Q1 2021 Capital Power Corp Earnings Call
Okay.
Thank you for standing by this is the conference operator, welcome to capital Power's first quarter 2021 results conference call.
As a reminder, all participants are in listen mode, only and the conference is being recorded today April 30 F. 2021 I would now like to call 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 the capital Power's first quarter 2021 results, which we released earlier. This morning, our first quarter reported in the presentation for this conference call our pulse on the website at capital power Dot Com.
Joining me on the call are Brian Boswell, President and CEO, and Sandra Haskins Senior Vice President Finance and CFO, We will start with the 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 this 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 the 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 be referring to various non-GAAP financial measures as noted on slide three these measures are not defined financial measures. According to GAAP do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other enterprises the.
These measures are provided to complement the GAAP measures, which are provided in the analysis of the company's results from management's perspective reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our first quarter 2021 MD&A I will now turn the call over to Brian <unk> for his remarks, starting on slide four.
Thanks, Randy and good morning, I'll start off with the highlights of the first quarter and comment on our 2021 outlook, we delivered strong first quarter results that exceeded our expectations.
This was the first quarter were all generation in Alberta power market was dispatched by commercial market participants following the expiry of the balancing pool Ppas. The strong quarterly results confirmed the Alberta power market is truly robust.
Earlier this month, we executed an innovator of 15 year renewable energy agreement with Labatt Brewing company for the of chance Solar project that I'll cover off in more detail shortly with a strong first quarter and higher Alberta forward prices for 2020. One we are forecasting our 2021 financial.
Of formats will be modestly above the top end of our annual adjusted EBITDA and <unk> guidance ranges.
We also continue to make solid progress on our approximately $1 7 billion in growth projects. I'll also provide an update on our various C O two reduction initiatives.
Turning to slide five as mentioned we've entered into an innovative partnership with the law bad for the Enchant Solar project. It is a 15 year renewable energy agreement for the sale of electricity and Rex the virtual PPA is for 51% of the electricity from the of chance Solar project.
That covers all of the electricity requirement for Labatt's Canadian operations, approximately one quarter of the racks will come directly from <unk> channel solar and three quarters will be packaged with rec sourced from eastern Canada to closely align with labatt's operations footprint.
The 75 megawatt in Chancellor project is expected to begin commercial operation in the fourth quarter of 2022.
When we announced the project in November 2020, our original guidance was $11 million in the adjusted EBITDA and $12 million in F. F. O on average per year for the first five years. This financial guidance continues to be reasonable with the with upside from a higher value of racks based on the federal carbon tax.
Overall, the agreement with Labatt.
We will strengthen our contracted cash flow extends of average contract life and support progress towards the low carbon economy.
Ill now turn the call over to Sandra.
Thanks, Brian.
I'll begin my comments by going over the Alberta power market on slide six extreme cold temperatures in February set of new daily record for demand and contributed to a high average power price of $95 per megawatt hour in the quarter compared to a $67 per megawatt hour average in the first quarter of 2020.
In the first quarter, our trading desk captured an average realized price of $77 per megawatt hour that was 24% higher than a year ago.
The positive outlook for the Alberta power market is being reflected in higher 2021 forward prices that have steadily increased over the past few months and currently sit at $79 per megawatt hour.
For our Alberta commercial portfolio, our Baseload generation is 30% hedged in 2022 at an average contract price in the mid $50 per megawatt hour range for.
For 2023, and 24 were 24% and 10% hedged respectively at an average contract price in the mid $50 per megawatt hour range for both years.
This compares to current forward prices of $63 per megawatt hour for 2020 to $54 for 2023 and $51 in 2024.
Moving to slide seven I'll review, our financial results for the quarter.
Overall financial results in the first quarter was strong.
This includes revenues and other income of $554 million up 4% compared to the first quarter of 2020, largely due to the higher revenues generated from all three units of Genesee.
Adjusted EBITDA of 303 million with 29% higher than a year ago.
Adjusted EBITDA for the Alberta commercial facilities benefited from a higher realized power price of $77 per megawatt hour compared to $62 per megawatt hour in Q1 of 2020.
The higher price in the quarter was partially offset by lower generation during periods of milder temperatures in January and March it resulted in lower demand.
The results for the U S contracted facilities reflects the full quarter of contribution from Buckthorn wind that was acquired on April one 2020, and Cardinal point that began commercial operations on March 16th 2020.
The first quarter results include the impacts from the February Winter storm in the U S that caused some disruptions primarily to our buckthorn wind facility in Texas the <unk>.
Net impact for this facility the profit of $8 million to adjusted EBITDA and <unk>.
These are updated numbers on the impact of the winter storm and replaces the preliminary estimates that we disclosed in late February.
Also mentioned in that news release during the peak days of the storm our trading desk physically for power around North America. The contributed another $6 million to adjusted EBITDA.
Net corporate expenses were $3 million compared to $17 million a year ago, largely due the higher recognition of coal compensation revenue in Q1, 2021 as a result of empowering of Genesee, one and two which was announced in late 2020.
We generated 159 million in <unk> that was 35% higher than a year ago.
<unk> per share of the dollar 49 was that 33% from the first quarter of 2020.
I'll now turn the call back to Brian.
Thanks, Sandra turning to slide eight I'll review, our first quarter performance versus our 2021 annual results.
Average availability was 96% in the first quarter that included a major planned outage at Decatur the <unk>.
93% annual target reflects of major planned outages for Shepherd in the second quarter and Genesee two in the fourth quarter.
Sustaining capex was 18 million in the first quarter compared to the $80 million to $90 million annual target.
We recorded $303 million and adjusted EBITDA in the first quarter versus the 975 million to 1.0 to 5 billion target.
And we generated $159 million of ASF flow in the first quarter compared to the 500 million to $550 million target range as mentioned based on our current forecast, we expect adjusted EBITDA and <unk> to be modestly above the top end of their guidance ranges.
Our growth targets are highlighted on slide nine we continue to make progress on all of our renewable projects. This includes the developing and constructing seven renewable projects on budget and on time for our commercial operations starting in the first quarter of this year.
The first quarter of 2022.
Construction on the Repowering of Genesee, one and two is expected to begin in the third quarter of this year.
The in service States targeted in late 2023 for Genesee, One and then 2024 for Genesee two.
As in previous years, we of target, we have a target of $500 million of committed capital for growth that is aligned with our strategy of growing our renewable assets <unk> of acquiring midlife contracted natural gas assets.
Turning to slide 10, I'll provide an update on the various C. O two reduction initiatives that we have underway.
Carbon Corp, the legal entity for <unk>. The recently won the NRG <unk> carbon X Factor award. It was one of the two Canadian companies that were honored for creating excellent products.
The development and marketing of the Genesee carbon conversion center in carbon nanotubes.
It is well underway.
With unexpected operational day in mid 2020 to the first phase of the GSE three will produce 25 kind of carbon nanotubes per year from carbon emissions of Genesee three.
We are also developing plans to apply carbon capture utilization and storage technology of Genesee, one and two expected federal and provincial funding will support this initiative.
Which should deliver 3 million tons of annual carbon emission reductions the ECC U S initiatives support our goal of contributing to low carbon.
Energy future.
In closing I'll provide an update on the executive team has shown are shown on slide 11, Darcy <unk>, our senior VP of operations engineering and construction will be retiring at the end of June.
<unk> has been with capital of power for 12 years and has continuously delivered outstanding performance in operations and has successfully managed the development and construction of all of our growth projects over the past decade I'd like to publicly thank Darcy for his tremendous contribution to capital of power.
Steve Owens, who is currently VP of construction will be promoted to senior VP of construction and engineering effect of June 1st.
This is an example of our robust internal succession planning.
At the same time, Brian Denise will take on a new role as senior Vice President of operations relinquishing his commercial and business development responsibilities Chris.
Critical Pecky will add business development and commercial at the his responsibilities.
B, the senior VP of cheap and chief legal development and commercial officer prior to joining the executive leadership team last year, Chris led our U S business development team in Boston.
Hey, Chisholm, Sandra Haskins, Jackie Filipiak will continue in their current roles I'm confident this executive team will continue delivering value for our shareholders I will now turn the call back over to Randy.
Alright, Thanks, Brian Shannon, we're ready to start the Q&A session.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad Youll hear of Tony acknowledging your request.
Using a speakerphone please pick up your handset before pressing any Keith to withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Hi.
Our first question comes from David Quezada.
From Raymond James Please go ahead.
Thanks, Good morning, everyone.
The first question here just on the the outlook for the Alberta power market. Obviously this is the first quarter as you mentioned with the.
The balancing pool PPA has expired, but we also saw very supportive weather just wondering if you could provide any kind of qualitative commentary on how the dispatch might've been different in the quarter as opposed to when the balancing pool of Ppas in place yeah any comments around that would be helpful.
Yeah. Thanks, David as we saw even coming through late last year, the anticipation of the.
The balancing pool exiting the market had had an impact we saw.
A lot of supply response out of starting with retirements and mothballing and now that we're into 2021, we are seeing all assets being managed in and of commercially optimization approach and that that has led.
Led to the higher prices that we expected that we would see the on.
Q1, we did have periods of of mild weather, but certainly in February win.
We had extreme cold weather you did see a periods of very high prices. So I think that the market dynamics have unfolded. The way. We would then we would have expected they would in a in the post PPA environment.
Excellent. Thank you appreciate that and then maybe just one on the.
The the plans to add carbon capture of Genesee, one and two.
I appreciate it's probably early days for any any color you can provide on.
The capital cost might be there and how the province, or the federal and provincial funding.
Support would plan.
So we're looking at the project and in the order of magnitude of about $1 6 billion.
That again.
<unk> and about 3 million tons of carbon.
Being a being essentially buried a year.
The very significant very significant volume.
In terms of the federal funding in.
The provincial participation.
I think you've probably seen in the past some fairly significant dollars being from being tossed around in terms of in terms of potential support for these kinds of initiatives.
The way it's.
Starting to play out a bit in the game extremely preliminary as you may know there is a boat to be a 90 day consultation period to actually work out some of the mechanics and directions.
Led by the federal government.
But some of the early indications are that something like the U S 45 Q maybe.
The way to approach it whereby you get a tax credit for every tonne of carbon.
Centrally buried in that.
It may well be that it could actually be paid out as well not not only from a tax credit perspective.
Theres also some.
Consideration for significant support for.
From the Canadian infrastructure Bank as well and then of course some of the traditional approaches of making an application for both federally and provincially for various kinds of support associated with the carbon capture and utilization of that I should also add that it's also.
There is also some considerable support anticipated for hydrogen technology as well.
That's great color, Thanks, Brian I'll get back in the queue.
Our next question comes from Rob Hope from Scotiabank. Please go ahead.
Yes. Good morning, everyone. Just in terms of the buckthorn dispute can you just kind of the walk us through the potential avenues and timing of.
Of the.
When that could be resolved and just to confirm the $8 million benefit that you saw in Q1, you received the cash on that did flow through the cash flow statement.
Thanks, Yeah, yes, as far as the time line that says there is no certainty around.
When that will unfold, we expect that there is a good chance of that'll be settled within this year, but still to be determined.
As far as the cash flow, yes, we.
We are paying in accordance to what we view as the.
In the appropriate number so that that had flow through appropriately through the statements.
Alright, I appreciate the color and then just a follow up question for me so.
We saw updated.
Disclosure on hedging for 'twenty, two and beyond and you have kind of increased from some hedges. There are you also increasing your hedge profile for the rest of the 2021 and maybe can you give us some kind of color on on what that shape looks like just so we can kind of triangulate what modestly.
But the 2021 guidance, but it looks like.
Yes, as you may recall up until last year, we didn't give any indication of our change in hedge positions. As we came through the year last year was a bit of an anomaly given that it was the pandemic here so.
But what I can say is that we continue to layer on hedges when we see that the price is the appropriate to do so.
As you know we came into the year fairly unhedged and that was by design and that's played out in our favor and so we continue to use the same approach when we're looking at stepping into more hedges.
As far as liquidity there has been the increase in liquidity that we've seen in this year and even going out a little bit further.
So those opportunities are there, but once again, it's it's all relative to our price view.
And actually sorry, one more follow up has your price view changed so far this year just seeing how the how are the dynamics in the Alberta power market have changed or is it still kind of what you presented kind of Q4 and at the Investor day.
Yes, I think what we had at Investor day was the low what we're seeing here. It does have some shape to it but generally there has been a slight lift from from what we took as of may be optimistic yet somewhat conservative view at that point in time, given where the forward square but.
Things have played.
Played out to be to be more favorable than what we had used at investor day.
Alright, thanks for the color I appreciate it.
Our next question comes from Patrick Kenny from National Bank financial.
Please go ahead.
Thank you, yes, good morning, everybody.
I'm just wondering first if you could walk us through the accelerated recognition of cool compensation revenue just as it relates to.
Repowering Genesee.
The increase in quarterly revenue might might be going forward and does this actually changed the actual.
The annual cash amount to the receipt to be received by the government between now and 2029.
Yeah. Thanks, Pat so the the amount that we receive each year in cash of $50 million and that doesn't change. So we'll continue to see both payments and thats reflected in SFO at $50 million per year.
On adjusted EBITDA of the coal comp recognition is amortized over the period that you're actually burning coal, so because we announced to.
To be off call in 2023, we do recognize those payments at the same time and so we're depreciating the assets that are underlying that compensation. So that's where you get the accelerated recognition that goes through the income statement and impacts adjusted EBITDA.
So we currently have on a quarterly basis, we recognized about $31 million of off coal compensation compared to last year of which was the $11 million. So it's about a 20 million dollar of increase per quarter.
Okay. That's very helpful. But no change so like you said to the the cash inflows on an agile basis okay.
That's correct.
And then maybe just to circle back on the buckthorn dispute there.
You haven't taken out of provision on the $18 million exposure. So just maybe you could provide a little bit more color as to why you feel so confident in your position.
Andrew I appreciate it's probably.
Incentive to talk about but perhaps you can just point to.
Something to give us confidence in.
<unk>.
There may not be an unfavorable ruling down the road or some sort of.
Recognition of of that $18 million.
Absolutely from an accounting perspective, when the outcome is more likely than not that youll be successful then you would recognize that the favorable outcome and in our view. The contract uses very plain language in terms of which reference point could be used to establish pricing and based on that we for.
We are very confident in our position as being correct.
The counterparties position of of using a different settlement point.
It is generally consistent with with the reference point outlined in our contract except for periods, where you would see extreme.
Differences in supply demand like the weather event drove.
In Texas in February so typically there wouldn't be a difference between of the reference point in the contract and and the Counterparties position, but.
During the February storm, it was a quite quite a different outcome, but in our view, it's very plain language in the contract and.
Therefore, we feel very confident in our position.
Okay. Thanks for the Sandra.
And then I might have missed it in the disclosure, but just curious if you utilized any of your carbon offset credits in Q1 or were.
Was there a similar deferral as there was back in Q4.
The carbon offsets all have an expiry of timeline on the motives of seven year life and given that we have a number of credits in the inventory that will expire. This year, we expect that we will be using the full full allotment of offsets. This year. So yes, we did continue to use them in the first quarter.
Okay, Great and the last one for me if I could just.
If you could provide a little bit of a funding plan update here for the.
The incremental 500 billion that you are looking to commit to this.
This year.
Do you expect to be able to finance that fully with that.
Perhaps youre looking at partnerships or would you lean more towards asset sales or equity options at this point.
Yes, it's going to depend on how we commit that capital if it's something that is in the development.
Realm, then you know when we do have a number of options depending on what that spend profile looks like.
As we look at our current funding plan, we have seen a real flattening of our spend profile. So we had anticipated that a lot of the development.
For the current projects would be incurred this year and in fact, that's sort of been pushed out somewhat with the deferral from Mitsubishi on Repowering being the key drivers there also having higher internally generated cash flow. So at this point, we haven't even tapped into our credit facilities to fund the.
Current development. So it gives us more capacity to look at the incremental committed capital in the case of an acquisition that would depend on the size and timing of it and that's where we might be more likely to look at the asset recycling or or some other avenue of of <unk>.
Financing so it really depends on the nature of the transaction.
Right. Okay, that's great Sandra Thank you and it looks like you're off the hook, Brian I have a great weekend.
Yeah.
Yeah.
Our next question comes from Mark Jarvi from CIBC capital markets. Please go ahead.
Thanks, Good morning, everyone.
I wanted to touch on the Genesee assets just in terms of a couple of things on the cost and on the revenue. It seems like the realized price of a little higher than the spot price just curious if thats sustainable based on how your bidding behaviors for me going for it and then on the cost side looks like.
For you on O&M or north of $50 a megawatt hour is there something abnormal in the quarter or something of the hedges, maybe just help us on the cost side of things as well with the step up year over year.
Sorry, Mark Youre looking at the O&M cost of the Genesee year over year.
Genesee one through two and three if you just kind of bundled together I guess the go from revenue and then the GAAP. The EBITDA of just look of what that spread is and divide by the generation.
Those that sort of cost per megawatt hours kind of drew.
The year over year of trying to understand if it's purely cost cutting the cost, but also maybe some impacts of settlement of hedges or anything like that that goes into that those numbers.
Yeah, I think when you look at the generation of those three facilities. It's it's down from from prior year. So there was the b a high level of fixed costs in there if youre looking at full O&M and operating costs of your your cost per megawatt hour would would go up.
If youre looking at it on that basis.
And then just on the realized pricing I think margin above where the spot price average in the quarter is that something you think you can continue to achieve based on how are we going to use it.
Those assets going forward, a little bit more of economic withholding of impossible.
Yeah, I think what you are seeing is that there is less less generation are more as you say.
Net loss being bid in if you will and so I expect that that probably will be.
The dynamics going forward.
Okay.
And then when you think about the.
The renewable projects, we have in hand, and then more projects potentially in Alberta in the renewable side.
When youre thinking about the the base case or an underwriting those projects.
What is sort of the underlying assumptions between how much returning to get from the merchant price versus how much faith you have in the current tier carbon price is going higher.
What do you think your philosophy is in the Navy contracts, what we think you might be seeing from us.
Other developers out there in terms of how hard they're going to push on.
The economics around the value of carbon credits of clinical work.
So in terms of the value of the of.
Carbon credits going forward I think there's a number of of element.
But we look at and that is of course.
The win when we're out looking for longer term contracts for the to support projects that otherwise would be merchant and we're comfortable from that perspective, we're not willing to give up a lot of.
After you have the adjusted for your.
For risk, we're not willing to give up a lot of value.
In order to secure a contract.
We rely on is a combination of.
The solid construction, obviously of hand development of projects, but.
In addition to that and I think as evidenced in the Labatt steel.
We do have different levers and different non.
All of <unk> markets and so on that we can draw on that the.
Others.
Who are competing for contracts may not be able to.
And also just you know.
Our ability in the province to have other other power generation that we can rely on in terms of providing our customers with sort of a complete package and the ability to too.
Two <unk>.
The power 24 hours, a day, regardless of whether the Sun's shining or the or the winds blowing so theres a lot of the we're able to do and pull levers that others may not so.
We see that there isn't in the for us to sort of go to any sorts of extremes to ensure that we get contracted facilities.
He is the indicated since we embarked on those projects.
The carbon price has gone up the VAT.
<unk>.
Of those projects by definition Likewise would go up and as has has implicitly the power prices in the longer term associated with rising carbon prices, so they fit quite well from an economic position.
Having said that the social or is the the environment for continuing to gain.
And we are very active in pursuing additional con.
Contracts for.
For long term commitments associated with other renewable facilities.
Okay and then.
When some of the current comments on carbon capture and government support.
Obviously, there's an angle.
Of reducing your emissions intensity, but theres also you pause the when you can put capital work one of make a return on that.
Thanks, Jim for sense at this point of yet in terms of of how much capital you might be willing to put to work in terms of <unk> versus how much will come from the federal for.
Government support and then like how do you think the tradeoff of return on that capital versus the environmental benefits of what that technology does for your company.
So when we look at the NAV.
Project and again, it's early days, but we think of it pretty much as.
Similar to our merchant facility just simply because you are counting on some to some degree of kind of commodity prices and so on and so forth. So.
When you start looking at returns in that order of magnitude as opposed to lower end contracted of returns.
Well as <unk>.
We look at different avenues of potential government support that obviously reduces risk.
And so that the depending on the nature of the support then that can bring down our return expectations and if it was the fully.
Guaranteed commodity prices by the government and.
The significant and the other bells and whistles it could get down to almost of the contracted a rate of return.
So that's that's sort of the normal economics, and we have started and I think you've seen in some of our narrative.
We will start.
And we're working it out this year ways in which we can in our business decisions.
Incorporate the.
ESG implications.
Having said that.
At this point and I would say in the time frame for this decision.
It would have.
I would say of a modest impact I mean, certainly it I'd say its.
A very good thing to.
To reduce the carbon footprint. The other thing that we would have in mind and difficult to quantify.
Is the overall fact that you know as we've indicated earlier Genesee one and two.
We've looked at it and the Repowering based on a 20 year outlook and that.
Uh huh.
The returns that you've seen are based on the 20 year outlook, but we've also indicated that the the physical way for those facilities are probably 35 years and certainly.
With carbon capture of associated with those facilities that greatly expands the economic life.
For the life of those facilities for it.
And the economic life. So we can count on so there's a lot of very significant moving pieces around the around this initiative, but the.
We absolutely expect that you know for us to move forward with it it will be adding to the bottom line it will.
Make sense in the conventional sense, but would also certainly makes sense for the organization from an ESG perspective.
Yeah.
Got it and the last question and channel talked about sourcing some credits in the eastern Canada. So those of third party and I guess, just what sort of.
I suspect they are maintained in Iraq.
They are third party of what's the risk in terms of around the procurement of racks in the market in terms of liquidity sourcing.
Going forward.
Hum.
Well I mean for obvious reasons because of the Navy. This is the first day, but many of you have heard about it or that kind of activity we're not.
Overly keen on on too much disclosure around that but.
We don't we don't anticipate that there is.
Much risk around the around the <unk>.
The acquisition of credits to.
To cover that.
Love that position.
Okay. Thank you.
Our next question comes from Ben Pham from BMO. Please go ahead.
Alright. Thanks, Good morning, I had a question on the COVID-19 bar.
The salaries.
Looking at the production and the strong pricing.
Current during the quarter and talk with you ran your corporate Park facility.
That much during the quarters, but strong.
Strong pricing items.
Yes.
What's happening there is it is it more coal plants economically what's holding that back.
<unk> got clear.
At the high price of the they're betting.
And how hard of course Brexit now in your portfolio you each of you run those clients pretty hard when when you see pricing conditions like this.
Yes during periods, where we are.
Would utilize.
Silver of RMR right and there is volatility in price and we have a hedge position what we saw in Q1 is thought.
All of our coal facilities were had high availability and therefore, we ran those facilities and didn't have the opportunity to run feedback the way that you may have seen it utilized in periods, where we were more heads so those opportunities really reflect sort of the overall.
Fly in the market.
As well as our portfolio position.
Okay. So you still see covers the strategic.
Overall for the yet.
Yeah, that's correct.
Okay.
Okay, maybe all of them.
My second question on carbon capture in the week.
We've been through a couple of cycles of the.
This too before and you've you've worked on.
The various technologies I mean, what's the.
Maybe can you tell us what what's different.
At this time versus before.
So one of the the one of the major elements is that we.
We are in the country is looking at them.
The profile of <unk>.
Escalating in material carbon prices.
Which is not for what we had seen before so that obviously has a significant implication.
So you have Uh huh.
A more concerted effort by both the federal government and the provincial government the.
Meaningfully bring down carbon emissions. So for example, what we're talking about with Genesee two and three of our pardon me a one and two in terms of carbon.
Carbon capture associated with it in the dollars.
It is actually about a third of.
The current fed.
The federal expectation of carbon reduction in the power sector from what has what they would've expected the otherwise happen.
So there's a strong intent to not demonstrate technology and see where it goes in and any of all of it in time.
The drive by both the federal and the provincial government to reduce emissions by.
2030.
The Susan <unk>.
How large of experiment there is a real drive to put real financial support behind making these projects move forward and so for example, our timeframe associated with you know.
On an ex expedite the process of moving this forward as we could be putting carbon in the ground in 2026.
There is there is a little bit of an urgency here on the on the on from both of the provincial and the federal government to to actually move forward with these technologies. The other thing that's very different is that there's been a lot of work done and we've done a lot of and as you pointed out historically.
We put a boat with some government funding associated with it about $50 million into carbon capture and storage of.
Potential development, so we're quite knowledgeable in the area our cost of course.
Preliminary studies as a couple of million dollars in feed studies is.
Before internal costs somewhere around $5 million, so as opposed to what historically people think of as of the 30 or $40 million.
For being able to do have these projects develop so.
I would say there is there is this.
Use of a case of.
Let's develop the technology and see where it goes and what the potential is which is I would say the prior direction of all of the federal and provincial government going back a few years to we actually have to reduce carbon and we have to put money behind it in order to do it.
Alright, that's very useful thank you and I'm not sure of Dr. Susan on the call best wishes in retirement and congratulations on.
All of their appointment.
Thank you.
I'll pass that onto Darcy.
Our next question comes from John Mould from TD Securities. Please go ahead.
Thanks, Good morning, everyone.
I'd like to just start with gas fired or potential gas fired acquisitions. The the true governments increased its 2030.
The emissions reduction targets the by the administration has articulated some pretty ambitious targets probably of the tough legislative paths, but how did these increase the carbonization ambitions inform your thinking on potentially acquiring midlife strategically located gas fired assets.
So obviously, we have to see how some of this plays out and as you said the the buying of administration and what they speak of in terms of targets.
Particularly as it affects of the power industry are more of a fairly aggressive.
<unk>.
And you know.
The the the Republicans have of the.
Very very different view, so what comes out at the end of the day, we expect to be some sort of compromise in the middle of I mean, what we do see is very positive is the fact that both parties in the United States are very keen on technology and on technologies like carbon.
After the storage.
So what.
What we see particularly with large facilities like the ones we have like the cater.
<unk> technologies.
Our evolving and will evolve in time, where there's a high.
<unk> ability of probability that one of these technologies can be associated with with our facilities and.
The reduced carbon from that perspective, when we look at new opportunities certainly we will be thinking about the potential for carbon capture and storage and carbon utilization I.
I think the other thing to point out of this is a little bit of the the rationale as to why we look at mid life natural gas assets is the if.
If you take a natural gas plant at <unk>.
The 30 year life for a 40 year life somewhere in that range.
These assets when we.
By the end up with sort of the you know.
10 to 20 year timeframe.
Our future and the attack that onto today that doesn't we don't have other than potentially genesee.
And two we don't have any assets that actually natural gas assets that without repowering or other significant investments would move it two of 2050 timeframe. So again, that's part of the the general.
Lower risk approach of associated with pursuing mid life natural gas assets. So we do continue to monitor the technology and I think as we've said we will.
We're looking to apply technology to the Genesee, one and two and learn from it and then also watch what's about the evolving with other technologies and then potentially.
The apply for carbon reduction technologies to the GOR ways into the the caters.
To the arlington's as we move forward.
Okay, great. Thanks for that context, and then maybe moving to your Alberta renewables pipeline you've had success with <unk>.
Drop more and.
Your latest solar projects in terms of announcing those of merchant and then and then contracting those corporate buyers I'm. Just wondering if you can give us a sense of what your potential earlier stage pipeline of Alberto It looks like right now and what the timeline could look like for making an investment decision on on some of those potential projects.
So we are in Alberta, we're continuously looking at renewable projects and our success in man.
Moving projects forward and contracting and so on as you know.
Sort of increase the lineup of people wanting to talk to us in terms of junior developers with the potential opportunity. So there is a lot of opportunities out there for us for capital of power, having said that they are all not necessarily.
Good good projects. So that continues we also are looking at some of the some of the.
Projects and the relationships that we control.
And one of the things that were.
Monitoring and watching is the degree of which we're seeing.
The projects and contract possibilities evolve.
One of the things as you may recall, the the pushed us too.
They will move forward on the in Channel project was the fact that you know.
Strathmore was you know already filled up.
So.
We're monitoring that as well so we expect that outlook.
Net.
To be very positive and to be very fruitful for capital power in the in the relatively near term.
So to make a long story short wouldn't be surprised at all if we moved forward on another renewable project in Alberta This year.
Okay, Great I'll leave it there thanks for taking my questions.
Our next question comes from Andrew Kuske from Credit Suisse. Please go ahead.
Thanks. Good morning. The appreciate some of the enhanced disclosure on your embedded renewables business and I guess the question of really drives to some others of structural separate of this business.
But historically, you've always taken with the Europe happening, what's really under one roof.
Has anything really changed in your opinion from the past sort of where we are with the disclosures now.
I mean.
Andrew I think as you know.
And as we've discussed over the years, we continually look at the.
It's always a you know whether it was the quick spin offs that took place for high yield the organizations and so on and so forth.
You go through time, its something Thats always the air and always something that we should be actively considering.
You know as we go through it in an average for.
Fresh eyes on it.
How the world is evolving.
And of what ends up happening is you've got at.
At the end of the day, if you did something like spun off.
Our renewables business you end up with two relatively small businesses.
You certainly get the benefit of the renewable side.
But you also.
Would be experiencing on the non the thermal side a little bit of a.
The lower multiples of obviously.
And given their sizes of the two businesses at this point don't really see that as being practical and.
If you look at it in terms of our relationship of.
Dropping down assets and so on and so for you know one of the things of the size of the drives of the you continually have to look at consolidations from.
On the overall.
Risk perspective of band and from a rating agency perspective, which drives the game.
Some limitation on how far you could portion of renewable entity in terms of.
It's the investment potential and the degree to which you could actually.
Throw off cash for capital power so.
At this point.
For the Sun and the Moon and as far as our current lined up for that kind of the play but again, we continually look at it and and size does matter for sure.
Okay. That's that's helpful context on things and maybe just focusing perhaps on the sun.
When you think about south towards the Roxburgh.
The way going offline is there anything you can do at the physical footprint. There in particular, you've got grid connectivity and so their solar that you could put on sites.
I noticed the physical limitations with the sites, but is there anything you can do the to really optimize the footprint you have given some of the renewables initiatives on the state.
So when you when the when you look at the physical footprint of Barack squirrel, Yeah, It's really too small to do anything.
The regular sort of industrial size, there's no real excess land there so from a renewable perspective it isn't the.
A good site, although as you say from a connectivity of the grid and so on it's got some positive attribute.
When you look at self port, it's actually property leased from Duke and even though it's a bigger footprint it still isn't big enough to really to.
Two to establish the significant a renewable project at the mid again, it's just too small so and again complicated by the fact that it's actually loose leased from Duke.
Okay very helpful. Thank you.
Our next question comes from Maurice Choy from RBC capital markets. Please go ahead.
Thank you.
I want to pick up on your question about.
Size as well as you know tying back again to the.
The earlier comment about the scale of potential assets, obviously, it sounds like there is a lot less urgency now in terms of potentially selling certain renewable assets, which was the comment.
Back in the Investor day.
And Brian you alluded to how you did so.
Renewables the size of the company might be too small.
I'm curious to understand.
What is the target size that you're thinking out of the year in your mind and along with that how do you approach I guess the pieces between capital recycling, which is gathering assets for size.
Well I think the.
The one just goes back into the so how do you how do you actually realize the value associated with the renewable assets.
Think of us.
Sandra.
Commented a number of times those would be the assets that we recycle those are the ones the where we think there may be you know.
A little bit more value than the value reflected in the mass in the market with us holding it so all of that realization, we think as a way of of hope.
The game recognizing the value of of the the renewable assets from a shareholder perspective, so those would be the primary candidates and as we look at needs to raise capital.
It is definitely in the wheelhouse of something that we would be actively looking at every time, we consider raising capital again of where they are in the market today the.
Oh of values and of which renewable assets for our are achieving.
You know, it's it's it's again definitely in our wheelhouse to be looking at recycling those assets as an avenue of ongoing realization of value for for shareholders. I think we've commented in the past that.
As we move forward and we see.
The increasing renewable opportunities it's entirely possible that part of our approach to the renewable business has to.
Develop and build beyond I'll say, our ability to currently financing and <unk>.
Net into a cycle.
The consistently and systematically.
The recycling renewable assets, realizing that value to sort of fuel further growth and further size in the organization. So we recognize that the.
The potentially.
Recycling renewable assets ease of business.
Significantly positive value proposition.
And I guess, recognizing all of those comments going back again to the side of it sounds like you're not quite there yet.
Is the one way you want to double or Triple your size before.
You go on a more active capital recycling of approach or are we close to the market.
No actually if you look at.
Significantly recycling.
No.
<unk> assets.
Something that the you know.
Right now as you know with a $1 $7 billion of spend in front of us. Although it's Sandra said, it's smoothed out a bit and so on.
We hum of.
If we saw a significantly more renewable opportunities developing.
In Canada, the United States.
In the the.
The near to the.
Medium term.
You might see a fairly active.
Renewable.
The cycling program, just just because we're able to capture that value for shareholders.
And <unk>.
<unk> stocking it and growing it.
There are some degree of limitation as to how quickly the we could grow to the extent of we can develop and build beyond that.
And the excellent model is to be recycling that capital and actually accelerating our growth. Despite the fact.
<unk> it looks like we are.
Selling assets that we otherwise could have held on to it actually could significantly fuel our growth.
That makes sense and just to finish up on the second.
The different topic.
And this is about carbon nanotubes it sounds like there is obviously the appropriate support.
For the U S projects like yours share in Canada.
<unk> tied together many of the comments you made today about the existing gas assets and potential future acquisitions of GAAP.
That's a lot of it does depend on your success relating to <unk>. So could you share with us if there's any other obstacles for any obstacles.
We've got to see TNT B that technology, what are you going to commercial of the other products.
So <unk> is certainly and I think you know.
Significant.
Opportunities around <unk>, but I think we've said all along.
That is one of the.
Of the avenues of reducing the carbon exposure everything from the.
The simple trading which as you know is how.
How we would prefer not to reduce our government exposure because that doesn't actually reduce your risk to where we're physically reducing carbon coming out of the stack such of Cc U S or CTO, CMP or ultimately reducing carbon and on some other avenue.
But not necessarily associated right at our facilities.
So when we look at that profile and where <unk> fits in.
In time, we would expect to have invested or participated in a number of.
The carbon reduction.
Applications to be able to reduce our carbon profile with <unk>.
As we look at it continues to have a robust outlook, although I think as we've cautioned the.
The actual I'll call it the significant escalation in the utilization of acceptance.
We will not be of media just simply because there is usually on the very large applications and interface.
The technology challenge to overcome such as cement.
As we've talked about in the past and that by the way is moving along and the sort of par of promising from that perspective, and so we feel again, we see that that moving forward.
Again, <unk> continued to see it as well.
Are we promising and robust and will add a significant amount of shareholder value in time and mitigate some of our carbon risk, but it's not the only answer.
Even in that space.
You may find in time that we're looking at other technologies. So the.
Again.
There's a lot of significant potential associated with the ethane in the.
The general space.
We're looking at a whole range of of.
Different kinds of technology to mitigate the hardman.
Great. Thank you very much.
Once again, if you have a question. Please press Star then one.
Our next question comes from.
They demand from Industrial Alliance Securities. Please go ahead.
Hi, Good morning, just wanted to go back to the topic of developing versus selling renewables for for a second so.
Besides spinning off the renewables portfolio, our select asset sales I'd like to get your thoughts on what are some of the other avenues, you're considering to potentially recognize the full value of those assets versus what is being attributed to them in the market for that.
So one of the things and one of the approaches as opposed to you know fully outright selling the assets is too.
No.
Work with the say Oh financial player and jointly developing assets that are sort of of well beyond our ability to finance it and in addition to.
Getting.
Our proportionate share of how the economics also gaining fees associated with the with with operating the facility isn't zone.
One of them so.
Theres other approaches too.
Elevate the value of all of the assets.
In the longer term when you're in a position where you've got more on the development.
And construction side, then you can reasonably finance.
Then the then it opens up actually the number of different opportunities and ways to increase the value of around those assets.
Beyond just simple sales.
And the or partnerships with the.
Uh huh.
Ongoing partnerships on on the development side or just.
One of the partnership's associated with the with either one or a group of the whole of assets.
There's a number of different ways in which the old value can be realized the associated with them.
Appreciate those comments.
Or are there any updates that you can provide us on the island generation re contracting just wondering when you expect to be able to analyze that initiative.
Theres really no change in BC hydro's ability too.
Move forward on the execution of those kinds of contracts so.
And it's not just.
Island generation, there's a number of other facilities in British Columbia later, this being held up for I'll call. It of technical reasons. So again not sure when that will land, but you know the continue the.
Received assurance from the BC hydro that they absolutely need the asset and other.
The question is and if it's just when.
Okay got it and just the one last question on the I'm really sort of a corporate partnerships of relationships and what kind of opportunities that opens up for you I'm. Just wondering if you can talk about how the agreements with Lavazza is may be informed you of approach the corporate contracting.
And if you could talk about any opportunities that you see.
With other sort of corporate customers and kind of ability of us to to access one of the behind it.
So.
<unk>.
You put.
All of that's together with the other one that we announced earlier this year, but still haven't indicated with the off taker is those are those are very.
Good contracts.
And what we have found that unlike the early renewable contracts that were available in the United States and although we arent of direct counterparty and in some of the holes, but some of our.
Wind facilities in the United States are actually backed through a third party by sort of of the Amazons of Googles et cetera. So we get from marine site from from that perspective, as well and it's gone from where it's kind of a simple contract of.
Renewables entering into.
In energy portfolio of of a large.
Organizations to where they've become more and more sophisticated and theyre looking for more and more elements around the contracts more.
Drilling down more into the energy side.
I would just say that whole draw.
Drive is becoming more mature from the customer perspective, it's sort of I mean, if you think of it simply is it's gone from.
The procurement organization part of the organization like supply chain to you of.
More committed and focused resources on the <unk>.
On energy procurement, who are you'll have greater expertise so that market is maturing and they're asking for more and they're looking for more creativity in the solutions and so for.
For example, the discussion with Labatt's was over a number of months.
A large number of months to get the agreement that works best for them and best for Us.
Do you think that maturity in the market. Although it takes more time as I said earlier, we've got more levers we've got.
The more things that we can bring to the table than many of the other people we're competing with for contracts. So we think that maturity is actually helpful to us.
So and we.
We expect that that kind of maturity on the on the buyer side will continue to evolve and again that evolution is.
He was very positive for us. So for example in the middle of batch the it's targeted to cover their demand for.
The overall.
Canadian side of their business and in fact the renewables.
The broadly sourced or kind of ambulate, where the demand is.
<unk> looked at a contract for say two years ago or three years ago, you wouldn't have nearly that degree of sophistication.
No.
Yes, again, it's it's a it's a continually changing market, but we think that evolution the store advantage.
I appreciate the color. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr. Randy Mah for any closing remarks.
Alright, Thanks, Shannon if there are no more questions. We will conclude our conference call. Thanks again for joining us today and for your interest in capital power have a good day everyone.
This concludes today's conference call you May now disconnect. Your lines. Thank you for participating and have a great pipe.
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