bit difficult because what we.
I don't want to do is just straight speculate on the price of natural gas as opposed to hedging natural gas for what we expect to be our own use.
And we have looked at again from time to time hits. There are some portion that we could enter into a long term hedge arrangement and we've concluded that that at least for the time being that's a strategy that that with it the volatility in the market doesn't necessarily work in our favor.
Having said that you know we have gone out two and three years and can hedge significant portions of our anticipated.
Natural gas demand and we'll continue to do so.
Okay. That's helpful.
Then my second question really just relates to renewable valuations we've seen on the market.
Obviously very topical you've got a fairly large renewable portfolio of your own.
And then I guess the question is really directed to Sandra do you think about rejiggering. The way you present your financials highlights that embedded value in the company to a much greater degree.
Yeah, we've actually had that conversation around whether or not we started presenting in that exact way and in some of our presentation index, we do actually break out.
Our EBITDA by by fuel type. So it is something that town, we are sort of evolving towards and we'll give more consideration to in our in our mdna and.
And other reporting materials going forward.
Okay. That's great. Thank you.
Your next question comes from Ben Pham with BMO. Please go ahead.
Hi, Thanks, Good morning, I had a follow up question on the Gen one to read.
Retiring.
Obviously, you're going through the public stakeholder process now there if on an application late this year I'm.
Im wondering is the plan a limited areas, where you look to layer on some contracts on these repowering is a real open pit the spot and then the second part of it as is the Capex you quoted.
James said or is dramatically lower than and with one of your peer things almost 30, 40% lower so there is this really just a agent that has told her that Derek relation.
Relationships with the suppliers, that's driving that or is it something something else.
So firstly band in terms of the.
Contracting up the facilities, we would certainly.
If there was an opportunity to to contract a them up to for some portion.
I would definitely consider that having said that that wouldn't be the basis upon which we'd be moving forward.
In terms of the capital cost side, you know I think all in all I can really say is in bringing together you know very well maintained.
Genesee units with the latest in technology.
Results in Uh Huh.
Actually a very.
Low cost extremely efficient.
It sort of is that is there some other pieces that we have out we've actually done Oh, no not be it for sure, but you know theres been some very very creative engineering, that's starting to to our ability to have such a low capital cost and to have.
I would say at the end of the day outstanding So.
Performing units.
Okay.
And maybe it.
My I guess my next question I Trust that you, Brian our first Android on capital recycling and maybe correct me if I'm wrong that is.
I think are for the longest time, you maybe not been again recycling, but maybe it's been more of a grow acquired that's all that and so it was it especially on the renewable side. So this is it's a subtle change in height and give you capital allocation was of assets sales at the site.
As of the renewable portfolio again getting bigger now you can you can look at that or is it just simply maybe that they need a capex like gen. One and two and another opportunity that is rising and years ahead.
So I would just comment you know overtime weve already to look at.
So recycling capital through a through selling assets.
And you know a couple of times in history, we've done that.
And certainly as we look forward.
The sale of assets is certainly something that that will be considered at the time.
When we're looking at a specific.
Needs for capital.
Yeah, what's been a bit of an impediment over the last couple of years is.
As we look forward to.
The.
EBITDA expectations are expected actions around yes follow a AFFO per share certainly the sale of an asset sales.
All results and on the generally.
Decline as as we move forward. So it's that modest dilution is one of the things that has impacted on a decisions of recycling capital, but again, it's always on the table and certainly with a with a broadening and deeper portfolio of renewable assets.
It does it does make the that it does increase the prospect that said at some point you may sell all or part of many interesting in a facility.
Okay, and you're you're still of the mindset that doesn't make sense to carve out the renewables become public entity.
I think still at this point, it's just too small you there just there wouldn't be enough market traction and then when you look at the balance of the organization like.
Likewise, it would be significantly smaller and yeah, I think both will be challenged in the market at this point certainly.
Considerable size before that mix.
Make sense.
Okay, great. Thanks Bye.
Once again, if you have a question. Please press Star then one.
The next question comes from John Mode with TD Securities. Please go ahead.
Hi, Good morning, maybe just going back to the solar projects in North Carolina, the costing about 260 million, but have neutral AFFO accretion in the first five years clearly with other benefits like 20 year PPA season. During your renewals platform when deciding to proceed with investments of this nature. How are you approaching the balance between.
Driving growth in per share metrics sluggish so returns relative to your hurdle rates, which I know you do meet on this investment and other benefits like lengthening contract life, your overall portfolio and growing renewables.
Yeah. So we certainly take all of those elements into account with respect to the economics, you see it as being neutral or slightly.
Slightly positive in that town, it's still a couple of years out and we have to get through the construction period and finalize our actual financing on that so I expect that we would be 40% tax equity that the full ITC said, 30%, but with respect to the balance out that the financing now see this is.
What kind of project, where we could take on a partner, which would impact our economics as well so probably targeting at this point that it's most likely going to be a few cents accretive on average in the first few years, but neutral at at worse. So I think that's you know we've characterized it conservatively and.
In our in our communications that Ted we would balance the ASCII impacts as well as the average contract life and the economics, all all as part of that decision.
Okay. Thanks for that and then on the CTC and T. Can you just provide an update on how nano to production is going and shepherd any updates on concrete testing and how the potential start time for construction on the carbon conversion center Genesee is evolving.
[noise]. So me in terms of what's happening at at the Shepherd site. So you know as I indicated in prior quarters.
Ill go ahead, and other things have slowed down progress.
Progress on the site in general not just with us, but ex fries et cetera. So.
As it sits now.
The facility is ramping up.
In one I mean wrapping up physically Pete.
Features are being put in place for it to get to full anticipated production and that process is going well.
In terms of the cement side of it there's been a couple of different.
Now there are two developments as well as specific magnitude developments as long as well as you know means of disbursing, then attitudes and negated concrete which have been developed and are undergoing further testing before hello batches put together and sent over to fill the high for their.
Testing so there is a.
Sort of as an intermediate testing thats, taking place right now so things are going well from that perspective, as we look forward again with everything being kind of pushed off.
Not sure when we'd necessarily put a shovel in the ground, but our expectation is sometime in the fourth quarter of next year.
We start production out of the Geneseek driving conversion center.
Okay. Okay, Great and then just maybe lastly on geothermal was you know that the government in Alberta is looking to put a geothermal policy in place just wondering what the profit what you think the prospects are for geothermal power in the province, and whether you consider dipping your toe in the right opportunity.
[noise], so [laughter] geothermal we've looked at a couple of times over the last number of years and we understand there is a pretty good geothermal regime in southern states catch one that certainly some good geothermal prospects in British Columbia, our understanding is in Alberta.
Maybe not as much and.
You know a lot of it depends on there.
ER geology depth, and so on and I guess.
Again, when we've looked at it a couple of times I don't see.
Hi, probability, but again that was based on the technology at those times and again, it's a little bit dated.
Would we look at it now you know we would certainly consider it.
Yeah, if it if it turned out to be a little bit.
A viable technology and one that.
Good could generate obviously renewable energy.
I had a significant volumes that that it's worth making the investment in the technology.
You may recall that we were involved in small hydro is on a number of years ago and had a number of them, but came to the conclusion that you know you actually you know to take on a technology you have to have some view that it's going to be a significant volume of that technology because to still operate and manage those so.
Ladies and develop them you actually need to know what you're doing and.
Well you would be more than just a one or two stage.
Oh.
You Awards, we would have to believe that it's actually leading to the development of the business.
Okay I appreciate that color those are my questions. Thank you.
The next question comes from Marie Choi with RBC capital markets. Please go ahead.
Thank you and good morning. My first question is about the commentary you made in the reports are forgot to Genesee wanting to having a lower dispatch bind the balancing pool this year.
Even though there's been no planned outages any any thoughts as to why this is so do you see that.
The balancing act be more commercially there be a dark spreads or any other reason.
Yeah, I think it's just simply that they they have the carbon tax obligation on those units. So as we saw spot price prices being relatively low in the province, It got to the point, where they were looking at it commercially and dispatching it down would be would be our our assumption on what they were doing now.
And I guess EPS follow up to that if those carbon tax costs them become yours. So next year does that mean that the production levels is indicative of what you expect.
For you.
Yeah. So the prices going into next year, we see as being no relatively higher than than what we have in the forwards. This year. So expect.
Expect that those units, which would be economic at at the prices that were seeing today, even with the carbon tax obligation.
Makes sense and second question I just want to look ahead to I guess December when you traditionally put out your guidance for the full year as well as potentially yes.
So your dividend objectives beyond 2022, Slide 11, you highlighted a number of uncertainties for next year can you see I guess doggy discuss where you see clarity improving over the next four to five weeks early December or should we expect a different type of guidance next year.
Alright next month.
Hi, sorry guidance with respect to the dividend increases in particular got stood at 2021 earnings as well as dividend guidance beyond 2022, Yeah. I think at this point our view would be that we would not be extending the dividend guidance beyond what we have given out to 21 and 22.
To.
Until we start to see you know that we've got the growth to support incremental increases and just look at some of the other uncertainties that going forward. So with respect to the uncertainties that we speak about for 2021, I think we're starting to see some clarity around power prices and that's path.
Last month, and we'll continue to monitor that throughout the next number of weeks and as well with carbon taxes, so whether or not there's a a rising carbon tax or or if it stays at 30. So you know we will be looking at our financial impacts of both those scenarios going forward, but I'd say those are sort of the two greatest on certain.
These around next year and of course and demand in the province, as well so just with respect to the pandemic and where that's going and the implications on on demand in the province so.
Some of those will start to clear some of them will be throughout 2021, before we get to a better indication as things unfold.
And I guess, just a final follow up on that comment that no we.
We don't expect Oh, there's no view of <unk> increase beyond 22 until you see growth to support such an increase.
Is would you at least be able to.
We affirm that dividends won't be cuts and with that.
I suppose would you expect the goal to assume it to be.
For now.
Yeah, there's no indication that there's any need to cut dividends. So certainly that is not something that that yes, we would be announcing in any in any regard. So that's still still maintain that guidance that weve given its just a matter of sales.
Seeing growth that would support a increases beyond that means that you know in that in the past. We've given guidance is quite far out with respect to dividend increases and that was just to give the market an indication that we didnt see this as a one in done and that we didnt expect continuation of increases I think that no messages.
Now been received and so you'll probably see EPS signal dividend increases closer to the expected time and so right now we still are a couple of years out so to kind of see that timeline of advanced signaling compress in the coming years.
Great. Thank you very much.
Your next question comes from non GM bitumen with Industrial Alliance Securities. Please go ahead.
Hi, Good morning, just a just on the pace of growth and a renewable projects certainly accelerated this year do you think this is something you can repeat going into 2021 and beyond and related to that what does the current pipeline of renewable projects look like.
[noise] so is as we look forward.
And recognize Uh huh.
I think as we discussed before you know we have two sources of renewable projects. One is associated with you know the the existing pipeline we have that that.
That comes to fruition and the other party he is working with.
Other developers typically junior developers and in looking at sites and moving forward. So when you looked at those two certainly.
Certainly and you look at what we have under way its kind of a mix of the two new we would expect that to continue going forward. So we have had a very good year range and the years not over yet.
But we do anticipate that we'll have continued success as we move through.
The next couple of years on.
Developing and building renewable projects.
Okay and I'm sure you've also given some thought to maybe accelerating that via M&A or are you currently looking at any other acquisitions of junior developers are late stage renewable projects to really sort of push you know on the on the renewables funds or.
As the M&A focused still on natural gas for now.
So we do look at M&A opportunities Oh on the on the renewable side typically what we find.
Is that just simply because of the nature of.
The acquisitions and where there is a seeking.
Significant amount of financial interest, we tend not to be competitive, but no. We were a weird we definitely look at M&A opportunities related to renewables.
And there have been a go actually this year that the Buck for an acquisition is an example of one so you know what.
At all times, you can expect that we're looking at both natural gas and renewable acquisition opportunities.
Okay. Thanks up the rest of my questions are already answered. Thank you.
This concludes the question and answer session.
To turn the conference back over to the presenters.
Hi, Mark.
All right. Thank you we will be hosting our annual Investor day event on the morning of December the third and it will be a conference call and webcast more details will be announced in the coming weeks. Thanks again for joining us today and for your interest in capital power have a good day everyone.
This concludes todays conference call you may.
Caroline.
Okay.
Uh huh.
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