Q2 2021 TransAlta Corp Earnings Call
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Good morning, My name is Sylvie and I will be your conference operator today at the.
The time I would like to welcome everyone to Transalta Corporation's second quarter 2021 results conference call.
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 number 1 on your telephone keypad and if you would like to withdraw your question simply press Star then the number 2 thank you and.
And I would like to turn the conference over to care of Valentini, managing director strategic Finance and Investor Relations. Please go ahead.
Great. Thank you Sylvia and good morning, everyone and welcome to Transalta of second quarter Conference call.
With me today are John crews on Euro President and Chief Executive Officer, Todd Stack, EVP Finance, and Chief Financial Officer, and carry of O'reilly Wilks E V. P of legal commercial and external affairs.
Today's call is being webcast and I invite those listening on the phone lines to view of the supporting slides that are posted on our website. A replay of the call will be available later today and the transcript will be posted to our website. Shortly thereafter.
All of the information provided during this conference call is subject to the forward looking statement qualification set out here on slide 2.
Detailed further in our MD&A and incorporated in full for the purposes of today's call all amounts referenced during the call are in Canadian currency, unless otherwise stated the the non <unk> terminology used including comparable EBITDA funds from operations and free cash flow are also reconciled.
For your reference.
On today's call, John and Todd will provide an overview of the quarter's results along with our expectations for the balance of year. After these remarks, we will open the call for questions with that let me turn the call over to John.
Thank you Kara good morning, everyone and thank you for joining our second quarter call as part of our commitment towards reconciliation I want to begin by acknowledging the trends Altus head office, where I am today is located in the traditional territories of the myths of choppy the people of the Treaty 7 region in Southern Alberta, which includes the <unk> the <unk>.
Connie the kind of high that's.
Ciena and the Estonian Dakota first nations as well as the home of maintain nation region 3.
We've had another outstanding quarter I'm extremely pleased with the performance of our company and the progress that we've made in advancing our priorities in Q2, we delivered a 39% increase in comparable EBITDA, which has resulted in a 55% increase in free cash flow per share quarter over quarter and year to date, we have generated a for.
30% increase in comparable EBITDA, which has resulted in the 38% increase in free cash flow per share year over year.
Based on our strong year to date performance along with our expectations for the balance of the year. We're pleased to increase our EBITDA and free cash flow guidance for 2021 by 13% and 22% respectively at the midpoint compared to the original guidance we provided for 2021.
Rod will provide more details on our revised guidance later in the call.
Our access to liquidity remains strong and we are able to fully fund our remaining conversions of gas of key pillar III as well as our growth pipeline and we continue to achieve improved safety performance year over year. Our performance. This quarter was driven by operational and optimization of excellence across the fleet, which enabled us to capture the higher prices experienced can help.
Later.
The Alberta team has developed key operating strategies that ensure our fleet has high availability during periods of increased demand. So the we're able to provide reliable power when it is most needed.
For the second quarter in a row, our Alberta hydro and thermal segments of demonstrated the underlying value of our diversified Alberta fleet.
<unk> marketing also had an excellent quarter with strong trading results our U S across our U S power and natural gas desks.
During the quarter. We also progressed the number of our key priorities in late July we announced that we had reached an agreement to provide BHP nickel west with a 48 megawatt hybrid solar and battery battery energy storage solution. The project will reduce bhp's greenhouse gas emissions at Leinster in milk, Keith in Western Australia by 500 for.
<unk> thousand tons of Cotwo over the first 10 years of operation.
This project is a concrete example of transalta supporting our customers.
Drive to achieve their ESG goals.
In early May we announced our 130 megawatt Garden Plains wind project, which is contracted to payment of pipeline and there is another example of how we're focused on enabling our customers to achieve their ESG goals.
We advanced construction of our 207 megawatt <unk> project as of June 30, the facility was 88% complete and we expect to achieve cod during the fall of 2021.
In Q2, we completed a contract extension at Sarnia with an anchor and long standing customer we continue to advance re contracting discussions with our other industrial customers with whom we expect to execute contracts later in the year.
In July the ISO released draft details for the procurement of capacity in Ontario for 2020 and beyond we are participating in the consultation process with the ISO seeking to secure a contract renewal for the facility.
At the end of June we closed the previously announced sale of the pioneer pipeline to agco, which provided of $128 million of proceeds of the Transalta. These funds will be redeployed to our renewables growth program.
Our coal to gas conversion of key pillars to began during the quarter and was successfully completed in July the conversion of key pillars to reduces our carbon emissions by more than half of that unit and this is another significant milestone for transalta, if we transition of coal.
The <unk> 1 and 2 are now fully off coal and have been registered as gas fired steam generation assets with the ISO we advanced our preparations for a key pillar 3 coal to gas conversion, which will start in September with the completion of this conversion and the closure of the <unk> mine effective December 31, all of our Alberta facilities will be generating on lower carbon natural.
Gas at.
At year end.
We continue our evaluation of the Sundance 5 Repowering in light of the higher cost the changing supply and demand dynamics of the Alberta market as well as the evolving regulatory environment. In Q2, we completed an additional competitive tendering process for the engineering procurement and construction contract and we are now reviewing those bid results as well.
As the overall Sundance 5 Repowering project costs.
To date, we've delivered over 26 million tons of annual greenhouse gas reductions representing approximately 8% of Canada's goal of reducing between 292 and 329 million tonnes of Cotwo from 2005 levels by 2030.
On the renewables front, we progressed, our 300 megawatts.
White rock East and West and 200 megawatt Horizon Hill wind projects to an advanced stage and are actively seeking of discussing contracting opportunities to move them into construction.
We also added 500 megawatts of renewables to our growth pipeline, which is the continuing focus for our company.
Finally, transalta renewables was named to the best 50, corporate citizens list of proud achievement for our team.
We are pleased to be able to announce our new northern goldfield solar and storage project with BHP. The project is the first renewable energy project to be developed under the power purchase agreement, we extended with BHP back in October 2020, and initiate the growth of our renewables fleet in Australia the.
The project comprises 2 solar farms totaling 38 megawatts and a 10 megawatt battery energy storage system total construction capital is estimated between 64 and $68 million.
This is another concrete example of our customer centric solution strategy at work. Our goal is to be the supplier of choice for customers, who are focused on sustainable growth and decarbonization.
The project will be integrated into our southern cross remote network in Western Australia. It is our first hybrid solar battery project debt integrates our customers' desire for lower carbon intensity alongside the need for reliable power to ensure effective and more sustainable mining operations. Once completed the project will be 1 of the worlds.
Largest the off grid hybrid networks supporting mining operations and further improves bhp's position as 1 of the lowest carbon nickel miners in the world.
The project is expected to be completed during the second half of 2022 and will generate incremental EBITDA of between 8 and $9 million annually.
On May 3 we launched the garden Planed project and are extremely excited to have pembina pipeline as the new customer working with customers like pembina to develop low cost reliable energy solutions in support of their sustainability goals is a cornerstone of our strategy as.
As we've announced the project will have 130 megawatts of capacity and the supported by an 18 year agreement of <unk> for 100 megawatts of the capacity and the associated environmental attributes.
We expect the project to deliver between 14 and $18 million in comparable EBITDA on a full year basis, we have executed the turbine supply agreement for the project and are scheduled to commence construction later this year, we expect the wind facility to reach commercial operation during the latter part of 2022.
We remain customer centered on growth focused on delivering customized clean power solutions to meet our customers' ESG objectives in the most cost effective manner.
Key element of this goal is expanding our renewables business with the objective of advancing of wind project out of our U S. Wind development portfolio of this year. We currently have 500 megawatts of advanced stage wind project and our growth pipeline, which have the potential to become commercial in the 2023 to 2024 timeframe, we're progressing development activities.
On Horizon Hill, and White rock Eastern West, which are located in Oklahoma and are engaged in exclusive discussions and processes regarding opportunities to contract the output from the facilities.
We now have over 2.5 gigawatts of earlier stage opportunities in various geographies with the focus on renewables. Our development team is keeping busy in Canada, Australia, and the United States I'll now turn it over to Todd to take us through our financial results for the quarter.
Thanks, John we had an outstanding quarter and our diversified fleet continued to deliver strong results for $302 million of comparable EBITDA driven by robust results in our Alberta electricity portfolio and our energy marketing business.
Strong EBITDA results are reflected in our free cash flow numbers for Q2 in the quarter, we generated $138 million or <unk> 51 per share of free cash flow on the year to date basis. The company has generated $612 million of EBITDA and $267 million of free cash flow. We are extremely pleased with our performance. So far this year.
With the expiry of the Ppas, both of our Alberta Hydro in Alberta.
And Alberta thermal segments benefited from strong pricing in the Alberta market as well as from the great work of our asset management and optimization teams.
EBITDA from our Hydro fleet continued to significantly outperform this quarter, realizing an over 3 fold increase from $29 million in $2000.20 million to $96 million this year.
EBITDA from the Alberta thermal segment also significantly increased year over year from $30 million in $2000.20 million to $85 million. This year, although I note that realized cash flow of Alberta thermal continues to be impacted by the planned sustaining capital expenditures related to our conversions to gas.
Our energy marketing team delivered another strong quarter in line with excellent results delivered in Q2 of 2020.
Production from our wind and solar segment was lower than 2020 due to lower wind resources across all regions. This impact of lower wind resource was partially offset by the addition of the skookum Chuck facility.
The results from the North American gas segments were below the segment.
Were below expectations due to unexpected outages at our Sarnia facility. The decrease in EBITDA was partially offset by the addition of the Ada facility and higher realized pricing in Alberta at the Fort Saskatchewan plant.
Centralia has EBITDA decreased by $13 million compared to the same period in 2020, mainly due to the retirement of Centralia unit..1 at the end of 2020 as well as planned and unplanned outages, which necessitated power purchases during high merchant pricing to meet contractual obligations cash.
Cash flow decreased by $16 million compared to the same period in 2020 as a result of the timing of planned major maintenance as we are setting up the plant for its final run the retirement at the end of 2025.
The overall transalta delivered outstanding back to back quarters, and we are very pleased with both the results across our diversified fleet and the realization of the potential of our Alberta generating fleet.
I want to thank all of our employees for their contributions in achieving these results.
I'm going to spend a few minutes on the next slides.
To discuss 2 of our core businesses, our Alberta electricity portfolio and Transalta renewables.
Turning to slide 11, our Alberta wind hydro and thermal facilities, our dispatches of portfolio to benefit from base load and peaking energy sales.
During the quarter, our Alberta portfolio generated over 3000 gigawatt hours of production and realized $352 million on revenue, including our Alberta wind fleet.
Power prices in Alberta, and in other western regions were significantly impacted by the warmer weather experienced in Q2.
As is typical during periods of extreme weather patterns in Alberta wind production was significantly reduced.
This reduction of supply during peak demand periods was anticipated and our teams ensured that our dispatch of low capacity was available to meet the increased provincial load in June with temperatures soaring in extreme heat power prices averaged $141 per megawatt hour. The strong pricing in June contributed to the average pool price for Q2 settled.
At $105.
In the quarter, the Alberta thermal fleet generated approximately 2400 gigawatt hours with an average realized price of $93 per megawatt hour.
Our realized price was slightly lower than the average settled pool price due to the impact of our hedging program.
In the quarter, we had hedged approximately 700 gigawatt hours of base load capacity or approximately 71% of our expected thermal production at an average price of $62 per megawatt the.
Combination of our hedge revenues and our peaking sales for periods of high market demand and disruption resulted in revenues at Alberta thermal being significantly higher than 2020.
For the balance of the year, we expect similar total production of approximately 23.100 gigawatt hours in each of Q3 and Q4 with hedges more web with hedges more heavily weighted to the near term we of approximately 800 gigawatt hours hedged in Q3, and 800 gigawatt hours hedged in Q4.
We continue to see strong forward prices for the balance of the year and the Alberta thermal segment continues to retain significant open capacity in order to realize potential higher pricing experienced during times of peak market demand.
As we complete the transition of our thermal fleet the gas, we expect to see significant reductions in our carbon compliance costs in Q2, roughly 40% of our production of Alberta thermal was from coal firing at our unconverted units currently our coal generation carries of carbon burden of about $27 per megawatt hour.
By contrast, the carbon burden on a fully converted gas unit is significantly less at about $8 per megawatt hour.
In Q2, we incurred a total carbon compliance costs of Alberta thermal of $37 million had the conversion program has been fully completed the same production would have incurred approximately 50% of the compliance costs.
Turning to hydro the ability of hydro to capture peak pricing was again demonstrated in Q2 with average realized prices of $133 per megawatt hour, which represented a 27% premium over the average spot price. This premium was consistent with the premiums realized in Q1 as well as in high price periods in 2019 and 2020.
Energy and ancillary volume volumes at hydro were broadly in line with expectations for the quarter, but gross revenues benefited from strong realized pricing and exceeded our expectations for the quarter.
For the balance of the year, we expect Alberta spot price to settle at approximately the $80 level.
The higher average prices experienced year to date have largely been a result of market disruptions higher demand stemming from extreme weather unplanned generator outages tie line outages and a low wind resource.
I'd now like to provide an update on our subsidiary of Transalta renewables as you are aware, our operating wind and solar assets as well as the majority of our contracted gas assets are held within Transalta renewables and are fully consolidated in transalta as results on.
On April 1 we completed the transfer of the economic interest in the Skookum, Chuck wind and the Ada cogeneration facilities from Transalta to Transalta renewables the economic benefit of these transactions was effective as of January 1 and the year to date results of these facilities are included in the Q2 results.
Comparable EBITDA for the quarter and full year expectations were impacted by a number of factors, including unplanned outages at Sarnia, which impacted steam supply to our customers and lower wind production due to variability in wind resource.
Although steam supply disruptions of this nature of our atypical and infrequent. These interruptions resulted in a provision for liquidated damages, which we expect to resolve later this year.
In addition, wind production in the first half of the year was at 92% of long term average with lower wind resource experienced across all operating regions.
We also took the decision to accelerate the acquisition of of critical spare itself headland to ensure reliability for customers, which will impact our full year sustaining capital.
In light of these events. The company is revising our previously issued guidance for Transalta renewables for the 2021 fiscal year <unk>.
Comparable EBITDA for 2021 is now estimated to be between $470 on $500 million and cash available for distribution to be in the $260 million to $290 million range due to the lower EBITDA and the planned acceleration of the acquisition of the spare turbine for the south headland facility.
In terms of growth, we expect transalta renewables to acquire an economic interest in the recently announced the BHP Solar project referenced earlier as Transalta renewables has the right to invest in any expansion project related to its current assets.
The northern Goldfield solar and storage project investment was approved by the Transalta Renewables Independent Board members and the company looks forward to adding the first renewable generation assets to the Australian fleet.
We also anticipate that the garden plain project. The John also referenced earlier would make an excellent dropdown candidate for Transalta renewables in the near future given it's anchored by a long term PPA and a strong counterparty.
We also continue to seek additional renewables projects to add to our fleet through M&A and Transalta as development pipeline.
Overall Transalta Corp.
Had an outstanding year to date performance, which when considered with our expectations for the balance of the year permits us to increase our EBITDA and free cash flow guidance for 2021.
We are now estimating comparable EBITDA to be between $1..1 on $1.2 billion, representing a 13% increase at the midpoint of the range versus our previous guidance.
This EBITDA expectation allows us to increase our free cash flow guidance range to $440 million to $515 million. This equates to a free cash flow per share of a 100 of $1.77 at the midpoint, which represents a 22% increase over our previous guidance.
Our free cash flow yield at the midpoint of our revised guidance using our current trading price of approximately $13.
Represents the consolidated free cash flow yield of about 13%.
In addition to our estimates for consolidated EBITDA and free cash flow, we have revised several other areas of our outlook first we are increasing our outlook for gross margin of the energy marketing segment to a range of $170 million to $200 million.
Second we have increased our expectations on sustaining capital to 200 to 225 million the increase in sustaining capital is driven by the acceleration of the spare engine purchase for South Hadley facility in Q3, higher sustaining and maintenance capital at our hydro fleet on slightly increased costs for major maintenance at <unk>, 2 and <unk> III largely driven.
Even by enhanced COVID-19 safety protocols.
And third we're adjusting our annual price outlook for Alberta to 80 to $100 per megawatt hour. This reflects the balance of your estimates, Alberta price of about $80 per megawatt hour.
With respect to our expectations for the Hydro segment. Our initial guidance was based on hydro hydro EBITDA being in the $200 million to $225 million range.
Based on strong performance of the date combined with our outlook for the balance of the year. We are now expecting the hydro segment to generate EBITDA closer to $300 million.
The hydro assets provide transalta shareholders of unique opportunity to participate in renewable and reliable capacity in the Alberta market.
I'm going to close on my remarks on slide 14, and highlight our trend of strong free cash flow performance and the continuing financial strength of the company.
In the 6 months ended June 30 free cash flow has exceeded the 75% Mark of our 2020 annual results with 6 months of of 2021 remaining.
Our balance sheet and liquidity remain incredibly strong we closed the quarter with 2 billion in liquidity, including approximately $650 million of cash this positions us extremely well to fund future growth.
Our senior corporate debt level has been reduced the $1.1 billion, which is below our targeted level and at the lowest level in over 5 years. When we net off the impact of cash held at Transalta, Our deconsolidation net senior debt is about 700 million.
This resulted in adjusted and adjusted debt to comparable EBITDA of $3, 1 times, giving us a robust financial position as we continue through 2021 with that I'll turn the call back over to John.
Thanks, Todd as I review of our 2021 balance of your priorities, we continue to focus on progressing our key goals, including securing the growth project in the United States completing the construction of wind rise completing the key pillar III coal to gas conversion completing the re contracting of our Sarnia facility advancing our organizational.
And equity diversity, and inclusion initiatives and delivering 2021, EBITDA and free cash flow on the basis of our revised guidance.
I would like to close by highlighting what I think makes transalta of highly attractive investment and of great value opportunity.
The first our cash flows are resilient and supported by our high quality and highly diversified portfolio as evidenced by our year to date results. Our business is driven by our contracted wind portfolio, our unique reliable and perpetual hydro portfolio and our efficient thermal portfolio all of which are complemented by our world class asset.
On energy marketing capabilities.
Second we're a clean electricity leader with a focus on tangible greenhouse gas emission reductions are de carbonization journey has resulted in greenhouse gas reductions that represent close to 8% of Canada's 2030 target. In addition, our focus on removing systemic barriers through our commitment to equity diversity and inclusion as well as good governance.
Places us well ahead as the leader in ESG.
Third we have an extensive and diversified set of growth opportunities, which includes the pipeline of advanced stage projects and of talented development team focused on realizing its value.
For our company has a strong financial foundation, our balance sheet is in great shape and has ample liquidity to pursue growth for <unk>.
Finally, our people are our greatest asset and I want to thank all our employees and contractors for the work that they have done to deliver our results. This past quarter, we're committed to our company culture, where everyone belongs and can bring their best and authentic sales to deliver great results for our company.
<unk> got an exciting time in its development and we are well positioned for the future as a leader in low cost reliable and clean electricity generation focused on serving and meeting the needs of our customers.
As I mentioned in the last quarterly update call, we will be hosting our 2021 virtual Investor day on September 28 at that time, we will explore with you of our strategic plans for 2022 and beyond with that I will turn the call back over to Keira.
Thank you John Toby would you. Please open the call up for questions from the Allen.
Certainly ladies and gentlemen, if you do have any questions. Please press star 1.
1 on your Touchtone phone you will Dan here 8.3 total prompt acknowledging of your request.
I would like to withdraw your question simply press Star followed by 2.
For using a speaker phone, we do ask that you. Please lift the handset before pressing any keys. Please go ahead and press Star 1 now if you have any questions.
On your first question will be from Mark Jarvi CIBC capital markets. Please go ahead.
Thanks for everyone.
Just wanted to go to the Sun 5 repowering in his commentary about evaluating.
I just wanted to see what your instead.
The sort of implying there around cost when you're out there looking for again the.
Updated Vince.
Many of the costs will go up from the 900.950 on in the second part would be if you don't like where the costs are and questions around supply dynamic 1 of the options it seems like.
<unk> retired the asset effectively and so if I can maybe kinder employer conversions or is it simply just R.
Nothing in terms of the Repowering for some of us.
Yeah.
Good morning, Mark Thanks for the question so on Sundance 5 so it is the number of questions that you had on that.
In terms of what we were signaling in terms of the increase in cost of where we're seeing on the unit we continue to be broadly in line.
There, we went out and did another tender process to make sure that we were getting the best possible the cost that we could.
<unk> for the project, we continue to evaluate going forward. We've made no decisions on on finally proceeding with the project. We're for sure looking at kind of the evolution of supply.
On the province for over the course of the coming decade, and thinking about everything on when it would make sense to bring the unit, which might be exactly as as currently planned and also continuing to assess kind of the regulatory environment in terms of the implications of the federal government approach to carbon pricing for new <unk>.
Buying cycle of gas plants. So that's all on the mix and that remains.
Live in terms of the assessment that we're doing for.
For that project in terms of the Mothball I think it was on July 28th we made we made the announcement to basically and the mothball. So the unit will not be returning on November 1st remember it hasnt been converted to.
2 of gas unit it would of been required to run on coal fired generation and as you know we're shutting down the mine at the end of the year.
So really for US. This is it's almost an administrative point of approach we're parking all of the unit at this point in time, no plans to bring it back.
Prior to making.
A decision on Sundance, 5 and certainly not not making any decision to bring it back on on call nor having made any decision to do of coal to gas conversions are either.
But gas tends to be.
Clearly you still could go to a plan being a simple conversion like you did for the <unk>.
So true.
That would be possible for genie there yet.
And what the timeline of the first half of 2024 and stick to that target completion day. If that's what the intended 1 will have to make a formal decision on on 5 of went on to go ahead.
I think just going from memory here would be sometime later this year mark of the year Okay.
And then can you guys provide a bit more context on this.
Sarnia issues with the the steam interruption in terms of whether or not there is any cost still the bear.
And liquidated damages or essentially what we saw.
As the hit to the Q2 numbers is all dawn and Theres no COVID-19 impact.
Yes, Mark.
So we had 3 of <unk>.
Very unusual for us very atypical I think as Todd said in his comments, we had 3 outages and I think Todd It was over the course of about 3 weeks. It was very unusual in terms of steam.
Interruptions there the <unk>.
Plant is up and.
Running we're not expecting any.
Sort of significant sort of sustaining capital or other capital costs associated with the outages the liquidated damages are effectively.
As shown on the financial statements so effectively the the event, which was unusual is contained.
From our perspective, and we're really proud of the way that we were able to work with our customers in Sarnia.
To kind of bring them through the channels that we were facing and be as responsive as because of their needs.
Good to hear and the last question of nicknames for Todd and just in terms of the.
Hybrid solar project in Australia. The economics that you guys have shown from the Capex in the EBITDA projections I assume it's sort of like.
To Transalta Corp, how would we adjust those numbers I think for in terms of of what that might look like at the transalta renewables level in terms of either.
The development premium or associated costs in terms of bringing that outside of online just in terms of what that could look like on the EBIT and EBITDA net of the kind of open the walls.
Yes.
Yes, Mark I would say on any development if he is modest.
Of those economics effectively roll up into Transalta renewables.
Okay, great. Thank you for a while I had.
Thank you.
Next question will be from Darius Litany of Bank of America. Please go ahead.
Okay.
Please go ahead.
Hi, Good morning, Thanks for taking my question I, just wanted to touch on the unplanned outage at the already can.
Can you just speak to that in a little bit more detail. Please.
No the Q kind of referenced that there were 3 separate of bad debt.
Just curious if you could give a little bit more.
The clarity as far as.
As far as how those went.
We had.
Im not sure that there's a lot more of that I can give you of <unk>, we had the sort of 3 technical issues, which occurred I.
I think 2 of them occurred pretty pretty proximate to each other and then we had a third 1 that recur that occurred subsequent Lee.
They werent related events. They were they were very much sort of stand alone.
Events and the facility is back up and.
And running.
The point in time, Todd item of it yes, Paul maybe I'll, just add a bit more color difference stena steam interruptions are extremely.
Infrequent and.
In rare in these facilities as you know the cogent facility, especially Sarnia is designed with a lot of N -1 duplication reliability in order to maintain that steam supply to customers in this particular case the.
The first the first outage occurred and and while they were in the process. They did for support resource steam supply, but not fully restore all of the redundancies in the plant and while they were in that process. Another event that normally.
It would've been covered through redundancy and unfortunately, all of the redundant systems, we're not back up and running which triggered another outage and so they were just into a bit of a.
A bit of a.
Catch up game of trying to get the plant fully restored to all of its all of its N -1 reliability, which is why a couple of these events triggered but as John mentioned they were unrelated and it is an extremely rare event and it's just unfortunate debt.
And then all of the redundancies Werent actually available for the second and third events.
Okay no. Thank you for that added detail.
And 1 more just on the NW updated guidance if I could just you referenced the lower than average wind performance for the first half of the year can you speak to sort of what's embedded in your expectations for the balance of the year at the wind assets and also broadly across the portfolio.
Yes. Unfortunately.
Unfortunately in wind.
<unk> you.
You can't say that the first half was at 90% in the second half will be at a 110.
So our balance of year forecast is based on the <unk> results. So basically on average second half when the result.
Again, we did see a lot of heat in July So July as well was it was a weak wind resource, but the back half of the forecast is based on sort of average production. When we were out of the 92% in the first of all in the first half.
Okay.
Okay, Great I'll leave it there thank you very much.
Thanks Darius.
Thank you next question will be from Rob Hope at Scotia Bank. Please go ahead.
However, on I don't want to circle back on some 5 and kind of the evaluation of that project.
1 point of the clarification, the offtake block with shell for the conduct of our genetic core turbines. If you were not to proceed with some time could you port those over to your other portfolio.
Yes.
Rob that's of Great question, So we do not view the.
The arrangement with shell as being contingent on any specific unit. So our view is that we would be able to.
Allocate them to other areas of the.
Portfolio of generation of the problems.
And then I guess, just more fulsome in terms of kind of of the capital allocation question sung.
<unk> 5 if the costs further increased quite a bit of the capital spend for.
Good amount of merchant capacity there when you take a look at the suite of projects that you have under under the umbrella.
Are we increasingly seeing yield better opportunities on the renewable side.
1.5 doesn't go forward could we see increased.
Investment in renewables as well as the potential acceleration of the share buyback.
Yes, Rob that's of Great question. So when we look at sort of sub 5% and we look at sort of the development pipeline that we have.
We tend to look at them kind of on an equivalent level of in terms of how they compete for capital allocation in the in the company. So when we look at our renewables fleet, which to your point would be more bite size pieces more contracted.
Probably in some respects of lower lower risk.
Factors into the way that we're looking of the capital allocation between the 2 and in the event that we Werent to proceed with some 5% of it ends up being developed in a different.
Kind of manner, there would potentially be more capital to on to accelerate part of the renewable side of the equation in terms of share buybacks. I mean, Todd you can comment about that too, but we're very much focused on doing that when we think it makes sense to based on the trading price of of the shares and we've typically bought them on prices sort of at a sub $10 or less.
Will it given where we're trading right now the share buybacks aren't that of what to put words into its mouth kind of a priority for us.
Actually I think that's a fair characterization that we see a lot of good opportunities to deploy capital.
Certainly our capacity buy back shares is there to support the stock buyback opportunistic prices.
Okay, and then just 1 follow up question the the headwinds settlement debt.
It was struck in may of any updates.
They are in terms of progress in wells potential uplift on EBITDA.
Sure I might I might Rob I might turn that over to Kerry hopefully you can hear her here.
Rob Thanks for the nice to hear from you.
Still on the process of finally on finalizing the settlement.
And we should do so in the imminent.
And in the coming weeks.
Thank you.
Thanks, Rob.
Next question will be from Maurice Choy with RBC capital markets. Please go ahead.
Thanks, very much and good morning. My first question is just also net of follow up on Sundance 5 and <unk>.
Sounds like everything is remains on the table, including boiler conversion lights on 6.
But within the list of options that are in front of you is there any contemplation to repower the project using newer.
<unk> technology instead of the ones instead of the turbines from Kinect Corp, and to that and how marketable as the 2 so the kinetic core turbines that you bought back in 2019.
Yes.
Good morning, Thanks for that.
Look we are looking at at Sundance, 5, including sort of the competitiveness of the unit in light of the the Newbuild that is being proposed to be to be added to the province over the course of the next 7.
8 years, or so which of which is pretty significant.
We're still in an evaluation phase I wouldn't say that we've made any kind of decisions in terms of.
Replacing the class of turbines that we have for example, a different class of turbine.
Or turbines that would have a dual fuel capability. For example, so I don't want to speculate in terms of.
There were.
Where that would land and and at this point in time wouldn't comment on on.
Not proceeding with the project and what we'd be able to recoup for for the existing of there.
Fair enough and not that I want to tee up the September of 2 Nancy event, but is it likely that we will hear more about debt on that day in terms of decision, making or is it more like end of year type of decision.
We're working hard to be able to provide more clarity certainly by by Investor Day Mers.
Yeah.
Great and just to finish off I wanted to just come back to energy marketing.
Obviously, the guidance has been improved to $1.70 to 200 and debt represents an upward trend from 120 back in $2018.1.40 in 2019.
I recognize that some of the stronger performance of some more circumstantial sometimes based on different years.
Is there a sign of a more permanent change in the profitability of the segment moving forward.
I can assure on that over to my friend, Todd, who who oversees the group yeah. Yeah. Good morning, I'm not sure like certainly the floor is well positioned to take advantage of of opportunities that present themselves on the market and really the regions. We're talking about here of the western and Eastern U S markets as well as natural gas across North America and really.
It takes there is a market opportunity and so volatility is 1 of the key things that they look for price dislocations.
And really the opportunity to source power to source of energy in 1 jurisdiction and move it to another and thats predominantly how how the team looks to generate profit and that's something that we've seen whether it's from heat waves in certain areas of cold periods in other parts of the times of the year.
Even even quite frankly.
Forest fires and other disruptions of transmission and et cetera gives the team's opportunity to look for margin by moving power around in a range of transport and transmission. So I would say volatility is what creates the opportunity.
And renewables is a big part of that volatility as well. So so I would say we are seeing structural changes that could see an upward upward shift in that number.
Yeah, and I, just think I think Todd with the increasing heat that we've seen over time in that part of the world.
Increasing demand the change of the generation mix certainly volatility volatility has increased in the fourth thrives on the yes.
Fair enough. Thank you very much.
Thank you.
Thank you for your next question will be from John Mould of TD Securities. Please go ahead John.
Hi, good morning, everybody.
Maybe just 2.
Circle back to some size again.
Looking back at your Q1.
The disclosures you had referenced the issuing full notice to proceed weighted.
This year.
So obviously that language has been.
Pull back a little bit I guess whats changed since may and your broader.
Broader outlook for the projects either in the power markets the regulatory outlook be it the media Ccs requirement on the road or or or build cost picture of its just maybe means you take a bit of the step back this quarter.
Yes.
John.
I think it's of Great question, I think it's a lot of things so.
When you look at the project I mean, we're very much looking at on I'll. Just give you an example, carbon pricing going to $170.
Seeing the federal government signal that the performance standard for new gas like.
On 5 would actually decline to zero by of 2030 time period in terms of just directionally, where where theyre going and seeing that being fully exposed to the carbon price as it's increased over the coming years.
Mindful of load growth in the province, and looking at the increase in the.
The amount of the proposed generation both on the gas side and on the renewable side and working to understand the implications of that for generation in the province as we go forward. So it's really a.
It is on any 1 thing John it's a confluence of of things.
Things that I think we're prudently looking at.
In the context of making the right decision for our shareholders.
Okay, great. Thanks.
Go ahead I would just add debt Ccs is is also a pretty big uncertainty I mean, it is it is expensive technology.
Assessment would have the cost of FCC FCC U S. The at least equal to the cost of the actual repowering.
All of the project and it isn't necessarily the case that the technology associated with that as a fait accompli. So.
I wanted to sort of give you a bit of a complete picture.
Okay.
Okay. Thanks for that and then turning to turning to the Sarnia and the.
The re contracting outlook there just wonder.
But your thoughts on.
How the the re contracting outlook there has been informed on all by the recent annual acquisition reported that the ISO published.
Yes, it's a great. It's a great question.
So for US there is really 3 elements to Sarnia and I can I can turn it over to Kerry to add any color if I if.
If I omitted anything 1 is we do have the blue water Energy Park, there and we're working hard to actually <unk>.
Expand off takers on the facility and we're having some success in doing that certainly over the course of the quarter were expecting.
Some of the crypto miners to be interested on that and we're seeing some success in terms of supplementing the cash flows there too as we indicated in the in the quarter. We are focused on re contracting with our for major off takers. There we have completed 1.
Discussions are advancing well with the other 3.
And it's kind of good just to have.
1 of them done on creating kind of a good template in sort of a benchmark in terms of pricing for the facility as we go forward and we're pleased with how that has gone and is going and then finally it's.
The ongoing discussions with the ISO we're actually pretty optimistic about our ability to re contract a chunk of that plant.
With the ISO it is located in a part of the province that we understand.
It does have a power need it's important in terms of backstopping the needs of industry in that particular region and the size of the off take that debt at least we understand the ISO was looking at it.
Specialty large given what would be available to participate that we think it creates a good opportunity for us too.
To be competitive in that and actually secure something.
That underpins the plant going forward Carrie I don't know if theres anything else you'd add to that no.
I would just note that we're very pleased.
On that page release the guidance, we appreciate the stealing the design phase.
We're also confident given that the.
The amount of megawatts that will be able to be bid into the process.
Limited too.
The offtake.
2 providers that will be coming off contract at the same time of Sarnia and we're working closely hand in hand.
All of these deal with the Ontario government with.
With the goal of that we provide them with the energy that they need.
And that we are obviously able to contract the facility to provide our shareholders.
Those returns as well.
Okay, great. Thanks for that and maybe just 1 last 1 on on your growth pipeline, just looking beyond the the Oklahoma projects, which I understand youre advancing.
Ill take discussions or where are you seeing among your mid stage pipeline, the best opportunities to secure potential offtake agreements and move those projects forward.
Yes, thank you for that.
So we think it really falls into.
3 areas.
We do think debt.
Sure.
<unk> to be opportunities to grow in a similar fashion to what we've seen serving our customers in Australia and our development team. There continues to work to land that and I think that might be a little bit of gas, but also potentially additional solar that we're able to do there and even potentially wind to be honest.
In Australia, and Canada, we're pretty excited about the ongoing demand from industry institutions.
Commercial entities for renewables here, we're working hard to advance our wind farms that are under development in the province.
Here and I'm thinking of Ripplinger in Willow Creek.
Would be just an example of some of the wind farms. There. We're also in the.
The early stages of developing solar in the province both.
Near high Bill and also in the southeastern part of the Province, which we also think it's something that we could bring forward and in the U S.
We continue to see a lot of opportunity.
In the Illinois, with our Prairie violent project and the team is doing a really good job of increasing our opportunity set in PJM, where we continue to see really strong PPA off take demand. So it's really John all 3.
Jurisdiction and I'm really pleased with the fact that we now have.
The defined an identifiable projects that we can specifically kind of feather in.
In the medium term.
Okay, Great I'll leave it there thanks very much thanks.
Thanks, John.
Thank you next question will be from Andrew Kuske of Credit Suisse. Please go ahead.
Thanks, Good morning.
On the MBNA theres of comments.
In Alberta, if youre fully converted in your fleet your carbon compliance costs of the $15 million to $20 million lower.
I guess the question is more of a broad 1 on how do you think about the tension in the market of lower carbon compliance costs for some like yourselves on the conversion process.
Vs escalate in carbon prices that are happening on the legislative basis.
And where do you think clearing prices wind up is there an upward bias over time because of the carbon prices increasing.
But theres also generation mix, that's changing on the province.
Yes, that's the great. It's a great question, Andrew maybe maybe I'll try to answer it this way I mean, we do.
So we do think that.
Maybe I'll try to answer it this way so in general from a trend perspective, the carbon intensity of the provinces has declined and I think is going to continue to decline.
So for sure I think over time, we will.
Continue to see that happen the <unk>.
All I know is happening at a rate that is a bit lower than the carbon price is increasing so we do think that when you get to the sort of the mid and back half of the decade for sure that will continue to be on increase in carbon pricing that will be impacted and showing itself in the price over time and in part that's because we are at least our company is.
Presently expecting to see that performance standard for new gas decline overtime. So so we do see a more muted impact I think in the near term, but over time I think it becomes more and more cigna.
Significant as as you get into the certainly 2028.2029 2020.
<unk> and kind of the bigger numbers and are there and it kind of bites into the emissions profile from from whatever natural gas generation is the slip that time I don't know if that answers your question, but.
Yes. It does its helpful color and then maybe flipping to just another part of your portfolio on Alberta, what opportunities do you see for really structured power deals on a renewable basis.
And being able to capture premium pricing for some 24.7.
Kind of Green power deals we've seen them in some other jurisdictions very few players can offer them. The is you need a portfolio of assets across the ecosystem to do it.
Nothing to have all of those things. So what are you seeing on that front.
So we actually think it's 1 of the biggest opportunity sets that we actually see entered on the glasses you phrased it.
Not sure of that.
Of our off takers at least today are quite there in demanding that.
Of that product in Alberta that might change over time, and we're actually seeing a greater focus on that with the mining community in Western Australia, where they are very much interested in reducing the emissions, but also having an element of reliability and I think in part that's just due to the remote nature of their operations.
Tied into the grid and as a result, its more of on acute.
The issue with them, but I do think that.
It will become more important over time, and I think youre right between our existing wind fleet and certainly our hydro fleet, we do have the ability to shape and we're actually looking at.
Some of the opportunities to add.
A pretty meaningful amount of storage potentially tied to existing renewable assets in the province, and Thats, not just wind, but potentially our hydro fleet. The can also help some of that shaping in addition to may be helping.
Helping meet some of the ancillary services need of the province might have in the future of the renewables build out continues so hopefully that gives you a bit of a sense.
It does thank you very much.
Thanks, Andrew.
Thank you next question will be from Matthew Baidu.
Capital markets. Please go ahead.
Hi, good morning.
I know you touched on this earlier, but I just wanted to go back to corporate partnerships. So so far the seeding of garden, playing with Pembina Goldfields with BHP. It sounds like there is another project or more coming from the jewelry industry of corporate partnerships for becoming the path forward for growing the renewable portfolio.
So what are some of the resources on investments seem to make today to capture those opportunities.
Yes.
Great question. So when we think of our renewables growth and frankly the way we're approaching growth. It is very much customer centered so are our goal is to actually have our development team and I think this is where we do best to actually be essentially embedded with our customers of prospective customers, helping them come up with.
<unk> to meet their needs so.
Do I expect our renewables build out to be largely contracted I do do we expect to see more partnerships along the lines of what we have seen I think we do and it's something that we talk about.
Explicitly and are spending a lot of time at the company, making sure that our whole approach.
Dealing with customers is is top of mind, it's actually a real focus internally and thats everything from the way, we interact with customers to the way that we try to standardize our approach is to make it easier for our teams as we integrate our growth going forward.
Yeah.
Okay.
Helpful and maybe just 1 other question on your development pipeline.
It's still mostly consists of when the opportunities today, but do you believe you need to maybe diversify our onshore development teams to try to.
Getting a bit more into solar and storage.
That's the case, how do you view solar storage in terms of the risk return tradeoff versus wind.
Yes.
So we do have.
Storage in our portfolio and are actually in the process now of developing incremental storage.
Not just in the in Australia with what we've just done with BHP, but frankly in Alberta as we go forward we think the.
The return equation for storage is becoming better.
All of the time and the work that we did with our wind charger opportunity really helped I think.
De risk our own understanding of what we can do with storage in the province on how the economics work. So frankly, we're pretty.
Pretty positive about storage notwithstanding the fact that the cost of storage remains on the high it's a little bit higher than we'd like to see it but it will trend down on solar.
The it is a highly highly competitive space the returns.
Tend to be compressed.
Certainly compared to the opportunities that we see from of wind perspective.
Our though focused on developing our own solar and also canvassing potential acquisition opportunities.
On the solar side, we think it's an important technology for a company to have the skill set in.
And that remains our focus it's pretty disruptive candidly in some parts of the of the world and I think as we're looking at the energy transition taking place it's important that a company like ours has.
From solar capability, So I think you'll you'll see more of the focus that we've traditionally had on solar in our company.
Okay, that's great detail. Thank you.
Thanks Rajiv.
Thank you.
Once again as a reminder, ladies and gentlemen, if you do have a question you will need to press star 1 on your Touchtone phone.
The next question is from Patrick Kenny of National Bank. Please go ahead.
Thank you yeah. Good morning, guys. Just a couple of follow ups here. So back on the Alberta Hydro results and the health of your realized price achieved relative to spot I think you touched on it but can you just clarify how much of a factor the heat waves late in the quarter might have played into elevating the strong performance there.
Or did everything play out as expected and.
The 30% or so of realized pricing premium over the spot market is is what we should expect from the the portfolio going forward, especially as it relates to the seasonally strong second quarter.
Yes, I would say Patrick first of all good morning.
I would say that.
I'll try to answer the question may be in reverse the kind of premium that we're talking about realizing on the energy side to just sort of the spot price from our hydro is I would say Todd broadly, where we would expect our hydro to come in on the energy side. So we would expect it to be broadly halving of premium to spot in terms of kind of the prices that we saw.
Over the quarter for sure they were in part.
Due to the high temperatures that we experienced but.
No there were issues with the inter tie there were outages that were pretty significant low does come back pretty dramatically in the province of it was the confluence of a number of events that resulted in kind of.
The strength of supply and demand kind of fundamentals over the quarter Todd I don't know if you will I would say nobody expected the really high temperatures that we saw on Alberta HR June revenue was it was abnormal as far as the premiums on the hydro. It is it is somewhat correlated to how volatile the power prices are typically in shoulder shoulder months.
We would see in like April may we would seize more softer prices more compression for the compression, which doesn't give you as much opportunity to realize the peak pricing on the Super peak pricing in hydro.
But certainly as John mentioned, there is outages of our Thailand outages, and then driven by demand because of the heat presented all of those opportunities, but we typically do see it in the winter months, where we can realize the premiums.
And then also in the warm summer months of July and August for sure yes.
Okay. That's helpful. Thank you.
And then just back to some 5 so.
Say it does not proceed.
Can you maybe just help us square up your gas supply commitments on pioneer in NGL I believe it's.
400 plus million of day, starting in 2023.
Just square up that commitment with your internal gas consumption forecast under a boiler conversion only scenario.
Ross you of Sundance and keep hills units just want to make sure that you won't be offside with your commitments on 5 does stay on the shelf for a little while.
Yes.
I wouldn't say that we would be off slide any of our commitments I mean look.
Patrick it's of Great question, but I'd be speculating right now in terms of you know.
How much gas, we would need depending on the decisions that we ended up making with with.
With Sundance 5 of which could.
The result in the preceding or it not proceeding or proceeding in a different way than we've currently sort of.
The anticipated.
In general we've got more than ample of sort of gas supply going forward.
As we begin our assessment and evaluation of the plan, we do look at the gas supply equation and the team looks at to the extent, we have excess supply of what does it mean in terms of us being able to the market of remarket.
Of those commitments going forward, but but hopefully that gives you a little bit of of flavor. Todd I don't know if you want add on it yet.
I think there's work to be done.
But again like sub 5.
As part of that equation as well, but remember I mean, we procure gas as well to make sure that we have firm supply for all of the peak days as well. So that does mean by nature, there are going to be days, where you're not actually using the the entire firm commitments. So I don't see it as a.
A big mismatch or anything at this point in time and again no decision has been made on sub 5 that's right.
Okay. That's great I appreciate the color guys.
Thanks, a lot.
Thank you.
And at this time gentlemen, we have no further questions. Please proceed.
Great. Thank you Sylvia and thank you everyone that concludes our call for today. If you have any further questions. Please don't hesitate to reach out to the Transalta Investor Relations team, Thanks, and have a great day.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we do ask that you. Please disconnect your lines.
Okay.
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