Q4 2020 Capital Power Corp Earnings Call

Thank you for standing by this is the conference operator, welcome the capital Power's fourth quarter 'twenty 'twenty results conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded today February 19th.

2021.

I will now turn the call over to Mr. Randy Mah the director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to review capital Power's fourth quarter, and 2020 year end results, which we released earlier. This morning, our 2020 integrated annual report and the presentation.

For this conference call are posted on our website at capital power Dot Com Joy.

Joining me on the call are Brian <unk>, President and CEO, and Sandra Haskins Senior Vice President Finance and CFO, We will start with opening comments and then open the lines to take your questions before 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 two.

In today's discussion we will.

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.

These measures of provided to complement the GAAP measures for which are provided in the <unk>.

Dallas is of the company's results from management's perspective.

Reconciliations of these non-GAAP financial measures to the nearest GAAP measures can be found in our 2020 integrated annual report.

I will now turn the call over to Brian <unk> for his remarks, starting on slide four.

Thanks, Randy and good morning.

2020 was an excellent year for capital power, which included tremendous growth and renewable development and significant announcements on Repowering NR of KOL strategy.

With respect to growth, we committed approximately $1 $7 billion in capital for serving the renewable projects and the Repower.

<unk> of Genesee, one and two.

The renewable projects included five solar development projects that have confirmed our competitive capability in solar development, which more than doubles, our renewable development opportunities in North America.

When completed the Repower Genesee, one and two units will be the most efficient lowest.

Ghd emitting natural gas combined cycle units in Canada, and will provide tremendous long term value.

These units will also be capable of 30% of hydrogen firing at Cody with the potential for 95% hydrogen.

The nominal additional capital costs.

That's.

Most of our commitment to sustainability, we've accelerated our plan to be off coal.

For 2023.

Which is six years early we are also investing and utilization of technology with our increased ownership in situ CMT.

Our financial results in 2020 were generally in line.

Part of our guidance, which resulted in an <unk> dividend payout ratio of 40%, which is below our long term target of 45% to 55%.

Overall solid progress was made in 2020 on our decarbonization strategy.

Turning to slide five I'll.

With our 2020 performance versus our annual targets and Sandra will provide more details on our financial performance in our comments.

Average facility availability of 95% significantly exceeded the 93% target. This was driven by excellent operational performance on top of the deferral.

The review and outages due to COVID-19.

The sustaining capex of $73 million was below the 90% to $100 million target, mainly due to the deferral of various capital projects to 2021, most notably that of Genesee driven by Covid.

We generated 900.

Of $25 million and adjusted EBITDA, which was slightly below the $960 million midpoint of the guidance range.

<unk> of $522 million.

We'd be above the midpoint of the guidance range, excluding the 6 million impact of the line loss of rule proceeding.

For our construct.

The 50, <unk> targets Cardinal point wind exceeded targets as it was completed early and came in below the low end of the targeted budget range in the U S dollars.

Willow when two project.

Is tracking on budget and is on schedule for COPD in the fourth quarter of this year.

And as I.

Construct the exceeded our $500 million growth capital target by committing approximately $1 7 billion to seven renewable projects and the Repowering of Genesee one and two.

Overall, we reached the solid operational and so on.

Operational and financial results, despite the COVID-19 pandemic.

Moving to slide six which illustrates our continued growth in renewables.

Our seven renewable development projects will add a total of 427 megawatts. When completed later this year and in 2022.

The three North Carolina, and Strathmore solar development projects.

Of long term ppas of 20% and 25 year terms, respectively, and we continue to pursue contracts for wittler when to entry in the <unk> channel Solar project in total the seven projects are expected to contribute an annualized adjusted EBITDA of $70 million.

Our generation.

Generation mix as shown in the pie charts on this slide in 2020 of renewable assets contributed 27% of our total adjusted EBITDA, which is expected to increase to 34% from 2025 based on the seven announced renewable projects.

Natural gas facilities generated 43%.

Percentage of adjusted EBITDA in 2020, and this is expected to increase of 66% in 2025, including the re powering of Genesee, one and two and 100% gas utilization at Genesee three.

There'll be a significant shift in our generation mix as we transition of coal in.

In 2023.

I'll now turn the call over to Sandra.

Yes.

Thanks, Brian.

Start with the review of our Alberta commercial portfolio optimization activities on slide seven.

Our trading debt continues to create value by capturing realized power prices above spot power.

Prices in.

In Q4 2020, the average realized power price of $56 per megawatt hour with 22% higher than the average spot price of $46 per megawatt hour.

At the end of 2020, our Baseload generation is 29% hedged for 2021 at an average contract.

In the low $60 per megawatt hour range.

For 2022 and 2023.

27% and 21% hedged at an average contract price in the mid $50 per megawatt hour range for both years.

Since the end of September of last year the outlook for the.

Price power market has improved at that time forward prices were in the low $50 per megawatt hour range for 2021 and 2022.

Current forward prices are now $70 per megawatt hour for 2021 and $61 per megawatt hour for 2022.

Albert of turning to slide eight I'll discuss our fourth quarter results.

The fourth quarters of 2019, and 2020 had noncash accounting adjustments related to the off coal compensation payments and.

In 2019, there was $140 million of coal compensation recognized in Q4 compared.

For the $18 million in 2020 the.

The year over year decrease of $122 million is largely a result of the one time recognition related to the G. III K three swap in 2019 and impacts revenues and other income adjusted EBITDA and basic earnings per share in the fourth quarter.

Compared with <unk> and full year results.

In the fourth quarter of 2020, the Alberta government confirm increase in carbon pricing under the tier of regulation as a result, we deferred the utilization of our Alberta emission offset inventory to maximize their value in higher carbon tax years.

The higher.

<unk> cash and costs incurred of $15 million reduces adjusted EBITDA and <unk> for 2020.

Looking at our financial results on a year over year basis revenue and other income in the fourth quarter were $516 million down 24% compared to Q4 2019.

Adjusted EBITDA of $220 million in Q4, 2020 is down 38% compared to 2019.

In addition to the items already noted adjusted EBITDA was lowered for the Alberta assets due to mild weather in the fourth quarter. In fact that was the second warmest November since 1950.

Amid the mild weather and strong winds reduced the utilization of our gas plants.

<unk> of $86 million reported in the quarter reflects 6 million for the first of three payments related to the Milner line loss ruling.

<unk> was down $128 million from last year due to similar items that.

I could adjusted EBITDA.

On slide nine I'll review, our 2020 annual financial performance versus 2019.

Revenues and other income of $1 9 billion were slightly below 2019, and as already mentioned reflects the accounting recognition change of off coal compensation payments.

The impact adjusted EBITDA was $955 million down 7% compared to 2019, primarily due to the contributions from asset additions that were offset by the Arlington Valley toll decrease and the off coal compensation recognition.

We generated <unk> of 522 million, which was down.

6% year over year, while <unk> per share was $4 96 per share compared to $5 32 per share in 2019.

<unk> was in line with our guidance to be near the midpoint of $525 million before the $6 million line loss of payment.

I will now turn the call.

Call back to Brian.

Thanks, Sandra I'll conclude with a recap of our 2021 annual targets starting on slide 10.

Our average availability target is 93%, which is the same target is 2020 and includes the major planned outages at Genesee to Decatur.

Down six Shepherd.

Our sustaining capex of annual target is $80 million to $90 million. The adjusted EBITDA target is 975 million to $1.0 billion to $5 billion.

For the midpoint of the range of 4% higher than 2020.

Finally, the F F O target of 500.

The $550 million is unchanged from 2020, the positive outlook in the Alberta power market reinforces our financial guidance.

Our growth targets are highlighted on slide 11. This includes developing and constructing seven renewable projects on.

And on time for commercial operations, starting in the fourth quarter of this year to the fourth quarter of 2022.

We're also proceeding with the Repowering of Genesee, one and two after issuing full notice to proceed on the project in December 2020.

The re powered units will be completed in 2020.

On body of 2024.

And as in previous years, we have a target of $500 million of committed capital for growth that is aligned with our strategy of growing our renewable assets and of requiring midlife contracted natural gas assets.

Turning to slide 12, I'll conclude by mentioning.

Three we released our 2020 integrated annual report this morning.

Some of the key highlights of this reported include our progress towards our ESG group goals acceleration of our path to a lower carbon future from Repowering and being off coal in 2023 six years early and on.

Our ongoing.

The innovation with <unk> and the Genesee carbon conversion center.

I'll turn the call back over to Randy.

Alright, alright, thanks, Brian shrinks, we're ready to take questions.

Thank you.

We will now begin the question and answer session to join the question.

<unk> you May Press Star then one on your telephone keypad, you will hear of tone acknowledging your request.

If you were using a speakerphone please pick up your handset before pressing any keys.

To withdraw your question. Please press Star then two.

We will pause for a moment as callers join the queue.

So first question comes from David because data with the Raymond James. Please go ahead.

Thanks. Good morning, everyone. My first question here just on on the topic of renewable energy credits and I guess with the backdrop of of potentially rising.

Federal carbon tax I'm, just wondering how you think.

The value of those Rex is going to change going forward and how that affects your view of potentially even increased I guess.

Merchant renewable development in Alberta.

Good morning, so certainly the increasing.

Profile of carbon.

And the province will will definitely increase the.

The I'll call it the economics of a.

Merchant wind facilities in solar facilities in the province, So we do expect that they will there will be a significant increase in renewable build in the province oversight.

<unk>, a decade, or so and which again, we expect to participate in it for.

In terms of its impact on price because there's two things there is the of course for the state of price $30. This year in the 40.

The $40 next sorry of $40 this year.

The next.

What you see happening is that that doesn't necessarily translate into what is the market price and so for example.

You can see prices in the year Wednesday the.

The carbon credit posted price was $30 you can see prices actually trading.

As low as in the high or the low 20. So there is definitely a market out there and as there's more and more credit available. It does certainly have an implication on the market value, having said that the way the credits work in Alberta is from time to time the.

The.

Alright, it allowance for new projects is reset based on the overall carbon intensity in the market. So that's approximately 50% today as things like on a repowering and other things roll forward you will see the.

The entitlement around the new.

The global projects actually going down.

System with the.

Change in intensity on the overall, Alberta grid.

So theres a number of factors in play, but we think it will continue to be a fairly robust carbon credit market.

Great. Thank you for that color. That's that's helpful. Maybe just one.

With me on.

Obviously, you've had some really good success on the solar side of things I'm curious about.

How you are looking at things in the U S. Today.

How have you seen the things I guess progress with maybe some earlier stage solar developments would you consider looking at acquiring.

More for development portfolio, and I guess, just any thoughts on how the I guess the more supportive administration in the U S affects how you see things moving forward.

So we certainly think the binding of administration.

Early early indications of it so there will be a more robust.

Wiring of Herman for.

Building renewables in the United States and in particular and increasing.

Appetite for solar.

In terms of.

We see it and how we intend to participate we're continually looking for.

Sites.

The invites for ourselves to develop sites with you.

In the early earlier stages of development with the <unk>.

Typically smaller developers and certainly would look at.

Your portfolio of development assets were pretty much all of them too.

Any any opportunity depending.

You know how it sourced and the economics around the particular site so.

You know again, we in we have a history of particularly on the wind side of of doing all three of them of what I. Just described then he'll certainly.

We'd be doing that on the solar side as well.

Excellent. Thank you for that I'll get back in the queue.

Our next question comes from Maurice Choy with RBC capital markets. Please go ahead.

Thank you and good morning, My first question relates to the 2021 guidance.

As the.

You said you reaffirmed the guidance, but can you discuss some of the major moving parts around this position.

Specifically.

Rates to the more positive outlook in Alberta, given the recent surge in pricing so all of those.

Sandra alluded to higher.

The prices and what if any EBITDA.

EBITDA headwinds you may have.

Given the recent events.

Got it.

Yes, so as far as 2021 on guidance goes.

We're very encouraged with what we're seeing happen.

Happened with with pricing as you've noted so seeing the market for post PPA.

Very very much in line with what we would've expected to see in terms of of behavior. So we're pleased to date, but you need to sort of the balance on what youre seeing with prices with the the megawatts generated so we will be doing our forecast on our normal timeline and have the.

On an update to guidance as we come.

Through the quarter, but certainly very pleased with with what we're seeing to date.

With respect to Bucks on you know we did income.

Incur some modest physical damage at Bucks, along as well as at Bloom.

Now have access to the equipment, but are in the early stages of sort of assessing as to.

Through the CIT contractually so it'll be a few days before we started in on what the financial impact of that will be the order of magnitude we will not be in line with with what others have reported so.

On the upside of of that we were able to export energy down into.

Two were reached during the sort of the peak days of that storm, so you'll see that of being a bit of the a modest modest modifying factor with respect to two of those impacts.

Okay.

Clarify with regards to your comments on Texas, Florida that surround it.

Songs.

For the slight Directionally it's.

Negative, but not material.

Compared to the overall EBITDA and all of your guidance.

Yeah, it's not material for <unk> for share relative to what we've seen to date. So we don't have a number at this point, but as I said there was some some positives as.

<unk>.

That's what the impacts that we've seen in and from our understanding the weather patterns of kind of passed our sites. So figure. We're now in a position where we can kind of look to come up with the what the what the impact is but.

Definitely not on material and not not seeing that as an impact on guidance at this.

Thanks.

The second question relate to the funding plan all the.

Given the cash flows from Alberta become a little bit more strong compared to your initial outlook. The obviously offer financial flexibility, but could you update us on your thoughts on asset recycling of costs.

Specifically as it relates to your comments on the Investor day that certain renewable energy projects could be potential candidates for monetization.

Yeah that remains to be true so since investor day, we now have a revised cash flow profile in terms of our spending on repowering and it does.

So the amount of our spend this year because of our contract with the the.

The the supplier with Mitsubishi So I'm in the process of of looking at that but to your point your asset recycling is still something that we look at them in in place of the of of equity given that.

We do feel that there's a significant value that is a non.

Not realized in our renewable portfolio. So given our success in securing those projects, we do see that selling down.

Projects would be a very viable option. So we'll continue to look look at that but as I mentioned you know at this.

This point, we haven't started to see any material spend occur and therefore, we wouldn't be looking to come to market. So we can continue to forecast what the impact of a stronger pricing in Alberta means for for our overall financing plan.

Thank you.

What's going on thank you.

Our next question comes from Mark Jarvi with CIBC. Please go ahead.

Thanks, Good morning, everyone on maybe.

Maybe the updated some of the hedging for the full year of you're able to share any.

For Q1 in particular in terms of your.

But it isn't the ability to capture some of these higher prices we've seen the originally.

Yeah.

Yes, so typically we wouldn't give.

Our position within the year in terms of how we've been hedged certainly what we've seen in Alberta and in February has been very high high pricing.

On.

Last week, we actually hit a new record high in in demand for for the province, So seen some very high pricing that's gone along with the very cold cold weather that we've been been seen so, but we wouldn't wouldn't comment on what our hedge position was.

Within within the year by on a quarterly or monthly perspective.

Okay.

And then the with respect to the apropos of guidance.

I don't believe you guys had the line loss really the impact in the 2021 guidance.

There's still some uncertainty around timing and settlement.

And for on those but.

Do you have a sense right now of when you might have clarity what the what the range of potential parents can be and if it sort of the pushes and pulls in the you know a good start for the year, how the line loss brewing cash payments might impact where you get to on your here for the full range.

Yeah, so with with <unk>.

The S F O and end of line loss ruling so we didn't have it built into our 2020 guidance and there is also uncertainty last year around how many payments on.

May fall in 2020 versus 'twenty 'twenty, one at one point, we thought we might see two payments last year and one this year as it turns out we did.

Did have the one payment last year of $6 million in 'twenty and 'twenty, one we have baked in the additional two payments in in our guidance. So there'll be another I believe we're on the 11 or $12 million, which will make one of those payments in February. The other one is in March. So at this point, we feel that the the line loss.

Loss payments aren't aren't moving around anymore. So we did a we did the page six of the $18 million last year and the other two payments will be made in Q1 of this year and that is included in the guidance that we have provided.

Okay great.

Great.

And then because of the any update.

Okay. The clarity in terms of the timing of the major outages at the cater Shepherd J T or is there any kind of moved around and can kind of zero in on which quarters are those will fall in.

Yeah. So I don't have the quarterly split for for those but they they haven't moved around in terms.

Of the expected costs or our time timelines, but I can I can get back to you on that Mark if that works.

Okay. Thanks, that's all I had for my questions. Thank you.

Yeah.

Our next question comes from Rob Hope with Scotiabank. Please go ahead.

Had the good morning, everyone a follow up question on the Alberta power market.

Since the start of our since January 1st we've seen kind of a.

And offer control of move back to owners can you just comment on how you're seeing the ditch pad the dispatch curve as well as the.

The the economic bidding in the market and whether or not you are seeing what we'll characterize as well call. It more economic bidding over all in 'twenty and 'twenty one.

And yeah, I guess, that's probably more prior to the cold snap and also has the volatility seen there also have been in line with expectations.

Yeah. So it is early days as you state and we are going through of cold snap, which is it on unusual time, but yeah. We're very pleased with what we've seen so far in that it does align with our expectations in terms of of how people would would be bidding in responding on a more rational commercially responsible.

<unk> of manner as opposed to the days when the length was held by the balancing pool. So yeah, we do see things as being in line with expectations as you've as you've outlined.

Okay, and then a follow up there we've got to change the strike the nature of gas too as well as your credit this year fleet more towards gas.

The way from coal how did you think about natural gas supplies and net exposure there.

Yes, it's it's one where we looked at what our expected utilization is in the year and then we would look to hedge that so in the current year you know the majority of our gas exposure has been hedged at an attractive pricing and so we would continue to hedge.

Hedge out and we do have positions that go out a number of years. So we'll continue to leg into our hedges on our on natural gas for an exposure.

Yeah.

That's it for me thank you.

Our next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

So.

Hey, good morning, everybody just wanted to follow up on the <unk>.

<unk> decision to defer some carbon offset credit in Q4 just.

I wanted to confirm if you expect to utilize those credits in 2021 or.

Should we expect a similar strategy.

The first some of those credits until you get clarity.

<unk> on the.

The the carbon tax moving up to potentially of $170 per ton.

Yeah. So our 2021 guidance had already expected debt, we would be utilizing offsets as as permitted under under the regulations. So the deferral that we did.

From 2020 doesn't allow us to.

You have more inventory as we go into 2022, and then 2023 before our exposure becomes less on the on a volume basis with the Repowering.

But certainly as you said if if here were to be in lock step with the federal plan and then when would you see carbon taxes grow even higher on the value of those.

Those offsets the Ah <unk>.

Increases each year comes on it.

With the step up in carbon pricing, but on the deferral of just allows us to have more inventory in the 'twenty two and 'twenty three.

Whereas 2021 isn't impacted and therefore, the decision not to use them last year doesn't change our guidance.

<unk> for 2021, but it does it doesn't mean that that is extended out to the future years and as you noted we could see carbon price.

Eventually move up to the $1 70.

I guess just to clarify Sandra so if you do defer.

You know your your.

Carbon credit inventory on a quarterly basis sort of inline with Q4 if the.

That ends up being the run rates for <unk> 'twenty 'twenty, one you're still comfortable with your EBITDA guidance range at this point.

Yes.

Okay great.

And then just the move over to the integrated report here and you have some of.

Attractive emission reduction targets by 2030.

But just curious if you of any thoughts around business mix, a more near term.

All of it middle of the decade after Genesee as Repowering.

Just giving you you'll be off coal by then do you of any internal targets.

On say percentage of EBITDA.

Coming from renewables or non emitting fuel sources like the hydrogen kind of in the 2024 25 range.

Yeah.

Yes, so we haven't.

Go ahead, Brian.

No no go ahead Sandra.

Yeah. So we haven't we haven't set of target specific.

On to fuel type beyond 2025.

We look at opportunities to deploy our capital in the types of of generation that we've we've reiterated before Sars renewables are midlife golf, but C that we will be within our ESG.

The target so that becomes part of the criteria that we would we'd look at but.

As far as fuel mix, we do sort of forecast out to that mid decade based on the projects that we currently know are in the hopper, but as far as incremental growth. After that we don't have a set target.

In terms of Ah I E.

And annual.

Mix.

I can also add the.

The U S.

In.

Setting those targets and in terms of our <unk>.

Indications that we are on track to meet those targets.

There is no.

On.

Either of hydrogen or significant carbon capture and storage within those numbers.

Having said that.

We are right now actively looking at both the utilization of hydrogen and carbon capture and store.

<unk> as it relates to our Genesee facility so.

Yeah.

I wouldn't say that we wouldnt at some point in time.

Significant carbon mitigation impacting on on both the targets on our actual results but.

It's a little bit early at this point in time to speculate on where the.

The going but to say that we are very actively looking at.

Of those two technologies from the standpoint or in relation to our Genesis for <unk>.

<unk> in particular, the Repower, the Genesee one and two.

Okay.

And then just maybe last cleanup question, if I could just wanted to square up the investment growth target for 2021.

Are you still looking to secure an additional $500 million of growth on top of what you have on the go today, which appears to be.

$1 7 billion over the next few years.

So how much of the target for 2021 might already be spoken for if any.

So actually none of it is spoken for.

Obviously, we've got a lot of construction on the go we've got a lot of activity.

We did.

Setting the target we.

Curious do a full assessment of.

On what our opportunities are out there, but also of.

SaaS, both our financial and our.

Our physical capability of being able to execute on whether it would be an additional build or whether it be on acquisition and we're comfortable that if an appropriate.

We did opportunity or opportunities come by.

On the other than natural gas acquisition side or on the newbuild renewable or potentially of renewable acquisition.

We're in position and have the capability that we can execute on it so.

Felt that.

Keeping of five.

The $1 million committed capital target was reasonable under the circumstances.

Okay. That's great. Thank you.

Our next question comes from Andrew <unk> with Credit Suisse. Please go ahead.

Thank you good morning, I guess that's.

500. Other question really just relates to some of your Counterparties and just the view on contract ends in.

And maybe how that's evolved over the course of last year.

We can focus maybe on Q4, and then sort of the year to date on it.

How may be the attitudes have changed the bet there is obviously.

The broad case, that's from rolled off we saw a lot of market volatility for a variety of reasons. None of you mentioned some of the bidding strategies on the how big they come on market oriented persons.

Under the PPA framework and so any color you have on that from just how your counterparties on prospective counterparties of really behaving.

The fundamental differences.

Yes.

So on.

Obviously on the U S side, there is growing optimism.

The bill continue to be a good economic opportunities for Counterparties to.

On gain long term.

So the access to renewable energy so.

Of that plays into it a little bit, but we haven't really seen any sort of disruption in the market and.

And we don't really because.

Because it's you know.

It's going from a kind of on a robust environment too.

Robust environment.

On the expectation was that there'd be a significant trough.

With the potential continuation of the the Trump administration and then in fact.

I think it'll be more of the case of.

The avoidance of the trough.

On front of the Canadian perspective in.

And in particular in Alberta.

We're not seeing a big difference.

And people's expectations or.

In the appetite there continues to be a lot of.

Interest in a number of large.

The power consumers.

In terms of gaining long term contracts for renewable energy.

We indicated youre on.

For the Investor Day, we had a number of ongoing conversations.

Going in respect of contracting of those kind of on those conversations continue to be there and continue to move forward. So no.

Not on a lot of change yet but.

But we do expect in the longer term there will be again more and more.

Contract being available.

On the renewable side.

That's very helpful on them and then maybe just specific to Alberta, how do you think about just your market position.

Of this thing on contract versus merchants on the open exposure.

On the near term basis other than on the longer term basis, how do you think what's the sweet spot for you.

So.

Certainly.

We see the merchant renewable market in Alberta has been positive and income.

Creating good value for for our shareholders.

And we do also see that having it on.

Contracted as much as practical is is also good.

And it ends up being where we see the best trade offs, we wouldnt sacrifice.

Rice.

Significant economics.

In order to gain of contract on the other hand.

The one does recognize the the move to a contract you do typically give up at least.

The forecast EBIT.

From a from a merchant.

From perspective.

In the long run I think we generally favor again.

With a fair trade off of of economics and security of of cash flow, we would typically of rather have more contracted than not so.

Definitely the ease of preference for us to.

More contracted but again not willing to give up a lot of economics to gain those contracts.

Okay. Thank you.

The next question comes from Ben Pham with BMO. Please go ahead.

Alright, Thanks, good morning, guys.

I wanted to follow up on on Buckthorn and in Texas, You mentioned, there's some physical damage could do you could clarify that a bit more of it kind of icing on the blades get to replace some of the blade and then.

What are your thoughts.

Arcata in general now the observing the lap of five days in the market.

Is it.

Okay.

For your appetite for for the market whatever gas power generation are renewables are you.

You're feeling maybe that's not a market that you want to expand on anymore.

Yeah, so as far as the physical damage as I said, we've just gotten access to the sites and are looking at that and we've seen damaged channel.

Set of stairs that at Bloom and icing on on blades. So it's of that that nature.

As far as the market you don't see the sense being necessarily a highly reoccurring events. So you know certainly well, we'll take a look at.

And look at things, but no no immediate.

Shift in strategy or thinking at this point as the as a result of the weather driven event.

Okay. So you feel you got a good sense of I don't know what the conditions are improving now that you've got to get a sense of the top of your financial hedges of structured at Baxter on your contract for differences in.

To manage the the revenues on the edge of portion of it.

Yeah, I think you know as I said, it's contractually we are assessing where where we are not in a position to really comment on that at this point will be a few days, but you know don't don't ixia of allergic.

The exposure there relative to what what you're hearing in the market. So at a it's something that we'll be able to comment on on a leader a later point more fully.

Okay great.

And then maybe maybe on on Alberta, then clearly yet.

Update your hedge position.

And of the what's the thought process there.

Then of <unk>.

Not moving higher.

On your hedge position, given where pricing is right now on the forward curve for $70.

Yeah. So there's a few things I think when we came into the the beginning of the year you know you did see.

The.

My other temperatures in January so there's less opportunities now that we're seeing prices settle we are continuing.

To add hedges to the book as we see opportunities to do so at prices that are in line with our expectations. So continue.

Continue to hedge out the.

The book as we move.

Move forward at.

There are more megawatts and are therefore, the liquidity isn't necessarily a strong but now that we've seen prices continue to move up even as we've gone through January and February will sort of take.

Take positions as we see the opportunity.

Okay and then.

It has your view change the long term could you kind of dollar prices. When you think of what you've seen so far this year and the better to put such a higher carbon tax.

Yeah, you would expect of as carbon taxes, the increase it that will be reflected in higher higher power prices as well as you move forward.

At this point you know we see the $40 has been confirmed for 2021 of the sheer program has not indicated the you know what it would be in 2022 and forward, but to the extent that it is lockstep with the federal program of it expects to go to 50 and the increased by 15 a year after.

Of that you will see that reflected in power prices. So the units that are on the margin will bid that in it at the with their cost and that will we'll set the price then I'm in the market.

Okay and then maybe my last question here and then you put out a pretty detailed the issue.

The sustainable.

And what we reported on all of our day to day are you pushing for it with renewables.

I'm wondering how do you how do you balance really the.

Maybe the perception of virtual reality on gas fired generation of.

When you look at building that that portion of your business out of it.

<unk>.

Renewables here where part.

Cost of capital is law, that's where most of the monies flow into how do you how do you balance out over the next few years in your mix.

Well I think if you if you look at the the mix of capital expenditures over the next couple of years.

Actually most of us going towards natural gas.

So I E. The Genesee and wanted to Repowering.

And typically.

And you're quite right there.

When you compare the returns on natural gas assets and the returns associated with the renewable assets.

The the returns are higher.

And.

You know as we look forward and look at our overall mix of <unk>.

Natural gas and renewables.

We do have to strike a bit of a balance between the E U.

Significant increases in cash flow and so on in support of dividends with a stable base of the along.

Long term renewable contracts.

Yeah, well again generate good relatively low risk.

Cash flows but it is at this point continues to be a little bit of a balancing act.

And depending on changes in the economics and perception.

And we do expect events like what's happening in the U S might create some increasing interest in natural gas.

Interestingly enough if you look at the statistics coal it was basically what saved the.

The us from actually having.

Having a much much greater disaster.

Coal plants performed extremely well so it's incidents like this that actually show the real dynamics and the need for dispatch of <unk> energy the resiliency of dispatch of <unk> energy. So again, we saw a little bit of with California.

Uh huh.

The last year.

Actually.

Over the last couple of years, increasing sense of the need for dispatch of bowl of natural gas.

Certainly believe coal is limited but.

These events can.

The team and increasing interest in natural gas, which would.

Okay, and a little bit more compression on the returns for a company like ours for looking at new natural gas.

Asset of opportunities.

So overall, you know a little bit of uncertain, but definitely as we go for we need to continually think about the balance between.

Creator of natural gas assets and the lower return renewables.

Okay alright, thank you.

The next question comes from John Mould of TD Securities. Please go ahead.

Hi, Thanks, Good morning, maybe just like the start with the.

Dispatch during the recent and I guess on going cold snap in Alberta, and I. Appreciate you may not want to see too much of the dispatch decisions, but it looks like overburden run much in January of <unk> and one of your Genesee units was maybe running below where we might have expected earlier. This month, just given the pricing environment is there any context, you are able to provide on one of the.

The higher without any impact on coal fuel availability or any other operational factors that might of constrained dispatch of your Alberta thermal fleet, thus far in the quarter.

There was no no issue of the availability of our facilities.

The fully capable.

Of whether it's all of the operating so what you saw was more.

The overall.

Bidding approaches and strategies associated with with the Alberta market that Sandra was discussing earlier.

Okay, Great that's helpful and then.

Maybe just one last one on <unk> you said your take.

Taking your stake up to 40% as expected can you provide an update on on where they're at in the cement testing cycle and what milestones you are anticipating from that entity or hoping for over the coming year.

So from the.

All of US do CMT perspective, we do I mean.

As I indicated they are finished the survey.

The X price process, they continue though and one of the surprises to us.

To them was there continues to be as on very significant reporting.

Requests.

First.

The technical requests coming that is consuming a significant amount of.

The <unk> time.

So it has slowed.

Which has impacted all across the board when you think of the timing.

The test.

Testing cement and so on and so forth that was always in the latter stages of.

Having the the.

The Ah <unk>.

Facility at Sheppard on.

Operating in.

On process. So likewise, the testing on the cement side slowed as well so it's ongoing.

It's happening as we speak and having said that there's no I'll just.

Just comment around just the details of the cement testing, there's two different phases of that.

One phases, where.

Youre actually testing what they call mortar so of small samples.

In.

On a lab, but.

On a little bit bigger scale than what you'd think of in terms of the laboratory. So theres been extensive testing done from that perspective.

It now moves to.

Significant larger scale testing at.

<unk> added.

On a typical cement plant site.

And so that's that's where.

And that's the process, that's taking place right now.

So again, it was slowed up as well but continues to be.

Generally as expected in terms of.

And in terms of the couple.

Portion of the.

The CTO CMP <unk>.

Development.

Okay I'll leave it there thanks for taking my questions.

Once again, if you had the question. Please press Star then one.

Last question comes from Maggi maintained with I E capital market. Please go ahead.

Hi, good morning.

Just wondering if you can give us an update on the where you see opportunities to invest the new or different types of technologies I. Appreciate you've been Christmas day consensus empty, but it is the small investment.

Within the within your portfolio right now.

Just wondering if you can talk about other opportunities be it on batteries carbon capture of hydrogen.

Considering and maybe some color on how much capital you'd be comfortable deploying into our earlier stage opportunities.

So.

Our non U.

And as we've always said.

On the answer to heal.

Carbon mitigation you know on a global basis is sort of the answer is all of the above in terms of the technology.

When we look at the technologies that we would deploy.

It is all essentially on does it make commercial sense and does it make sense for the capital of power facilities now.

That was certainly up until the investment in Repowering Genesee, one and two we had a bit of a different perspective on.

Carbon mitigation at.

Of the Genesee facility, certainly see two CMT hold some profit.

Promise for some modest mitigation, but.

Certainly the fact that.

Yeah.

Cole or dual fuel facilities impacted in terms of our long term view.

View as to whether for example in the longer term you had put hundreds of millions of dollars into mitigating their carbon profile certainly with the repowering changes that view.

So as I said earlier, we're looking at.

Mitigating the carbon.

The exposure for those facilities.

We do believe at some point you know there will be.

Something in place that will.

Mitigate.

The the.

On carbon emissions from from those facilities. The issue is what is the technology and what is the timing.

As we're looking at it.

Today, we are actively looking at whether it makes sense from a heart hydrogen perspective or whether it makes sense from.

I'll call it the more traditional carbon capture and storage perspective.

And in the game, where we're doing that work now and do expect.

<unk> debt.

At the end of the day, we will start.

There was some degree of.

Technical more in depth technical analysis on on one or both of.

Of those technologies as.

As we move forward I think the one thing to recognize about this.

The point in time is that.

Firstly for.

On carbon.

Storage typically our enhanced oil recovery or just simply I'll call of bearing the debt.

The requirement, Alberta is ideal it's got the geology.

Whether it would be.

No.

Caverns that are have been empty of oil or whether it be so all the aquifer is much much deeper Alberta has the geology to actually support very extensive carbon storage.

So we're in we're in the right Province, and then as you've been hearing.

In the United States and in Canada.

Huge huge expectations around carbon capture and storage.

It is seen as one of the ways in which we will we will meet our carbon objectives, maybe a little bit of of stretch for 2030, but certainly in the longer term.

It will be a necessary part of the mix and we expect the.

The agenda for your facilities to be part of that so again timing a little bit of uncertain, but there is tremendous amount of anticipated government support for these kinds of initiatives going forward. So how much would we risk.

<unk>.

I wouldn't.

I mean.

To put it.

More clearly I wouldn't expect that we would be say I'll say developing a technology around hydrogen or around carbon capture and storage.

I think what you would find us doing is looking at.

First of established or near established technologies and the application.

Into Genesee.

One and two were in some circumstances.

The Genesee three as well.

So we'd be looking more at the fundamental.

Preliminary.

As of <unk> studies, and then move on to feed studies, and then ultimately to our projects with just sort of the normal.

On the transition of our project as you would expect but quote unquote investing in R&D.

You know you might that some points of modest investment.

Maybe on.

Engineering order of magnitude of <unk>, which has been quite modest but you wouldn't see.

Or at least on I wouldn't expect a significant investment in R&D, it's more the implementation of actually established technologies.

The same that's a great color that's it for me.

Okay.

And this concludes the question and answer session I would like to turn the conference back over to Mr. Randy Mah for any closing remarks.

Okay. Thank you Sri if there are no more questions. We will conclude our conference call. Thanks again for joining.

Thank you this morning for and for your interest in capital power have a good day everyone.

This concludes today's conference call you may disconnect your lines.

You for participating and have a pleasant day.

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