Q1 2021 TransAlta Corp Earnings Call
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Good morning. My name is Rebecca and I will be your conference operator. Today at this time I would like to welcome everyone to transalta Corporation first quarter 2021 results conference calls. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the phone number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Miss Valentini. You may begin your conference.
Great, thank you, Rebecca. Good morning everyone and welcome to his first quarter 2021 conference. Call with us today, are John kousinioris, president and chief executive officer, Todd stack EVP, finance and Chief Financial Officer and carry O'Reilly, Wilkes PVP, legal commercial and external Affairs. Today's call is being webcast and I invite them on the phone line, to view the supporting slides that we have posted on our website, a replay of the call will also be available later today, and the transcript will be posted to our website shortly thereafter.
All the information provided during this conference call is subject to the forward-looking statement qualifications that out here on slide to further details in our md&a and Incorporated. For the purposes of today's calls all amounts reference during the call are in Canadian currency unless otherwise stated the non-ifrs terminology used including comparably. But funds from operations and free-cash-flow are reconciled in the md&a for your reference on today's call. John and Todd will provide an overview of the quarter's results along with expectations for the balance. Only Twenty-One after these remarks, we will open the call log in, with that. Let me turn it over to John. Good morning, everyone. And thank you for joining us on our first quarter. Call in 20 21 as part of our commitment towards reconciliation. I want to begin by acknowledging that transalta head office, where I am today is located in the traditional territories of the niitsitapi, and the people of the treaty seven region in southern Alberta, which include oil.
Mystic Seka, The Pagani.
The kind I that's a Tina and the Stoney nakoda First Nations as well as the home of the metis nation Region 3.
We had an exceptional first quarter. I'm very pleased with the performance of our team and the Headway that we're making in advancing. Our priorities, our portfolio delivered, a 41% increase incomparable ebitda, which will turn a 23% increase in free cash flow per share compared to the first quarter of 2020. Our performance was led by the exceptional results of of our Alberta Hydro Fleet with strong contributions from energy marketing segment, we'd had it, which had an excellent start to the year with favorable trading results across North America and our windley. We experienced the strong power Market, in Alberta with the quarter, has all generation was fully dispatched on a commercial basis. Given the transition to a fully Merchant Market, which happened on January 1st of this year. This benefited our Hydro Fleet in particular from an energy and ancillary Services perspective. And later on in our presentation, Todd will highlight the value of our Diversified Fleet in the Alberta Market.
We continue to make progress on our growth targets for 20 21. Last week, we were pleased to announce the launch of our Garden Plain wind project and we're very excited to have Pembina pipeline. A Cornerstone customer to support its commercialization during the quarter. We also made progress on a number of our key priorities. We Advanced Construction of our 207 megawatt, windrise facility Alberta despite the ongoing challenges posed by COVID-19. We are about 84% complete as of March, 31st and expect to achieve in the fall.
We are now Midway to successfully completing our coal to gas conversion initiative. The Sundance 6 and sheerness, conversions were completed earlier this year and our keephills to conversion is currently underway. The keephills three conversion to set to be completed in the fall and with the closure of the high bail. Mine effective, December, Thirty, One. All of our Alberta thermal facilities will be off Cole and generating solely on a lower-carbon natural gas. We have largely completed the planning and detailed engineering design for the Sundance Vibe. Repowering project, the plants detailed design is increased steam production result in slightly higher overall output, which we now expect to approach. 750 megawatts. In addition, a decision was made to upgrade the high pressure steam turbine as part of the repowering scope to apply for maximum. Operating flexibility in the unit. Going forward project costs have increased to account for changes. In final design, which has resulted in a new estimated Capital cost range for the project of between birth.
Hundred and nine hundred and fifty million. We're also actively evaluating carbon capture and storage solutions for eventual adoption by the unit.
We continue to maintain liquidity in excess of two billion dollars in support of our coal to gas conversion initiative, Sundance V repowering and our 2 and 1/2 gigawatt growth Pipeline and we are well-positioned to fund our home plans with existing balance sheet capacity. We've renewed an extended our credit facilities at both transalta and transalta Renewables during the quarter and are pleased to announce that we have extended and converted are syndicated Crepes. Sylheti into a sustainability linked loan. This loan aligns, our cost of borrowing to our greenhouse gas emissions, reductions and gender diversity Targets. This further, underscores our commitment to our goals. Finally, we announce that we won't be proceeding with the k-bob cogeneration facility with energy transfer Canada, and that we've commenced an arbitration proceeding against them for wrongful, termination of the agreement.
as I look at our strategic priorities for
For 20 21. Our goal is to be the supplier of choice for customers that are focused on sustainable growth and decarbonisation. We remain focused on our advancing, our Three core operating billers transalta, Renewables, Alberta hydro, and our thermal generation group. And the last two of those groups, underpin our Alberta business. These operating pillars are supported by our world-class energy getting team as well as our experience. Corporate teams. As I noted earlier, were commencing the Garden Plain project and are extremely excited to have a great alberta-based company, like Pembina as a new customer to make it a real job working with customers, like Pembina to create low-cost, reliable Energy Solutions in support of their sustainability. Goals is a Cornerstone of our strategy. The project will have a hug 30 megawatts of capacity and is backed by an eighteen year agreement. For a hundred megawatts of the capacity along with the associated environmental attributes. We expect the project to deliver approximately 17 million. Yep.
Incomparably. But in 2023, we're scheduled to commence construction this year and expect to win facility to be in commercial operation. During the latter part of 2022, this project is 11th wind farm in Alberta and will increase our North American win Fleet 2/2 gigawatts of capacity.
You remain customer centered on growth with our unique offerings and breadth of our portfolio to deliver clean Power Solutions to our customers. A key element of this goal is expanding our Renewables business with the objective of adjusting to new wind projects this year, one in Alberta and the other one out of our us wind development portfolio and we're way out well on our way to delivering on the school with our Garden, Plain wind project. We're currently have an additional 500 megawatts of advanced-stage wind project in our growth pipeline, which have the potential to be commercial in the 2023 to 2024 timeframe and are actively marketing. These opportunities with various customers within Canada. And the United States, we also have over to Google watts of earlier stage opportunities in various geographies and with various Technologies, our development team is being kept busy in Asia de Cuba and the United States were working to create customized Power Solutions to meet our customer's objectives in a cost-effective manner. I'll now turn it over to Todd to take
Cuz through our financial results for the quarter, thanks John looking at our financial performance on slide 8. We we had an excellent quarter and our Diversified Fleet delivered outstanding results at 3 a.m. ten million of competent, leave it up. A 41% increase over twenty, 20% higher comparable, ebitda was driven by strong results in our Alberta business as well as from our energy marketing business office. Even the results from the business were partially offset by higher distributions. To our partners, higher sustaining capital and the cash payments to settle prior. Provisions, free cash flow of 129 million or 48 cents per share was about 20% higher compared to twenty. Twenty with the expiry of the ppas, both are hydro and Alberto thermal segments benefited from the strong price in the Alberta Market.
Cash flow from our Hydro Fleet.
Significantly outperformed last year, delivering a three-fold increase from 23 million last year to 72 million. This quarter, the Alberta Hydro business was able to fully benefit from the strong pricing levels in the market due to the elimination of the PPA obligation payments that were previously played to the Alberta balancing pool.
Results from the wind and solar segments were in line with expectations overall Cashflow was down modestly compared to the same period in 2020 as a result of the payment of line loss. Provisions in the quarter. The provision payments were partially offset by higher realized pricing and Alberta and the addition of the Skookumchuck facility.
Results from the North American and Australian gas segments, increased by about by eight million or about 14% primarily due to the addition of the aid of facility and higher realized pricing in Alberta at the Fort. Saskatchewan sylheti Centralia experienced, an isolated eight-day unplanned outage during periods of high Merchant pricing in the quarter resulting in lower cash flow compared to last year.
AR energy marketing segment. Once again delivered exceptional performance with 45 million of cash flow in the first quarter by capitalizing on favorable, short-term trading of both physical and financial Energy Products, wage, corporate cost, decreased primarily as a result of the receipt of the Canadian, emergency wage, subsidy and realized gains from the total return swap relating to the performance of our shares in the first quarter.
Cee WS funding will be used to create incremental employment in the organization throughout this year and it's a 2022.
Overall transalta delivered, an outstanding first quarter and I'm going to spend a few minutes on the next two. Slides to discuss two of our core businesses. Firstly transalta, Renewables and secondly are Alberta business.
As many of you are aware our operating wind and solar assets as well as the majority of our contracted gas assets are held within transalta. Renewables this highly contracted component of our business is targeted to jury approximately five hundred million of ebitda for the full year 2021. I want to remind everyone that the that the quarterly results discussed on this slide are fully Consolidated at the transalta corporation. Level quarter-over-quarter. Rnw is comparably ebitda was up 4%, primarily due to the timing and recognition of environmental credits, lower overhead costs, and the strengthening of the Australian dollar, these benefits were partially offset by lower wind resources, which resulted in lower production, overall a ffo and cafd per share were in line with last year during the quarter. We completed the drop down to the windrise facility. And on April 1st, we completed the transfer of the economic interests in the Skookumchuck wind and the a Dakota and Facilities.
Rnw will fund the remaining Capital cost for windrise and all three investments will contribute to ebitda at the rnw level in 2021.
The recently-announced Garden Plain project is underpinned by a long-term PPA with a strong counterparty, which makes it an excellent drop-down candidate for transalta Renewables in the near future over all week long to maintain our cafd forecast for transalta, Renewables to be within the currently stated guidance range of $285 to $315 or approximately a dollar, thirteen per share.
Turning out to the Alberta business, at the end of 2020, the power purchase arrangements for most of our Alberta Hydro facilities as well as keephills units, one and two expired, and effective January first, these facilities, began odd being on a fully Merchant basis. These facilities. In addition to our other thermal assets are dispatched as a portfolio to benefit from base load and peaking energy sales in the Alberta energy. Only electricity it.
In addition to energy sales, both the thermal Fleet and the hydro Fleet are able to provide ancillary services to the grid operator.
During the quarter, our total Alberta portfolio generated, roughly 2,700 gigawatt-hours of production and $284 million in Revenue, power prices in Alberta, and another Western Regions Bank or significantly, impacted by cold weather, and Q. One in particular, the month of February experienced extreme cold with power prices in the month averaging $152.
Strong pricing and February contributed to the average Pool price for q1 settling at $95 per megawatt hour in the quarter. The Alberta thermal Fleet generated 2106 hours with an average realized price of $87 are realized price was slightly lower than the average settled Pool price due to the impact of our hedging program. In the quarter. We had had accidentally 1600 gigawatt-hours of Base, load capacity at an average price of $64 per megawatt-hour. The combination of our hedge revenues and are peaking sales. Resulted in revenues Attleboro being roughly in line with twenty-twenty, but with lower volumes of production,
Turning the hydro due to the dynamic and peeking nature of our Hydro facilities. We did not directly hedge volumes from these facilities in the quarter, the ability of hydro to capture peaking price. Off-peak pricing was demonstrated with average realized prices of $122 per megawatt hour, which represents a 28% premium over the average spot price. This premium is similar to the premiums realized the winter months of 2019 and 2020 energy. And ancillary volumes were broadly in line with expectations, but gross revenues benefited from strong realized pricing and exceeded our expectations, for the quarterback, for the balance of the year. We expect Alberta spot prices to settle at the higher end of our guidance range at around the sixty-five to seventy dollars per megawatt-hour.
Balance of the Year we're hedged on average about four hundred megawatts, but we expect to add to these Hedges through the course of the year.
A closed off my discussion by highlighting The Current financial strength of the company. Do it are strong due to our strong cash flow performance. In the first quarter combined with the anticipated. Strengthen Alberta power prices for the balance of the year long. We expect our annual results for ebitda and free cash flow to be towards the upper end of our guidance range. Our balance sheet and liquidity remained very strong. We close the quarter with two point 1 billion in liquidity month, including 650 million of cash. This positions us extremely well to fund our gas conversions and deliver on our renewable growth plan, our senior corporate debt level has been reduced to $1,000 billion which is below, are targeted level and leaves us in a very strong financial position as we continue through 2021 with that. I'll turn it back over to John. Thanks, Todd. As I look toward our priorities for the balance of 2021. We've set a number of goals, including achieving our best-ever safety results. In, what will be a heavy turn around here for our company? Strong availability?
throughout the fleet, except
So, exceptional, ESG, progress and results, the completion of windrise and the start of construction for Garden Plain additional growth in the form of a new Wind Facility from our us growth portfolio. Along with the growth project in Australia, completion of our coal to gas conversions advancing our Sundance V repowering project re-contracting are Sarnia. KO generation facility. You're off to a good start on with the re-contracting we secured with one of our large industrial customers there and delivering 20 21 and free-cash-flow at the upper end of our guidance.
To close off our presentation. I want to highlight what I think makes transalta a highly attractive investment and a great value opportunity. First, our cash flows are resilient and are supported by a that's a quality and highly Diversified portfolio. Our business is driven by our contracted wind, portfolio are unique reliable and Perpetual Hydro portfolio and our efficient thermal portfolio off. All of which are complemented by our world-class energy marketing capabilities. Second we are clean power leader with a focus on tangible, greenhouse gas emission reductions are decarbonisation. A journey has resulted in greenhouse gas reductions that represent close to ten percent of Canada's, 20-30 reduction Target. In addition, our focus on removing systemic barriers through our commitments Equity, diversity, and inclusion and good governance place as well ahead as a leader. In ESG, third, we have a strong and diversified set of growth opportunities, which includes a pipeline. Yep.
Stage projects and a talented development team focus on realizing its value. And finally, our company has a strong financial Foundation. Our balance sheet is in great shape and has ample liquidity wage growth. We believe the company is at an exciting time and its development and we are well-positioned for the future as a leader in low-cost, reliable and clean electricity production, finally home. I'd like to also take a moment to say thank you to all of our employees and contractors for their resilience. In the face of COVID-19, they continue to work hard, everyday adding value to our company, by doing our communities need, most delivering low-cost reliable clean power. They have been and continue to be terrific in light of the impact of the COVID-19 pandemic and restrictions on down here in Alberta we've made the decision to postpone our 2021 investor day until the early fall of this year. At that time, we will explore with you are strategic plans for 2021 and Beyond dead.
And with that, I'll turn the call back over to Kiara.
Thank you, John. Rebecca, would you kindly open up questions from analysts?
At this time, if you would like to ask a question, please press star one on your telephone keypad and your first question comes from Julian.
Hey, good morning. This is Darius laws. Neon for Julian. Thank you for taking my question, just wanted to quickly discuss the new wind project Garden. Plain briefly took. It seems like you've had pretty good success Contracting. The first bit of it. I was wondering if you can discuss plans for Contracting the remaining 30 megawatts how that fits into potential plans to drop it off to transalta Renewables and also if you can comment on the 17 million estimate does that is that based on just the current contract that's in place or does that assume something with the remaining 30 megawatts?
Great.
That Darius a good morning. Thanks for for your questions. Come on, come on. The project. We are actively in the process of marketing, the balance of the 30% off, as we move forward into the year, we see actually a number of opportunities, both with existing rfps in the jurisdiction and frankly through our Outreach with existing customers that wage. So so we're pretty optimistic that we would be able to do a pretty good job of Contracting. Contracting up that residual component in terms of it being a drop-down for transalta, suck balls. We think it's an excellent project as is candidly. So having a little bit of that Merchant component remaining With the Wind Facility, would not at least from my perspective, be an impact to having it be dropped down to transalta Renewables. But as I said, we do expect to be able to progress the the Contracting for the balance of the plant and Kennedy was just more efficient to right-size. The plant phone number.
Cost perspective and, and fill in that, that tail end of the Contracting, in terms of e. But that, 17 million dollar number is is, is sort of our best estimate of what we should expect to see based on the base contract that we have there. Um, and, you know, a number of scenarios, some of which would include Contracting and some of, which would include a merchant component in the environmental attributes associated with the Wind Farm,
Okay, excellent. Thanks very much for for that detail and if I could just ask one more and this is regarding, there's a note in the mdna about conditional settlement with Fortescue wage. What do you think? We might hear more about that and specific terms of the settlement and potential Financial impact?
Yeah. I mean Kerry do you want to maybe maybe respond to that? I mean I I can maybe carry can add some color. I I look, we're, we're in the process of working through that. I think the kind of conditions involved in that settlement would be what I would characterize, as sort of normal course, commercial kind of conditions that need to be resolved. I'm hopeful that we would see a resolution off of that in the sense of having all conditions satisfied with in the quarter. Ugh, certainly by the early part of the summer and our hope would be to to cfmg off, turn to the plant as as a customer.
Carry out a nose or anything else. You know, they'll just reiterate the last point that we're all very excited to move forward, cast the settlement, and to welcome back SMG as a Cornerstone customer in Australia. Thank you.
Okay, great. That's that's it for me. Thank you very much. Your next question comes from the line of Maurice Troy with
Thank you and good morning. My first question is about Alberta power Market. You mentioned that one of the primary reasons for the improved guidance, commentary relates to bed Albert up all prices recognize that we're only five months into this new power Market environment, but it's your view that East level of power price levels. Seen so far for this year, as well as the rest of this year will carry through for 2022 and Beyond.
Yeah, where he's really appreciate the question. Um, look our our current view is that the kind of pricing that we're expecting to see particularly in the balance of the year and took the the balance of your price is sort of in that $69 range are broadly in line with what we, we would expect to be sort of normal prices for power in the province. When I think of it, I tend to suck pricing in that $65 to $70 range. It's something that certainly we've communicated and, and we're seeing, you know, to the extent, there is some trading on 20 2002 pricing, that's broadly in that zone and remember, with, with the current market that we have. It's it's important that people get, um, not just the energy value in the price but also the capacity price for their generation and for their facilities and the price. And and you know, our our view would be that pricing in in sort of the range that we're seeing for the balance of the year is appropriate and Justified dead.
Great. And that party close quite nicely into my second question, the belts and then 5:00, and I'm trying to understand better to change that. You've announced, including the cost estimate change. Can you elaborate a little bit more about, what has motivated? This you mentioned increase operating flexibility 225, an additional capacity, is it all due to the change in Paul market, dynamics, or common regulation, any additional color would be appreciated.
Yeah, it's it's a great question. So, we've continued to advance the design work on the facility. And as we went through that and looked at the various constituent elements of the place and we were able to get more precise estimates on what the cost would be to actually develop it and some of the work, you know, just to give you a bit of a flavor would have been, would have included. Things like, incremental costs, associated of the piping, we need a better understanding of some of the geotechnical requirements, that we need for the plant. All of which have contributed to both a Clarity in terms of what the actual design parameters are off. And and a bit of an increase in cost relating to those things, with respect to the high-pressure turbine work. Um, we did a bunch of analytics and although our view is that the plan change will largely be running in a baseload for? We thought that making some of the changes there to increase the flexibility of the plan. Particularly as we see the Advent of an increasing number of Renewables in the marketplace dead,
Just makes a lot of sense. I think having a plant, given the investment that we're proposing to make that is as flexible. As a brand, new plant is exactly what we wanted to do. And, and really it's it's it's those two groups of things, greater Clarity and and and a better sort of specifications around the plant and making sure that we have that maximum flexibility. That have contributed to uh do I get a better project but also a project that has crept up in price.
Great. And and just as a quick follow-up and because you mentioned those two items as you carry on your second or third conversion. Once you increase your nest egg do you feel like you need to do more with regards to those simpler for the conversion?
Not sure sun sun form K-1. Oh, sorry, maybe I just want to make sure that. I understand the question that you've asked. So are you asking, are we? Are we planning to drop off, or on some foreign K1 is that your question? I'm just trying to correct. So, so, so obviously the sorry, yes, the answer. Okay, yeah. Um, right now, we don't have, I mean, we continue to evaluate those facilities particularly K1 in the context of potential. Repowering, later in the decade, but we have no plans at this point in time to, to change kind of the operating parameters of those two units as we move into 2022. So you would expect to see, you know, those two units. I think a one operating at roughly a 70 megawatt kind of capacity and off and kind of that hundred and ten hundred and thirteen megawatts, firing solely on gas as we wind down operations on the mind.
So no changes for that strategy or plan.
Great, thank you very much.
Thank you.
Your next question comes from the line of raw Pope with Scotiabank. Hello everyone. First questions on the hydro quarter. You know, 77 was a good number there, can you give us some gives and takes what you saw in the ancillary Market? It does look like your ancillary Revenue as a percentage of spot was a little bit higher than normal, you know. So overall with wage of a quarter as expected or you know your outage at Bighorn even drag you down a little bit there.
Yeah, I mean I think we, you know, rob you never know until you start the quarter right and and this was a bit of a paradigm-shifting quarter as you know for us I think as we went through the quarter. Um I think it came out broadly as we expected. I think there were periods of time during the quarter where, you know, candidly the ancillary Services Market was hyper competitive, in terms of, you know all of the people trying to supply into it. But on balance, I think the number that we got a little bit below, the number that we would have, you know, realized last year, in terms of the volume of a s that we would have sold in the market was broadly, where, you know, we would have expected it in this case. It's, it's a bit over two times. The amount of energy that that, that we sold in the marketplace. So so I don't think there was any surprises. I think of all the discussions that we had with our optimization team, through the quarter,
Okay. And then as we look forward through, the rest of the year, is there anything to note there or you tracking pretty well too? You know, you're we'll, we'll call it historical guidance and 2:25 to 27055, even with the lack of environmental credits this year. Yeah, we we are, we, we expect that the kind of guidance that we've been talking about is broadly. We're we're expecting so far off to to land and and haven't really seen anything, you know, into April and the early part of May, that would, that would suggest that that wouldn't be the case. So, so far so good. All right, thank you. God, thank you.
Your next question comes from the line of being Sam with BMO.
Good morning. I'm going to go back to the question, Alberta power crisis and I'm wondering when when you see part prices similar to lease or $95 for so long as it's typically because the man's of ships apply and I mean in in this case may be excluded the weather impact. Would you would you characterize a market as, as more economic holding that's really driven that that part price versus the market being in a quite supply-demand situation.
Yeah, I I so I would characterize it in a couple of ways, bad. I mean, the, the, the first thing was look, February was a really cold month. And, you know, the kind of pricing that we saw in February where were, you know, it cleared in the mid $100 range was an exceptional outcome and the weather absolutely contributed to that. And I think as you know I think it was actually on February 9th. We actually get a new Peak load in the province so for sure. Novice and of the pandemic we saw periods of time in the quarter just given the winter where there was there was high load. I think the second thing that I would say is I'm not sure people are dispatching their units commercially, uh, in the marketplace and and that kind of goes back to at least from our own perspective with the viewed, you know, long run marja costs. We need to be able to get our capacity payments out of the market. We need to be able to You Know cover the the variable cost for the energy component. Some of those variable costs have actually increased with carbon pricing. Yep.
So we weren't particularly surprised from what we saw in the quarter. The last thing I would say is is before before just making one other comment, is that when we look at how tight the supply was from the Viewpoint of the dispatch ability of the units, we tend to not look at just installed capacity in the market, but actually the capacity that would have been available run. It's much tighter than people think. I think that something like forty percent of the time. Certainly, in that first quarter we had, you know, a supply could would have been 15% or less. So it's actually from a practical perspective, tighter throughout the. Then, people would have expected. And then just my final sort of point of color would be Thursday, you know, I think you have to look at, you know, the pricing from a longer-term perspective, you know, I'm not sure that looking at it in a week, or a order, or a day, or an hour is sort of indicative of where it is dead.
So, you know, at least from our perspective, we tend to think of kind of an annual average and and even from a longer-term perspective and when you go back and you look at the Province over the course of the last ten years or so. Since June average pricing kind of approaching that $60 at a time we're we're frankly some of the variable costs were lower is if Is Not Unusual in the context of where we are and and John I would just add that. The average $95 price is really a February story, absolute right January and March we're both right around where we would have expected to settle in in the winter months of the year and it was just a few days in February that made all the difference as well.
Okay.
It does look like the the forward grip looks still robust in the even even last month was was also quite strong. Are you, are you getting feedback from consumers, retailers even government around concern around? This is hype our price. Like what, what you what? We tend to hear more than Ontario region.
Yeah, you know, we have an experience that bin and I, you know, I kind of go back to the point that I was making. I do think you have to take a longer-term view of, you know what, the pricing is in the market place and, you know, candidly pricing, that is in that sort of mid sixty to $70 range. Over the course of the year is pretty competitive pricing. Certainly from a from a Canadian perspective, I think certainly from a Global Perspective. When we look at what what you know, power prices are in many other jurisdictions, including jurisdictions that we would compete with. It's it's a reasonable price then and I think reflective of what the true cost of generation is in the marketplace. And if I may one more question on your growth pipeline, slide six and you have some codes and opportunity that I'm in Australia. I'm curious. What, what about Renewables in Australia, like pumped Hydro storage or or when is there is there an opportunity for you?
Yeah, I would say, you know, two things we continue to assess the opportunity set primarily that is an Eastern Australia, which is very renewable, heavy from an opportunity wage and and you're right. There is pumped storage. That that is being done there. You know our Focus has been uh to be candid a bit more on looking at solar opportunities and maybe some wind development opportunities in life in Australia. But when you when you when you look at Western Australia where we are and you know, we tend to think of it as, as the opportunity sent being kind of hybrid generation that we're working with some of our customers. So it would be our expectation. Certainly our goal this year to be delivering some projects in that jurisdiction. That would have some Renewables attached to storage. Um uh, for some of the the work that we're doing with the customer,
All right, great. Thank you. Thank you.
Your next question comes from the line of John Mayer with the TD securities.
Morning everybody. Maybe just circling back to to Sunday and supplies. Can you provide some context on how the expected Returns on? That investment has evolved given on 1 month and the cost increase the one to two quarter c o d delay and then on the other hand, what looks like, improve asset, flexibility and a bit of a capacity increase
Yeah. I mean John the you know what I can say is that we when we look at the modeling for the for the plant, you know, even in the context of some of the higher wage costs Capital costs that we see in developing the the project still pretty robust returns. I mean we continue to evaluate the market are forecasting, team is actively involved in faith in, you know, kind of espousing what what pricing looks like and and we continue to assess it but so far, it does look like the returns are are robust. The flexibility that the plant has our our, our page and just the efficiency of the plant is, is very solid in the context of the market. And, you know, there's other ways to provide value to. So, for example, your your gas supply strategy will be practical and obviously As Time Goes, By the way, that you'll deal with, carbon will be another key component in, in the value, proposition associated with the plant. But but so far so good.
Okay.
Thanks for that. And then maybe moving on to your, your just your hedging approach, regarding some of your key, key or units, you know, you don't want to get into talking about what your current current home look like, but can you provide just some high-level thinking on how you approach changing the output from some of your older coal or, or cold a gas units? That otherwise, you know, might not run much outside of hyperbole. Go ahead, sure know, it's a great, it's a great question. So it is something that that you know, John we evaluate, you know, we bought a quarter-by-quarter as you know, you know the liquidity in the market is such that your ability to sort a hedge long. Long term is is challenging. So we tend to think of it more in the proximal quarter or two in terms of the volumes that are there and our team spends time kind of looking at what are expected generation is going to be, we have a sense of what will be baseload effectively wage
Generation. And then we evaluate that in the context of, where we think the market will land, and what the signal is from a hedging perspective. And if we think that, you know, the market is effectively dead overvaluing, our expectations will layer in more Hedges. And if we think it's, the reverse will probably be more open as we move in. And we always want to keep kind of to your point that peeking off from some of the plants that may not run as much and tend to go after some of the higher hours that will be more open. And in general, we tend to think of our Hydro as being more open as well taught you want any color but I mean, you know, it it it I think you'll see more variability. I think, in our hedge levels, as compared to maybe what you would have seen in the past where maybe, you know, Joe would have said, we want to be 70% hedged. Um, I think I think you'll see it vary depending on what we think. You know, our assessment of the market will be at any given time. Yep.
Just going to add the yeah, it is a very Dynamic. It is a month-by-month decision. John mentioned. It's Market driven as to where we see, you know, the value proposition in the future months but it's also driven off of where we have particular outage in our Fleet or other outages going on in the province and as you can imagine with our with our K2 unit, currently undergoing the coal-to-gas we have less megawatts hedged it just because that unit is not available where it's all of our team will be back on over the course of the summer. So we'll have more length there and potentially enter into more Hedges at them.
Okay, that's that's great. Thanks for that. And then maybe just lastly on the on the Brazeau pump storage project, you know, you've had some time to digest the the federal carbon price proposal and wage that could look like in the easier to head and just wondering what kind of work you're doing on that project discussions, you might be having with potential counterparties and and what might be quired, required Beyond long-term served on the carbon price to help help move that project forward. Yeah, a great. Great question. So we do continue to periodically have discussions around that project, both with customers with John and also with government candidly, you know, in general with the trend towards and were convicted around the trends towards decarbonisation and the increase of intermittent see in the generation. We do think it's a great project and can can effectively act as as a battery for for the jurisdiction. You know, building?
A facility like that, in a merchant context is challenging.
So, you know, we would need to have I think a sense of Revenue certainty or or certainly predictability before. I think we would proceed with that. So our discussions tend to be around that off for us and but we continue to think that there will be a time for that project, you know, as we move forward and you know, the team continues to look at it. We continue to talk to customers about it and and I think it has tremendous attributes that, that there will be a day when when it'll be needed.
Okay, those are my questions. I'll leave it there. Thank you.
Thanks John. Your next question comes from the line of David with CIBC Capital markets.
Thanks for calling, everyone. It seems like there's been some announcement, so there's been some announcements for some others around. I'm just wondering if there is a sort of a, a finite level of support for some of that. Um,
Technology. What's your view? In terms of integrating that into sun fiber, repowering, and do you have to kind of move on that now? Like can you be patient in terms of whether or not you want to integrate that? Or do you feel like I'm kind of happy to start moving giving the others are moving as well. Yeah, no, it's a, it's a great. Um, it's a great question Mark. Um so look we we in the context of sun 5 a.m. are actively you know considering what the CCS or ccus kind of strategy on that might be in the future and it's expensive. You know it is you know that would be a unit that would generate call it to 2 and 1/2 megatons a year of CO2. And in today's dollars kind of a cost of em on a facility like that that would capture call it. Ninety percent of the emissions coming out of that would be easily in the 800 you know million dollar range, possibly even more. So not much different Mark than the actual
Will cost of the repowering, you know, of the of the unit that's there. So we are actively looking at it, we're in discussions with the government. I think there's been some constructive proposals that came out of the budget, certainly from a federal government perspective and there's more work to do, develop it, but I think there's a recognition both by the industry. And by government that achieving our goals is going to require, probably some assistance to get some of these kinds of Investments done. In a way that just makes sense economically. I'm going forward. You had a couple of other points there. I mean, from a in terms of the urgent need for that, you know, some five will be a pretty efficient facility. So even though we're seeing an increase in carbon pricing going forward, the the sort of incremental annual increase in cost is relatively modest kind of in that two to three dollars a year incremental cost from a carbon perspective. So it really bites, I think, five, six years out where you start seeing, you know, Carbon price. Yep.
approaching that hundred dollar range, which might then be
Begin to make some of these kind of Technologies, more economic. The final thing that I'd say, you mentioned hydrogen, we are looking at hydrogen and and, and assessing it it's pretty expensive candle, you know, Mark. I mean, many times more expensive than natural gas is right now and there's a couple of other challenges associated with it. I mean, when there's a lot of infrastructure built out that would have to take place to make sure that we've got the supply and it can be delivered to the facilities to run them. But, you know, probably more importantly, at least in the foreseeable term. The existing infrastructure that's in place. Isn't really all that. Well, suited blending it or or burning it and the challenge you have is even if you mix it, which we think we can probably do and it wouldn't cost a ton more from a capital perspective. There isn't a linear relationship between your emissions reductions and the hydrogen that you burn. So for example, if you burn 30% hydrogen in the fuel mix, you won't get a 30% reduction in emissions. The emissions, reductions might be half dead.
That it's only when you get to kind of 80% and 90% levels of of hydrogen, kind of burn that they just sort of capture equivalent levels of CO2 emissions. So it's a bit of a long answer, but I just want to give you a flavor of the way, our company is looking at it and we're looking at the technology and certainly we're looking at companies we could partner with to move it forward. I think it it's going to require a collaborative effort.
It just in terms of writing yourselves, or having that flexibility down the road, are there things that you'll have to change in your planning for sun five? Or are you already integrated that that you know, down the role becomes more economic? It's easy to you know, integrate that unit? Yeah, it's more. It's more the latter. We don't we don't think right now that there's a lot that we need to do in our current place to kind of contemplate, the possible technologies that we would need, um, going forward. So so that isn't driving kind of plant design now. Okay? And then just on that on the head and set in the soldiers that you really weren't hedged at all in the hydro and you know, work to your benefit. This quarter is that sort of the plan, going forward to keep those assets largely open.
I think, in general, that's the way we tend to think of it. I mean, there is a You could argue that there's a base level of hydro generation that we have. And, you know, I tend to think of that as being kind of a thousand or a hundred and fifty megawatts, but, but in general, our focus is more on the thermal Fleet mark from a hedging perspective than than our hydroclean, which we see is being more Dynamic package, got it, and, and then just coming back to Garden Plain and not contract. If you can't share too much given the agreements but in any common in terms of how the the carbon credits are dealt with in the terms, in terms of how their shared or upside as better prices go higher for sure. What what I can tell you is, you know, on on the 3 megawatt Merchant component, which we're looking to contract, I mean the energy generated from that and the environment environmental attributes from that would belong to transalta. Today, with respect to the piece that Pembina has contracted wage.
they're Contracting for not just
The energy, but they are getting the benefit of all of the environmental attributes associated with that generation as well.
And, and there's some sort of mechanism that, you know, account for whether or not, prices change, or is there a sort of, have you kind of blocked that in today, do they? They so they're price for the month the Blended price, effectively for the energy and the environmental attributes is fixed. So whatever ends up happening with the value of credits, whether they go up or whether they go down, that would be something that. That is really for payment is account. Okay, thanks for clarifying. Appreciate that. John sure. Thanks Mark.
Let me go to the next. There we go.
Naji, your line is open.
Oh, I didn't hear anything on my good morning. Thanks for taking my questions. Just bring that. Maybe the start off with the, the conversion of the credit facility to a sustainable. I called them. I'm just curious. If you can provide us any more color on that specific conversion and maybe more broadly, how you're thinking about green or sustainability like financing as long as you know, part of your funding options are going forward.
Great. Yeah, thanks. Now he's not here. I'll take that. So, this is sustainability. Link loan, really maps to the targets that we had set out in our sustainability report a year end. So there's really no way. We're basically putting putting our money where our goals are and in that that's typical typical sustainability link loan where you know, so long as we meet or exceed, our targets will enjoy and and get lower-cost financing. But if we if we don't achieve our targets will be, will be above those. The two metrics that we put into that, that we've disclosed is, is basically, both are GHz Target as well as our diversity Target. As far as green green financing. Like we have not issued a green Bond, but we have an issue to corporate bond in quite a while. Now, it's, I think it's awful. I think it might even be over two decades now that we have an issue to have finished recording Bond. What we have done is we've issued, uh, financing is directly related to our wind farms and other renewable assets and so. Yep.
While while they may not be you know tag as a green Bond clearly they are financing directly, relate to Renewables projects and I can tell you the investors consider them to be green financings.
Okay, thanks for that detail. And I guess it seems to be relatively well capitalized now and then with the expectations for a strong year and Albert life, I guess for the rest of the twenty one and maybe twenty-two is that change our Capital allocation priorities at all. Do you see the possibility of maybe doing BuyBacks ramune over the next twelve to twenty-four months? Well, I mean on the BuyBacks, I mean we we bought back, you know, I can remember the exact number last year. We didn't buy any back in the quarter, we do have an ncib program in place and we do tend to it plan to extend it for the balance of the year. And and through, to next year, I don't see a major change in our Capital allocation plans. Um, but you are correct that you know, are, are, are ffo available for what, I'll call other activities, you know, sort of outside of the sustaining Capital dividends et cetera is is growing and is larger.
and you know, we we absolutely are always looking at m&a opportunities and
And certainly the development team has a lot in the pipeline and as John said, hoping to convert at least one other Wind Farm here through the balance of the year. And I think just in just in terms of twenty Twenty-One, I mean, we still have a guy standing Capital spending year with our coal to gas, you know, conversions. I I know it's a like we are anticipating a strong year this year, but I think taught it would be fair to say that. You know, once we're through this, probably a bit, uh, later on the sustaining Capital side and and probably more capital in terms of our Capital, allocation approach to things like, you know, dealing with grown now and and and dealing with potential returns to our to our shareholders Direction.
Thanks, that's great detail and just one last question on the Brookfield, Strategic investment in Partnership. I guess you've had that partner for about two years now. I'm just wondering if you could talk about any major lessons, or takeaways either from The Joint operating committee or having to board members on your board has that impacted or, or, uh, sort of informed, your view of how to manage other Hydro operations, or, or how to think about growing both transalta or all-terrain boots.
Yeah, I would, I would say, look, you know, I would characterize our relationship with with Brookfield as an excellent one. What I would say is, you know, when the Brookfield nominees are participating on the transalta board there, they really have their transalta. Hats on would be, I think the observation that you would universally get from the transalta team, so it's not like I'm, you know, they're bringing a unique Brookfield, uh-uh approach. Um, I think they just look at transalta. They look at our unique strategy. They look at what our opportunity says said, and they contribute very, very actively in that discussion, they've been great. I think all of the field Representatives on our board have been tremendous in terms of, you know, the work that we've been doing around our Hydro. Yeah. I I think the discussion has been constructive, you know, we have a, they have an approach to the way that they run their Hydro Fleet and their business. We have our own approach in the way that we're dead.
Run our Fleet, we, we are actually Partners in in a facility as well. So it's not like, we don't know each other very well. So, you know, I think the discussions are helpful their constructive and, and in many respects, kind of reinforced just the existing operating Dynamic debt that we currently have. So, you know, it's not, it's not like we're changing the way that we're operating our Hydro as a result, but, but very much, appreciate the input that we get on a committee.
Okay, thank you. Thank you for that.
your next question comes from Luca and I deal with National Bank Financial
Good morning. I cut out a little earlier so I might have missed the question but I'll just ask quickly, I'd like to know if there's a specific strategy for your environmental club that you plan to sell in the future and how we need them, you think you can sell per year.
Yeah, Luke. You dropped on that very last part of your question, but I think what you were asking is, do we have a strategy around our, you know our environmental attributes. We do offer and and and and frankly it's something that we continually look at and and assess. So it's everything from looking at what we anticipate prices to be like, in, in the future to really looking at what our own emotions profile is as a company. We even though our emissions have been reduced dramatically from where they were even just a few short years ago, we still have an admissions profile as we go forward. So we tend to look at a blend of, you know, what do we need to manage transalta has carbon costs going forward versus what can we actually secure by Monash using some of those credits in the market place as compared to what we could? Potentially maybe acquire credits for it, a lower price to deal with uh you know, with our own cost. So there's a big optimization exercise that goes off.
With that. And we have a team that that is exclusively oriented towards dealing with that every year.
Good. And the second part of my question was, just how many credits do you think like as an average you could sell per year? Oh, gosh. I don't, I don't have, I don't have that number with you. You know what, what I with me, what I would say is that, you know, the, the market works as I understand it in fits and starts off very much on my lateral Market, particularly in Alberta. So, so there is liquidity in the market but I don't think people should assume that. It's a kind of an infinitely, liquid sort of market place. I don't know. Yeah, I was just going to add as well. That, you know, we don't we we certainly produce tracks off of our Fleet and have for many years and and we are now producing Rex off of a hydro Fleet. So creating an invite level, but recall also that we actually do consume them ourselves through our thermal Fleet. And so we are, we are one of our own has biggest users of those wrecks. Now, we do opportunistically sell them into Market when wage
Access or we see additional value. But we are, we are using a fair number of the wrecks internally
Good. Thank you very much for the coloring. That your next question comes from the line of Rob hope with Scotiabank.
Yeah, thanks for letting me back in the queue, just a follow-up fmg. Just going back to my 2017 notes. You know. It looked like fmg was you know we'll call at 40 Meg's of capacity there and that was around twenty million of Eva. So you know is the expectation that at some point in 2021 this could come back or you know could we see altered kind of agreements there.
Yeah, I mean, Rob, we're we're still, we're still in the process of trying to get the matter settled. So so we're pretty constrained, in terms of kind of answering that question. I ask that you just kind of bear with us as we work through all of this, but but and hopefully you'll get a a bit of a better sense of that as we go forward.
Okay, thank you. Thanks. Your next question comes from the line of Patrick bikini with the National Bank Financial
Yeah. Good morning John, just a high-level question on on Partnerships here. And do you have Pembina signed up? But you lost energy transfer decarbonizing the oil, sands will no doubt, be a team effort by many Alberta companies. I guess, how do you see the need for more Partnerships going forward? Accelerating your growth and an overall transition stores but also be presenting challenges in you know trying to simplify your corporate structure so that investors can really see the value of future cash flows.
Yeah, I look it's a great question and something we talked about a lot internally Patrick. So to your point, I think the decarbonisation of the province's, for sure, going to require a greater amount of electrification to occur going forward. So that's something that we're excited about in creates a pretty big opportunity set in our focus is to actually be very client centered and and really focused on page, um, trying to work with customers to meet their needs and that isn't just by saying oh, you know, here's an off-the-shelf facility that we can build for you. But but really trying to work with them to to the extent that we can to help them map out their own future needs going forward in the solutions, we can bring in between the view that in all three countries in which we which we operate, you know, coming back to Alberta. I do think we'll see more Partnerships me think, you know, and I think we'll see them in in two areas. I think in terms of project development, our focus is very much on contracted growth, going forward. I, I'm not sure that creates birth
A big issue from disclosure perspective, you know, from our from our perspective, it's just contracts and customers. If anything, we're trying to reduce the merchant component of company going forward, I think the area where you might see more Partnerships and might add some complexity would be actually on on the carbon capture side. Um, those are big dollars, I think being in a place where she can cooperate with, you know, third parties in a way that, you know, each of the constituent components that go in going into cap to capturing carbon everything from, you know, the pipelines to Thursday, to the, you know, injection to to dealing with the actual capture. You might see more more Partnerships associated with that, given the risks and and the capital required to see it through and you know, candidly I I think that's just something that's going to be a disclosure issue for us and just the factor for everybody that has that, that kind of element of of carbon in their Generation Dead.
Right? And as maybe a follow-up question to that, just given the higher cash out later for some five, does it make sense to pursue a partner just to help share some capital capital costs risk. Perhaps similar in structure to the the Alberta Hydro Strategic investment given, you know, the run-rate off of Sun Five is somewhat unknown at this point
Yeah.
You know what I would say in response to that is, you know, right now we're not we're not in any discussions relating to a partnership for that, you know, facility. I I can't predict to you. A hundred percent wage future would hold. But today, there's, there's nothing that we're working on. In that regard with that facility.
B, great, I'll leave it there. Thanks John, thanks.
And your final question comes from Chris varcoe with Calgary Herald.
Hi John just a follow up on the question about the corporate partnership. With obviously seen a number of them announced in the last the last six months or twelve months, I'm wondering whether you are going to see or whether you expect to see that Gap, sort of slow down at some point here in the near future and maybe more broadly. What impact are all of these sort of additional Renewables going to have upon the marketplace and upon your plan going forward on other projects? Yeah. So let me let me try to answer each of those separately so my my expectation is that we will see more more Partnerships Chris going forward. I I think it just makes, you know, you know some of the some of the players in the province. Have a need for power, have a need for environmental attributes. Have a need to decarbonise thumb companies like ours, have the ability to meet some of those Solutions and I think that naturally lends itself to companies getting together to, you know, create solutions that that results in a win-win for birth.
Side. So I do think that that trend is here to stay for us and and in fact, as the company were spending, quite a bit of time and investing quite a bit of effort in making sure that we have a real customer and and partner oriented mindset in the company. That's actually one of the, the court things that we're focused on internally just having more of a service orientation. So, I think for sure, Chris, that's a trend that will continue to wage. See, just given the transformation that's required in the costs, candidly to see projects of the nature that we have coming through. And, and, and really just risk allocation between the parties going for life. On your second, point on on the Renewables, we do continue to see for sure, more Renewables being built out in the province, I think over time that will result often during periods of the year. We'll, we'll see more intermittent see, uh, in in the Generation, Um, cuz the the the Renewables can be unreliable at times, you know, they only the Dead
The only work when the sun is out in terms of solar and and, you know, when the wind is blowing and there is a seasonal element of that and, and temperature, plays a key role. And our province has been a high base, load requirements, given the nature of of of of the industry in the process. Uh and and and and isn't so much our residential basis the industrial base that that drives the man in this province. So I think, you know, the trick in the future is going to be to having that firming generation, gas or whatever the Technologies are in the future batteries, pump storage box, which will be able to respond to kind of step in and and, and back, feel any of that variability, that results in some of the Renewables going away. So, I think we'll see more renewal coming in and I think they'll be more volatility in how it's applied in any given day. And I think that'll be something that I know the ice already thinking about from a policy perspective. And we're we're in, we will be involved.
Options relating to that and, you know, it's kind of exciting.
Cuz it's an opportunity for a company like ours and just a reality in terms of where we see the future going. So hopefully Chris that gives you a bit of a sense. It is and just finally follow up on the question about carbon capture and sequestration, what are you hoping to see her? What do you think the industry is going to need to see from the federal tax credit? That is being contemplated right now in order to make ccus projects attractive for you on things with some dents fiber power? Yeah, it's it's it's, it's, it's a great question. At the end of the day, it's going to come down to economics to be candid. Ugh, Chris. So the credits are very, very healthy having those uh, you know, accelerated deductions from a tax perspective, will certainly help improve the viability of the projects on a go-forward basis. Some of the things that at least we think about is a company is and, you know, I look at what other countries do I look at, for example, of what's done in the, where the federal government there and another jurisdiction, spend a bunch of money to do a bunch of that R&D that wage
Yes, sir to create kind of cost-effective solutions, which could then be, you know, distributed out or partnered with industry to kind of bring forward. So for me, those are the two, you know, broad constructs that are important. It's all about making sure that from a financial perspective, it makes sense, that that, you know, the private sector can do what they need to do to help the country, meet the kind of targets that we have set for for greenhouse gas emissions. And yet do it in a way that power remains reliable. And, and low-cost, I mean, we, it's, it's an interesting algorithm in calculus that you have to meet cuz if you, if you flub up one of those elements, I think it's, it's a problem for the country.
Thank you. Thank you.
And at this time, there are no further questions. Do you have any closing comments? Great. Thank you. Rebecca. Thank you, everyone. This concludes our call for today. Do you have any further questions? Please don't hesitate to reach out to the investor relations team here at Delta and transalta.
Thank you for participating, this concludes today's conference calls. You may now disconnect
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