Q4 2020 TransAlta Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to trends Alta Corp, fourth quarter and full year 2020. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask the question during this time simply press star and the number one on your telephone keypad. If you require any further assistance at all please press star Zero and please be advised the today's conference is being recorded I would now like to hand, the conference over to your speaker today, Chiara Valentini, managing director of Investor Relations. Please.
Go ahead.
Thank you Michelle and good morning, everyone and welcome to Transalta fourth quarter and year end 2020 conference call.
With me today are Dawn Farrell, President and Chief Executive Officer, Todd Stack Executive Vice President Finance and Chief Financial Officer.
Chocolate and Euro Chief operating officer, and Kerry O'reilly Wilks Executive Vice President legal commercial and external affairs.
Today's call is webcast and ninth.
On the phone lines to view the supporting slides that are put on website replay of the call will be available later today and the transcript will be posted.
Shortly thereafter.
All information provided during this conference call and subject to the forward looking statement of qualification set out here on slide two.
The sales as well and our MD&A and incorporated.
As of today's call.
All amounts referenced during the crawler crane currency, unless otherwise stated and all.
On that.
And comparable EBITDA funds from operations and free cash flow are reconciled in the MD&A for your reference.
On today's call dawn entitled provide an overview of the quarter's results along with expectations for 2021. After these prepared remarks, we will open the call for questions with that let me turn the call over to Don Thanks, Kara and good morning, everyone and thanks for joining our call today.
This will be my last official conference call with all of you. So let me use my time to brag about the great successes of the team and 2020, and then I'll turn the range over to Todd and John who are more than who are more than ready to take the company ahead starting in April.
So let me start by saying that 2020 with quite a remarkable year for transalta.
Whether it was how we handled the COVID-19 pandemic or how we position the company for 2020, one and beyond the team was absolutely focused on execution.
Finish 2020 with strong financial and operational performance and we significantly advance the strategies of Transalta did the.
Here with marked by the resilience of our people and the performance of our diversified portfolio of investments and progress on our E squared as Chi golf, which are economic environment, social and governance.
Growing our investments and transalta renewables and continuing with our investments and the transition to natural gas here in Alberta have.
The strength and our overall E squared S G framework.
Our strategic renewables investments, our ownership of our hydro assets here and the Alberta market and our positioning and competitive gas fired generation have set us has set us up well for any of the portfolios of of ESG and the east, whereas S. G shareholders.
We set out in 2020 to continue to execute on our clean energy investment plan and that's what we did so.
So first we promise to advance our strategy of converting to gas here and the Alberta thermal fleet and there were several accomplishments.
We achieved a major milestone when Sundance unit six conversion to gas was completed and with fully commissioned to the grid and early 2021 we.
We cut our C O T on mesh and said half at that unit and we're ready to start K, two and March and K three and the fall.
The announcement of of rising carbon prices to $170 a ton and by 2030 here in Canada made the decision to close the hydrogel mind effective December 31, 'twenty 'twenty, one and the end of this year the right one.
This decision to advance our goal of being off thermal coal and Canada by four years, originally 2025, but now by the end of 2021.
All of our Alberta thermal facilities will now run only on natural gas starting January one 2020 two.
During the fourth quarter of 2020, we also executed and the equipment supply agreement for the Sundance unit five Repowering.
730 megawatt project is estimated to cost between 800 and $825 million and is this and is scheduled to be online late in 2020 three.
Finally, we retired our first coal unit of Centralia on December 31, 2020. We're now operating the only one unit at Centralia until the end of its life and 2025, which is supported by a strong P. P. A with our customer Puget.
And secondly on the renewable side of our clean energy investment plan, we completed our investment and a 49% of interest and the skookum chalk wind facility in Washington, and this added net capacity of 67 megawatts.
We advanced construction on our 207 megawatt wind rise facility here in Alberta, Despite the Covid pressures, we're about 80% complete as of the end of 2020.
We completed our first battery storage project at some of you with some good financial and operational performance already in 2020 one we.
We advanced discussions on our U S wind projects and have a number of serious discussions with customers here on and Alberta on on on additional renewables investments.
And finally, we worked with BHP and Australia to bring lower intensity on power solutions to their operations. So they can grow their business on a less carbon intensive basis.
Our newly extended contract of 2038 provides us with a unique opportunity and western Australia to grow our on site generation and renewable business.
And that's certainly on our E squared and SG track record, we advanced on that we advanced the ball considerably there as well.
And greenhouse gas emissions for 2020, we're down another $4 2 million tons, representing another 20 per cent reduction and Green house gas emissions year over year.
We are now down over 60% and greenhouse gas emissions compared to 20005 levels.
Our goal is to be under 12 million tonnes by the end of 2020 two down almost 70% from 'twenty of five.
Our performance is exceeding targets under the Paris agreement.
To date turns out to has delivered 25 million tonnes of greenhouse gas reductions globally, and approximately 919 million tons of greenhouse gas reductions in Canada since 20 of high.
Greenhouse gas reductions and Canada represent close to 10% of candidates school of.
The 220 million ton reduction for Canadians by 2030.
And we approved and equity of diversity and inclusion pledge, which is recommended by our employees and of proved and committed to by our board of directors.
And I really special accomplishment, we achieved a score of a mind us from CDP, which put us and the leadership category for sustainability.
We are among a very exclusive and elite group of companies with us designation and the average CDP score for our peers is a b and the average score for reporting companies and North America is the D.
We did all this while improving the financial condition of the company and 2020 free cash flow was 358 million and $1 30 per share and excellent result, considering that our thermal business was down over $100 million due to the downturn here in Alberta, and the impact of COVID-19 on the Alberta.
The economy.
We ended the year with over $2 billion of liquidity and with the $700 million of cash and the bank and many congratulations to our finance and Treasury team, who did an outstanding piece of work on the project financing for South headlined in the Western Australia.
At the end of the year, we announced a 303 megawatt asset drop down to our and W and.
And we declared a 6% increase at our dividend for our dividend holders of for Transalta shareholders based on our continued confidence and our strategy and its financial strength.
And then finally, we achieved our net recourse debt target after a multi year effort of deleveraging.
And my comments today by talking about our people.
In 2020 are people basically ran our fleet and advanced our strategy and our financial performance.
And whether they were at the remote home offices or at the plants are and our corporate offices. They kept their spirits high and our COVID-19 cases, low our Sundance unit six outage had at one time over 700 people on site with no spread.
Absolutely remarkable.
More importantly, our of people achieved first quartile performance on our organizational health K P. I.
Five year journey from fourth quartile to first quartile as measured by our people.
And of here, where a worldwide pandemic was trying to create and I think back, but havoc and the upset we improve the way people work with one another to execute our strategy.
With all of the great work in 2020 by our employees is kept it is clear the turns out as the leader in clean energy and electricity and the start after investments by those who are interested in companies that deliver on east squared of SG objectives and of course as I as I leave after 35 years I know it will be the people that I missed the mark.
Finally on February 4th this year, we announced my retirement from Transalta and the appointment of John Cousineau Us as our new CEO.
The board and I worked together over the past several years to oversee of serious succession process that led to the unanimous appointment of John as our new CEO.
John is the best choice for taking transalta into the future and I supported his appointment wholeheartedly.
John and I have worked together for over eight years. He is a fine leader, who will definitely navigate the ship over the next Jack the decade he.
He and Todd are excellent partners, who have already announced the top team who are ready to take the company into what will be a very exciting time as clean electricity becomes even more central to many of our energy needs and congratulations.
Congratulations to both John and Todd what an exciting time ahead for both of you.
For the team and for the industry. So folks from me that's of rap and Todd I'll turn it over to US. So that you cannot take everyone through the numbers.
Thanks, Dawn and good morning, everyone.
This morning, I wanted to cover three key areas first I want to close off on our 2020 financial performance second I'm going to discuss our 2021 the outlook and some of the key factors driving year over year EBITDA growth and third I want to highlight on the strong financial foundation that we have in place for 2021.
So looking at our financial performance on slide seven overall I'm very pleased with how the portfolio performed throughout the year and.
2020, again demonstrated the broad diversity of regions contracts and technologies can deliver stable and predictable cash flow.
In the year, we generated 927 million of EBITDA and free cash flow of $358 million.
Both EBITDA and free cash flow performance.
We're in line with 2019 results and within our original guidance range.
I'll just touch on a few of the key drivers of 2020 performance.
In the year, our wind and solar segment benefited from higher production from strong wind resource across all regions and we also realize the benefits of three new assets and 2020.
The big level and antrum were brought on line in late 2019 and are delivering cash flows as expected.
Late in 2020, we also out of the Skookum, Chuck Wind project, which will provide a full year contribution to EBITDA in 2021.
Although power prices and the Pacific Northwest, where weak throughout 2020 strong operational performance combined with our hedging practices resulted in our Centralia segment significantly exceeding 2019 financial performance.
The energy marketing segment once again exceeded our expectations for a second year in a row generating $114 million of cash flow.
The investments we've made and this business over the past 20 years has positioned us well to capture opportunities and volatility across all power markets in North America.
The ability to deliver on customer solutions and capitalize on real time opportunities is of major asset to the company.
All of these great results help offset the impact of weaker electricity demand here in Alberta.
Production and free cash flow from the Alberta from Alberta, thermal and was down in 2020 due to lower market and industrial demand and the planned gas conversion of Sundance unit, six which was executed in Q4.
Although the Alberta thermal fleet delivered strong realized prices consistent with last year, we had gross margin pressures as we transition to shut down the mine and recognize the cost of new and previously mined coal.
All in all we had a very strong performance from the business for 2020 under a very difficult economic backdrop.
Okay.
Before I move on towards 'twenty, one 2020, one outlook I wanted to provide some commentary on power prices and on our hydro business.
Turning to slide eight as I've discussed on prior calls electricity demand for 'twenty, and 2020 was significantly lower than expected and power prices for the year ultimately settled at an average price of $47 per megawatt hour, which was significantly below our expectations at the beginning of the year of $58.
Looking ahead to 2021, we continue to see constructive factors for Alberta prices as compared to 2020.
We expect power prices to be offered dispatched and optimized and a more commercial manager manner in Alberta with power prices more in line with longer term historical averages.
With the expiry of the remaining ppas at certain thermal facilities and the transfer of dispatch control away from the balancing pool and to the asset owners.
Power prices are also expected to be influenced by higher carbon compliance costs and expected demand recovery relative to the economy wide closures from COVID-19 during most of 2020.
As we came into 2021, we saw the forward curve strengthened from about $56 a megawatt hour into the mid $60 range. This is consistent with our view that the average energy price of 55 to $65 per megawatt hour is required to support the full cost of capacity and the markets.
Looking at the first two months of the year January prices settled at $73 and prices and February settled above 100. These high prices were primarily driven by high demand during periods of extreme cold and minimal wind production.
And this period trends Alta and other market participants responded by bringing on additional capacity to meet the higher demand.
For the balance of the year. The forward curve is currently at $62 per megawatt hour.
Looking at our hydro business on slide nine we've illustrated the EBITDA for 2020 that would have been earned before making the PPA obligation payment.
And this slide helps to illustrate our expectations on the hydro segment cash flows in the post PPA period.
In 2020, the hydro business realized revenues from energy and ancillary sales of $153 million based on the spot pool price of $47.
In addition, we realized capacity payment revenues of $60 million.
In 2021, we expect this combined revenue to be similar as our expectation is that pool price and 'twenty 'twenty. One will more fully include the cost of capacity in the spot energy price.
Our 2021 the outlook is based on an average pool price of 58 to $68 per megawatt hour, which at the midpoint is 30% higher than 2020.
And 2021, the Alberta Hydro assets will also earn emission performance credits under tier.
The value of these credits cannot be realized until they are certified in 2022. This creates a one year lag and recognition of the EBITDA value.
EBIT of value from credits is expected to begin to be between 20% and $25 million based on the current carbon tax level of $40 and could escalate with further future changes in the carbon prices.
Earlier this morning, we announced our outlook for 2021.
We are estimating comparable EBITDA to be between 900 $960 million and $1 8 billion, representing about a 10% increase at the midpoint of the range versus our 2020 results the.
The company believes comparable EBITDA will strengthen due to a number of factors.
We expect power first we expect power to be offered dispatched and optimized and of more commercial manager and Alberta with the expiry of the remaining ppas with prices approximating longer term averages.
And second the expiry of the Ppas that are hydro at all of our board of hydro facilities will step up comparable EBITDA driven by the removal of the previous PPA obligation payments.
Third we will see of full year contribution from our Skookum, Chuck wind facility and eight of co. Gen facility, which were added part year in 2020, and finally, the Winterized project will be completed and reached commercial operation during the second half of 2021.
The company expect sustaining capital to be in the more elevated range of $175 million to $210 million and increased to 2020 levels.
This was driven primarily by the considerable number of planned outages in 2021, particularly the three outages in the Alberta thermal fleet that are scheduled to be completed along with their conversions to gas and other turnaround maintenance.
The company presently has shear and us one on outage and the key pillar two outage is planned for mid March and the keep US three outage is planned for mid September both of the K two and <unk> outages are estimated to take just under two months to be completed.
We're also doing some work at Centralia to set the plant up for its run to the end of life in 2025.
Our EBITDA expectation allows us to set free cash flow guidance in the $340 million to $440 million range representing.
Representing at the midpoint of 9% increase over 2020 results.
The wider range is driven by expected volatility around our Alberta merchant production the residual uncertainty around the Alberta power prices and the potential uncertainty around the outage durations and costs.
And of course, we are focused on returning value to our shareholders through our dividend as well as opportunistically pursuing share buybacks over the year.
Before I close I wanted to highlight the current financial strength of the company.
We added significantly to our liquidity and Q4 and closed the year with $2 1 billion, including $700 million of cash and on.
October we closed the second tranche of the Brookfield investment for $400 million and also close the 800 million, Australia and financing from the South headland power station. This sets us up extremely well to fund our gas transitions deliver on our renewables growth plan and return capital to shareholders.
In addition into the strength in addition to strengthening liquidity our balance sheet is also in great shape.
Over the past few years, we've been focused on reducing our senior corporate debt levels to $1 2 billion and preparation for a fully merchant market in Alberta in November we repaid our maturing $400 million bond and have now achieved our debt reduction objective.
Our successful funding activities combined with consistently strong free cash flow performance leaves us and a very strong financial position as we enter 2021.
With that I'll turn the call over to John.
Thanks, Todd and good morning, everyone I'm very excited for the opportunity to lead Transalta and to the next phase of our growth and clean electricity transition I'd.
And I'd like to thank Don for her focused leadership and stewardship over the last decade, and her vision to put us on the path of renewables and lower intensity thermal generation, while strengthening the financial capacity of our company. She has spent 30 years shaping and directing trends Altus path and we were extremely fortunate to have had or is the leader mentor.
Colleague and friend and I wish her all the best as she soon embark on the next chapter of her journey.
Our strategic priorities for 2021 will build further on the path, which we began to lay out in 2019, we.
We will successfully complete our conversion to gas strategy in 2021 with three boiler conversions to round out the two conversions completed last year.
We also plan to advance our Sundance five repowering during the year, which we currently expect to be fully operational by late 2023, we.
We will continue to actively participate and policy development with a focus on economic environment, social and governance issues and with a particular emphasis on ensuring that the needs of our customers are met and the consumers have access to clean low cost and reliable power all of which remains top of mind.
We are at and interesting and exciting time and the evolution of our industry and want to ensure that our voice is heard.
And with the expiry of the Ppas, and Alberta, and the evolution of our generating fleet and the province, we are now highly focused on optimizing our Alberta business and of setup a separate team with the objectives to ensure that this market is served both at a wholesale and of commercial and industrial customer level.
We remain focused on serving industrial and commercial customers with our unique offerings and the breadth of our portfolio to deliver clean power solutions for their operations and production processes. There are three elements of this part of our strategy for us.
First expanding our renewables business with the goal of advancing two new wind farms of this year, one and Alberta and another one out of our U S wind development portfolio.
Secondly, expanding our onsite generation business with the goal of securing new cogeneration of hybrid power opportunities for the 2022, 2023 time frame and Canada, and Australia, and three providing power supply and environmental attribute solutions to industrial and commercial customers and each of our jurisdictions.
We will also continue to maintain a robust of COVID-19 response, while maintaining a strong financial position.
I'd now like to provide you with an overview of what we're currently pursuing in terms of growth opportunities.
We have 700 megawatts of advanced stage wind projects, and our growth pipeline, which have the potential to be commercial and the 2022 to 2024 time frame.
We also have over two gigawatts of earlier stage opportunities and various geographies and with various technologies. So our development team is being kept busy and Canada, Australia and the United States.
We're working with various customers on how to leverage our expertise existing generation and development projects to create customized power solutions to meet their sustainability objectives, and a cost effective manner.
On this slide you can see the we're at the forefront of carbon transition and Canada and that the execution of our strategy is having a real positive impact on our communities and the environment.
As was noted earlier by Dawn in 2020, we reduced an additional $4 2 million tons of annual GHT emissions of 20% reduction compared to 2019.
Since 2005, we have reduced our <unk> emissions by more than 24 million tons annually or more than 60% well ahead of Paris agreement levels, and we expect there will be a further step change and reduction in emissions with the closure of our Centralia two facility at the end of 2025.
I'm also pleased to note today that we've adopted the goal of reaching carbon neutrality by 2050.
We are well into our emissions reduction journey as the company and we feel our clean electricity strategy is well aligned with the longer term carbon neutral goal.
Carbon neutrality means that we will offset carbon dioxide released into the atmosphere from our activities fully from avoided emissions or the removal of emissions from the atmosphere from natural or technological things setting. The school provides a meaningful internal signal to our team as we shape our growth strategy, but also provides for flexibility.
<unk> as we develop our business over the coming decades, adopting the school also sends a signal to our external stakeholders, including government regarding of our intention to contribute to broader national and global efforts to meet national emissions reduction goals for 2015, and we believe that we have many pathways to get there given our ongoing.
Emissions reductions technological advancements and the expected life cycles of our existing greenhouse gas emitting facilities.
Just to close off of presentation I wanted to highlight what I think makes transalta of highly attractive investment and of great value opportunity first our cash flows are resilient and supported by a high quality and highly diversified portfolio. We are diversified and both fuel types and geographies our business is driven by our highly contracted.
Wind portfolio, our unique reliable and perpetual hydro portfolio and our.
Highly efficient and competitive thermal and soon to be largely gas portfolio complemented by our world class of energy marketing capabilities second as Don pointed out we're at clean power leader with and <unk> focus with tangible greenhouse gas emissions reductions of focus on removing systemic barriers through our equity diversity.
And inclusion commitments and a commitment to good governance.
Third we have a strong and diversified set of growth opportunities, including our pipeline of advanced stage projects with the talented development team focused on realizing its value and finally, our company has a strong financial foundation, our balance sheet is in great shape and us ample liquidity to pursue growth we've maintained cash.
<unk> discipline, and our growth investments and we have a track record of generating reliable and strong free cash flow.
We believe the company is at an exciting time and its development and that we're well positioned for the future as the leader and low cost reliable and clean electricity production.
We're planning to have an investor day on June seven where we will introduce our new management team and our plans for 2021 and beyond we look forward to seeing you then and with that I'll turn the call back to cure.
Thank you John Todd and Dawn.
<unk> would you. Please open the call up for questions from the analysts.
From media.
Certainly.
At this time, if anybody would like to ask a question. Please press star one on your telephone keypad again that would be star one on your telephone keypad and your first question comes from Rob Hope from Scotiabank. Your line is open.
Hello, everyone and.
First off I guess, congratulations and all of the best and the next phase of its for Dawn and Brett.
Yeah.
And the.
First question, if we can go back to slide nine on the hydro EBITDA generated in 2020, and the puts and takes as and when you look into 2021.
And I don't know if you're prepared to give it an index of range, but it seems like we could take that two of 11, and then adjust up 30%.
Our adjusted up based on the increased power price is that we're seeing so far and.
The 'twenty 'twenty, one and then when we're taking a look at the carbon offsets.
Is there a chance that they could get certified in 2021, we'll utilize them and another area of the business or is that kind of just.
More of of 2022 issue and I guess finally, where are the are there any offsets included and that 211 right there.
Yeah, there's a lot of questions in there.
And there are and there are so why don't I start and and if I Miss anything and I'm sure title jump in so yes look we.
We're not we're not prepared at this time to give a lot more granularity on how.
The hydro will actually perform I don't think Theres just the simple rule of thumb that you can kind of allocate to what it'll be it depends on volatility and the marketplace in the moment and what we're seeing you know day over day week over week in terms of what the performances and the competitive responses. So it's really intended to sort of be on indicative representation of what people can.
And can expect there.
With respect to the offsets I don't think that the slide that Todd showed you had any value for for offsets.
I also think it is.
And extremely unlikely that we'll see value for those offsets get pulled into 2021 and I think the way. The certification works, we're really into a lagging year kind of cycle with respect to those offsets.
Offsets and.
In terms of the value of the offsets.
Look we continually look internally.
In terms of what we need for our own generation and what makes sense in terms of monetizing them and the market.
And the momentum and we take a longer term view in terms of where we think our own needs will be vs carbon obligation. So it's.
It's really a mixed bag, although for sure we ended up using a good chunk of the.
The offsets that we get from our own generation internally.
Alright.
Robert Robert the only thing I would add us that we did include some disclosure on our financials on inventory levels for global energy credits.
So I can get Kara to point to that it's back and the inventory note and our financial statements and we did anticipate of rising.
Carbon price and and we were proactive in prior years to acquire and inventory of pretty significant.
<unk> and renewable energy credit.
Inventory portfolio at the time and that when the coal that was lower than of the correct and so to John's point, we don't see a need to go out and source of additional Rex from outside of our hydro assets outside of our wind assets.
Okay I'll follow up question.
Taking a look at the sustaining capital and 2021 looks a little bit higher than we and the market, we're expecting but acknowledging that you do have a lot of conversions there.
If we try to normalize it you know what does 2022 look like could we see.
And major maintenance significantly down versus where we are in 2021.
Yeah. So so I would expect that for 2022 on a normalized basis, Rob that you'd see a pretty significant reduction and.
And sustaining capital expenditures and I'll, just give you a sense of that I think when you look at sort of the numbers. The we're outlining for 2021.
Rough range of numbers, I think of like $90 million to $100 million of that being largely on coal to gas and a lot of that us over the conversions that we're doing now that will fall to a fraction of that on a normalized basis as we go.
Forward and then there'll be various puts and takes among our gas fleet our hydro facilities.
And wind wind is highly predictable relatively modest capital expenditures.
And with Hydro we have maintenance work it comes and periods and we have some dam safety work that we have but overall a significant a significant reduction.
Year over year.
Thank you.
And your next question will come from Ben Pham from BMO. Your line is open.
Alright, Thanks, Coram and I wanted to fall on the the hydro assets to them.
And Mark curious as you and you look at the.
Potential carbon price increase and.
The pricing trends and Alberta power and.
And more of the middle part of the decade does that does that change any sort of math of economics.
And here with the Brookfield investment in terms of Covid.
And at the buyback the converts or change of ownership and what has anything changed there thats notable the share.
Yes.
Yeah.
The the way that that transaction works in terms of the potential sort of conversion of of Brookfield kind of financing the company into an interest and the company has a bit of of longer term sort of range and the way that the calculation is done.
And so it might have an impact if we see continued higher pricing.
And credits and that would have the effect essentially of reducing the amount that brookfield would be converting to <unk>.
In terms of its interest into the hydro fleet from a directional perspective, but we'll see it's still a ways away.
Do you think though and I think.
You may be at lock locked down the buyback option.
Based on what Youre seeing but do you think versus your initial analysis that the pulse quantify about walk us now a bit more better and it couldn't accrue more of a you just given the carbon tax director and potentially.
Yes.
It's hard to say I would look I would say the directionally. If you look at some of the forecasting there is a general sense of prices over time would increase certainly we're seeing carbon price.
The expected to increase over time, you know the trick will be and.
And seeing what the impact will be on new generation that comes into the province, and and the amount of credits that are there as people and the province continue to Decarbonize. So at least I can tell you from a working assumption internally, we tend to think of.
That is being static to slightly positive for us in terms of what the what.
A lower amount of potential interest going over to Brookfield on conversion.
And it makes a lot of sense and it's good to see the carbon reduction.
What's the appetite here and just think about it hasn't 50, and and also 10 and 30 in Alberta and work with the state capital stock turnover and do you the.
The ambition Ta the next couple of decades the.
To date most of the renewables.
Debt net reduction target or do you think testing 30, you Gotta income.
On the build new gas and the province.
Yeah.
Look.
We continue to think as the company that gas will play a pretty critical role.
And sort of Backstopping generation and the province, I mean, we saw.
And I'm, not even going to get into what happened in Texas, but I am just going to look at what just happened and Alberta, our experience over the course of the last three or four weeks really a month.
When we get a cold snap and this province.
On the Windows and blowing and certainly we don't have much and the way of solar generation here and the province of highly depend on the on their own there being natural gas generation it'll be interesting to see how the technology evolves and the coming decade, and the sense of Ccs and what people can do to sort of reduce those <unk> emissions, but we do see at least and our company.
<unk>.
Our role right now for natural gas generation for the foreseeable future and and we see it not just in Canada are really in Alberta, but in the United States and and.
Australia in terms of of our company, we continue to look at natural gas opportunities, but we look at them in the context of our overall.
Each of SG goals, our commitments on carbon reduction and and think that there'll be there'll be a glide path over time.
And to there being a reduction and the wildcard being what we can do with technology to reduce emissions of our capture of those emissions.
Okay.
Great and <unk> and Dawn also wanted to wish you the best in retirement and.
And the great getting to know you and Oh and John.
And also looking forward to getting to know you Marty on the future.
Great. Thank you very much really appreciate that.
And your next question will come from Mark Jarvi from CIBC capital markets. Your line is open.
Thanks, Good morning, everyone.
One of them could go back to the the hydro assets in Alberta and.
I think and prior years, there were some commentary around potentially seen an uplift and ancillary revenues and <unk>.
Some scarcity pricing.
<unk> seen the market evolve and the first couple of months of I'm pushing.
It's still early days, but just any thoughts in terms of ancillary and how youre seeing.
And those prices come in relative to the market prices and the thesis around maybe some upward pressure on ancillary revenues.
Yes, I mean, so far I think what we're seeing on the ancillary services side is pretty much mark what we were expecting we are seeing the ancillary prices kind of track broadly speaking the the prices that we've seen in the market.
It's been an interesting sort of year and the province, Theres been a couple of instances where the <unk>. For example has caused some issues and the province I think.
On three separate occasions now so it's answering just the importance of ancillary services and.
The importance of having that back up and making sure that that frequency is managed properly in the province. So I think it's as expected I think Todd the relationships that we see are broadly what they have been in the past and and.
And I think the market is healthy I think we're seeing probably a bit more and the way of sales and we probably saw on the back half of last year in terms of volume as well, Okay and Mark just as a reminder, we've we've kind of indicated the hit the historical relationship is that ancillary revenue price is roughly half of.
The energy price realized and up to 60%.
But similarly, the volumes that we can we can offer end of the market out of the hydro business is effectively double the volume that we have on the energy sales. So those are kind of the relationships that we have seen still.
Yeah.
Right. If you look this year on the full year number on 2020 and was about 45% of of the market price, which was a bit lower and that was just because there wasn't much volatility, whereas you think youll see that snap on and not a snapback on the part of their stock towards more 50% of of market pricing.
That's not a bad at least that's kind of the rule of thumb I have mark So that's not a bad way to look at it. It's the last year I agree with you. It was sort of a pricing issue and remember we had not just of low pricing some pretty mild weather right. As we ended up the year and in the fourth quarter here was a it was a it was a pretty sort of benign.
Kind of start to the.
To the winter and volumes were down a little bit.
Year over year on the US side I think we've seen more what I would call normal kind of activity at least and the start of this year.
Got it and then the energy marketing sort of the guide and you gave for 2021 and implies a pretty healthy number.
Especially relative to the past couple of years.
I guess is there anything in that 2021 number like there've been aiming at and the first couple of months of the year and kinds of volatility and other markets and allows you to the guide to a higher number and Hum.
I guess just the question and then it would be does that a number of anything you can see follow through on years beyond 2021.
Sorry.
Yep Yep, Mark what I'd say is that.
The strong performance over the last couple of years and the ways in which they make.
Margins being largely real time opportunistic taking advantage of markets flowing power to customers dealing with customers to supply and.
And eastern markets as well as western markets and the U S.
That that was part of the foundation of that gave us confidence to start raising the.
The expected range for them it didn't feel right putting in the lower range, knowing that and we're coming off of two very very strong years here, we continue to see.
The market volatility that that is what the the the <unk>.
Getting guys need to help broker those deals and move the power of around and realize the profit. So I think it's just been a healthy healthy energy market in the east and west markets in the us that gave us confidence to raise that.
The outlook and some of that is just sort of mark if I could just chime and some of that is just sort of backed by some of the long term trends that we're seeing for example.
In California, and the desert southwest and even and pockets of.
Of the eastern United States.
We have seen with some of the weather events, just increasing volatility as the generation mix is.
Changing over time, so we're factoring that in towards thinking.
Got it and then and the Transalta Renewables press release, there was the comment about and some of the growth of Transalta and you flagged that in your presentation. This morning, but theres also a mention of M&A opportunities can you provide the more color in terms of what that could mean, whether or not that would be directly into the transalta renewables or sort of immediate and by transalta itself.
Yeah, I would say the the development group still sits inside Transalta Corporation the.
History has been even on M&A activities is to acquire it through Transalta Corp.
And then make sure of that its fully derisk and and drop it into transalta renewables, but theres no reason why and certain transactions, we can directly acquire into transalta renewables, but effectively it is the trends all of the development team. That's looking at opportunities and then deciding where it makes sense given the stage, it's at and given where we're at renewables and corporate.
And.
And any sort of color around what targets and you sort.
Of renewables, and North America, and their stuff and Australia that youre seeing any other kind of background.
Background around what you consider for from M&A opportunity right now.
We I mean.
Look we have and internal process and the company.
We go through and we look at opportunities and I can tell you and mark that we're that we're looking.
At opportunities like in all three jurisdictions that we're in and Canada, The U S and <unk>.
Australia in terms of you know potential opportunities frankly for both companies not just for.
For our and W and.
But I think it's probably fair to say Todd it's been more U S and and Australia that we've been looking at and our and in our investment Committee. It's just it's a natural part of what we do at year and Euro Yeah, I would say the opportunity set and the U S is larger but it is surprising how even even the opportunities in Canada and tend to show up once in a while.
Okay. That's helpful and the happy retirement Dawn and congrats John on the appointment and thank you. Thank you.
And our next question will come from Patrick Kenny from National Bank. Your line is open.
Yeah, good morning, everybody.
Just on Repowering subtypes, and I guess, Dovetailing and what's your net zero pledge and could.
Could you just remind us of couponing to implement the the flexibility to burn the hydrogen as well and.
I guess, if not what technical challenges you might need to overcome to convert the hydrogen overtime.
Yes, Patrick.
So right now the work that we're doing on the Repowering just contemplates that we can.
That will just be burning natural gas frankly at the facility.
I know I've spoken with our engineers.
And there and and the team that is heading it out we do have the potential there is more work to be done.
The burn hydrogen with it it can be as high as I think it's around 30% of the total fuel, but theres more work to do and and candidly. The same team is even considered the possibility of burning hydrogen even of our coal to gas units to be honest.
And at a lower percentage threshold, but we have more work to do and frankly, we heard of the supply right now any way to be able to do it sort of theirs and so theres more to come on that yeah, and Patrick just on.
Couple of things to think about as people are talking about that remember hydrogen gets made with electricity either surplus renewables. The electricity that still have capital and that has to be invested in in order to make the.
Surplus number one and number two.
Sorry.
It's made with nuclear or its made with.
And by taking the carpet molecules out of natural gas.
All three of the hydrogen prices and that 10 to 13 dollar range and hydrogen itself and its production, especially in the blue hydrogen creates greenhouse gases. So you have to actually take the FTE Ccs to get rid of the greenhouse gases there.
And so you have to always compare of the burning of hydrogen against carbon capture and storage kind of force.
Or either carbon neutral opportunity so.
As it turns out took us forward on its carbon neutral and potentially of delta of.
A lot of renewables and that's probably a better place for it to invest its money now and will all depend on carbon pricing and other things like that but as we do work.
As John takes over the words from me of course.
The provincial and federal government policy and the number.
The one thing for all parties do us to put its money and the lowest cost kinds of options for the best outcome for the best outcomes and.
Hydrogen may be part of that but.
Something where you use electricity and make you feel to make electricity seems not.
Not potentially the highest value.
And I'm pretty sure John will have some sort of the technology session.
And when he has us and his investor day in June.
Okay, great. Thanks for that and that's very helpful.
And then just on the marketing gross margin guidance, there 90 to 110.
Could you just confirm for us that net of all M&A that that comes with the beef.
Call. It 60 to 80 to the EBITDA guidance range.
And then looking further out and I was just curious about the opportunities to maybe participate and the development of the market for carbon more on a on the global basis.
I guess is pricing policies become more clear so Boston regions, where you operate but also regions, where you might not have a physical presence today.
Although there might be and opportunity to play a role as a market maker.
So first on the energy marketing guidance I think your mouth is us very much correct. It's in that $25 million to $30 million of eliminate costs that come off of the the gross margin amount. So we don't see any any real difference from what you would see and the results for 2020 on the oil M&A side sort of 60 to 80 us about the right number.
And maybe just on the carbon side of the equation.
All I can say is and we're very much focused on kind of carbon policy and kind of managing our I'll call environmental attributes.
And just in the jurisdictions in which were operating there is a lot of themes issues in terms of sort of global carbon pricing it'll be interesting to see where sort of government dialogue moves that over the course of the coming years.
As of at least a number of the trading blocks tried and maybe get alignment.
But our focus tends to be much more focused on the.
On the on the regions and which we have a big a big portfolio and making sure that we look at it holistically in terms of the economics of our generation.
And and the environmental attributes that our fleet provides us well.
Got it thanks John.
Last one if I could just with the $1 $2 billion senior debt target now being met.
Perhaps just an update on on what the target debt to EBITDA ratio looks like over time on a consolidated basis and Joe.
And curious to get your thoughts.
On just developing a path back towards investment grade credit rating.
Just in order to support the robust pipeline of growth opportunities that you have.
Yep Yep Yep, maybe I'll start and then John John can add and so we've kind of signaled that on a consolidated basis. We're looking at a long term metric of call. It three three and a half on debt to EBITDA and that's the one metric that I focus on probably more than others.
The.
The.
Over the the.
I think we're currently just around the four mark on that particular metric and really what we see over the next couple of years and said as we finish up the Sun five project.
Our metric will probably be in around that range for the next two years until the Sun five project is completed and brought on line.
And then we will see a solid improvement after that.
Yeah, and I can and.
And Patrick happy to just kind of give us some perspectives on our credit rating I'd say, the we're pretty comfortable with where we are from a credit rating perspective, right now I don't think that our treasury team and Todd can chime easier sees any sort of challenges or issues in terms of us financing, what we need to do to get things done from a growth perspective, a lot of times, we tend to think of project financing.
And in terms of our growth and and that's really more reflective of the quality of the off taker and the cash flows that we have there.
We are spending time, there was a focus on considering what other ways could refinancings of their other alternative pools of capital that we could source the kind of accelerate our growth and that's certainly a focus for the team and in 2021 and and beyond sort of out of your water and anything to that but I think that's really where we are.
Thanks, John.
Okay, great. Thank you very much.
Thanks.
And your next question will come from John Mould from TD Securities. Your line is open.
Good morning, everybody.
Maybe just starting with us growth.
And the context of of what we saw in Texas and any lessons there in terms of how youre going to think about contracting assets and the U S to both on the portfolio how are you.
And might consider M&A transactions or and appetite to go farther on winter as Asian on on U S assets that you might have had otherwise.
Yes.
Joe and I'll be honest, we're still trying to.
We were talking about it just before the call I was I was actually doing a bunch of reading of what was going on or what happened in Texas and.
I think it's going to take some time to actually break that down and really understand what happened from a from a causal perspective I think when it comes to the opportunity set that we have there and when we think of the the.
500 megawatts that we have in Oklahoma kind of it and advanced.
The stage, we we do look at.
The the the standard deviation of the environment in which they're running in to make sure that when we look at and pricing of the technology that we're using it as appropriate and fit for purpose, but overall from a trend perspective, what we really are focused on us with the bite and administration is looking to do from a renewables perspective and that includes putting pressure.
I think on large economic players to disclose where the route from an environmental footprint perspective, and I think all of that bodes well directionally for there being increased appetite frankly for people to try to decarbonize and come up with.
So just better ways of reducing their carbon footprint.
<unk> footprint, so I think it's.
It's positive and look we're focused on contracting those assets those wouldn't be merchant assets from our perspective, so so they'd be backstopped by by PPA, so that sort of exposure to and.
And to some of those kinds of issues that you would have seen more and the in the wholesale market. If I can put it that we'd be insulated from.
Okay great.
And then maybe just moving to your Alberta wind developments just can you talk about how the of offtake.
Environment the opportunity for optics is evolving and where are you.
Getting it.
Any added comfort and potentially proceeding with some of those projects on the merchant basis, especially in the context of of rising carbon price or would you need the secure a buyer for at least part of their output before deciding to move ahead.
And I can I can tell you that we're very much focused on contracting those assets were not as a company in.
Inclined to be building merchant wind generation.
In the province, and really all of the discussions that we have.
With the number of the the.
The company's here, which are very much on a on a on a path to being focused on their carbon footprint and I think it's creating an opportunity set for us. So so merchants not not really for us.
On the.
Okay, Great and then maybe just one last one on on some six just in terms of heat rate ramping is that all going as expected have there been any surprises one way or another it seems the conversion that was completed the was completed the might be relevant to Q2 and Q3.
Yeah.
So no surprises in terms of the output of the plant post conversion and back to I think that when you look at the performance testing that we did we were actually a bit ahead from a from a heat rate and just from an overall performance perspective, so not a ton of lessons learned on that as we go into Q2 and Q3, just given the different nature of.
Of the setups of the two of them, but but we feel pretty good about it.
We got what we expected to get maybe a little bit better.
Okay, Great I'll leave it there best wishes Dawn and Brett for your last month and two months at the company and the near retirement from Transalta and and congrats John.
Thanks very much.
Okay, and if anybody would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from Maurice Choy, RBC capital markets. Your line is open.
Thank you and good morning, My first question is on carbon taxes.
And as the prospect of higher carbon prices, and Alberta, especially if indeed, the $170 per ton as introduced by 2030 the.
Do you think that more of me to be done in relation to the units where you haven't bought on the conversion schedule.
Yes.
Look it's a great question Murray So I can tell you that when we were looking at.
It's a multi it is a multi pronged answer itself. So if you just be patient for a second and I'll try to give you just some thoughts so when we.
We looked at all of the economics of doing the coal to gas conversions, we always tested.
The economics of those facilities with various expectations of of rising carbon price as we went through we never sort of contemplated that there would be of static price that we would have from of carbon perspective. So so I think we're pretty comfortable with the.
And at least the foreseeable few.
<unk> future as we go in and so that would be one and the second thing that I would say.
Is that.
We're fortunate to have kind of of the diversity of fleet that we have in Alberta, and so when you think of our wind generation here in the province, and our hydro generation in the province, It creates a healthy bank of credits plus as Todd mentioned earlier on the call we bank.
A healthy group of credits that we can actually use the defray some of those costs.
And that are associated with the rising carbon price going forward.
The third thing I'd say is look we're very much focused and in the discussions and the dialogue that we have with government on.
Just the enforcing the notion that the capital that we put in all of the commitments that we made were under a particular regime with an expectation that the units would run for a transitional period.
And I'm talking about our coal to gas units from now into the mid to late 2000, and <unk> and that's something that we just think was the bargain effectively that was struck for the capital that we put in and we continue to.
And to focus on that as being a key part of where we're at and look the.
Dawn talked a little bit about technology, and what you could.
Potentially do whether at Ccs or something else that we can do from of carbon emissions perspective, we'll continue to look at that it is pricey.
Right now, but I don't want to prejudge of preclude us doing something and the future, including potentially with the assistance of government and.
And the event that that.
The things things become.
Tighter in terms of the exposure there I don't know dawn Todd if you're on.
I'd just add one thing on.
One of the one of the things we looked at really closely when we thought.
<unk> thought about the portfolio, which included the coal to gas simple cycle and the buying cycle.
It was expected volatility and as more people invest and more green the green is intermittent and it creates more price towers.
And of course and order to run a grid at minus 30, we hit a peak this year.
Which probably nobody expected because the universities of true back on line.
Office buildings, there are half empty, but we still hit our peak over last year.
And you need that you need the thermal to turn on and what's really unique about our portfolio of position is our coal to gas.
And investments are able to run at full load.
And they provide the the peaking capability and and.
And sort of some of the pricing for for that.
And if you're looking to find details of the regulations on gas in Alberta, and Canada on.
And new pickers cannot dispatch to a 100% I think theyre limited to 30% of our limited. So these are really competitive assets for what will likely be and much more volatile market going forward.
Okay.
Alright, and and I guess, just as follow up to that is it is indeed, you have a more volatile market.
The carbon prices are escalating to the.
The 100, and if not beyond the hundreds.
How do you and look at slide.
Hum.
14, and the pipeline.
The Alberta Alpha chain T plus the new technologies.
Not changed the.
Do you see of prospect that you might introduce more.
The new technologies and the space as well as perhaps an update to project pioneer on Ccs.
Yeah, what I would say is look.
Let me try to answer the question and two ways.
So when we look at the opportunity set and Alberta right now one of the things that we would consider is K, one and a repowering of K one for the latter part of the mid to the latter part of the of the decade, depending on the needs of the province has I mean, one of the interesting things is there's going to be some pretty considerable turnover and just the amount of generation that exists and the.
Province, like pretty dramatically so.
That is something that we've got the we continue to look at and we'll look at that and the context of the technology of of the day. So that's that's one thing and secondly, a lot of the growth opportunity that we see in the province, the tends to be around coal gem sort of contracted on site generation co. Gen. So that would be kind of the other <unk>.
Lim sort of if you had a two arm.
Our approach to looking at it that would be the other place that we would be looking at doing that and then the final thing that I think is important for us is our razo.
Pumped storage.
As carbon prices increase that just makes a lot more sense and theres more renewables that come in it is the perfect battery for what the province needs to go forward and maybe just one more thing it's interesting everybody talks about a $170 carbon price and I can just.
The at least my own thinking around it.
There are and we expect will be a lot of credits in the marketplace with the onset of renewables the pricing of that will likely be at prices likely below what you are seeing the price of the carpet and frankly, I think thats been experienced and pretty much every jurisdiction and if you look and the world and secondly, just some of the math that we do with.
Show that if you start getting to a carbon price that is much higher than about $100 a ton and net and this number of probably will decrease overtime technology kicks in and actually becomes economic far before you get to a $170 sort of carbon price in terms of coming in and dealing with emissions from that perspective. So so for me.
The game is not at the 170 level as kind of what you do and the path.
Kind of to the midpoint effectively if you see what I'm, saying there.
Yes that totally makes sense and that's it from me and dawn of the team I wish you the very best and the retirement and John and Tom Congrats on your and your appointment.
Thank you very much thank you.
And your next question will come from non she going from.
And I a capital markets. Your line is open.
Hi, Good morning, I guess, just following up on the on that last comment can you just maybe talk about what initiatives you see coming down on the pipeline for this year and it's for example, and garden play and the only sort of advanced project that you would clarify idea on AR.
And maybe just a bit more details on when we can expect the final decision on day one.
Yeah, so in terms of.
And the wind farm is we've got two in Alberta and candidly. We're also looking at expansions of existing wind.
Wind farms, but we've got garden plane, and Tempest, which are the two most of advanced stage, new wind farms that we have so we are definitely.
Focused on trying to progress at least one of those this year and then we've got three wind farms in Oklahoma, which we're also really focused on trying to get one of those landed.
This year, when we think of K one on.
Honestly my view on the timeframe from making a decision on that is more 2022.
I think I'd like to get the coal to gas conversions done I'd like to get us well on the way of having.
Our Sundance five Repowering done and then we'll see how the market develops and what the needs are.
And then we'll make a decision and the fullness of time, but it's not at least from our perspective I think taught US a lot of 2021 decision no I agree.
Okay, Yeah that makes a lot of sense us for Q1, I guess just the another follow up on a earlier comment.
And I'm looking at the alternative pools of capital to maybe accelerate growth and I guess.
The obvious one is the.
And W shares of performed very well last year.
Can you just give us your latest thoughts on maybe potentially reducing transalta us taken on and there'll be you.
The selling down that stake and we're investing in and other opportunities be it the organic or M&A based.
Yes, our view right now so we're very very comfortable with the ownership level that we have with the transalta renewables.
At least on my own perspective of pillar of the company I tend to think of the three pillars of the company I think of our hydro.
Fleet I tend to think of our gas fleet as being one and the third one is transalta renewables so no.
No discussion or thoughts on reducing our position and our and W. At this point.
Okay. That's great. Thank you and congrats on the retirement and to both John and Todd on your respective of appointments.
Thank you. Thank you.
Yeah.
Your next question comes from Chris Barco's from Calgary Herald. Your line is open.
Hi. This is the question for Dawn and I I'm, sorry, if you've already answered this but I just wanted to talk to you book the goal for net zero of 2050 does this and aspirational goal for the company or from where you're sitting right. Now do you actually have a pathway to the net zero and if so how.
Chris its John and I'm happy to at least begin answering that and then maybe Don can.
And can chime in.
So look at it.
And like all of these kinds of goals. It is an aspirational goal for the company in terms of getting to carbon neutrality by 2050, but what I would say about that is I look at where we have gone from and emissions profile perspective, we were over 40 Meg of tons of Cotwo emissions not that long ago, frankly, and we're on.
Now into the low teens and very much can see of pathway by.
And by kind of 2026, where we would be sub 10, so it's a pretty dramatic reduction from the company. We have a real sense of our coal to gas units coming to the end of their lives and kind of on 20 of the mid 2000 and <unk>. The latter part of the 2000 <unk>.
And we just look at the life expectancy of a bunch of of the other gas generating fleet that we have so we do see.
A pretty a pretty clear sort of trajectory in terms of our existing fleet, where we would get very close to a place where we would be.
Approximating carbon neutrality and when we look at the environment mental attributes the come from our wind and our and our hydro facilities, we're pretty confident that we talk about it as an aspirational goal, but we don't need how can I put it.
Out of the box sort of technical solutions that are just a twinkle in someone's eye to be able to get there I think we see pathways to getting US, yes, I would say, Chris as you know I've worked on carbon policy sense, 1987, and selling spend along the journey.
And I was really proud of of the work that John and and and the team did carry and the board did and setting that carbon neutrality golf for 2050.
And remember net zero is the Canadian goal and that was kind of a global golf and net zero means all carbon that's being put in the year has to be taken out you've got the either think of it or pull it out of the air.
With John and the team of Dennis at Transalta for carbon neutrality, and what that does the size.
We will use our investment dollars that transalta going forward.
Significantly help others Green day.
And our portfolios.
Because remember we serve we're the enabler.
<unk> to customers and.
And they need us to supply them with safe reliable and green and and frankly and everybody's heard the SG. This from me a low cost electricity because.
Effectively our kids and your kids and our grandkids and.
They can't afford thousand dollar of electricity bills, they need to have low cost of electricity, so by focusing transalta as investment dollars on carbon neutrality.
We can really make a huge difference to the province here, we can make a huge difference to customers.
And then of course that contributes overall to the Canadian coal and Youll see the Canadian government investing and tree planting I mean thats. The other side of the Corp zero.
If we invest in technology and wind and solar on <unk>.
Natural gas, peaking of the stuff that really makes us I'd like to see low cost and reliable.
I think it's a really important journey for for Transalta day that the team is kind of late here. So I think they've done a great job of thank you Mr.
Just to follow up and this is for either one of you and what do you need to see from both the federal and provincial governments right now in order for companies like yours to be able to reach that and the tables dull.
Well, let me start with that I think the.
And he was a cat, Canada, reducing its carbon emissions by about 200 of Mega tons.
Over the next 10 years, because we really truly as the Canadian economy have not reduced any emission since 20 out of it.
And so all of Transalta as heavy lifting has been taken up by by other emissions.
And so if you look at that just simply multiply that by 1000, its about $220 billion trying to turn on $20 billion.
That's a lot of cash it's about $20 billion of year that needs to be invested and it has to be invested and true carbon reducing technologies.
We've done we've and I've been working with the provincial government here then.
And then really looking heavily at what the cost of the pipe for carbon capture and storage.
And I'm very very hopeful that there'll be some sort of I.
Agreement here in EBIT, even as early as the current federal budget that will start to put some money into Alberta.
That we can start to make us carbon capture and storage investments in our economy.
And really green both of the Oilsands and and continue to agree and the power sector here in Alberta, and now the power sector and Alberta has done all of the heavy lifting.
But again, it's always the journey, so I would say, Chris the thing to really watch for especially for Alberta is can we attract some of some funding federally and.
Each of the provinces for carbon capture and storage carbon capture utilization and storage.
And for advancing hydrogen we need three hubs here in Alberta transportation hubs.
To really promote the use of hydrogen and the movement of hydrogen and the movement of carbon as well.
So there's quite a transformation that can take place and Albert over the next 10 years and frankly, we're nine years not 10, we've actually we're in we're in the 'twenty and 2021 so.
I'm glad to give you more on that at the future time, but I think that's an important piece of work that John will be doing us he takes over the range here.
Thank you.
And.
And your next question will come from Matt of Litho from carbon pulse. Your line is open.
Good morning. Thank you for doing this I have a bit more of us.
Granular question regarding your offset used the strategy for the 2020 to your compliance here I guess what the.
The with the carbon price under tier being $40 for this year of $50 next year potentially $15 increments up from there.
I was wondering if that trajectory has shifted your approach T turning and credits for the upcoming 2020 deadline and June taking.
Take note of.
For instance, capital power and their earnings of February, saying that they're going to just pay the carbon price of $30 for the Genesee three unit north of the bank credits into the future years I'm. Just wondering if maybe you could speak to whether or not and youre doing anything similar from that.
And the bank for later years or of your strategy that hasnt changed much in that regard.
Yeah, Matt it's interesting we are.
I'm kind of I've got a smile on my face only because the question that you're asking really is one of the key topics that were focusing on for the last two hour meeting that we have of the day. So.
And your your your timing is.
Perfect look we were right now and feeling like the low credit in terms of what we need we're very much focused on reducing what the dollars are that we need to pay from us from a carpet price perspective.
And in the year, so that's something that.
It's something that ends up that that ends up driving kind of our approach of doing things and we have and our team. We've got a team that actually trades. These credits and is focused on optimizing them they've got their own views on what the pricing are going to be kind of in the near term the medium term and the longer term and a bunch of that to be honest is pretty simple sort of information from a competitive perspective.
So I can't.
I can't really give you a sort of the level of granularity that you need its a bit of of science and the north that we have internally and the company and for US It's really taking a bunch of judgments in terms of what we think our needs are going to be where we think carbon pricing is and where we think the value of the credits will be to kind of do that algorithm to figure out what makes sense for the company.
So it's a it's something we look at.
Honestly.
Monthly in terms of determining it so it's not a not an easy thing to answer.
Yeah, no worries at all on just the I guess, a separate follow up on but still related to carbon pricing you mentioned in the in the report released today.
The federal government launch of the output based pricing system review for 2022, and then that review Ottawa side of that Theyre going to look into and annual tightening of the output based standards and I'm starting in 2023. So currently tier has a good us best gas electricity of benchmark of 370 on the.
Fixed at that rate.
But in order to attain equivalency with the federal regime, perhaps Alberto will have to follow similar to what the federal government does in future years. So I guess my question here is that should Ottawa decided to institute of declining electricity benchmark.
And I guess, how would that affect your future.
On procurement of generation plans for gas and renewables.
Or your utilization strategy for offsets or <unk>.
Okay.
Yes, I mean look the.
I think theres a lot of us look I'll make a couple of comments on it.
Theres, a theres a theres a lot of discussion I think from our perspective.
It needs to go on and in terms of the performance standard.
We were actively involved with government at a time when we made the decision to invest the way we are investing and all of the coal to gas fleet that we are on the conversions to really accelerate.
Carbon reductions.
In exchange for kind of of regime that that made economic sense.
For us to actually do it. So so we will be actively participating and the in the review of the of the performance standard and making our you know our thoughts known in terms of what we think makes sense going forward. So that's one.
Two.
With the with the coal to gas conversions that we're doing the carbon price that we're exposed to us significantly reduced in terms of the output of C. O. Two that we have because because we're effectively having the.
And the emissions that we have and although they are above the performance standard of of 0.3.
Seven and Theyre not one there are significantly below and when those plants are running and and appropriately there.
They're not on top of the point of $3 seven, but they're not a lot over the 0.37 in terms of where they actually are and for sure as we look forward in terms of other investments that we need to make we will we'll be looking at the impact of carbon pricing on those kinds of investments I mean and most of the.
And kind of transactions that we're focused on and we're very much focused on contracted generation typically under those regime carbon pricing as the flow through to the customer and our concern is really around that just competitiveness of industry and making sure that power is low cost and fit for.
The purpose as we go forward. So it's a it's a multifaceted sort of answer to your question.
But it's about us what in terms of kind of laying it out and I think I'll just I'll just close the test remember the the federal rules are much of the the standard or the intensity of standard is much higher than what Alberta.
Correct and in place and so Alberta has already way more stringent than the fed and so.
I think there'll be quite out of.
The discussion because.
And the fed is at a higher level for the other provinces.
Okay.
Great. Thank you very much.
At this time I have no further questions. Thank you I'll turn the call back over for closing remarks.
Great. Thank you. Thank you everyone that concludes our call for today and do you have any further questions. Please don't hesitate to hesitate to reach out to the Investor Relations team here at Transalta. Thank you and have a great day.
Thank you everyone and this will conclude today's conference call you may now disconnect.
Okay.